Prospectus dated September 14, 1995
[ship logo] FLAGSHIP Tax Exempt Funds(SM)
Investing in Mutual Funds
Flagship and your financial consultant want you to understand both the
benefits and risks of mutual fund investing.
Mutual funds sell their shares to investors and invest the proceeds in a
portfolio of securities. A mutual fund allows you to pool your money with
that of other investors in order to obtain professional investment management
which generally enables you to obtain greater diversification of your
investments and to simplify your recordkeeping.
While mutual funds offer significant opportunities, they also carry risk,
including possible loss of principal due to interest rate risk and credit
risk. Unlike savings accounts and certificates of deposit, mutual funds are
not insured or guaranteed by any financial institution or government agency.
Your financial consultant can help you determine how investing in one of
these mutual funds may suit your unique needs, time horizon and risk
tolerance.
Table of Contents Page
------------------------------------------- -----
About the Funds
Fees and Expenses ......................................................... 2
Financial Highlights ...................................................... 4
The Funds and Their Objectives ............................................ 9
What the Funds Own and Their Strategies ................................... 10
Flagship State Tax Exempt Funds ........................................... 11
Flagship National Tax Exempt Funds ........................................ 14
How the Funds are Managed ................................................. 14
About Your Investment
How to Buy Shares ......................................................... 16
How to Sell Shares ........................................................ 18
How to Exchange Shares .................................................... 19
Shareholder Services ...................................................... 19
How Fund Shares are Priced ................................................ 19
Taxes ..................................................................... 20
Distributions and Yield ................................................... 20
About the Distributor ..................................................... 21
About the Trust ........................................................... 22
Additional Information .................................................... 22
Flagship Application ...................................................... 23
About Flagship Tax Exempt Funds
Flagship Tax Exempt Funds Trust(sm) (the "Funds") is an open-end management
investment company composed of separate series. As described in this
Prospectus, the Funds include State, National and Insured Fund portfolios.
Each is designed for individual and corporate investors with different income
needs and tax considerations. The investment adviser ("Manager") for the
Funds is Flagship Financial Inc., a registered investment adviser since 1978.
Each Tax Exempt Fund seeks high current after tax income exempt from federal
income taxes and, except for the National and Insured Funds, from the
personal income taxes or intangibles tax, if any, of the Fund's particular
state, consistent with liquidity and preservation of capital. The Funds
invest primarily in portfolios of municipal securities.
From time to time new Funds may be added. Only the All-American,
Intermediate, and Limited Term National Funds are registered and available
for sale in Illinois, Nebraska, New Hampshire and Washington. The Insured
Intermediate and Insured Limited Term Funds will also be registered and
available in the above states when they are offered to the public.
This Prospectus sets forth concisely the information about the Funds that you
should know before investing. Please read and retain it for future reference.
A Statement of Additional Information ("SAI") dated September 14, 1995,
containing more detailed information, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference, making it a part
of this Prospectus. A copy of the SAI can be obtained without charge by
telephoning the Funds toll-free at 1-800-414-7447, or for TDD,
1-800-360-4521.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY BANK SELLING THE SHARES, NOR ARE THEY
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER U.S. GOVERNMENT AGENCY. INVESTMENT RISKS INCLUDE
POSSIBLE LOSS OF PRINCIPAL. THE VALUE OF THE INVESTMENT AND ITS RETURN WILL
FLUCTUATE AND ARE NOT GUARANTEED. WHEN SOLD, THE VALUE OF THE INVESTMENT MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
1
<PAGE>
Fees and Expenses
Various costs and expenses may be incurred directly or indirectly when
investing in any Flagship Tax Exempt Fund. Your future expenses could be more
or less than those in the table below. Data reflects the declining sales
charge Flagship utilizes for Class A Shares and a contingent deferred sales
charge (CDSC) for Class C Shares. If investing for the long term,
shareholders of Class C Shares could ultimately pay more fees than if they
had invested at the maximum sales charge in Class A Shares. Class C Shares,
while authorized, are not currently offered by all Funds. The Funds' 12b-1
plan and management fee are more fully described under "About the
Distributor" and "How The Funds are Managed", respectively.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses As a
Shareholder Percentage of Average Net Assets After Fee
Transaction Expense Waivers & Reimbursement Arrangements
------------------------ -----------------------------------------------
Maximum Maximum
Front End CDSC
Sales Imposed
Charge on Total Fund
Imposed on Redemp- Manage- Other Operating
Purchases tions ment Fee 12b-1 Fee Expenses Expenses
----------------------------- ------------ -------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
State long-term Funds
Alabama (a) 4.2% N/A% 0.10% 0.40% 0.10% 0.60%
Arizona--Class A (a)* 4.2 N/A 0.30 0.40 0.25 0.95
Arizona--Class C (a)* N/A 1.0(c) 0.30 0.95(d) 0.25 1.50
Arkansas (b) 4.2 N/A 0.00 0.40 0.20 0.60
California (b) 4.2 N/A 0.30 0.40 0.20 0.90
Colorado (a)* 4.2 N/A 0.10 0.40 0.40 0.90
Connecticut--Class A (a)* 4.2 N/A 0.35 0.40 0.15 0.90
Connecticut--Class C (a)* N/A 1.0(c) 0.35 0.95(d) 0.15 1.45
Florida--Class A (a)* 4.2 N/A 0.35 0.40 0.20 0.95
Florida--Class C (b)* N/A 1.0(c) 0.35 0.95(d) 0.20 1.50
Georgia--Class A (a)* 4.2 N/A 0.25 0.40 0.30 0.95
Georgia--Class C (a)* N/A 1.0(c) 0.25 0.95(d) 0.30 1.50
Indiana (b) 4.2 N/A 0.10 0.40 0.10 0.60
Iowa (b) 4.2 N/A 0.10 0.40 0.10 0.60
Kansas (a) 4.2 N/A 0.25 0.40 0.25 0.90
Kentucky--Class A (a)* 4.2 N/A 0.30 0.40 0.20 0.90
Kentucky--Class C (a)* N/A 1.0(c) 0.30 0.95(d) 0.20 1.45
Louisiana--Class A (a)* 4.2 N/A 0.30 0.40 0.20 0.90
Louisiana--Class C (a)* N/A 1.0(c) 0.30 0.95(d) 0.20 1.45
Michigan--Class A (a)* 4.2 N/A 0.40 0.40 0.15 0.95
Michigan--Class C (a)* N/A 1.0(c) 0.40 0.95(d) 0.15 1.50
Missouri--Class A (a)* 4.2 N/A 0.30 0.40 0.20 0.90
Missouri--Class C (a)* N/A 1.0(c) 0.30 0.95(d) 0.20 1.45
New Jersey (a) 4.2 N/A 0.20 0.40 0.10 0.70
New Mexico (a) 4.2 N/A 0.30 0.40 0.20 0.90
New York (a)* 4.2 N/A 0.20 0.40 0.10 0.70
North Carolina--Class A (a)* 4.2 N/A 0.45 0.40 0.10 0.95
North Carolina--Class C (a)* N/A 1.0(c) 0.45 0.95(d) 0.10 1.50
Ohio--Class A (a)* 4.2 N/A 0.45 0.40 0.10 0.95
Ohio--Class C (a)* N/A 1.0(c) 0.45 0.95(d) 0.10 1.50
Oregon (b) 4.2 N/A 0.10 0.40 0.10 0.60
Pennsylvania--Class A (a)* 4.2 N/A 0.25 0.40 0.30 0.95
Pennsylvania--Class C (a)* N/A 1.0(c) 0.25 0.95(d) 0.30 1.50
South Carolina (a) 4.2 N/A 0.20 0.40 0.10 0.70
Tennessee--Class A (a)* 4.2 N/A 0.30 0.40 0.25 0.95
Tennessee--Class C (a)* N/A 1.0(c) 0.30 0.95(d) 0.25 1.50
Virginia--Class A (a)* 4.2 N/A 0.30 0.40 0.25 0.95
Virginia--Class C (a)* N/A 1.0(c) 0.30 0.95(d) 0.25 1.50
Wisconsin--Class A (a) 4.2 N/A 0.15 0.40 0.15 0.70
Wisconsin--Class C (b) N/A 1.0(c) 0.15 0.95(d) 0.15 1.25
Class C Shares (b)
(All state funds not
otherwise noted above) N/A 1.0(c) 0.40 0.95(d) 0.15 1.50
Other State Funds
Florida
Intermediate--Class A (a) 3.0 N/A 0.10 0.40 0.20 0.70
Intermediate--Class C (a) N/A 1.0(c) 0.10 0.95(d) 0.20 1.25
<CAPTION>
Example of Expenses
An investor in a Flagship Fund would pay
the following dollar amount of expenses
on a $1,000 investment assuming
(1) 5% annual return and
(2) Redemption at the end of each period
Total Fund ------------------------------------------
Operating
Expenses
Without
Waiver or
Reimburse-
ment 1 Year 3 Years 5 Years 10 Years
----------------------------- ------------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
State long-term Funds
Alabama (a) 7.61% $48 $60 $ 74 $114
Arizona--Class A (a)* 1.20 51 71 92 154
Arizona--Class C (a)* 1.75 25(c) 48 82 180
Arkansas (b) 1.10 48 60 N/A N/A
California (b) 1.10 51 69 N/A N/A
Colorado (a)* 1.27 51 69 90 148
Connecticut--Class A (a)* 1.03 51 69 90 148
Connecticut--Class C (a)* 1.58 25(c) 46 79 174
Florida--Class A (a)* 1.04 51 71 92 154
Florida--Class C (b)* 1.65 25(c) 48 82 180
Georgia--Class A (a)* 1.09 51 71 92 154
Georgia--Class C (a)* 1.64 25(c) 48 82 180
Indiana (b) 1.10 48 60 N/A N/A
Iowa (b) 1.10 48 60 N/A N/A
Kansas (a) 1.10 51 69 90 148
Kentucky--Class A (a)* 1.04 51 69 90 148
Kentucky--Class C (a)* 1.58 25(c) 46 79 174
Louisiana--Class A (a)* 1.18 51 69 90 148
Louisiana--Class C (a)* 1.73 25(c) 46 79 174
Michigan--Class A (a)* 1.03 51 71 92 154
Michigan--Class C (a)* 1.35 25(c) 48 82 180
Missouri--Class A (a)* 1.08 51 69 90 148
Missouri--Class C (a)* 1.63 25 46 79 174
New Jersey (a) 2.07 49 63 79 125
New Mexico (a) 1.17 51 69 90 148
New York (a)* 1.22 49 63 79 125
North Carolina--Class A (a)* 1.06 51 71 92 154
North Carolina--Class C (a)* 1.61 25(c) 48 82 180
Ohio--Class A (a)* 1.03 51 71 92 154
Ohio--Class C (a)* 1.58 25(c) 48 82 180
Oregon (b) 1.10 48 60 N/A N/A
Pennsylvania--Class A (a)* 1.29 51 71 92 154
Pennsylvania--Class C (a)* 1.84 25(c) 48 82 180
South Carolina (a) 1.86 49 63 79 125
Tennessee--Class A (a)* 1.07 51 71 92 154
Tennessee--Class C (a)* 1.62 25(c) 48 82 180
Virginia--Class A (a)* 1.10 51 71 92 154
Virginia--Class C (a)* 1.65 25(c) 48 82 180
Wisconsin--Class A (a) 2.31 49 63 79 125
Wisconsin--Class C (b) 1.65 23(c) 40 69 151
Class C Shares (b)
(All state funds not
otherwise noted above) 1.60 25(c) 48 82 180
Other State Funds
Florida
Intermediate--Class A (a) 3.54 37 52 68 114
Intermediate--Class C (a) 4.53 23(c) 40 69 151
2
<PAGE>
<CAPTION>
Annual Fund Operating Expenses As a
Shareholder Percentage of Average Net Assets After Fee
Transaction Expense Waivers & Reimbursement Arrangements
-------------------------------- --------------------------------------------------
Maximum
Front End Maximum
Sales CDSC
Charge Imposed on Total Fund
Imposed on Redemp- Manage- Other Operating
Purchases tions ment Fee 12b-1 Fee Expenses Expenses
--------------------------- ---------------- -------------- -------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Limited Term (b) 2.5% N/A% 0.10% 0.40% 0.20% 0.70%
Kentucky
Limited Term--Class A (b) 2.5 N/A 0.10 0.40 0.20 0.70
Limited Term--Class C (b) N/A 1.0(c) 0.10 0.70 0.20 1.00
Michigan
Intermediate (b) 3.0 N/A 0.10 0.40 0.20 0.70
Limited Term (b) 2.5 N/A 0.10 0.40 0.20 0.70
New Jersey
Intermediate (a) 3.0 N/A 0.10 0.40 0.20 0.70
Limited Term (b) 2.5 N/A 0.10 0.40 0.20 0.70
New York
Intermediate (b) 3.0 N/A 0.10 0.40 0.20 0.70
Limited Term (b) 2.5 N/A 0.10 0.40 0.20 0.70
Ohio
Intermediate (b) 3.0 N/A 0.10 0.40 0.20 0.70
Limited Term (b) 2.5 N/A 0.10 0.40 0.20 0.70
National Funds
All-American--
Class A (a)* 4.2 N/A 0.25 0.40 0.30 0.95
All-American--
Class C (a)* N/A 1.0(c) 0.25 0.95(d) 0.30 1.50
Intermediate--
Class A (a)* 3.0 N/A 0.20 0.40 0.20 0.80
Intermediate--
Class C (b)* N/A 1.0(c) 0.20 0.95(d) 0.20 1.35
Limited Term--
Class A (a)* 2.5 N/A 0.30 0.40 0.05 0.75
Limited Term--
Class C (b)* N/A 1.0(c) 0.30 0.70(e) 0.05 1.05
Short Term (b)* 2.5 N/A 0.10 0.40 0.20 0.70
U.S. Territories (b) 4.2 N/A 0.00 0.40 0.20 0.60
Insured Funds
Insured (b)* 4.2 N/A 0.30 0.40 0.20 0.90
Insured Intermediate (b)* 3.0 N/A 0.10 0.40 0.20 0.70
Insured Limited Term (b)* 2.5 N/A 0.10 0.40 0.20 0.70
Class C Shares (b)
(All intermediate and
limited term funds not
otherwise noted above)
Intermediate N/A 1.0(c) 0.20 0.95(d) 0.10 1.25
Limited Term N/A 1.0(c) 0.20 0.70(d) 0.10 1.00
<CAPTION>
Example of Expenses
An investor in a Flagship Fund would pay
the following dollar amount of expenses
on a $1,000 investment assuming
(1) 5% annual return and
(2) Redemption at the end of each period
Total Fund ------------------------------------------
Operating
Expenses
Without
Waiver or
Reimburse-
ment 1 Year 3 Years 5 Years 10 Years
-------------------------- ------------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Limited Term (b) 0.90% $32 $47 $N/A $N/A
Kentucky
Limited Term--Class A (b) 0.90 32 47 N/A N/A
Limited Term--Class C (b) 1.30 20(c) 32 N/A N/A
Michigan
Intermediate (b) 1.10 37 52 N/A N/A
Limited Term (b) 0.90 32 47 N/A N/A
New Jersey
Intermediate (a) 1.81 37 52 68 114
Limited Term (b) 0.90 32 47 N/A N/A
New York
Intermediate (b) 1.10 37 52 N/A N/A
Limited Term (b) 0.90 32 47 N/A N/A
Ohio
Intermediate (b) 1.10 37 52 N/A N/A
Limited Term (b) 0.90 32 47 N/A N/A
National Funds
All-American--
Class A (a)* 1.06 51 71 92 154
All-American--
Class C (a)* 1.61 25(c) 48 82 180
Intermediate--
Class A (a)* 1.24 38 55 73 126
Intermediate--
Class C (b)* 1.65 24(c) 43 74 162
Limited Term--
Class A (a)* 0.82 32 48 66 116
Limited Term--
Class C (b)* 1.30 21(c) 33 58 128
Short Term (b)* 0.90 32 47 N/A N/A
U.S. Territories (b) 1.10 48 60 N/A N/A
Insured Funds
Insured (b)* 1.10 51 69 N/A N/A
Insured Intermediate (b)* 1.10 37 52 N/A N/A
Insured Limited Term (b)* 0.90 32 47 N/A N/A
Class C Shares (b)
(All intermediate and
limited term funds not
otherwise noted above)
Intermediate 1.55 23(c) 40 69 150
Limited Term 1.30 20(c) 32 55 122
</TABLE>
* Diversified Funds. All other Funds are non-diversified.
(a) Percentage based on actual fees incurred from the previous fiscal year
restated to reflect current fees and operating expenses.
(b) Funds are scheduled to commence operations in 1995 through 1996. These
amounts are based on estimates and assume management fee waiver. In
addition, the Manager has agreed to reimburse the funds for any initial
period's total fund operating expenses in excess of the above. No
reimbursement is currently indicated.
(c) No initial sales load; 1% contingent deferred sales charge if redeemed
within 1 year of purchase. Example of expenses would be $10 less in year
one if no redemption occurs.
(d) Of this amount, 0.75% is an asset based sales charge and 0.20% is a
service fee.
(e) Of this amount, 0.50% is an asset based sales charge and 0.20% is a
service fee.
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses that an investor will bear directly or
indirectly. These expenses should not be considered a representation of
actual future expenses as future actual expenses may be greater or less than
those shown.
3
<PAGE>
Financial Highlights
This table provides per share income and capital changes for a share of
beneficial interest in all Class A Shares of the Funds from the date of
commencement of operations to May 31, 1995, and for a share of beneficial
interest in all Class C Shares of each of the Funds with Class C Shares
outstanding from the date of commencement of operations to May 31, 1995. The
information was derived from audited financial statements and financial
highlights audited by Deloitte & Touche LLP, independent auditors, whose
reports and related notes appear in the SAI.
<TABLE>
<CAPTION>
Fund Name
Share Class
(Inception Income from
Date) Investment Operations Less Distributions
-------------- ------------------------------------------------- ------------------------------------------------
Net Realized Dividends Distri-
Net Asset & Unrealized Total From From Net butions
Value Net Gains(Loss) Invest- Invest- From Returns Total
Year Ended Beginning Investment on ment ment Capital of Distri-
May 31, of Period Income Securities Operations Income Gains Capital butions
--------------------------------------- ------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State Funds
Alabama
(4/11/94)
Class A
1994(a) $ 9.58 $.03 $.09 $ .12 $.04 $.04
1995 $ 9.66 $.52 $.28 $ .80 $.52 $.52
Arizona
Class A
(10/29/86)
1987(a) $ 9.58 $.35 ($.47) ($ .12) $.34 $.34
1988 $ 9.12 $.64 $ .64 $.64 $.64
1989 $ 9.12 $.64 ($.60) $1.24 $.64 $.64
1990 $ 9.72 $.64 ($.12) $ .52 $.64 $.64
1991 $ 9.60 $.64 $.21 $ .85 $.64 $.64
1992 $ 9.81 $.65 $.32 $ .97 $.65 $.65
1993 $10.13 $.63 $.69 $1.32 $.64 $.64
1994 $10.81 $.60 ($.38) $ .22 $.60 $.60
1995 $10.43 $.58 $.42 $1.00 $.58 $.58
Class C
(2/7/94)
1994(a) $11.22 $.14 ($.79) ($ .65) $.14 $.14
1995 $10.43 $.52 $.41 $ .93 $.52 $.52
Colorado
(5/4/87)
1987(a) $ 9.58 $.10 ($.41) ($ .31)
1988 $ 9.27 $.62 ($.46) $ .16 $.65 $.65
1989 $ 8.78 $.63 $.46 $1.09 $.63 $.63
1990 $ 9.24 $.62 ($.12) $ .50 $.61 $.61
1991 $ 9.13 $.60 $.17 $ .77 $.61 $.61
1992 $ 9.29 $.61 $.27 $ .88 $.61 $.61
1993 $ 9.56 $.60 $.55 $1.15 $.60 $.07 $.67
1994 $10.04 $.58 ($.37) $ .21 $.58 $.05 $.63
1995 $ 9.62 $.57 $.30 $ .87 $.56 $.56
Connecticut
Class A
(7/13/87)
1988(a) $ 9.58 $.54 ($.31) $ .23 $.56 $.56
1989 $ 9.25 $.63 $.55 $1.18 $.64 $.01 $.65
1990 $ 9.78 $.63 ($.13) $ .50 $.63 $.01 $.64
1991 $ 9.64 $.63 $.20 $ .83 $.63 $.63
1992 $ 9.84 $.63 $.21 $ .84 $.63 $.63
1993 $10.05 $.61 $.61 $1.22 $.61 $.61
1994 $10.66 $.59 ($.39) $ .20 $.60 $.09 $.69
1995 $10.17 $.58 $.22 $ .80 $.59 $.59
Class C
(10/4/93)
1994(a) $11.06 $.33 ($.84) ($ .51) $.33 $.06 $.39
1995 $10.16 $.53 $.20 $ .73 $.53 $.53
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
---------------- --------------------------- ------------------------------------------------------------
Ratio of
Net
Ratio of Investment
Net Assets Expenses Income to
Net Asset End of to Average Average Portfolio
Year Ended Value End Total Period Net Net Turnover
May 31, of Period Return (d) (000's) Assets (b) Assets (b) Rate (c)
---------------- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
State Funds
Alabama
(4/11/94)
Class A
1994(a) $ 9.66 9.34% 357 0.00% 2.42% 0.00%
1995 $ 9.94 8.77% 1,880 0.16% 5.47% 120.19%
Arizona
Class A
(10/29/86)
1987(a) $ 9.12 (2.67%) 31,652 0.84% 6.17% 40.13%
1988 $ 9.12 7.45% 33,696 0.86% 6.96% 68.47%
1989 $ 9.72 14.04% 29,433 0.92% 6.85% 37.28%
1990 $ 9.60 5.53% 32,066 0.85% 6.63% 37.13%
1991 $ 9.81 9.19% 38,933 0.78% 6.62% 18.23%
1992 $10.13 10.25% 51,123 0.44% 6.55% 33.75%
1993 $10.81 13.37% 72,778 0.44% 6.03% 20.04%
1994 $10.43 1.92% 82,676 0.64% 5.48% 21.08%
1995 $10.85 10.03% 80,406 0.82% 5.59% 26.79%
Class C
(2/7/94)
1994(a) $10.43 (16.61%) 1,122 1.20% 4.36% 21.08%
1995 $10.84 9.32% 1,621 1.36% 5.01% 26.79%
Colorado
(5/4/87)
1987(a) $ 9.27 (43.74%) 1,583 0.03% 13.96% 113.96%
1988 $ 8.78 2.13% 7,561 0.55% 7.03% 138.37%
1989 $ 9.24 12.83% 7,545 0.67% 7.04% 18.94%
1990 $ 9.13 5.59% 7,386 0.87% 6.70% 15.55%
1991 $ 9.29 8.75% 9,108 0.84% 6.62% 29.11%
1992 $ 9.56 9.80% 15,699 0.49% 6.42% 39.07%
1993 $10.04 12.41% 26,656 0.41% 6.05% 30.49%
1994 $ 9.62 2.03% 35,796 0.37% 5.71% 41.76%
1995 $ 9.93 9.54% 34,892 0.50% 5.99% 37.84%
Connecticut
Class A
(7/13/87)
1988(a) $ 9.25 3.09% 25,609 0.54% 6.54% 70.55%
1989 $ 9.78 13.36% 48,990 0.70% 6.62% 32.57%
1990 $ 9.64 5.34% 73,046 0.60% 6.55% 30.74%
1991 $ 9.84 8.97% 103,552 0.67% 6.49% 18.68%
1992 $10.05 8.81% 141,215 0.65% 6.30% 18.16%
1993 $10.66 12.48% 184,743 0.66% 5.88% 19.31%
1994 $10.17 1.70% 202,607 0.65% 5.52% 30.19%
1995 $10.38 8.21% 203,210 0.73% 5.84% 25.01%
Class C
(10/4/93)
1994(a) $10.16 (6.48%) 4,360 1.22% 4.77% 30.19%
1995 $10.36 7.53% 5,536 1.28% 5.27% 25.01%
4
<PAGE>
Financial Highlights
<CAPTION>
Fund Name
Share Class
(Inception Income from
Date) Investment Operations Less Distributions
-------------- ------------------------------------------------- ------------------------------------------------
Net Realized Dividends Distri-
Net Asset & Unrealized Total From From Net butions
Value Net Gains(Loss) Invest- Invest- From Returns Total
Year Ended Beginning Investment on ment ment Capital of Distri-
May 31, of Period Income Securities Operations Income Gains Capital butions
--------------------------------------- ------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Florida
(6/15/90)
1991(a) $ 9.58 $.64 $.29 $ .93 $.64 $.64
1992 $ 9.87 $.66 $.33 $ .99 $.67 $.01 $.68
1993 $10.18 $.63 $.61 $1.24 $.64 $.02 $.66
1994 $10.76 $.60 ($.38) $ .22 $.60 $.60
1995 $10.38 $.58 $.26 $ .84 $.59 $.59
Florida Intermediate
Class A
(2/1/94)
1994(a) $ 9.70 $.12 ($.04) $ .08 $.12 $.12
1995 $ 9.66 $.46 $.33 $ .79 $.40 $.40
Class C
(2/2/94)
1994(a) $ 9.70 $.11 ($.06) $ .05 $.09 $.09
1995 $ 9.66 $.40 $.33 $ .73 $.34 $.34
Georgia
Class A
(3/27/86)
1986(a) $ 9.58 $.10 ($.13) ($ .03) $.09 $.09
1987 $ 9.46 $.62 ($.24) $ .38 $.62 $.01 $.02 $.65
1988 $ 9.19 $.66 $.11 $ .77 $.66 $.66
1989 $ 9.30 $.65 $.59 $1.24 $.66 $.66
1990 $ 9.88 $.65 ($.22) $ .43 $.64 $.64
1991 $ 9.67 $.64 $.28 $ .92 $.64 $.64
1992 $ 9.95 $.63 $.21 $ .84 $.63 $.63
1993 $10.16 $.62 $.45 $1.07 $.61 $.61
1994 $10.62 $.59 ($.39) $ .20 $.59 $.59
1995 $10.23 $.58 $.23 $ .81 $.58 $.58
Class C
(1/4/94)
1994(a) $10.91 $.19 ($.69) ($ .50) $.20 $.20
1995 $10.21 $.52 $.23 $ .75 $.52 $.52
Kansas
(1/9/92)
1992(a) $ 9.58 $.19 $.07 $ .26 $.19 $.19
1993 $ 9.65 $.58 $.73 $1.31 $.58 $.58
1994 $10.38 $.56 ($.47) $ .09 $.57 $.07 $.64
1995 $ 9.83 $.55 $.18 $ .73 $.55 $.55
Kentucky
Class A
(5/4/87)
1987(a) $ 9.58 $.02 ($.23) ($ .21)
1988 $ 9.37 $.66 $.02 $ .68 $.67 $.67
1989 $ 9.38 $.67 $.60 $1.27 $.67 $.01 $.68
1990 $ 9.97 $.66 ($.05) $ .61 $.66 $.05 $.71
1991 $ 9.87 $.66 $.32 $ .98 $.66 $.66
1992 $10.19 $.66 $.27 $ .93 $.66 $.01 $.67
1993 $10.45 $.64 $.62 $1.26 $.65 $.65
1994 $11.06 $.62 ($.40) $ .22 $.63 $.63
1995 $10.65 $.61 $.35 $ .96 $.62 $.62
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
---------------- --------------------------- ------------------------------------------------------------
Ratio of
Net
Ratio of Investment
Net Assets Expenses Income to
Net Asset End of to Average Average Portfolio
Year Ended Value End Total Period Net Net Turnover
May 31, of Period Return (d) (000's) Assets (b) Assets (b) Rate (c)
---------------- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Florida
(6/15/90)
1991(a) $ 9.87 9.81% 136,509 0.19% 6.86% 152.36%
1992 $10.18 10.32% 276,811 0.26% 6.59% 49.72%
1993 $10.76 12.49% 369,123 0.45% 6.01% 22.60%
1994 $10.38 2.00% 372,082 0.58% 5.51% 31.92%
1995 $10.63 8.43% 341,374 0.73% 5.71% 52.67%
Florida Intermediate
Class A
(2/1/94)
1994(a) $ 9.66 1.75% 964 0.29% 3.79% 28.15%
1995 $10.05 8.42% 3,898 0.67% 4.74% 105.01%
Class C
(2/2/94)
1994(a) $ 9.66 1.33% 1,058 0.68% 3.42% 28.15%
1995 $10.05 7.80% 1,765 1.19% 4.19% 105.01%
Georgia
Class A
(3/27/86)
1986(a) $ 9.46 (1.80%) 8,384 0.83% 5.48% 5.98%
1987 $ 9.19 4.13% 33,388 0.71% 6.37% 40.71%
1988 $ 9.30 8.61% 29,701 0.91% 7.14% 46.35%
1989 $ 9.88 13.77% 35,637 0.96% 6.74% 23.08%
1990 $ 9.67 4.55% 36,034 0.84% 6.62% 34.30%
1991 $ 9.95 9.90% 44,829 0.72% 6.60% 24.09%
1992 $10.16 8.81% 70,650 0.57% 6.31% 21.19%
1993 $10.62 10.84% 101,196 0.62% 5.88% 29.51%
1994 $10.23 1.83% 123,068 0.70% 5.47% 39.48%
1995 $10.46 8.31% 113,354 0.83% 5.79% 39.94%
Class C
(1/4/94)
1994(a) $10.21 (10.96%) 4,348 1.27% 4.55% 39.48%
1995 $10.44 7.72% 6,973 1.38% 5.18% 39.94%
Kansas
(1/9/92)
1992(a) $ 9.65 5.95% 9,552 0.40% 5.11% 59.26%
1993 $10.38 14.15% 62,585 0.11% 5.74% 55.70%
1994 $ 9.83 0.62% 80,060 0.26% 5.37% 93.45%
1995 $10.01 7.80% 83,683 0.54% 5.67% 71.50%
Kentucky
Class A
(5/4/87)
1987(a) $ 9.37 (29.63%) 6,063 0.18% 2.66% 45.30%
1988 $ 9.38 7.79% 40,945 0.51% 7.09% 36.42%
1989 $ 9.97 14.31% 72,059 0.67% 6.94% 32.03%
1990 $ 9.87 6.92% 111,234 0.75% 6.63% 56.69%
1991 $10.19 10.37% 142,449 0.72% 6.65% 23.35%
1992 $10.45 9.46% 207,395 0.62% 6.39% 5.07%
1993 $11.06 12.41% 309,223 0.61% 5.96% 14.74%
1994 $10.65 1.90% 369,495 0.58% 5.60% 12.26%
1995 $10.99 9.42% 394,457 0.68% 5.85% 28.28%
5
<PAGE>
Financial Highlights
<CAPTION>
Fund Name
Share Class
(Inception Income from
Date) Investment Operations Less Distributions
-------------- ------------------------------------------------- ------------------------------------------------
Net Realized Dividends Distri-
Net Asset & Unrealized Total From From Net butions
Value Net Gains(Loss) Invest- Invest- From Returns Total
Year Ended Beginning Investment on ment ment Capital of Distri-
May 31, of Period Income Securities Operations Income Gains Capital butions
--------------------------------------- ------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class C
(10/4/93)
1994(a) $11.46 $.36 ($.81) ($ .45) $.36 $.36
1995 $10.65 $.55 $.35 $ .90 $.56 $.56
Louisiana
Class A
(9/12/89)
1990(a) $ 9.58 $.44 $.04 $ .48 $.43 $.43
1991 $ 9.63 $.66 $.40 $1.06 $.67 $.67
1992 $10.02 $.65 $.35 $1.00 $.65 $.07 $.72
1993 $10.30 $.64 $.67 $1.31 $.63 $.05 $.68
1994 $10.93 $.61 ($.40) $ .21 $.62 $.04 $.66
1995 $10.48 $.60 $.32 $ .92 $.60 $.60
Class C
(2/2/94)
1994(a) $11.29 $.16 ($.81) ($ .65) $.16 $.16
1995 $10.48 $.54 $.32 $ .86 $.54 $.54
Michigan
Class A
(6/27/85)
1986(a) $ 9.58 $.65 $.57 $1.22 $.66 $.66
1987 $10.14 $.71 ($.14) $ .57 $.70 $.06 $.76
1988 $ 9.95 $.72 $.15 $ .87 $.72 $.72
1989 $10.10 $.71 $.57 $1.28 $.71 $.71
1990 $10.67 $.70 ($.06) $ .64 $.70 $.70
1991 $10.61 $.69 $.20 $ .89 $.70 $.70
1992 $10.80 $.69 $.32 $1.01 $.69 $.69
1993 $11.12 $.68 $.65 $1.33 $.68 $.68
1994 $11.77 $.66 ($.43) $ .23 $.66 $.03 $.69
1995 $11.31 $.65 $.28 $ .93 $.65 $.65
Class C
(6/22/93)
1994(a) $11.86 $.54 ($.52) $ .02 $.55 $.03 $.58
1995 $11.30 $.58 $.28 $ .86 $.58 $.58
Missouri
Class A
(8/3/87)
1988(a) $ 9.58 $.49 ($.26) $ .23 $.51 $.51
1989 $ 9.30 $.65 $.57 $1.22 $.65 $.01 $.66
1990 $ 9.86 $.65 ($.10) $ .55 $.65 $.65
1991 $ 9.76 $.65 $.28 $ .93 $.65 $.65
1992 $10.04 $.65 $.29 $ .94 $.65 $.01 $.66
1993 $10.32 $.64 $.60 $1.24 $.63 $.06 $.69
1994 $10.87 $.61 ($.34) $ .27 $.61 $.03 $.64
1995 $10.50 $.60 $.22 $ .82 $.60 $.60
Class C
(2/2/94)
1994(a) $11.33 $.02 ($.83) ($ .81) $.02 $.02
1995 $10.50 $.53 $.23 $ .76 $.54 $.54
New Jersey
(9/16/92)
1993(a) $ 9.58 $.38 $.54 $ .92 $.38 $.38
1994 $10.12 $.57 ($.23) $ .34 $.57 $.10 $.67
1995 $ 9.79 $.55 $.30 $ .85 $.55 $.55
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
---------------- --------------------------- ------------------------------------------------------------
Ratio of
Net
Ratio of Investment
Net Assets Expenses Income to
Net Asset End of to Average Average Portfolio
Year Ended Value End Total Period Net Net Turnover
May 31, of Period Return (d) (000's) Assets (b) Assets (b) Rate (c)
---------------- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Class C
(10/4/93)
1994(a) $10.65 (5.88%) 11,172 1.08% 4.96% 12.26%
1995 $10.99 8.82% 15,831 1.23% 5.27% 28.28%
Louisiana
Class A
(9/12/89)
1990(a) $ 9.63 6.52% 16,678 0.44% 6.40% 32.42%
1991 $10.02 11.47% 27,762 0.38% 6.79% 57.02%
1992 $10.30 10.35% 38,873 0.49% 6.43% 42.51%
1993 $10.93 13.12% 54,483 0.61% 5.95% 29.25%
1994 $10.48 1.77% 66,821 0.66% 5.56% 22.40%
1995 $10.80 9.20% 68,145 0.83% 5.80% 43.90%
Class C
(2/2/94)
1994(a) $10.48 (17.21%) 1,501 1.23% 4.79% 22.40%
1995 $10.80 8.59% 3,220 1.37% 5.21% 43.90%
Michigan
Class A
(6/27/85)
1986(a) $10.14 14.76% 44,647 0.81% 7.01% 79.15%
1987 $ 9.95 6.60% 82,007 0.78% 6.71% 89.44%
1988 $10.10 8.95% 73,481 0.94% 7.11% 78.48%
1989 $10.67 13.12% 84,608 0.96% 6.80% 54.03%
1990 $10.61 6.21% 102,519 0.95% 6.54% 46.75%
1991 $10.80 8.73% 134,243 0.90% 6.56% 23.01%
1992 $11.12 9.74% 176,584 0.81% 6.34% 11.48%
1993 $11.77 12.27% 227,333 0.81% 5.85% 9.55%
1994 $11.31 1.87% 242,993 0.75% 5.56% 27.78%
1995 $11.59 8.57% 250,380 0.80% 5.82% 36.57%
Class C
(6/22/93)
1994(a) $11.30 .19% 30,042 1.25% 4.89% 27.78%
1995 $11.58 7.98% 37,122 1.35% 5.25% 36.57%
Missouri
Class A
(8/3/87)
1988(a) $ 9.30 2.98% 7,786 0.50% 6.32% 118.90%
1989 $ 9.86 13.70% 13,028 0.69% 6.80% 68.60%
1990 $ 9.76 5.89% 19,080 0.66% 6.64% 35.84%
1991 $10.04 9.92% 43,391 0.58% 6.57% 44.08%
1992 $10.32 9.70% 76,069 0.47% 6.39% 31.73%
1993 $10.87 12.54% 144,775 0.55% 5.99% 33.26%
1994 $10.50 2.42% 187,347 0.62% 5.52% 34.30%
1995 $10.72 8.19% 205,089 0.67% 5.78% 40.08%
Class C
(2/2/94)
1994(a) $10.50 (17.62%) 1,877 1.15% 4.44% 34.30%
1995 $10.72 7.60% 3,989 1.20% 5.19% 40.08%
New Jersey
(9/16/92)
1993(a) $10.12 13.02% 2,388 0.00% 5.43% 75.40%
1994 $ 9.79 3.24% 4,880 0.01% 5.52% 90.63%
1995 $10.09 9.16% 7,723 0.36% 5.75% 33.58%
6
<PAGE>
Financial Highlights
<CAPTION>
Fund Name
Share Class
(Inception Income from
Date) Investment Operations Less Distributions
-------------- ------------------------------------------------- ------------------------------------------------
Net Realized Dividends Distri-
Net Asset & Unrealized Total From From Net butions
Value Net Gains(Loss) Invest- Invest- From Returns Total
Year Ended Beginning Investment on ment ment Capital of Distri-
May 31, of Period Income Securities Operations Income Gains Capital butions
--------------------------------------- ------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Jersey
Intermediate
(9/16/92)
1993(a) $ 9.70 $.34 $ .45 $ .79 $.34 $.34
1994 $10.15 $.53 ($ .10) $ .43 $.52 $.02 $.54
1995 $10.04 $.50 $ .22 $ .72 $.51 $.51
New Mexico
(9/16/92)
1993(a) $ 9.58 $.37 $ .46 $ .83 $.37 $.37
1994 $10.04 $.53 ($ .33) $ .20 $.53 $.03 $.56
1995 $ 9.68 $.52 $ .33 $ .85 $.52 $.52
New York
(1/16/91)
1991(a) $ 9.58 $.22 $ .11 $ .33 $.22 $.22
1992 $ 9.69 $.68 $0.41 $1.09 $.68 $.68
1993 $10.10 $.66 $ .88 $1.54 $.66 $.07 $.73
1994 $10.91 $.64 ($ .37) $ .27 $.64 $.16 $.80
1995 $10.38 $.62 $ .24 $ .86 $.62 $.62
North Carolina
Class A
(3/27/86)
1986(a) $ 9.58 $.08 ($ .40) ($ .32) $.09 $.09
1987 $ 9.17 $.61 ($ .36) $ .25 $.61 $.01 $.62
1988 $ 8.80 $.62 $ .13 $ .75 $.62 $.62
1989 $ 8.93 $.62 $ .66 $1.28 $.62 $.62
1990 $ 9.59 $.61 ($ .13) $ .48 $.61 $.61
1991 $ 9.46 $.61 $ .24 $ .85 $.61 $.61
1992 $ 9.70 $.60 $ .27 $ .87 $.60 $.60
1993 $ 9.97 $.58 $ .55 $1.13 $.59 $.59
1994 $10.51 $.57 ($ .42) $ .15 $.58 $.58
1995 $10.08 $.57 $ .15 $ .72 $.57 $.57
Class C
(10/4/93)
1994(a) $11.69 $.46 ($ .49) ($ .03) $.46 $.46
1995 $10.06 $.51 $ .16 $ .67 $.51 $.51
Ohio
Class A
(6/27/85)
1986(a) $ 9.58 $.66 $ .56 $1.22 $.68 $.68
1987 $10.12 $.71 ($ .25) $ .46 $.71 $.05 $.76
1988 $ 9.82 $.71 $ .23 $ .94 $.71 $.01 $.72
1989 $10.04 $.69 $ .51 $1.20 $.70 $.70
1990 $10.54 $.69 ($ .09) $ .60 $.69 $.69
1991 $10.45 $.68 $ .28 $ .96 $.69 $.69
1992 $10.72 $.68 $ .33 $1.01 $.68 $.68
1993 $11.05 $.66 $ .54 $1.20 $.66 $.66
1994 $11.59 $.64 ($ .38) $ .26 $.64 $.64
1995 $11.21 $.64 $ .22 $ .86 $.64 $.64
Class C
(8/3/93)
1994(a) $11.69 $.46 ($ .49) ($ .03) $.46 $.46
1995 $11.20 $.57 $ .23 $ .80 $.57 $.57
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
---------------- --------------------------- ------------------------------------------------------------
Ratio of
Net
Ratio of Investment
Net Assets Expenses Income to
Net Asset End of to Average Average Portfolio
Year Ended Value End Total Period Net Net Turnover
May 31, of Period Return (d) (000's) Assets (b) Assets (b) Rate (c)
---------------- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
New Jersey
Intermediate
(9/16/92)
1993(a) $10.15 11.07% 5,649 0.40% 4.84% 28.93%
1994 $10.04 4.27% 9,321 0.16% 5.10% 26.50%
1995 $10.25 7.42% 9,217 0.69% 5.04% 35.32%
New Mexico
(9/16/92)
1993(a) $10.04 11.72% 31,499 0.14% 5.28% 36.11%
1994 $ 9.68 1.92% 51,167 0.40% 5.24% 38.88%
1995 $10.01 9.25% 52,150 0.67% 5.48% 38.06%
New York
(1/16/91)
1991(a) $ 9.69 8.14% 9,496 0.16% 6.14% 17.41%
1992 $10.10 11.71% 20,701 0.18% 6.89% 36.89%
1993 $10.91 15.87% 33,996 0.28% 6.28% 45.65%
1994 $10.38 2.38% 48,434 0.30% 5.83% 59.70%
1995 $10.62 8.74% 49,018 0.43% 6.15% 58.69%
North Carolina
Class A
(3/27/86)
1986(a) $ 9.17 (19.48%) 13,960 0.67% 4.75% 17.30%
1987 $ 8.80 2.54% 66,110 0.49% 6.48% 68.72%
1988 $ 8.93 8.77% 68,077 0.83% 6.93% 75.14%
1989 $ 9.59 14.78% 87,539 0.92% 6.66% 21.17%
1990 $ 9.46 5.16% 96,348 0.94% 6.40% 34.37%
1991 $ 9.70 9.28% 108,917 0.99% 6.36% 11.52%
1992 $ 9.97 9.30% 131,488 0.98% 6.10% 16.91%
1993 $10.51 11.66% 169,944 0.95% 5.70% 11.52%
1994 $10.08 1.30% 196,087 0.89% 5.41% 21.23%
1995 $10.23 7.45% 191,850 0.91% 5.73% 34.67%
Class C
(10/4/93)
1994(a) $11.20 (0.17%) 25,674 1.46% 4.79% 9.14%
1995 $10.22 6.97% 6,049 1.46% 5.13% 34.67%
Ohio
Class A
(6/27/85)
1986(a) $10.12 14.71% 76,998 0.75% 7.18% 62.12%
1987 $ 9.82 5.33% 153,333 0.76% 6.78% 108.69%
1988 $10.04 10.12% 157,511 0.88% 7.16% 84.63%
1989 $10.54 12.36% 195,135 0.93% 6.79% 37.45%
1990 $10.45 5.86% 231,311 0.96% 6.56% 41.83%
1991 $10.72 9.57% 268,213 1.02% 6.53% 13.88%
1992 $11.05 9.77% 325,273 0.95% 6.24% 17.50%
1993 $11.59 11.20% 410,467 0.96% 5.81% 14.93%
1994 $11.21 2.24% 445,272 0.93% 5.48% 9.14%
1995 $11.43 7.99% 445,566 0.95% 5.78% 31.25%
Class C
(8/3/93)
1994(a) $11.20 (0.17%) 25,674 1.46% 4.79% 9.14%
1995 $11.43 7.50% 28,461 1.50% 5.21% 31.25%
7
<PAGE>
Financial Highlights
<CAPTION>
Fund Name
Share Class
(Inception Income from
Date) Investment Operations Less Distributions
-------------- ------------------------------------------------- ------------------------------------------------
Net Realized Dividends Distri-
Net Asset & Unrealized Total From From Net butions
Value Net Gains(Loss) Invest- Invest- From Returns Total
Year Ended Beginning Investment on ment ment Capital of Distri-
May 31, of Period Income Securities Operations Income Gains Capital butions
--------------------------------------- ------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania (e)
Class A
(10/29/86)
1987(a) $ 9.58 $.35 ($.75) ($ .40) $.35 $.35
1988 $ 8.83 $.65 $.18 $ .83 $.65 $.65
1989 $ 9.01 $.64 $.48 $1.12 $.64 $.64
1990 $ 9.49 $.63 ($.10) $ .53 $.63 $.63
1991 $ 9.39 $.62 $.22 $ .84 $.63 $.63
1992 $ 9.60 $.63 $.30 $ .93 $.63 $.63
1993 $ 9.90 $.62 $.47 $1.09 $.61 $.61
1994 $10.38 $.61 ($.32) $ .29 $.61 $.61
1995 $10.06 $.60 $.16 $ .76 $.61 $.61
Class C
(2/2/94)
1994(a) $10.71 $.16 ($.64) ($ .48) $.17 $.17
1995 $10.06 $.54 $.16 $ .70 $.55 $.55
South Carolina
(7/6/93)
1994(a) $ 9.58 $.42 ($.38) $ .04 $.39 $.03 $.42
1995 $ 9.20 $.50 $.25 $ .75 $.50 $.50
Tennessee
Class A
(11/2/87)
1988(a) $ 9.58 $.35 $.09 $ .44 $.37 $.37
1989 $ 9.65 $.68 $.60 $1.28 $.67 $.67
1990 $10.26 $.67 ($.15) $ .52 $.67 $.02 $.69
1991 $10.09 $.67 $.26 $ .93 $.67 $.01 $.68
1992 $10.34 $.65 $.22 $ .87 $.65 $.65
1993 $10.56 $.62 $.68 $1.30 $.63 $.63
1994 $11.23 $.61 ($.43) $ .18 $.61 $.02 $.63
1995 $10.78 $.60 $.23 $ .83 $.60 $.60
Class C
(10/4/93)
1994(a) $11.61 $.35 ($.83) ($ .48) $.34 $.01 $.35
1995 $10.78 $.54 $.22 $ .76 $.54 $.54
Virginia
Class A
(3/27/86)
1986(a) $ 9.58 $.09 ($.33) ($ .24) $.09 $.09
1987 $ 9.25 $.63 ($.16) $ .47 $.63 $.63
1988 $ 9.09 $.64 $.19 $ .83 $.63 $.63
1989 $ 9.29 $.64 $.46 $1.10 $.63 $.63
1990 $ 9.76 $.64 ($.06) $ .58 $.64 $.64
1991 $ 9.70 $.63 $.28 $ .91 $.64 $.64
1992 $ 9.97 $.63 $.27 $ .90 $.63 $.63
1993 $10.24 $.62 $.62 $1.24 $.62 $.04 $.66
1994 $10.82 $.60 ($.31) $ .29 $.60 $.15 $.75
1995 $10.36 $.59 $.20 $ .79 $.59 $.59
Class C
(10/4/93)
1994(a) $11.24 $.34 ($.78) ($ .44) $.34 $.10 $.44
1995 $10.36 $.53 $.20 $ .73 $.53 $.53
Wisconsin
(6/1/94)
1995(a) $ 9.58 $.49 $.21 $ .70 $.49 $.49
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
---------------- --------------------------- ------------------------------------------------------------
Ratio of
Net
Ratio of Investment
Net Assets Expenses Income to
Net Asset End of to Average Average Portfolio
Year Ended Value End Total Period Net Net Turnover
May 31, of Period Return (d) (000's) Assets (b) Assets (b) Rate (c)
---------------- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania (e)
Class A
(10/29/86)
1987(a) $ 8.83 (7.77%) 29,019 0.69% 6.29% 62.75%
1988 $ 9.01 9.70% 33,838 0.72% 7.28% 51.81%
1989 $ 9.49 12.79% 33,476 0.98% 6.84% 22.84%
1990 $ 9.39 5.70% 35,632 0.92% 6.65% 30.42%
1991 $ 9.60 9.26% 35,408 0.91% 6.63% 23.01%
1992 $ 9.90 9.98% 36,917 0.83% 6.47% 41.33%
1993 $10.38 11.34% 40,705 0.92% 6.07% 22.69%
1994 $10.06 2.70% 42,226 0.91% 5.80% 20.70%
1995 $10.21 7.90% 42,600 0.89% 6.08% 49.86%
Class C
(2/2/94)
1994(a) $10.06 (13.46%) 1,697 1.41% 4.91% 20.70%
1995 $10.21 7.31% 3,118 1.39% 5.50% 49.86%
South Carolina
(7/6/93)
1994(a) $ 9.20 .15% 6,284 0.40% 4.82% 87.96%
1995 $ 9.45 8.54% 9,013 0.40% 5.54% 86.81%
Tennessee
Class A
(11/2/87)
1988(a) $ 9.65 7.50% 23,725 0.47% 6.35% 22.65%
1989 $10.26 13.89% 62,048 0.62% 6.80% 50.44%
1990 $10.09 5.53% 73,752 0.78% 6.57% 55.79%
1991 $10.34 9.73% 92,431 0.76% 6.60% 29.63%
1992 $10.56 8.66% 126,833 0.84% 6.18% 34.57%
1993 $11.23 12.60% 191,811 0.88% 5.66% 15.07%
1994 $10.78 1.55% 236,230 0.76% 5.42% 16.93%
1995 $11.01 8.04% 241,778 0.89% 5.64% 23.38%
Class C
(10/4/93)
1994(a) $10.78 (5.92%) 10,652 1.23% 4.80% 16.93%
1995 $11.00 7.35% 12,494 1.44% 5.08% 23.38%
Virginia
Class A
(3/27/86)
1986(a) $ 9.25 (33.49%) 12,568 0.70% 5.25% 8.61%
1987 $ 9.09 5.03% 32,698 0.68% 6.54% 74.56%
1988 $ 9.29 9.73% 31,748 0.88% 6.95% 75.07%
1989 $ 9.76 12.25% 37,151 0.97% 6.69% 17.88%
1990 $ 9.70 6.14% 41,596 0.91% 6.54% 35.22%
1991 $ 9.97 9.72% 48,062 0.91% 6.48% 22.02%
1992 $10.24 9.37% 64,628 0.75% 6.28% 26.59%
1993 $10.82 12.41% 96,105 0.68% 5.82% 30.33%
1994 $10.36 2.62% 107,502 0.64% 5.53% 17.37%
1995 $10.56 7.99% 112,643 0.79% 5.81% 50.17%
Class C
(10/4/93)
1994(a) $10.36 (7.13%) 4,759 1.14% 4.85% 17.37%
1995 $10.56 7.40% 6,537 1.34% 5.24% 50.17%
Wisconsin
(6/1/94)
1995(a) $ 9.79 7.36% 8,278 0.39% 5.25% 51.74%
8
<PAGE>
Financial Highlights
<CAPTION>
Fund Name
Share Class
(Inception Income from
Date) Investment Operations Less Distributions
-------------- ------------------------------------------------- ------------------------------------------------
Net Realized Dividends Distri-
Net Asset & Unrealized Total From From Net butions
Value Net Gains(Loss) Invest- Invest- From Returns Total
Year Ended Beginning Investment on ment ment Capital of Distri-
May 31, of Period Income Securities Operations Income Gains Capital butions
--------------------------------------- ------------------------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
National Funds
All-American
Class A
(10/3/88)
1989(a) $ 9.58 $.46 $.23 $ .69 $.46 $.46
1990 $ 9.81 $.71 ($.06) $ .65 $.72 $.01 $.73
1991 $ 9.73 $.72 $.22 $ .94 $.72 $.72
1992 $ 9.95 $.69 $.45 $1.14 $.69 $.69
1993 $10.40 $.67 $.76 $1.43 $.67 $.09 $.76
1994 $11.07 $.65 ($.30) $ .35 $.65 $.16 $.81
1995 $10.61 $.63 $.18 $ .81 $.63 $.63
Class C
(6/2/93)
1994(a) $11.09 $.57 ($.32) $ .25 $.57 $.17 $.74
1995 $10.60 $.57 $.18 $ .75 $.57 $.57
Intermediate
(9/15/92)
1993(a) $ 9.70 $.36 $.64 $1.00 $.35 $.35
1994 $10.35 $.52 ($.13) $ .39 $.52 $.06 $.58
1995 $10.16 $.51 $.13 $ .64 $.51 $.51
Limited Term
(10/19/87)
1988(a) $ 9.75 $.36 $.13 $ .49 $.36 $.36
1989 $ 9.88 $.62 $.02 $ .64 $.61 $.61
1990 $ 9.91 $.64 $.01 $ .65 $.64 $.64
1991 $ 9.92 $.63 $.13 $ .76 $.64 $.64
1992 $10.04 $.60 $.26 $ .86 $.60 $.01 $.61
1993 $10.29 $.55 $.45 $1.00 $.55 $.55
1994 $10.74 $.52 ($.13) $ .39 $.52 $.01 $.53
1995 $10.60 $.51 $.04 $ .55 $.50 $.50
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
---------------- --------------------------- ------------------------------------------------------------
Ratio of
Net
Ratio of Investment
Net Assets Expenses Income to
Net Asset End of to Average Average Portfolio
Year Ended Value End Total Period Net Net Turnover
May 31, of Period Return (d) (000's) Assets (b) Assets (b) Rate (c)
---------------- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
National Funds
All-American
Class A
(10/3/88)
1989(a) $ 9.81 10.66% 25,644 0.00% 7.27% 56.53%
1990 $ 9.73 6.92% 49,013 0.42% 7.29% 131.58%
1991 $ 9.95 10.10% 79,557 0.42% 7.33% 93.99%
1992 $10.40 11.94% 129,525 0.56% 6.81% 85.69%
1993 $11.07 14.25% 170,831 0.65% 6.24% 72.49%
1994 $10.61 2.99% 159,867 0.62% 5.77% 81.29%
1995 $10.79 8.01% 185,495 0.76% 6.02% 70.54%
Class C
(6/2/93)
1994(a) $10.60 2.16% 39,997 1.09% 5.16% 81.29%
1995 $10.78 7.42% 45,242 1.31% 5.47% 70.54%
Intermediate
(9/15/92)
1993(a) $10.35 14.06% 18,971 0.39% 4.98% 102.38%
1994 $10.16 3.72% 35,891 0.40% 4.93% 69.14%
1995 $10.29 6.63% 42,069 0.54% 5.15% 102.06%
Limited Term
(10/19/87)
1988(a) $ 9.88 7.44% 9,835 0.41% 5.84% 66.91%
1989 $ 9.91 6.81% 13,446 0.56% 6.28% 50.00%
1990 $ 9.92 6.83% 19,018 0.70% 6.48% 38.23%
1991 $10.04 8.08% 67,471 0.56% 6.32% 166.77%
1992 $10.29 9.04% 284,479 0.47% 5.88% 48.35%
1993 $10.74 10.02% 570,518 0.70% 5.10% 19.84%
1994 $10.60 3.58% 704,627 0.70% 4.76% 22.16%
1995 $10.65 5.41% 569,196 0.74% 4.88% 19.74%
</TABLE>
(a) Since commencement of investment operations as stated above.
(b) Annualized.
(c) Annualization is not appropriate.
(d) The total returns shown do not include the effect of front-end or
contingent deferred sales loads and are annualized in first year after
commencement of investment operations.
(e) Financial highlights prior to June 1, 1995 are from Flagship Pennsylvania
Triple Tax Exempt Fund, predecessor to the current Pennsylvania Fund.
The Fund's annual report for the most recent fiscal year includes a
discussion of fund performance. It is available upon request and without
charge.
The Funds and Their Objectives
Each Fund is a series of Flagship Tax Exempt Funds Trust and is actively,
professionally managed, independent of the others. The diversified Funds are
marked with an asterisk in the "Fees and Expenses" chart above. All other
Funds are non-diversified and may invest, subject to certain federal tax
requirements, a relatively high percentage of assets in the securities of a
limited number of issuers. The securities of a non-diversified fund may be
more susceptible to any single economic, political or regulatory occurrence
than the securities of a diversified Fund. In this Prospectus, all references
to the "Funds" refer to the Trust and its Funds unless expressly noted
otherwise.
The Funds include State, National and Insured tax exempt portfolios. Each of
the Funds will seek high current after tax income free from federal ordinary
income tax consistent with liquidity and preservation of capital, by
investing primarily in portfolios of investment grade municipal obligations.
The foregoing is fundamental to each Fund and cannot be changed without
shareholder approval. There can be no assurance that the objective of the
Funds will be achieved. The State Funds seek to pay income that is also free
of the particular state and, in some cases local, income taxes. For the
National and Insured Funds, a portion of dividend income paid from securities
issued by your state of residence or U.S. Territories may be exempt from
state or local income taxes. The Insured Funds pursue the same objectives as
the National Funds, but will
9
<PAGE>
invest only in insured municipal obligations. On average, no more than 20% of
the Funds' assets will be invested in assets subject to the alternative
minimum tax, except the Kentucky Limited Term Municipal Bond Fund which may
invest more than 20% of its assets in assets subject to the alternative
minimum tax.
What the Funds Own and Their Strategies
Fund Holdings
Each Fund's investments may be long-term (usually called bonds) or short-term
(usually called notes or tax exempt commercial paper). The two primary types
of tax exempt bonds are "general obligation" and "revenue" or "special
obligation" bonds, which include "industrial revenue bonds." General
obligation bonds are secured by the issuer's full faith, credit and taxing
power. Revenue or special obligation bonds are payable only from the revenues
derived from a particular facility or type of facilities or, in some cases,
from the proceeds of a special tax or other identified revenue source.
Obligations of territories and possessions of the United States (such as
Puerto Rico, Guam and the United States Virgin Islands) also qualify for
investment by each Fund. From time to time, each Fund may also invest up to
10% of its assets in tax exempt funds, including tax exempt money market
funds, subject to the requirements of applicable law. Such investments will
result in shareholders paying duplicate or multiple fees, as such funds incur
expenses similar to those of the Flagship Funds. The Manager will only invest
in such funds when it believes their yields are beneficial, even including
multiple fees.
It is possible that a single Fund (or all Funds) from time to time will
invest more than 25% of its assets in a particular segment of the municipal
bond market, such as Hospital Revenue Bonds, Housing Agency Bonds, Industrial
Development Bonds, Airport Bonds or U.S. Territorial Bonds. In such
circumstances, economic, business, political or other changes affecting one
bond might also affect other bonds in the same segment, thereby potentially
increasing market or credit risk.
Each Fund may invest in municipal leases, which are leases or installment
purchases used by state and local governments as a means to acquire property,
equipment or facilities without involving debt issuance limitations. It is
possible that more than 5% of a Fund's net assets will be invested in
municipal leases which, under Securities and Exchange Commission ("SEC")
guidelines, have been determined to be liquid securities by the Board of
Trustees or by the Manager under procedures established by the Trustees. See
the SAI for more details and a discussion of the special risks of investing
in these securities.
Quality
Each State and National Fund will generally invest all of its assets in
investment-grade obligations that are rated at the date of purchase:
(1) in the case of long-term obligations, in the four highest ratings of
Standard & Poor's Ratings Group(R) ("S&P") (AAA, AA, A and BBB) or Moody's
Investor Service, Inc. ("Moody's") (Aaa, Aa, A and Baa) or Fitch Investors
Service, Inc. ("Fitch") (AAA, AA, A, and BBB);
(2) in the case of bonds not rated by an agency, each Fund may also invest in
unrated obligations that the Manager believes to be equivalent to at least a
BBB rating;
(3) in the case of short-term notes, SP-1 through SP-2 by S&P or MIG 1
through MIG 4 by Moody's;
(4) in the case of tax-exempt commercial paper, A-1+ through A-2 by S&P or
Prime-1 through Prime-2 by Moody's; or
(5) in the case of tax-exempt funds, those funds that invest only in
comparable quality securities.
For a description of such ratings, see Appendix I to the SAI. According to
these descriptions, securities rated in these categories are regarded as
having capacity to pay interest and repay principal that varies from
"extremely strong" to "adequate." For example, according to S&P, AAA bonds
exhibit extremely strong capacity, while BBB bonds normally exhibit adequate
protection parameters, although adverse economic conditions or other changes
are more likely to lead to a weakened capacity. Securities rated Baa are
regarded by Moody's as having some speculative characteristics. Securities
rated BBB by Fitch are considered to have adequate capacity, although adverse
changes in economic conditions and circumstances are more likely to have an
adverse impact than for higher-rated categories. For a discussion of the
quality of the Insured Funds' holdings, please see "Flagship National Tax
Exempt Funds."
Maturity
Any Flagship Fund with "short term" in its name indicates a dollar-weighted
average maturity of 1 to 3 years; "limited term" as 1 to 7 years; and
"intermediate term" as 5 to 10 years. Unless so named, the Fund is a
long-term portfolio whose dollar-weighted average maturity is 15 to 25 years.
No Fund has any restrictions on the maturity of the obligations in its
portfolio and may lengthen or shorten the average dollar weighted maturity in
light of market conditions and the Manager's expectations. Under certain
circumstances a Fund may invest in nominally long-term securities that have
many of the features of shorter-term securities, and the maturities of these
securities would be deemed to be earlier than their ultimate maturity dates
by virtue of an existing demand feature.
NAV and Yield Variations
Yields on tax-exempt securities vary depending on a variety of factors,
including the general condition of the financial markets and of the
tax-exempt securities market in particular, the size of a particular
offering, the maturity of the obligation and the creditworthiness of the
issue. Generally, tax-exempt securities of longer maturities, as measured by
their duration, produce higher current yields, but are subject to greater
price fluctuation due to changes in interest rates, tax laws and other
general market factors than are tax-exempt securities with shorter
maturities. Similarly, lower-rated tax-exempt securities generally produce a
higher yield than better-rated tax-exempt securities, due to the perception
of a greater degree of risk in the ability of the issuer to pay principal and
interest obligations.
10
<PAGE>
Hedging and Other Defensive Actions
Hedging is a term used for various methods of seeking to preserve portfolio
capital value by offsetting price changes in one investment by making another
investment whose price should tend to move in the opposite direction. The
Trustees and Manager of the Funds believe it is desirable to partially hedge
portfolios against adverse changes in market value in various market
environments.
No Fund will engage in hedging transactions for speculative purposes. Only
index and financial futures, as well as related 'put' and 'call' options on
them, will be used to protect portfolio capital values. The Funds will not
purchase exotic derivative securities.
o An index future is a contract to buy or sell units of a particular
securities index at an agreed upon price on a specified future date, and is
settled in cash.
o A financial future is similar to an index future, except the trade is
settled with the underlying securities.
o Put features let the holder sell back a security to the issuer or a
financial intermediary in exchange for periodic fees or a lower interest
rate. The put provider can impact the creditworthiness of the put security.
o An option on an index or financial future gives the holder the right to
take over the seller's position in the future's contract at an agreed upon
option price.
The above securities and the risk of transacting them are described more
fully in the SAI.
Each Fund reserves the right, if necessary in the judgment of the Trustees
and the Manager for liquidity or defensive purposes (such as an inadequate
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 related, adequately collateralized
repurchase agreements.
"When Issued" Transactions
Each Fund may also purchase and sell municipal securities on a "when issued"
and "delayed delivery" basis. These transactions are subject to market
fluctuation; the value at delivery may be more or less than the purchase
price. Since each Fund relies on the buyer or seller to consummate the
transaction, failure by the other party to complete the transaction may
result in such Fund missing the opportunity of obtaining a price or yield
considered to be advantageous. When a Fund is the buyer in such a
transaction, however, it will maintain with its custodian cash or segregate
high-grade portfolio securities having an aggregate value equal to the amount
of such purchase commitments until payment is made. If a Fund engages in
"when issued" and "delayed delivery" transactions, it will do so for the
purpose of acquiring securities for its portfolio consistent with its
investment objective and policies, and not for the purpose of investment
leverage.
Nonpublic Securities
Each Fund may invest in securities that are subject to restrictions on
disposition under the Securities Act of 1933 or for which market quotations
are not readily available up to the amounts permitted by applicable law,
including up to 5% in adequately collateralized repurchase agreements of more
than seven-day maturity.
Borrowing
Each Fund reserves the right to borrow from banks up to 10% of the value of
its assets for extraordinary or emergency purposes or to meet unexpectedly
heavy redemption requests and to secure such borrowings to the extent
required by agreement or law.
Portfolio Transactions
The Funds will not seek capital gain or appreciation. However, the Funds may
sell securities held in their portfolios and, as a result, realize capital
gain or loss, for the following purposes: to eliminate unsafe investments and
those not consistent with the preservation of the capital or tax status of
the Funds; to honor redemption orders, meet anticipated redemption
requirements and negate gains from discount purchases; to reinvest earnings
from portfolio securities in like securities; or to defray normal
administrative expenses.
Flagship State Tax Exempt Funds
General Factors
Because individual State Funds will generally invest primarily in securities
of issuers within their state, political and economic factors affecting the
particular state could also affect the creditworthiness, and thus the value,
of that Fund's portfolio. Many factors, including national economic, social
and environmental policies and conditions, as well as natural disasters, most
of which are outside the control of the state or the issuers, could affect or
could have an adverse impact on the financial condition of any or all of the
various states or their subdivisions. States may suffer fiscal problems as a
result of cutbacks by the federal government, cost cutting and reduced tax
revenues. Flagship is unable to predict whether or to what extent such
factors or future conditions may affect the states, issuers of bonds acquired
for the Funds and the impact on their abilities to meet payment obligations.
Some state-specific economic factors and bond ratings are provided below as
of January 1, 1995 (unless otherwise noted), as well as national averages for
comparison purposes. Unless otherwise indicated, shares are exempt from state
property taxes, and there are no other material tax considerations for state
residents except as discussed under "Taxes." See the SAI for further
information.
National Averages
The national average personal income was $21,809 and the unemployment rate
was 6.1% in 1994.
Alabama - In 1994, Alabama population was 4,219,000, average personal income
was $18,010 and the unemployment
11
<PAGE>
rate was 6.0%. Alabama's economy is distributed relatively evenly between
manufacturing, trade, and government. 1993 general fund revenues were $.79
billion against expenditures of $.80 billion. General obligation bonds are
rated Aa by Moody's, AA by Standard & Poor's and AA by Fitch.
Arizona - In 1994, Arizona population was 4,075,000, average personal income
was $19,001 and the unemployment rate was 6.4%. Arizona's economy is based
primarily on employment in the government and service sectors. 1994 general
fund revenues were $4.044 billion against expenditures of $3.935 billion.
There are no general obligation ratings, however, outstanding certificates of
participation are rated A by Moody's.
Arkansas - In 1994, Arkansas population was 2,453,000, average personal
income was $16,898, and the unemployment rate was 5.3%. The non-farming
economy of Arkansas is based primarily on manufacturing. 1994 general fund
revenues were $6.961 billion against expenditures of $6.364 billion. General
obligation ratings are Aa by Moody's and AA by Standard & Poor's.
California - In 1994, California population was 31,431,000, average personal
income was $22,493 and the unemployment rate was 8.6%. California's economy
is based primarily on the service industry. 1993 general fund revenues were
$40.653 billion against expenditures of $39.816 billion. General obligation
ratings are A1 by Moody's, A by Standard & Poor's and A by Fitch.
Tax Considerations: Distributions attributable to interest on obligations of
California or its political subdivisions, the United States, Puerto Rico, the
U.S. Virgin Islands or Guam are exempt from California income tax, provided
that, at the close of each quarter, at least 50% of Fund assets consist of
such obligations.
Colorado - In 1994, Colorado population was 3,656,000, average personal
income was $22,333 and the unemployment rate was 4.2%. Colorado's economy is
based primarily on services. 1994 general fund revenues were $5.41 billion
against expenditures of $4.74 billion. There is no outstanding general
obligation debt, but outstanding lease obligations are rated A by Moody's and
AAA by Standard & Poor's.
Connecticut - In 1994, Connecticut population was 3,275,000, average personal
income was $29,402 and the unemployment rate was 5.6%. Connecticut's economy
is based primarily on the service sector. 1994 general fund revenues were
$8.907 billion against expenditures of $8.897 billion. General obligation
ratings are Aa by Moody's, AA- by Standard & Poor's and AA by Fitch.
Tax Considerations: Distributions attributable to interest on obligations
with respect to which taxation is prohibited by federal law are exempt from
Connecticut income tax, provided that, at the close of each quarter, at least
50% of Fund assets consist of such obligations. Interest attributable to
obligations of Connecticut or its political subdivisions are not subject to
Connecticut tax.
Florida - In 1994, Florida population was 13,953,000, average personal income
was $21,677 and the unemployment rate was 6.8%. Florida's economy is based
primarily on the service sector, which includes tourism. 1994 general fund
revenues were $12.44 billion against expenditures of $10.91 billion. General
obligation ratings are Aa by Moody's, AA by Standard & Poor's and AA by
Fitch.
Tax Considerations: There is no Florida individual income tax. Shares are
exempt from the Florida intangibles tax with respect to any calendar year,
provided that, at the close of the preceding calendar year, all Fund assets
consist of obligations of Florida or its political subdivisions, the United
States, Puerto Rico, the U.S. Virgin Islands or Guam.
Georgia - In 1994, Georgia population was 7,055,000, average personal income
was $20,251 and the unemployment rate was 5.2%. Georgia's economy is based
heavily on trade, which is due primarily to its central location in the
Southeast. 1994 general fund revenues were $9.41 billion against expenditures
of $9.17 billion. General obligation ratings are Aaa by Moody's, AA+ by
Standard & Poor's and AAA by Fitch.
Tax Considerations: Shares are subject to the Georgia personal property
intangibles tax.
Indiana - In 1994, Indiana population was 5,752,000, average personal income
was $20,378 and the unemployment rate was 4.9%. Indiana's economy is based
primarily on manufacturing. 1993 general fund revenues were $5.3 billion
against expenditures of $5.2 billion. The state has no long-term debt,
therefore there are no debt ratings to report.
Tax Considerations: Distributions attributable to interest on obligations of
any state or its political subdivisions, the United States, Puerto Rico, the
U.S. Virgin Islands or Guam are exempt from Indiana income tax.
Iowa - In 1994, Iowa population was 2,829,000, average personal income was
$20,265 and the unemployment rate was 3.7%. Iowa's economy is based primarily
on services. 1994 general fund revenues were $6.279 billion against
expenditures of $5.643 billion. The State has no outstanding general
obligation debt.
Tax Considerations: Distributions attributable to interest on (1) obligations
of Iowa or its political subdivisions that are specifically exempt from
taxation under the Iowa tax code, or (2) obligations of the United States,
Puerto Rico, the U.S. Virgin Islands or Guam that are specifically exempt
from state taxation pursuant to provisions in the United States Code are
exempt from Iowa income tax so long as the Fund provides documentation of
such exemption.
Kansas - In 1994, Kansas population was 2,554,000, average personal income
was $20,896 and the unemployment rate was 5.3%. Kansas' economy is based
primarily on agriculture. 1994 general fund revenues were $3.19 billion
against expenditures of $2.93 billion. There is no long-term debt and thus
are no ratings to report.
Tax Considerations: Distributions attributable to interest on (1) obligations
of Kansas or its political subdivisions issued prior to January 1, 1988 and
specifically exempt under the Kansas tax code, (2) any obligations of Kansas
or its political subdivisions issued after December 31, 1987, and (3) any
obligations of the United States, Puerto Rico, the U.S. Virgin
12
<PAGE>
Islands or Guam are exempt from Kansas income tax. Shares are subject to the
Kansas property tax but are exempt from the local intangibles taxes levied by
counties, cities and townships.
Kentucky - In 1994, Kentucky population was 3,827,000, average personal
income was $17,807 and the unemployment rate was 5.4%. Kentucky's economy is
based primarily on trade. 1994 general fund revenues were $4.682 billion
against expenditures of $3.801 billion. General obligation ratings are Aa by
Moody's and AA by Standard & Poor's.
Tax Considerations: Shares are exempt from the Kentucky intangibles tax to
the extent that they consist of obligations of Kentucky or its political
subdivisions, the United States, Puerto Rico, the U.S. Virgin Islands or
Guam.
Louisiana - In 1994, Louisiana population was 4,315,000, average personal
income was $17,651 and the unemployment rate was 8.0%. Louisiana's economy is
based primarily on services. 1994 unaudited general fund revenues were $10.55
billion against expenditures of $9.59 billion. General obligation ratings are
Baa1 by Moody's and A by Standard & Poor's.
Tax Considerations: Shares are subject to the Louisiana property tax.
Michigan - In 1994, Michigan population was 9,496,000, average personal
income was $22,333 and the unemployment rate was 5.9%. Michigan's economy is
based primarily on services. Projected 1994 general fund revenues were $17.71
billion against expenditures of $16.16 billion. General obligation ratings
are A1 by Moody's, AA by Standard & Poor's and AA by Fitch.
Tax Considerations: Shares acquired through purchases or reinvestment of
dividends are not subject to Michigan intangible personal property tax to the
extent that the Fund invests in obligations of Michigan or its political
subdivisions, the United States, Puerto Rico, the U.S. Virgin Islands or
Guam.
Missouri - In 1994, Missouri population was 5,278,000, average personal
income was $20,717 and the unemployment rate was 4.9%. Missouri's economy is
based primarily on services. 1994 general fund revenues were $7.68 billion
against expenditures of $5.71 billion. General obligation ratings are Aaa by
Moody's, AAA by Standard & Poor's and AAA by Fitch.
New Jersey - In 1994, New Jersey population was 7,904,000, average personal
income was $28,038 and the unemployment rate was 6.8%. New Jersey's economy
is based primarily on services. Projected 1994 general fund revenues were
$9.92 billion against expenditures of $10.27 billion. General obligation
ratings are Aa1 by Moody's, AA+ by Standard & Poor's and AA+ by Fitch.
Tax Considerations: Distributions attributable to interest or gain from
obligations of New Jersey or its political subdivisions, the United States,
Puerto Rico, the U.S. Virgin Islands, or Guam are exempt from New Jersey
income tax if at least 80 percent of the aggregate principal amount of
obligations held by the New Jersey Fund consists of such obligations.
New Mexico - In 1994, New Mexico population was 1,654,000, average personal
income was $17,106 and the unemployment rate was 6.3%. New Mexico's economy
is based primarily on services. 1994 unaudited general fund revenues were
$2.564 billion against expenditures of $2.586 billion. General obligation
ratings are Aa by Moody's and AA+ by Standard & Poor's.
New York - In 1994, New York population was 18,169,000, average personal
income was $25,999 and the unemployment rate was 6.9%. New York's economy is
based primarily on services. 1994 general fund revenues were $31.63 billion
against expenditures of $30.99 billion. General obligation ratings are A by
Moody's and A- by Standard & Poor's.
North Carolina - In 1994, North Carolina population was 7,070,000, average
personal income was $19,669 and the unemployment rate was 4.4%. North
Carolina's economy is based primarily on manufacturing. 1994 general fund
revenues were $13.23 billion against expenditures of $10.80 billion General
obligation ratings are Aaa by Moody's, AAA by Standard & Poor's and AAA by
Fitch.
Tax Considerations: Capital gains distributions exempt from North Carolina
income tax to the extent that they are attributable to gain from the sale or
exchange of certain obligations of North Carolina or its political
subdivisions, agencies or instrumentalities.
Ohio - In 1994, Ohio population was 11,102,000, average personal income was
$20,928 and the unemployment rate was 5.5%. Ohio's non-farming economy is
based primarily on services. 1994 general fund revenues were $14.95 billion
against total expenditures of $12.77 billion. General obligation ratings are
Aa by Moody's and AA by Standard & Poor's.
Tax Considerations: Distributions attributable to gains on the disposition of
obligations of Ohio or its political subdivisions, Puerto Rico, the Virgin
Islands and Guam exempt from Ohio personal income tax.
Oregon - In 1994, Oregon population was 3,086,000, average personal income
was $20,419 and the unemployment rate was 5.4%. Oregon's economy is based
primarily on services. 1993 general fund revenues were $2.869 billion against
expenditures of $2.47 billion. General obligation ratings are AA- by Standard
& Poor's, Aa by Moody's and AA by Fitch.
Pennsylvania - In 1994, Pennsylvania population was 12,052,000, average
personal income was $22,324 and the unemployment rate was 6.2%.
Pennsylvania's economy is based primarily on services. Projected 1994 general
fund revenues were $15.0 billion against total expenditures of $14.9 billion.
General obligation ratings are A1 by Moody's, AA- by Standard & Poor's and
AA- by Fitch.
Tax Considerations: Individual shareholders not subject to (i) the
Pennsylvania personal income tax on distributions to the extent that such
distributions are attributable to gains on the disposition of obligations of
Pennsylvania and its political sub-
13
<PAGE>
divisions, the United States, Puerto Rico, the U.S. Virgin Islands or Guam;
and (ii) the Pennsylvania personal property tax on shares to the extent that
the Fund's portfolio consists of such obligations.
South Carolina - In 1994, South Carolina population was 3,664,000, average
personal income was $17,695 and the unemployment rate was 6.3%. South
Carolina's economy includes a very diversified economic base. Continued
growth is expected in the service industries, particularly tourism and
manufacturing. 1994 general fund revenues were $4.14 billion against
expenditures of $3.48 billion. General obligation ratings are Aaa by Moody's,
AA+ by Standard & Poor's and AAA by Fitch.
Tennessee - In 1994, Tennessee population was 5,175,000, average personal
income was $19,482 and the unemployment rate was 4.8%. Tennessee's economic
base is reasonably well diversified, with services the largest employment
sector. 1994 general fund revenues were $6.02 billion against expenditures of
$5.65 billion. General obligation ratings are Aaa by Moody's, AA+ by Standard
& Poor's and AAA by Fitch.
Tax Considerations: No state personal income tax. Qualified exempt-interest
dividends exempt from the Hall Tax on interest and dividends.
Virginia - In 1994, Virginia population was 6,552,000, average personal
income was $22,594 and the unemployment rate was 4.9%. Virginia's economy
remains strong and diversified. Budgeted 1994 general fund revenues were
$6.504 billion against expenditures of $5.772 billion. General obligation
ratings are Aaa by Moody's, AAA by Standard & Poor's and AAA by Fitch.
Wisconsin - In 1994, Wisconsin population was 5,082,000, average personal
income was $21,019 and the unemployment rate was 4.7%. Wisconsin's economy is
based largely on services. 1994 general fund revenues were $12.6 billion
against expenditures of $12.4 billion. General obligation ratings are Aa by
Moody's, AA by Standard & Poor's and AA+ by Fitch.
Tax Considerations: Distributions attributable to certain obligations of
Wisconsin or its political subdivisions, and certain obligations of the
United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands
or Guam are exempt from the Wisconsin income tax. The Wisconsin Fund intends
to invest in obligations that will permit interest to be free from Wisconsin
income tax.
Flagship National Tax Exempt Funds
National Funds
Flagship Short Term Tax Exempt Fund
Flagship Limited Term Tax Exempt Fund
Flagship Intermediate Tax Exempt Fund
Flagship All-American Tax Exempt Fund
Flagship U.S. Territories Tax Exempt Fund
Flagship's National Tax Exempt Funds are designed for investors who want
income free of federal income tax. A portion of dividend income paid from
securities issued by your state of residence or U.S. Territories may be
exempt from state income, personal property or intangibles tax. Please
consult your tax adviser about the specific tax laws in your state.
These Funds are investment quality or better, nationally diversified
portfolios of municipal securities, listed in order of increasing dollar
weighted average maturity and increasing potential for price fluctuations.
Flagship U.S. Territories Tax Exempt Fund is a non-diversified portfolio
investing in the long-term securities of Puerto Rico, Guam and the U. S.
Virgin Islands. It seeks the highest current income of all the National Tax
Exempt Funds.
Each National Fund pays income dividends that will vary with market
conditions. The Short Term Tax Exempt Fund seeks to provide incrementally
higher yields than tax-free money market funds, but lower than the Limited
Term Tax Exempt Fund. The Intermediate Tax Exempt Fund seeks a higher yield
than the Limited Term Fund, but less that the longer-term All-American Tax
Exempt and U.S. Territories Funds, both of which seek high current income.
The All-American Fund may be more actively managed among moderate-quality,
value-added securities.
Insured Funds
Flagship Insured Limited Term Tax Exempt Fund
Flagship Insured Intermediate Tax Exempt Fund
Flagship Insured Tax Exempt Fund
Flagship's Insured Tax Exempt Funds are nationally diversified portfolios
which seek to minimize the credit risk of their holdings by investing only in
municipal securities that are insured as to the payment of principal and
interest by either a mutual fund portfolio, insurance policy or an insurance
policy applicable to a specific security. Neither a Fund's value nor any of
its securities is insured by the Federal Deposit Insurance Corporation. A
Fund may also own municipal securities where such payments are guaranteed by
an agency or instrumentality of the U.S. Government; or where such payments
are secured by an escrow account consisting of obligations of the U.S.
Government and which have an AAA or Aaa rating from either S&P or Moody's. In
addition, a Fund may also invest in short-term securities that are rated
within the highest grade by Moody's or S&P. The yield of an insured Fund will
generally be lower than the Flagship National Tax Exempt Fund investing in
non-insured securities of corresponding maturities. Please consult your tax
adviser about the specific tax laws in your state.
How the Funds are Managed
The Funds' activities are managed under the direction of the Trustees. The
Manager to each Fund is Flagship Financial Inc., whose principal business
address is One Dayton Centre, One
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<PAGE>
South Main Street, Dayton, Ohio 45402-2030. The Manager is a wholly-owned
subsidiary of Flagship Resources Inc., which is owned and/or controlled by
Bruce P. Bedford and Richard P. Davis and members of their immediate
families. Messrs. Bedford and Davis are each a Trustee and officer of the
Funds and an officer and Director of the Manager and the Distributor. In
accordance with the terms of separate Investment Advisory Agreements with
each Fund (the "Advisory Agreements"), the Manager renders investment
supervisory and corporate administrative services to the Funds, subject to
the general supervision of the Trustees and in conformity with the stated
policies of the Funds. It is the responsibility of the Manager to make
investment decisions and to place the purchase and sale orders for the
portfolio transactions for each Fund.
The Funds have adopted a Code of Ethics regarding restrictions on the
investment activity of specified "Investment Personnel." These include
restrictions on personal investing, pre-clearance of trades, sanctions and
disgorgement of certain profits, as well as prohibitions on short swing
profits, investments in initial public offerings and holding public
directorships.
The Manager's Investment Policy Committee, composed of all of the portfolio
managers and principal executive officers, meets monthly to review the
domestic economic outlook and the status of financial markets and to set the
policy guidelines for the management of each Fund. Before any security may be
considered for purchase, it must pass the scrutiny and receive the approval
of Credit Research Department analysts. Implementation, trading, and
temporary modification of a Fund's strategy is the function of a small team
of portfolio managers who support each other. Each team is led by a
designated portfolio manager primarily responsible for the day-to-day
operations and performance of the Funds. The designated team leaders and
their Funds are listed below. Richard Huber has been employed by the Manager
since 1987. Prior to September, 1991, Michael Davern was Assistant Vice
President, Van Kampen Merritt Inc. (Chicago, IL). Prior to January, 1991, Jan
Terbreuggen was Vice President, Todd Investment Advisers (Louisville, KY).
Walter Parker has been employed by the Manager since July, 1994. Prior to
October, 1993, he was Senior Vice President, PNC Bank (Cincinnati, Ohio).
Paul Brennan has been employed by the Manager since July, 1991. Prior to
April, 1991, he was Audit Assistant at Deloitte & Touche LLP (Dayton, Ohio).
At any time during which a portfolio manager is on vacation or is otherwise
unavailable for day-to-day management, the responsibility for the management
of his designated funds will shift to one or more of the other named
portfolio managers.
<TABLE>
<CAPTION>
Jan Terbrueggen Michael Davern Richard Huber Walter Parker
Vice President Vice President Vice President Vice President
---------------- ------------------------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Arizona Alabama Kansas All-American North Carolina
Arkansas* Florida Michigan Connecticut Ohio
California* Florida Missouri Kentucky South Carolina
Colorado Intermediate (a) U.S. Kentucky Tennessee
Intermediate (a) Georgia Territories* Limited
Iowa* Indiana* Wisconsin Limited Term
Louisiana Insured* New Jersey
New Mexico Insured New Jersey
Oregon* Intermediate* Intermediate
Insured Limited* New York
Pennsylvania
Short Term*
Virginia
</TABLE>
(a) Fund is managed jointly with Paul Brennan.
* Funds are scheduled to commence operations 1995 to 1996.
In addition, the Manager performs or supervises the administrative services
for the Funds, including: (i) assisting in supervising all aspects of their
operations; (ii) providing the Funds, at the Manager's expense, with persons
competent to perform necessary, effective corporate administrative and
clerical functions; and (iii) providing the Funds, at the Manager's expense,
with adequate office space and related services. Accounting records are
maintained, at the Funds' expense, by its Custodian, State Street Bank and
Trust Company.
As compensation for the services rendered by the Manager under the Advisory
Agreements, the Manager is paid a fee, computed daily and payable monthly
with respect to each Fund on a separate basis, at an annual rate of 0.50% of
the average daily net assets of such Funds, except for any Limited Term Fund,
which pays a fee, computed daily and payable monthly with respect to each
Fund on a separate basis, at an annual rate of 0.30% of the average daily net
assets of $500 million or less, plus 0.25% of the average daily net assets in
excess of $500 million. For the fiscal year ended May 31, 1995, the fee paid
to the Manager by each Fund is shown below. Please see "Fees and Expenses"
for the total expenses for each Fund (or class of shares if applicable),
expressed as a percentage of average net assets.
15
<PAGE>
<TABLE>
<CAPTION>
Fee Paid Fee Paid Fee Paid
Fund to Manager Fund to Manager Fund to Manager
---------- ----------- --------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Alabama .00% Louisiana .14% Ohio .42%
Arizona .15% Michigan .27% Pennsylvania .13%
Colorado .00% Missouri .13% South Carolina .00%
Connecticut .20% New Jersey .00% Tennessee .32%
Florida .18% New Jersey Int. .00% Virginia .19%
Florida Int. .00% New Mexico .04% Wisconsin .00%
Georgia .24% New York .00% All-American .20%
Kansas .00% North Carolina .35% Intermediate .00%
Kentucky .15% Limited Term .22%
</TABLE>
The Manager, which has been a registered investment adviser since 1978, also
renders investment advisory and management services to others. The Manager
manages approximately $4.3 billion in assets, primarily of mutual funds,
corporations, insurance companies, employee benefit plans and individuals.
The Manager is investment adviser to the Trust, with assets of approximately
$3.9 billion and to Flagship Admiral Funds Inc., an investment company with
assets of approximately $230 million. All assets are as of June 30, 1995.
How to Contact Flagship
For general information:
Call toll free from anywhere in the U.S.
8:00 a.m. to 6:00 p.m. Eastern time
1-800-414-7447
For redemptions and other transactions:
Call toll free from anywhere in the U.S.
9:00 a.m. to 5:00 p.m. Eastern time
1-800-225-8530
(TDD) 1-800-360-4521
Send your investments and all requests to:
Flagship Funds
c/o Boston Financial
P.O. Box 8509
Boston, MA 02266-8509
How to Buy Shares
Purchase Price
Shares of each Fund are offered continuously at a public offering price that
is equal to the net asset value per share plus any applicable sales charge.
You pay the sales charge (1) at the time of purchase (Class A Shares) or (2)
on a contingent deferred basis (Class C Shares). When placing purchase
orders, you must specify whether the order is for Class A or Class C Shares.
All unspecified purchase orders will automatically be invested in Class A
shares. Any order in an amount of $1,000,000 or more must be for Class A
Shares.
The minimum purchase required to open an account in any Fund is $3,000.
Additional purchases of $50 or more may be made through your financial
consultant or by mail at any time.
Classes of Shares
Four classes of shares, Class A Shares, Class B Shares, Class C Shares, and
Class Y Shares, are authorized for all Funds. They are described fully in the
SAI. The following table shows the total sales charges or underwriting
discounts and dealer concessions for each breakpoint in sales.
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<PAGE>
Class A Shares--Offered By All Funds
Total Sales Charge
----------------------
Percentage Dealer Concession
Percentage of or Agency
of Net Commission as
Size of Transaction Offering Asset Percentage of
At Public Offering Price Price Value Offering Price
--------------------------- ----------- ------- ------------------
All Series Except Those
Listed Below
Less than $50,000 4.20% 4.38% 3.70%
$50,000 to $100,000 4.00 4.18 3.50
$100,000 to $250,000 3.50 3.65 3.00
$250,000 to $500,000 2.50 2.61 2.00
$500,000 to $1,000,000 2.00 2.09 1.50
$1,000,000 to $2,000,000 .50 .52 .30
$2,000,000 and over -- -- --*
Intermediate Series
Less than $50,000 3.00% 3.09% 2.50%
$50,000 to $100,000 2.50 2.58 2.00
$100,000 to $250,000 2.00 2.06 1.50
$250,000 to $500,000 1.50 1.55 1.25
$500,000 to $1,000,000 1.25 1.29 1.00
$1,000,000 to $2,000,000 .40 .41 .30
$2,000,000 and over -- -- --*
Limited and Short Term
Series
Less than $50,000 2.50% 2.56% 2.00%
$50,000 to $100,000 2.00 2.05 1.60
$100,000 to $250,000 1.50 1.54 1.20
$250,000 to $500,000 1.25 1.28 1.00
$500,000 to $1,000,000 .75 .77 .60
$1,000,000 to $2,000,000 .25 .26 .20
$2,000,000 and over -- -- --*
*Finder's fee of .15% for amounts over $2,000,000 (subject to repayment if
shares are redeemed in less than one year)
Class C Shares
Class C Shares are offered at net asset value, without an initial sales
charge, subject to a continuing 0.95% annual distribution fee for any fund
with other than a short term or limited term maturity (of which 0.75% is an
asset based sales charge and 0.20% is a service fee) or a continuing 0.70%
annual distribution fee for any fund with a short term or limited term
maturity (of which 0.50% is an asset based sales charge and 0.20% is a
service fee). Class C Shares are subject to a contingent deferred sales
charge (CDSC) of 1% if redeemed within one year of the purchase date. The
first year of the annual distribution fee is paid to the Distributor. In
subsequent years, the service fee is paid to the Distributor and the
remainder is paid to the Dealer. Class C Shares are authorized for all Funds,
but are not currently offered by all Funds.
Buying through Your Financial Consultant
To purchase shares through your financial consultant, you should request that
the firm transmit your order for the appropriate dollar amount or number of
shares with your check or wire.
Buying by Mail
To open a new account, please complete the enclosed Flagship Application and
mail it with your check to the address shown.
Make your check payable to (Name of Fund). Your order will be executed on the
day your check is received, processed at the public offering price based on
the net asset value per share plus the applicable sales charge next
determined.
The Fund executes purchase orders received in good order immediately prior to
declaration of the daily dividend as of the close of business on the day the
order is received. Payments by wire will begin to earn dividends on the
business day that the Fund's custodian bank receives payment for your shares.
All other forms of payment will begin to earn dividends on the subsequent
business day. When you redeem shares, you will continue to receive dividends
up to, but not including, payment date. See "How to Sell Shares" and
"Distributions and Yield." Because dividends do not begin until payment is
received, you should request your financial consultant to forward payment
promptly. To the extent your securities account or bank account is charged
for your purchase before the Fund receives funds, your financial consultant
or bank may be earning interest on your funds. The Fund reserves the right to
reject any order for shares. The Fund may, in its sole discretion, accept
in-kind payments.
Automatic Investment Plan
The Fund offers shareholders who receive a quarterly statement from Flagship
the convenience of automatic monthly investing. On the tenth day or the next
business day of each month, the amount you specify ($50 minimum) will be
transferred from your bank account to the Fund. To initiate your automatic
investment plan, complete the Flagship Application and attach a voided check.
The Fund pays the cost associated with these transfers, but
17
<PAGE>
reserves the right, upon 90 days written notice, to make reasonable charges
for this service. Your bank may charge for debiting your account.
Shareholders may change the amount or discontinue their participation in the
plan by written notice to Boston Financial 30 days prior to fund transfer
date. Because a sales charge is applied on new Class A Shares purchased, it
would be disadvantageous to purchase Class A Shares while also making
systematic withdrawals.
Reduced Sales Charges
The Funds' Distributor offers several reduced sales charge programs through:
o rights of accumulation and combinations
o letter of intent
o group purchases
o redemptions from unrelated funds
Letter of intent is explained below. Please see the SAI for additional
information.
Letter of Intent (Class A Shares only)
A shareholder may qualify for reduced sales charges on Class A shares by
completing the Letter of Intent section on the application form. All
investments in Class A shares of any Flagship fund count toward the indicated
goal. It is understood that 5% of the dollar amount checked on this
application will be held in a special escrow account. These shares will be
held by the escrow agent subject to the terms of the escrow. All dividends
and capital gains distributions on the escrowed shares will be credited to
the shareholder's account in shares. If the total purchases, less redemptions
by the shareholder, his or her spouse, children and parents, equal the amount
specified under this Letter, the shares held in escrow will be deposited to
the shareholder's open account or delivered to the shareholder or to his
order. If the total purchases, less redemptions, exceed the amount specified
under this Letter and an amount which would qualify for a further discount, a
retroactive price adjustment will be made by Flagship Funds Inc. and the
dealer through whom purchases were made pursuant to this Letter of Intent (to
reflect such further quantity discount). The resulting difference in offering
price will be applied to the purchase of additional shares at the offering
price applicable to a single purchase of the dollar amount of the total
purchase. If the total purchases less redemptions are less than the amount
specified under this Letter, the shareholder will remit to Flagship Funds
Inc. an amount equal to the difference in the dollar amount of sales charge
actually paid and the amount of sales charge which would have applied to the
aggregate purchases if the total of such purchases had been made at a single
time. Upon such remittance, the shares held for the shareholder's account
will be deposited to his account or delivered to him or to his order. If
within 20 days after written request by Flagship such difference in sales
charge is not paid, Flagship is hereby authorized to redeem an appropriate
number of shares to realize such difference. Flagship Funds Inc. is hereby
irrevocably constituted under this Letter of Intent to effect such redemption
as agent of the shareholder. The shareholder or the shareholder's dealer will
inform Boston Financial that this Letter is in effect each time a purchase is
made.
How to Sell Shares
You can arrange to take money out of your Flagship account by redeeming
(selling) some or all of your shares on any day the New York Stock Exchange
is open, either through your financial consultant or directly.
Upon receipt of your request in good order by Boston Financial through one of
the methods discussed below, the Fund will redeem shares at their next
determined net asset value. See "How Fund Shares are Priced". Proceeds of
redemptions of recently purchased shares may be delayed for 15 days or more,
pending collection of funds for the initial purchase. If you sell all shares
owned, the dividends declared during the month through the time of redemption
will be included in the remittance.
The sale of shares is a taxable transaction for federal and state income tax
purposes. Please see the SAI.
Selling Shares through Financial Consultants
You may sell shares through any financial consultant who has a Selling
Agreement with the Distributor. Your financial consultant must receive your
request before 4:00 p.m. Eastern time to receive that day's price. Your
financial consultant is responsible for furnishing all necessary
documentation to Flagship and may charge you for this service.
Selling Shares Directly
By Telephone. If you authorized the Telephone Redemption Service on your
Application, you may sell shares by calling toll-free 1-800-225-8530, or for
TDD, 1-800-360-4521.
For funds to be wired (minimum $5,000, maximum $50,000), your completed bank
account information from the Application must already be on file with
Flagship.
The Fund's purchase Application relieves the Fund and the Transfer Agent
(Boston Financial) of any liability for loss, costs or expenses arising out
of telephone redemptions that are believed to be valid. The shareholder will
unilaterally bear the risk of such transactions. The Fund will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, and if it does not, it may be liable for any losses due to
fraudulent or unauthorized instructions. The procedures include requiring a
form of personal identification prior to acting on telephone instructions,
recording such instructions and providing written confirmation of such
transactions.
By Mail. Write a letter of instruction with the following information: your
name, account number, dollar or share amount to be sold and Fund name. Send
it, along with any certificates for shares to be sold, to the address shown
on page 16.
Payment will be made by check to you at the address on your most recent
Application. Checks will normally be sent out
18
<PAGE>
within one business day, but in no event more than seven days after the
receipt of your redemption request in good order. For requests over $50,000,
or if the registration on your account has been changed within the past 60
days, or if the redemption proceeds are to go to an address other than the
address of record, the Fund must receive a letter of instruction signed by
all persons authorized to sign for the account exactly as it is registered.
All signatures must be guaranteed.
Signature Guarantee
Boston Financial may require a signature guarantee on certain written
transaction requests. A signature guarantee may be executed by any eligible
guarantor. Eligible guarantors include member firms of a domestic stock
exchange, commercial banks, trust companies, savings associations and credit
unions as defined by the Federal Deposit Insurance Act. You should verify
with the institution that it is an eligible guarantor prior to signing your
request.
How to Exchange Shares
You may exchange shares of one Flagship Fund for shares of another within the
same Class, except for any money market fund available through Flagship, at
any time in any state where the exchange may legally be made. The Fund
accounts exchanged must be registered exactly the same, and you must have
owned the Fund shares you are exchanging from for at least 15 calendar days.
Class A Shares are sold and simultaneously purchased at net asset value
(NAV). No contingent deferred sales charge (CDSC) is assessed on Class C
shares at the time of the exchange. The period of time you held Class C
Shares of the Fund exchanged from will be counted toward any future CDSC when
shares are redeemed.
This is a free service, although the Fund may at any time impose a fee,
change or terminate the exchange privilege or limit the number of exchanges
you may make.
An exchange is a sale and subsequent purchase for tax purposes. See the SAI
for more information about federal tax treatment of capital losses. Be sure
to read the Prospectus for the Fund you are exchanging into before you
invest.
Shareholder Services
Free Re-entry
If you have sold Class A shares of any Fund within one year and wish to
reinvest your proceeds without incurring another initial sales charge, send a
written request to Flagship at the address shown in "How to Buy Shares." In
the case of Class C Shares, the period of time you had previously held the
shares will be counted toward any future CDSC. If reopening an account by
this re-entry privilege, be sure to meet the Fund's investment minimums.
There is no charge by the Fund for this service, although your financial
consultant may apply a fee.
Be sure to observe the "wash sale" rules for redemptions and exchanges from
Funds within 30 days of purchase. Consult your tax adviser.
Systematic Withdrawal Plan
If your Fund account is valued at $10,000 or more, you may have $50 or more
sent to you, or anyone you designate, every month or calendar quarter. These
"SWP" payments are drawn from redemption proceeds from your account and may
include shares added to your account through dividend reinvestments or from
the principal value. To the extent that redemptions for such periodic
withdrawals exceed dividend income reinvested in the account, such
redemptions will reduce and may ultimately exhaust the number of shares in
the account. You should not consider a SWP if you intend to add to your SWP
account concurrently because new purchases of Class A shares will incur a
sales charge (Boston Financial redeems first the principal shares purchased
earliest). To terminate your SWP, to change the amount or frequency or to
designate a new payee of your payments, contact Flagship in writing. Boston
Financial may charge the account for services rendered and expenses incurred
beyond those normally assumed by the Fund with respect to the liquidation of
shares. Boston Financial does not currently charge a fee against your account
for this service, but could do so upon 60 days written notice to
shareholders.
Direct Deposits
You may have dividend distributions or proceeds from your Systematic
Withdrawal Plan deposited electronically into your bank account. Under normal
circumstances direct deposits are credited to your account on the second day
or the next business day of the month following normal payment. In order to
utilize this option, your bank must be a member of Automated Clearing House
("ACH"). To elect direct deposit, just fill out the appropriate section of
the Flagship Application inserted in this Prospectus and include a voided
check from the bank account into which redemptions are to be deposited. You
may terminate direct deposits at any time by writing to Flagship at the
address shown in "How to Buy Shares."
How Fund Shares are Priced
For purposes of pricing purchases and redemptions, the net asset value (NAV)
of each Fund and of each class of shares of the Fund is determined as of the
close of the regular trading session on each day that the New York Stock
Exchange is open. NAV also will be computed as of 4:00 p.m., Eastern time, on
any other day in which purchase or redemption orders are received and there
is sufficient trading in the portfolio securities of the Fund such that a
Fund's NAV might be affected. NAV per share of each Fund is calculated to the
nearest cent by adding the value of all securities and other assets of such
Funds, subtracting all of the liabilities and dividing the remainder by the
number of shares outstanding at the time of determination.
Assets of each Fund for which market quotations are readily available are
valued at market price. Securities with remaining
19
<PAGE>
maturities of 60 days or less are valued at their amortized cost under rules
adopted by the SEC. Other assets and securities are valued at their fair
value as determined in good faith under procedures established by the
Trustees.
Taxes
The Funds intend that each qualify for taxation as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), and satisfy certain other requirements, so that each Fund will not
be subject to federal income tax to the extent that it distributes its income
to its shareholders. The following discussion is for general information
only. Prospective investors should consult their own tax advisers regarding
tax consequences of any Fund investment.
From time to time proposals have been discussed or introduced before Congress
that could, if enacted, limit the types of securities eligible to pay
tax-exempt interest. If the tax-exempt status of municipal obligations
changes at some future date, the Trustees may recommend changes in the
fundamental objectives, which would have to be approved by shareholder vote.
Federal Taxation of Distributions
If, at the close of each quarter of the taxable year of a Fund, 50% or more
of the total value of its assets consists of obligations, the interest on
which is exempt from federal income tax, such Funds will be able to designate
and pay "exempt-interest dividends" to the extent of its tax-exempt interest
income (less any allocable expenses). Such dividends will be treated as
interest excludable from gross income for federal income tax purposes in the
hands of the shareholders of such Funds. Exempt-interest dividends are,
however, included in determining what portion, if any, of a person's social
security benefits will be includable in gross income subject to federal
income tax. Interest with respect to indebtedness incurred or continued by a
shareholder to purchase or carry shares of a Fund is not deductible to the
extent that, under regulations, it relates to exempt-interest dividends of
the Fund. Similarly, investment and other shareholder expenses allocable to
such exempt-interest dividends generally are not deductible. Any dividends
paid by a Fund that are attributable to its taxable ordinary income (e.g.,
interest on U.S. Treasury securities and net short-term capital gain) will be
taxable to the shareholders of such Funds as ordinary income. Capital gain
distributions, which are designated as distributions of a Fund's net capital
gain (i.e., the excess of net long-term capital gain over net short-term
capital loss), are treated as a long-term capital gain regardless of the
length of time you have owned shares.
To the extent that a Fund invests in certain tax exempt "private activity"
obligations issued after August 7, 1986, shareholders may be subject to the
federal alternative minimum tax on the portion of exempt-interest dividends
derived from such obligations. Each Fund will provide information concerning
the tax status of its distributions, including the amount of its dividends
designated as exempt-interest dividends and as capital gain dividends, and
any applicable state tax information.
State Taxation of Distributions
Except as otherwise stated earlier, shareholders in each Fund who otherwise
are subject to individual income taxes of the state named in a Fund will not
be subject to such taxes on distributions with respect to their shares to the
extent that such distributions are attributable to interest on obligations of
the state and, generally, its political subdivisions or on obligations of the
United States, Puerto Rico, the U.S. Virgin Islands or Guam. Except as
otherwise indicated, shareholders will be required to include the entire
amount of capital gain distributions in income to the same extent for state
income tax purposes as for federal income tax purposes. Shareholders are
urged to consult their own tax advisers with respect to the alternative
minimum tax imposed by certain states.
Corporations should note that ownership of shares of certain Funds may have
tax consequences not discussed herein. Accordingly, corporate shareholders
are particularly urged to consult their own tax advisers with respect to the
state and local tax consequences of investment in the shares of any Fund.
Redemptions
Redemptions of shares of each Fund will be taxable transactions for federal
and state income tax purposes. Gain or loss will be recognized in an amount
equal to the difference between the shareholder's basis in his/her shares and
the amount received. Assuming that such shares are held as a capital asset,
such gain or loss will be a capital gain or loss and will be a long-term
capital gain or loss if the shareholder has held his/her shares for a period
of more than one year. If a shareholder redeems shares of any Fund at a loss
and makes an additional investment in the same series 30 days before or after
such redemption, the loss may be disallowed under the wash sale rules.
Distributions and Yield
Distributions
Each Fund will seek to distribute all of its income each year. Each Fund
declares dividends daily, immediately prior to the close of business, from
its net investment income. Each such dividend will be payable with respect to
fully paid shares to shareholders of record at the time of declaration. All
daily dividends declared during a given month will be paid as of the last
calendar day of the month. Distributions of realized net capital gains, if
any, will generally be declared and paid at the end of the year in which they
have been earned. To have your dividend payments deposited electronically
into your bank account, see "Shareholder Services--Direct Deposits."
Yield and Total Return Calculation
Flagship uses standardized SEC formulas to calculate the current yield and
total returns of each Fund. These calculations help investors compare past
performance of funds they are considering for investment, while giving them
confidence that any particular fund's performance results are based on the
same type of data as those of another fund.
At any given time, the yields and total returns of each Flagship Fund will
vary, depending on operating expenses, the underlying
20
<PAGE>
securities in a Fund's portfolio and general market conditions during the
time period calculated. Yields and total returns are always based on historic
performance and do not indicate future results. Your actual performance will
vary, and your shares may be worth less than their original cost when
redeemed.
Current Yield refers to the income from an investment in a Fund over a stated
time period. It is expressed as an annual percentage rate, based on the
actual dividends paid to a shareholder as a percentage of the maximum
offering price of a share on the day that ends the performance period. The
SEC yield is always a 30-day yield, net of fund expenses and adjustments
(such as accretion of original issue discounts and amortization of market
premiums). When annualized, it assumes semi-annual compounding of interest at
an average daily dividend rate over the period.
The current yields of tax-exempt income funds are often expressed in terms of
the yield an investor would have to earn in a taxable income fund to equal
the same after-tax yield once federal income taxes, and in some cases state
and/or local taxes, have been paid. This Tax-Equivalent Yield is calculated
within SEC guidelines and may be used in advertisements or information
furnished to shareholders or prospective investors, which will disclose the
actual federal tax bracket and state/local income tax, property tax or
intangibles tax rates applied in determining the tax-equivalent yield.
Average Annual Total Return shows how much a Fund account would have grown
each year, on average, over a particular time period. Using the SEC formula,
the Fund calculates the growth of an original hypothetical investment and
assumes that all dividends and any capital gains distribution were used to
purchase more shares in an account in that Fund at net asset value (NAV). At
the end of the period, the total number of shares accrued are assumed to be
sold at NAV, less any contingent deferred sales charge. The change in the
value from the beginning to the end of the period is expressed as an average
annual rate of return. Return is always less when calculating the effects of
sales charges.
The Cumulative Total Return is the actual change in the value of an account
from the beginning to the end of an investment period, less expenses. This
performance can be expressed with or without the effects of sales charges.
About the Distributor
Each Fund has entered into separate Distribution Agreements (the
"Distribution Agreements") with Flagship Funds Inc. (the "Distributor"),
which has the same address as the Manager. Accordingly, the Distributor
serves as the exclusive selling agent and distributor of each Fund's shares,
and in that capacity will make a continuous offering of the shares of the
Funds and will be responsible for all sales and promotion efforts.
The Funds have adopted a plan (the "Plan") following Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") with respect to the Class A, Class
B and Class C Shares, which permits each Fund to pay for certain distribution
and promotion expenses related to marketing its shares. The Funds' Plan
conforms to the requirements of the rules of the National Association of
Securities Dealers, Inc. with regard to Rule 12b-1 plans.
The Plan authorizes each Fund to expend its monies in an amount equal to the
aggregate for all such expenditures to such percentage of each Fund's daily
net asset values attributable to each class of shares as may be determined
from time to time by vote cast in person at a meeting called for such
purpose, by a majority of the Fund's disinterested Trustees. The scope of
these activities shall be interpreted by the Trustees, whose decision shall
be conclusive except to the extent it contravenes established legal
authority.
The maximum amount payable annually by any Fund under the Plan and related
agreements is 0.95% of such series' average daily net assets for the year. Of
this amount, 0.75% is an asset based sales charge and 0.20% is a service fee.
In the case of broker-dealers who have selling agreements with the
Distributor and others, such as banks, who have service agreements or bank
clearing agreements with any Fund, the maximum amount payable to any
recipient is 0.00260% per day (0.95% on an annualized basis) of the
proportion of average daily net assets of such Fund represented by such
person's customers. A salesperson and any other person entitled to receive
compensation for selling Fund shares may receive different compensation for
selling one particular class of shares over another. The Trustees may reduce
these amounts at any time. Amounts payable by a Fund or class of shares may
be lower than the maximum and have been described previously. Expenditures
related to the Plan and agreements may reduce current yield after expenses.
Flagship Funds periodically undertakes sales promotion programs with
broker-dealers with whom it has Distribution Agreements, in which it will
grant a partial or full reallowance of its retained underwriting commission
for fund sales as permitted by applicable rules. In addition, it will support
those firms' efforts in sales training seminars, management meetings, and
broker roundtables where it has the opportunity to present Flagship's
products and services. Flagship Funds also provides recognition for
outstanding sales achievements during a year through membership in its
Admiral, Captain or Yacht Clubs which includes a membership plaque and a
recognition memento. In addition, the distributor provides recognition
through the awarding of imprinted nominal promotional items; client leads; as
well as "thank you" dinners and entertainment. Its agents also typically
provide food for office meetings. Under appropriate terms it will share with
broker-dealers a portion of the cost of prospecting seminars and shareholder
gatherings. In those situations where there is no retained underwriting
commission, i.e., on the sale of Class C Shares, Flagship Funds will
periodically pay for similar activities at its own expense.
Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing
21
<PAGE>
in the Funds' shares. In the unlikely event that a court were to find that
these laws also prohibit such banks from providing services of the type
contemplated by each series of the Funds' service agreements, the Fund would
seek alternative providers of such services and expects that shareholders
would not experience any disadvantage. In addition, under the securities laws
in some states, banks and financial institutions may be required to register
as dealers following state law. The Fund does not offer its securities in
conjunction with any qualified retirement plan.
Please see the SAI for more details about the distribution payment and dealer
reallowances.
About the Trust
The Trust is an unincorporated business trust established under the laws of
the Commonwealth of Massachusetts by a Declaration of Trust dated March 8,
1985 and as amended as of September 3, 1992. The Trust's Declaration of Trust
permits the Trustees to issue an unlimited number of full and fractional
shares in separate Funds, each of which is deemed to be a separate sub-trust.
Each share of each class represents an equal proportionate interest in the
assets of its Fund with each other share in its Fund and no interest in any
other Fund. No Fund is subject to the liabilities of any other Fund. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Funds, requires inclusion of a clause to that effect in
every agreement entered into by the Funds, and indemnifies shareholders
against any such liability. Although shareholders of an unincorporated
business trust established under Massachusetts law may, under certain limited
circumstances, be held personally liable for the obligations of the Trust as
though they were general partners in a partnership, the provisions of the
Declaration of Trust described in the foregoing sentence make the likelihood
of such personal liability remote.
Shares entitle their holders to one vote per share; however, separate votes
are taken by each Fund on matters affecting an individual Fund. For example,
a change in investment policy for a Fund would be voted upon by shareholders
of only the Fund involved. Shares do not have cumulative voting rights,
preemptive rights or any conversion or exchange rights (other than as
discussed above). Shareholders of the Trust have certain rights, as set forth
in the Declaration of Trust, including the right to call a meeting of
shareholders for the purpose of electing Trustees or voting on the removal of
one or more Trustees. Such removal can be effected upon the action of
two-thirds of the outstanding shares of beneficial interest of the Trust.
The Trustees may amend the Declaration of Trust (including with respect to
any Fund) in any manner without shareholder approval, except that the
Trustees may not adopt any amendment adversely affecting the rights of
shareholders of any Fund without approval by a majority of the shares of each
affected Fund present at a meeting of shareholders (or such higher vote as
may be required by the 1940 Act or other applicable law) and except that the
Trustees cannot amend the Declaration of Trust to impose any liability on
shareholders, make any assessment on shares or impose liabilities on the
Trustees without approval from each affected shareholder or Trustee, as the
case may be.
Additional Information
Please direct your inquiries to a Flagship representative:
1-800-414-7447, or for TDD, 1-800-360-4521.
The Funds will issue semiannual reports containing unaudited financial
statements and annual reports containing audited financial statements
approved annually by the Board of Trustees.
This Prospectus does not contain all the information included in the
Registration Statement filed with the Securities and Exchange Commission
under the Securities Act of 1933 and the 1940 Act with respect to the
securities offered hereby, certain portions of which have been omitted
according to the rules and regulations of the Securities and Exchange
Commission. The Registration Statement including the exhibits filed therewith
may be examined at the office of the Securities and Exchange Commission in
Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part, each statement being qualified in all respects by such
reference.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offer made by this Prospectus, and, if given or made, such other
information or representations must not be relied upon as having been
authorized by the Funds or the Distributor. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy by the Funds
or by the Distributor in any state in which such offer to sell or
solicitation of an offer to buy may not lawfully be made.
Investment Adviser Distributor
Flagship Financial Inc. Flagship Funds Inc.
One Dayton Centre One Dayton Centre
One South Main Street One South Main Street
Dayton, OH 45402-2030 Dayton, OH 45402-2030
Custodian, Shareholder Services and Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02106
Counsel Auditors
Skadden, Arps, Slate, Deloitte & Touche LLP
Meagher & Flom
The symbol(sm) indicates a service mark of Flagship Tax Exempt Funds Trust
owned by Flagship Financial Inc.
(c)1995, Flagship Funds Inc. TE-A-3000 (9-14-95)
22
<PAGE>
FLAGSHIP TAX EXEMPT FUNDS APPLICATION
PLEASE PRINT OR TYPE ALL INFORMATION
NOTE: You must complete Sections 1, 2, 3, 4, 5 and sign the signature line.
Your signature is required for processing. Complete sections 7, 8, 9, 10, 11
and 12 for optional services.
PLEASE MAIL THIS APPLICATION & YOUR CHECK TO:
Flagship Funds
c/o Boston Financial
P.O. Box 8509
Boston, MA 02266-8509
1. YOUR ACCOUNT REGISTRATION
Please check only ONE registration type:
Owner Name(s) (First, Middle Initial (if used), Last)
[ ] Individual or Joint Account*
_____________________________________________________________________________
_____________________________________________________________________________
*Joint tenants with rights of survivorship unless tenancy in common is
indicated
[ ] Corporation, Partnership, Trust or other entity
_____________________________________________________________________________
_____________________________________________________________________________
[ ] Uniform Gift to Minors
_____________________________________________________________________________
Custodian Name (One name only)
_____________________________________________________________________________
Minor's Name (One name only)
Minor's state of residence _______
2. YOUR MAILING ADDRESS
_____________________________________________________________________________
Street or P.O. Box Suite or Apt. Number
_____________________________________________________________________________
City
______ ________________ _________
State Zip Code
( ) - ( ) -
_____________________________________________________________________________
Daytime Phone Evening Phone
[ ] U.S. Citizen or
[ ] Other (specify) _________________________________________________________
3. YOUR SOCIAL SECURITY/TAX ID NUMBER
For individual or joint accounts use Social Security number of owner.
For custodial accounts use minor's Social Security number.
________ ____ ________
Social Security Number
____ ____________________
Tax ID Number
4. YOUR INITIAL INVESTMENT
I want to invest in this Flagship Tax Exempt Fund.
Please indicate class of shares
A C
Name of Fund Amount* Shares** Shares***
_______________________ $ _____________________ [ ] [ ]
_______________________ $ _____________________ [ ] [ ]
_______________________ $ _____________________ [ ] [ ]
*Minimum of $3,000. **Front end sales charge. ***Level load. Class C Shares
are not available for all Funds. Check prospectus for availability. If no
share class is marked, investment will automatically be made in A Shares.
Attach check payable to Name of Fund
[ ] Purchase or check through Dealer Account
[ ] Exchange of bonds (Contact your Dealer or Flagship Funds)
5. DIVIDEND/DISTRIBUTION OPTION
If no option is selected, all distributions will be reinvested.
[ ] Reinvest dividends and capital gains.
[ ] Pay dividends in cash, reinvest capital gains.
[ ] Pay dividends and capital gains in cash.
[ ] Direct dividends to an existing account with identical registration.
Designate the Fund name and account number below.
_____________________________________________________________________________
Name of the Fund
_____________________________________________________________________________
Existing Fund Account Number
Deposit dividends directly into the bank account indicated on the attached
VOIDED check (subject to terms and conditions in the prospectus).
6. DEALER AUTHORIZATION
We are a duly registered and licensed dealer and have a sales agreement with
Flagship Funds Inc. We are authorized to purchase shares from the Fund for
the investor. The investor is authorized to send any future payments directly
to the Fund for investment. Confirm each transaction to the investor and to
us. We guarantee the genuineness of the investor's signature.
_____________________________________________________________________________
Investment Firm
_____________________________________________________________________________
Financial Consultant's Name Rep Number
______________________________________________________________________________
Branch Address
______________________________________________________________________________
City
______ ________________ _________
State Zip Code
( ) -
______________________________________________________________________________
Financial Consultant's Phone Number
X ___________________________________________________________________________
Signature of Financial Consultant
<PAGE>
7. LETTER OF INTENT (Class A Shares only)
Please see information on back page.
I/we agree to the escrow provision described in the prospectus and intend to
purchase, although I'm not obligated to do so, shares of the Fund designated
on this application within a 13-month period which, together with the total
asset value of shares owned, will aggregate at least:
[ ] $50,000 [ ] $100,000 [ ] $250,000
[ ] $500,000 [ ] $1,000,000 [ ] $2,000,000
8. CUMULATIVE PURCHASE DISCOUNT
I/we qualify for cumulative discount with the accounts listed below.
_____________________________________________________________________________
Fund Name
_____________________________________________________________________________
Account Number
_____________________________________________________________________________
Fund Name
_____________________________________________________________________________
Account Number
_____________________________________________________________________________
Fund Name
9. AUTOMATIC INVESTMENT PLAN
Pursuant to the terms of the plan described in the prospectus, I/we authorize
the automatic monthly transfer of funds from my/our bank account for
investment in the above Flagship Fund. Attached is a VOIDED check from that
account.
$ ___________________________________________________________________________
Amount ($50 Minimum)
_____________________________________________________________________________
Name of Bank
_____________________________________________________________________________
Bank Account Number
_____________________________________________________________________________
Bank's Street Address
_____________________________________________________________________________
City
______ ________________ _________
State Zip Code
X ___________________________________________________________________________
Signature of Depositor Date
X ___________________________________________________________________________
Signature of Joint Depositor Date
10. SYSTEMATIC WITHDRAWAL PLAN
Please see information on back page.
Pursuant to the terms of the plan described in the prospectus, please send $
_______________ [ ] per month [ ] quarterly to:
[ ] Me
[ ] The bank account indicated on the attached VOIDED check
[ ] Payee below
Give name and address only if different from account registration
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
11. TELEPHONE REDEMPTION
I/we hereby authorize the Fund to implement the following telephone
redemption requests (under $50,000 only) without signature verification to
the registered fund account name and address. Redemption proceeds may be
wired to the U.S. commercial bank designated, provided you complete the
information below and enclose a VOIDED check for that account.
_____________________________________________________________________________
Name of Bank
_____________________________________________________________________________
Bank Account Number
_____________________________________________________________________________
Bank's Street Address
_____________________________________________________________________________
City
______ ________________ _________
State Zip Code
12. INTERESTED PARTY MAIL/DIVIDEND MAIL
[ ] Send my distributions to the address listed below.
[ ] Send duplicate confirmation statements to the interested party listed
below.
_____________________________________________________________________________
Name of Individual
_____________________________________________________________________________
Street Address
_____________________________________________________________________________
City
______ ________________ _________
State Zip Code
SIGNATURE(S)
Under the penalties of perjury, I/we certify that the information provided on
this form is true, correct, and complete. The undersigned certify that I/we
have full authority and legal capacity to purchase, exchange or redeem shares
of the above named Fund(s) and affirm that I/we have received and read a
current Prospectus of the named Fund(s) and agree to be bound by its terms.
I/we agree to indemnify and hold harmless State Street Bank and Trust
Company, Boston Financial, and any Flagship fund(s) which may be involved in
transactions authorized by telephone against any claim, loss, expense or
damage, including reasonable fees of investigation and counsel, in connection
with any telephone withdrawal effected on my account pursuant to procedures
described in the Prospectus.
X ___________________________________ X ___________________________________
Signature Date Signature (Joint Tenant) Date
1. As required by the IRS I/we certify (a) that the number shown on this form is
my correct Taxpayer Identification number. I/we understand that if I/we do not
provide a Taxpayer Identification Number to the Fund within 60 days, the Fund is
required to withhold 31 percent of all reportable payments thereafter made to me
until I/we provide a number certified under penalties of perjury, and that I/we
may be subject to a $50 penalty by the IRS.
2. As required by the IRS I/we certify under penalties of perjury that I/we
are not subject to backup withholding by the IRS.
NOTE: Strike out Item (2) if you have been notified that you are subject to
backup withholding by the IRS and you have not received a notice from the IRS
advising you that backup withholding has been terminated.
X ___________________________________ X ___________________________________
Signature Date Signature (Joint Tenant) Date
Thank you for your investment in the Flagship Fund(s). You will receive a
confirmation statement shortly.
<PAGE>
FLAGSHIP TAX EXEMPT FUNDS TRUST
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 14, 1995
One Dayton Centre, One South Main Street; Dayton, Ohio 45402-2030
Flagship Tax Exempt Funds Trust (the "Fund") is a registered open-end,
management investment company organized in series. The Fund is divided into
separate series each of which is designed for individuals and taxable
entities that desire to invest in an actively managed portfolio of securities
the interest on which is exempt from Federal income taxes as well as income
taxes of the particular state indicated by the name of such series. There are
two classes of shares authorized for each series (Class A Shares and Class C
Shares), although they may not be available for all series. The current state
series are:
Flagship Alabama Double Tax Exempt Fund
Flagship Arizona Double Tax Exempt Fund--Class A Shares
Flagship Arizona Double Tax Exempt Fund--Class C Shares
Flagship Arkansas Double Tax Exempt Fund
Flagship California Double Tax Exempt Fund
Flagship Colorado Double Tax Exempt Fund
Flagship Connecticut Double Tax Exempt Fund--Class A Shares
Flagship Connecticut Double Tax Exempt Fund--Class C Shares
Flagship Florida Double Tax Exempt Fund--Class A Shares
Flagship Florida Double Tax Exempt Fund--Class C Shares
Flagship Florida Intermediate Tax Exempt Fund--Class A Shares
Flagship Florida Intermediate Tax Exempt Fund--Class C Shares
Flagship Florida Limited Term Tax Exempt Fund
Flagship Georgia Double Tax Exempt Fund--Class A Shares
Flagship Georgia Double Tax Exempt Fund--Class C Shares
Flagship Indiana Double Tax Exempt Fund
Flagship Iowa Tax Exempt Fund
Flagship Kansas Triple Tax Exempt Fund
Flagship Kentucky Limited Term Municipal Bond Fund--Class A Shares
Flagship Kentucky Limited Term Municipal Bond Fund--Class C Shares
Flagship Kentucky Triple Tax Exempt Fund--Class A Shares
Flagship Kentucky Triple Tax Exempt Fund--Class C Shares
Flagship Louisiana Double Tax Exempt Fund--Class A Shares
Flagship Louisiana Double Tax Exempt Fund--Class C Shares
Flagship Michigan Triple Tax Exempt Fund--Class A Shares
Flagship Michigan Triple Tax Exempt Fund--Class C Shares
Flagship Michigan Intermediate Tax Exempt Fund
Flagship Michigan Limited Term Tax Exempt Fund
Flagship Missouri Double Tax Exempt Fund--Class A Shares
Flagship Missouri Double Tax Exempt Fund--Class C Shares
Flagship New Jersey Double Tax Exempt Fund
Flagship New Jersey Intermediate Tax Exempt Fund
Flagship New Jersey Limited Term Tax Exempt Fund
Flagship New Mexico Double Tax Exempt Fund
Flagship New York Tax Exempt Fund
Flagship New York Intermediate Tax Exempt Fund
Flagship New York Limited Term Tax Exempt Fund
Flagship North Carolina Double Tax Exempt Fund--Class A Shares
Flagship North Carolina Double Tax Exempt Fund--Class C Shares
Flagship Ohio Double Tax Exempt Fund--Class A Shares
Flagship Ohio Double Tax Exempt Fund--Class C Shares
Flagship Ohio Intermediate Tax Exempt Fund
Flagship Ohio Limited Term Tax Exempt Fund
Flagship Oklahoma Tax Exempt Fund
Flagship Oregon Double Tax Exempt Fund
Flagship Pennsylvania Triple Tax Exempt Fund--Class A Shares
<PAGE>
Flagship Pennsylvania Triple Tax Exempt Fund--Class C Shares
Flagship South Carolina Double Tax Exempt Fund
Flagship Tennessee Double Tax Exempt Fund--Class A Shares
Flagship Tennessee Double Tax Exempt Fund--Class C Shares
Flagship Virginia Double Tax Exempt Fund--Class A Shares
Flagship Virginia Double Tax Exempt Fund--Class C Shares
Flagship Wisconsin Double Tax Exempt Fund--Class A Shares
Flagship Wisconsin Double Tax Exempt Fund--Class C Shares
National series:
Flagship All-American Tax Exempt Fund--Class A Shares
Flagship All-American Tax Exempt Fund--Class C Shares
Flagship Intermediate Tax Exempt Fund--Class A Shares
Flagship Intermediate Tax Exempt Fund--Class C Shares
Flagship Limited Term Tax Exempt Fund--Class A Shares
Flagship Limited Term Tax Exempt Fund--Class C Shares
Flagship Short Term Tax Exempt Fund
Flagship U.S. Territories Tax Exempt Fund
Insured national series:
Flagship Insured Limited Term Tax Exempt Fund
Flagship Insured Intermediate Tax Exempt Fund
Flagship Insured Tax Exempt Fund
The diversified series of the Fund are All-American, Arizona, Colorado,
Connecticut, Florida, Georgia, Insured, Insured Intermediate, Insured Limited
Term, Intermediate, Kentucky, Limited Term, Louisiana, Michigan, Missouri,
New York, North Carolina, Ohio, Pennsylvania, Short Term, Tennessee and
Virginia. All other series are non-diversified. The initial offering to the
public of any series is determined at the discretion of the Board of
Trustees. Each series seeks high current after tax income consistent with
liquidity and preservation of capital primarily through investment in
investment grade tax exempt obligations.
This Statement of Additional Information provides certain detailed
information concerning the Fund. It is not a Prospectus and should be read in
conjunction with the current Prospectus (the "Prospectus") relating to the
Fund. A copy of the Prospectus may be obtained without charge by telephone or
written request to: Flagship Funds Inc., at One Dayton Centre, One South Main
Street; Dayton, Ohio 45402-2030; or by telephone (toll free) at 800-414-
7447, or for TDD call 800-360-4521.
This Statement of Additional Information relates to the Prospectus of the
Fund dated September 14, 1995.
2
<PAGE>
Table of Contents
Page
-------
Investment Objectives and Policies ........................................ 4
Shares of the Fund ........................................................ 6
Officers and Trustees ..................................................... 7
Investment Advisory Services .............................................. 11
Distributor ............................................................... 13
Custodian and Transfer Agent .............................................. 17
Auditors .................................................................. 17
Portfolio Transactions .................................................... 17
Yield and Total Return Calculation ........................................ 17
Dividend Payment Options .................................................. 20
Purchase, Redemption and Pricing of Shares ................................ 20
Taxes ..................................................................... 23
Exchange and Reinvestment Privilege ....................................... 24
Systematic Withdrawal Plan ................................................ 24
Servicemarks .............................................................. 25
Other Information ......................................................... 25
Index to Financial Statements ............................................. F-1
Appendix I--Description of Municipal Securities Ratings ................... I-1
Appendix II--Description of Hedging Techniques ............................ II-1
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund has adopted the following investment restrictions (which
supplement the matters described under "The Funds and Their Objectives" in
the Prospectus), none of which may be changed with respect to any series of
the Fund designated on the date hereof without the approval of the holders of
a majority of such series' outstanding shares. No existing series of the Fund
may:
(1) Purchase the securities of any one issuer, other than the U.S.
Government or any of its instrumentalities, if immediately after such
purchase more than 5% of the value of its total assets would be invested in
such issuer, or if all series of the Fund would own in the aggregate more
than 10% of the outstanding voting securities of such issuer, except that up
to 25% of the value of the Fund's total assets may be invested without regard
to such 5% and 10% limitations.
(2) Make loans, except to the extent the purchase of the debt obligations
(including repurchase agreements) in accordance with the series' investment
objectives and policies are considered loans.
(3) Issue securities senior to the shares or borrow money, except from
banks for extraordinary or emergency purposes (and not for leveraging) or in
order to meet unexpectedly heavy redemption requests in an amount not
exceeding 10% of the value of the series' assets, or purchase any securities
at any time when the total outstanding borrowings from banks attributable to
such series exceeds 5% of the series' net assets.
(4) Mortgage, pledge or hypothecate any assets except as required by law
or agreement to secure borrowings permitted by clause (3) above.
(5) Purchase or sell real estate, real estate mortgage loans, real estate
investment trust securities, commodities, commodity contracts or oil and gas
interests, except to the extent that the tax-exempt and U.S. government
securities the series may invest in would be considered to be such loans,
securities, contracts or interests and except to the extent the various
hedging instruments the series may invest in would be considered to be
commodities or commodities contracts.
(6) Acquire securities of other investment companies (other than in
connection with the acquisition of such companies), except that a series may
from time to time invest up to 10% of its assets in tax-exempt funds,
including money market funds.
(7) Act as an underwriter of securities except to the extent that in
connection with disposition of portfolio securities it may be deemed to be an
underwriter.
(8) Purchase securities on margin, make short sales of securities or
maintain a net short position except to the extent the various hedging
instruments the series may invest in or the options the series may write
would be considered to involve short sales or a net short position.
(9) Invest more than 25% of its assets in a single industry. However, as
described in the Prospectus, particular series may from time to time invest
more than 25% of their assets in one or more particular segments of the tax
exempt obligations market.
In order to permit the sale of shares in certain states, the Fund may make
commitments more restrictive than the operating restrictions described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its stockholders, it will revoke the commitment by
terminating sales of its shares in the state involved. Specifically, in
addition, each series has made a commitment, although not a fundamental
policy, to not purchase warrants.
Portfolio Turnover. Although the Fund anticipates that the portfolio
turnover of each series will be less than 100% in any fiscal year, each
series will adjust its turnover as necessary or appropriate to seek to attain
its investment objective.
4
<PAGE>
By purchasing obligations in larger denominations and with greater
variation in maturity and interest payment dates than investors may be able
to achieve on their own, the Fund, through each of its series, offers
investors economies of scale and greater diversification. In addition, an
investment in any series of the Fund gives investors a convenient and
affordable method of avoiding administrative burdens and transaction costs
normally involved in direct purchases of tax exempt obligations. For
instance, investors do not have to keep track of detailed maturity schedules,
formulate specific reinvestment plans, arrange for safekeeping of the
obligations, obtain price and delivery terms from numerous dealers, or
maintain separate principal, income and capital gain and loss records.
Municipal Leases and Participations Therein. These are obligations in the
form of a lease or installment purchase which is issued by state and local
governments to acquire equipment and facilities. Income from such obligations
is exempt from local and state taxes in the state of issuance.
"Participations" in such leases are undivided interests in a portion of the
total obligation. Municipal Leases frequently have special risks not normally
associated with general obligation or revenue bonds. The constitutions and
statutes of all states contain requirements that the state or a municipality
must meet to incur debt. These often include voter referenda, interest rate
limits and public sale requirements. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased
asset to pass eventually to the governmental issuer) have evolved as a means
for governmental issuers to acquire property and equipment without meeting
the constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic
basis.
In addition to the "non-appropriation" risk, Municipal Leases have
additional risk aspects because they represent a relatively new type of
financing that has not yet developed in many cases the depth of marketability
and liquidity associated with conventional bonds; moreover, although the
obligations will be secured by the leased equipment, the disposition of the
equipment in the event of non-appropriation or foreclosure might, in some
cases, prove difficult. In addition, in certain instances the tax-exempt
status of the obligations will not be subject to the legal opinion of a
nationally recognized "bond counsel," as is customarily required in larger
issues of municipal obligations. However, in all cases the Fund will require
that a Municipal Lease purchased by the Fund be covered by a legal opinion
(typically from the issuer's counsel) to the effect that, as of the effective
date of such Lease, the Lease is the valid and binding obligation of the
governmental issuer.
Municipal Leases and participations will be purchased pursuant to analysis
and review procedures which the Manager believes will minimize risks to
shareholders. It is possible that more than 5% of a series' net assets will
be invested in Municipal Leases which, pursuant to guidelines established by
the Securities and Exchange Commission ("SEC"), have been determined by the
Board of Trustees to be liquid securities. When evaluating the liquidity of a
Municipal Lease, the Board, or the investment adviser pursuant to procedures
established by the Board, considers all relevant factors including frequency
of trading, availability of quotations, the number of dealers and their
willingness to make markets, the nature of trading activity and the assurance
that liquidity will be maintained. With respect to unrated Municipal Leases,
credit quality is also evaluated.
Hedging and Other Defensive Actions. Each series of the Fund may
periodically engage in hedging transactions. Hedging is a term used for
various methods of seeking to preserve portfolio capital value by offsetting
price changes in one investment through making another investment whose price
should tend to move in the opposite direction. The Trustees and investment
adviser of the Fund believe that it is 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. The 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 series of the 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 series of the Fund may not be able to close out the transaction
without incurring losses substantially greater than the initial deposit.
Finally, the potential daily deposit requirements in futures contracts create
an ongoing greater potential financial risk than do options transactions,
where the exposure is limited to the cost of the initial premium. Losses due
to hedging transactions will reduce yield. Net gains, if any, from hedging
and other portfolio transactions will be distributed as taxable distributions
to shareholders.
5
<PAGE>
No series of the 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 II to this Statement of Additional Information.
Each series of the Fund reserves the right, if necessary in the judgment
of the Trustees and the investment adviser 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 instruments is taxable for Federal income
tax purposes and would reduce the amount of tax-free interest payable to
shareholders.
SHARES OF THE FUND
Four classes of shares, Class A Shares, Class B Shares, Class C Shares,
and Class Y Shares, are authorized for all series with Class A Shares
currently offered by all series and Class C Shares currently offered by some
series. Other classes of shares in other series may be offered in the future.
Each series of the Fund is authorized to offer up to four classes of shares
which may be purchased at a price equal to their net asset value per share,
plus (for certain classes) a sales charge (discussed below) which, at the
election of the purchaser, may be imposed either (i) at the time of purchase
(the "Class A Shares") or (ii) on a contingent deferred basis (the "Class B
Shares" or the "Class C Shares"). See "How to Buy Shares" in the Prospectus.
The four classes of shares each represent an interest in the same portfolio
of investments of the Fund and have the same rights, except (i) Class B and
Class C Shares bear the expenses of the deferred sales arrangement and any
expenses (including a higher distribution services fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) each class
that is subject to a distribution fee has exclusive voting rights with
respect to those provisions of the Fund's Rule 12b-1 distribution plan which
relate only to such class and (iii) the classes have different exchange
privileges. Additionally, Class B Shares will automatically convert into
Class A Shares after a specified period of years (as discussed below.) The
net income attributable to Class B and Class C Shares and the dividends
payable on Class B and Class C Shares will be reduced by the amount of the
higher distribution services fee and certain other incremental expenses
associated with the deferred sales charge arrangement. The net asset value
per share of Class A Shares, Class B Shares, Class C Shares and Class Y
Shares is expected to be substantially the same, but it may differ from time
to time. Class C Shares are authorized for all series, but may not be
available for all series. No class B or Y Shares are available. Prior to
implementing the multiple class distribution for any series, the Trustees
will re-denominate all outstanding shares in such series as Class A Shares.
Class A Shares. The public offering price of Class A Shares is equal to
net asset value plus an initial sales charge that is a variable percentage of
the offering price depending on the amount of the sale. Net asset value will
be determined as described in the Prospectus under "How Fund Shares are
Priced". The net assets attributable to Class A Shares are subject to an
ongoing distribution services fee (see "Distributor" below). Purchasers of
Class A Shares may be entitled to reduced sales charges through a combination
of investments, rights of accumulation or a Letter of Intent even if their
current investment would not normally qualify for a quantity discount (see
"Purchase, Redemption and Pricing of Shares" below). Class A Shares also
qualify for certain exchange and reinvestment privileges as described in
"Exchange And Reinvestment Privilege" below. The investor or the investor's
broker or dealer is responsible for promptly forwarding payment to the Fund
for shares purchased.
Class B Shares. Class B Shares are sold at net asset value without a sales
charge at the time of purchase. Instead, the sales charge is imposed on a
contingent deferred basis. The net assets attributable to Class B Shares are
subject to an ongoing distribution fee (see "Distributor" below). The amount
of the contingent deferred sales charge, if any, will vary depending on the
number of years from the time of payment of the purchase of Class B Shares
until the time such shares are redeemed. Solely for purposes of determining
the number of years from the time of any payment of the purchase of Class B
Shares, all payments during any month will be aggregated and deemed to have
been made on the last day of the month.
Class B Shares automatically convert into Class A Shares not more than 10
years after the end of the month in which a shareholder's order to purchase
Class B Shares was accepted. As a result, the shares that converted will no
longer be subject to a sales charge upon redemption and will enjoy the lower
Class A distribution services fee.
For purposes of conversion of Class A Shares, Class B Shares purchased
through the reinvestment of dividends and distributions paid in respect of
Class B Shares in a shareholder's account will be considered to be held in a
6
<PAGE>
separate sub-account. Each time any Class B Shares in the shareholder's
account (other than those in the sub-account) convert to Class A Shares, an
equal pro rata portion of the Class B Shares in the sub-account also will
convert to Class A Shares. The conversion of Class B Shares to Class A Shares
is subject to the continuing availability of an opinion of counsel to the
effect that (i) the assessment of the higher distribution services fee and
transfer agency cost with respect to Class B Shares does not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) that the
conversion of Class B Shares does not constitute a taxable event under
federal income tax law. The conversion of Class B Shares to Class A Shares
may be suspended if such an opinion is no longer available. In that event, no
further conversions of Class B Shares would occur, and Class B Shares might
continue to be subject to the higher distribution services fee for an
indefinite period, which period may extend beyond the period ending 10 years
after the end of the month in which the shares were issued.
The Class B Shares are otherwise the same as Class C Shares and are
subject to the same conditions, except that they can only be exchanged for
other Class B Shares without imposition of sales charges.
Class C Shares. Class C Shares are sold at net asset value (see "How Fund
Shares are Priced" in the Prospectus) without a sales charge at the time of
purchase. Instead, Class C Shares are subject to a 1% contingent deferred
sales charge ("CDSC") if they are redeemed within one year after purchase.
Their net assets are subject to an ongoing distribution services fee of (a)
0.95% for any fund with other than a short term or limited term maturity, of
which .75% is an asset based sales charge and .20% is a service fee or (b)
for any fund with a short term or limited term maturity, an ongoing
distribution services fee of 0.70%, of which 0.50% is an asset based sales
charge and 0.20%, is a service fee (see "Distributor" below). The Class C
Shares have no conversion rights.
The CDSC will not be imposed on amounts representing increases in net
asset value above the initial purchase price. Additionally, no charge will be
assessed on Class C Shares derived from reinvestment of dividends or capital
gains distributions. The CDSC will be waived (i) on redemption of shares
following the death of a shareholder, and (ii) when Class C Shares are
exchanged for Class C Shares of other Flagship Funds distributed by the
Distributor (see "Exchange And Reinvestment Privilege" below). In the case of
an exchange, the length of time that the investor held the original Class C
Shares is counted towards satisfaction of the period during which a deferred
sales charge is imposed on the Class C Shares for which the exchange was
made.
Class Y Shares. Class Y Shares will be offered only to institutional
investors, at a price equal to net asset value. No front-end or deferred
sales charge is imposed on Class Y Shares. Additionally, Class Y Shares are
not subject to a Rule 12b-1 distribution fee. Net asset value will be
determined as described in the Prospectus under "Net Asset Value." The Class
Y Shares have no conversion feature, and they can only be exchanged for other
Class Y Shares without payment of applicable sales charges, if such charges
have not been previously paid.
OFFICERS AND TRUSTEES
The Trustees and executive officers of the Fund are listed below. Each of
them holds the same positions with each series of the Fund and with Flagship
Admiral Funds Inc. Except as indicated, each individual has held the office
shown or other offices in the same company for the last five years and has a
business address at One Dayton Centre, One South Main Street, Dayton, Ohio
45402-2030, which is also the address of the Fund.
7
<PAGE>
The "interested" trustees of the Fund as defined in the Investment Company
Act of 1940 (the "1940 Act") are indicated by an asterisk (*).
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with the Fund During Past Five Years
---------------------------- ------------------------ ---------------------------------------------------
<S> <C> <C>
Bruce Paul Bedford* Trustee Chairman and Chief Executive Officer of Flagship
Resources Inc. ("Flagship"), Flagship Financial
Inc. (the "Manager"), and Flagship Funds Inc. (the
"Distributor").
Richard P. Davis* Trustee and President and Chief Operating Officer of Flagship,
President the Manager, and the Distributor for more than five
years.
Robert P. Bremner Trustee Private Investor and Management Consultant.
3725 Huntington Street, NW
Washington, DC 20015
Joseph F. Castellano Trustee Professor and former Dean, College of Business and
4249 Honeybrook Avenue Administration, Wright State University.
Dayton, Ohio 45415
Paul F. Nezi Trustee Executive Vice President, Marketing Sales & Product
227 E. Dixon Avenue Development, ChoiceCare; prior to March 1993, Vice
Dayton, Ohio 45419 President and General Manager, Advanced Imaging
Products, a division of AM International; prior to
March 1991, Partner, Hooper & Nezi, a marketing and
communications firm.
William J. Schneider Trustee Senior Partner, Miller-Valentine Partners; Vice
4000 Miller-Valentine Ct. President, Miller-Valentine Realty, Inc.
P.O. Box 744
Dayton, OH 45401
M. Patricia Madden Vice President Vice President, Operations of the Distributor
Michael D. Kalbfleisch Treasurer and Secretary Vice President and Chief Financial Officer of
Flagship, the Manager and the Distributor
Sharon M. Luster Assistant Secretary Compliance Manager of the Distributor; Assistant
Secretary of Flagship, the Manager and the
Distributor
</TABLE>
8
<PAGE>
Compensation: Trustees and Officers
<TABLE>
<CAPTION>
Total Compensation
Pension or Estimated From Registrant and
Aggregate Retirement Benefit Annual Benefits Fund Complex
Name of Person, Compensation Accrued as Part of Upon Paid to Trustees
Position From Registrant Fund Expenses Retirement (Number of Other Funds)
<S> <C> <C> <C> <C>
Robert P. Bremner
Trustee $14,500 $0 N/A $20,500 (4)
Joseph F. Castellano
Trustee $13,500 $0 N/A $19,500 (4)
William J. Schneider
Trustee $14,000 $0 N/A $20,000 (4)
Paul F. Nezi
Trustee $14,000 $0 N/A $20,000 (4)
Bruce Paul Bedford
Chairman & Trustee 0 0 N/A 0
Richard P. Davis
President, Trustee 0 0 N/A 0
M. Patricia Madden
Vice President 0 0 N/A 0
Michael D.
Kalbfleisch
Treasurer &
Secretary 0 0 N/A 0
</TABLE>
As of August 3, 1995, to the knowledge of management, each of the
following persons beneficially owned the percentage noted of the fund listed
beside their name:
Alabama Fund Farley L. Berman 16.86%
1234 Champaign Ave.
Anniston, AL 36207
J.C. Bradford & Co. Cust. FBO 7.42%
Edward L. Turner Jr.
330 Commerce St.
Nashville, TN 37201
NFSC FEBO 5.24%
Lester Wooten
Rt. 2, Box 260
Decatur, AL 35603
South Carolina Fund Jeanette G. Garrison* 11.67%
1017 Stevens Creek Road
Augusta, GA 30907
Jeanette G. Garrison, Guardian* 11.67%
FBO Janece Marsha Garrison
1017 Stevens Creek Road
Augusta, GA 30907
Jeanette G. Garrison, Guardian* 11.67%
FBO Joseph Christopher Garrison
1017 Stevens Creek Road
Augusta, GA 30907
9
<PAGE>
James G. McMillan 10.12%
P.O. Box 1976
Banner Elk, NC 28604
--------------
* This person could be considered to control the South Carolina series.
As of such date, no person beneficially owned 5% or more of the
outstanding shares of the following sub-trusts of the Trust: All-American
Fund, Arizona Fund, Colorado Fund, Connecticut Fund, Florida Fund, Florida
Intermediate Fund, Georgia Fund, Intermediate Fund, Kansas Fund, Kentucky
Fund, Limited Term Fund, Louisiana Fund, Michigan Fund, Missouri Fund, New
Jersey Fund, New Jersey Intermediate Fund, New Mexico Fund, New York Fund,
North Carolina Fund, Ohio Fund, Pennsylvania Fund, Tennessee Fund, Virginia
Fund and Wisconsin Fund.
All trustees and officers as a group own less than 1% of the outstanding
shares of the Trust.
Prior to the sale of shares of any series of the Fund to the public, all
of the shares of such series of the Fund will be owned by the Manager.
10
<PAGE>
INVESTMENT ADVISORY SERVICES
As stated in the Prospectus, Flagship Financial Inc. acts as investment
adviser (the "Manager") to the Fund and each series pursuant to separate
Investment Advisory Agreements (the "Advisory Agreements") with each series.
See "How the Funds are Managed" in the Prospectus for a description of the
Manager's duties as investment adviser. The Manager's administrative
obligations include: (i) assisting in supervising all aspects of the Fund's
operations; (ii) providing the Fund, at the Manager's expense, with the
services of persons competent to perform such administrative and clerical
functions as are necessary in order to provide effective corporate
administration; and (iii) providing the Fund, at the Manager's expense, with
adequate office space and related services. The Fund's accounting records are
maintained, at the Fund's expense, by its Custodian, Boston Financial.
As compensation for the services rendered by the Manager under the
Advisory Agreements dated March 8, 1985, with respect to the All American,
Michigan and Ohio series; November 21, 1985, with respect to the Georgia,
North Carolina and Virginia series; July 25, 1986, with respect to the
Arizona series; February 2, 1987, with respect to the Colorado, Connecticut,
Kentucky and Missouri series; July 20, 1987 with respect to the New York,
Florida, Louisiana, New Jersey, and Tennessee series; June 15, 1990, with
respect to the Kansas series; May 15, 1992, with respect to the Intermediate,
New Jersey, New Jersey Intermediate, Pennsylvania and New Mexico series; June
15, 1992, with respect to the Alabama, Florida Intermediate and South
Carolina series; and February 4, 1994 with respect to the Wisconsin series;
the Manager is paid a fee, computed daily and payable monthly with respect to
each series on a separate basis, at an annual rate of .50% of the average
daily net assets of such series. As compensation for the services rendered by
the Manager under the Advisory Agreement dated July 20, 1987, with respect to
the Limited Term series, and April 21, 1995, with respect to the Kentucky
Limited Term Municipal Bond Fund, the Manager is paid a fee, computed daily
and payable monthly at an annual rate of .30% of the average daily net assets
up to $500 million plus .25% of the average daily net assets in excess of
$500 million.
For the most recent fiscal periods ended May 31, 1993, 1994, and 1995,
with respect to each series, the amounts paid to the Manager by such series
of the Fund were as follows:
State Series 1993 1994 1995
--------------- --------- --------- ----------
Alabama $ -- $ -- $ --
Arizona -- 43,162 122,032
Colorado -- -- --
Connecticut 199,861 255,441 396,094
Florida -- 314,749 633,336
Florida Intermediate -- -- --
Georgia 39,417 165,095 287,399
Kansas -- -- --
Kentucky 152,758 294,356 559,150
Louisiana -- 24,821 96,442
Michigan 593,670 645,194 729,008
Missouri -- 107,595 244,965
New Jersey -- -- --
New Jersey
Intermediate -- -- --
New Mexico -- -- 17,972
New York -- -- --
North Carolina 620,139 676,431 675,473
Ohio 1,637,396 1,901,128 1,926,295
Pennsylvania 38,843 104,513 58,095
South Carolina -- -- --
Tennessee 523,894 548,942 776,025
Virginia 117,621 133,981 211,367
Wisconsin -- -- --
National Series
---------------
All-American 143,764 267,846 420,954
Intermediate -- -- --
Limited Term 779,936 1,313,071 1,369,218
---------- ---------- ----------
TOTAL $4,847,299 $6,798,798 $8,523,825
========== ========== ==========
11
<PAGE>
The tables set forth above do not include portions of the Manager's fee
which were permanently waived by the Manager. The amounts of compensation
waived by the Manager for such period were:
State Series 1993 1994 1995
---------------------- --------- ---------- ----------
Alabama $ -- $ 107 $ 4,854
Arizona 313,951 377,569 277,079
Colorado 102,647 162,901 169,048
Connecticut 620,466 768,360 615,631
Florida 1,644,672 1,676,047 1,093,473
Florida Int. -- 2,503 19,498
Georgia 392,472 421,674 321,940
Kansas 154,728 425,046 404,085
Kentucky 1,117,934 1,521,748 1,357,696
Louisiana 232,711 290,721 240,777
Michigan 428,778 653,131 626,290
Missouri 540,339 779,519 726,130
New Jersey 4,410 18,392 31,524
New Jersey
Intermediate 12,674 40,542 45,333
New Mexico 56,556 225,840 226,715
New York 129,777 215,688 236,428
North Carolina 136,705 290,321 289,460
Ohio 202,914 404,687 375,587
Pennsylvania 155,441 111,454 164,423
South Carolina -- 23,928 37,587
Tennessee 267,995 597,902 442,963
Virginia 288,709 404,880 351,513
Wisconsin -- -- 22,083
National Series
----------------------
All-American 603,916 753,169 632,023
Intermediate 35,050 146,230 187,583
Limited Term 497,955 657,881 458,100
---------- ----------- ----------
TOTAL $7,940,800 $10,970,240 $9,357,823
========== =========== ===========
Also, under separate agreements with the following Funds, for the period
ended May 31, 1995, Manager agreed to subsidize certain expenses as set forth
below. The Manager is not obligated to subsidize such expenses and may not do
so in the future, although the Manager expects such reimbursement will
continue until these funds reach a sufficient size to maintain a normal
expense ratio to net assets.
Amount
Subsidized
5/31/95
----------------
State Series
----------------------
Alabama $ 65,116
Colorado 52,140
Florida Intermediate 98,946
Kansas 13,950
New Jersey 73,895
New Jersey
Intermediate 56,229
New Mexico 15,300
New York 138,257
South Carolina 72,306
Wisconsin 62,467
National Series
----------------------
Intermediate 71,839
--------------
Total $720,445
==============
12
<PAGE>
Each Advisory Agreement will terminate automatically upon its assignment
and its continuance must be approved annually by the Fund's trustees or a
majority of the particular series' outstanding voting shares and in either
case, by a majority of the Fund's disinterested trustees. Each Advisory
Agreement is terminable at any time without penalty by the trustees or by a
vote of a majority of the particular series' outstanding voting shares on 60
days' written notice to the Manager, or by the Manager on 60 days' written
notice to the Fund.
The Manager has advanced all organization expenses of the Fund and each
series, which include printing of documents, fees and disbursements of the
Fund's counsel and accountants, registration fees under the Securities Act of
1933, the 1940 Act, and state securities laws, as well as the initial fees of
the Fund's custodian and transfer agent. Such fees aggregated approximately
$83,600 for the Colorado series, $69,100 for the Limited Term series, $83,600
for the Missouri series, $72,000 for the Louisiana series, $285,000 for the
Florida series, $257,000 for the New York series, $42,800 for the Kansas
series, $58,900 for the New Jersey series, $32,200 for the New Jersey
Intermediate series, $51,700 for the New Mexico series, $30,700 for the
Intermediate series, $35,400 for the South Carolina series, $27,400 for the
Florida Intermediate series, $60,800 for the Alabama series, and $98,100 for
the Wisconsin series.
The expenses are being reimbursed to the Manager by uniform pro rata
deductions from the net asset value of each series of the Fund accrued daily
and paid monthly over the five-year period which commenced June 1, 1991, with
respect to the Florida, Louisiana, Limited Term, and Missouri series; June 1,
1992, with respect to the New York series; June 1, 1993, with respect to the
Colorado, Kansas and New Mexico series, and June 1, 1994, with respect to the
Intermediate Series.
The Manager has agreed that in the event the operating expenses of the
series (including fees paid to the Manager and payments to the Distributor
but excluding taxes, interest, brokerage and extraordinary expenses) for any
fiscal year ending on a date on which the related Advisory Agreement is in
effect, exceed the expense limitations imposed by applicable state securities
laws or any regulations thereunder, it will, up to the amount of its fee,
reduce its fee or reimburse the Fund in the amount of such excess.
A series may advertise its actual expenses expressed as a percentage of
its net assets and may also quote the average expense percentage of funds of
the same type as calculated by Lipper Analytical Services.
Securities held by any series may also be held by, or be appropriate
investments for, other series or other investment advisory clients of the
Manager. Because of different objectives or other factors, a particular
security may be bought for one or more clients when one or more clients are
selling the same security.
If purchases or sales of securities for any series of the Fund or other
advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
affected series and such other clients in a manner deemed equitable to all.
To the extent that transactions on behalf of more than one client of the
Manager during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse
effect on price.
DISTRIBUTOR
As stated in the Prospectus, Flagship Funds Inc. acts as the Distributor
(the "Distributor") of shares of each series in accordance with the terms of
separate Distribution Agreements with each series. The Distributor may
conduct an initial subscription period offering respecting each series of the
Fund and may thereafter make a continuous offering of such series' shares and
will be responsible for all sales and promotion efforts. The Distribution
Agreements must be approved in the same manner as the Advisory Agreements
discussed under "How the Funds are Managed" in the Prospectus and will
terminate automatically if assigned by either party thereto and are
terminable at any time without penalty by the Board of Trustees of the Fund
or by vote of a majority of the pertinent series' outstanding shares on 60
days' written notice to the Distributor and by the Distributor on 60 days'
written notice to the Fund.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan
(the "Plan") with respect to Class A Shares, Class B Shares and Class C
Shares which permits the Fund to pay for certain distribution and promotion
expenses related to marketing the Fund's shares.
The Plan authorizes each Fund to expend its monies in an amount equal to
the aggregate for all such expenditures to such percentage of each Fund's
daily net asset values attributable to each class of shares as may be
determined from time to time by vote cast in person at a meeting called for
such purpose, by a majority of the Funds' disinterested trustees. The scope
of the foregoing shall be interpreted by the trustees, whose decision shall
be conclusive except to the extent it contravenes established legal
authority. Without in any way limiting the discretion
13
<PAGE>
of the trustees, the following activities are hereby declared to be primarily
intended to result in the sale of shares of the Fund: advertising the Fund or
the Fund's investment adviser's mutual fund activities; compensating
underwriters, dealers, brokers, banks and other selling entities and sales
and marketing personnel of any of them for sales of shares of the Fund,
whether in a lump sum or on a continuous, periodic, contingent, deferred or
other basis; compensating underwriters, dealers, brokers, banks and other
servicing entities and servicing personnel (including the Fund's investment
adviser and its personnel of any of them for providing services to
shareholders of the Fund relating to their investment in the Fund, including
assistance in connection with inquiries relating to shareholder accounts; the
production and dissemination of prospectuses including statements of
additional information) of the Fund and the preparation, production and
dissemination of sales, marketing and shareholder servicing materials; and
the ordinary or capital expenses, such as equipment, rent, fixtures,
salaries, bonuses, reporting and record-keeping and third party consultancy
or similar expenses relating to any activity for which payment is authorized
by the trustees; and the financing of any activity for which payment is
authorized by the trustees. Pursuant to the Plan, each series itself through
authorized officers may make similar payments for marketing services to
non-broker-dealers who enter into service agreements with such series.
Distribution costs in the early years of any series of the Fund are likely to
be higher than the distribution fee paid to the Distributor by such series of
the Fund. For example, in the first year of operations distribution expenses
might amount to $500,000 and the fee paid by the Fund might be capped at only
$100,000 in view of the Fund's relatively small size, whereas in later years
distribution expenses might be $1 million but the distribution fee could be
even greater than $1 million in view of the growth of the Fund. All
distribution and shareholder service expenses incurred in a particular year
by the Distributor and others, such as broker-dealers or banks, in excess of
the amount paid by the Fund will be borne by such persons without any
reimbursement for such year by the Fund and without any carryover to
subsequent years.
The maximum amount payable annually by any series of the Fund under the
Plan and related agreements with respect to the Class A Shares is .40% of
such series' average daily net assets for the year attributable to such Class
A Shares. For Class B Shares, the maximum amount payable annually is .95% of
such series' average daily net assets attributable to such Class B Shares.
For Class C Shares, the maximum amount payable annually is .95% of such
series' average daily net assets attributable to such Class C Shares. In the
case of broker-dealers who have selling agreements with the Distributor and
others, such as banks, who have service agreements with any series of the
Fund, the maximum amount payable to any recipient is .001096% per day (.40%
on an annualized basis) of the proportion of average daily net assets of such
series attributable to Class A Shares represented by such person's customers.
The maximum amount payable to any such recipient with respect to Class B
Shares is .00260% per day (.95% on an annualized basis) of the proportion of
average daily net assets of such series attributable to Class B Shares
represented by such person's customers. The maximum amount payable to any
such recipient with respect to Class C Shares is .00260% per day (.95% on an
annualized basis) of the proportion of average daily net assets of such
series attributable to Class C Shares represented by such person's customers.
The Board of Trustees may reduce these amounts at any time. All distribution
expenses incurred by the Distributor and others, such as broker-dealers, in
excess of the amount paid by the Fund will be borne by such persons without
any reimbursement from the Fund or any series.
During the period ended May 31, 1995, the amounts paid to the Distributor
by each series of the Fund pursuant to the Plan were as follows:
<TABLE>
<CAPTION>
Compensation Upfront Advertising & Salaries &
to Brokers Commissions Promotions Benefits Other Total
------------ ---------- ----------------- -------------- --------- ------------
State Series
-------------
<S> <C> <C> <C> <C> <C> <C>
Alabama $ 1,591 $ $ $ $ $ 1,591
Arizona
- Class A 136,886 47,908 45,420 56,478 286,692
- Class C 13,020 13,020
Colorado 61,167 24,714 12,244 98,125
Connecticut
- Class A 391,442 75,521 111,233 210,727 788,923
- Class C 4,581 44,012 48,593
Florida 685,394 151,351 269,579 275,719 1,382,043
Florida Int.
- Class A 5,071 4,878 9,949
- Class C 893 11,284 1,125 13,302
14
<PAGE>
Compensation Upfront Advertising & Salaries &
to Brokers Commissions Promotions Benefits Other Total
------------ ---------- ----------------- -------------- --------- ------------
State Series
-------------
Georgia
- Class A $ 229,904 $ 63,566 $ 62,915 $108,291 $ 464,676
- Class C 4,103 $ 48,678 1,401 54,182
Kansas 146,761 87,597 60,812 295,170
Kentucky
- Class A 740,565 176,669 234,841 329,702 1,481,777
- Class C 21,723 93,883 6,341 121,947
Louisiana
- Class A 129,323 45,454 41,196 44,611 260,584
- Class C 327 21,417 21,744
Michigan
- Class A 474,274 116,765 171,991 189,952 952,982
- Class C 68,142 203,113 40,598 311,853
Missouri
- Class A 344,166 138,850 207,285 5,940 696,241
- Class C 26,305 26,305
New Jersey 10,635 11,775 22,410
New Jersey
Intermediate 13,860 16,609 5,812 36,281
New Mexico 97,291 42,226 42,032 14,188 195,737
New York 93,891 43,899 51,088 239 189,117
N. Carolina
- Class A 372,837 72,553 81,004 225,859 752,253
- Class C 5,219 41,607 46,826
Ohio
- Class A 860,477 166,036 242,625 465,600 1,734,738
- Class C 87,950 164,216 252,166
Pennsylvania
- Class A 75,646 45,624 33,502 154,772
- Class C 920 18,902 19,822
South
Carolina 14,657 14,797 563 30,017
Tennessee
- Class A 459,582 130,674 179,941 158,245 928,442
- Class C 20,357 84,782 3,865 109,004
Virginia
- Class A 223,856 55,797 72,829 75,512 427,994
- Class C 5,253 47,541 52,794
Wisconsin 8,837 8,489 17,326
National Series
-----------------------------
All-American
- Class A 335,664 162,614 176,442 674,720
- Class C 105,148 232,288 48,244 11,391 397,071
Intermediate 74,379 64,642 10,936 149,957
Limited Term 1,250,241 338,631 448,674 488,352 2,525,898
</TABLE>
The Plan, the Distribution Agreements, the Selling Agreements and the
Service Agreements have been approved by the Fund's trustees, including a
majority of the trustees who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the Plan or any related
agreement, by vote cast in person at a meeting called for the purpose of
voting on the Plan and such agreements. Continuation of the Plan and the
related agreements must be approved annually in the same manner, and the Plan
or any related agreement may be terminated at any time without penalty by a
majority of such disinterested trustees or by a majority of the Fund's
outstanding shares. Any amendment increasing the maximum percentage payable
under the Plan for any class of shares must be approved by a majority of each
series' outstanding shares of such class, and all other material amend-
15
<PAGE>
ments to the Plan or any related agreement must be approved by a majority of
each series' outstanding shares. Any amendment increasing the maximum must be
approved by a majority of such disinterested trustees.
In order for the Plan to remain effective, the selection and nomination of
trustees who are not "interested persons" of the Fund must be done by the
trustees who are not "interested persons" and the persons authorized to make
payments under the Plan must provide written reports at least quarterly to
the trustees for their review.
Also, in its capacity as national wholesale underwriter for shares of the
Funds, the Distributor received commissions on sales of the Funds' Class A
Shares and, if applicable, contingent deferred sales load on Class C Shares
offered on a continuous basis for the years ended May 31, 1993; 1994; and
1995 as follows (there is no historical data for Class B or Y Shares)
CLASS A SHARES
<TABLE>
<CAPTION>
1993 1994 1995
-------------------------- -------------------------- ---------------------------
Aggregate Retained Aggregate Retained Aggregate Retained
Amount By Dist. Amount By Dist. Amount By Dist.
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
State Series
--------------------
Alabama $ -- $ -- $ 14,500 $ -- $ 40,800 $ 5,600
Arizona 823,000 88,000 743,600 84,700 226,600 31,400
Colorado 384,000 49,000 326,900 43,800 95,400 13,300
Connecticut 1,290,000 147,000 1,033,000 137,900 446,500 59,500
Florida 3,103,000 311,000 2,135,700 296,700 882,000 111,900
Florida Intermediate -- -- 24,400 -- 23,300 3,200
Georgia 967,000 136,000 945,300 127,200 347,400 46,900
Kansas 1,141,000 149,000 1,400,000 185,200 384,000 51,100
Kentucky 3,201,000 445,000 3,192,800 423,600 1,304,200 174,100
Louisiana 499,000 65,000 575,400 71,400 246,500 31,500
Michigan 1,316,000 184,000 1,222,500 139,300 593,700 80,600
Missouri 2,015,000 280,000 2,103,300 278,200 892,200 119,700
New Jersey 77,000 2,000 112,100 10,800 115,700 14,700
New Jersey
Intermediate 5,000 -- 117,500 20,400 30,800 5,600
New Mexico 903,000 63,000 646,900 85,500 191,100 28,400
New York 454,000 43,000 596,817 69,217 242,700 31,800
N. Carolina 1,155,000 165,000 1,076,400 146,300 438,500 46,900
Ohio 2,837,000 387,000 2,337,100 274,500 1,065,900 141,100
Pennsylvania 185,000 20,000 173,900 20,000 118,700 15,300
S. Carolina -- -- 111,100 6,100 44,300 5,700
Tennessee 2,028,000 278,000 2,123,600 284,800 845,900 113,400
Virginia 920,000 131,000 677,600 88,700 381,200 49,800
Wisconsin 272,200 23,800
National Series
--------------------
All-American 1,095,000 147,000 1,188,000 161,798 763,400 104,100
Intermediate 394,000 43,000 460,600 89,100 171,100 34,400
Limited Term 5,276,000 1,068,000 4,055,400 818,100 797,200 160,100
----------- ----------- ----------- ----------- ------------ ------------
TOTAL $30,068,000 $4,201,000 $27,394,417 $3,863,315 $10,961,300 $1,503,900
============ =========== =========== =========== ============ ============
</TABLE>
CLASS C SHARES
1994 1995
---------------- ------------------
Contingent Contingent
Deferred Deferred
Sales Charge Sales Charge
---------------- ------------------
State Series
-------------------
Arizona $ -- $ 4,000
Connecticut 800 5,900
Florida
Intermediate 400 1,200
Georgia 600 7,300
Kentucky 5,900 6,900
Louisiana 200 1,300
Michigan 10,500 20,400
16
<PAGE>
1994 1995
---------------- ------------------
Contingent Contingent
Deferred Deferred
Sales Charge Sales Charge
---------------- ------------------
Missouri $ 100 $ 2,700
North Carolina 400 4,500
Ohio 11,600 7,800
Pennsylvania 100 800
Tennessee 3,900 16,300
Virginia 1,200 9,600
National Series
-------------------
All-American 26,000 31,500
-------------- ----------------
TOTAL $61,700 $120,200
============== ================
CUSTODIAN AND TRANSFER AGENT
Boston Financial, 225 Franklin, Boston, MA 02106, is the custodian,
transfer agent and dividend disbursing agent for each series. It also
maintains the accounting records, determines the net asset value and performs
other shareholder services for the Fund and each series.
AUDITORS
Deloitte & Touche LLP, 1700 Courthouse Plaza N.E., Dayton, OH 45402, are
the independent public accountants for the Fund and each series.
PORTFOLIO TRANSACTIONS
The obligations in which the various series invest are traded primarily in
the over-the-counter market. Portfolio securities normally are purchased
directly from dealers who make a market in the securities involved or
directly from the issuer. Such dealers are usually acting as principals for
their own account. Because such obligations are usually bought and sold on a
net basis without any brokerage commissions, the cost of portfolio
transactions to the Fund will primarily consist of dealer spreads.
Subject to policy established by the Fund's trustees, the Manager is
primarily responsible for each series' portfolio decisions and the placing of
portfolio transactions. In placing orders, it is the policy of the Fund that
the Manager obtain the best net results taking into account such factors as
price (including the dealer spread, where applicable); the size, type and
difficulty of the transaction involved; the firm's general execution and
operational facilities; and the firm's risk in the positioning of the
securities involved. While the Manager seeks reasonably competitive prices or
commissions, the Fund will not necessarily always be paying the lowest price
or commission available. The Manager does not expect to use any one
particular dealer, but, subject to obtaining the best price and execution,
dealers who provide supplemental investment research to the Fund or the
Manager may receive orders for transactions by the Fund. Information so
received will be in addition to and not in lieu of the services required to
be performed by the Manager under the Advisory Agreements and the expenses of
the Manager or any of its affiliates, acting either as principal or as paid
broker. No brokerage commissions were paid by any series of the Fund from its
respective date of commencement through the period ended May 31, 1995.
YIELD AND TOTAL RETURN CALCULATION
Each series of the Fund may include its current yield or total return in
advertisements of information furnished to stockholders or potential
investors. The yield of each series is calculated in accordance with the
Securities and Exchange Commission's standardized yield formula and, in the
case of series offering both Class A and Class C Shares, is so calculated
separately for Class A and Class C Shares. Under this formula, interest
income over a 30-day measurement period (including appropriate adjustments
for accretion of original issue discounts and amortization of market
premiums) is reduced by period expenses and divided by the number of days
within the measurement period to arrive at a daily income rate. This daily
income rate is then expressed as a semiannually compounded yield based on the
maximum offering price of a share assuming a standardized 360-day year. The
corresponding tax equivalent yield reflects the rate an investor would have
to earn on a taxable security in order to equal the same after-tax return. As
appropriate, the tax equivalent yield may reflect exemption from federal
and/or state income taxes, as well as property and/or intangible taxes.
17
<PAGE>
A series may also advertise total return for each class of shares which is
calculated differently from "average annual total return" (a "nonstandardized
quotation"). A nonstandardized quotation of total return measures the
percentage change in the value of an account between the beginning and end of
a period, assuming no activity in the account other than reinvestment of
dividends and capital gains distributions. This computation does not include
the effect of the applicable sales charges which, if included, would reduce
total return. A nonstandardized quotation of total return will always be
accompanied by the series' or class's "average annual total return." A
series' average annual total return for any time period is calculated
(separately for each class of shares) by assuming an investment at the
beginning of the measurement period at the maximum offering price. Dividends
from the net investable amount are then reinvested in additional shares each
month at the net asset value. At the end of the measurement period, the total
number of shares owned are redeemed at net asset value (less any applicable
contingent deferred sales charge). The change in total value at the end of
the investment period is then expressed as an average annual total rate of
return. Each class of each series may also quote its current yield and total
return on a tax equivalent basis assuming specified applicable Federal, state
and local tax rates and may also quote rankings, yields or returns as
published by recognized statistical services or publishers wherein a series'
performance is categorized or compared with other national or state
tax-exempt bond funds with similar investment objectives, such as Lipper
Analytical Service's Fixed Income Performance Analysis for Municipal Bond
Funds under "Short (1-5 Yr.) Municipal Bond Funds," "Intermediate (5-10 Yr.)
Municipal Bond Funds," or "Single State Municipal Bond Funds," or this same
data as quoted by Barrons, Business Week, Forbes, Fortune, Micropal, Money,
Mutual Fund, Personal Investing, Worth, Value Line Mutual Fund Survey, or
others; Weisenberger Investment Companies Service's annual Investment
Companies under "Mutual Fund Tax Exempt Bond Funds"; or Morningstar, Inc.'s
Mutual Fund Values under "Municipal Bond General Overview."
A series may also quote from articles or commentary published by these
same statistical services or publishers. In addition, a series may show, in
narrative or chart form, such series' credit rating analysis, sector
analysis, composition, portfolio holdings, coupon range, as well as
information contained in such series' audited financial report.
From time to time the tax equivalent yield and average annual total return
of any national or state tax exempt funds, may be compared to the yield of a
three-month, six-month or five-year Certificate of Deposit (a "CD"). Such
comparisons will, of course, indicate that while the principal value and
yield of the series may fluctuate, the principal value of a CD is FDIC
insured, and both its principal value and yield are fixed and stable.
Current yield and total return of each class of each series will vary from
time to time depending on market conditions, the composition of the portfolio
of the particular series, operating expenses and other factors. These factors
and possible differences in method of calculating performance figures should
be considered when comparing the performance figures of any series of the
Fund with those of other investment vehicles.
Yield and Total Return Calculation as of May 31, 1995 (there is no
historical data for Class B or Y Shares):
<TABLE>
<CAPTION>
Current Yield Average Annual Total Return
---------------------------------------
Prior 30 Days 1 Year 5 Year 10 Year Inception Date
--------------- ----------- ----------- ---------- ----------------
State Funds
-------------------
<S> <C> <C> <C> <C> <C>
Alabama 6.78% 4.20% 4.88%* N/A% Apr 11, 1994
Arizona
- Class A 5.63 5.41 7.95 7.54* Oct 29, 1986
Arizona
- Class C 5.36 8.32 2.78* N/A Feb 7, 1994
Colorado 5.95 4.95 7.52 6.73* May 4, 1987
Connecticut
- Class A 5.04 3.67 7.05 7.02* Jul 13, 1987
Connecticut
- Class C 4.72 6.53 1.77* N/A Oct 4, 1993
Florida 5.10 3.88 7.63* N/A Jun 15, 1990
Florida
Intermediate
- Class A 4.86 5.14 4.30* N/A Feb 1, 1994
Florida
Intermediate
- Class C 4.46 6.80 6.19* N/A Feb 2, 1994
Georgia
- Class A 4.83 3.76 6.97 7.17* Mar 27, 1986
18
<PAGE>
Average Annual Total Return
Current Yield ---------------------------------------
Prior 30 Days 1 Year 5 Year 10 Year Inception Date
--------------- ----------- ----------- ---------- ----------------
State Funds
-------------------
Georgia
- Class C 4.50% 6.72% 2.08%* N/A% Jan 4, 1994
Kansas 5.80 3.27 5.88* N/A Jan 9, 1992
Kentucky
- Class A 5.07 4.82 7.73 7.97* May 4, 1987
Kentucky
- Class C 4.74 7.82 2.76* N/A Oct 4, 1993
Louisiana
- Class A 5.60 4.61 8.17 7.98* Sep 12, 1989
Louisiana
- Class C 5.30 7.59 1.88* N/A Feb 2, 1994
Michigan
- Class A 4.89 4.01 7.25 8.42* Jun 27, 1985
Michigan
- Class C 4.57 6.98 4.13* N/A Jun 22, 1993
Missouri
- Class A 5.61 3.65 7.57 7.62* Aug 3, 1987
Missouri
- Class C 5.31 6.60 1.07* N/A Feb 2, 1994
New Jersey 5.62 4.58 6.29* N/A Sep 16, 1992
New Jersey
Intermediate 4.53 4.20 6.04* N/A Sep 16, 1992
New Mexico 4.88 4.66 5.49* N/A Sep 16, 1992
New York 5.69 4.18 8.39* N/A Jan 16, 1991
North Carolina
- Class A 4.68 2.94 6.82 6.69* Mar 27, 1986
North Carolina
- Class C 4.35 5.97 1.54* N/A Oct 4, 1993
Ohio
- Class A 4.57 3.45 7.17 8.24* Jun 27, 1985
Ohio
- Class C 4.23 6.50 3.96* N/A Aug 3, 1993
Pennsylvania
- Class A 6.13 3.37 7.27 6.90* Oct 29, 1986
Pennsylvania
- Class C 5.89 6.31 1.96* N/A Feb 2, 1994
South Carolina 5.26 3.98 2.15* N/A Jul 6, 1993
Tennessee
- Class A 4.82 3.51 7.11 7.78* Nov 2, 1987
Tennessee
- Class C 4.49 6.35 1.90* N/A Oct 4, 1993
Virginia
- Class A 5.04 3.45 7.44 7.33* Mar 27, 1986
Virginia
- Class C 4.71 6.40 2.26* N/A Oct 4, 1993
Wisconsin 5.01 2.84* N/A N/A Jun 1, 1994
National Funds
-------------------
All-American
- Class A 5.35 3.47 8.45 8.47* Oct 3, 1988
All-American
- Class C 5.04 6.42 4.77* N/A Jun 2, 1993
Intermediate 5.28 3.43 6.30* N/A Sep 15, 1992
Limited Term 4.75 2.78 6.66 6.77* Oct 19, 1987
</TABLE>
------------
* Inception to date
19
<PAGE>
DIVIDEND PAYMENT OPTIONS
Several dividend payment options are available to shareholders. The
activation of these options varies with the nature of a shareholder's
administrative relationship with the Fund. If the shareholder receives
periodic statements regarding the Fund from their broker/dealer, then all
dividends are automatically paid in cash unless the shareholder instructs
their broker/dealer to implement a different option. If the shareholder
receives a periodic statement directly from the Fund, then all dividends are
automatically reinvested unless the shareholder instructs the Fund to
implement a different option.
The dividend payment options are to:
1. Automatically reinvest all interest and capital gains distributions.
2. Pay interest dividends in cash, and reinvest capital gains
distributions.
3. Pay both interest and capital gains distributions in cash.
4. Direct all dividends to another Flagship tax exempt, utility, or U.S.
Government fund account which has an identical registration and tax
identification number (the $3,000 minimum initial investment applies).
5. Have dividends deposited electronically via automated clearing house
into a bank account. The Fund's Prospectus contains complete
information.
All reinvested or directed dividends will be at net asset value without
any sales charge. Your broker, or Flagship customer service representative
can help you change your option from your initial account opening
instructions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The ways in which the shares of the series of the Fund are offered to the
public is described in the Fund's Prospectus.
Purchase
The trustees of the Fund have eliminated sales charges from purchases of
$2,000,000 or more in view of the benefits to all shareholders of greater
total assets over which to spread fixed costs, the cost savings realized in
dealing with large accounts and the absence of any dilution or other adverse
effects on existing shareholders. On purchases of $2,000,000 or more
(including any applicable rights of accumulation and combination and
purchases under letters of intent), the Distributor will pay the dealer out
of the Distributor's funds an amount equal to up to .15% of the total
purchase, with the dealer required to repay such amount for any shares which
are redeemed within one year of purchase.
The Distributor offers several reduced sales charge programs as described
below.
1. Cumulative Purchase Discount (Class A Shares Only). Whenever an
individual shareholder purchases Class A Shares of any series of the Fund,
such individual shareholder may aggregate his holdings of all Class A Shares
in any other open-end mutual fund subject to a front-end sales charge
distributed by the Distributor and any current purchases of Class A Shares to
determine the applicable sales charge. A reduced sales charge will be imposed
if the aggregate amount qualifies under the rate schedule. An individual
shareholder may also aggregate the holdings of a spouse, any of their
children and parents in the same fashion when making a particular purchase.
Finally, for purposes of determining the applicable sales charge, trusts and
other fiduciaries may aggregate the holdings of each trust estate or other
fiduciary account in the same fashion even if the beneficiaries are
unrelated. Any shareholder may also combine his holdings of Class A Shares
subject to a front-end sales charge and current purchases of Class A Shares
in all such funds distributed by the Distributor in order to qualify for a
reduced sales charge on any particular purchase.
2. Letter of Intent (Class A Shares Only). A shareholder may also qualify
for reduced sales charges by sending to the Fund (within 90 days after the
first purchase desired to be included in the purchase program) a signed,
non-binding letter of intent to purchase, during a 13-month period, an amount
sufficient to qualify for a reduced sales charge. A single letter may be used
for spouses, their children and parents or any single trust estate or other
fiduciary account. All investments in Class A Shares of the Fund or in Class
A Shares of any other open-end mutual fund subject to a front-end sales
charge distributed by the Distributor count toward the indicated goal. Once
the Distributor receives the required letter of intent, it will apply to
qualifying purchases within the 13-month period the sales charge that would
be applicable to a single purchase of the total amount indicated in the
letter. During
20
<PAGE>
the period covered by the letter of intent, 5% of the shares purchased will
be restricted until the stated goal is reached. If the intended purchase
program is not completed within the 13-month period, the sales charge will be
adjusted upward as appropriate and a sufficient number of restricted shares
will be redeemed by the Fund if the shareholder does not pay the increased
sales charge.
3. Broker-dealer and Flagship Employees. In view of the reduction of
distribution expenses associated with sales of the Fund's shares to
registered representatives and full-time employees of broker/dealers who have
signed Selling agreements with the Distributor, such individuals are
permitted to purchase shares of the Fund at net asset value for their
personal accounts. The purchaser must certify to the Fund that certain
qualifications have been met and agree to certain restrictions (such as an
investment letter) in order to take advantage of this program. For similar
reasons, shares of the Fund may be purchased at net asset value and in
amounts less than the minimum purchase price by officers, trustees and
full-time employees of the Fund, the Distributor and the Manager. For this
purpose, the terms "registered representatives of broker/dealers who have
signed Dealer Agreements with the Distributor," "officers," "trustees" and
"employees" include such persons' spouses, children and parents, as well as
the trustee or custodian of any qualified pension or profit sharing plan or
IRA established for the benefit of such officer, trustee, employee, spouse,
child or parent.
4. Group Purchasers (Class A Shares Only). Members of a qualified group
may purchase shares of the Fund at a reduced sales charge applicable to the
group as a whole, if such purchases are made in an amount and manner
acceptable to the Fund. The sales charge, if any, is based on the aggregate
dollar value of shares purchased and still owned by the group, plus the
current purchase amount. Members of a qualified group may purchase shares at
net asset value (without sales charge) where the amount invested is
documented to the Fund to be proceeds from distributions of a unit investment
trust. Shares of the Fund may be purchased at net asset value (without sales
charge) by tax-qualified employee benefit plans and by trust companies and
bank trust departments for funds over which they exercise exclusive
discretionary investment authority for which they charge customary fees and
which are held in a fiduciary, agency, advisory, custodial or similar
capacity.
A "qualified group" is one which (i) has previously been in existence,
(ii) has a primary purpose other than acquiring Fund shares at a discount and
(iii) satisfies investment criteria described in the Prospectus which enables
the Distributor to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members and must agree to
comply with certain administrative requirements relating to its group
purchases. Under such purchase plans, subsequent investments will continue
until such time as the investor notifies his group to discontinue further
investments. There may be a delay between the time a member's funds are
received by the group and the time the money reaches the Fund because of a
qualified group's remittance procedures. Unless otherwise noted above, the
investment in the Fund will be made at the public offering price based on net
asset value determined on the day that the funds are received in proper form
by the Fund.
5. Redemptions from Unrelated Funds. Shares of the Fund may be purchased
at net asset value where the amount invested is documented to the Fund to be
proceeds from the redemption (within one year of the purchase of Fund shares)
of shares of unrelated investment companies on which the investor has paid
initial or contingent deferred sales charges or is no longer subject to a
CDSC.
6. Wrap Fee Accounts. Shares of the Fund may be purchased at net asset
value by broker/dealers on behalf of wrap fee client accounts for which the
broker/dealer charges a fee and performs advisory, custodial, record keeping
or other services.
Exchanges
Any Class A Shares which have been registered in a shareholder's name for
at least 15 calendar days, except shares of money market funds may be
exchanged on the basis of relative net asset value per share without a sales
charge for Class A Shares of any other tax exempt, U.S. Government, cash
management or utility fund or series thereof distributed by the Distributor
in any state where such exchange may legally be made.
An exchange between funds pursuant to the exchange privilege is treated as
a sale for federal income tax purposes and, depending upon the circumstances,
a capital gain or loss may be realized. However, shareholders who exchange
between funds within 90 days of the initial purchase date may not take as a
loss the amount of the sales charge paid, if a sales charge was assessed on
the exchanged shares. Also, if a shareholder receives tax-exempt dividends
and shares have not been held for more than six months, any loss on the sale
or exchange of such holdings shall be disallowed to the extent of the
tax-exempt dividends.
Redemption
To redeem shares, your dealer is responsible for transmitting the
redemption request to Boston Financial, the Fund's custodian, by the close of
trading on the New York Stock Exchange on a particular day in order for you
21
<PAGE>
to receive the redemption price based upon the net asset value per share
determined that day. If the dealer fails to do so, you will receive the
redemption price next calculated after your request and any other materials
are received and your entitlement to any prior day's redemption price must be
settled between you and your dealer. Your dealer may charge a service fee for
handling your redemption request.
If you meet the requirements stated below, you may redeem shares by
telephone toll free at 800-225-8530.
If you request payment by wire, proceeds will be sent by wire to a
previously designated bank or trust company account normally on the next
business day Boston Financial is open for business. The minimum amount to be
wired is $5,000. Payment by mail may also be requested by telephone, in which
case the Fund will make the redemption as of the close of business on the
date on which such request is received and will normally send a check on the
next business day in the appropriate amount to the shareholder of record at
the address listed in the most recent Application Form received for such
shareholder.
In order to use the telephone redemption procedure, an Application Form
with the expedited payment section properly completed must be on file with
Boston Financial before an expedited redemption request is submitted. This
form requires you to designate the bank or trust company account to which
your redemption proceeds should be sent. Any change in the account designated
to receive the proceeds must be submitted in proper form on a new Application
Form with signature guaranteed (see "Ordinary Redemption" for guaranty
requirements).
Neither the Fund nor Boston Financial will be responsible for the
authenticity of any redemption instructions received by telephone or for the
accuracy or authenticity of anything contained in the most recent Application
Form received from you.
For all redemptions other than through your dealer or by telephone, your
redemption request must be submitted in writing to:
Flagship Funds
c/o Boston Financial
P.O. Box 8509
Boston, MA 02266-8509
Such redemptions will be made immediately after the next determination of
net asset value, and the Fund will make payment by sending a check to you at
the address on your most recent Application Form. Checks will normally be
sent out within one business day, but in no event more than the required
settlement period as set by regulation following receipt of the redemption
request in proper form. Proceeds of redemptions of recently purchased shares
may be delayed for 15 days or more, pending collection of funds for the
initial purchase. For redemption requests over $50,000, or if the address on
your account has been changed within the past 60 days, or if the redemption
proceeds are to go to an address other than the address of record, your
signature on the redemption request must be guaranteed by a commercial bank,
trust company, savings bank or savings and loan association that is a member
of the FDIC or FSLIC, or by a member firm of a domestic national securities
exchange. In certain instances, Boston Financial may request additional
documentation which it believes necessary to insure proper authorization.
The Fund reserves the right to suspend the right of redemption and to
postpone the date of payment upon redemption for any period during which the
New York Stock Exchange is closed, other than weekend and holiday closings,
or trading on the New York Stock Exchange is restricted or during which (as
determined by the Commission by rule or regulation) and emergency exists as a
result of which disposal or evaluation of a series' portfolio securities is
not reasonably practicable, or for such other periods as the Commission by
order permits.
The Fund will use its best efforts to pay in cash for all shares redeemed,
but under abnormal conditions which make payment in cash impractical or
unwise, the Fund may make payment wholly or partly in portfolio securities at
their then market value equal, when added to any cash payment, to the
redemption price. In such cases an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high cost of handling small investments, the Fund
reserves the right to involuntarily redeem, at net asset value, the shares in
a series of any shareholder whose redemptions cause the value of its holdings
in such series to have a value of less than $1,000. Before the Fund redeems
such shares and sends the proceeds to the shareholder, the shareholder will
be given written notice that the value of the shares of such series in the
account is less than the minimum amount and will be allowed 30 days to make
an additional investment in an amount which will increase the value of his
holdings in such series to at least $1,000.
Shares purchased other than by Federal Funds wire or bank wire may not be
redeemed by telephone until 10 calendar days after the purchase of such
shares but may be redeemed pursuant to the ordinary redemption procedure
during such period.
22
<PAGE>
Price
The public offering price is based on net asset value and includes the
applicable sales charge. Because the Fund determines net asset value for each
series daily as of the close of trading (normally 4:00 p.m. New York time) on
the New York Stock Exchange on each day that the Exchange is open for
trading, your dealer must transmit your order to the Fund prior to such time
in order for your order to be executed at the public offering price based on
the net asset value to be determined that day. Any change in price due to the
failure of the Fund to receive an order prior to the close of the Exchange
must be settled between you and your dealer. Similarly, if your dealer fails
to provide timely payment (normally five business days after the order is
received), the Distributor may sell the shares to other investors at the then
current offering price. If the Distributor does so, the dealer will be
responsible to the Distributor for any loss which the Distributor incurs in
connection with the transaction, and you must settle with your dealer your
rights to shares at the price on the day you ordered them.
All funds will be fully invested in full and fractional shares. The
issuance of shares is recorded on the books of the Fund, and, to avoid
additional operating costs and for investor convenience, share certificates
will not be issued, except by special arrangement. Boston Financial will send
to each shareholder of record a confirmation of each purchase and redemption
transaction (including the aggregate number of shares owned after such
transaction) by such shareholder and a quarterly statement summarizing
purchases, redemptions and dividend accruals and distributions in the account
during the prior month.
TAXES
Each series of the Fund intends to qualify and elect to be treated as a
"regulated investment company" under Sections 851-855 of the Internal Revenue
Code of 1986, as amended (the "Code"). To so qualify, each series must, among
other things, (i) derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currency, or certain other income (including but not limited to gains from
options, futures and forward contracts) derived with respect to its business
of investing in stock, securities or currencies; (ii) derive less than 30% of
its gross income in each taxable year from the sale or other disposition of
the following assets held for less than three months: (a) stock or
securities, (b) options, futures or forward contracts on stock or securities,
or (c) foreign currencies (or foreign currency options, futures or forward
contracts) not directly related to its principal business of investing in
stock or securities; and (iii) diversify its holdings so that, at the end of
each quarter of its taxable year, the following two conditions are met: (a)
at least 50% of the value of the Fund's total assets is represented by cash,
U.S. Government securities, securities of other regulated investment
companies and other securities (for this purpose, such other securities will
qualify only if the Fund's investment is limited, in respect of any issuer,
to an amount not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer) and (b) not more than 25% of
the value of the Fund's assets is invested in securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies). Because each series of the Fund generally invests in
the obligations of a single state and its political subdivisions, it may be
more difficult for a series to comply with the above-mentioned
diversification requirements than would be the case if such series invested
in a broader category of obligations.
Corporate shareholders may also be taxed on exempt interest dividends not
otherwise considered to be a preference item since the computation of a
corporation's alternative minimum tax liability includes an adjustment
generally based on the difference between adjusted current earnings (an
alternative measure of income that includes interest on tax-exempt
obligations) and the amount otherwise determined to be alternative minimum
taxable income.
Each series intends to declare and pay dividends and capital gains
distributions so as to avoid imposition of a four percent Federal excise tax.
To do so, each series expects to distribute during the calendar year at least
an amount equal to (i) 98% of its calendar year ordinary income, (ii) 98% of
its capital gain net income (the excess of short and long-term capital gain
over short and long-term capital loss) for each one-year period ending
October 31, and (iii) 100% of any undistributed ordinary or capital gain net
income from the prior calendar year which has not been taxed to such series.
Dividends declared in October, November or December made payable to
shareholders of record in such a month, and paid in the following January
would be deemed to have been paid by the Fund and received by shareholders as
of December 31st of the year declared.
Dividends paid by any series will not qualify for the 70 percent
dividends-received deduction generally available to corporate shareholders
because none of any series' gross income will consist of dividends from
domestic corporations. Shareholders will be subject to federal and state
taxes on distributions attributable to interest earned on certificates issued
by U.S. agencies (e.g., GNMA, FNMA, and FHLMC).
23
<PAGE>
A series may engage in various defensive hedging transactions. Under
various Code provisions, such transactions may change the character of
recognized gains and losses, accelerate the recognition of certain gains and
losses, and defer the recognition of certain losses. If a shareholder
receives an exempt-interest dividend with respect to any share of a series
and such share is held by such shareholder for less than six months, any loss
on the sale or exchange of such share shall be disallowed to the extent of
such exempt-interest dividend. Also, if a capital gain dividend is paid with
respect to any shares of a series which are sold at a loss after being held
for less than six months, any loss realized upon the sale of such shares will
be treated as a long-term capital loss to the extent of such capital gain
dividend. There are special rules for determining holding periods for
purposes of these rules.
EXCHANGE AND REINVESTMENT PRIVILEGE
Any Class A Shares which have been registered in a shareholder's name for
at least 15 calendar days, may be exchanged, on the basis of relative net
asset value per share, for shares of any other tax exempt, cash management,
U.S. Government, or utility mutual fund or series thereof distributed by
Flagship Funds Inc. ("Substitute Fund") which are sold subject to an initial
sales charge in any state where such exchange may legally be made. Any Class
C Shares which have been registered in a shareholder's name for at least 15
calendar days, may be exchanged on the basis of relative net asset value per
share without the payment of any contingent deferred sales charge otherwise
due upon redemption of Class C Shares for shares of any other Substitute Fund
which are sold pursuant to a deferred sales charge arrangement in any state
where such exchange may legally be made. Shares must be on deposit at the
transfer agent before the exchange can be made. Before effecting an exchange,
a shareholder should obtain and read a current prospectus of the Substitute
Fund.
An exchange between funds pursuant to the exchange privilege is treated as
a sale for Federal income tax purposes and, depending upon the circumstances,
a short or long-term capital gain or loss may be realized. However,
shareholders who exchange between funds within 90 days of the initial
purchase date may not take as a loss the amount of the sales charge paid, if
a sales charge was assessed on the exchanged shares.
The exchange privilege may be modified or terminated at any time. The Fund
reserves the right to limit the number of times an investor may exercise the
exchange privilege. To exercise the exchange privilege, you must either
contact your dealer or broker, who will advise the Fund of the exchange, or
complete the Exchange Application available from the Fund's Transfer Agent
and submit it to the Transfer Agent. If you have certificates for any shares
being exchanged, you must surrender such certificates.
A shareholder who has redeemed Class A Shares may repurchase shares (or
shares of any other fund distributed by the Distributor or series thereof
which are sold subject to a sales charge) at net asset value without
incurring the applicable sales charge. Such a purchase must, however, be in
an amount between the stated minimum investment of such fund and the amount
of the proceeds of redemption. The reinvestment request must be received by
the Transfer Agent within one year of the redemption, and this feature may be
exercised by a shareholder only twice per calendar year. Exercising the
reinvestment privilege will not affect the character of any gain or loss
realized on the redemption for federal income tax purposes, except that if
the redemption resulted in a loss, the reinvestment may result in the loss
being disallowed under the "wash sale" rules.
For further details on exchanges and reinvestments, please contact your
dealer or call the Fund toll free at 1-800-414-7447, or for TDD call
800-360-4521.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders of any series of the Fund whose account is valued at $10,000
or more may establish a Systematic Withdrawal Plan and receive monthly or
quarterly checks for $50 or any specified greater amount. Shareholders who
establish a Systematic Withdrawal Plan must receive their distributions of
the Fund's investment income in the form of additional full and fractional
shares at net asset value without any sales charge. Such distributions and
other shares in the shareholder's account will be redeemed to the extent
necessary at net asset value on the day of the month that monthly dividends
are paid in order to pay the specified amount to be withdrawn that month
pursuant to the shareholder's Systematic Withdrawal Plan. Depending upon the
size of withdrawal payments specified, the size of the shareholder's account
and fluctuations in net asset value, such redemptions may reduce or exhaust
the shareholder's account.
24
<PAGE>
Generally, it will be disadvantageous for a shareholder to purchase shares
(except through reinvestment of distributions) while the shareholder is
participating in a Systematic Withdrawal Plan because the shareholder will be
paying a sales charge to purchase shares at the same time that the
shareholder is redeeming shares upon which the shareholder may already have
paid a sales charge. Therefore, the Fund will not knowingly permit a
shareholder to make additional investments of less than $5,000 if such
shareholder is at the same time making systematic withdrawals at a rate
greater than the dividends being paid on his shares. The Fund reserves the
right to amend or terminate the systematic withdrawal program on thirty days'
notice. Shareholders may withdraw from the program at any time or change the
payee or the specified amount of payments.
If you are interested in establishing a Systematic Withdrawal Plan, please
contact Flagship toll free at 1-800-225-8530, or for TDD call 800-360-4521.
SERVICEMARKS
Flagship Financial has obtained federal registration of combination
servicemarks for each of the state and national series described in this
prospectus. The servicemarks consist of both the full name of each fund and
an accompanying logo. In the case of the state funds, the logo is presented
as white stars on a blue field, along with red and white stripes covering an
outline of the specific state, and in the case of the national funds, a
similar design covering an outline of the United States. These servicemarks
are filed for federal registration. In addition, Flagship Financial has filed
for federal registration with regard to its use of the servicemark "Plain
Vanilla" in the investment and mutual fund area.
OTHER INFORMATION
The Prospectus and the Statement of Additional Information do not contain
all the information included in the Registration Statement filed with the SEC
under the Securities Act of 1933 and the 1940 Act with respect to the
securities offered by the Prospectus, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The Registration
Statement including the exhibits filed therewith may be examined at the
office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in the Additional Statement as
to the contents of any contract of other documents referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and the Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
25
<PAGE>
Index to Financial Statements of Sub-Trusts of
the Flagship Tax-Exempt Funds Trust and
Flagship Pennsylvania Triple Tax-Exempt Fund
Financial Statements and Independent Auditors' Report for the period
ending May 31, 1995, for the following funds:
Page
-----
Flagship Alabama Double Tax Exempt Fund ................................... F-
Flagship All-American Tax Exempt Fund ..................................... F-
Flagship Arizona Double Tax Exempt Fund ................................... F-
Flagship Colorado Double Tax Exempt Fund .................................. F-
Flagship Connecticut Double Tax Exempt Fund ............................... F-
Flagship Florida Double Tax Exempt Fund and Flagship Florida
Intermediate Tax Exempt Fund ............................................. F-
Flagship Georgia Double Tax Exempt Fund ................................... F-
Flagship Intermediate Tax Exempt Fund ..................................... F-
Flagship Kansas Triple Tax Exempt Fund .................................... F-
Flagship Kentucky Triple Tax Exempt Fund .................................. F-
Flagship Limited Term Tax Exempt Fund ..................................... F-
Flagship Louisiana Double Tax Exempt Fund ................................. F-
Flagship Michigan Triple Tax Exempt Fund .................................. F-
Flagship Missouri Double Tax Exempt Fund .................................. F-
Flagship New Jersey Intermediate Tax Exempt Fund and
Flagship New Jersey Double Tax Exempt Fund ............................... F-
Flagship New Mexico Double Tax Exempt Fund ................................ F-
Flagship New York Tax Exempt Fund ......................................... F-
Flagship North Carolina Double Tax Exempt Fund ............................ F-
Flagship Ohio Double Tax Exempt Fund ...................................... F-
Flagship Pennsylvania Triple Tax Exempt Fund .............................. F-
Flagship South Carolina Double Tax Exempt Fund ............................ F-
Flagship Tennessee Double Tax Exempt Fund ................................. F-
Flagship Virginia Double Tax Exempt Fund .................................. F-
Flagship Wisconsin Double Tax Exempt Fund ................................. F-
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF SUB-TRUSTS OF
THE FLAGSHIP TAX-EXEMPT FUNDS TRUST
Financial Statements and Independent Auditors' Report for the period
ending May 31, 1995, for the following funds:
Page
-----
Flagship Alabama Double Tax Exempt Fund F-
Flagship All-American Tax Exempt Fund F-
Flagship Arizona Double Tax Exempt Fund F-
Flagship Colorado Double Tax Exempt Fund F-
Flagship Connecticut Double Tax Exempt Fund F-
Flagship Florida Double Tax Exempt Fund
and Flagship Florida Intermediate Tax Exempt Fund F-
Flagship Georgia Double Tax Exempt Fund F-
Flagship Intermediate Tax Exempt Fund F-
Flagship Kansas Triple Tax Exempt Fund F-
Flagship Kentucky Triple Tax Exempt Fund F-
Flagship Limited Term Tax Exempt Fund F-
Flagship Louisiana Double Tax Exempt Fund F-
Flagship Michigan Triple Tax Exempt Fund F-
Flagship Missouri Double Tax Exempt Fund F-
Flagship New Jersey Intermediate Tax Exempt Fund
and Flagship New Jersey Double Tax Exempt Fund F-
Flagship New Mexico Double Tax Exempt Fund F-
Flagship New York Tax Exempt Fund F-
Flagship North Carolina Double Tax Exempt Fund F-
Flagship Ohio Double Tax Exempt Fund F-
Flagship Pennsylvania Triple Tax Exempt Fund F-
Flagship South Carolina Double Tax Exempt Fund F-
Flagship Tennessee Double Tax Exempt Fund F-
Flagship Virginia Double Tax Exempt Fund F-
Flagship Wisconsin Double Tax Exempt Fund F-
F-1
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
--------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 145 Alabama Agricultural and Mechanical University Board of Trustees Revenue - 5.500% 11/01/20 $ 142,460
Series 1995
25 Alabama State Board of Education Revenue - Shelton State Community 6.000 10/01/14 25,618
College - Series 1994
20 Auburn, AL University Revenues - Athletic - Series 1993 5.200 04/01/04 20,210
25 University of Alabama Dorm Revenue - Series 1994 6.000 11/01/13 25,421
Hospitals
--------------------------------------------------------------------------------------------------------------------
20 Huntsville, AL Health Care Authority - Health Care Facilities Revenue - 6.000 06/01/07 20,781
Series 1992 B
25 Huntsville, AL Health Care Authority - Health Care Facilities Revenue - 6.500 06/01/13 26,660
Series 1992 B
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
25 Alabama Housing Finance Authority - Single Family - Series 1994 A-1 6.600 04/01/19 26,220
85 Alabama Housing Finance Authority - Single Family Mortgage Revenue - 6.400 10/01/20 85,904
Collateralized Home Mortgage Revenue Bond Program - Series 1995 A-2
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
50 Columbia, AL Industrial Development Board Pollution Control Revenue - 6.500 09/01/23 52,180
Alabama Power Company Project - Series 1994
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
20 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/12 21,194
Revenue - Series V
20 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/18 21,146
Revenue - Series 1992 T
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
25 Alabama Water Pollution Control Authority - Revolving Fund Loan - Series 6.750 08/15/17 27,393
1994
90 Huntsville, AL Electric System Revenue - Warrants - Series 1994 6.100 12/01/10 92,240
15 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 15,322
185 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.375 07/01/24 191,453
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
50 Birmingham, AL Waterworks and Sewer Board Revenue - Series 1993 A 6.000 01/01/12 51,502
50 Birmingham, AL Waterworks and Sewer Board Revenue - Series 1994 5.500 01/01/20 48,619
45 Huntsville, AL Water System Revenue - Warrants - Series 1994 6.300 11/01/10 46,451
25 Jasper, AL Waterworks and Sewer Board, Incorporated - Water and Sewer 6.150 06/01/14 25,869
Revenue - Series 1994
50 Madison, AL Waterworks and Sewer Board Revenue - Series 1993 6.250 12/01/12 50,928
125 Prichard, AL Waterworks and Sewer Board Revenue - Series 1994 6.125 11/15/14 129,101
</TABLE>
4 Alabama
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 35 Baldwin County, AL General Obligation Warrants - Series 1994 6.350% 08/01/09 $ 37,224
20 Jefferson County, AL Board of Education - Series 1993 5.250 02/15/01 20,433
100 Montgomery, AL Downtown Redevelopment Authority - State of Alabama 5.500 10/01/13 98,572
Project - Mortgage Revenue Refunding - Series 1992
50 Tuscaloosa County, AL General Obligation Warrants - Series 1994 6.100 10/01/09 52,198
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
45 Alabama State Municipal Electric Supply 6.500 09/01/05 49,701
100 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 6.875 07/01/21 114,837
Education and Health Facilities - Series K
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
50 Alabama State School and College Authority 6.000 08/01/02 53,364
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
100 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 105,742
Total Investments in Securities - Municipal Bonds (cost $1,606,408) - 89.3% 1,678,743
Excess of Other Assets over Liabilities - 10.7% 200,824
Total Net Assets - 100.0% $1,879,567
</TABLE>
See notes to financial statements.
Alabama 5
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $1,606,408) $1,678,743
Cash 81,477
Receivable for Fund shares sold 108,478
Interest receivable 32,095
Other 2,082
Total assets 1,902,875
LIABILITIES:
Distributions payable 7,504
Accrued expenses 15,804
Total liabilities 23,308
NET ASSETS:
Applicable to 189,123 shares of beneficial
interest issued and outstanding $1,879,567
Net asset value per share $ 9.94
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 54,737
EXPENSES:
Distribution fees (Note E) 3,884
Investment advisory fees (Note E) 4,854
Custody and accounting fees 40,595
Transfer agent's fees 15,210
Registration fees 1,095
Legal fees 365
Audit fees 5,833
Trustees' fees 183
Shareholder services fees (Note E) 1,706
Other 129
Distribution and Advisory fees waived (Note E) (7,147)
Expense subsidy (Note E) (65,116)
Total expenses 1,591
Net investment income 53,146
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (14,088)
Change in unrealized appreciation (depreciation)
of investments 70,459
Net gain on investments 56,371
Net increase in net assets resulting from operations $ 109,517
See notes to financial statements.
6 Alabama
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Period From
Year Ended April 11, 1994 to
INCREASE (DECREASE) IN NET ASSETS May 31, 1995 May 31, 1994
Operations:
Net investment income $ 53,146 $ 516
Net realized loss on security transactions (14,088)
Change in unrealized appreciation
(depreciation) of investments 70,459 1,876
Net increase in net assets resulting from
operations 109,517 2,392
Distributions to shareholders:
Dividends from net investment income (52,972) (600)
Fund share transactions:
Proceeds from shares sold 1,599,456 355,446
Net asset value of shares issued in
reinvestment of distributions 23,382
Cost of shares reacquired (157,054)
Net increase in net assets from Fund share
transactions 1,465,784 355,446
Total increase in net assets 1,522,329 357,238
NET ASSETS:
Beginning of period 357,238
End of period $1,879,567 $ 357,238
NET ASSETS CONSIST OF:
Paid-in surplus $1,821,146 $ 355,362
Undistributed net investment income 174
Accumulated net realized loss on security
transactions (14,088)
Unrealized appreciation (depreciation) of
investments 72,335 1,876
$1,879,567 $ 357,238
See notes to financial statements.
Alabama 7
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Alabama Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end non-diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund commenced investment operations on April 11,
1994. Shares of beneficial interest in the Fund, which are registered under
the Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were no "when issued" purchase commitments
included in the statement of investments at May 31, 1995.
8 Alabama
<PAGE>
Notes to Financial Statements
================================================================================
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Period From
Year Ended April 11, 1994 to
May 31, 1995 May 31, 1994
Shares sold 166,351 36,973
Shares issued in reinvestment
of distributions 2,463 - 0 -
Shares reacquired (16,664) - 0 -
Net increase in shares
outstanding 152,150 36,973
Outstanding at beginning
of period 36,973 - 0 -
Outstanding at end of period 189,123 36,973
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $2,500,315 and $1,078,591, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $72,335, all of which related to
appreciated securities.
At May 31,1995, the Fund has available a capital loss carryforward of
approximately $14,100 to offset future net capital gains expiring on May 31,
2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived all of its advisory
fees amounting to $4,854. Also, under an agreement with the Fund, the
Advisor has agreed to subsidize certain expenses (excluding advisory and
distribution fees) until the Fund reaches a sufficient size to maintain a
normal expense ratio to average net assets.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor each
month for its actual expenses incurred in the distribution and promotion of
sales of the Fund's shares. The maximum amount payable for these expenses on
an annual basis is .40% of the Fund's average daily net assets. During the
year ended May 31, 1995, the Distributor, at its discretion, permanently
waived distribution fees of $2,293. Certain non-promotional expenses
directly attributable to current shareholders are aggregated by the
Distributor and passed through to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $40,800 for the year ended May 31, 1995, of which
approximately $35,200 was paid to other dealers. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($60,792) will be
reimbursed to the Advisor on a straight-line basis over a period of five
years from the first day of the year following the year in which the Fund's
net assets exceed $20 million. In the event that the Advisor's current
investment in the Trust falls below $100,000 prior to the full reimbursement
of the organizational expenses, then it will forego any further
reimbursement.
Alabama 9
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
================================================================================
Period From
Year Ended April 11, 1994 to
May 31, 1995 May 31, 1994
--------------------------------------------------------------------------------
Net asset value, beginning of period: $9.66 $9.58
Income from investment operations:
Net investment income 0.52 0.03
Net realized and unrealized gain
(loss) on securities 0.28 0.09
Total from investment operations 0.80 0.12
Less distributions:
Dividends from net investment
income (0.52) (0.04)
Total distributions (0.52) (0.04)
Net asset value, end of period $9.94 $9.66
Total return (a) 8.77% 9.34%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 0.16% 0.00%
Net investment income 5.47% 2.42%
Assuming no waivers and
reimbursements:
Expenses 7.61% 34.92%
Net investment income (1.98%) (32.50%)
Net assets at end of period (000's) $1,880 $357
Portfolio turnover rate 120.19% 0.00%
(a) The total returns shown do not
include the effect of applicable
front-end sales charge and are
annualized where appropriate.
10 Alabama
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP ALABAMA
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Alabama Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship Alabama
Double Tax Exempt Fund at May 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
Alabama 11
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Alaska
$ 310 Alaska State Housing Finance Corporation 7.800% 12/01/30 $ 326,309
California
8,000 Contra Costa, CA Home Mortgage Finance Authority - Multifamily 0.000 09/01/17 1,747,440
Mortgage Revenue - Series 1984
1,000 Sacramento, CA Cogeneration Authority - Cogeneration Project Revenue - 6.500 07/01/21 1,014,120
Procter & Gamble Project - Series 1995
100 Sacramento, CA Municipal Utility District Electric Revenue - Series V 7.875 08/15/16 112,212
Colorado
1,750 Denver, CO City and County Industrial Development Revenue - University 7.500 03/01/16 2,022,912
of Denver
Connecticut
1,410 Connecticut State Health and Educational Facilities Authority Revenue - 6.000 07/01/23 1,231,424
Quinnipiac College - Series D
2,000 Connecticut State Health and Educational Facilities Authority Revenue - 7.125 11/01/14 2,280,180
Nursing Home Program Issue - AHF/Hartford, Incorporated Project - Series 1994
Delaware
1,000 Delaware State Economic Development Authority - Water Development 6.800 12/01/23 1,040,910
Revenue - Wilmington Suburban Water - Series 1992A
District of Columbia
4,000 District of Columbia Housing Finance Agency - Mortgage Revenue - FHA 6.375 07/01/24 4,039,840
Insured Mortgage Loans - Section 8 Assisted Projects - Series 1992
1,500 District of Columbia Revenue - Howard University - Series A 7.250 10/01/20 1,579,800
1,480 District of Columbia Revenue - Georgetown University - Series 1990B 7.150 04/01/21 1,576,170
Florida
3,000 Brevard County, FL Educational Facilities Authority Revenue - Florida 6.875 11/01/22 3,078,060
Institute of Technology - Series 1992
2,295 Broward County, FL Resource Recovery Revenue 7.950 12/01/08 2,540,336
1,000 Lady Lake, FL Industrial Development Revenue - Sunbelt Utilities 9.625 07/01/15 1,247,070
1,980 Nassau County, FL Amelia Island Properties - Series 1993A 9.750 01/01/23 2,193,543
1,000 Orange County, FL Tourist Development Tax Revenue - Series B 6.500 10/01/19 1,069,900
Georgia
4,495 Georgia Municipal Electric Authority Power Revenue - Series 1994 EE 6.000 01/01/20 4,561,481
Illinois
1,750 Chicago, IL Gas Supply Revenue - Peoples Gas Light and Coke Company 8.100 05/01/20 1,978,532
1,000 Hoffman Estates Illinois - Cook and Kane Counties - Tax Increment Revenue - 7.625 11/15/09 1,080,870
Hoffman Estates Economic Development Project Area
1,000 Illinois Educational Facilities Authority Revenue - Columbia College - Series 6.875 12/01/17 1,022,010
1992
3,750 Illinois Educational Facilities Authority Revenue - Loyola College and 7.125 07/01/21 4,034,362
University - Series 1991
1,000 Illinois Health Facilities Authority Revenue - Galesburg Cottage Hospital - 6.250 05/01/11 1,022,550
Series 1992
145 Illinois Health Facilities Authority Revenue - Westlake Community Hospital 7.875 01/01/13 151,719
1,200 Romeoville, IL General Obligation - Series C 8.375 01/01/16 1,333,848
Indiana
1,000 Fishers, IN Economic Development Revenue First Mortgage 8.375 09/01/14 1,054,600
420 Franklin County, IN High School Building Corporation - Series 1992 0.000 01/01/13 139,679
420 Franklin County, IN High School Building Corporation - Series 1992 0.000 01/01/11 159,995
</TABLE>
4 All-American
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 420 Franklin County, IN High School Building Corporation - Series 1992 0.000% 07/01/11 $ 155,119
420 Franklin County, IN High School Building Corporation - Series 1992 0.000 01/01/12 149,663
420 Franklin County, IN High School Building Corporation - Series 1992 0.000 07/01/12 145,081
1,750 Indiana State Health Facilities Authority Revenue - Hancock Memorial 8.300 08/15/20 1,881,932
Hospital
1,250 Indiana Transportation Finance Authority Revenue - Airport Facilities - 6.750 11/01/11 1,322,150
Series A
2,000 Indianapolis, IN Airport Authority - Special Facilities Revenue - Federal 7.100 01/15/17 2,088,940
Express Corporation Project - Series 1994
1,000 Indianapolis, IN Airport Authority - Special Facilities Revenue - Federal 6.800 04/01/17 1,036,670
Express Corporation Project - Series 1994
1,500 Indianapolis, IN Local Public Improvement - Series 1991C 6.700 01/01/17 1,575,690
1,500 Monroe County, IN Community School Building Corporation - Series 1992 6.600 07/01/09 1,621,590
500 Monroe County, IN Hospital Authority - Bloomington Hospital - Series 1992 6.700 05/01/12 532,200
1,000 Rockport, IN Industrial Pollution Control Revenue - Indiana-Michigan Power 7.600 03/01/16 1,062,870
Kentucky
5,000 Ashland, KY Sewage and Solid Waste Revenue - Ashland Oil Inc. - Series 7.125 02/01/22 5,227,200
1995
1,530 Carroll County, KY Pollution Control Revenue - Kentucky Utilities 6.250 02/01/18 1,564,731
Company - Series 1992 B
3,250 Jefferson County, KY Health Facilities Revenue - Jewish Hospital Health 6.500 05/01/15 3,478,865
Care Services
4,500 Jefferson County, KY Capital Projects Corporation Revenue - Municipal 0.000 08/15/12 1,559,160
Lease - Series 1993 A
2,000 Jefferson County, KY Pollution Control Revenue - Louisville Gas and 5.625 08/15/19 1,934,360
Electric Company - Series 1993 B
2,500 Kenton County, KY Airport Revenue - Cincinnati/Northern Kentucky 6.300 03/01/15 2,570,750
International Airport - Series 1992 A
5,000 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue - 6.750 05/15/25 5,480,750
Sewer and Drainage System - Series 1994A
2,500 Mt. Sterling, KY League of Cities Funding Trust Lease Program Revenue - 6.200 03/01/18 2,510,575
Series 1993 B
1,500 Pendleton County, KY Multi-County Lease Revenue Program - Series 1993 A 6.500 03/01/19 1,536,765
500 Pendleton County, KY Multi-County Lease Revenue Program - Series 1993 A 6.400 03/01/19 532,990
Louisiana
2,000 Regional Transit Authority - Louisiana Revenue 8.000 12/01/08 2,249,700
Maryland
2,025* Montgomery County, MD Housing Opportunities Commission - The 6.100 07/01/15 2,026,580
Metropolitan - Housing Development - Issue 1995 A, B, and C
Massachusetts
1,000 Boston, MA Housing Development Corporation Mortgage Revenue - FHA 5.500 07/01/24 926,360
Section 8 Assisted Projects - Series 1994 A
1,500 Massachusetts Bay Transportation Authority - Series B 7.875 03/01/21 1,761,990
2,000 Massachusetts State Consumer Loan Revenue - Series 1993 A 7.625 06/01/08 2,338,900
500 Massachusetts State Health and Educational Facilities Authority Revenue - 7.700 07/01/20 577,205
Stonehill College
2,500 Massachusetts State Health and Educational Facilities Authority Revenue - 6.250 12/01/22 2,486,975
Dana-Farber Cancer Institute - Series G-1 and G-2
</TABLE>
All-American 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Michigan
$ 420 Western Townships Michigan Utility Authority - Sewer Disposal System 8.200% 01/01/18 $ 474,184
Mississippi
2,000 Claiborne County, MS Pollution Control Revenue - System Energy 7.300 05/01/25 2,045,440
Resources Incorporated - Series 1995
1,725 Gautier, MS Combined Utility District System Revenue - Jackson County - 6.375 03/01/19 1,784,944
Series 1992
Missouri
1,000 Phelps County, MO Hospital Revenue - Phelps County Regional Medical Center 8.300 03/01/20 1,170,860
Montana
265 Montana State Board of Housing - Single Family Mortgage Revenue 8.300 10/01/20 274,447
New Hampshire
700 New Hampshire Higher Educational and Health Facilities Authority Revenue - 6.000 07/01/17 623,259
Catholic Medical Center
600 New Hampshire Higher Educational and Health Facilities Authority Revenue - 7.500 01/01/16 618,432
St. Joseph Hospital
New Jersey
875 Essex County, NJ Improvement Authority - General Obligation Lease 6.600 04/01/14 905,704
Revenue - City of Newark - Series 1994
2,400 New Jersey Economic Development Authority - Electric Energy Facility 7.875 06/01/19 2,584,416
Revenue - Vineland Cogeneration Project - Series 1992
1,900 New Jersey State Housing and Mortgage Finance Agency - Home Buyer 6.600 11/01/14 1,963,061
Project - Series 1
New Mexico
1,500 Gallup, NM Pollution Control Revenue - Plains Electric Generation and 6.650 08/15/17 1,614,165
Transmission Cooperative - Series 1992
New York
2,500 Metropolitan Transit Authority of New York - Commuter Facilities Revenue - 6.500 07/01/24 2,587,675
Series 1994 A
1,900 New York City General Obligation - Series B 7.500 02/01/09 2,070,430
80 New York City General Obligation - Series D 8.500 08/01/13 83,718
685 New York City General Obligation - Series D 7.500 02/01/17 740,177
750 New York City General Obligation - Series D 7.500 02/01/18 810,412
1,750 New York City Housing Development Corporation - Multifamily 7.350 06/01/19 1,877,488
2,250 New York State Dormitory Authority Revenue - State University Educational 6.250 05/15/20 2,271,195
Facilities Revenue - Series 1994 B
2,500 New York State Dormitory Authority Revenue - Court Facilities Lease - 5.250 05/15/21 2,233,700
Series 1993 A
2,500 New York State Dormitory Authority Revenue - Department of Health - 6.625 07/01/24 2,608,700
Series 1995
1,700 New York State Local Government Assistance Corporation 6.500 04/01/15 1,771,672
1,600 New York State Mortgage Agency Revenue - Single Family - Series UU 7.750 10/01/23 1,714,944
1,500 New York State Power Authority Revenue and General Purpose 6.250 01/01/23 1,549,140
North Carolina
1,500 North Carolina Eastern Municipal Power Agency Revenue - Series A 7.250 01/01/23 1,662,705
220 North Carolina Eastern Municipal Power Agency Revenue 8.000 01/01/21 243,456
500 North Carolina Municipal Power Agency Number 1 - Catawba Electric 6.200 01/01/18 514,885
Revenue - Series 1992
1,299 Woodfin, NC Treatment Facilities - Certificates of Participation - Series 1993 6.750 12/01/13 1,371,282
</TABLE>
6 All-American
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
North Dakota
$ 730 North Dakota State Housing Finance Agency - Single Family Mortgage 8.000% 07/01/13 $ 761,485
Revenue - Series B
Ohio
740 Bowling Green, OH State University 6.700 06/01/07 807,880
800 Cleveland, OH City School District 8.250 12/01/08 971,880
1,400 Cleveland, OH Public Power System First Mortgage Revenue - Series 1994 7.000 11/15/17 1,562,512
1,350 Columbiana County, OH Jail Facilities Construction - General Obligation 6.700 12/01/24 1,445,094
Limited Tax - Series 1994
1,000 Cuyahoga County, OH Health Care Facilities Revenue - Altenheim Nursing Home 9.280 06/01/15 1,135,330
3,000 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 6.250 08/15/24 3,040,560
1,000 Cuyahoga County, OH Hospital Facilities Revenue - Fairview General 6.300 08/15/15 998,730
Hospital/Lutheran Medical Center - Series 1993
2,490 Franklin County, OH Hospital Facilities Refunding Revenue - Riverside 5.750 05/15/20 2,480,090
United Methodist Hospital - Series 1993 A
2,350 Garfield Heights, OH Hospital and Improvement Revenue - Marymont 6.700 11/15/15 2,450,086
Hospital - Series 1992 A
1,500 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series A 8.125 12/01/11 1,615,095
500 Mahoning Valley, OH Sanitary District 7.900 12/15/15 557,545
1,600 Mahoning Valley, OH Sanitary District 7.900 12/15/16 1,784,144
20 Ohio Housing Finance Agency - Single Family Mortgage Revenue - Series A 11.375 08/01/14 20,723
75 Ohio Housing Finance Agency - Single Family Mortgage Revenue - Series C 8.125 03/01/20 80,317
1,750 Ohio State Higher Educational Facilities Commission Revenue - University 6.600 12/01/17 1,907,622
of Dayton - Series 1992
2,885 Ohio State Water Development Authority Revenue - Pure Water and 5.500 12/01/18 2,851,246
Improvement - Series 1992
3,500 Shelby County, OH Hospital Facilities and Improvement Revenue - 7.700 09/01/18 3,681,265
Wilson Memorial Hospital
1,210 Zanesville-Muskingum County, OH Port Authority Industrial Development 10.250 12/01/08 1,303,387
Revenue - Anchor Glass Project - Series B
Oklahoma
120 Oklahoma Housing Finance Agency - Single Family Revenue - Series A 8.250 12/01/20 126,953
245 Oklahoma State Turnpike Authority Revenue 7.875 01/01/21 275,897
1,500 Tulsa, OK Municipal Airport Terminal Revenue - AMR Corporation/ 7.600 12/01/30 1,577,820
American Airlines
Pennsylvania
1,500 Clarion County, PA Hospital Authority Revenue - Clarion Hospital 8.100 07/01/12 1,557,225
1,000 Delaware County, PA Hospital Authority Revenue - Crozer-Chester Medical 7.500 12/15/20 1,155,950
Center
1,000 Delaware County, PA Industrial Development Authority - Pollution Control 7.375 04/01/21 1,050,420
Revenue - Philadelphia Electric Company - Series 1991 A
500 Falls Township, PA Hospital Authority Revenue - Delaware Valley Medical 7.000 08/01/22 528,310
Center - Series 1992
1,000 Latrobe, PA Industrial Development Authority Revenue - St. Vincent College 6.750 05/01/24 1,018,470
Project - Series 1994
500 Philadelphia, PA Gas Works Revenue - Thirteenth Series 7.700 06/15/21 586,185
1,700 Philadelphia, PA Gas Works Revenue - Fourteenth Series 6.375 07/01/26 1,713,056
1,365 Philadelphia, PA Water and Sewer Revenue - Tenth Series 7.350 09/01/04 1,576,575
250 Westmoreland County, PA Industrial Development Authority Revenue - 8.250 07/01/13 271,698
Citizens General Hospital
</TABLE>
All-American 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Puerto Rico
$ 150 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - 7.875% 07/01/17 $ 166,995
Series A
2,000 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/18 2,114,620
Revenue - Series 1992 T
470 Commonwealth of Puerto Rico Highway Authority - Series Q 7.750 07/01/16 547,390
500 Commonwealth of Puerto Rico Infrastructure Financing Authority - Series A 7.750 07/01/08 552,730
2,000 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 5.500 07/01/21 1,911,960
Education and Health Facilities - Series M
1,350 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.375 07/01/24 1,397,088
Rhode Island
500 Rhode Island Housing and Mortgage Finance Corporation - Homeownership 8.300 10/01/11 527,795
Series 1B
1,600 Rhode Island Housing and Mortgage Finance Corporation - Homeownership 7.850 10/01/16 1,726,864
Series 3A
South Carolina
1,975 Berkeley County, SC School District - Certificates of Participation - Berkeley 6.300 02/01/16 2,060,518
School Facilities Group, Incorporated - Series 1994
250 Charleston County, SC Solid Waste User Fee - Resources Recovery Revenue - 6.000 01/01/14 255,002
Series 1994
2,500 Mt. Pleasant, SC Water and Sewer Revenue - Series 1992 6.000 12/01/20 2,539,775
Tennessee
1,000 McMinn County, TN Industrial Development Board - Solid Waste Recycling 7.400 12/01/22 1,071,100
Facilities Revenue - Calhoun Newsprint Company - Bowater Incorporated
Project - Series 1992
1,000 Memphis-Shelby County, TN Airport Authority Special Facilities and Project 6.750 09/01/12 1,028,220
Revenue - Federal Express - Series 1992
1,000 Metropolitan Nashville and Davidson County - Tennessee Health and 6.000 10/01/22 1,009,850
Educational Facilities Board Revenue - Vanderbilt University - Series 1992A
1,110 Shelby County, TN Health, Educational and Housing Facilities Board 9.750 08/01/19 1,302,696
Revenue - Open Arms Development Center - Series 1992A
1,125 Shelby County, TN Health, Educational and Housing Facilities Board 9.750 08/01/19 1,320,300
Revenue - Open Arms Development Center - Series 1992C
1,500 Wilson County, TN Educational Facilities Corporation - Certificates of 6.250 06/30/15 1,538,475
Participation - Series 1994
Texas
500 Brazos River Authority Pollution Control - Texas Utilities Electric Company 8.125 02/01/20 547,020
2,000 Brazos River Authority Pollution Control - Texas Utilities Electric Company - 7.875 03/01/21 2,259,500
Series 1991 A
2,000 Dallas-Fort Worth, TX International Airport Facility Improvement Revenue - 7.250 11/01/30 2,065,880
American Airlines, Inc. - Series 1992
2,000 Gulf Coast, TX Waste Disposal Authority Revenue - Champion International - 6.875 12/01/28 2,062,560
Series 1992A
Utah
2,000 Carbon County, UT Solid Waste Disposal Revenue - Laidlaw, Incorporated/ 7.500 02/01/10 2,083,420
ECDC Project - Series 1995 A
Vermont
120 Vermont Housing Finance Agency - Home Mortgage - Series B 8.100 06/01/22 125,189
</TABLE>
8 All-American
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Virgin Islands
$1,000 Virgin Islands Public Finance Authority Revenue - General Obligation - 7.250% 10/01/18 $1,061,800
Series 1992 A
Virginia
3,000 Fairfax County, VA Redevelopment and Housing Authority Revenue - 6.625 09/20/20 3,105,210
Multifamily Housing - GNMA Collateralized - Mount Vernon Apartments - Series 1995
1,000 Manassas, VA Industrial Development Authority Hospital Revenue - Prince 8.125 04/01/19 1,139,670
William Hospital
2,750 Prince William County, VA Industrial Development Authority - Hospital 6.850 10/01/25 2,897,345
Facility Revenue - Potomac Hospital Corporation - Series 1995
1,000 Riverside, VA Regional Jail Authority - Jail Facility Revenue Bonds - Series 1995 6.000 07/01/25 1,016,260
1,000 Virginia College Building Authority Education Facilities Revenue - 7.000 07/01/12 1,069,900
Marymount University - Series 1992
1,400 Virginia College Building Authority Education Facilities Revenue - 7.000 07/01/22 1,477,798
Marymount University - Series 1992
1,930 Virginia State Housing Development Authority - Commonwealth Mortgage - 6.350 01/01/16 1,975,220
Series 1995 B, Subseries B-3
Washington
1,000 Grant County, WA Public Utility District Number 002 - Wanapum Hydro 7.700 01/01/18 1,094,660
Electric Revenue
1,000 Seattle, WA Municipality Metropolitan Seattle Sewer Revenue - Series S 7.375 01/01/30 1,090,740
300 Spokane, WA Regional Solid Waste Management System Revenue 7.875 01/01/07 334,890
1,500 Washington State Public Power Supply System - Nuclear Project Number 1 8.000 07/01/17 1,752,645
Revenue - Series C
1,250 Washington State Public Power Supply System - Nuclear Project Number 1 6.500 07/01/15 1,287,025
Revenue - Series A
2,000 Washington State Public Power Supply System - Nuclear Project Number 2 7.625 07/01/10 2,317,240
Revenue - Series C
West Virginia
500 Mason County, WV Pollution Control Revenue - Appalachian Power 7.400 01/01/14 531,350
Company - Series G
Wisconsin
880 Fall Creek, WI Municipal Nursing Home Mortgage Revenue 9.875 07/01/19 941,151
Wyoming
1,245 Rawlins, WY Housing Finance Corporation - Multifamily - Stage Coach 7.750 07/01/22 1,330,469
Apartments
Total Investments in Securities - Municipal Bonds (cost $212,038,324) - 98.7% 227,677,994
Excess of Other Assets over Liabilities - 1.3% 3,059,500
Total Net Assets - 100.0% $230,737,494
</TABLE>
*Securities purchased on a "when issued" basis.
See notes to financial statements.
All-American 9
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $212,038,324) $227,677,994
Cash 2,285,851
Receivable for investments sold 3,869,504
Receivable for Fund shares sold 968,268
Interest receivable 4,646,415
Other 17,234
Total assets 239,465,266
LIABILITIES:
Payable for investments purchased 7,050,738
Payable for Fund shares reacquired 388,966
Distributions payable 1,098,087
Accrued expenses 189,981
Total liabilities 8,727,772
NET ASSETS $230,737,494
Class A:
Applicable to 17,189,868 shares of beneficial
interest issued and outstanding $185,495,329
Net asset value per share $ 10.79
Class C:
Applicable to 4,195,458 shares of beneficial
interest issued and outstanding $ 45,242,165
Net asset value per share $ 10.78
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 14,282,231
EXPENSES:
Distribution fees - Class A (Note E) 674,720
Distribution fees - Class C (Note E) 397,071
Investment advisory fees (Note E) 1,052,977
Custody and accounting fees 84,625
Transfer agent's fees 149,775
Registration fees 46,490
Legal fees 2,920
Audit fees 18,250
Trustees' fees 3,909
Shareholder services fees (Note E) 25,840
Other 9,454
Advisory fees waived (Note E) (632,023)
Total expenses 1,834,008
Net investment income 12,448,223
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (2,401,225)
Change in unrealized appreciation (depreciation) of investments 7,063,617
Net gain on investments 4,662,392
Net increase in net assets resulting from operations $ 17,110,615
See notes to financial statements.
10 All-American
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statements of Changes in Net Assets
====================================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 12,448,223 $ 11,630,278
Net realized loss on security transactions (2,401,225) (390,803)
Change in unrealized appreciation (depreciation) of investments 7,063,617 (6,187,852)
Net increase in net assets resulting from operations 17,110,615 5,051,623
Distributions to shareholders:
Dividends from net investment income - Class A (10,192,392) (10,369,451)
Dividends from net investment income - Class C (2,292,789) (1,343,743)
Distributions from net realized capital gains - Class A (997,923)
Distributions from net realized capital gains - Class C (157,081)
Distributions in excess of net realized capital gains - Class A (1,603,899)
Distributions in excess of net realized capital gains - Class C (251,485)
Net decrease in net assets from distributions to shareholders - Class A (10,192,392) (12,971,273)
Net decrease in net assets from distributions to shareholders - Class C (2,292,789) (1,752,309)
Fund share transactions:
Proceeds from shares sold - Class A 62,111,690 45,266,196
Proceeds from shares sold - Class C 16,378,869 47,214,373
Net asset value of shares issued in reinvestment of distributions - Class A 5,084,125 7,093,121
Net asset value of shares issued in reinvestment of distributions - Class C 1,365,496 876,084
Cost of shares reacquired - Class A (45,427,491) (56,192,419)
Cost of shares reacquired - Class C (13,265,233) (5,551,613)
Net increase (decrease) in net assets from Fund share transactions - Class A 21,768,324 (3,833,102)
Net increase in net assets from Fund share transactions - Class C 4,479,132 42,538,844
Total increase in net assets 30,872,890 29,033,783
NET ASSETS:
Beginning of year 199,864,604 170,830,821
End of year $ 230,737,494 $ 199,864,604
NET ASSETS CONSIST OF:
Paid-in surplus $ 219,745,569 $ 193,535,071
Accumulated net realized gain (loss) on security transactions (4,647,745) (2,246,520)
Unrealized appreciation (depreciation) of investments 15,639,670 8,576,053
$ 230,737,494 $ 199,864,604
</TABLE>
See notes to financial statements.
All-American 11
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship All-American Tax Exempt Fund is a sub-trust of the Flagship Tax
Exempt Funds Trust (Trust), a Massachusetts business trust organized on
March 8, 1985. The Fund is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund commenced investment operations on October 3, 1988. On June 2, 1993,
the Fund began to offer Class C shares to the investing public. Class A
shares are sold with a front-end sales charge. Class C shares are sold with
no front-end sales charge but are assessed a contingent deferred sales
charge if redeemed within one year from the time of purchase. Both classes
of shares have identical rights and privileges except with respect to the
effect of sales charges, the distribution and/or service fees borne by each
class, expenses specific to each class, voting rights on matters affecting a
single class and the exchange privilege of each class. Shares of beneficial
interest in the Fund, which are registered under the Securities Act of 1933,
as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are
12 All-American
<PAGE>
Notes to Financial Statements
================================================================================
registered by a municipality or government agency, but have not been issued
to the public. Delivery and payment take place after the date of the
transaction and such securities are subject to market fluctuations during
this period. The current market value of these securities is determined in
the same manner as other portfolio securities. There were $2,025,000 "when
issued" purchase commitments included in the statement of investments at May
31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
Class A
Shares sold 6,061,151 4,055,493
Shares issued in reinvestment of
distributions 489,911 631,834
Shares reacquired (4,433,277) (5,048,198)
Net increase (decrease) in shares
outstanding 2,117,785 (360,871)
Outstanding at beginning
of year 15,072,083 15,432,954
Outstanding at end of year 17,189,868 15,072,083
Period From
Year Ended June 2, 1993
May 31, 1995 to May 31, 1994
Class C
Shares sold 1,586,375 4,196,964
Shares issued in reinvestment
of distributions 131,645 78,738
Shares reacquired (1,296,278) (501,986)
Net increase
in shares outstanding 421,742 3,773,716
Outstanding at beginning
of period 3,773,716 - 0 -
Outstanding at end of period 4,195,458 3,773,716
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $170,762,394 and $146,146,486, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $15,639,670 of which $15,641,830
related to appreciated securities and $2,160 related to depreciated
securities.
At May 31, 1995, the Fund has available a capital loss carryforward of
approximately $4,647,000 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $632,023 of its
advisory fees. Included in accrued expenses at May 31, 1995 are accrued
advisory fees of $38,507.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of
the Fund's average daily net assets for Class A and Class C shares,
respectively. Included in accrued expenses at May 31, 1995 are accrued
distribution
All-American 13
<PAGE>
Notes to Financial Statements
================================================================================
fees of $61,915 and $35,859 for Class A and Class C shares, respectively.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the
Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $763,400 for the year ended May 31, 1995, of which
approximately $659,300 was paid to other dealers. For the year ended May 31,
1995, the Distributor received approximately $31,500 of contingent deferred
sales charges on redemptions of Class C shares. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $10
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $365,408, with a weighted
average annualized interest rate of 6.33%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
14 All-American
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.61 $11.07 $10.40 $9.95 $9.73
Income from investment operations:
Net investment income 0.63 0.65 0.67 0.69 0.72
Net realized and unrealized gain 0.18 (0.30) 0.76 0.45 0.22
(loss) on securities
Total from investment operations 0.81 0.35 1.43 1.14 0.94
Less distributions:
Dividends from net investment (0.63) (0.65) (0.67) (0.69) (0.72)
income
Distributions from net realized (0.06) (0.09)
capital gains
Distributions in excess of net (0.10)
realized capital gains
Total distributions (0.63) (0.81) (0.76) (0.69) (0.72)
Net asset value, end of year $10.79 $10.61 $11.07 $10.40 $9.95
Total return (a) 8.01% 2.99% 14.25% 11.94% 10.10%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.76% 0.62% 0.65% 0.56% 0.42%
Net investment income 6.02% 5.77% 6.24% 6.81% 7.33%
Assuming no waivers and
reimbursements:
Expenses 1.06% 1.05% 1.05% 1.05% 1.10%
Net investment income 5.72% 5.34% 5.84% 6.32% 6.65%
Net assets at end of year (000's) $185,495 $159,867 $170,831 $129,525 $79,557
Portfolio turnover rate 70.54% 81.29% 72.49% 85.69% 93.99%
</TABLE>
(a)The total returns shown do not
include the effect of applicable
front-end sales charge.
All-American 15
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
================================================================================
Period From
Year Ended June 2, 1993 to
CLASS C May 31, 1995 May 31, 1994
--------------------------------------------------------------------------------
Net asset value, beginning of period $10.60 $11.09
Income from investment operations:
Net investment income 0.57 0.57
Net realized and unrealized gain 0.18 (0.32)
(loss) on securities
Total from investment operations 0.75 0.25
Less distributions:
Dividends from net investment (0.57) (0.57)
income
Distributions from net realized (0.07)
capital gains
Distributions in excess of net (0.10)
realized capital gains
Total distributions (0.57) (0.74)
Net asset value, end of period $10.78 $10.60
Total return (a) 7.42% 2.16%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.31% 1.09%
Net investment income 5.47% 5.16%
Assuming no waivers and
reimbursements:
Expenses 1.61% 1.63%
Net investment income 5.17% 4.62%
Net assets at end of period (000's) $45,242 $39,997
Portfolio turnover rate 70.54% 81.29%
(a)The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where appropriate.
16 All-American
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP ALL-AMERICAN
TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
All-American Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
All-American Tax Exempt Fund at May 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
All-American 17
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
--------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,500 Price-Elliott Research Park, Inc. - Arizona Revenue - Arizona State University 7.000% 07/01/21 $ 1,652,880
1,370 University of Arizona Foundation Lease Revenue 7.750 07/01/07 1,479,436
Health Care
--------------------------------------------------------------------------------------------------------------------
1,670 Cochise County, AZ Industrial Development Authority Tax-Exempt 6.750 11/20/19 1,751,930
Mortgage Revenue - GNMA Collateralized-Sierra Vista Care Center - Series 1994 A
Hospitals
--------------------------------------------------------------------------------------------------------------------
1,250 Arizona Health Facilities Authority Revenue - Arizona Voluntary Hospital 7.250 10/01/13 1,370,425
1,000 Maricopa County, AZ Industrial Development Authority Health Facilities 5.750 07/01/11 1,018,350
Revenue - Catholic Healthcare - Series 1992 A
500 Maricopa County, AZ Industrial Development Authority Health Facilities 5.625 07/01/23 494,055
Revenue - Catholic Healthcare - Series 1993 A
500 Maricopa County, AZ Industrial Development Authority Health Facilities 5.000 07/01/15 460,670
Revenue - Catholic Healthcare - Series 1994 A
2,275 Maricopa County, AZ Industrial Development Authority Hospital 7.000 12/01/16 2,686,184
Facility Revenue - Samaritan Health Services
750 Maricopa County, AZ Industrial Development Authority Hospital Facility 7.500 12/01/13 845,820
Revenue - John C. Lincoln Hospital
350 Pima County, AZ Industrial Development Authority Revenue - Tucson 5.000 04/01/15 325,406
Medical Center - Series 1993 A
500 Pima County, AZ Industrial Development Authority Revenue - Carondelet 5.250 07/01/12 486,240
Health Care Corporation - Series 1993
1,000 Scottsdale, AZ Industrial Development Authority Hospital Revenue - 8.500 09/01/17 1,100,930
Scottsdale Memorial Hospital
1,500 Scottsdale, AZ Industrial Development Authority Hospital Revenue - 5.500 09/01/12 1,498,200
Scottsdale Memorial Hospital
745 Scottsdale, AZ Industrial Development Authority Hospital Revenue - 5.250 09/01/18 710,320
Scottsdale Memorial Hospital - Series 1993
2,000 University of Arizona Medical Center Corporation - Tucson, Arizona - 5.000 07/01/21 1,818,499
Hospital Revenue - Series 1993
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
425 Phoenix, AZ Industrial Development Authority Revenue - 6.800 11/01/25 441,371
Chris Ridge Village - Series 1992
1,000 Pima County, AZ Industrial Development Authority Revenue - Multifamily 6.125 05/20/28 992,270
Mortgage - Hacienda Del Rio - Series 1993 A
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
315 Maricopa County, AZ Industrial Development Authority - 7.500 08/01/12 336,659
Single Family Mortgage Revenue
</TABLE>
4 Arizona
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 250 Casa Grande, AZ Industrial Development Authority Revenue - Frito-Lay/ 6.650% 12/01/14 $ 262,325
PepsiCo Pollution Control Project - Series 1984 A
510 Douglas, AZ Industrial Development Authority Revenue - KMart 6.500 07/01/08 516,375
Corporation - Series 1993
1,000 Mesa, AZ Industrial Development Authority - TRW Vehicle Safety Systems, Inc. 7.250 10/15/04 1,037,720
500 Mohave County, AZ Industrial Development Authority Revenue - Citizens 7.150 02/01/26 531,035
Utility Company Project
195 Navajo County, AZ Pollution Control Revenue - Arizona Public Service 5.875 08/15/28 185,314
Company - Series 1993
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------
225 Arizona State Municipal Financing Program - Certificates of Participation - 8.000 08/01/17 294,786
Series 11
850 Tucson, AZ Certificates of Participation - Series 1994 6.375 07/01/09 897,600
Municipal Revenue/Other
--------------------------------------------------------------------------------------------------------------------
375 Salt River Pima-Maricopa Indian Community - Arizona Special Obligation 7.750 02/15/97 392,516
Revenue - Phoenix Cement Company
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
500 Phoenix, AZ Airport Revenue - Series 1994 D 6.400 07/01/12 532,245
500 Tucson, AZ Airport Authority Revenue - Series B 7.125 06/01/15 544,800
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
500 Salt River Project - Arizona Agricultural Improvement and Power District - 5.750 01/01/10 511,890
Electric System Refunding Revenue - Series 1993 A
1,000 Salt River Project - Arizona Agricultural Improvement and Power District - 5.250 01/01/13 956,790
Electric System Revenue - Series 1993 B
350 Salt River Project - Arizona Agricultural Improvement and Power District - 5.000 01/01/16 317,366
Electric System Revenue - Series 1993
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
500 Central Arizona Water Conservation District Revenue - Series A 5.500 11/01/10 507,775
5 Central Arizona Water Conservation District Revenue - Series 1991 B 6.500 11/01/11 5,367
1,750 Chandler, AZ Water and Sewer Revenue 6.750 07/01/06 1,923,758
500 Cottonwood, AZ Sewer Revenue - Series 1992 6.900 07/01/03 546,130
100 Cottonwood, AZ Sewer Revenue - Series 1992 7.000 07/01/06 107,912
100 Cottonwood, AZ Sewer Revenue - Series 1992 7.000 07/01/07 107,309
3,090 Phoenix, AZ Civic Improvement Corporation - Wastewater System Lease 5.000 07/01/18 2,770,216
Revenue - Series 1993
1,500 Phoenix, AZ Civic Improvement Corporation - Wastewater System Lease 4.750 07/01/23 1,259,265
Revenue - Series 1993
500 Pima County, AZ Sewer Revenue - Series 1994 A 5.000 07/01/15 469,225
540 Pima County, AZ Sewer Revenue - Series 1991 6.750 07/01/15 581,980
800 Sedona, AZ Sewer Revenue - Series 1992 7.000 07/01/12 854,800
500 Tucson, AZ Water System Revenue 6.700 07/01/12 545,165
</TABLE>
Arizona 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,000 Tucson, AZ Water System Revenue 5.500% 07/01/10 $ 986,850
1,000 Tucson, AZ Water System Revenue - Series 1993 5.250 07/01/18 951,790
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
800 Chandler, AZ General Obligation 7.000 07/01/12 884,504
250 Cochise County, AZ Sierra Unified School District Number 68 - General 7.500 07/01/09 303,520
Obligation - Series 1992
250 Coconino and Yavapai Counties, AZ Unified School District Number 9 - 6.700 07/01/06 266,182
Sedona-Oak Creek - Series 1992 A
1,500 Maricopa County, AZ School District Number 3 - Tempe Elementary - Series 0.000 07/01/14 485,430
1994
750 Maricopa County, AZ School District Number 11 - Peoria - Series 1992 6.400 07/01/10 797,040
675 Maricopa County, AZ School District Number 11 - Peoria - Series 1992 0.000 07/01/06 370,744
1,870 Maricopa County, AZ School District Number 28 - Kyrene Elementary - Series 1993 C 0.000 01/01/09 862,388
2,000 Maricopa County, AZ School District Number 28 - Kyrene Elementary - Series 1993 0.000 01/01/10 858,980
515 Maricopa County, AZ School District Number 68 - Alhambra Elementary - Series 1994 A 6.750 07/01/14 571,511
500 Maricopa County, AZ School District Number 80 - Chandler 6.250 07/01/11 548,105
1,275 Maricopa County, AZ - School District Number 98 - Fountain Hills - Series 1992 0.000 07/01/06 700,294
125 Navajo County, AZ Unified School District Number 2 - Joseph City - Series 1992 A 6.800 07/01/01 135,444
375 Navajo County, AZ Unified School District Number 2 - Joseph City - Series 1992 A 6.800 07/01/02 407,606
500 Phoenix, AZ General Obligation - Series 1993C 5.125 07/01/16 468,450
1,000 Pima County, AZ Tucson Unified School District Number 1 - Series 1992 7.500 07/01/10 1,219,420
500 Pima County, AZ Tanque Verde Unified School District Number 13 - School 6.700 07/01/10 547,390
Improvement - Series 1994
315 Scottsdale, AZ Mountain Community Facilities District - General Obligation - 6.200 07/01/17 324,982
Series 1993A
1,925 Tatum Ranch, AZ Community Facilities District - Phoenix, Arizona - General 6.875 07/01/16 2,049,836
Obligation - Series 1991 A
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
300 Arizona State Municipal Financing Program - Certificates of Participation - 7.750 08/01/04 362,748
Series 19
500 Arizona State Transportation Board Highway Revenue 7.000 07/01/09 557,785
500 Arizona State Transportation Board Highway Revenue 6.500 07/01/11 560,680
300 Arizona State University Revenues 7.000 07/01/15 342,528
1,995 Central Arizona Water Conservation District Revenue - Series 1991 B 6.500 11/01/11 2,208,824
35 Glendale, AZ Municipal Property Corporation 8.850 07/01/08 37,381
405 Maricopa County, AZ Hospital Revenue - St. Luke's Hospital Medical Center 8.750 02/01/10 488,114
200 Maricopa County, AZ Industrial Development Authority Hospital Facility 9.250 12/01/15 209,126
Revenue - Samaritan Health Services
140 Maricopa County, AZ Industrial Development Authority Hospital Facility 12.000 01/01/08 160,086
Revenue - Samaritan Health Services
8,275 Maricopa County, AZ Industrial Development Authority - Single Family 0.000 12/31/14 2,541,335
Mortgage Revenue - Series 1983
10,800 Maricopa County, AZ Industrial Development Authority - Single Family 0.000 02/01/16 3,082,320
Mortgage Revenue
</TABLE>
6 Arizona
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,250 Maricopa County, AZ Industrial Development Authority - Mercy Health 7.150% 07/01/12 $ 1,393,225
System Revenue
750 Maricopa County, AZ School District Number 68 - Alhambra Elementary - 5.625 07/01/13 743,655
Series 1993
575 Maricopa County, AZ School District Number 214 - Tolleson Union High 6.500 07/01/09 628,826
300 Maricopa County, AZ School District Number 214 - Tolleson Union High 6.500 07/01/10 328,083
1,250 Northern Arizona University Revenue 7.500 06/01/08 1,383,950
700 Peoria, AZ Municipal Development Authority Facilities Revenue 7.000 07/01/10 775,145
500 Phoenix, AZ Various Purpose Revenue 6.250 07/01/16 541,610
100 Phoenix, AZ Street and Highway User Revenue 7.600 07/01/06 102,292
500 Phoenix, AZ Street and Highway User Revenue - Series 1992 6.250 07/01/11 525,975
650 Pima County, AZ School District Number 1 - Tucson Unified 7.200 07/01/09 728,442
460 Pima County, AZ Sewer Revenue - Series 1991 6.750 07/01/15 513,871
300 Salt River Project - Arizona Agricultural Improvement and Power District - 7.500 01/01/27 320,637
Electric System Revenue - Series A
100 Salt River Project - Arizona Agricultural Improvement and Power District - 8.250 01/01/28 109,361
Electric System Revenue - Series E
100 Salt River Project - Arizona Agricultural Improvement and Power District - 8.250 01/01/13 109,361
Electric System Revenue - Series E
450 Scottsdale, AZ Certificates of Participation - Scottsdale Municipal Property 7.875 11/01/14 482,067
Corporation
7,505 Tucson and Pima County, AZ Industrial Development Authority - Single 0.000 12/01/14 2,279,344
Family Mortgage Revenue - Series 1983 A
850 Tucson, AZ Water System Revenue 7.700 07/01/15 898,603
1,085 University of Arizona Medical Center Corporation - Tucson, Arizona - 8.100 07/01/16 1,184,060
Hospital Revenue - Series 1986
1,000 University of Arizona Medical Center Corporation - Tucson, Arizona - 8.100 07/01/16 1,091,300
Hospital Revenue - Series 1987
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
965 Bullhead City, AZ Parkway Improvement District 6.100 01/01/13 951,644
500 Chandler, AZ Sewer and Highway Users Revenue - Series 1993 6.000 07/01/11 508,240
760 Flagstaff, AZ Junior Lien and Highway User Revenue - Series 1992 5.900 07/01/10 803,654
500 Maricopa County, AZ Stadium District Revenue - Series 1993 A 5.500 07/01/13 494,890
350 Nogales, AZ Street and Highway Users Revenue - Series 1993 5.500 07/01/11 336,441
365 Nogales, AZ Street and Highway Users Revenue - Series 1993 5.500 07/01/12 345,637
460 Peoria, AZ Improvement District Number 8801 - North Valley Power Center 7.300 01/01/13 503,613
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
1,000 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 3.750 07/01/16 893,460
Education and Health Facilities - Series M
</TABLE>
Arizona 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Student Loan Revenue Bonds
--------------------------------------------------------------------------------------------------------------------
$ 370 Arizona Educational Loan Revenue - Series B 7.000% 03/01/05 $ 398,701
1,000 Arizona Student Loan Acquisition Authority Revenue - Series 1994 B 6.600 05/01/10 1,066,490
Total Investments in Securities - Municipal Bonds (cost $75,751,201) - 98.6% 80,863,279
Excess of Other Assets over Liabilities - 1.4% 1,163,106
Total Net Assets - 100.0% $ 82,026,385
</TABLE>
See notes to financial statements.
8 Arizona
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $75,751,201) $80,863,279
Receivable for investments sold 1,660,839
Receivable for Fund shares sold 154,220
Interest receivable 1,569,636
Other 44,596
Total assets 84,292,570
LIABILITIES:
Bank overdraft 28,815
Payable for investments purchased 1,704,359
Payable for Fund shares reacquired 107,131
Distributions payable 371,284
Accrued expenses 54,596
Total liabilities 2,266,185
NET ASSETS $82,026,385
Class A:
Applicable to 7,413,322 shares of beneficial
interest issued and outstanding $80,405,555
Net asset value per share $ 10.85
Class C:
Applicable to 149,462 shares of beneficial
interest issued and outstanding $ 1,620,830
Net asset value per share $ 10.84
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 5,117,489
EXPENSES:
Distribution fees-Class A (Note E) 313,577
Distribution fees-Class C (Note E) 13,564
Investment advisory fees (Note E) 399,111
Custody and accounting fees 133,700
Transfer agent's fees 69,675
Registration fees 5,350
Legal fees 548
Audit fees 16,242
Trustees' fees 1,623
Shareholder services fees (Note E) 9,728
Other 4,938
Distribution and advisory fees waived (Note E) (304,508)
Total expenses 663,548
Net investment income 4,453,941
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on security transactions 155,116
Change in unrealized appreciation (depreciation) of investments 2,669,143
Net gain on investments 2,824,259
Net increase in net assets resulting from operations $ 7,278,200
See notes to financial statements.
Arizona 9
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 4,453,941 $ 4,608,244
Net realized gain on security transactions 155,116 131,943
Change in unrealized appreciation
(depreciation) of investments 2,669,143 (3,472,370)
Net increase in net assets resulting from
operations 7,278,200 1,267,817
Distributions to shareholders:
Dividends from net investment income-Class A (4,420,414) (4,593,231)
Dividends from net investment income-Class C (72,191) (5,656)
Net decrease in net assets from distributions
to shareholders-Class A (4,420,414) (4,593,231)
Net decrease in net assets from distributions
to shareholders-Class C (72,191) (5,656)
Fund share transactions:
Proceeds from shares sold-Class A 9,000,803 22,791,816
Proceeds from shares sold-Class C 818,804 1,124,180
Net asset value of shares issued in reinvestment
of distributions-Class A 1,839,048 1,914,794
Net asset value of shares issued in reinvestment
of distributions-Class C 27,379 2,175
Cost of shares reacquired-Class A (15,834,858) (11,481,787)
Cost of shares reacquired-Class C (408,985)
Net (decrease) increase in net assets from Fund
share transactions-Class A (4,995,007) 13,224,823
Net increase in net assets from Fund share
transactions-Class C 437,198 1,126,355
Total (decrease) increase in net assets (1,772,214) 11,020,108
NET ASSETS:
Beginning of year 83,798,599 72,778,491
End of year $ 82,026,385 $ 83,798,599
NET ASSETS CONSIST OF:
Paid-in surplus $ 77,110,876 $ 81,694,806
Undistributed net investment income 12,543
Accumulated net realized gain (loss) on security
transactions (196,569) (351,685)
Unrealized appreciation (depreciation) of
investments 5,112,078 2,442,935
$ 82,026,385 $ 83,798,599
See notes to financial statements.
10 Arizona
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Arizona Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on October 29, 1986. On
February 7, 1994, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C
shares are sold with no front-end sales charge but are assessed a contingent
deferred sales charge if redeemed within one year from the time of purchase.
Both classes of shares have identical rights and privileges except with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privilege of each class.
Shares of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
Arizona 11
<PAGE>
Notes to Financial Statements
================================================================================
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were no "when issued" purchase commitments
included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 868,576 2,077,599
Shares issued in reinvestment
of distributions 178,972 175,249
Shares reacquired (1,563,719) (1,057,694)
Net (decrease) increase
in shares outstanding (516,171) 1,195,154
Outstanding at beginning
of year 7,929,493 6,734,339
Outstanding at end of year 7,413,322 7,929,493
Period From
Year Ended February 7, 1994
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 78,796 107,404
Shares issued in reinvestment
of distributions 2,677 209
Shares reacquired (39,624) - 0 -
Net increase in shares
outstanding 41,849 107,613
Outstanding at beginning
of period 107,613 - 0 -
Outstanding at end of period 149,462 107,613
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $21,312,830 and $27,377,367, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $5,112,078 of which $5,298,483
related to appreciated securities and $186,405 related to depreciated
securities.
At May 31, 1995, the Fund has available capital loss carryforwards of
approximately $196,600 to offset future net capital gains in the amounts of
$32,600 through May 31, 1997 and $164,000 through May 31, 1998.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $277,079 of its
advisory fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95%
12 Arizona
<PAGE>
Notes to Financial Statements
================================================================================
of the Fund's average daily net assets for Class A and Class C shares,
respectively. During the year ended May 31, 1995, the Distributor, at its
discretion, permanently waived distribution fees of $26,885 and $544 for
Class A and Class C shares, respectively. Included in accrued expenses at
May 31, 1995 are accrued distribution fees of $720 for Class C shares.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the
Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $226,600 for the year ended May 31, 1995, of which
approximately $195,200 was paid to other dealers. For the year ended May 31,
1995, the Distributor received $4,000 of contingent deferred sales charges
on redemptions of Class C shares. Certain officers and trustees of the Funds
are also officers and/or directors of the Distributor and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $4
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $405,447, with a weighted
average annualized interest rate of 6.16%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
Arizona 13
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.43 $10.81 $10.13 $9.81 $9.60
Income from investment operations:
Net investment income 0.58 0.60 0.63 0.65 0.64
Net realized and unrealized gain
(loss) on securities 0.42 (0.38) 0.69 0.32 0.21
Total from investment operations 1.00 0.22 1.32 0.97 0.85
Less distributions:
Dividends from net investment
income (0.58) (0.60) (0.64) (0.65) (0.64)
Total distributions (0.58) (0.60) (0.64) (0.65) (0.64)
Net asset value, end of year $10.85 $10.43 $10.81 $10.13 $ 9.81
Total return(a) 10.03% 1.92% 13.37% 10.25% 9.19%
Ratios to average net assets:
Actual net of waivers and reimbursements:
Expenses 0.82% 0.64% 0.44% 0.44% 0.78%
Net investment income 5.59% 5.48% 6.03% 6.55% 6.62%
Assuming no waivers and reimbursements:
Expenses 1.20% 1.09% 1.11% 1.20% 1.25%
Net investment income 5.21% 5.03% 5.36% 5.79% 6.15%
Net assets at end of year (000's) $80,406 $82,676 $72,778 $51,123 $38,933
Portfolio turnover rate 26.79% 21.08% 20.04% 33.75% 18.23%
</TABLE>
(a) The total returns shown do not
include the effect of applicable
front-end sales charge.
14 Arizona
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
===============================================================================
Period From
Year Ended February 7, 1994 to
CLASS C May 31, 1995 May 31, 1994
--------------------------------------------------------------------------------
Net asset value, beginning of period $10.43 $11.22
Income from investment operations:
Net investment income 0.52 0.14
Net realized and unrealized gain
(loss) on securities 0.41 (0.79)
Total from investment operations 0.93 (0.65)
Less distributions:
Dividends from net investment
income (0.52) (0.14)
Total distributions (0.52) (0.14)
Net asset value, end of period $10.84 $10.43
Total return(a) 9.32% (16.61%)
Ratios to average net assets:
(annualized where appropriate)
Actual net of waivers and reimbursements:
Expenses 1.36% 1.20%
Net investment income 5.01% 4.36%
Assuming no waivers and reimbursements:
Expenses 1.75% 1.62%
Net investment income 4.62% 3.94%
Net assets at end of period (000's) $1,621 $1,122
Portfolio turnover rate 26.79% 21.08%
(a) The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where
appropriate.
Arizona 15
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP ARIZONA
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Arizona Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship Arizona
Double Tax Exempt Fund at May 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
16 Arizona
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
--------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 500 Colorado State Colleges Board of Trustees - Adam State College 5.700% 05/15/14 $ 504,035
175 Commonwealth of Puerto Rico Industrial, Medical and Environmental - 5.600 12/01/07 174,996
Pollution Control Facilities Financing Authority - Catholic University of
Puerto Rico Project - Series 1993
250 University of Colorado - Boulder Campus Auxiliary Facilities System Revenue 7.050 06/01/15 267,635
Health Care
--------------------------------------------------------------------------------------------------------------------
250 Loveland, CO Health Care Facility Revenue - Lutheran Good Samaritan Project 8.125 09/01/04 257,162
Hospitals
--------------------------------------------------------------------------------------------------------------------
600 Colorado Health Facilities Authority Revenue - Rose Medical Center 5.125 08/15/21 621,636
500 Colorado Health Facilities Authority Revenue - Sisters of Charity Health Care - 5.250 05/15/14 481,395
Series 1994
250 Colorado Health Facilities Authority Revenue - Kaiser Permanente Medical 9.000 08/01/03 256,565
Care Project
1,000 Denver, CO City and County Hospital Revenue - Sisters of Charity Health 5.000 12/01/14 897,590
Care System - Levenworth - Series 1994
250 Pueblo County, CO Hospital Facilities Revenue - Parkview Episcopal 7.000 09/01/09 277,238
Medical Center
350 University of Colorado - Hospital Authority Revenue - Series 1992 A 6.250 11/15/12 368,092
500 Yuma County, CO Hospital District - General Obligation - Series 1994 6.400 11/01/14 535,326
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
500 Arvada, CO Multifamily Housing Revenue - Springwood Retirement 6.450 02/20/26 500,670
Community Project - Series 1995 A
100 Aurora, CO Multifamily Revenue - Dayton Plaza Project - Series A 8.250 01/20/29 107,843
500 Colorado Housing Finance Authority - MultiFamily Housing Insured 6.650 10/01/28 508,960
Mortgage Revenue - Series 1995 A
1,000 Lakewood, CO Multifamily Housing Mortgage Revenue - FHA Insured 6.650 10/01/25 1,025,270
Mortgage Loan - The Heights by Marston Lake Project - Series 1995
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
175 Colorado Housing Finance Authority - Single Family - Series A 8.125 09/01/17 185,953
355 Colorado Housing Finance Authority - Single Family - Series 1991 C 7.375 08/01/23 373,939
850 Colorado Housing Finance Authority - Single Family - Series 1991 A 0.000 11/01/06 393,533
290 Commerce City, CO Single Family Mortgage Revenue - Series 1992 A 6.875 03/01/12 302,951
155 Pueblo County, CO Single Family Mortgage Revenue - Series 1992 A 6.850 12/01/25 161,763
500 Pueblo County, CO Single Family Mortgage Revenue - GNMA and FNMA 7.050 11/01/27 533,525
Mortgage-Backed Securities Program - Series 1994 A
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
500 Denver, CO City and County Special Facilities Airport Revenue - United Air 6.875 10/01/32 504,205
Lines - Series 1992A
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------
175 Aspen, CO Certificates of Participation - Public Facilities Authority 7.000 09/01/09 188,127
200 Boulder, CO Property Authority Lease Purchase - Series B 7.400 12/01/02 213,596
100 Colorado Association of School Boards Certificates of Participation - Pueblo 7.250 12/01/09 110,302
School District Number 60
</TABLE>
4 Colorado
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 175 Jefferson County, CO Certificates of Participation - Series 1992 6.650% 12/01/08 $ 194,017
850 Commonwealth of Puerto Rico Urban Renewal and Housing 7.875 10/01/04 960,322
100 University of Colorado - Certificates of Participation - Series D 7.400 12/01/05 110,634
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
500 Colorado Springs, CO Airport Revenue - Series 1992 A 6.450 01/01/01 520,595
1,000 Guam Airport Authority General Revenue - Series 1993 B 6.600 10/01/10 1,033,150
350 Commonwealth of Puerto Rico Highway and Transportation Authority 5.250 07/01/20 321,240
Revenue - Series 1993 W
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
900 Colorado Springs, CO Utilities Revenue - Series B 6.600 11/15/18 1,037,394
500 Guam Power Authority Revenue - Series 1992 A 5.250 10/01/23 428,655
500 Guam Power Authority Revenue - Series 1992 A 6.375 10/01/08 534,190
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
120 Colorado Water Resources and Power Development Authority Revenue - 6.700 11/01/12 130,112
Series 1992A
500 Colorado Water Resources and Power Development Authority Revenue - 6.375 11/01/15 531,415
Small Water Resources - Series 1994B
250 Fountain Valley, CO Water Treatment Revenue - Series 1991 6.800 12/01/19 265,372
750 Metropolitan Wastewater Reclamation District, CO Gross Revenue - Series 4.750 04/01/12 684,075
1993 B
250 Municipal Subdistrict Northern Colorado Water Conservancy District 7.750 12/01/12 267,415
Revenue - Series D
250 Ute, CO Water Conservancy District Revenue 7.900 06/15/06 265,940
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
1,000 Adams County, CO School District Number 1 - General Obligation - Series 1992 5.250 06/01/17 933,300
450 Cherry Creek, CO Vista Park and Recreation District - General Obligation - 6.875 10/01/11 482,126
Arapahoe County - Series 1992B
500 Denver, CO City and County School District Number 1 - Series 1994 A 5.125 12/01/12 467,365
500 Douglas County, CO School District Number RE-1 - Douglas and Elbert 6.400 12/15/11 540,185
Counties - General Obligation Improvement - Series 1994 A
500 El Paso, CO School District Number RJ-1 - El Paso and Elbert Counties - 6.800 12/01/14 538,400
General Obligation - Series 1995
500 El Paso County, CO School District Number 38 - Series A 6.900 12/01/13 549,100
740 Piney Creek, CO Metropolitan District - Series 1993 5.600 12/01/14 717,807
250 Pitkin County, CO General Obligation - Open Space Refunding and 6.875 12/01/24 268,200
Improvement Revenue - Series 1994
190 Valley Metropolitan District, CO General Obligation - Series 1992 7.000 12/15/06 167,886
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
200 Adams County, CO School District Number 1 - General Obligation - Series 1992 6.500 12/01/07 223,542
2,500 Adams County, CO Multi-County Single Family Mortgage Revenue - Series 1985 0.000 06/01/16 699,925
300 Colorado Health Facilities Authority Revenue - Rose Medical Center 7.000 08/15/21 341,757
350 Colorado Health Facilities Authority Revenue - Bethesda PsycHealth Project 9.125 09/01/17 387,870
7,500 Colorado Health Facilities Authority - Retirement Facilities - Liberty Heights - 0.000 07/15/24 969,450
Series E
180 Colorado Springs, CO Utilities Revenue - Series C 6.750 11/15/21 203,434
</TABLE>
Colorado 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 100 Colorado State Board of Agriculture Revenue - Colorado State University 7.700% 04/01/09 $ 110,572
Sports Recreation Facilities
220 Colorado State Board of Agriculture Revenue - Colorado State University 7.800 03/01/11 232,082
Auxiliary Facilities - Series 1986
30 Colorado State Board of Agriculture Revenue - Colorado State University 7.800 03/01/11 31,450
Auxiliary Facilities - Series 1986
300 Colorado Water Resources and Power Development Authority Revenue - 8.000 11/01/17 339,819
Stagecoach Project - Series 1986
250 Denver, CO City and County Industrial Development Revenue - University 7.500 03/01/16 288,988
of Denver
200 Denver, CO City and County Hospital Revenue - Children's Hospital Association 8.000 10/01/15 210,908
350 Denver, CO City and County Hospital Revenue - Sisters of Charity Health 7.700 05/01/07 387,566
Care Systems - Mercy Medical Center
100 El Paso County, CO Revenue - St. Francis Hospital - Series 1988 A 7.750 05/01/14 110,947
250 Logan County, CO Health Care Facilities Revenue - Western Health Network 7.625 01/01/19 279,838
300 Parker, CO Sales and Use Tax Revenue 7.600 11/01/10 342,546
350 Poudre Valley, CO Hospital District Revenue - Series A 6.625 12/01/11 390,782
300 Commonwealth of Puerto Rico - Public Improvement 7.300 07/01/20 343,314
100 Regional Transportation District - Colorado Sales Tax Revenue 7.100 11/01/10 112,642
175 Thornton, CO Sales and Use Tax Revenue - Series D 8.000 09/01/07 188,727
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
200 Mesa County, CO Sales Tax Revenue 7.750 12/01/13 219,962
500 Steamboat Springs, CO Sales Tax and Airport Revenue - Series 1992C 6.250 12/01/08 527,505
750 Woodland Park, CO Limited Sales Tax Revenue - Series 1994 6.400 12/01/12 787,568
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
500 Guam Government - Series 1993 A 5.375 11/15/13 454,495
500 Commonwealth of Puerto Rico - General Obligation - Series 1993 5.400 07/01/07 501,735
285 Commonwealth of Puerto Rico - General Obligation - Series 1993 5.250 07/01/18 263,810
1,000 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 1,042,570
1,000 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 1,057,420
500 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 3.750 07/01/16 446,730
Education and Health Facilities - Series M
Student Loan Revenue Bonds
--------------------------------------------------------------------------------------------------------------------
1,000 Colorado Student Obligation Bond Authority - Student Loan Revenue - 5.700 12/01/06 1,016,110
Series 1993 I-B
400 Colorado Student Obligation Bond Authority - Student Loan Revenue 7.250 09/01/05 427,192
250 Colorado Student Obligation Bond Authority - Student Loan Revenue - 7.150 09/01/06 267,770
Series 1992C
Total Investments in Securities - Municipal Bonds (cost $33,393,960) - 100.1% 34,910,228
Excess of Liabilities over Other Assets - (0.1)% (18,257)
Total Net Assets - 100.0% $34,891,971
</TABLE>
*Securities purchased on a "when issued" basis.
See notes to financial statements.
6 Colorado
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $33,393,960) $34,910,228
Receivable for investments sold 5,086
Receivable for Fund shares sold 88,341
Interest receivable 628,430
Other 40,320
Total assets 35,672,405
LIABILITIES:
Bank overdraft 89,138
Payable for investments purchased 502,688
Distributions payable 167,642
Accrued expenses 20,966
Total liabilities $ 780,434
NET ASSETS:
Applicable to 3,515,301 shares of beneficial
interest issued and outstanding $34,891,971
Net asset value per share $ 9.93
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 2,195,189
EXPENSES:
Distribution fees (Note E) 135,238
Investment advisory fees (Note E) 169,048
Custody and accounting fees 56,225
Transfer agent's fees 27,690
Registration fees 2,139
Legal fees 548
Audit fees 12,775
Reimbursement of organizational
expenses (Note F) 16,717
Trustees' fees 699
Shareholder services fees (Note E) 4,560
Other 3,006
Distribution and advisory fees waived (Note E) (206,161)
Expense subsidy (Note E) (52,140)
Total expenses 170,344
Net investment income 2,024,845
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (79,900)
Change in unrealized appreciation
(depreciation) of investments 1,061,286
Net gain on investments 981,386
Net increase in net assets resulting from operations $ 3,006,231
See notes to financial statements.
Colorado 7
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 2,024,845 $ 1,858,651
Net realized loss on security transactions (79,900) (403,773)
Change in unrealized appreciation
(depreciation) of investments 1,061,286 (1,050,731)
Net increase in net assets resulting from
operations 3,006,231 404,147
Distributions to shareholders:
Dividends from net investment income (2,019,448) (1,877,224)
Distributions from net realized capital
gains (14,014)
Distributions in excess of net realized
capital gains (157,588)
Net decrease in net assets from distributions
to shareholders (2,019,448) (2,048,826)
Fund share transactions:
Proceeds from shares sold 4,171,350 13,971,811
Net asset value of shares issued in
reinvestment of distributions 990,289 1,001,131
Cost of shares reacquired (7,052,217) (4,188,396)
Net (decrease) increase in net assets from
Fund share transactions (1,890,578) 10,784,546
Total (decrease) increase in net assets (903,795) 9,139,867
NET ASSETS:
Beginning of year 35,795,766 26,655,899
End of year $ 34,891,971 $ 35,795,766
NET ASSETS CONSIST OF:
Paid-in surplus $ 34,011,567 $ 35,902,145
Undistributed net investment income 5,397
Accumulated net realized gain (loss)
on security transactions (641,261) (561,361)
Unrealized appreciation (depreciation)
of investments 1,516,268 454,982
$ 34,891,971 $ 35,795,766
See notes to financial statements.
8 Colorado
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Colorado Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on May 4, 1987. Shares of
beneficial interest in the Fund, which are registered under the Securities
Act of 1933, as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were $500,000 "when issued" purchase
commitments included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Colorado 9
<PAGE>
Notes to Financial Statements
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
Shares sold 439,378 1,388,048
Shares issued in reinvestment
of distributions 104,858 98,811
Shares reacquired (749,821) (420,703)
Net (decrease) increase
in shares outstanding (205,585) 1,066,156
Outstanding at beginning
of year 3,720,886 2,654,730
Outstanding at end of year 3,515,301 3,720,886
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $12,699,083 and $14,422,494, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $1,516,268 of which $1,810,953
related to appreciated securities and $294,685 related to depreciated
securities.
At May 31, 1995, the Fund has available a capital loss carryforward of
approximately $641,300 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived all of its advisory
fees amounting to $169,048. Also, under an agreement with the Fund, the
Advisor has agreed to subsidize certain expenses (excluding advisory and
distribution fees) until the Fund reaches a sufficient size to maintain a
normal expense ratio to average net assets.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor each
month for its actual expenses incurred in the distribution and promotion of
sales of the Fund's shares. The maximum amount payable for these expenses on
an annual basis is .40% of the Fund's average daily net assets. During the
year ended May 31, 1995, the Distributor, at its discretion, permanently
waived distribution fees of $37,113. Certain non-promotional expenses
directly attributable to current shareholders are aggregated by the
Distributor and passed through to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $95,400 for the year ended May 31, 1995, of which
approximately $82,100 was paid to other dealers. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($83,600) are
being reimbursed to the Advisor on a straight-line basis over a period of
five years. As of May 31, 1995, $33,434 has been reimbursed. In the event
that the Advisor's current investment in the Trust falls below $100,000
prior to the full reimbursement of the organizational expenses, then it will
forego any further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $2
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $109,134, with a weighted
average annualized interest rate of 6.12%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
10 Colorado
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.62 $10.04 $9.56 $9.29 $9.13
Income from investment operations:
Net investment income 0.57 0.58 0.60 0.61 0.60
Net realized and unrealized gain
(loss) on securities 0.30 (0.37) 0.55 0.27 0.17
Total from investment operations
Less distributions: 0.87 0.21 1.15 0.88 0.77
Dividends from net investment
income
Distributions from net realized
capital gains (0.56) (0.58) (0.60) (0.61) (0.61)
Distributions in excess of net
realized capital gains (0.07)
Total distributions (0.05)
Net asset value, end of year (0.56) (0.63) (0.67) (0.61) (0.61)
Total return(a) $9.93 $9.62 $10.04 $9.56 $9.29
Ratios to average net assets: 9.54% 2.03% 12.41% 9.80% 8.75%
Actual net of waivers and
reimbursements:
Expenses 0.50% 0.37% 0.41% 0.49% 0.84%
Net investment income 5.99% 5.71% 6.05% 6.42% 6.62%
Assuming no waivers and
reimbursements:
Expenses 1.27% 1.27% 1.35% 1.51% 1.80%
Net investment income 5.22% 4.81% 5.11% 5.40% 5.66%
Net assets at end of year (000's) $34,892 $35,796 $26,656 $15,699 $9,108
Portfolio turnover rate 37.84% 41.76% 30.49% 39.07% 29.11%
</TABLE>
(a) The total returns shown do not
include the effect of applicable
front-end sales charge.
Colorado 11
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP COLORADO
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Colorado Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the years presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
Colorado Double Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated years, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
12 Colorado
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 250 Connecticut State Health and Educational Facilities Authority Revenue - 6.900% 07/01/14 $ 257,340
Fairfield University - Series F
500 Connecticut State Health and Educational Facilities Authority Revenue - 6.000 07/01/13 466,555
Quinnipiac College - Series D
5,575 Connecticut State Health and Educational Facilities Authority Revenue - 6.000 07/01/23 4,868,926
Quinnipiac College - Series D
500 Connecticut State Health and Educational Facilities Authority Revenue - 7.000 01/01/20 549,595
Capital Asset - Series C
500 Connecticut State Health and Educational Facilities Authority Revenue - 5.700 07/01/16 438,830
Sacred Heart University - Series 1993 B
1,500 Connecticut State Health and Educational Facilities Authority Revenue - 5.500 07/01/09 1,416,990
Sacred Heart University - Series 1993 B
500 Connecticut State Health and Educational Facilities Authority Revenue - 5.800 07/01/23 425,575
Sacred Heart University - Series 1993 B
1,000 Connecticut State Health and Educational Facilities Authority Revenue - 6.000 07/01/12 1,023,820
Trinity College - Series C
2,000 Connecticut State Health and Educational Facilities Authority Revenue - 5.929 06/10/30 2,010,780
Yale University
6,475 Connecticut State Health and Educational Facilities Authority Revenue - 6.750 07/01/12 6,346,083
Hartford University - Series 1992 D
4,000 Connecticut State Health and Educational Facilities Authority Revenue - 6.125 07/01/24 4,098,320
Trinity College - Series D
1,000 Connecticut State Health and Educational Facilities Authority Revenue - 6.850 07/01/22 1,045,260
Sacred Heart University - Series 1992 A
2,000 Connecticut State Health and Educational Facilities Authority Revenue - 6.000 07/01/25 2,032,520
The Loomis Chaffee School Issue - Serie B
Health Care
---------------------------------------------------------------------------------------------------------------------
1,000 Connecticut State Health and Educational Facilities Authority Revenue - 6.250 11/01/21 1,032,070
Nursing Home Program Issue - Sharon Health Care Project - Series 1994
5,000 Connecticut State Health and Educational Facilities Authority Revenue - 6.250 11/01/16 5,202,600
Nursing Home Program Issue - Saint Joseph's Manor Project - Series 1994
3,695 Connecticut State Health and Educational Facilities Authority Revenue - 6.250 11/01/18 3,822,847
Nursing Home Program Issue - Saint Camillus Health Center Project - Series 1994
3,000 Connecticut State Health and Educational Facilities Authority Revenue - 6.250 11/01/20 3,096,210
Nursing Home Program Issue - Jewish Home for the Elderly of Fairfield
County Project - Series 1994
1,500 Connecticut State Health and Educational Facilities Authority Revenue - Nursing 7.200 11/01/10 1,723,785
Home Program Issue - Highland View Manor, Incorporated Project - Series 1994
4,200 Connecticut State Health and Educational Facilities Authority Revenue - Nursing 7.500 11/01/16 4,960,284
Home Program Issue - Highland View Manor, Incorporated Project - Series 1994
1,100 Connecticut State Health and Educational Facilities Authority Revenue - Nursing 7.200 11/01/10 1,264,109
Home Program Issue - Wadsworth Glen Health Care Center Project - Series 1994
1,000 Connecticut State Health and Educational Facilities Authority Revenue - Nursing 7.500 11/01/16 1,181,020
Home Program Issue - Wadsworth Glen Health Care Center Project - Series 1994
2,000 Connecticut State Health and Educational Facilities Authority Revenue - Nursing 7.125 11/01/24 2,292,200
Home Program Issue - AHF/Hartford, Incorporated Project - Series 1994
7,000 Connecticut Development Authority - Duncaster - Series 1992 6.750 09/01/15 7,187,740
</TABLE>
4 Connecticut
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Hospitals
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 100 Connecticut State Health and Educational Facilities Authority Revenue - 7.600% 07/01/03 $ 104,863
St. Mary's Hospital - Issue B
2,600 Connecticut State Health and Educational Facilities Authority Revenue - 7.000 07/01/20 2,849,132
Bristol Hospital - Series A
190 Connecticut State Health and Educational Facilities Authority Revenue - 7.375 07/01/20 191,906
St. Mary's Hospital - Series C
5,500 Connecticut State Health and Educational Facilities Authority Revenue - 7.100 07/01/25 6,053,850
Yale-New Haven Hospital - Issue F
1,750 Connecticut State Health and Educational Facilities Authority Revenue - 7.000 07/01/20 1,917,685
Waterbury Hospital - Issue B
900 Connecticut State Health and Educational Facilities Authority Revenue - 6.625 07/01/14 961,083
St. Raphael Hospital - Series D
280 Connecticut State Health and Educational Facilities Authority Revenue - 6.500 07/01/14 296,187
Danbury Hospital - Series E
3,500 Connecticut State Health and Educational Facilities Authority Revenue - 6.250 07/01/12 3,649,905
Middlesex Hospital - Series G
2,000 Connecticut State Health and Educational Facilities Authority Revenue - 6.625 07/01/18 2,142,820
Bridgeport Hospital - Series A
4,200 Connecticut State Health and Educational Facilities Authority Revenue - 6.000 07/01/24 4,264,218
New Britain Hospital - Series B
1,100 Connecticut State Health and Educational Facilities Authority Revenue - 6.000 07/01/12 1,069,046
William W. Backus Hospital - Series 1992 C
Housing/Multifamily
---------------------------------------------------------------------------------------------------------------------
1,110 Connecticut State Housing Finance Authority - Series 1991A 7.200 11/15/08 1,187,422
1,000 Connecticut State Housing Finance Authority - Series 1991C 6.700 11/15/22 1,043,320
2,250 Connecticut State Housing Finance Authority - Series 1993 A 6.200 05/15/14 2,281,590
1,065 Connecticut State Housing Finance Authority - Series C 7.625 11/15/17 1,114,267
225 Connecticut State Housing Finance Authority - Series B1 7.550 11/15/08 235,534
995 Connecticut State Housing Finance Authority - Series A-2 6.050 11/15/25 979,995
3,750 Connecticut State Housing Finance Authority - Series A 6.100 05/15/17 3,779,662
1,570 Connecticut State Housing Finance Authority - Subseries B-2 6.750 05/15/22 1,644,214
1,500 New Britain, CT Senior Citizens Housing Development Mortgage Revenue - 6.875 07/01/24 1,563,465
Nathan Hale Apartments - Series 1992A
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
3,250 Connecticut State Development Authority Pollution Control Revenue - 7.250 10/15/15 3,450,265
New England Power Company
770 Connecticut State Development Authority Water Facility Revenue - 7.250 06/01/20 818,225
Bridgeport Hydraulic Company
2,000 Connecticut State Development Authority Water Facility Revenue - 6.650 12/15/20 2,174,460
Connecticut Water Company
2,250 Connecticut State Development Authority - Solid Waste Disposal Facilities 7.000 07/01/25 2,445,300
Revenue - Pfizer Incorporated Project - Series 1994
Municipal Revenue/Other
---------------------------------------------------------------------------------------------------------------------
1,690 Connecticut State Development Authority Revenue - Jewish Community 6.600 09/01/17 1,775,852
Center - Greater New Haven - Series 1992
460 New Haven, CT Facility Revenue - Easter Seal Goodwill Industries 8.500 04/01/01 480,019
Rehabilitation Center Project
</TABLE>
Connecticut 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 995 New Haven, CT Facility Revenue - Easter Seal Goodwill Industries 8.875% 04/01/16 $ 1,074,411
Rehabilitation Center Project
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
1,250 Guam Airport Authority General Revenue - Series 1993 A 6.700 10/01/23 1,283,575
1,000 Commonwealth of Puerto Rico Highway and Transportation Authority 5.750 07/01/18 982,380
Revenue - Series V
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
500 Connecticut State Municipal Electric Energy Cooperative - Power Supply 7.000 01/01/16 517,340
System Revenue - Series A
1,000 Commonwealth of Puerto Rico Electric Power Authority - Series N 5.000 07/01/12 913,930
2,800 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 2,860,060
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
1,000 Connecticut State Clean Water Revenue 7.000 01/01/11 1,087,010
1,000 Connecticut State Clean Water Revenue 6.125 02/01/12 1,038,600
1,000 Connecticut State Clean Water Revenue - Series 1994 5.800 06/01/16 1,012,980
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
325 Canterbury, CT General Obligation 7.200 05/01/09 380,305
225 East Haven, CT General Obligation 7.000 09/15/02 243,614
300 East Haven, CT General Obligation 7.000 09/15/05 321,228
200 Glastonbury, CT General Obligation 7.200 08/15/06 236,622
200 Glastonbury, CT General Obligation 7.200 08/15/07 237,190
200 Glastonbury, CT General Obligation 7.200 08/15/08 237,424
200 Griswold, CT General Obligation 7.500 04/01/02 231,882
200 Griswold, CT General Obligation 7.500 04/01/03 234,322
200 Griswold, CT General Obligation 7.500 04/01/04 236,272
150 Griswold, CT General Obligation 7.500 04/01/05 178,192
340 Middletown, CT General Obligation 6.900 04/15/06 389,647
645 New Haven, CT General Obligation 7.200 10/01/07 706,810
1,000 New Haven, CT General Obligation 6.900 08/01/09 1,098,130
500 New Haven, CT General Obligation 6.900 08/01/10 547,505
3,105 New Haven, CT General Obligation 7.400 08/15/11 3,368,459
1,000 New Haven, CT General Obligation - Series 1992 A 9.250 03/01/02 1,227,360
1,000 New Haven, CT General Obligation - Series 1992 A 7.400 03/01/12 1,085,420
1,250 New Haven, CT General Obligation - Series 1995 5.750 02/15/14 1,262,600
1,250 New Haven, CT General Obligation - Series 1995 5.750 02/15/15 1,259,412
120 New London, CT General Obligation 7.300 12/01/05 141,902
100 New London, CT General Obligation 7.300 12/01/07 118,922
140 Newtown, CT General Obligation 7.000 06/15/06 153,726
140 Newtown, CT General Obligation 7.000 06/15/07 153,138
140 Newtown, CT General Obligation 7.000 06/15/08 152,487
140 Newtown, CT General Obligation 7.000 06/15/09 151,903
140 Newtown, CT General Obligation 7.000 06/15/10 151,194
160 Old Saybrook, CT General Obligation 7.400 05/01/08 188,488
160 Old Saybrook, CT General Obligation 7.400 05/01/09 188,426
275 Old Saybrook, CT General Obligation 6.500 02/15/10 302,162
270 Old Saybrook, CT General Obligation 6.500 02/15/11 296,924
</TABLE>
6 Connecticut
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 925 Oxford, CT General Obligation 7.000% 02/01/09 $ 1,014,975
225 Plainfield, CT General Obligation 7.000 09/01/00 241,513
100 Plainfield, CT General Obligation 7.000 09/01/01 109,772
100 Plainfield, CT General Obligation 7.100 09/01/02 108,395
310 Plainfield, CT General Obligation 7.100 09/01/03 337,395
100 Plainfield, CT General Obligation 7.200 09/01/04 109,358
335 Plainfield, CT General Obligation 7.250 09/01/06 365,924
335 Plainfield, CT General Obligation 7.300 09/01/08 363,110
155 Plainfield, CT General Obligation 7.300 09/01/10 167,665
825 Plainfield, CT General Obligation 6.375 08/01/11 880,927
700 Torrington, CT General Obligation 6.400 05/15/11 749,791
680 Torrington, CT General Obligation 6.400 05/15/12 726,328
535 Waterbury, CT General Obligation - Series 1992 7.250 03/01/01 591,919
140 Winchester, CT General Obligation 6.750 04/15/06 158,960
140 Winchester, CT General Obligation 6.750 04/15/07 158,899
140 Winchester, CT General Obligation 6.750 04/15/08 158,756
140 Winchester, CT General Obligation 6.750 04/15/09 158,274
140 Winchester, CT General Obligation 6.750 04/15/10 157,455
725 Woodstock, CT Special Obligation Revenue - Woodstock Academy 6.900 03/01/06 795,505
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
500 Connecticut State Health and Educational Facilities Authority Revenue - 7.500 07/01/07 540,680
Fairfield University - Series E
3,305 Connecticut State Health and Educational Facilities Authority Revenue - 8.000 07/01/18 3,859,381
University of Hartford - Series C
1,250 Connecticut State Health and Educational Facilities Authority Revenue - 7.500 07/01/14 1,382,375
San Raphael Hospital - Series C
1,300 Connecticut State Health and Educational Facilities Authority Revenue - 7.375 07/01/19 1,619,072
Lutheran General Health Care - Parkside Lodges
900 Connecticut State Health and Educational Facilities Authority Revenue - 7.250 07/01/19 1,006,398
Quinnipiac College - Series B
1,000 Connecticut State Health and Educational Facilities Authority Revenue - 7.375 07/01/20 1,140,370
Taft School - Series A
1,000 Connecticut State Health and Educational Facilities Authority Revenue - 7.750 07/01/20 1,157,200
Quinnipiac College - Series C
1,440 Connecticut State Special Tax Obligation Revenue Transportation 7.200 02/01/09 1,594,411
Infrastructure - Series A
1,250 Connecticut State Special Tax Obligation Revenue Transportation 7.125 06/01/07 1,418,450
Infrastructure - Series A
210 Montville, CT General Obligation 7.350 12/01/11 233,209
750 Commonwealth of Puerto Rico - General Obligation 7.750 07/01/06 837,368
585 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 657,335
250 Commonwealth of Puerto Rico Electric Power Authority - Series K 9.375 07/01/17 280,150
1,400 Commonwealth of Puerto Rico Electric Power Authority - Series M 8.000 07/01/08 1,573,110
500 South Central Connecticut Regional Water Authority System Revenue 7.125 08/01/12 526,725
1,130 Stratford, CT General Obligation 7.300 03/01/12 1,299,274
535 Waterbury, CT General Obligation - Series 1992 7.250 03/01/02 609,723
785 Waterbury, CT General Obligation 7.300 03/01/05 896,596
780 Waterbury, CT General Obligation - Series 1992 7.400 03/01/06 894,769
</TABLE>
Connecticut 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Resource Recovery
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,900 Connecticut State Resource Recovery Authority - Mid-Connecticut Systems - 7.875% 11/15/12 $ 2,045,141
Series B
3,085 Connecticut State Resource Recovery Authority - Bridgeport Resco 7.625 01/01/09 3,255,354
Company - Project A
3,130 Connecticut State Resource Recovery Authority - Mid-Connecticut Systems - 7.300 11/15/12 3,334,483
Series B
170 Connecticut State Resource Recovery Authority - Bridgeport Resco 7.500 01/01/04 180,770
Company - Project A
1,180 Connecticut State Resource Recovery Authority - Wallingford Project 7.125 11/15/08 1,241,195
3,300 Connecticut State Resource Recovery Authority - American Refuel - Series A 8.000 11/15/15 3,638,547
400 Connecticut State Resource Recovery Authority - Wallingford Project 6.750 11/15/03 417,764
500 Connecticut State Resource Recovery Authority - Wallingford Project 6.800 11/15/04 520,155
5,250 Connecticut State Resource Recovery Authority - American Ref-Fuel Project - 6.450 11/15/22 5,313,368
Series 1992 A
400 Connecticut State Development Authority Solid Waste and Electric System - 10.000 07/01/05 413,848
Ogden Martin
1,350 Connecticut State Development Authority Solid Waste and Electric System - 10.000 07/01/14 1,396,737
Ogden Martin
7,465 Eastern Connecticut Resource Recovery Authority - Solid Waste Revenue - 5.500 01/01/20 6,457,225
Wheelabrator Lisbon Project - Series 1993 A
Special Tax Revenue
---------------------------------------------------------------------------------------------------------------------
1,150 Connecticut State Special Tax Obligation Revenue Transportation 6.125 09/01/12 1,221,358
Infrastructure - Series 1992 B
3,475 Commonwealth of Puerto Rico Infrastructure Financing Authority - Series A 7.750 07/01/08 3,841,474
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
2,800 Connecticut State College Savings - Series B 0.000 12/15/11 1,110,592
1,000 Connecticut State General Obligation Capital Appreciation - 0.000 05/15/09 467,070
College Savings Plan - Series A
3,000 Connecticut State College Savings - Series 1993 A 0.000 06/15/11 1,223,670
Student Loan Revenue Bonds
---------------------------------------------------------------------------------------------------------------------
460 Connecticut State Higher Education Supplemental Loan Authority Revenue - 7.000 11/15/05 502,495
Series A
4,445 Connecticut State Higher Education Supplemental Loan Authority Revenue - 7.200 11/15/10 4,842,561
Series A
1,945 Connecticut State Higher Education Supplemental Loan Authority Revenue - 6.300 11/15/10 2,054,717
Family Educational Loan Program - Series 1994 A
1,460 Connecticut State Higher Education Supplemental Loan Authority Revenue - 6.350 11/15/11 1,531,467
Family Educational Loan Program - Series 1994 A
Total Investments in Securities - Municipal Bonds (cost $194,387,194) - 98.4% 205,361,204
Excess of Other Assets over Liabilities - 1.6% 3,385,175
Total Net Assets - 100.0% $208,746,379
</TABLE>
See notes to financial statements.
8 Connecticut
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $194,387,194) $205,361,204
Cash 1,080,975
Receivable for investments sold 20,124
Receivable for Fund shares sold 242,720
Interest receivable 3,506,336
Other 17,268
Total assets 210,228,627
LIABILITIES:
Payable for Fund shares reacquired 334,421
Distributions payable 999,391
Accrued expenses 148,436
Total liabilities 1,482,248
NET ASSETS $208,746,379
Class A:
Applicable to 19,580,377 shares of beneficial
interest issued and outstanding $203,210,014
Net asset value per share $ 10.38
Class C:
Applicable to 534,142 shares of beneficial
interest issued and outstanding $ 5,536,365
Net asset value per share $ 10.36
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 13,300,544
EXPENSES:
Distribution fees - Class A (Note E) 788,923
Distribution fees - Class C (Note E) 48,593
Investment advisory fees (Note E) 1,011,725
Custody and accounting fees 77,550
Transfer agent's fees 127,800
Registration fees 10,700
Legal fees 3,103
Audit fees 18,250
Trustees' fees 3,774
Shareholder services fees (Note E) 19,152
Other 9,175
Advisory fees waived (Note E) (615,631)
Total expenses 1,503,114
Net investment income 11,797,430
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (1,147,834)
Change in unrealized appreciation (depreciation)
of investments 5,043,946
Net gain on investments 3,896,112
Net increase in net assets resulting from operations $ 15,693,542
See notes to financial statements.
Connecticut 9
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statements of Changes in Net Assets
====================================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 11,797,430 $ 11,289,655
Net realized gain (loss) on security transactions (1,147,834) 23,533
Change in unrealized appreciation (depreciation) of investments 5,043,946 (8,877,399)
Net increase in net assets resulting from operations 15,693,542 2,435,789
Distributions to shareholders:
Dividends from net investment income - Class A (11,573,696) (11,297,504)
Dividends from net investment income - Class C (271,123) (85,944)
Distributions from net realized capital gains - Class A (278,809)
Distributions from net realized capital gains - Class C (2,532)
Distributions in excess of net realized capital gains - Class A (1,429,125)
Distributions in excess of net realized capital gains - Class C (13,672)
Net decrease in net assets from distributions to shareholders - Class A (11,573,696) (13,005,438)
Net decrease in net assets from distributions to shareholders - Class C (271,123) (102,148)
Fund share transactions:
Proceeds from shares sold - Class A 15,975,568 37,090,170
Proceeds from shares sold - Class C 2,121,228 4,900,500
Net asset value of shares issued in reinvestment of distributions - Class A 6,764,804 7,546,056
Net asset value of shares issued in reinvestment of distributions - Class C 137,883 61,028
Cost of shares reacquired - Class A (25,899,326) (16,354,987)
Cost of shares reacquired - Class C (1,169,246) (347,679)
Net (decrease) increase in net assets from Fund share transactions - Class A (3,158,954) 28,281,239
Net increase in net assets from Fund share transactions - Class C 1,089,865 4,613,849
Total increase in net assets 1,779,634 22,223,291
NET ASSETS:
Beginning of year 206,966,745 184,743,454
End of year $208,746,379 $206,966,745
NET ASSETS CONSIST OF:
Paid-in surplus $200,363,049 $202,479,527
Accumulated net realized gain (loss) on security transactions (2,590,680) (1,442,846)
Unrealized appreciation (depreciation) of investments 10,974,010 5,930,064
$208,746,379 $206,966,745
</TABLE>
See notes to financial statements.
10 Connecticut
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Connecticut Double Tax Exempt Fund (Fund) is a sub-trust of
the Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on July 13, 1987. On
October 4, 1993, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C
shares are sold with no front-end sales charge but are assessed a
contingent deferred sales charge if redeemed within one year from the time
of purchase. Both classes of shares have identical rights and privileges
except with respect to the effect of sales charges, the distribution and/or
service fees borne by each class, expenses specific to each class, voting
rights on matters affecting a single class and the exchange privilege of
each class. Shares of beneficial interest in the Fund, which are registered
under the Securities Act of 1933, as amended, are offered to the public on
a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
tax-exempt net investment income and realized gains on security
transactions. Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of
certain book-to-tax timing differences is presented as excess distributions
in the statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and
losses on security transactions are determined on the identified cost
basis. Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and
estimated expenses are accrued daily. Daily dividends are declared from net
investment income and paid monthly. Net realized gains from security
transactions, to the extent they exceed available capital loss
carryforwards, are distributed to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets
of each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a
Connecticut 11
<PAGE>
Notes to Financial Statements
================================================================================
"when issued" basis. These securities are registered by a municipality or
government agency, but have not been issued to the public. Delivery and
payment take place after the date of the transaction and such securities
are subject to market fluctuations during this period. The current market
value of these securities is determined in the same manner as other
portfolio securities. There were no "when issued" purchase commitments
included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in
shares were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 1,602,626 3,435,508
Shares issued in reinvestment
of distributions 678,768 701,961
Shares reacquired (2,620,302) (1,548,245)
Net (decrease) increase
in shares outstanding (338,908) 2,589,224
Outstanding at beginning
of year 19,919,285 17,330,061
Outstanding at end of year 19,580,377 19,919,285
Period From
Year Ended October 4, 1993
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 210,358 456,316
Shares issued in reinvestment
of distributions 13,861 5,774
Shares reacquired (119,184) (32,983)
Net increase in shares
outstanding 105,035 429,107
Outstanding at beginning
of period 429,107 - 0 -
Outstanding at end of period 534,142 429,107
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $50,048,692 and $52,840,426, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting
and federal income tax purposes aggregated $10,974,010 of which $12,795,196
related to appreciated securities and $1,821,186 related to depreciated
securities.
At May 31, 1995, the Fund has available a capital loss carryforward of
approximately $2,567,100 to offset future net capital gains expiring on
May 31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities
to the Fund, receives fees computed monthly on the average daily net assets
of the Fund at an annualized rate of 1/2 of 1%. During the year ended May
31 , 1995, the Advisor, at its discretion, permanently waived $615,631 of
its advisory fees. Included in accrued expenses at May 31, 1995 are accrued
advisory fees of $35,136.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity
is responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in
the distribution and promotion of all classes of the Fund's shares. The
maximum amount payable for
12 Connecticut
<PAGE>
Notes to Financial Statements
================================================================================
these expenses on an annual basis is .40% and .95% of the Fund's average
daily net assets for Class A and Class C shares, respectively. Included in
accrued expenses at May 31, 1995 are accrued distribution fees of $68,449
and $4,331 for Class A and Class C shares, respectively. Certain
non-promotional expenses directly attributable to current shareholders are
aggregated by the Distributor and passed through to the Fund as shareholder
services fees.
In its capacity as national wholesale underwriter for the shares of
the Fund, the Distributor received commissions on sales of the Fund's Class
A shares of approximately $446,500 for the year ended May 31, 1995, of
which approximately $387,000 was paid to other dealers. For the year ended
May 31, 1995, the Distributor received approximately $5,900 of contingent
deferred sales charges on redemptions of Class C shares. Certain officers
and trustees of the Funds are also officers and/or directors of the
Distributor and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $10
million under the line of credit. Borrowings are collateralized with
pledged securities and are due on demand with interest at 1% above the
federal funds rate. The average daily amount of borrowings under the line
of credit during the year ended May 31, 1995 was approximately $219,067,
with a weighted average annualized interest rate of 6.27%. At May 31, 1995,
the Fund had no borrowings outstanding under the line of credit.
Connecticut 13
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.17 $10.66 $10.05 $ 9.84 $ 9.64
Income from investment operations
Net investment income 0.58 0.59 0.61 0.63 0.63
Net realized and unrealized gain 0.22 (0.39) 0.61 0.21 0.20
(loss) on securities
Total from investment operations 0.80 0.20 1.22 0.84 0.83
Less distributions:
Dividends from net investment (0.59) (0.60) (0.61) (0.63) (0.63)
income
Distributions from net realized (0.01)
capital gains
Distributions in excess of net (0.08)
realized capital gains
Total distributions (0.59) (0.69) (0.61) (0.63) (0.63)
Net asset value, end of year $10.38 $10.17 $10.66 $10.05 $ 9.84
Total return(a) 8.21% 1.70% 12.48% 8.81% 8.97%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.73% 0.65% 0.66% 0.65% 0.67%
Net investment income 5.84% 5.52% 5.88% 6.30% 6.49%
Assuming no waivers and
reimbursements:
Expenses 1.03% 1.03% 1.04% 1.05% 1.07%
Net investment income 5.54% 5.14% 5.50% 5.90% 6.09%
Net assets at end of year (000's) $203,210 $202,607 $184,743 $141,215 $103,552
Portfolio turnover rate 25.01% 30.19% 19.31% 18.16% 18.68%
</TABLE>
(a)The total returns shown do not
include the effect of applicable
front-end sales charge.
14 Connecticut
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
====================================================================================================================================
Period From
Year Ended October 4, 1993 to
CLASS C May 31, 1995 May 31, 1994
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.16 $11.06
Income from investment operations
Net investment income 0.53 0.33
Net realized and unrealized gain 0.20 (0.84)
(loss) on securities
Total from investment operations 0.73 (0.51)
Less distributions:
Dividends from net investment (0.53) (0.33)
income
Distributions from net realized (0.01)
capital gains
Distributions in excess of net (0.05)
realized capital gains
Total distributions (0.53) (0.39)
Net asset value, end of period $10.36 $10.16
Total return(a) 7.53% (6.48%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.28% 1.22%
Net investment income 5.27% 4.77%
Assuming no waivers and
reimbursements:
Expenses 1.58% 1.77%
Net investment income 4.97% 4.22%
Net assets at end of period (000's) $5,536 $4,360
Portfolio turnover rate 25.01% 30.19%
</TABLE>
(a)The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where appropriate.
Connecticut 15
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP CONNECTICUT
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Connecticut Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
Connecticut Double Tax Exempt Fund at May 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
16 Connecticut
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds--Florida Intermediate
Face
Amount Face Market
(000) Description Rate Maturity Value
Hospitals
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 125 Massachusetts State Health and Educational Facilities Authority Revenue - 6.500% 12/01/05 $ 133,022
Dana-Farber Cancer Institute - Series G-1 and G-2
Housing/Single Family `
---------------------------------------------------------------------------------------------------------------------
250 Florida Housing Finance Agency - Single Family Mortgage Revenue - Series 6.000 01/01/04 258,445
1995 A
Municipal Appropriation Obligations
---------------------------------------------------------------------------------------------------------------------
100 Dade County, FL School Board - Certificates of Participation - Series 1994 A 5.375 05/01/04 102,884
290 Levy County, FL School Board - Certificates of Participation - Series 1995 5.500 07/01/06 292,378
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
350 Dade County, FL Aviation Facilities Revenue - Series 1994 A 6.250 10/01/02 378,560
100 Palm Beach County, FL Airport System Revenue 7.625 10/01/04 115,966
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
250 Plant City, FL Utility System Refunding and Improvement Revenue - Series 1995 5.400 10/01/06 256,752
100 Port Saint Lucie, FL Utility System Revenue - Series 1994 5.500 09/01/04 103,808
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
250 Kentucky Infrastructure Authority Revenue - Governmental Agencies 5.600 08/01/06 254,970
Program - Series 1995 H
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
750 Duval County, FL School District Revenue - General Obligation - Series 1992 6.300 08/01/08 808,222
300 New York City General Obligation - Series 1995 F 6.375 02/15/06 307,326
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
570 Florida State Turnpike Authority Revenue - Series 1992 A 6.350 07/01/22 632,717
500 Lee County, FL Transportation Facilities Revenue 6.500 10/01/21 554,790
Special Tax Revenue
---------------------------------------------------------------------------------------------------------------------
185* Dade County, FL Guaranteed Entitlement Revenue - Series 1995 0.000 02/01/03 126,355
250 Florida State Division Board Finance Department - General Services 5.500 07/01/06 259,015
Revenue - Department of Environmental - Series 1995
150 Indian Trace, FL Community Development District - Broward County, 5.500 05/01/06 155,348
Florida - Water Management Special Benefit - Series 1995 A
250 Martin County, FL Tropical Farms Water and Sewer Special Assessment 5.600 11/01/05 253,730
District - Special Assessment - Series 1995
</TABLE>
Florida 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds--Florida Intermediate (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 250 Florida State Broward County Expressway Authority 9.875% 07/01/09 $ 361,225
200 Florida State Board of Education Capital Outlay - Series 1995 5.625 06/01/05 209,742
100 Florida State Board of Education Capital Outlay 6.000 06/01/07 104,914
Total Investments in Securities - Municipal Bonds (cost $5,428,925) - 100.1% 5,670,169
Excess of Liabilities over Other Assets - (0.1)% (7,704)
Total Net Assets - 100.0% $5,662,465
</TABLE>
*Securities purchased on a "when issued" basis.
See notes to financial statements.
6 Florida
<PAGE>
(SHIP GRAPHIC) Florida Intermediate
Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $5,428,925) $5,670,169
Cash 55,923
Receivable for Fund shares sold 30,812
Interest receivable 82,313
Other 736
Total assets 5,839,953
LIABILITIES:
Payable for investments purchased 125,831
Distributions payable 18,318
Accrued expenses 33,339
Total liabilities 177,488
NET ASSETS $5,662,465
Class A:
Applicable to 387,855 shares of beneficial
interest issued and outstanding $3,897,793
Net asset value per share $ 10.05
Class C:
Applicable to 175,592 shares of beneficial
interest issued and outstanding $1,764,672
Net asset value per share $ 10.05
(SHIP GRAPHIC) Florida Intermediate
Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 210,673
EXPENSES:
Distribution fees - Class A (Note E) 9,949
Distribution fees - Class C (Note E) 13,302
Investment advisory fees (Note E) 19,498
Custody and accounting fees 66,175
Transfer agent's fees 27,375
Registration fees 2,140
Legal fees 365
Audit fees 11,558
Trustees' fees 213
Shareholder services fees (Note E) 496
Other 823
Advisory fees waived (Note E) (19,498)
Expense subsidy (Note E) (98,946)
Total expenses 33,450
Net investment income 177,223
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on security transactions 12,629
Change in unrealized appreciation (depreciation)
of investments 251,709
Net gain on investments 264,338
Net increase in net assets resulting from operations $ 441,561
See notes to financial statements.
Florida 7
<PAGE>
(SHIP GRAPHIC) Florida Intermediate
Statements of Changes in Net Assets
================================================================================
Period From
February 1,
Year Ended 1994 to
May 31, 1995 May 31, 1994
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 177,223 $ 18,154
Net realized gain (loss) on security transactions 12,629 (262)
Change in unrealized appreciation
(depreciation) of investments 251,709 (10,465)
Net increase in net assets resulting from
operations 441,561 7,427
Distributions to shareholders:
Dividends from net investment income - Class A (102,108) (10,217)
Dividends from net investment income - Class C (50,079) (6,682)
Net decrease in net assets from distributions
to shareholders - Class A (102,108) (10,217)
Net decrease in net assets from distributions
to shareholders - Class C (50,079) (6,682)
Fund share transactions:
Proceeds from shares sold - Class A 3,690,600 1,638,478
Proceeds from shares sold - Class C 1,254,553 1,096,038
Net asset value of shares issued in reinvestment
of distributions - Class A 51,575 3,966
Net asset value of shares issued in reinvestment
of distributions - Class C 27,375 3,044
Cost of shares reacquired - Class A (1,037,158) (669,045)
Cost of shares reacquired - Class C (636,543) (40,320)
Net increase in net assets from Fund
share transactions - Class A 2,705,017 973,399
Net increase in net assets from Fund
share transactions - Class C 645,385 1,058,762
Total increase in net assets 3,639,776 2,022,689
NET ASSETS:
Beginning of period 2,022,689 --
End of period $ 5,662,465 $ 2,022,689
NET ASSETS CONSIST OF:
Paid-in surplus $ 5,382,563 $ 2,032,161
Undistributed net investment income 26,291 1,255
Accumulated net realized gain (loss)
on security transactions 12,367 (262)
Unrealized appreciation (depreciation)
of investments 241,244 (10,465)
$ 5,662,465 $ 2,022,689
See notes to financial statements.
8 Florida
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt
Face
Amount Face Market
(000) Description Rate Maturity Value
Health Care
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,365 North Miami, FL Health Facilities Authority Revenue - Bon Secours Health 7.500% 09/01/12 $ 1,489,447
System - Villa Maria Nursing Center
Hospitals
---------------------------------------------------------------------------------------------------------------------
2,735 Dade County, FL Health Facilities Authority Revenue - Catholic Health and 7.125 08/15/09 2,868,577
Rehabilitation Inc.
2,600 Dade County, FL Health Facilities Authority Revenue - South Miami Hospital 6.750 10/01/20 2,808,468
1,000 Dade County, FL Health Facilities Authority Revenue - North Shore Medical 6.500 08/15/15 1,068,410
Center - Series 1992
1,300 Hillsborough County, FL Industrial Development Authority Revenue - 6.375 12/01/12 1,373,697
Allegany Health System - John Knox Village of Tampa Bay
3,300 Hillsborough County, FL Hospital Authority Revenue - Tampa General 6.375 10/01/13 3,500,871
Hospital Project - Series 1992
3,000 Jacksonville, FL Health Facilities Authority Hospital Revenue - St. Luke's 7.125 11/15/20 3,275,010
Hospital
2,320 Martin County, FL Health Facilities Authority Hospital Revenue - Martin 7.125 11/15/04 2,598,864
Memorial Hospital - Series A
1,000 Martin County, FL Health Facilities Authority Hospital Revenue - Martin 7.100 11/15/20 1,102,850
Memorial Hospital - Series B
2,500 Orange County, FL Health Facilities Authority Revenue - Adventist Health/Sunbelt 6.875 11/15/15 2,744,200
2,500 Orange County, FL Health Facilities Authority Revenue - Adventist Health/Sunbelt 6.750 11/15/21 2,697,375
2,000* Orange County, FL Health Facilities Authority Revenue - Adventist Health 5.250 11/15/20 1,862,040
System/Sunbelt Obligated Group - Series 1995
250* Orange County, FL Health Facilities Authority Revenue - Adventist Health 5.500 11/15/15 243,408
System/Sunbelt Obligated Group - Series 1995
1,550 Osceola County, FL Industrial Development Authority Revenue - Evangelical 6.750 05/01/16 1,669,970
Lutheran Society Project
2,650 Polk County, FL Industrial Development Authority Revenue - Winter Haven 6.250 09/01/15 2,763,791
Hospital - Series 1985-2
1,500 St. Petersburg, FL Health Facilities Authority Revenue - Allegheny Health 7.000 12/01/15 1,653,525
System - St. Joseph's Hospital
2,000 St. Petersburg, FL Health Facilities Authority Revenue - Allegheny Health 6.750 12/01/21 2,156,380
System - St. Anthony's Health Care Center
1,610 St. Petersburg, FL Health Facilities Authority Revenue - Allegheny Health 7.000 12/01/21 1,778,052
System - St. Mary's Hospital
1,000 Tampa, FL Allegany Health System Revenue - St. Joseph's Hospital, 6.750 12/01/17 1,081,040
Incorporated - Series 1991
2,000 Tampa, FL Allegany Health System Revenue - St. Joseph's Hospital 6.500 12/01/23 2,152,858
Incorporated - Series 1994
Housing/Multifamily
---------------------------------------------------------------------------------------------------------------------
2,700 Duval County, FL Housing Finance Authority - Multifamily Housing 6.750 04/01/25 2,740,932
Refunding Revenue - Greentree Place Project - Series 1995
1,000 Florida Housing Finance Agency - Multifamily Housing Revenue - Antigua 6.750 08/01/14 1,052,720
Club Apartments Project - Series 1995 A1
1,115 Florida Housing Finance Agency - Multifamily Housing Revenue - Brittany 6.875 08/01/26 1,166,335
of Rosemont Apartments Project - Series 1995 C1
</TABLE>
Florida 9
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Housing/Single Family
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,605 Broward County, FL Housing Finance Authority Revenue - Single Family 0.000% 04/01/16 $ 663,576
2,065 Broward County, FL Housing Finance Authority Revenue - Single Family 7.900 03/01/23 2,192,555
2,500 Clay County, FL Housing Finance Authority Revenue - Single Family 6.550 03/01/28 2,559,375
Mortgage - Multi-County Program - Series 1995
310 Dade County, FL Housing Finance Authority - Single Family - Series B 7.750 03/01/17 330,392
630 Dade County, FL Housing Finance Authority - Single Family - Series B 7.250 09/01/23 667,359
1,500 Dade County, FL Housing Finance Authority - Single Family - Series D 6.950 12/15/12 1,602,360
40 Dade County, FL Housing Finance Authority - Single Family - Series E 7.000 03/01/24 42,117
1,000 Dade County, FL Housing Finance Authority - Single Family Mortgage 6.700 04/01/28 1,030,370
Revenue - Series 1995
425 Duval County, FL Housing Finance Authority - Single Family - Series B 7.500 06/01/15 455,660
215 Duval County, FL Housing Finance Authority - Single Family - Series A 7.850 12/01/22 229,022
560 Duval County, FL Housing Finance Authority - Single Family - Series C 7.650 09/01/10 605,674
1,000 Duval County, FL Housing Finance Authority - Single Family Mortgage 6.550 10/01/15 1,032,180
Revenue - GNMA Mortgage-Backed Securities Program - Series 1994
1,690 Escambia County, FL Housing Finance Authority - Single Family 7.400 10/01/23 1,796,909
1,495 Florida Housing Finance Agency - Single Family Housing Revenue - Series 1994 6.250 07/01/11 1,548,102
1,000 Florida Housing Finance Agency - Single Family Mortgage Revenue - Series 6.550 07/01/14 1,036,080
1995 A
1,000 Florida Housing Finance Agency - Single Family Mortgage Revenue - Series 6.650 01/01/24 1,030,890
1995 A
475 Leon County, FL Housing Finance Authority Revenue - Single Family 7.300 04/01/21 503,961
1,455 Orange County, FL Housing Finance Authority Revenue - Series B 8.100 11/01/21 1,556,734
280 Orange County, FL Housing Finance Authority Revenue - Series A 7.600 01/01/24 300,717
1,055 Palm Beach County, FL Housing Finance Authority - Single Family 7.600 03/01/23 1,133,787
Mortgage Revenue
2,000 Pinellas County, FL Housing Finance Authority - Single Family Mortgage 6.650 08/01/21 2,060,320
Revenue - Multi-County Program - Series 1995 A
1,160 Polk County, FL Housing Finance Authority - Single Family Revenue - 7.150 09/01/23 1,223,208
Series A
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
10,500 Citrus County, FL Pollution Control Revenue - Florida Power Corporation - 6.625 01/01/27 11,042,430
Crystal River Power Plant - Series 1992A
4,000 Citrus County, FL Pollution Control Revenue - Florida Power Corporation - 6.350 02/01/22 4,151,400
Crystal River Power Plant - Series 1992B
750 Clay County, FL Industrial Development Authority Revenue - Cargill Project - 6.400 03/01/11 783,540
Series 1992
5,500 Escambia County, FL Pollution Control Revenue - Champion International 6.900 08/01/22 5,761,140
Corporation - Series 1994
1,750 Henderson County, KY Solid Waste Disposal Revenue - MacMillan Bloedel 7.000 03/01/25 1,837,028
Project - Series 1995
2,500 Hillsborough County, FL Industrial Development Authority Pollution Control 7.875 08/01/21 2,919,400
Revenue - Tampa Electric Company
600 Jacksonville, FL Industrial Development Revenue - Cargill Project - Series 1992 6.400 03/01/11 626,034
500 Luzerne County, PA Industrial Development Authority Facilities Revenue - 7.200 10/01/17 551,015
Pennsylvania Gas and Water Project - Series 1992 A
</TABLE>
10 Florida
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,000 Luzerne County, PA Industrial Development Authority Facilities Revenue - 7.125% 12/01/22 $ 1,097,830
Pennsylvania Gas and Water Project - Series 1992 B
2,000 Martin County, FL Pollution Control Revenue - Florida Power and Light 7.300 07/01/20 2,218,160
Company
1,500 Nassau County, FL Pollution Control Revenue - ITT Rayonier Project - 6.200 07/01/15 1,489,665
Series 1993
4,000 Pinellas County, FL Pollution Control Revenue - Florida Power Corporation - 7.200 12/01/14 4,301,320
Anclote and Bartow Power Plants
3,000 St. Lucie County, FL Solid Waste Disposal Revenue - Florida Power and 7.150 02/01/23 3,195,810
Light Company
2,000 St. Lucie County, FL Solid Waste Disposal Revenue - Florida Power and 6.700 05/01/27 2,075,880
Light Company - Series 1992
Municipal Appropriation Obligations
---------------------------------------------------------------------------------------------------------------------
1,500 Florida State Department of Corrections - Certificates of Participation - Series 6.000 03/01/14 1,516,395
1994
700 Hillsborough County, FL School Board Lease - Certificates of Participation - 6.000 07/01/14 722,848
Series 1994
1,030 Levy County, FL School Board - Certificates of Participation - Series 1995 6.000 07/01/15 1,029,918
1,000 Palm Beach County, FL School Board - Certificates of Participation - Series 6.375 08/01/15 1,060,160
1994A
2,500 Seminole County, FL School Board - Certificates of Participation - Series 1994 B 6.750 07/01/14 2,755,075
Municipal Revenue/Other
---------------------------------------------------------------------------------------------------------------------
3,105 Gulf Breeze, FL Local Government Revenue 7.750 12/01/15 3,526,193
5,000 Hernando County, FL Revenue Criminal Justice Complex 7.650 07/01/16 6,280,500
1,020 Hillsborough County, FL Capital Improvement Program Revenue - Series 1994 6.400 08/01/09 1,103,783
85 Orange County, FL Capital Improvement Revenue - Series A 7.700 10/01/18 94,543
1,725 Port Palm Beach, FL District Revenue - Palm Beach County 6.250 09/01/08 1,865,053
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
965 Dade County, FL Aviation Facilities Revenue - Series 1994 C 6.125 10/01/15 992,310
1,500 Dade County, FL Aviation Facilities Revenue - Series 1994 C 6.200 10/01/24 1,541,640
2,500 Dade County, FL Aviation Revenue - Series 1995 B 5.750 10/01/15 2,484,925
530 Florida State Turnpike Authority Revenue - Series 1992 A 6.350 07/01/22 552,382
3,670 Greater Orlando Aviation Authority - Airport Facilities Revenue - City of 6.500 10/01/12 3,937,580
Orlando, FL - Series 1992A
4,500 Greater Orlando Aviation Authority - Airport Facilities Revenue - City of 6.375 10/01/21 4,690,575
Orlando, FL - Series 1992A
310 Greater Orlando Aviation Authority - Airport Facilities Revenue - City of 8.000 10/01/18 346,626
Orlando, FL
2,605 Palm Beach County, FL Airport System Revenue 7.500 10/01/00 2,921,820
6,360 Palm Beach County, FL Airport System Revenue 7.625 10/01/04 7,375,438
3,500 Palm Beach County, FL Airport System Revenue 7.750 10/01/10 4,076,310
3,000 Commonwealth of Puerto Rico Highway and Transportation Authority 5.000 07/01/22 2,640,600
Revenue - Series 1993 X
</TABLE>
Florida 11
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,450 Florida State Municipal Power Agency - St. Lucie Project Refunding 5.250% 10/01/21 $ 4,183,979
Revenue - Series 1992
1,000 Green Cove Springs, FL Utility Revenue 6.750 10/01/10 1,090,870
1,500 Jacksonville, FL Electric Authority - St. Johns River Power System Revenue 6.900 10/01/13 1,598,250
4,000 Jacksonville, FL Electric Authority - St. Johns River Power System Revenue 6.500 10/01/14 4,178,720
1,850 Manatee County, FL Public Utilities Revenue - Series C 0.000 10/01/08 898,564
2,800 Manatee County, FL Public Utilities Revenue - Series C 0.000 10/01/09 1,270,444
1,000 Orlando, FL Utility Commission - Water and Electric Revenue - Series D 6.750 10/01/17 1,144,040
10,375 Orlando, FL Utility Commission - Water and Electric Revenue - Series 1989 D 5.000 10/01/23 9,279,089
1,900 Commonwealth of Puerto Rico Electric Power Authority - Series P 7.000 07/01/21 2,090,551
1,000 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 T 5.500 07/01/20 951,040
500 Sacramento, CA Cogeneration Authority - Cogeneration Project Revenue - 6.200 07/01/06 501,955
Procter & Gamble Project - Series 1995
1,000 Sarasota County, FL Utility System Revenue - Series 1994 6.500 10/01/22 1,079,040
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
7,965 Hillsborough County, FL Utility Revenue - Series A 7.000 08/01/14 8,788,501
2,250 Hillsborough County, FL Utility Revenue - Series A 6.500 08/01/16 2,396,250
3,500 Hillsborough County, FL Utility Revenue - Series B 6.500 08/01/16 3,727,500
750 Jacksonville, FL Water and Sewer Development Revenue - Jacksonville 6.750 06/01/22 805,950
Suburban Utilities - Series 1992
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
2,800 New York City General Obligation - Series B 7.000 08/15/16 2,962,876
5,920 New York City General Obligation - Series 1994 7.250 08/15/19 6,384,069
5,000 Sunrise Lakes, FL Phase 4 Recreation District - General Obligation and 6.750 08/01/24 5,133,000
Revenue - Series 1995 A and B
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
1,925 Boynton Beach, FL Water and Sewer System Utility Revenue - Series 1990 7.400 11/01/15 2,219,852
1,500 Broward County, FL School Board - Certificates of Participation 7.125 07/01/10 1,700,250
2,500 Broward County, FL School District 7.125 02/15/08 2,772,000
4,000 Dade County, FL School District - General Obligation 7.375 07/01/08 4,505,440
1,500 Dade County, FL Health Facilities Authority Revenue - Baptist Hospital of 5.750 05/01/21 1,524,285
Miami Project
550 Florida State Jacksonville Transportation Authority 7.375 07/01/20 629,602
335 Florida State Board of Education Capital Outlay 9.125 06/01/14 476,028
2,500 Florida State Turnpike Authority Revenue 7.500 07/01/19 2,827,500
335 Greater Orlando Aviation Authority - Airport Facilities Revenue - City of 8.000 10/01/18 376,774
Orlando, FL
3,065 Greater Orlando Aviation Authority - Airport Facilities Revenue - City of 8.000 10/01/18 3,412,019
Orlando, FL
55 Greater Orlando Aviation Authority - Airport Facilities Revenue - City of 8.000 10/01/18 61,950
Orlando, FL
1,000 Hillsborough County, FL Port District Revenue - Tampa Port Authority - 8.250 06/01/09 1,188,480
Series 1990
</TABLE>
12 Florida
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,635 Hillsborough County, FL Utility Revenue - Series A 7.000% 08/01/14 $ 1,854,924
1,810 Jacksonville, FL Electric Authority - Bulk Power Supply System Revenue - 7.000 10/01/12 2,042,766
Scherer Project - Series 1991 A
735 Jacksonville, FL Electric Authority - St. Johns River Power System Revenue - 7.250 10/01/19 754,139
Series 2
1,500 Lady Lake, FL Industrial Development Revenue - Sunbelt Utilities 9.625 07/01/15 1,870,605
1,830 Lee County, FL Transportation Facilities Revenue 6.500 10/01/21 2,030,531
1,050 Naples, FL Hospital Revenue - Naples Community Hospital 7.200 10/01/19 1,199,016
3,400 North Springs, FL Improvement District Water and Sewer Revenue - 8.000 10/01/16 4,074,322
Broward County - Series 1991
15 Orange County, FL Capital Improvement Revenue - Series A 7.700 10/01/18 16,767
1,750 Orange County, FL Tourist Development Tax Revenue 7.250 10/01/10 2,004,398
1,600 Orlando, FL Utility Commission - Water and Electric Revenue - Series 1991 A 6.500 10/01/20 1,789,312
420 Orlando-Orange County, FL Expressway Authority Revenue 6.500 07/01/20 480,514
1,500 Palm Bay, FL Utility Revenue - Palm Bay Utility Corporation - Series 1992 A 6.200 10/01/22 1,666,335
1,750 Palm Beach County, FL Criminal Justice Facilities Revenue 7.250 06/01/11 1,990,485
250 Commonwealth of Puerto Rico Highway and Transportation Authority 6.500 07/01/22 281,310
Revenue - Series T
900 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 7.250 07/01/17 988,029
Education and Health Facilities - Series H
765 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 6.875 07/01/21 878,503
Education and Health Facilities - Series K
1,000 St. Lucie County, FL Sales Tax Revenue - Series 1992 6.500 10/01/22 1,128,690
Resource Recovery
---------------------------------------------------------------------------------------------------------------------
4,720 Broward County, FL Resource Recovery Revenue 7.950 12/01/08 5,224,568
3,000 Lee County, FL Solid Waste System Revenue - Series A 7.000 10/01/11 3,321,030
2,000 Palm Beach County, FL Solid Waste Industrial Development Revenue Bonds - 6.700 02/15/15 1,971,780
Okeelanta Power Limited Partnership Project - Series 1993 A
7,000 Palm Beach County, FL Solid Waste Industrial Development Revenue - 6.850 02/15/21 6,965,490
Okeelanta Power - Series 1993 A
2,800 Palm Beach County, FL Solid Waste Industrial Development Revenue - 6.950 01/01/22 2,801,960
Osceola Power - Series 1994
2,000 St. Johns County, FL Solid Waste Disposal Revenue 7.250 11/01/10 2,239,760
Special Tax Revenue
---------------------------------------------------------------------------------------------------------------------
1,000 Florida State Department of Natural Resources- Preservation 2000 Revenue - 6.750 07/01/13 1,083,630
Series 1991A
2,500 Florida State Department of Natural Resources - Preservation 2000 Revenue - 6.250 07/01/13 2,606,000
Series 1992A
2,990 Hillsborough County, FL Environmentally Sensitive Lands Acquisition and 6.250 07/01/08 3,120,214
Protection Program - Series 1992
1,010 Martin County, FL Tropical Farms Water and Sewer Special Assessment 5.900 11/01/11 1,030,422
District - Special Assessment - Series 1995
2,000 Orange County, FL Tourist Development Tax Revenue - Series B 6.500 10/01/19 2,139,800
1,000 Palm Beach Gardens, FL Special Obligation Revenue 7.250 07/01/15 1,106,340
</TABLE>
Florida 13
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,000 Florida State Broward County Expressway Authority 9.875% 07/01/09 $ 5,779,600
1,000 Florida State Broward County Expressway Authority 10.000 07/01/14 1,514,940
5,000 Florida State Jacksonville Transportation Authority 6.400 07/01/22 5,243,650
2,165 Florida State Board of Education Capital Outlay 9.125 06/01/14 3,028,294
5,000 Florida State Board of Education Capital Outlay - Series B 6.700 06/01/22 5,315,550
3,000 Florida State Board of Education Capital Outlay - Series C 6.625 06/01/17 3,201,870
Total Investments in Securities - Municipal Bonds (cost $301,343,783) - 95.5% 325,919,906
Excess of Other Assets over Liabilities - 4.5% 15,454,059
Total Net Assets - 100.0% $341,373,965
</TABLE>
*Securities purchased on a "when issued" basis.
See notes to financial statements.
14 Florida
<PAGE>
(SHIP GRAPHIC) Florida Double Tax Exempt
Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $301,343,783) $325,919,906
Cash 895,397
Receivable for investments sold 18,780,585
Receivable for Fund shares sold 349,604
Interest receivable 6,360,840
Other 27,967
Total assets 352,334,299
LIABILITIES:
Payable for investments purchased 7,859,441
Payable for Fund shares reacquired 1,324,304
Distributions payable 1,587,924
Accrued expenses 188,665
Total liabilities 10,960,334
NET ASSETS:
Applicable to 32,128,507 shares of beneficial interest
issued and outstanding $341,373,965
Net asset value per share $ 10.63
(SHIP GRAPHIC) Florida Double Tax Exempt
Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 22,232,300
EXPENSES:
Distribution fees (Note E) 1,382,043
Investment advisory fees (Note E) 1,726,809
Custody and accounting fees 168,220
Transfer agent's fees 157,475
Registration fees 6,109
Legal fees 28,941
Audit fees 24,605
Reimbursement of organizational expenses (Note F) 56,940
Trustees' fees 6,341
Shareholder services fees (Note E) 33,760
Other 15,136
Advisory fees waived (Note E) (1,093,473)
Total expenses 2,512,906
Net investment income 19,719,394
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (2,273,532)
Change in unrealized appreciation (depreciation) of investments 8,667,382
Net gain on investments 6,393,850
Net increase in net assets resulting from operations $ 26,113,244
See notes to financial statements.
Florida 15
<PAGE>
(SHIP GRAPHIC) Florida Double Tax Exempt
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
====================================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C>
Net investment income $ 19,719,394 $ 21,946,235
Net realized loss on security transactions (2,273,532) (3,107,393)
Change in unrealized appreciation (depreciation) of investments 8,667,382 (12,039,364)
Net increase in net assets resulting from operations 26,113,244 6,799,478
Distributions to shareholders:
Dividends from net investment income (19,846,500) (22,124,711)
Distributions in excess of net realized capital gains (97,572)
Net decrease in net assets from distributions to shareholders (19,846,500) (22,222,283)
Fund share transactions:
Proceeds from shares sold 45,355,080 93,173,330
Net asset value of shares issued in reinvestment of distributions 7,682,266 8,240,780
Cost of shares reacquired (90,012,143) (83,032,488)
Net (decrease) increase in net assets from Fund share transactions (36,974,797) 18,381,622
Total (decrease) increase in net assets (30,708,053) 2,958,817
NET ASSETS:
Beginning of year 372,082,018 369,123,201
End of year $341,373,965 $372,082,018
NET ASSETS CONSIST OF:
Paid-in surplus $322,944,654 $360,046,557
Accumulated net realized loss on security transactions (6,146,812) (3,873,280)
Unrealized appreciation (depreciation) of investments 24,576,123 15,908,741
$341,373,965 $372,082,018
</TABLE>
See notes to financial statements
16 Florida
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
Flagship's Florida Intermediate Tax Exempt Fund (Florida Intermediate) and
Florida Double Tax Exempt Fund (Florida Double Tax Exempt) are sub-trusts of
the Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The diversified Florida Double Tax Exempt and
non-diversified Florida Intermediate Funds are open-end management
investment companies registered under the Investment Company Act of 1940, as
amended. The Funds commenced investment operations on February 1, 1994 and
June 15, 1990, respectively. On February 2, 1994, the Florida Intermediate
Fund began to offer Class C shares to the investing public. Class A shares
are sold with a front-end sales charge. Class C shares are sold with no
front-end sales charge but are assessed a contingent deferred sales charge
if redeemed within one year from the time of purchase. Both classes of
shares have identical rights and privileges except with respect to the
effect of sales charges, the distribution and/or service fees borne by each
class, expenses specific to each class, voting rights on matters affecting a
single class and the exchange privilege of each class. Shares of beneficial
interest in each Fund, which are registered under the Securities Act of
1933, as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to their shareholders all of their tax-exempt
net investment income and realized gains on security transactions.
Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Funds amortize
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Funds have entered into agreements with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Funds may, upon adequate
segregation of secu-
Florida 17
<PAGE>
Notes to Financial Statements
================================================================================
rities as collateral, purchase and sell portfolio securities on a "when
issued" basis. These securities are registered by a municipality or
government agency, but have not been issued to the public. Delivery and
payment take place after the date of the transaction and such securities are
subject to market fluctuations during this period. The current market value
of these securities is determined in the same manner as other portfolio
securities. At May 31, 1995 there were $2,058,125 and $125,831,
respectively, of "when issued" purchase commitments included in the Florida
Double Tax Exempt and Florida Intermediate Funds' statements of investments.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Period From
Year Ended February 1, 1994
May 31, 1995 to May 31, 1994
FLORIDA INTERMEDIATE
Class A
Shares sold 390,286 169,495
Shares issued in reinvestment
of distributions 5,350 413
Shares reacquired (107,593) (70,096)
Net increase
in shares outstanding 288,043 99,812
Outstanding at beginning
of period 99,812 - 0 -
Outstanding at end of period 387,855 99,812
Period From
Year Ended February 2, 1994
May 31, 1995 to May 31, 1994
FLORIDA INTERMEDIATE
Class C
Shares sold 131,121 113,421
Shares issued in reinvestment
of distributions 2,844 317
Shares reacquired (67,911) (4,200)
Net increase
in shares outstanding 66,054 109,538
Outstanding at beginning
of period 109,538 - 0 -
Outstanding at end of period 175,592 109,538
Year Ended Year Ended
May 31, 1995 May 31, 1994
FLORIDA DOUBLE
TAX EXEMPT
Shares sold 4,468,523 8,496,880
Shares issued in reinvestment
of distributions 753,914 755,829
Shares reacquired (8,942,409) (7,701,575)
Net (decrease) increase
in shares outstanding (3,719,972) 1,551,134
Outstanding at beginning
of year 35,848,479 34,297,345
Outstanding at end of year 32,128,507 35,848,479
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated:
Fund Purchases Sales
Intermediate $ 7,506,835 $ 3,957,084
Double Tax Exempt $180,394,396 $227,203,424
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes for the Florida Intermediate and Double Tax
Exempt funds of $241,244 and $24,576,123, respectively, includes:
Unrealized Unrealized
Fund Appreciation Depreciation
Intermediate $ 241,244 $ 0
Double Tax Exempt $24,679,058 $ 102,935
At May 31,1995, the Florida Double Tax Exempt Fund has available capital
loss carryforwards of approximately $6,047,400 to offset future net capital
gains in the amounts of $331,700 through May 31, 2001 and $5,715,700 through
May 31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of agreements which
provide for furnishing of investment advice, office space and facilities to
the Funds, receives fees computed monthly on the daily
18 Florida
<PAGE>
Notes to Financial Statements
================================================================================
net assets of the Funds at an annualized rate of 1/2 of 1%. During the year
ended May 31, 1995, the Advisor, at its discretion, permanently waived
advisory fees for the Florida Intermediate Fund and Florida Double Tax
Exempt Fund amounting to $19,498 and $1,093,473, respectivelty. Also, under
agreements with the Funds, the Advisor has agreed to subsidize certain
expenses (excluding advisory and distribution fees) until the Funds reach a
sufficient size to maintain a normal expense ratio to average net assets.
The Funds have Distribution Agreements with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Funds' Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Funds have adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Funds' shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Funds' average daily net assets for Class A and Class C shares,
respectively. Included in accrued expenses at May 31, 1995 are accrued
distribution fees of $1,317, $1,374 and $115,372 for the Florida
Intermediate Fund Class A shares, Class C shares and Florida Double Tax
Exempt Fund, respectively. Certain non-promotional expenses directly
attributable to current shareholders are aggregated by the Distributor and
passed through to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Funds, the Distributor received commissions on sales of the Funds' shares
for the year ended May 31, 1995, as follows:
Gross Paid to Other
Fund Commissions Dealers
Intermediate $ 23,300 $ 20,100
Double Tax Exempt $ 882,000 $ 770,100
For the year ended May 31, 1995, the Distributor received approximately
$1,200 of contingent deferred sales charges on redemptions of Class C
shares. Certain officers and trustees of the Funds are also officers and/or
directors of the Distributor and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Funds, amounting to
$27,400 for the Florida Intermediate Fund and $284,639 for the Florida
Double Tax Exempt Fund, will be reimbursed to the Advisor on a straight-line
basis over a period of five years commencing from the first day of the year
following the year in which each Fund's net assets exceed $20 million. As of
May 31, 1995, $227,916 has been reimbursed by the Florida Double Tax Exempt
Fund. In the event that the Advisor's current investment in the Trust falls
below $100,000 prior to the full reimbursement of the organizational
expenses, then it will forego any further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Florida Double Tax Exempt Fund may temporarily for emergency
purposes, borrow up to $17 million under the line of credit. Borrowings are
collateralized with pledged securities and are due on demand with interest
at 1% above the federal funds rate. The average daily amount of borrowings
under the line of credit during the year ended May 31, 1995 was
approximately $1,116,388, with a weighted average annualized interest rate
of 6.20%. At May 31, 1995, the Fund had no borrowings outstanding under the
line of credit.
Florida 19
<PAGE>
(SHIP GRAPHIC) Florida Intermediate Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
===============================================================================
Period From
Year Ended February 1, 1994 to
CLASS A May 31, 1995 May 31, 1994
-------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.66 $ 9.70
Income from investment operations:
Net investment income 0.46 0.12
Net realized and unrealized gain 0.33 (0.04)
(loss) on securities
Total from investment operations 0.79 0.08
Less distributions:
Dividends from net investment (0.40) (0.12)
income
Total distributions (0.40) (0.12)
Net asset value, end of period $10.05 $ 9.66
Total return(a) 8.42% 1.75%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 0.67% 0.29%
Net investment income 4.74% 3.79%
Assuming no waivers and
reimbursements:
Expenses 3.54% 6.70%
Net investment income 1.87% (2.62%)
Net assets at end of period (000's) $3,898 $964
Portfolio turnover rate 105.01% 28.15%
(a) The total returns shown do not
include the effect of applicable
front-end sales charge and are
annualized where appropriate.
20 Florida
<PAGE>
(SHIP GRAPHIC) Florida Intermediate Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
===============================================================================
Period From
Year Ended February 2, 1994 to
CLASS C May 31, 1995 May 31, 1994
-------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.66 $ 9.70
Income from investment operations:
Net investment income 0.40 0.11
Net realized and unrealized gain 0.33 (0.06)
(loss) on securities
Total from investment operations 0.73 0.05
Less distributions:
Dividends from net investment (0.34) (0.09)
income
Total distributions (0.34) (0.09)
Net asset value, end of period $10.05 $ 9.66
Total return(a) 7.80% 1.33%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.19% 0.68%
Net investment income 4.19% 3.42%
Assuming no waivers and
reimbursements:
Expenses 4.53% 7.38%
Net investment income 0.85% (3.28%)
Net assets at end of period (000's) $1,765 $1,058
Portfolio turnover rate 105.01% 28.15%
(a) The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where
appropriate.
Florida 21
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Florida Double Tax Exempt Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
====================================================================================================================================
Period From
Year Ended Year Ended Year Ended Year Ended June 15, 1990 to
May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.38 $10.76 $10.18 $ 9.87 $ 9.58
Income from investment operations:
Net investment income 0.58 0.60 0.63 0.66 0.64
Net realized and unrealized gain (loss) on securities 0.26 (0.38) 0.61 0.33 0.29
Total from investment operations 0.84 0.22 1.24 0.99 0.93
Less distributions:
Dividends from net investment income (0.59) (0.60) (0.64) (0.67) (0.64)
Distributions from net realized capital gains (0.02) (0.01)
Total distributions (0.59) (0.60) (0.66) (0.68) (0.64)
Net asset value, end of period $10.63 $10.38 $10.76 $10.18 $ 9.87
Total return(a) 8.43% 2.00% 12.49% 10.32% 9.81%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and reimbursements:
Expenses 0.73% 0.58% 0.45% 0.26% 0.19%
Net investment income 5.71% 5.51% 6.01% 6.59% 6.86%
Assuming no waivers and reimbursements:
Expenses 1.04% 1.00% 0.99% 1.03% 1.05%
Net investment income 5.40% 5.09% 5.47% 5.82% 6.00%
Net assets at end of period (000's) $341,374 $372,082 $369,123 $276,811 $136,509
Portfolio turnover rate 52.67% 31.92% 22.60% 49.72% 152.36%
</TABLE>
(a) The total returns shown do not
include the effect of applicable
front-end sales charge and are
annualized where appropriate.
22 Florida
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP FLORIDA TAX EXEMPT FUNDS
We have audited the accompanying statements of assets and liabilities, including
the statements of investments in securities and net assets, of the Flagship
Florida Intermediate Tax Exempt Fund and the Flagship Florida Double Tax Exempt
Fund as of May 31, 1995, the related statements of operations for the year then
ended, and the statements of changes in net assets and the financial highlights
for each of the periods presented. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Funds' custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship Florida
Intermediate Tax Exempt Fund and the Flagship Florida Double Tax Exempt Fund at
May 31, 1995, the results of their operations, the changes in their net assets,
and the financial highlights for the respective stated periods, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
Florida 23
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
--------------------------------------------------------------------------------------------------------------------
$ 270 Atlanta, GA Urban Residential Finance Authority - Dormitory Facility 7.300% 12/01/14 $ 300,486
Revenue - Morehouse College
1,855 Marietta, GA Development Authority Revenue - Life College, Inc 7.250 12/01/19 2,044,785
1,000 Private Colleges and Universities Facilities Authority Georgia Revenue - 6.500 11/01/15 1,115,140
Mercer University Project
500 Private Colleges and Universities Facilities Authority Georgia Revenue - 6.200 06/01/14 520,220
Spelman College Project - Series 1994
Health Care
--------------------------------------------------------------------------------------------------------------------
1,000 Cobb County, GA Residential Care Facilities Authority Revenue - North 7.500 08/01/15 1,075,980
Georgia Presbyterian Home
Hospitals
--------------------------------------------------------------------------------------------------------------------
100 Chatham County, GA Hospital Authority Revenue - Memorial Medical Center 7.000 01/01/10 110,125
1,130 Chatham County, GA Hospital Authority Revenue - Memorial Medical Center 7.000 01/01/21 1,242,085
500 Cherokee County, GA Hospital Authority Revenue 7.250 12/01/15 557,310
500 Colquitt County, GA Hospital Authority Revenue - Series 1992 6.700 03/01/12 540,630
500 Effingham County, GA Hospital Authority Revenue - Series 1992A 6.500 05/01/12 533,030
1,000 Fulco, GA Hospital Authority Revenue - Georgia Baptist Health Care System - 6.250 09/01/13 960,480
Series 1992B
3,600 Fulco, GA Hospital Authority Revenue - Georgia Baptist Health Care System - 6.375 09/01/22 3,389,688
Series 1992A
2,250 Fulco, GA Hospital Authority Revenue - Georgia Baptist Health Care System - 6.375 09/01/22 2,118,555
Series 1992A
1,000* Gainesville and Hall County, GA Hospital Authority - Revenue Anticipation 6.000 10/01/20 1,010,760
Certificates - Northeast Georgia Healthcare Project - Series 1995
2,250* Gainesville and Hall County, GA Hospital Authority - Revenue Anticipation 6.000 10/01/25 2,269,305
Certificates - Northeast Georgia Healthcare Project - Series 1995
1,250 Ware County, GA Hospital Authority Revenue - Series 1992A 6.625 03/01/15 1,339,338
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
1,840 Augusta, GA Housing Authority - Multifamily Mortgage Revenue - FHA 6.500 05/01/27 1,878,125
Insured Mortgage Loan - River Glen Apartments Section 8 Assisted Project -
Series 1995
1,000 DeKalb County, GA Housing Authority - Multifamily Housing Revenue - 7.150 01/01/25 1,052,250
The Lakes at Indian Creek Apartments Project - Series 1994
1,475 Decatur, GA Housing Authority Mortgage Revenue - Park Trace Apartments - 6.450 07/01/25 1,510,488
Series 1992A
545 Hinesville, GA Leased Housing Corporation Revenue - Baytree Apartments - 7.125 03/01/12 572,016
Series 1992
1,300 Macon, GA Housing Authority - Multifamily Mortgage Revenue - The Vistas - 6.450 04/01/26 1,330,290
Series 1994
500 Summerville, GA Housing Corporation Revenue 8.000 12/01/10 519,885
</TABLE>
4 Georgia
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
$ 2,000 Fulton County, GA Housing Authority - Single Family Mortgage Revenue - 6.550% 03/01/18 $ 2,037,460
GNMA Mortgage-Backed Securities Program - Series 1995 A
665 Fulton County, GA Housing Authority - Single Family Mortgage Revenue - 6.600 03/01/28 675,780
GNMA Mortgage-Backed Securities Program - Series 1995 A
240 Georgia Housing and Finance Authority Home Ownership Opportunity - 6.700 12/01/12 253,087
Series 1992A
1,355 Georgia Housing and Finance Authority Home Ownership Opportunity - 6.750 06/01/17 1,418,170
Series 1992A
1,860 Georgia Housing and Finance Authority Home Ownership Opportunity - 6.500 12/01/11 1,943,030
Series 1992C
1,215 Georgia Housing and Finance Authority Revenue - Single Family Mortgage - 6.500 12/01/17 1,248,631
Series 1994 A
750 Georgia Housing and Finance Authority Revenue - Single Family Mortgage - 6.600 12/01/23 767,655
Series 1994 A
1,000 Georgia Housing and Finance Authority Revenue - Single Family Mortgage - 6.400 12/01/15 1,020,570
Subseries 1995 A-2
420 Georgia State Residential Finance Authority - Series A-2 7.800 06/01/21 441,092
350 Georgia State Residential Finance Authority - Series A-2 7.750 06/01/18 373,762
1,640 Georgia State Residential Finance Authority - Series A 7.250 12/01/21 1,734,513
750 Georgia State Residential Finance Authority - Series B-1 8.000 12/01/16 808,852
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
500 Bartow County, GA Development Authority Pollution Control Revenue - 7.250 07/01/21 517,415
Georgia Power Company
750 Burke County, GA Development Authority Pollution Control Revenue - 8.375 07/01/17 811,088
Georgia Power Company - Vogtle Project
1,000 Cartersville, GA Development Authority Water and Wastewater Facilities - 6.750 02/01/12 1,046,230
Anheuser-Busch - Series 1992
500 Savannah, GA Economic Development Authority Revenue - Hershey Foods - 6.600 06/01/12 525,595
Series 1992
1,000 Savannah, GA Economic Development Authority Revenue - Pollution 6.050 05/01/21 985,780
Control Revenue - Union Camp Corporation
500 Wayne County, GA Development Authority Solid Waste Disposal Revenue - 8.000 07/01/15 536,295
ITT Rayonier Inc. Project
1,000 Wayne County, GA Development Authority Pollution Control Revenue - ITT 6.100 11/01/07 1,030,690
Rayonier Project - Series 1993
500 White County, GA Industrial Development Authority Revenue - Clark- 6.850 06/01/10 519,020
Schwebel Fiber Glass Corporation - Series 1992
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------
1,750 Butts County, GA Association County Commissioners of Georgia Leasing
Program - Certificates of Participation - Butts County, Georgia Public
Purpose Project - Series 1994 6.750 12/01/14 1,925,612
</TABLE>
Georgia 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
$ 1,500 Atlanta, GA Airport Facilities Revenue 6.250% 01/01/21 $ 1,528,875
3,500 Atlanta, GA Airport Facilities Revenue 6.250 01/01/21 3,569,475
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
1,800 Appling County, GA Development Authorities - Pollution Control Revenue - 7.150 01/01/21 2,024,082
Oglethorpe Power Corporation Hatch Project - Series 1994
1,450 Georgia Municipal Electric Authority Power Revenue - Series A 8.100 01/01/12 1,556,198
905 Georgia Municipal Electric Authority Power Revenue - Series M 8.100 01/01/12 971,436
3,000 Georgia Municipal Electric Authority Power Revenue - Series 1994 EE 5.500 01/01/26 2,909,190
150 Georgia Municipal Electric Authority Power Revenue - Series 1995 O 7.800 01/01/20 163,734
500 Monroe County, GA Development Authority Pollution Control Revenue - 6.750 01/01/10 546,285
Oglethorpe Power Corporation - Scherer Project - Series 1992A
1,000 Monroe County, GA Development Authority Pollution Control Revenue - 6.800 01/01/12 1,094,320
Oglethorpe Power Corporation - Scherer Project - Series 1992A
1,000 Commonwealth of Puerto Rico Electric Power Authority - Series O 5.000 07/01/12 913,930
500 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 510,725
2,095 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.375 07/01/24 2,168,074
2,500 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.000 07/01/16 2,505,825
2,500 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 T 5.500 07/01/20 2,377,600
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
500 Brunswick, GA Water and Sewer Improvement Revenue - Series 1992 6.000 10/01/11 526,675
400 Brunswick, GA Water and Sewer Improvement Revenue - Series 1992 6.100 10/01/19 425,804
750 Columbia County, GA Water and Sewer Revenue 6.900 06/01/11 828,495
500 Columbus, GA Water and Sewer Revenue - Series 1992 6.250 05/01/11 527,245
1,000 Conyers, GA Water and Sewerage Revenue - Series 1994 A 6.600 07/01/15 1,082,550
3,500 Cumming, GA Water and Sewerage Revenue - Series 1994 6.250 12/01/24 3,642,135
1,000 Fayette County, GA Water Revenue 6.200 10/01/20 1,027,700
750 Hinesville, GA Water and Sewer Revenue 7.750 10/01/13 797,752
85 Savannah, GA Water and Sewer Revenue - Series 1989 7.500 12/01/10 93,579
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
500 Albany-Dougherty County, GA Inner City Authority Revenue - Series 1992 6.000 02/01/11 510,100
1,500 Atlanta, GA Downtown Development Authority Revenue - Underground 6.250 10/01/12 1,557,840
Atlanta Project - Series 1992
1,000 Atlanta, GA Downtown Development Authority Revenue - Underground 6.250 10/01/16 1,034,900
Atlanta Project - Series 1992
1,215 Clayton County, GA Solid Waste Management Authority - Series 1992A 6.500 02/01/12 1,267,136
800 Downtown Marietta, Georgia Development Authority Revenue - Cobb County Lease 6.600 01/01/19 857,832
1,000 Smyrna, GA Downtown Development Authority Revenue - Series 1994 6.600 02/01/17 1,084,730
725 Fulton County, GA Building Authority Revenue - Judicial Center Facilities 6.500 01/01/15 774,648
Project - Series 1991
1,015 Peach County, GA School District - General Obligation - Series 1994 6.300 02/01/14 1,068,927
3,810 Peach County, GA School District - General Obligation - Series 1994 6.400 02/01/19 4,018,026
1,250 Tift County, GA School District - General Obligation School - Series 1995 6.125 02/01/15 1,277,600
1,500 Washington County, GA School District - General Obligation School 6.875 01/01/14 1,680,555
Revenue - Series 1994
</TABLE>
6 Georgia
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
$ 1,500 Albany-Dougherty County, GA Hospital Authority Revenue - Phoebe Putney 7.500% 09/01/20 $ 1,723,560
Memorial Hospital - Series B
500 Atlanta, GA Board of Education - Certificates of Participation 7.125 06/01/12 563,785
500 Atlanta, GA Downtown Development Authority Revenue - Underground 7.750 10/01/16 533,345
Atlanta Project
505 Cherokee County, GA Water and Sewer Authority Revenue 9.750 08/01/09 711,757
250 Cobb County, GA Hospital Authority Revenue - Kennestone Hospital - 8.000 08/01/06 261,478
Series 1986
10,735 Colquitt County, GA Development Authority Revenue 0.000 12/01/21 1,755,924
9,000 Colquitt County, GA Development Authority Revenue 0.000 12/01/21 1,472,130
500 Dade County, GA Water and Sewer Authority Revenue 7.600 07/01/15 565,540
300 Douglasville-Douglas County, GA Water and Sewer Authority Revenue 7.700 06/01/13 332,805
1,370 Fulton County, GA Building Authority Revenue - Judicial Center Facilities 8.200 01/01/15 1,477,340
Project
1,000 Fulton County, GA School District 7.625 05/01/17 1,088,910
1,140 Fulton County, GA Water and Sewer Revenue 8.250 01/01/14 1,267,121
500 Gainesville, GA Water and Sewer Revenue 7.200 11/15/10 569,880
600 Metropolitan Atlanta Rapid Transit Authority - Georgia Sales Tax Revenue - 8.625 07/01/10 614,262
Series F
1,200 Metropolitan Atlanta Rapid Transit Authority - Georgia Sales Tax Revenue - 7.200 07/01/20 1,339,572
Series L
585 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 657,335
375 Commonwealth of Puerto Rico Electric Power Authority - Series J 9.125 07/01/15 387,915
350 Commonwealth of Puerto Rico Electric Power Authority - Series K 9.375 07/01/17 392,210
2,100 Richmond County, GA Development Authority Revenue - Series C 0.000 12/01/21 325,983
665 Savannah, GA Water and Sewer Revenue - Series 1989 7.500 12/01/10 727,889
500 Ware County, GA Hospital Authority Revenue 7.125 03/01/15 561,350
625 Warner Robins, GA Water and Sewer Revenue 7.750 07/01/12 660,688
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
570 Burke County, GA Development Authority Revenue - Georgia Safe 7.500 02/01/11 610,972
Corporation
1,150 Burke County, GA Economic Development Authority Industrial 7.250 12/01/11 1,216,274
Development Revenue - Ritz Instrument Transformers
575 Metropolitan Atlanta Rapid Transit Authority - Georgia Sales Tax Revenue - 7.250 07/01/10 626,767
Series K
1,500 Metropolitan Atlanta Rapid Transit Authority - Georgia Sales Tax Revenue - 6.250 07/01/18 1,611,120
Series N
2,000 Metropolitan Atlanta Rapid Transit Authority - Georgia Sales Tax Revenue - 6.900 07/01/20 2,222,420
Series 1994 A
550 Commonwealth of Puerto Rico Infrastructure Financing Authority - Series A 7.750 07/01/08 608,003
</TABLE>
Georgia 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
$ 1,200 Commonwealth of Puerto Rico - Public Improvement - General Obligation - 5.375% 07/01/22 $ 1,154,436
Series 1995
165 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 184,128
650 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 687,323
425 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - 7.875 07/01/17 473,152
Series A
Total Investments in Securities - Municipal Bonds (cost $114,416,265) - 100.5% 120,920,650
Excess of Liabilities over Other Assets - (0.5)% (593,532)
Total Net Assets - 100.0% $120,327,118
</TABLE>
*Securities purchased on a "when issued" basis.
See notes to financial statements.
8 Georgia
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $114,416,265) $120,920,650
Cash 576,048
Receivable for investments sold 2,969,188
Receivable for Fund shares sold 317,088
Interest receivable 2,717,474
Other 12,050
Total assets 127,512,498
LIABILITIES:
Payable for investments purchased 6,175,865
Payable for Fund shares reacquired 331,244
Distributions payable 566,427
Accrued expenses 111,844
Total liabilities 7,185,380
NET ASSETS $120,327,118
Class A:
Applicable to 10,836,679 shares of beneficial interest
issued and outstanding $113,354,136
Net asset value per share $ 10.46
Class C:
Applicable to 667,941 shares of beneficial interest
issued and outstanding $ 6,972,982
Net asset value per share $ 10.44
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 8,057,149
EXPENSES:
Distribution fees - Class A (Note E) 464,676
Distribution fees - Class C (Note E) 54,182
Investment advisory fees (Note E) 609,339
Custodian's fees 91,775
Transfer agent's fees 95,175
Registration fees 5,054
Legal fees 1,825
Audit fees 16,303
Trustees' fees 2,306
Shareholder services fees (Note E) 13,680
Other 6,319
Advisory fees waived (Note E) (321,940)
Total expenses 1,038,694
Net investment income 7,018,455
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (503,259)
Change in unrealized appreciation (depreciation) of investments 2,459,199
Net gain on investments 1,955,940
Net increase in net assets resulting from operations $ 8,974,395
See notes to financial statements.
Georgia 9
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS May 31, 1995 May 31, 1994
Operations:
Net investment income $ 7,018,455 $ 6,404,850
Net realized loss on security transactions (503,259) (1,318,071)
Change in unrealized appreciation
(depreciation) of investments 2,459,199 (3,682,495)
Net increase in net assets resulting
from operations 8,974,395 1,404,284
Distributions to shareholders:
Dividends from net investment income-Class A (6,723,768) (6,432,853)
Dividends from net investment income-Class C (294,712) (52,546)
Net decrease in net assets from distributions
to shareholders-Class A (6,723,768) (6,432,853)
Net decrease in net assets from distributions
to shareholders-Class C (294,712) (52,546)
Fund share transactions:
Proceeds from shares sold-Class A 11,821,769 37,427,403
Proceeds from shares sold-Class C 3,369,935 4,545,501
Net asset value of shares issued in
reinvestment of distributions-Class A 3,840,891 3,751,406
Net asset value of shares issued in
reinvestment of distributions-Class C 187,309 27,028
Cost of shares reacquired-Class A (27,143,426) (14,385,233)
Cost of shares reacquired-Class C (1,121,450) (64,337)
Net (decrease) increase in net assets from
Fund share transactions-Class A (11,480,766) 26,793,576
Net increase in net assets from Fund
share transactions-Class C 2,435,794 4,508,192
Total (decrease) increase in net assets (7,089,057) 26,220,653
NET ASSETS:
Beginning of year 127,416,175 101,195,522
End of year $ 120,327,118 $ 127,416,175
NET ASSETS CONSIST OF:
Paid-in surplus $ 117,988,119 $ 127,033,116
Accumulated net realized gain (loss)
on security transactions (4,165,386) (3,662,127)
Unrealized appreciation (depreciation)
of investments 6,504,385 4,045,186
$ 120,327,118 $ 127,416,175
See notes to financial statements.
10 Georgia
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Georgia Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on March 27, 1986. On
January 4, 1994, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C
shares are sold with no front-end sales charge but are assessed a
contingent deferred sales charge if redeemed within one year from the time
of purchase. Both classes of shares have identical rights and privileges
except with respect to the effect of sales charges, the distribution and/or
service fees borne by each class, expenses specific to each class, voting
rights on matters affecting a single class and the exchange privilege of
each class. Shares of beneficial interest in the Fund, which are registered
under the Securities Act of 1933, as amended, are offered to the public on
a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
tax-exempt net investment income and realized gains on security
transactions. Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of
certain book-to-tax timing differences is presented as excess distributions
in the statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and
losses on security transactions are determined on the identified cost
basis. Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and
estimated expenses are accrued daily. Daily dividends are declared from net
investment income and paid monthly. Net realized gains from security
transactions, to the extent they exceed available capital loss
carryforwards, are distributed to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities
Georgia 11
<PAGE>
Notes to Financial Statements
================================================================================
as collateral, purchase and sell portfolio securities on a "when issued"
basis. These securities are registered by a municipality or government
agency, but have not been issued to the public. Delivery and payment take
place after the date of the transaction and such securities are subject to
market fluctuations during this period. The current market value of these
securities is determined in the same manner as other portfolio securities.
There were $3,218,440 "when issued" purchase commitments included in the
statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in
shares were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 1,172,988 3,502,122
Shares issued in reinvestment
of distributions 383,032 349,989
Shares reacquired (2,752,961) (1,343,940)
Net (decrease) increase
in shares outstanding (1,196,941) 2,508,171
Outstanding at beginning
of year 12,033,620 9,525,449
Outstanding at end of year 10,836,679 12,033,620
Period From
Year Ended January 4, 1994
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 335,379 429,392
Shares issued in reinvestment
of distributions 18,740 2,617
Shares reacquired (112,088) (6,099)
Net increase in shares
outstanding 242,031 425,910
Outstanding at beginning
of period 425,910 - 0 -
Outstanding at end of period 667,941 425,910
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995,
aggregated $48,218,020 and $55,364,320, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting
and federal income tax purposes aggregated $6,504,385 of which $6,946,057
related to appreciated securities and $441,672 related to depreciated
securities.
At May 31, 1995, the Fund has available capital loss carryforwards of
approximately $4,165,500 to offset future net capital gains in the amounts
of $740,500 through May 31, 1996, $366,000 through May 31,1997, $109,600
through May 31,1999, $1,046,000 through May 31, 2001, $1,400,200 through
May 31, 2002, and $503,200 through May 31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities
to the Fund, receives fees computed monthly, on the average daily net
assets of the Fund at an annualized rate of 1/2 of 1%. During the year
ended May 31, 1995, the Advisor, at its discretion, permanently waived
$321,940 of its advisory fees. Included in accrued expenses at May 31, 1995
are accrued advisory fees of $30,383.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity
is responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor
12 Georgia
<PAGE>
Notes to Financial Statements
================================================================================
each month for its actual expenses incurred in the distribution and
promotion of all classes of the Fund's shares. The maximum amount payable
for these expenses on an annual basis is .40% and .95% of the Fund's
average daily net assets for Class A and Class C shares, respectively.
Included in accrued expenses at May 31, 1995 are accrued distribution fees
of $38,227 and $5,424 for Class A and Class C shares, respectively. Certain
non-promotional expenses directly attributable to current shareholders are
aggregated by the Distributor and passed through to the Fund as shareholder
services fees.
In its capacity as national wholesale underwriter for the shares of
the Fund, the Distributor received commissions on sales of the Fund's Class
A shares of approximately $347,400 for the year ended May 31, 1995, of
which approximately $300,500 was paid to other dealers. For the year ended
May 31, 1995, the Distributor received approximately $7,300 of contingent
deferred sales charges on redemptions of Class C shares. Certain officers
and trustees of the Funds are also officers and/or directors of the
Distributor and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $6
million under the line of credit. Borrowings are collateralized with
pledged securities and are due on demand with interest at 1% above the
federal funds rate. The average daily amount of borrowings under the line
of credit during the year ended May 31, 1995 was approximately $387,833,
with a weighted average annualized interest rate of 6.24%. At May 31, 1995,
the Fund had no borrowings outstanding under the line of credit.
Georgia 13
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.23 $10.62 $10.16 $9.95 $9.67
Income from investment operations:
Net investment income 0.58 0.59 0.62 0.63 0.64
Net realized and unrealized gain 0.23 (0.39) 0.45 0.21 0.28
(loss) on securities
Total from investment operations 0.81 0.20 1.07 0.84 0.92
Less distributions:
Dividends from net (0.58) (0.59) (0.61) (0.63) (0.64)
investment income
Total distributions (0.58) (0.59) (0.61) (0.63) (0.64)
Net asset value, end of year $10.46 $10.23 $10.62 $10.16 $9.95
Total return(a) 8.31% 1.83% 10.84% 8.81% 9.90%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.83% 0.70% 0.62% 0.57% 0.72%
Net investment income 5.79% 5.47% 5.88% 6.31% 6.60%
Assuming no waivers and
reimbursements:
Expenses 1.09% 1.06% 1.08% 1.14% 1.22%
Net investment income 5.53% 5.11% 5.42% 5.74% 6.10%
Net assets at end of year (000's) $113,354 $123,068 $101,196 $70,650 $44,829
Portfolio turnover rate 39.94% 39.48% 29.51% 21.19% 24.09%
(a) The total returns shown do not
include the effect of
applicable front-end sales
charge.
</TABLE>
14 Georgia
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
===============================================================================
Period From
Year Ended January 4, 1994 to
Class C May 31, 1995 May 31, 1994
-------------------------------------------------------------------------------
Net asset value, beginning of period $10.21 $10.91
Income from investment operations:
Net investment income 0.52 0.19
Net realized and unrealized gain 0.23 (0.69)
(loss) on securities
Total from investment operations 0.75 (0.50)
Less distributions:
Dividends from net investment (0.52) (0.20)
income
Total distributions (0.52) (0.20)
Net asset value, end of period $10.44 $10.21
Total return(a) 7.72% (10.96%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.38% 1.27%
Net investment income 5.18% 4.55%
Assuming no waivers and
reimbursements:
Expenses 1.64% 1.60%
Net investment income 4.92% 4.22%
Net assets at end of period (000's) $6,973 $4,348
Portfolio turnover rate 39.94% 39.48%
(a) The total returns shown do not
include the effect of
applicable contingent deferred
sales charge and are annualized
where appropriate.
Georgia 15
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP GEORGIA
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Georgia Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship Georgia
Double Tax Exempt Fund at May 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
16 Georgia
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
California
$ 1,000 Sacramento, CA Cogeneration Authority - Cogeneration Project Revenue - 6.200% 07/01/06 $ 1,003,910
Procter & Gamble Project - Series 1995
Connecticut
500 Connecticut State Health and Educational Facilities Authority Revenue - 5.625 07/01/03 489,660
Quinnipiac College - Series D
100 Connecticut State Health and Educational Facilities Authority Revenue - 6.100 07/01/00 101,342
Hartford University - Series 1992 D
400 Connecticut State Housing Finance Authority - Series B 7.200 11/15/01 420,996
Florida
250 Florida State Broward County Expressway Authority 9.875 07/01/09 361,225
1,000 Palm Beach County, FL School Board - Certificates of Participation - 5.800 08/01/04 1,059,680
Series 1994A
Georgia
1,265 Monroe County, GA Development Authority Pollution Control Revenue - 5.950 01/01/01 1,319,104
Oglethorpe Power Corporation - Scherer Project - Series 1992A
Iowa
500 Iowa State Higher Educational Loan Authority Revenue - 5.500 08/01/02 500,000
Private College Facilities - Series 1992
Kansas
1,250 Kansas State Department of Transportation - Highway Revenue - Series 1993 6.000 03/01/03 1,343,500
420 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments 6.200 02/01/08 434,141
Project - Series 1993A
Kentucky
1,165 Kentucky Infrastructure Authority Revenue - Governmental Agencies 5.600 08/01/06 1,188,160
Program - Series 1995 H
1,000 McCracken County, KY Hospital Facilities Revenue - Mercy Health System - 6.100 11/01/04 1,069,360
Series 1994 A
Louisiana
345 Louisiana Public Facilities Authority Revenue - Student Loan - Series 6.600 03/01/03 368,429
1992A-2
Massachusetts
1,000 Massachusetts State General Obligation - Series 1994 C 6.300 11/01/04 1,092,710
375 Massachusetts State Health and Educational Facilities Authority Revenue - 6.500 12/01/05 399,068
Dana-Farber Cancer Institute - Series G-1 and G-2
750 Massachusetts State Health and Educational Facilities Authority Revenue - 6.500 12/01/06 796,852
Dana-Farber Cancer Institute - Series G-1 and G-2
1,500 Massachusetts Water Pollution Abatement Trust - Water Pollution Abatement 5.700 02/01/05 1,555,140
Revenue - SESD Loan Program - Series 1994 A
Michigan
750 Michigan Municipal Bond Authority Revenue - State Revolving Fund - 7.000 10/01/04 854,700
Series 1994
1,275 Michigan State Comprehensive Transportation Revenue - Series 1992 B 5.750 05/15/04 1,345,189
1,000 Monroe County, MI Pollution Control Revenue - Detroit Edison Company - 6.350 12/01/04 1,081,460
Series 1994 A
Missouri
1,000 Missouri State Health and Educational Facilities Authority Revenue - SSM 5.800 06/01/02 1,057,030
Health Care - Series 1992AA
350 St. Louis County, MO Industrial Development Revenue Authority - Kiel 7.625 12/01/09 365,736
Center Multipurpose Arena - Series 1992
</TABLE>
4 Intermediate
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
$ 300 St. Louis, MO Airport and Improvement Revenue - Lambert-St. Louis 5.900% 07/01/03 $ 315,720
International Airport - Series 1992
1,600 Sikeston, MO Electric Revenue 6.000 06/01/04 1,695,792
Nevada
1,000 Nevada State General Obligation - Series 1994 A 5.400 07/15/04 1,027,470
New Jersey
1,000 New Jersey Health Care Facilities Financing Authority Revenue - Dover 7.000 07/01/03 1,126,630
Medical Center - Series 1994
1,500 New Jersey State General Obligation - Series 1992 D 5.400 02/15/03 1,557,285
New Mexico
100 New Mexico Educational Assistance Foundation - Student Loan Revenue - 6.300 12/01/02 105,869
Series 1A
New York
445 Herkimer County, NY Industrial Development Agency Revenue - Burrows 7.250 01/01/01 457,669
Paper Recycling
1,000 Nassau County, NY General Obligation - Improvement Revenue - Series P 6.300 11/01/03 1,093,390
700 New York City General Obligation - Series 1995 F 6.375 02/15/06 717,094
250 New York City General Obligation - Series A 7.750 08/15/09 275,918
Ohio
1,000 Columbus, OH Sewer Revenue - Series 1992 6.200 06/01/04 1,082,440
500 Ohio State Full Faith and Credit General Obligation Infrastructure 5.750 08/01/04 531,420
Improvement Revenue - College Savings - Current Interest - Series 1995
1,500 Ohio State Building Authority - Correctional Facilities - Series 1991 6.500 10/01/01 1,641,135
1,000 Ohio State Building Authority Facilities - Administrative Building Fund 5.650 10/01/05 1,042,040
Projects - Series 1994 A
750 Ohio State Public Facilities Commission Higher Education - Capital Facilities - 5.400 11/01/06 773,782
Series 1992 II-B
1,000 Ohio State Public Facilities Commission Higher Education - Capital Facilities - 5.750 11/01/04 1,053,430
Series II-B
1,000 Ohio State Elementary and Secondary Education Capital Facilities Revenue - 5.800 06/01/03 1,064,410
Series 1995 A
Pennsylvania
500 Allegheny County, PA Airport Revenue - Greater Pittsburgh International 5.500 01/01/04 510,600
Airport - Series 1993C
500 Philadelphia, PA Gas Works Revenue - Fourteenth Series 7.000 07/01/02 547,785
South Carolina
250 Myrtle Beach, SC Public Facilities Corporation - Certificates of Participation - 6.750 07/01/02 263,768
Convention Center Project - Series 1992
South Dakota
750 South Dakota Student Loan Finance Corporation Revenue - Series 1994 A 5.850 08/01/00 760,252
120 South Dakota State Building Authority Revenue - Series 1992 8.200 09/01/02 145,046
Tennessee
500 Clarksville, TN Hospital and Improvement Revenue - Clarksville Memorial 6.000 07/01/03 502,190
Project - Series 1993
1,000 Hamilton County, TN Industrial Board Lease Rental Revenue - City of 5.750 09/01/05 1,040,760
Chattanooga and County of Hamilton, Tennessee - Series 1994
500 Metropolitan Nashville and Davidson County - Tennessee Industrial 6.000 05/01/03 507,515
Development Board Revenue - OSCO Treatment - Series 1993
</TABLE>
Intermediate 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
Texas
400 Brazos, TX Higher Education Authority - Student Loan Revenue - Series 6.200 12/01/02 $ 418,520
1993 A-1
Virginia
1,135 Virginia State Commonwealth Transportation Board - Transportation 5.800 05/15/05 1,201,840
Revenue - Northern Virginia Transportation District Program - Series 1995 A
Washington
1,500 Washington State General Obligation Refunding Revenue - Series 1991 R-92 6.500 09/01/04 1,627,005
Wyoming
200 Wyoming State Farm Loan Board Facilities Revenue - Series 1992 6.100 10/01/06 209,395
Total Investments in Securities - Municipal Bonds (cost $39,577,534) - 98.7% 41,503,562
Excess of Other Assets over Liabilities - 1.3% 564,939
Total Net Assets - 100.0% $ 42,068,501
</TABLE>
**Maturity date represents actual maturity or earlier put date.
See notes to financial statements.
6 Intermediate
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $39,577,534) $ 41,503,562
Receivable for Fund shares sold 409,134
Interest receivable 682,309
Other 5,334
Total assets 42,600,339
LIABILITIES:
Bank borrowings (Note G) 255,871
Payable for Fund shares reacquired 46,212
Distributions payable 175,382
Accrued expenses 42,982
Other 11,391
Total liabilities 531,838
NET ASSETS:
Applicable to 4,088,387 shares of beneficial interest
issued and outstanding $ 42,068,501
Net asset value per share $ 10.29
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 2,137,165
EXPENSES:
Distribution fees (Note E) 149,957
Investment advisory fees (Note E) 187,583
Custody and accounting fees 45,600
Transfer agent's fees 31,055
Registration fees 19,214
Legal fees 548
Audit fees 12,532
Reimbursement of organizational expenses (Note F) 7,154
Trustees' fees 743
Shareholder services fees (Note E) 6,080
Other 3,096
Advisory fees waived (Note E) (187,583)
Expense subsidy (Note E) (71,839)
Total expenses 204,140
Net investment income 1,933,025
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (1,050,609)
Change in unrealized appreciation (depreciation) of investments 1,746,430
Net gain on investments 695,821
Net increase in net assets resulting from operations $ 2,628,846
See notes to financial statements.
Intermediate 7
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statements of Changes in Net Assets
====================================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 1,933,025 $ 1,441,699
Net realized loss on security transactions (1,050,609) (537,684)
Change in unrealized appreciation (depreciation) of investments 1,746,430 (332,955)
Net increase in net assets resulting from operations 2,628,846 571,060
Distributions to shareholders:
Dividends from net investment income (1,935,697) (1,448,521)
Distributions from net realized capital gains (124,389)
Distributions in excess of net realized capital gains (32,833)
Net decrease in net assets from distributions to shareholders (1,935,697) (1,605,743)
Fund share transactions:
Proceeds from shares sold 17,981,764 26,407,022
Net asset value of shares issued in reinvestment of distributions 1,182,047 980,772
Cost of shares reacquired (13,679,012) (9,433,709)
Net increase in net assets from Fund share transactions 5,484,799 17,954,085
Total increase in net assets 6,177,948 16,919,402
NET ASSETS:
Beginning of year 35,890,553 18,971,151
End of year $ 42,068,501 $ 35,890,553
NET ASSETS CONSIST OF:
Paid-in surplus $ 41,762,900 $ 36,278,101
Undistributed net investment income 699 3,371
Accumulated net realized gain (loss) on security transactions (1,621,126) (570,517)
Unrealized appreciation (depreciation) of investments 1,926,028 179,598
$ 42,068,501 $ 35,890,553
</TABLE>
See notes to financial statements.
8 Intermediate
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Intermediate Tax Exempt Fund is a sub-trust of the Flagship Tax
Exempt Funds Trust (Trust), a Massachusetts business trust organized on
March 8, 1985. The Fund is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund commenced investment operations on September 15, 1992. Shares of
beneficial interest in the Fund, which are registered under the Securities
Act of 1933, as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were no "when issued" purchase commitments
included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Intermediate 9
<PAGE>
Notes to Financial Statements
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
Shares sold 1,816,050 2,513,819
Shares issued in reinvestment
of distributions 118,748 93,423
Shares reacquired (1,379,633) (907,834)
Net increase
in shares outstanding 555,165 1,699,408
Outstanding at beginning
of year 3,533,222 1,833,814
Outstanding at end of year 4,088,387 3,533,222
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $43,930,182 and $38,092,006, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting
and federal income tax purposes aggregated $1,926,028 of which $1,936,368
related to appreciated securities and $10,340 related to depreciated
securities.
At May 31,1995, the Fund has available a capital loss carryforward of
approximately $1,621,100 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived all of its advisory
fees amounting to $187,583. Also, under an agreement with the Fund, the
Advisor has agreed to subsidize certain expenses (excluding advisory and
distribution fees) until the Fund reaches a sufficient size to maintain a
normal expense ratio to average net assets.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor each
month for its actual expenses incurred in the distribution and promotion of
sales of the Fund's shares. The maximum amount payable for these expenses on
an annual basis is .40% of the Fund's average daily net assets. Included in
accrued expenses at May 31, 1995 are accrued distribution fees of $13,935.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the
Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $171,100 for the year ended May 31, 1995, of which
approximately $136,700 was paid to other dealers. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($30,700) will be
reimbursed to the Advisor on a straight-line basis over a period of five
years. As of May 31, 1995, $7,154 has been reimbursed. In the event that the
Advisor's current investment in the Trust falls below $100,000 prior to the
full reimbursement of the organizational expenses, then it will forego any
further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $2
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $155,932, with a weighted
average annualized interest rate of 6.52%. At May 31, 1995, the Fund had
$255,871 borrowings outstanding under the line of credit.
10 Intermediate
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
====================================================================================================
Period From
Year Ended Year Ended September 15, 1992 to
May 31, 1995 May 31, 1994 May 31, 1993
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.16 $10.35 $9.70
Income from investment operations:
Net investment income 0.51 0.52 0.36
Net realized and unrealized gain 0.13 (0.13) 0.64
(loss) on securities
Total from investment operations 0.64 0.39 1.00
Less distributions:
Dividends from net investment (0.51) (0.52) (0.35)
income
Distributions from net realized (0.05)
capital gains
Distributions in excess of net (0.01)
realized capital gains
Total distributions (0.51) (0.58) (0.35)
Net asset value, end of period $10.29 $10.16 $10.35
Total return(a) 6.63% 3.72% 14.06%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 0.54% 0.40% 0.39%
Net investment income 5.15% 4.93% 4.98%
Assuming no waivers and
reimbursements:
Expenses 1.24% 1.29% 1.59%
Net investment income 4.45% 4.04% 3.78%
Net assets at end of period (000's) $42,069 $35,891 $18,971
Portfolio turnover rate 102.06% 69.14% 102.38%
</TABLE>
(a)The total returns shown do not
include the effect of applicable
front-end sales charge and are
annualized where appropriate.
Intermediate 11
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP INTERMEDIATE
TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Intermediate Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
Intermediate Tax Exempt Fund at May 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
12 Intermediate
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Hospitals
--------------------------------------------------------------------------------------------------------------------
$ 1,175 Lawrence, KS Hospital Revenue - Lawrence Memorial Hospital - Series 1994 6.200% 07/01/14 $ 1,186,280
450 Lawrence, KS Hospital Revenue - Lawrence Memorial Hospital - Series 1994 6.200 07/01/19 450,896
250 Commonwealth of Puerto Rico Industrial, Tourist, Educational, Medical and 6.250 07/01/24 262,610
Environmental Control Facilities Financing Authority - Hospital Revenue -
Hospital Auxilio Mutuo Obligated Group
1,400 Wichita, KS Hospital Facilities Improvement Revenue - St. Francis Regional 6.250 10/01/10 1,492,582
Medical Center, Incorporated - Series III-A-3
250 Wichita, KS Hospital Facilities Improvement Revenue - St. Francis Regional 6.300 10/01/22 261,268
Medical Center, Incorporated - Series III-B-3
2,250 Wichita, KS Revenue - CSJ Health System - Series XXV 7.200 10/01/15 2,385,652
450 Wichita, KS Revenue - CSJ Health Systems - Series X 7.000 11/15/18 465,915
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
1,000 Kansas City, KS Multifamily Housing Revenue - Rainbow Towers Project - 6.700 07/01/23 1,021,390
FHA Insured Mortgage Loan - Series 1994
1,000 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments 6.500 02/01/23 1,024,380
Project - Series 1993A
445 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments 6.300 02/01/09 459,244
Project - Series 1993A
475 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments 6.400 02/01/10 490,143
Project - Series 1993A
2,000 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments 6.450 02/01/18 2,056,220
Project - Series 1993A
1,000 Olathe, KS Multifamily Housing Revenue - Deerfield Apartments - Series 6.450 06/01/19 1,018,910
1994 A
1,500 Wichita, KS Multifamily Housing Revenue - The Shores Apartments Project - 6.700 04/01/19 1,581,015
Series 1994
2,000 Wichita, KS Multifamily Housing Revenue - The Shores Apartments Project - 6.800 04/01/24 2,111,400
Series 1994
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
500 Hutchinson, KS Single Family Mortgage Revenue - Series 1992 6.500 12/01/09 524,345
725 Olathe-Labette County, KS Collateralized Single Family Mortgage Revenue - 7.800 02/01/25 802,938
Series 1994 C-I
2,540 Sedgwick County, KS Mortgage Loan Revenue - GNMA Collateralized 7.875 12/01/21 2,712,898
Local or Guaranteed Housing - Series 1989
1,455 Sedgwick and Shawnee County, KS Collateralized Single Family Mortgage 8.125 05/01/24 1,632,685
Refunding Revenue - Series 1994 A-III
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
5,550 Clearwater, KS Pollution Control Refunding Revenue - Vulcan Materials 6.375 02/01/12 5,722,494
Company - Series 1992
1,000 Dodge City, KS Pollution Control Revenue - Excel Corporation Project - 6.625 05/01/05 1,092,220
Series 1992
650 Wichita, KS Airport Authority - Wichita Airport Hotel Associates - Series 1992 7.000 03/01/05 719,134
</TABLE>
4 Kansas
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------
$ 275 Cowley County, KS Community College - Series 1992 7.000% 03/01/12 $ 290,826
145 Kansas State Development Finance Authority Revenue - Kansas Board of 6.350 03/01/09 150,772
Regents Institutions Projects - Series 1992 G
500 Kansas State Development Finance Authority Revenue - Department of 6.000 02/01/09 517,275
Corrections - El Dorado and Larned Projects - Series 1992 L
455 Kansas State Development Finance Authority Revenue - Department of 6.000 08/01/09 470,720
Corrections - El Dorado and Larned Projects - Series 1992 L
500 Kansas State Development Finance Authority Revenue - Department of 6.000 02/01/11 514,315
Corrections - El Dorado and Larned Projects - Series 1992 L
1,050 Kansas State Development Finance Authority Revenue - Highway Patrol 6.600 12/01/07 1,127,532
Central Training Facility - Series 1992 T
150 Leawood, KS Public Building Commission - Leawood City Hall - Series 1992 6.600 09/01/12 160,760
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
650 Guam Airport Authority General Revenue - Series 1993 A 6.700 10/01/23 667,459
750 Commonwealth of Puerto Rico Highway and Transportation Authority 5.500 07/01/13 726,585
Revenue - Series 1993 X
900 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/18 951,579
Revenue - Series 1992 T
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
1,500 Gardner, KS Electric Utility Revenue - Series 1992 7.000 11/01/09 1,608,960
2,500 Kansas City, KS Utility System and Improvement Revenue - Series 1994 6.250 09/01/14 2,642,575
2,900 Kansas City, KS Utility System and Improvement Revenue - Series 1994 6.375 09/01/23 3,065,532
220 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 224,719
1,720 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.375 07/01/24 1,779,994
215 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.125 07/01/08 220,996
5,000 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.000 07/01/16 5,011,650
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
1,875 Johnson County, KS Water District Revenue Number 1 - Series A 6.100 12/01/16 1,925,475
3,000 Kansas State Development Finance Authority - Water Pollution Control 6.000 11/01/14 3,112,770
Revenue - Series 1993 II
350 Newton, KS Wastewater Treatment System - Series 1992 7.125 03/01/12 377,664
200 Olathe, KS Water and Sewer System Revenue - Johnson County - Series 1990 6.875 02/01/09 208,284
200 Olathe, KS Water and Sewer System Revenue - Johnson County - Series 1990 6.875 08/01/09 208,284
750 Salina, KS Water and Sewer Improvement Revenue 6.250 10/01/12 792,645
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
170 Derby, KS General Obligation - Series II 6.500 12/01/12 176,506
500 Douglas County, KS Unified School District Number 497 - Lawrence - 6.000 09/01/15 512,020
General Obligation School Building - Series 1995-A
440 Jefferson County, KS Unified School District Number 340 - General 6.350 09/01/14 462,224
Obligation - Series 1994
2,500 Johnson County, KS General Obligation - Internal Improvement Revenue - 6.125 09/01/12 2,598,875
Series 1992A
625 Johnson County, KS Unified School District Number 512 - Shawnee Mission - 6.000 10/01/09 639,019
Series 1992 C
</TABLE>
Kansas 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 860 Lyon County, KS Unified School District Number 253 - General Obligation - 5.650% 10/01/11 $ 867,293
Emporia - Series 1993
605 Lyon County, KS Unified School District Number 253 - General Obligation - 5.700 10/01/12 611,062
Emporia - Series 1993
800 Miami County, KS Unified School District Number 368 - Series 1992 6.600 12/01/08 866,488
250 Commonwealth of Puerto Rico Municipal Finance Agency - Series A 8.250 07/01/08 280,762
1,000 Sedgwick County, KS Unified School District Number 265 - General 5.500 10/01/13 1,002,810
Obligation School Building - Goddard - Series 1994
1,220 Shawnee County, KS Unified School District Number 345 - Seaman - Series 1994 5.500 09/01/13 1,221,635
1,000 Shawnee County, KS Unified School District Number 437 - Seaman - Series 1994 5.700 09/01/14 1,004,890
350 Shawnee County, KS Unified School District Number 437 - Auburn-Washburn - 6.600 09/01/09 377,360
Series 1992
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
355 Jackson County, KS General Obligation - Unified School District Number 6.600 10/01/12 398,434
336 - Holton
380 Jackson County, KS General Obligation - Unified School District Number 6.650 10/01/13 427,785
336 - Denison-Holton - Series 1992
3,240 Johnson County, KS Residual Revenue - Series 1992 0.000 05/01/12 1,161,670
1,000 Kansas City, KS Single Family Mortgage Revenue - Verex - Series 1983 A 0.000 12/01/14 306,600
350 Kansas State Department of Transportation - Highway Revenue - Series 1992 6.500 03/01/12 389,652
80 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/18 90,619
Revenue - Series 1992 T
600 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 7.000 07/01/19 654,390
Education and Health Facilities - Series J
530 Commonwealth of Puerto Rico Electric Power Authority - Series M 8.000 07/01/08 595,534
2,095 Reno/Sedgwick/Finney County, KS Single Family Mortgage Revenue - 0.000 04/01/16 592,487
Series 1984 A
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
325 Hays, KS Sales Tax Revenue - Series 1992 6.875 09/01/12 340,431
4,450 Kansas State Department of Transportation - Highway Revenue - Series 1992A 6.000 09/01/12 4,592,934
100 Commonwealth of Puerto Rico Infrastructure Financing Authority - Series A 7.750 07/01/08 110,546
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
235 Commonwealth of Puerto Rico - General Obligation - Series 1992 A 6.000 07/01/22 236,288
1,000 Commonwealth of Puerto Rico - General Obligation - Series 1992 A 6.000 07/01/14 1,006,880
1,500 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 1,563,855
1,000 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 1,057,420
1,000 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 1,078,560
1,000 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 5.750 07/01/16 1,008,300
Education and Health Facilities - Series 1993 L
Total Investments in Securities - Municipal Bonds (cost $78,805,716) - 98.5% 82,465,319
Excess of Other Assets over Liabilities - 1.5% 1,217,966
Total Net Assets - 100.0% $83,683,285
</TABLE>
See notes to financial statements.
6 Kansas
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $78,805,716) $82,465,319
Receivable for investments sold 100,000
Receivable for Fund shares sold 96,483
Interest receivable 1,515,936
Other 9,301
Total assets 84,187,039
LIABILITIES:
Bank borrowings (Note G) 67,912
Payable for Fund shares reacquired 23,283
Distributions payable 385,005
Accrued expenses 27,554
Total liabilities 503,754
NET ASSETS:
Applicable to 8,358,047 shares of beneficial interest
issued and outstanding $83,683,285
Net asset value per share $ 10.01
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 5,022,078
EXPENSES:
Distribution fees (Note E) 323,268
Investment advisory fees (Note E) 404,085
Custody and accounting fees 67,345
Transfer agent's fees 42,600
Registration fees 6,859
Legal fees 1,278
Audit fees 14,600
Reimbursement of organizational expenses (Note F) 8,578
Trustees' fees 1,525
Shareholder services fees (Note E) 10,640
Other 5,547
Distribution and advisory fees waived (Note E) (432,183)
Expense subsidy (Note E) (13,950)
Total expenses 440,192
Net investment income 4,581,886
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (3,110,652)
Change in unrealized appreciation (depreciation)
of investments 4,329,711
Net gain on investments 1,219,059
Net increase in net assets resulting from operations $ 5,800,945
See notes to financial statements.
Kansas 7
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS May 31, 1995 May 31, 1994
Operations:
Net investment income $ 4,581,886 $ 4,565,924
Net realized loss on security transactions (3,110,652) (1,873,595)
Change in unrealized appreciation
(depreciation) of investments 4,329,711 (2,838,065)
Net increase (decrease) in net assets
resulting from operations 5,800,945 (145,736)
Distributions to shareholders:
Dividends from net investment income (4,609,298) (4,591,984)
Distributions from net realized capital gains (146,571)
Distributions in excess of net realized
capital gains (443,625)
Net decrease in net assets from
distributions to shareholders (4,609,298) (5,182,180)
Fund share transactions:
Proceeds from shares sold 17,915,184 52,069,646
Net asset value of shares issued in
reinvestment of distributions 2,474,272 3,181,090
Cost of shares reacquired (17,957,660) (32,448,444)
Net increase in net assets from Fund
share transactions 2,431,796 22,802,292
Total increase in net assets 3,623,443 17,474,376
NET ASSETS:
Beginning of year 80,059,842 62,585,466
End of year $ 83,683,285 $ 80,059,842
NET ASSETS CONSIST OF:
Paid-in surplus $ 85,451,554 $ 83,047,170
Accumulated net realized gain (loss)
on security transactions (5,427,872) (2,317,220)
Unrealized appreciation (depreciation)
of investments 3,659,603 (670,108)
$ 83,683,285 $ 80,059,842
See notes to financial statements.
8 Kansas
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Kansas Triple Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end non-diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund commenced investment operations on January 9,
1992. Shares of beneficial interest in the Fund, which are registered under
the Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were no "when issued" purchase commitments
included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Kansas 9
<PAGE>
Notes to Financial Statements
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
Shares sold 1,847,956 4,934,027
Shares issued in reinvestment
of distributions 257,537 301,890
Shares reacquired (1,894,256) (3,118,459)
Net increase in shares
outstanding 211,237 2,117,458
Outstanding at beginning
of year 8,146,810 6,029,352
Outstanding at end of year 8,358,047 8,146,810
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995,
aggregated $58,001,429 and $57,109,388, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $3,659,603 all of which related to
appreciated securities.
At May 31, 1995, the Fund has available a capital loss carryforward of
approximately $5,427,900 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly, on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived all of its advisory
fees amounting to $404,085. Also, under an agreement with the Fund, the
Advisor has agreed to subsidize certain expenses (excluding advisory and
distribution fees) until the Fund reaches a sufficient size to maintain a
normal expense ratio to average net assets.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor each
month for its actual expenses incurred in the distribution and promotion of
sales of the Fund's shares. The maximum amount payable for these expenses on
an annual basis is .40% of the Fund's average daily net assets. During the
year ended May 31, 1995, the Distributor, at its discretion, permanently
waived distribution fees of $28,098. Certain non-promotional expenses
directly attributable to current shareholders are aggregated by the
Distributor and passed through to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $384,000 for the year ended May 31, 1995, of which
approximately $332,900 was paid to other dealers. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($42,757) are
being reimbursed to the Advisor on a straight-line basis over a period of
five years. As of May 31, 1995, $17,156 has been reimbursed. In the event
that the Advisor's current investment in the Trust falls below $100,000
prior to the full reimbursement of the organizational expenses, then it will
forego any further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $4
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $109,656, with a weighted
average annualized interest rate of 6.17%. At May 31, 1995, the Fund had
$67,912 borrowings outstanding under the line of credit.
10 Kansas
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Period From
Year Ended Year Ended Year Ended January 9, 1992 to
Class A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.83 $10.38 $9.65 $9.58
Income from investment operations:
Net investment income 0.55 0.56 0.58 0.19
Net realized and unrealized gain 0.18 (0.47) 0.73 0.07
(loss) on securities
Total from investment operations 0.73 0.09 1.31 0.26
Less distributions:
Dividends from net investment (0.55) (0.57) (0.58) (0.19)
income
Distributions from net realized (0.02)
capital gains
Distributions in excess of net (0.05)
realized capital gains
Total distributions (0.55) (0.64) (0.58) (0.19)
Net asset value, end of period $10.01 $9.83 $10.38 $9.65
Total return(a) 7.80% 0.62% 14.15% 5.95%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 0.54% 0.26% 0.11% 0.40%
Net investment income 5.67% 5.37% 5.74% 5.11%
Assuming no waivers and
reimbursements:
Expenses 1.10% 1.06% 1.22% 2.01%
Net investment income 5.11% 4.57% 4.63% 3.50%
Net assets at end of period (000's) $83,683 $80,060 $62,585 $9,552
Portfolio turnover rate 71.50% 93.45% 55.70% 59.26%
(a) The total returns shown do not
include the effect of
applicable front-end sales
charge and are annualized where
appropriate.
</TABLE>
Kansas 11
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP KANSAS
TRIPLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Kansas Triple Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship Kansas
Triple Tax Exempt Fund at May 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
12 Kansas
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
---------------------------------------------------------------------------------------------------------------------
$ 1,000 Kentucky State University Educational Buildings - Series G 6.250% 05/01/10 $ 1,062,550
1,000 Kentucky State University Consolidated Education - Series G 6.250 05/01/11 1,058,070
3,195 Lexington-Fayette Urban County Government - University of Kentucky 6.750 11/01/17 3,533,606
Alumni Association Incorporation Project - Series 1994
4,320 Lexington-Fayette Urban County Government - University of Kentucky 6.750 11/01/24 4,777,834
Alumni Association Incorporation Project - Series 1994
1,410 Morgan County, KY School District - School Building Revenue - Series 1994 6.000 09/01/14 1,434,830
700 Northern Kentucky University Revenue - Consolidated Educational Buildings 7.000 05/01/10 774,907
525 Western Kentucky University Revenue 6.100 05/01/10 537,148
560 Western Kentucky University Revenue 6.100 05/01/11 571,598
600 Western Kentucky University Revenue 6.100 05/01/12 610,482
Health Care
---------------------------------------------------------------------------------------------------------------------
715 Jefferson County, KY First Mortgage Revenue - Christian Church Homes - 6.125 11/15/13 662,533
Series 1994
3,235 Jefferson County, KY First Mortgage Revenue - Christian Church Homes - 6.125 11/15/18 2,907,553
Series 1994
1,240 Jefferson County, KY First Mortgage Revenue - Christian Church Homes - 6.000 11/15/09 1,182,390
Series 1994
Hospitals
---------------------------------------------------------------------------------------------------------------------
3,300 Daviess County, KY Hospital Revenue - Owensboro Daviess County 6.250 08/01/22 3,423,123
Hospital - Series 1992 A
3,455 Floyd County, KY Hospital Revenue - Highlands Hospital Corporation 7.500 08/01/10 3,696,504
4,000 Hopkins County, KY Hospital Revenue - Trover Clinic 6.625 11/15/11 4,329,840
1,190 Jefferson County, KY Health Facilities Revenue - Jewish Hospital Health 6.500 05/01/15 1,273,800
Care Services
12,785 Jefferson County, KY Health Facilities Revenue - Jewish Hospital Health 6.550 05/01/22 13,627,659
Care Services
7,800 Jefferson County, KY Insured Hospital Revenue - Alliant Health System, 6.436 10/23/14 8,209,734
Incorporated - Series 1992
900 Kentucky Development Finance Authority Hospital Revenue - Ashland 9.750 08/01/05 1,018,575
Kings Daughters Hospital
3,000 Kentucky Development Finance Authority Hospital Revenue - St. Luke 7.500 10/01/12 3,199,020
Hospital
1,750 Kentucky Development Finance Authority Hospital Revenue - Sisters of 7.375 11/01/16 1,892,415
Charity - Nazareth Health Corporation
500 Kentucky Development Finance Authority Hospital Revenue - Sisters of 6.250 11/01/19 489,550
Charity - Nazareth Health Corporation
2,400 Kentucky Development Finance Authority Hospital Revenue - Sisters of 6.250 11/01/19 2,455,464
Charity - Nazareth Health Corporation
500 Kentucky Development Finance Authority Hospital Revenue - Sisters of 7.375 11/01/16 555,410
Charity - Nazareth Health Corporation
500 Kentucky Development Finance Authority Hospital Revenue - Bowling 7.250 12/01/15 544,605
Green Hospital
2,000 Kentucky Development Finance Authority Hospital Revenue - St. Luke 7.000 10/01/11 2,216,340
Hospital
</TABLE>
4 Kentucky
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 9,070 Kentucky Development Finance Authority Hospital Revenue - St. Luke 7.000% 10/01/21 $ 10,030,241
Hospital
1,000 Kentucky Development Finance Authority Hospital Revenue - St. Elizabeth 6.000 11/01/10 1,027,760
Medical Center
610 Kentucky Development Finance Authority Hospital Revenue - King 9.750 08/01/11 690,368
Daughter
1,660 Kentucky Economic Development Finance Authority Medical Center 6.125 02/01/12 1,741,904
Improvement Revenue - Ashland Hospital - Series 1993A
5,000 Kentucky Economic Development Finance Authority Hospital Facilities 6.000 12/01/22 5,114,800
Revenue - St. Elizabeth Medical Center - Series 1993A
4,000 Kentucky Economic Development Finance Authority Hospital Facilities 5.000 08/15/24 3,593,120
Revenue - Baptist Health Care System - Series 1994
3,200 Lexington-Fayette Urban County Government - Kentucky Residential 7.750 05/15/15 3,531,680
Facilities Revenue - USHCSO Richmond Place Project
2,435 McCracken County, KY Hospital Facilities Revenue - Mercy Health System - 6.300 11/01/06 2,630,579
Series 1994 A
1,750 Winchester, KY Hospital Revenue - Clark County Hospital Project 7.750 04/01/13 1,834,298
Housing/Multifamily
---------------------------------------------------------------------------------------------------------------------
2,500 Greater Kentucky Housing Assistance Corporation - Multifamily Mortgage 6.250 07/01/24 2,535,950
Revenue - FHA Insured Section 8 Assisted Project - Series 1993
1,000 Greater Kentucky Housing Assistance Corporation - Multifamily Revenue 7.125 01/01/24 1,051,150
Housing/Single Family
---------------------------------------------------------------------------------------------------------------------
685 Kentucky Housing Corporation Revenue - Series A 7.625 01/01/09 712,448
2,790 Kentucky Housing Corporation Revenue - Series C 7.900 01/01/21 2,959,520
3,080 Kentucky Housing Corporation Revenue - Series B 7.800 01/01/21 3,248,876
1,000 Kentucky Housing Corporation Revenue - Series 1992 B 6.625 07/01/14 1,042,500
500 Kentucky Housing Corporation Revenue - Series 1991 C 6.600 01/01/11 523,450
1,000 Kentucky Housing Corporation Revenue - Series 1991 C 6.650 01/01/17 1,042,350
1,000 Kentucky Housing Corporation Single Family Mortgage Revenue - Series 6.500 07/01/17 1,033,930
1994 A
2,350 Kentucky Housing Corporation Revenue - Housing - Federally Insured or 6.400 01/01/17 2,413,638
Guaranteed Mortgage Loans - Series 1994 C
2,000 Kentucky Housing Corporation Revenue - Housing - Federally Insured or 6.625 07/01/26 2,059,360
Guaranteed Mortgage Loans - Series 1995 B
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
5,000 Ashland, KY Pollution Control Revenue - Ashland Oil Inc. - Series 1992 6.650 08/01/09 5,155,000
8,000 Ashland, KY Sewage and Solid Waste Revenue - Ashland Oil Inc. - Series 1995 7.125 02/01/22 8,363,520
4,360 Ashland, KY Solid Waste Revenue - Ashland Oil Inc. 7.200 10/01/20 4,544,951
6,985 Boone County, KY Pollution Control Revenue - Dayton Power and Light 6.500 11/15/22 7,213,689
Company - Series 1992 A
13,000 Boone County, KY Pollution Control Revenue - Cincinnati Gas and Electric - 5.500 01/01/24 12,634,440
Series 1994 A
3,500 Carroll County, KY Pollution Control Revenue - Kentucky Utilities 6.250 02/01/18 3,579,450
Company - Series 1992 B
</TABLE>
Kentucky 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 12,600 Carroll County, KY Solid Waste Disposal Facilities Revenue - Kentucky 5.750% 12/01/23 $ 12,272,904
Utility Company Project - Series 1993 A
5,000 Henderson County, KY Solid Waste Disposal Revenue - MacMillan Bloedel 7.000 03/01/25 5,248,650
Project - Series 1995
300 Jefferson County, KY Pollution Control Revenue - Louisville Gas and 9.250 07/01/15 307,206
Electric Company
1,000 Jefferson County, KY Pollution Control Revenue - Louisville Gas and 7.450 06/15/15 1,098,150
Electric Company
1,000 Jefferson County, KY Pollution Control Revenue - Du Pont Nemours 6.300 07/01/12 1,038,800
Company - Series 1982 A
7,750 Jefferson County, KY Pollution Control Revenue - Louisville Gas and 5.625 08/15/19 7,495,645
Electric Company - Series 1993 B
1,000 Jefferson County, KY Pollution Control Revenue - Louisville Gas and 5.450 10/15/20 942,330
Electric Company - Series 1993 B
1,750 Jefferson County, KY Pollution Control Revenue - Louisville Gas and 5.900 04/15/23 1,757,245
Electric Company - Series 1995 A
1,500 Maysville, KY Industrial Development Revenue - Crystal Tissue Project 8.000 02/01/09 1,582,635
1,250 Mercer County, KY Collateralized Pollution Control Revenue - Kentucky 6.250 02/01/18 1,272,425
Utilities Company Project - Series 1992 A
1,500 Nicholasville, KY Industrial Development Revenue - Hoover Project 8.000 09/01/04 1,583,610
3,750 Perry County, KY Solid Waste Disposal Revenue - TJ International - Series 1994 7.000 06/01/24 3,784,275
3,880 Trimble County, KY Pollution Control Revenue - Louisville Gas and Electric 6.550 11/01/20 4,043,076
Company - Series 1990 B
4,795 Trimble County, KY Pollution Control Revenue - Louisville Gas and Electric 7.625 11/01/20 5,328,492
Company - Series 1990 A
Municipal Appropriation Obligations
---------------------------------------------------------------------------------------------------------------------
430 Bardstown, KY Independent School District - School Building Revenue - 6.375 05/01/17 450,068
Series 1992
725 Bell County, KY School District Finance Corporation 6.875 09/01/11 780,571
1,000 Boone County, KY School District Finance Corporation - Building Revenue - 6.750 09/01/11 1,081,640
Series C
1,215 Boone County, KY School District Finance Corporation - Building Revenue - 6.125 12/01/17 1,247,027
Series 1992
615 Boone County, KY School District Finance Corporation - Building Revenue - 6.000 02/01/18 624,108
Series 1993A
1,595 Bowling Green, KY Municipal Projects Corporation - Lease Revenue - Series 1994 6.500 12/01/14 1,709,920
565 Christian County, KY School District Finance Corporation - Building Revenue 6.750 06/01/10 601,668
600 Christian County, KY School District Finance Corporation - Building Revenue 6.750 06/01/11 637,992
1,000 Covington, KY Municipal Properties Corporation Revenue 8.250 08/01/10 1,126,340
505 Daviess County, KY School Building Finance Corporation District Revenue - 5.800 05/01/11 508,323
Series 1994
535 Daviess County, KY School Building Finance Corporation District Revenue - 5.800 05/01/12 537,183
Series 1994
570 Daviess County, KY School Building Finance Corporation District Revenue - 5.800 05/01/13 570,906
Series 1994
600 Daviess County, KY School Building Finance Corporation District Revenue - 5.800 05/01/14 599,280
Series 1994
</TABLE>
6 Kentucky
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,645 Edgewood, KY Public Properties 6.700% 12/01/21 $ 1,762,634
100 Florence, KY Public Properties Corporation Revenue - Recreational Facilities 7.000 03/01/10 108,715
320 Florence, KY Public Properties Corporation Revenue - Recreational Facilities 7.000 03/01/14 342,323
345 Florence, KY Public Properties Corporation Revenue - Recreational Facilities 7.000 03/01/15 368,194
360 Florence, KY Public Properties Corporation Revenue - Recreational Facilities 7.000 03/01/16 384,019
1,200* Floyd County, KY School District Finance Corporation - School Building 5.500 05/01/15 1,144,128
Revenue - Series 1995
360 Glasgow, KY Independent School District Finance Corporation - Series 1992 6.100 05/01/10 371,027
385 Glasgow, KY Independent School District Finance Corporation - Series 1992 6.100 05/01/11 395,818
405 Glasgow, KY Independent School District Finance Corporation - Series 1992 6.100 05/01/12 415,356
525 Hardin County, KY Buildings Commission Revenue - Detention Facility 6.200 12/01/11 550,384
Project - Series 1994
1,775 Hardin County, KY Buildings Commission Revenue - Detention Facility 6.250 12/01/14 1,852,727
Project - Series 1994
265 Hardin County, KY School District Finance Corporation - Building Revenue 6.800 06/01/08 287,432
300 Hardin County, KY School District Finance Corporation - Building Revenue 6.800 06/01/10 322,359
1,250 Jefferson County, KY Economic Development Corporation - Lease Revenue 7.750 07/01/16 1,310,325
340 Jefferson County, KY School District Finance Corporation - Building Revenue 6.750 08/01/08 369,335
365 Jefferson County, KY School District Finance Corporation - Building Revenue 6.750 08/01/09 396,492
1,728 Jefferson County, KY Equipment Lease Purchase Revenue - Energy Systems 9.000 06/01/03 1,776,628
Project
316 Jefferson County, KY Equipment Lease Purchase Revenue - Energy Systems 9.500 06/01/03 324,795
Project
2,500 Jefferson County, KY Capital Projects Corporation Revenue - Municipal 0.000 08/15/08 989,675
Lease - Series B
510 Jessamine County, KY School District Finance Corporation - Building Revenue 6.750 06/01/10 549,438
545 Jessamine County, KY School District Finance Corporation - Building Revenue 6.750 06/01/11 586,273
2,500 Jessamine County, KY School District Finance Corporation - Building 6.125 06/01/19 2,562,950
Revenue - Series 1994
1,290 Kenton County, KY Public Parks Corporation Revenue 7.000 03/01/08 1,388,169
1,070 Kenton County, KY Public Parks Corporation Revenue 7.100 03/01/10 1,150,742
815 Kenton County, KY School District Finance Corporation - Building Revenue 6.800 12/01/11 871,227
560 Kentucky Infrastructure Authority Revenue - Revolving Fund - Series D 7.200 06/01/11 609,885
500 Kentucky Infrastructure Authority Revenue - Revolving Fund - Series E 6.500 06/01/11 530,690
875 Kentucky Infrastructure Authority Revenue - Revolving Fund - Series H 6.500 06/01/12 898,958
400 Kentucky State Property and Buildings Commission Revenue - Project Number 40 6.875 11/01/07 438,676
250 Kentucky State Property and Buildings Commission Revenue - Project Number 53 6.625 10/01/07 273,675
2,075 Kentucky State Property and Buildings Commission Revenue - Project 6.000 09/01/14 2,079,814
Number 56 - Series 1994
1,000 Kentucky State Turnpike Authority - Economic Development Road Revenue - 5.625 07/01/15 998,150
Revitalization Project - Series 1995
700 Kentucky State Turnpike Authority Resource Recovery - Road Revenue - Series A 6.000 07/01/09 700,728
500 Kentucky State Turnpike Authority Resource Recovery - Road Revenue - Series A 5.000 07/01/08 485,940
250 Laurel County, KY School District Finance Corporation - Building Revenue 7.000 03/01/10 268,695
1,000 Lawrence County, KY School District Finance Corporation - School Building 6.750 11/01/14 1,104,420
Revenue - Series 1994
2,600 Lexington, KY Center Corporation Refunding and Improvement Mortgage 0.000 10/01/11 985,270
Revenue - Series 1993 A
</TABLE>
Kentucky 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 2,550 Lexington, KY Center Corporation Refunding and Improvement Mortgage 0.000% 10/01/12 $ 905,990
Revenue - Series 1993 A
390 Lincoln County, KY School District Finance Corporation - Series 1992 6.200 05/01/10 407,878
410 Lincoln County, KY School District Finance Corporation - Series 1992 6.200 05/01/11 428,073
435 Lincoln County, KY School District Finance Corporation - Series 1992 6.200 05/01/12 452,674
6,165 Louisville, KY Airport Lease Revenue - Series A 7.875 02/01/19 6,872,927
305 Montgomery County, KY School District Finance Corporation - Building Revenue 6.800 06/01/09 327,491
325 Montgomery County, KY School District Finance Corporation - Building Revenue 6.800 06/01/10 347,250
350 Montgomery County, KY School District Finance Corporation - Building Revenue 6.800 06/01/11 373,408
10,500 Mt. Sterling, KY League of Cities Funding Trust Lease Program Revenue - 6.200 03/01/18 10,544,415
Series 1993 B
2,000 Northern Kentucky University Certificates of Participation - Student Housing 7.250 01/01/12 2,228,500
Facilities
9,960 Pendleton County, KY Multi-County Lease Revenue Program - Series 1993 A 6.500 03/01/19 10,204,120
1,230 Perry County, KY School Building Revenue - School District Finance 6.250 07/01/11 1,290,946
Corporation - Series 1992
410 Powell County, KY School Building Revenue 7.600 06/01/07 437,294
150 Whitley County, KY Public Properties Corporation Revenue - Series A 9.000 05/01/98 165,518
160 Whitley County, KY Public Properties Corporation Revenue - Series A 9.000 05/01/99 176,522
170 Whitley County, KY Public Properties Corporation Revenue - Series A 9.000 05/01/00 187,554
Municipal Revenue/Other
---------------------------------------------------------------------------------------------------------------------
500 Louisville, KY Parking Authority of River City Mortgage Revenue 9.125 12/01/07 527,825
625 Louisville, KY Parking Authority of River City Mortgage Revenue 9.250 12/01/15 660,200
2,790 Louisville, KY Parking Authority of River City Mortgage Revenue 6.875 12/01/20 3,002,096
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
7,250 Kenton County, KY Airport Revenue - Cincinnati/Northern Kentucky 6.300 03/01/15 7,455,175
International Airport - Series 1992 A
1,000 Kenton County, KY Airport Revenue - Cincinnati/Northern Kentucky 5.750 03/01/15 982,530
International Airport - Series 1993 B
1,320 Kenton County, KY Airport Revenue - Cincinnati/Northern Kentucky 8.750 03/01/15 1,444,872
International Airport - Series 1987
2,550 Louisville and Jefferson County, KY Regional Airport Authority System 5.600 07/01/13 2,518,482
Revenue - Series 1993 A
2,000 Louisville and Jefferson County, KY Regional Airport Authority System 5.500 07/01/23 1,919,840
Revenue - Series 1993 C
1,000 Commonwealth of Puerto Rico Highway and Transportation Authority 6.000 07/01/20 1,002,530
Revenue - Series Q
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
7,100 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/11 2,864,637
6,475 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/12 2,452,795
5,000 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/17 1,381,250
8,000 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/18 2,073,040
4,100 Owensboro, KY Electric Light and Power System Revenue - Series 1991B 0.000 01/01/19 998,473
4,725 Owensboro, KY Electric Light and Power System Revenue - Series 1991B 0.000 01/01/20 1,078,623
650 Commonwealth of Puerto Rico Electric Power Authority - Series O 7.000 07/01/11 708,084
</TABLE>
8 Kentucky
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 6,515 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250% 07/01/17 $ 6,654,747
5,000 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.000 07/01/16 5,011,650
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
965 Campbell and Kenton Counties, KY Sanitation District Revenue - Series A 7.700 08/15/04 1,047,401
500 Campbell and Kenton Counties, KY Sanitation District Revenue - Series A 7.750 08/15/05 546,575
625 Danville, KY Multi-City Lease Revenue - Sewer System 6.875 12/01/10 673,556
1,750 Henderson, KY Water and Sewer Revenue - Series 1994 A 6.100 11/01/14 1,813,788
1,700 Kenton County, KY Water District Number 1 Waterworks Revenue - Series 1992 6.375 02/01/12 1,820,411
1,000 Kenton County, KY Water District Number 1 Waterworks Revenue - Series 1992 6.375 02/01/17 1,063,300
1,530 Kenton County, KY Water District Number 1 Waterworks Revenue - Series 1992B 6.000 02/01/17 1,601,099
500 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series D 6.000 08/01/11 507,915
1,000 Kentucky Infrastructure Authority Revenue - Governmental Agencies 5.750 08/01/18 997,350
Program - Series 1993 E
5,000 Kentucky Infrastructure Authority Revenue - Governmental Agencies 5.375 02/01/18 4,688,500
Program - Series 1993 F
440 Kentucky Infrastructure Authority Revenue - Governmental Agencies 6.300 06/01/10 462,326
Program - Series 1995 G
360 Kentucky Infrastructure Authority Revenue - Governmental Agencies 6.350 06/01/11 378,857
Program - Series 1995 G
600 Kentucky Infrastructure Authority Revenue - Governmental Agencies 6.375 06/01/14 632,718
Program - Series 1995 G
420 Kentucky Infrastructure Authority Revenue - Governmental Agencies 6.300 08/01/10 441,479
Program - Series 1995 G
445 Kentucky Infrastructure Authority Revenue - Governmental Agencies 6.350 08/01/11 468,492
Program - Series 1995 G
825 Kentucky Infrastructure Authority Revenue - Governmental Agencies 6.375 08/01/14 874,046
Program - Series 1995 G
405 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 7.800 08/01/08 444,091
1989 A
830 Lexington-Fayette Urban County Government - Kentucky Sewer System Revenue 7.600 07/01/07 913,739
900 Lexington-Fayette Urban County Government - Kentucky Sewer System Revenue 7.600 07/01/08 990,801
2,000 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue - 5.500 05/15/21 1,975,400
Sewer and Drainage System - Series 1993B
1,050 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue - 5.500 05/15/23 1,036,676
Sewer and Drainage System - Series 1993B
2,720 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue - 6.750 05/15/19 3,006,960
Sewer and Drainage System - Series 1994A
2,070 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue - 6.500 05/15/24 2,227,713
Sewer and Drainage System - Series 1994A
2,500 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue - 6.750 05/15/25 2,740,375
Sewer and Drainage System - Series 1994A
500 Paducah, KY Waterworks Revenue 6.700 07/01/09 547,085
500 Richmond, KY Water, Gas and Sewer Revenue - Series B 7.400 07/01/15 548,050
</TABLE>
Kentucky 9
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
$ 1,005 Casey County, KY School District Finance Corporation - School Building 5.750% 03/01/15 $ 1,013,191
Revenue - Series 1995
1,070 Fleming County, KY School District Finance Corporation - School Building 5.875 03/01/15 1,099,275
Revenue - Series 1995
3,465 Hopkins County, KY School District Finance Corporation - School Building 6.200 06/01/19 3,553,808
Revenue - Series 1994
500 Rockcastle County, KY School District Financing Corporation - School 5.700 04/01/16 484,555
Building Revenue - Series 1993
530 Rockcastle County, KY School District Financing Corporation - School 5.700 04/01/17 511,985
Building Revenue - Series 1993
560 Rockcastle County, KY School District Financing Corporation - School 5.700 04/01/18 539,207
Building Revenue - Series 1993
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
1,470 Daviess County, KY Hospital Revenue - Mercy Health Care System 7.625 01/01/15 1,612,281
3,000 Hardin County, KY Hospital Revenue - Hardin Memorial Hospital 7.875 10/01/14 3,397,500
17,000 Jefferson County, KY Capital Projects Corporation Revenue - Municipal 0.000 08/15/19 3,162,000
Lease - Series B
1,750 Jefferson County, KY Hospital Revenue - NKC Hospitals Incorporated 7.750 10/01/14 1,914,202
680 Kenton County, KY Airport Revenue - Cincinnati/Northern Kentucky 8.750 03/01/15 742,302
International Airport - Series 1987
990 Kentucky Development Finance Authority Hospital Revenue - King Daughter 9.750 08/01/11 1,135,609
1,000 Kentucky Development Finance Authority Revenue - Sisters of Charity - 9.500 11/01/13 1,042,640
Nazareth Health Corporation
2,795 Kentucky Infrastructure Authority Revenue - Community Loan Program - 7.850 09/01/18 3,132,273
Series B
1,595 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 7.800 08/01/08 1,814,073
1989 A
985 Kentucky Local Correctional Facilities Construction Authority Revenue 7.000 11/01/14 1,062,027
250 Kentucky State Property and Buildings Commission Revenue - Project 7.875 12/01/05 259,775
Number 29
2,200 Kentucky State Property and Buildings Commission Revenue - Project 8.000 08/01/08 2,466,376
Number 48
1,900 Kentucky State Property and Buildings Commission Revenue - Project 7.375 06/01/09 2,151,389
Number 49
5,015 Kentucky State Turnpike Authority - Economic Development Road Revenue - 7.250 05/15/10 5,657,823
Revitalization Project
425 Lexington-Fayette Urban County Government - Public Facilities Corporation - 7.600 07/01/07 471,223
Mortgage Revenue
250 Muhlenberg County, KY School District Financing Corporation Building Revenue 7.875 08/01/13 281,930
1,225 Murray State University - Kentucky Revenue - Series G 8.000 05/01/07 1,366,880
955 Trimble County, KY Pollution Control Revenue - Louisville Gas and Electric 7.625 11/01/20 1,107,046
Company - Series 1990 A
1,840 Western Kentucky University Revenue 7.400 12/01/09 2,116,515
1,990 Western Kentucky University Revenue 7.400 12/01/10 2,289,057
1,040 Western Kentucky University Revenue 7.400 05/01/10 1,194,419
1,210 Woodford County, KY Public Properties Revenue - Series A 8.200 11/01/17 1,348,712
</TABLE>
10 Kentucky
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Special Tax Revenue
---------------------------------------------------------------------------------------------------------------------
$ 500 Commonwealth of Puerto Rico Infrastructure Financing Authority - Series A 7.750% 07/01/08 $ 552,730
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
800 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - Series A 7.900 07/01/07 891,208
200 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - Series A 7.875 07/01/17 222,660
1,900 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - Series A 7.000 07/01/19 2,040,505
Student Loan Revenue Bonds
---------------------------------------------------------------------------------------------------------------------
1,960 Kentucky Higher Education Student Loan Corporation Revenue - Series B 6.800 06/01/03 2,115,252
Total Investments in Securities - Municipal Bonds (cost $384,529,948) - 99.4% 407,827,587
Excess of Other Assets over Liabilities - 0.6% 2,460,660
Total Net Assets - 100.0% $410,288,247
*Securities purchased on a "when issued" basis.
See notes to financial statements.
</TABLE>
Kentucky 11
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $384,529,948) $407,827,587
Cash 878,295
Receivable for Fund shares sold 1,077,528
Interest receivable 6,889,677
Other 28,461
Total assets 416,701,548
LIABILITIES:
Payable for investments purchased 3,697,412
Payable for Fund shares reacquired 496,177
Distributions payable 1,943,364
Accrued expenses 276,348
Total liabilities 6,413,301
NET ASSETS $410,288,247
Class A:
Applicable to 35,880,604 shares of beneficial
interest issued and outstanding $394,456,977
Net asset value per share $ 10.99
Class C:
Applicable to 1,440,523 shares of beneficial
interest issued and outstanding $ 15,831,270
Net asset value per share $ 10.99
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 25,047,204
EXPENSES:
Distribution fees - Class A (Note E) 1,481,777
Distribution fees - Class C (Note E) 121,947
Investment advisory fees (Note E) 1,916,846
Custody and accounting fees 97,200
Transfer agent's fees 309,050
Registration fees 21,399
Legal fees 5,658
Audit fees 21,290
Trustees' fees 7,007
Shareholder services fees (Note E) 44,080
Other 14,736
Advisory fees waived (Note E) (1,357,696)
Total expenses 2,683,294
Net investment income 22,363,910
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (802,146)
Change in unrealized appreciation (depreciation) of investments 13,519,149
Net gain on investments 12,717,003
Net increase in net assets resulting from operations $ 35,080,913
See notes to financial statements.
12 Kentucky
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statements of Changes in Net Assets
===============================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 22,363,910 $ 20,309,376
Net realized loss on security transactions (802,146) (96,262)
Change in unrealized appreciation (depreciation) of investments 13,519,149 (15,888,078)
Net increase in net assets resulting from operations 35,080,913 4,325,036
Distributions to shareholders:
Dividends from net investment income - Class A (21,764,714) (20,246,585)
Dividends from net investment income - Class C (681,058) (240,777)
Net decrease in net assets from distributions to shareholders - Class A (21,764,714) (20,246,585)
Net decrease in net assets from distributions to shareholders - Class C (681,058) (240,777)
Fund share transactions:
Proceeds from shares sold - Class A 42,757,696 91,128,601
Proceeds from shares sold - Class C 6,394,295 12,347,059
Net asset value of shares issued in reinvestment of distributions - Class A 12,914,472 11,852,164
Net asset value of shares issued in reinvestment of distributions - Class C 458,372 138,185
Cost of shares reacquired - Class A (42,839,225) (27,182,472)
Cost of shares reacquired - Class C (2,699,110) (677,891)
Net increase in net assets from Fund share transactions - Class A 12,832,943 75,798,293
Net increase in net assets from Fund share transactions - Class C 4,153,557 11,807,353
Total increase in net assets 29,621,641 71,443,320
NET ASSETS:
Beginning of year 380,666,606 309,223,286
End of year $ 410,288,247 $ 380,666,606
NET ASSETS CONSIST OF:
Paid-in surplus $ 388,103,415 $ 371,198,777
Accumulated net realized gain (loss) on security transactions (1,112,807) (310,661)
Unrealized appreciation (depreciation) of investments 23,297,639 9,778,490
$ 410,288,247 $ 380,666,606
See notes to financial statements.
</TABLE>
Kentucky 13
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Kentucky Triple Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on May 4, 1987. On October
4, 1993, the Fund began to offer Class C shares to the investing public.
Class A shares are sold with a front-end sales charge. Class C shares are
sold with no front-end sales charge but are assessed a contingent deferred
sales charge if redeemed within one year from the time of purchase. Both
classes of shares have identical rights and privileges except with respect
to the effect of sales charges, the distribution and/or service fees borne
by each class, expenses specific to each class, voting rights on matters
affecting a single class and the exchange privilege of each class. Shares of
beneficial interest in the Fund, which are registered under the Securities
Act of 1933, as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a
14 Kentucky
<PAGE>
Notes to Financial Statements
================================================================================
"when issued" basis. These securities are registered by a municipality or
government agency, but have not been issued to the public. Delivery and
payment take place after the date of the transaction and such securities are
subject to market fluctuations during this period. The current market value
of these securities is determined in the same manner as other portfolio
securities. There were $1,144,128 "when issued" purchase commitments
included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 4,074,794 8,136,931
Shares issued in reinvestment
of distributions 1,232,683 1,062,150
Shares reacquired (4,121,541) (2,458,341)
Net increase in shares
outstanding 1,185,936 6,740,740
Outstanding at beginning
of year 34,694,668 27,953,928
Outstanding at end of year 35,880,604 34,694,668
Period From
Year Ended October 4, 1993
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 608,002 1,097,425
Shares issued in reinvestment
of distributions 43,768 12,599
Shares reacquired (260,606) (60,665)
Net increase in shares
outstanding 391,164 1,049,359
Outstanding at beginning
of period 1,049,359 - 0 -
Outstanding at end of period 1,440,523 1,049,359
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $126,529,207 and $107,582,122, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $23,297,639 of which $24,377,594
related to appreciated securities and $1,079,955 related to depreciated
securities.
At May 31,1995, the Fund has available capital loss carryforwards of
approximately $889,300 to offset future net capital gains in the amounts of
$6,900 through May 31, 2000, $203,000 through May 31, 2001, $96,200 through
May 31, 2002, and $583,200 through May 31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $1,357,696 of its
advisory fees. Included in accrued expenses at May 31, 1995 are accrued
advisory fees of $51,590.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospect uses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A
Kentucky 15
<PAGE>
Notes to Financial Statements
================================================================================
and Class C shares, respectively. Included in accrued expenses at May 31,
1995 are accrued distribution fees of $132,355 and $12,392 for Class A and
Class C shares, respectively. Certain non-promotional expenses directly
attributable to current shareholders are aggregated by the Distributor and
passed through to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $1,304,200 for the year ended May 31, 1995, of which
approximately $1,130,100 was paid to other dealers. For the year ended May
31, 1995, the Distributor received approximately $6,900 of contingent
deferred sales charges on redemptions of Class C shares. Certain officers
and trustees of the Funds are also officers and/or directors of the
Distributor and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $20
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $242,180, with a weighted
average annualized interest rate of 5.84%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
16 Kentucky
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.65 $11.06 $10.45 $10.19 $9.87
Income from investment operations:
Net investment income 0.61 0.62 0.64 0.66 0.66
Net realized and unrealized gain 0.35 (0.40) 0.62 0.27 0.32
(loss) on securities
Total from investment operations 0.96 0.22 1.26 0.93 0.98
Less distributions:
Dividends from net investment (0.62) (0.63) (0.65) (0.66) (0.66)
income
Distributions from net realized (0.01)
capital gains
Total distributions (0.62) (0.63) (0.65) (0.67) (0.66)
Net asset value, end of year $10.99 $10.65 $11.06 $10.45 $10.19
Total return(a) 9.42% 1.90% 12.41% 9.46% 10.37%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.68% 0.58% 0.61% 0.62% 0.72%
Net investment income 5.85% 5.60% 5.96% 6.39% 6.65%
Assuming no waivers and
reimbursements:
Expenses 1.04% 1.03% 1.05% 1.05% 1.06%
Net investment income 5.49% 5.15% 5.52% 5.96% 6.31%
Net assets at end of year (000's) $394,457 $369,495 $309,223 $207,395 $142,449
Portfolio turnover rate 28.28% 12.26% 14.74% 5.07% 23.35%
(a)The total returns shown do not
include the effect of applicable
front-end sales charge.
</TABLE>
Kentucky 17
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
================================================================================
Period From
Year Ended October 4, 1993 to
CLASS C May 31, 1995 May 31, 1994
--------------------------------------------------------------------------------
Net asset value, beginning of period $10.65 $11.46
Income from investment operations:
Net investment income 0.55 0.36
Net realized and unrealized gain 0.35 (0.81)
(loss) on securities
Total from investment operations 0.90 (0.45)
Less distributions:
Dividends from net investment (0.56) (0.36)
income
Total distributions (0.56) (0.36)
Net asset value, end of period 10.99 10.65
Total return(a) 8.82% (5.88%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.23% 1.08%
Net investment income 5.27% 4.96%
Assuming no waivers and
reimbursements:
Expenses 1.58% 1.65%
Net investment income 4.92% 4.39%
Net assets at end of period (000's) $15,831 $11,172
Portfolio turnover rate 28.28% 12.26%
(a)The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where
appropriate.
18 Kentucky
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP KENTUCKY
TRIPLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Kentucky Triple Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
Kentucky Triple Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
Kentucky 19
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
Alabama
$ 895 Alabama Housing Finance Authority - Multifamily 6.000% 10/01/97 $ 915,934
1,900 Alabama Mental Health Finance Authority - Special Tax Revenue 7.375 05/01/00 2,098,493
Alaska
945 Alaska Industrial Development and Export Authority - Series 1992 A 5.700 04/01/99 976,062
395 Alaska Industrial Development and Export Authority - Series 1993 A Lots 1-42 4.800 04/01/98 391,571
190 Alaska Industrial Development and Export Authority - Series 1993 A Lots 1-42 5.000 04/01/99 189,071
1,000 Alaska Student Loan Corporation - Series A 6.250 07/01/97 1,020,050
Arizona
1,000 Arizona Educational Loan Revenue - Series 1992 5.550 09/01/98 1,014,140
250 Arizona Educational Loan Revenue - Series 1992 6.125 09/01/02 263,800
1,250 Maricopa County, AZ School District Number 97 - Deer Valley - Series 1992 0.000 07/01/98 1,080,900
1,000 Salt River Pima-Maricopa Indian Community - Arizona Special Obligation 7.750 02/15/97 1,046,710
Revenue - Phoenix Cement Company
2,000 Tucson, AZ General Obligation - Series 1995 5.375 07/01/05 2,057,140
Arkansas
4,000 Arkansas Student Loan Authority Revenue - Series 1992 A 5.500 12/01/98 4,094,400
California
1,000 Sacramento, CA Cogeneration Authority - Cogeneration Project Revenue - 5.900 07/01/02 1,003,950
Procter & Gamble Project - Series 1995
500 Sacramento, CA Cogeneration Authority - Cogeneration Project Revenue - 6.000 07/01/03 502,825
Procter & Gamble Project - Series 1995
500 Sacramento, CA Cogeneration Authority - Cogeneration Project Revenue - 7.000 07/01/04 534,940
Procter & Gamble Project - Series 1995
Colorado
400 Arvada, CO Limited Sales and Use Tax Revenue 6.000 06/01/96 407,372
500 Arvada, CO Limited Sales and Use Tax Revenue 6.200 06/01/98 523,745
500 Arvada, CO Limited Sales and Use Tax Revenue 6.300 06/01/99 530,730
400 Arvada, CO Limited Sales and Use Tax Revenue 6.400 06/01/00 429,804
2,225 Boulder, CO Urban Renewal Authority - Tax Increment - Series 1992 5.300 03/01/98 2,276,175
1,515 Colorado Housing Finance Authority - Single Family - Series 1991 A 0.000 11/01/01 994,567
3,515 Colorado Housing Finance Authority - Single Family - Series 1991 A 0.000 11/01/02 2,145,908
2,585 Colorado Student Obligation Bond Authority - Student Loan Revenue 6.625 06/01/99 2,746,149
625 Denver, CO City and County Industrial Development Revenue - University 6.400 03/01/96 634,850
of Denver
620 Denver, CO City and County Industrial Development Revenue - University 6.600 03/01/97 641,725
of Denver
415 Denver, CO City and County Industrial Development Revenue - University 6.800 03/01/98 437,854
of Denver
200 University of Colorado - Certificates of Participation - Series D 7.100 12/01/00 216,362
Connecticut
1,000 Connecticut State Health and Educational Facilities Authority Revenue - 5.625 07/01/03 979,320
Quinnipiac College - Series D
1,000 Connecticut State Health and Educational Facilities Authority Revenue - 5.700 07/01/98 1,006,390
Hartford University - Series 1992 D
730 Connecticut State Health and Educational Facilities Authority Revenue - 5.900 07/01/99 737,059
Hartford University - Series 1992 D
435 Connecticut State Health and Educational Facilities Authority Revenue - 6.100 07/01/00 440,838
Hartford University - Series 1992 D
</TABLE>
4 Limited Term
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
$ 1,100 New Haven, CT General Obligation - Series 1992 A 7.000% 03/01/96 $ 1,119,943
500 New Haven, CT General Obligation - Series 1992 A 7.100 03/01/97 519,455
1,025 New Haven, CT General Obligation - Series 1992 A 9.250 03/01/02 1,258,044
625 New Haven, CT General Obligation - Series 1992 B 5.900 12/01/98 638,631
500 Stratford, CT General Obligation 6.250 03/01/96 508,895
625 Stratford, CT General Obligation 6.500 03/01/97 643,100
610 Stratford, CT General Obligation 6.750 03/01/98 637,840
650 Stratford, CT General Obligation 6.900 03/01/99 690,573
Delaware
1,000 Delaware State Solid Waste Authority - Series 1992 5.250 07/01/98 1,018,440
District of Columbia
3,885 District of Columbia General Obligation - Series 1993C 5.100 12/01/99 3,936,360
2,000 District of Columbia General Obligation - Series 1993 B-1 5.500 06/01/01 2,051,280
1,870 District of Columbia Hospital Revenue - Medlantic Healthcare - Series 1993A 4.800 08/15/99 1,877,630
2,000 Metropolitan Airport of Washington D.C. - General Revenue - Series 1992A 6.000 10/01/00 2,115,440
1,300 Washington, D.C. Metropolitan Area Transit Authority Gross Revenue - 4.400 07/01/00 1,279,616
Series 1993
1,180 Washington, D.C. Metropolitan Area Transit Authority Gross Revenue - 4.600 01/01/02 1,157,627
Series 1993
Florida
945 Brevard County, FL Health Facilities Authority Revenue - Wuesthoff 6.100 04/01/96 958,854
Memorial Hospital - Series 1992B
1,000 Dade County, FL Aviation Revenue - Series U 6.400 10/01/98 1,053,380
4,815* Dade County, FL Guaranteed Entitlement Revenue - Series 1995 0.000 02/01/03 3,288,645
1,270 Florida School Boards Association - Certificates of Participation - Hendry County 7.500 07/01/97 1,338,415
1,110 Florida State Certificates of Participation - Equipment Financing Program - 6.050 05/15/97 1,147,085
Series 1991
1,500 Martin County, FL Industrial Development Authority Revenue - Tampa Farm 6.400 11/01/96 1,510,065
Service
290 Nassau County, FL Pollution Control Revenue - ITT Rayonier Project - 4.750 07/01/96 287,346
Series 1993
305 Nassau County, FL Pollution Control Revenue - ITT Rayonier Project - 5.000 07/01/97 302,490
Series 1993
320 Nassau County, FL Pollution Control Revenue - ITT Rayonier Project - 5.200 07/01/98 317,555
Series 1993
340 Nassau County, FL Pollution Control Revenue - ITT Rayonier Project - 5.400 07/01/99 338,014
Series 1993
705 North Springs, FL Improvement District Water and Sewer Revenue - 7.900 10/01/01 749,859
Broward County - Series 1991
Georgia
1,000 Georgia Municipal Electric Authority Power Revenue - Series B 6.800 01/01/98 1,054,950
Guam
2,685 Guam Airport Authority General Revenue - Series 1993 B 5.250 10/01/97 2,693,565
3,225 Guam Airport Authority General Revenue - Series 1993 B 5.600 10/01/98 3,260,798
1,450 Guam Airport Authority General Revenue - Series 1993 B 5.800 10/01/99 1,465,326
1,000 Guam Airport Authority General Revenue - Series 1993 B 6.000 10/01/00 1,020,910
Idaho
1,825 Idaho Fund Marketing Association - Student Loan Revenue - Series 1992 6.000 10/01/97 1,833,066
</TABLE>
Limited Term 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
Illinois
$ 1,000 Chicago, IL O'Hare International Airport - Special Facility Revenue - 6.375% 01/01/04 $ 1,076,100
International Terminal
540 DeKalb, IL Single Family Housing Revenue - Series A 6.700 12/01/99 553,646
1,300 Evergreen Park, IL Hospital Facility Revenue - Little Company Mary 5.750 08/15/97 1,335,854
Hospital
875 Illinois Health Facilities Authority Revenue - Galesburg Cottage Hospital - 5.000 05/01/98 877,546
Series 1992
925 Illinois Health Facilities Authority Revenue - Galesburg Cottage Hospital - 5.250 05/01/99 933,418
Series 1992
970 Illinois Health Facilities Authority Revenue - Galesburg Cottage Hospital - 5.400 05/01/00 982,464
Series 1992
2,835 Illinois Health Facilities Authority Revenue - OSF Healthcare System - Series 1993 5.000 11/15/99 2,810,392
1,550 Illinois Health Facilities Authority Revenue - ServantCor - Series B 7.500 08/15/01 1,743,642
325 Illinois Health Facilities Authority Revenue - Carle Foundation - Series C 6.700 01/01/99 345,420
3,000 Illinois State General Obligation - Series 1992 6.200 10/01/04 3,228,540
1,915 Illinois Student Assistance Loan - Series M 5.450 03/01/97 1,920,496
590 Metropolitan Pier and Exposition Authority of Illinois - State Tax Revenue - 0.000 06/15/98 509,589
Series 1993
2,945 Metropolitan Pier and Exposition Authority of Illinois - State Tax Revenue - 0.000 12/15/98 2,483,018
Series 1993
765 Romeoville, IL General Obligation - Series B 7.700 01/01/97 800,947
1,975 Romeoville, IL General Obligation - Series B 7.850 01/01/01 2,103,730
Indiana
1,000 Indiana State Educational Loan Revenue - Series A 6.750 12/01/97 1,045,460
180 Indiana State Educational Facilities Authority Revenue - University of 7.500 11/01/95 182,551
Evansville
720 Madison County, IN Hospital Authority Revenue - Holy Cross Health System - 6.100 12/01/96 734,011
St. John's Health
280 Marshall County, IN Hospital Authority Revenue - Holy Cross Health 6.100 12/01/96 285,449
System - Parkview Hospital
1,000 St. Joseph County, IN Hospital Authority Facilities Revenue - Holy Cross 6.100 12/01/96 1,020,630
Health System - St. Joseph's Medical Center
560 Valparaiso, IN Multi-Schools Building Corporation - Porter County - Series 1992 6.100 07/01/01 602,566
690 Valparaiso, IN Multi-Schools Building Corporation - Porter County - Series 1992 6.100 07/01/01 729,723
Iowa
1,785 Iowa State Higher Educational Loan Authority Revenue - Private College 5.125 08/01/98 1,785,000
Facilities - Series 1992
2,145 Iowa State Certificates of Participation - Series 1992A 5.750 07/01/98 2,213,190
1,775 Iowa State Certificates of Participation - Series 1992A 6.000 07/01/99 1,855,709
1,500 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Series 1992 A 6.000 03/01/98 1,545,360
3,000 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Series 1992 C 6.300 03/01/99 3,173,670
1,000 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Series 1992 C 6.375 03/01/00 1,048,390
220 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Iowa 5.400 07/01/97 221,665
Partnership - Series 1992
250 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Iowa 5.600 07/01/98 253,585
Partnership - Series 1992
600 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Iowa 5.850 07/01/99 625,350
Partnership - Series 1992
</TABLE>
6 Limited Term
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
$ 325 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Iowa 6.000% 07/01/00 $ 337,938
Partnership - Series 1992
600 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Iowa 6.100 07/01/01 626,238
Partnership - Series 1992
650 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Iowa 6.200 07/01/02 684,534
Partnership - Series 1992
4,560 Muscatine, IA Electric Revenue - Series 1992 5.200 01/01/99 4,664,333
Kentucky
1,430 Kentucky Development Finance Authority Revenue - Sisters of Charity - 5.750 11/01/98 1,467,294
Nazareth Health Corporation - Series 1991
1,330 Kentucky Development Finance Authority Revenue - Sisters of Charity - 6.000 11/01/01 1,375,619
Nazareth Health Corporation - Series 1991
270 Kentucky Economic Development Finance Authority Medical Center 5.100 02/01/99 274,306
Improvement Revenue - Ashland Hospital - Series 1993A
335 Kentucky Economic Development Finance Authority Medical Center 5.250 02/01/00 342,055
Improvement Revenue - Ashland Hospital - Series 1993A
430 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund 5.300 06/01/03 436,437
Program - Series 1995 C
245 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund 5.400 06/01/04 249,190
Program - Series 1995 C
200 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund 5.500 06/01/05 203,694
Program - Series 1995 C
2,500 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund 5.200 08/01/02 2,532,625
Program - Series 1995 C
1,975 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund 5.300 08/01/03 2,004,921
Program - Series 1995 C
730 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund 5.400 08/01/04 742,607
Program - Series 1995 C
1,000 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund 5.500 08/01/05 1,018,630
Program - Series 1995 C
6,975 Kentucky State Property and Buildings Commission Revenue - Project 4.500 09/01/02 6,682,678
Number 55
5,000 Kentucky State Turnpike Authority - Economic Development Road Revenue - 5.000 07/01/02 5,080,250
Revitalization Project - Series 1995
3,075 Kentucky State Turnpike Authority - Economic Development Road Revenue - 5.100 07/01/03 3,113,438
Revitalization Project - Series 1995
4,000 Mt. Sterling, KY League of Cities Funding Trust Lease Program Revenue - 5.625 03/01/03 4,055,960
Series 1993 A
11,200 Owensboro, KY Electric Light and Power System Revenue - Series 1993A 0.000 01/01/04 7,130,704
Louisiana
6,000 East Baton Rouge Parish, LA Pollution Control Revenue - Hoechst Celanese - 5.400 12/01/02 6,088,620
Series 1993
3,000 Jefferson Parish, LA Sales Tax District - Special Sales Tax Revenue - Series A 6.125 12/01/97 3,127,740
1,285 Louisiana Public Facilities Authority Hospital Revenue - Our Lady of 4.700 02/01/99 1,283,625
Lourdes Regional Medical Center
1,215 Louisiana Public Facilities Authority Hospital Revenue - Our Lady of 4.900 02/01/00 1,217,430
Lourdes Regional Medical Center
1,170 Louisiana Public Facilities Authority Hospital Revenue - Woman's Hospital 6.750 10/01/02 1,236,210
Foundation - Series 1992
</TABLE>
Limited Term 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
$ 3,685 Louisiana Public Facilities Authority Hospital Revenue - Southern Baptist 6.100% 05/15/01 $ 3,893,387
Hospital - Series 1992
3,080 Louisiana Public Facilities Authority Hospital Revenue - Southern Baptist 6.200 05/15/02 3,279,923
Hospital - Series 1992
2,500 Louisiana State Offshore Terminal Authority - Deepwater Port Revenue - 6.100 09/01/02 2,659,075
Loop Incorporated Project - Series 1992 A
1,600 Louisiana State Recovery District Sales Tax Revenue 7.750 07/01/98 1,636,832
2,000 Louisiana State Recovery District Sales Tax Revenue - Series 1992 5.500 07/01/97 2,036,460
400 Office Facilities Corporation A Louisiana Non-Profit Corporation - Capital 7.250 12/01/99 435,028
Facilities
770 Office Facilities Corporation A Louisiana Non-Profit Corporation - Capital 7.350 12/01/00 849,857
Facilities
405 Ouachita Parish, LA Hospital Service District Number 1 Revenue - 6.800 07/01/97 423,962
Glenwood Regional Medical Center - Series 1991
440 Ouachita Parish, LA Hospital Service District Number 1 Revenue - 7.000 07/01/98 470,532
Glenwood Regional Medical Center - Series 1991
425 Ouachita Parish, LA Hospital Service District Number 1 Revenue - 7.000 07/01/99 460,912
Glenwood Regional Medical Center - Series 1991
300 Ouachita Parish, LA Hospital Service District Number 1 Revenue - 7.250 07/01/00 332,076
Glenwood Regional Medical Center - Series 1991
Maine
2,055 Maine Educational Loan Authority Revenue - Series 1992A-1 5.750 12/01/97 2,107,814
3,000 Maine Educational Loan Marketing Corporation - Student Loan Revenue 6.500 11/01/97 3,111,540
Massachusetts
835 Brockton, MA General Obligation 7.750 12/15/96 867,573
265 Brockton, MA General Obligation - Municipal Purpose Loan - Series 1993 5.150 06/15/99 267,684
265 Brockton, MA General Obligation - Municipal Purpose Loan - Series 1993 5.350 06/15/00 269,078
1,000 Massachusetts Educational Financing Authority - Education Loan Revenue - 5.500 07/01/01 1,025,900
Issue E - Series 1995 B
3,075 Massachusetts Educational Financing Authority - Education Loan Revenue - 5.700 07/01/04 3,162,607
Issue E - Series 1995 B
2,635 Massachusetts Municipal Wholesale Electric Company - Power Supply 6.300 07/01/00 2,816,156
System Revenue - Series 1992 A
2,000 Massachusetts Municipal Wholesale Electric Company - Power Supply 5.200 07/01/98 2,024,860
System Revenue - Series 1992 E
2,000 Massachusetts Municipal Wholesale Electric Company - Power Supply 5.375 07/01/99 2,036,900
System Revenue - Series 1992 E
3,800 Massachusetts Municipal Wholesale Electric Company - Power Supply 6.300 07/01/00 4,061,250
System Revenue - Series 1992 B
1,000 Massachusetts State General Obligation - Series 1992A 6.100 08/01/99 1,054,660
1,000 Massachusetts State General Obligation - Series C 7.000 12/01/97 1,060,670
975 Massachusetts State General Obligation - Series C 7.000 12/01/98 1,052,142
750 Massachusetts State General Obligation - Series A 7.000 06/01/95 750,000
1,265 Massachusetts State General Obligation - Series A 7.875 06/01/97 1,352,032
5,000 Massachusetts State General Obligation - Series A 0.000 06/01/97 4,594,850
1,000 Massachusetts State Convention Center Authority Revenue - Hynes 5.900 09/01/98 1,040,270
Convention Center - Series 1992
1,100 Massachusetts State Industrial Finance Agency - Resource Recovery Revenue - 5.250 07/01/99 1,120,141
Refusetech Project - Series 1993 A
</TABLE>
8 Limited Term
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
$ 600 New Bedford, MA General Obligation 5.100% 03/01/99 $ 602,388
600 New Bedford, MA General Obligation 5.250 03/01/00 602,448
600 New Bedford, MA General Obligation 5.400 03/01/01 604,068
600 New Bedford, MA General Obligation 5.500 03/01/02 604,308
1,000 New England Educational Loan Marketing Corporation - Massachusetts 6.000 09/01/98 1,043,300
Student Loan Revenue - Series 1992 A
500 Springfield, MA General Obligation - Series 1992 A 5.300 09/01/97 507,360
860 Springfield, MA General Obligation - Series 1992 A 5.600 09/01/98 881,440
770 Springfield, MA General Obligation School Project Loan - Series 1992 B 5.600 09/01/98 789,196
415 Springfield, MA General Obligation - Series 1992 A 5.800 09/01/99 428,815
815 Springfield, MA General Obligation School Project Loan - Series 1992 B 5.800 09/01/99 830,566
250 Springfield, MA General Obligation School Project Loan - Series 1992 B 6.100 09/01/02 261,578
Michigan
1,600 Berrien County, MI Economic Development Revenue - Arlington Metals 5.450 10/01/97 1,610,192
Corporation - Series 1992
9,000 Detroit, MI General Obligation - Distributable State Aid - Series 1992 5.625 05/01/97 9,132,300
3,315 Detroit, MI Economic Development Corporation - Resource Recovery 6.350 05/01/00 3,500,375
Revenue
1,115 Madison Heights, MI Tax Increment Finance Authority Revenue, Tax 8.500 03/15/01 1,180,830
Increment Bonds, Series 1991
900 Michigan Higher Education Facilities Authority Revenue - Series XII-E 6.375 10/01/00 964,611
2,000 Michigan Higher Education Student Loan Authority Revenue - Series XV-A 5.400 09/01/00 2,027,160
6,000 Michigan State Building Authority Revenue - Series I 5.800 10/01/98 6,246,000
2,700 Michigan State Hospital Finance Authority Revenue - St. John Hospital - 5.400 05/15/00 2,794,635
Series 1993A
1,700 Michigan State Trunk Line Fund - Series 1994 A 5.250 11/15/03 1,738,369
2,000 Wayne Charter County, MI Airport Revenue - Detroit Metropolitan Airport - 4.950 12/01/99 2,022,460
Series A
3,000 Wayne Charter County, MI Airport Revenue - Detroit Metropolitan Airport - 5.150 12/01/00 3,048,780
Series A
Minnesota
615 Brainerd, MN Benedictine Health System - St. Joseph's Medical Center - 5.000 02/15/00 620,338
Series 1993 E
1,045 Duluth, MN Economic Development Authority - Health Care Facilities Revenue - 5.000 02/15/00 1,049,702
Benedictine Health System - St. Mary's Medical Center - Series 1993C
Mississippi
1,255 Hinds County, MS Methodist Hospital and Rehabilitation Center - Series 1993 4.900 05/01/00 1,259,832
250 Mississippi Higher Education Assistance Corporation - Student Loan 8.600 09/01/95 252,985
Revenue - Series A
1,790 Mississippi Hospital Equipment and Facilities Improvement Authority 5.350 05/01/03 1,824,601
Revenue - Mississippi Baptist Medical Center - Series 1995
1,000 Mississippi Hospital Equipment and Facilities Improvement Authority 5.400 05/01/04 1,018,360
Revenue - Mississippi Baptist Medical Center - Series 1995
Missouri
730 Missouri State Health and Educational Facilities Authority Revenue - 5.750 11/15/96 735,446
Heartland Health Systems - Series 1992
770 Missouri State Health and Educational Facilities Authority Revenue - 6.000 11/15/97 787,579
Heartland Health Systems - Series 1992
925 St. Louis, MO Regional Convention and Sports Complex Authority - Series C 7.750 08/15/01 968,281
</TABLE>
Limited Term 9
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
Nevada
$ 3,585 Washoe County, NV Airport Authority - System Improvement Revenue - 5.100% 07/01/99 $ 3,637,556
Series 1993 A
985 Washoe County, NV Airport Authority - System Improvement Revenue - 5.250 07/01/00 995,884
Series 1993 A
New Hampshire
505 New Hampshire Higher Educational and Health Facilities Authority Revenue - 7.250 01/01/01 542,698
St. Joseph Hospital
745 New Hampshire Higher Educational and Health Facilities Authority Revenue - 6.600 01/01/97 768,035
St. Joseph Hospital
495 New Hampshire Housing Finance Authority - Single Family - Series D 5.900 01/01/97 502,653
305 New Hampshire Housing Finance Authority - Single Family - Series D 6.050 01/01/98 312,951
395 New Hampshire Housing Finance Authority - Single Family - Series D 6.200 01/01/99 408,782
395 New Hampshire Housing Finance Authority - Single Family - Series D 6.350 01/01/00 412,309
395 New Hampshire Housing Finance Authority - Single Family - Series D 6.450 01/01/01 414,165
865 New Hampshire Housing Finance Authority - Multifamily - Series 1 6.300 01/01/98 886,625
890 New Hampshire Housing Finance Authority - Multifamily - Series 1 6.300 07/01/98 916,228
New Jersey
1,200 Atlantic City, NJ General Obligation - Series 1994 5.650 08/15/98 1,240,308
1,800 Atlantic City, NJ General Obligation - Series 1994 5.650 08/15/99 1,867,896
4,900 New Jersey Economic Development Authority - Electric Energy Facility 6.750 06/01/99 5,076,498
Revenue - Vineland Cogeneration Project - Series 1992
660 New Jersey Economic Development Authority Revenue - Series 1992 R-1 5.800 06/01/01 694,412
765 New Jersey Health Care Facilities Financing Authority Revenue - St. Clares 6.900 07/01/98 818,351
Riverside Medical Center - Series D
1,000 New Jersey Health Care Facilities Financing Authority Revenue - Bayonne 5.750 07/01/00 1,042,810
Hospital Obligated Group Issue - Series 1994
1,000 New Jersey Health Care Facilities Financing Authority Revenue - Bayonne 5.800 07/01/01 1,050,020
Hospital Obligated Group Issue - Series 1994
1,000 New Jersey Health Care Facilities Financing Authority Revenue - Bayonne 5.900 07/01/02 1,056,740
Hospital Obligated Group Issue - Series 1994
1,195 New Jersey Educational Facilities Authority - Steven's Institute of 6.000 07/01/99 1,252,049
Technology - Series 1992 A
295 New Jersey Educational Facilities Authority - St. Peter's College - Series 1992 B 6.100 07/01/00 308,718
1,275 New Jersey Educational Facilities Authority - Steven's Institute of 6.100 07/01/00 1,340,114
Technology - Series 1992 A
455 New Jersey Educational Facilities Authority - St. Peter's College - Series 1992 B 6.200 07/01/01 479,898
995 New Jersey Educational Facilities Authority - Steven's Institute of 6.200 07/01/01 1,052,103
Technology - Series 1992 B
1,165 New Jersey Educational Facilities Authority - Steven's Institute of 6.300 07/01/02 1,240,772
Technology - Series 1992 A
525 New Jersey State Higher Education Assistance Authority - Student Loan 5.200 07/01/98 524,674
Revenue - NJClass Loan Program - Series 1992 A
800 New Jersey Transportation Trust Fund Authority - Transportation System - 6.000 06/15/02 854,776
Series 1992 A
New Mexico
3,510 Albuquerque, NM Hospital System - Presbyterian Healthcare Services - 5.000 08/01/97 3,553,559
Series 1992A
2,295 New Mexico Educational Assistance Foundation - Student Loan Revenue - 6.050 04/01/97 2,342,552
Series A
</TABLE>
10 Limited Term
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
New York
$ 300 Buffalo, NY General Improvement 7.700% 02/01/97 $ 310,053
2,225 Herkimer County, NY Industrial Development Agency Revenue - Burrows 7.250 01/01/01 2,288,346
Paper Recycling
6,260 Metropolitan Transit Authority of New York - Service Contract Commuter 5.100 07/01/00 6,301,441
Facilities - Series 1993 O
3,225 Metropolitan Transit Authority of New York - Service Contract Commuter 5.250 07/01/01 3,254,896
Facilities - Series 1993 O
1,000 Metropolitan Transit Authority of New York - Transit Facilities Revenue - 6.625 07/01/02 1,079,190
Series N
810 New York City General Obligation - Series A 8.000 11/01/95 822,328
500 New York City General Obligation - Series B 7.000 02/01/96 508,010
795 New York City General Obligation - Series D 7.875 08/01/97 844,147
960 New York City General Obligation - Series E 6.900 02/01/98 1,005,898
2,490 New York City General Obligation - Series D 6.900 02/01/98 2,653,842
500 New York City General Obligation - Series E 7.000 12/01/97 525,745
1,000 New York City General Obligation - Series F 8.000 11/15/97 1,072,300
2,000 New York City General Obligation - Series B 7.100 02/01/97 2,072,980
1,280 New York City General Obligation - Series A 8.250 11/01/99 1,470,246
4,000 New York City General Obligation - Series I 0.000 08/01/99 3,301,400
2,000 New York City General Obligation - Series I 0.000 08/01/00 1,563,700
4,000 New York City General Obligation - Series B 7.500 02/01/02 4,424,560
10,000 New York City General Obligation - Series 1995 F 6.100 02/15/02 10,297,800
325 New York City Municipal Water Finance Authority - Water and Sewer 7.000 06/15/96 334,113
System Revenue - Series A
250 New York City Municipal Water Finance Authority - Water and Sewer 7.100 06/15/97 262,870
System Revenue - Series A
750 New York State Dormitory Authority Revenue - City University - Series A 7.300 07/01/96 773,602
1,000 New York State Dormitory Authority Revenue - State University - Series A 7.400 05/15/01 1,105,910
1,000 New York State Dormitory Authority Revenue - State University - Series A 7.000 05/15/02 1,075,800
4,155 New York State Dormitory Authority Revenue - City University - Series U 5.875 07/01/00 4,361,794
2,900 New York State Dormitory Authority Revenue - Department of Health 6.750 07/01/01 3,141,106
1,900 New York State Dormitory Authority Revenue - State University Educational 5.300 05/15/00 1,921,375
Facilities Revenue - Series 1994 B
4,000 New York State Medical Care Facilities Finance Agency Revenue - Mental 8.150 02/15/98 4,347,360
Health Services Facilities - Series A
1,500 New York State Medical Care Facilities Finance Agency Revenue - Mental 8.250 02/15/99 1,632,270
Health Services Facilities - Series A
750 New York State Environmental Facilities Corporation Resource Recovery 7.000 10/01/95 756,068
Revenue - Huntington Project
5,000 New York State Thruway Authority - Local Highway and Bridge Service 6.000 04/01/01 5,198,600
Contract - Series 1992
700 New York State Urban Development Corporation Revenue - Correctional 7.000 01/01/98 738,346
Facilities - Series G
695 New York State Urban Development Corporation Revenue - Correctional 6.500 01/01/99 731,335
Facilities - Series G
1,000 New York State Urban Development Corporation Revenue - Attica Facility 7.000 04/01/96 1,021,950
1,000 New York State Urban Development Corporation Revenue - Correctional 5.250 01/01/02 992,270
Facilities - Series 1993
</TABLE>
Limited Term 11
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
$ 1,350 Niagara County, NY General Obligation - Niagara Falls 5.350% 06/15/98 $ 1,354,833
450 Niagara County, NY General Obligation - Niagara Falls 5.550 06/15/99 453,542
500 Oneida County, NY General Obligation 5.600 04/01/98 509,380
920 Oneida County, NY General Obligation 5.600 04/01/00 939,412
520 Onondaga County, NY Resource Recovery Agency Facility Revenue - Series 1992 5.600 05/01/97 518,201
570 Onondaga County, NY Resource Recovery Agency Facility Revenue - Series 1992 5.900 05/01/98 570,336
480 Onondaga County, NY Resource Recovery Agency Facility Revenue - Series 1992 6.100 05/01/99 482,453
630 Onondaga County, NY Resource Recovery Agency Facility Revenue - Series 1992 6.200 05/01/00 634,454
850 Ulster County, NY Resource Recovery Agency - Solid Waste System 4.875 03/01/98 850,255
Revenue - Series 1993
North Carolina
395 Pender County, NC Certificates of Participation - Series 1991 6.625 06/01/97 410,883
Ohio
500 Barberton, OH Hospital Facilities - Barberton Citizens Hospital - Series 1992 6.250 01/01/99 526,775
750 Barberton, OH Hospital Facilities - Barberton Citizens Hospital - Series 1992 6.400 01/01/00 800,708
500 Barberton, OH Hospital Facilities - Barberton Citizens Hospital - Series 1992 6.550 01/01/01 526,875
545 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 7.500 12/01/98 584,284
595 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 7.650 12/01/99 647,854
640 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 7.750 12/01/00 705,318
680 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 7.850 12/01/01 758,492
855 Cleveland, OH General Obligation - Certificates of Participation - Motor 6.000 07/01/95 856,428
Vehicle and Communications Equipment
860 Cleveland, OH General Obligation - Certificates of Participation - Motor 6.200 01/01/96 867,267
Vehicle and Communications Equipment
915 Cleveland, OH General Obligation - Certificates of Participation - Motor 6.200 07/01/96 929,219
Vehicle and Communications Equipment
900 Cleveland, OH General Obligation - Certificates of Participation - Motor 6.350 01/01/97 921,978
Vehicle and Communications Equipment
990 Cleveland, OH General Obligation - Certificates of Participation - Motor 6.350 07/01/97 1,021,452
Vehicle and Communications Equipment
1,750 Cleveland, OH City School District 7.500 12/01/95 1,780,870
1,500 Cleveland, OH City School District 7.700 12/01/96 1,579,335
500 Cleveland, OH City School District - General Obligation - Library 5.000 12/01/99 510,895
Improvement Revenue - Series 1992 A
650 Cleveland, OH City School District - General Obligation - Library 5.200 12/01/00 669,396
Improvement Revenue - Series 1992 A
100 Cuyahoga County, OH Health Care Facilities Revenue - Altenheim Nursing Home 8.750 06/01/95 100,000
480 Cuyahoga County, OH Health Care Facilities Revenue - Altenheim Nursing Home 8.750 06/01/99 540,859
500 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 5.750 08/15/00 516,495
795 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 5.850 08/15/01 826,307
735 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 5.950 08/15/02 768,604
225 Cuyahoga County, OH Improvement Revenue - Medical Center Corporation 7.500 06/01/95 225,000
125 East Cleveland, OH Local Government Revenue 7.900 12/01/97 134,678
1,110 Erie County, OH Hospital Improvement Revenue - Firelands Community 6.000 01/01/98 1,148,206
Hospital - Series 1992
1,175 Erie County, OH Hospital Improvement Revenue - Firelands Community 6.100 01/01/99 1,228,604
Hospital - Series 1992
1,320 Hamilton County, OH Hospital Facilities Revenue - Christ Hospital - Series 1993 5.000 01/01/00 1,333,926
610 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series A 6.850 12/01/96 632,088
</TABLE>
12 Limited Term
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
$ 650 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series A 7.100% 12/01/97 $ 677,521
700 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series A 7.200 12/01/98 738,556
185 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 5.100 12/01/97 183,246
575 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 5.300 12/01/98 569,400
685 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 5.500 12/01/99 682,034
370 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 5.800 12/01/01 372,579
790 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 5.900 12/01/02 797,616
435 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 6.000 12/01/03 439,898
400 Mahoning Valley, OH Sanitary District 6.800 12/15/98 426,564
400 Mahoning Valley, OH Sanitary District 6.950 12/15/99 428,148
400 Mahoning Valley, OH Sanitary District 7.100 12/15/00 430,596
400 Mahoning Valley, OH Sanitary District 7.250 12/15/01 438,236
490 Ohio State Economic Development Revenue - Superior Forge and Steel 6.750 06/01/96 499,148
Corporation
1,040 Ohio State Economic Development Revenue - Superior Forge and Steel 7.250 06/01/01 1,113,081
Corporation
3,825 Ohio State Elementary and Secondary Education Capital Facilities Revenue - 5.700 06/01/02 4,043,905
Series 1995 A
820 Shelby County, OH Hospital Facilities and Improvement Revenue - Wilson 6.100 09/01/98 859,688
Memorial Hospital
910 Student Loan Funding Corporation Revenue - Cincinnati, OH - Series 1992 A 6.875 08/01/98 967,294
350 Youngstown, OH General Obligation 6.650 12/01/96 359,720
350 Youngstown, OH General Obligation 6.800 12/01/97 365,886
350 Youngstown, OH General Obligation 6.900 12/01/98 371,686
350 Youngstown, OH General Obligation 7.000 12/01/99 377,315
Oklahoma
250 Tulsa, OK Industrial Development Authority Hospital Revenue - Tulsa 7.000 06/01/96 254,635
Regional Medical Center - Series A
750 Tulsa, OK Industrial Development Authority Hospital Revenue - Tulsa 7.250 06/01/97 780,330
Regional Medical Center - Series A
Oregon
2,500 Clackamas County, OR Hospital Facilities Authority Revenue - Sisters 5.500 10/01/97 2,568,000
Providence - Series A
Pennsylvania
350 Allegheny County, PA Hospital Development Authority - St. Margaret 6.100 10/01/96 358,141
Memorial Hospital - Series 1991A
350 Allegheny County, PA Hospital Development Authority - St. Margaret 6.350 10/01/97 364,791
Memorial Hospital - Series 1991A
400 Allegheny County, PA Hospital Development Authority - St. Margaret 6.600 10/01/98 424,936
Memorial Hospital - Series 1991A
400 Allegheny County, PA Hospital Development Authority - St. Margaret 6.700 10/01/99 431,000
Memorial Hospital - Series 1991A
400 Allegheny County, PA Hospital Development Authority - St. Margaret 6.800 10/01/00 436,428
Memorial Hospital - Series 1991A
840 Allegheny County, PA Hospital Development Authority - South Side 8.000 06/01/96 867,250
Hospital - Series A
409 Allegheny County, PA Industrial Development Authority - Solid Waste 8.000 03/01/98 439,053
Disposal - Conversion Systems, Inc. - Series 1991
615 Montgomery County, PA Higher Education and Health Authority Revenue - 6.400 11/15/95 620,929
Pottstown Memorial Medical Center
</TABLE>
Limited Term 13
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
$ 655 Montgomery County, PA Higher Education and Health Authority Revenue - 6.600% 11/15/96 $ 673,497
Pottstown Memorial Medical Center
950 Montgomery County, PA Higher Education and Health Authority Revenue - 7.000 11/15/99 1,010,600
Pottstown Memorial Medical Center
1,000 Pennsylvania Intergovernmental Cooperation Authority - Special Tax 5.400 06/15/97 1,019,470
Revenue - Philadelphia Funding Program - Series 1992
1,000 Pennsylvania Intergovernmental Cooperation Authority - Special Tax 5.600 06/15/98 1,030,320
Revenue - Philadelphia Funding Program - Series 1992
2,500 Pennsylvania Intergovernmental Cooperation Authority - Special Tax 6.000 06/15/00 2,637,375
Revenue - Philadelphia Funding Program - Series 1992
4,000 Pennsylvania State General Obligation - Series 1992 6.000 09/15/99 4,224,920
2,000 Pennsylvania State Industrial Development Authority Revenue - Economic 6.400 01/01/97 2,062,260
Development - Series 1991A
2,500 Philadelphia, PA Gas Works Revenue - Eleventh Series B 6.900 07/01/96 2,557,275
1,900 Philadelphia, PA Gas Works Revenue - Eleventh Series A 7.400 07/01/00 2,050,841
500 Philadelphia, PA Gas Works Revenue - Thirteenth Series 6.900 06/15/95 500,000
500 Philadelphia, PA Gas Works Revenue - Thirteenth Series 7.000 06/15/96 512,360
500 Philadelphia, PA Gas Works Revenue - Thirteenth Series 7.100 06/15/97 522,065
3,600 Philadelphia, PA Gas Works Revenue - Fourteenth Series 5.600 07/01/99 3,629,124
3,425 Philadelphia, PA Gas Works Revenue - Fourteenth Series 5.700 07/01/00 3,480,588
965 Philadelphia, PA Hospital and Higher Education Facilities Authority Revenue - 5.000 08/01/97 972,218
Philadelphia MR Project
1,390 Philadelphia, PA Hospital and Higher Education Facilities Authority Revenue - 5.300 08/01/99 1,407,486
Philadelphia MR Project
3,990 Philadelphia, PA School District Revenue - General Obligation - Series A 5.450 07/01/04 4,113,730
1,080 Philadelphia, PA School District Revenue - General Obligation - Series A 6.050 05/15/99 1,138,406
2,580 Philadelphia, PA Water and Sewer Revenue - Thirteenth Series 6.750 04/01/97 2,622,106
2,000 Philadelphia, PA Water and Wastewater Revenue - Series 1993 4.750 06/15/98 2,003,320
5,000 Philadelphia, PA Water and Wastewater Revenue - Series 1993 5.150 06/15/04 5,017,850
Puerto Rico
11,000 Commonwealth of Puerto Rico Highway and Transportation Authority 4.900 07/01/01 10,942,360
Revenue - Series 1993 X
6,000 Commonwealth of Puerto Rico Urban Renewal and Housing 0.000 10/01/98 5,069,460
3,250 Commonwealth of Puerto Rico Urban Renewal and Housing 0.000 10/01/99 2,590,802
250 Commonwealth of Puerto Rico Housing, Bank and Finance Authority - 4.500 12/01/98 242,832
Single Family - Prepayment Subsidy - Series 1993
13,145 Commonwealth of Puerto Rico Housing Authority - Single Family Housing - 4.625 12/01/99 12,686,765
Series 1993
5,045 Commonwealth of Puerto Rico Housing, Bank and Finance Authority - 4.750 12/01/00 4,839,769
Single Family - Insurance Claims - Series 1993
6,000 Commonwealth of Puerto Rico Housing, Bank and Finance Authority - 4.750 12/01/00 5,755,920
Single Family - Prepayment Subsidy - Series 1993
Rhode Island
4,035* Rhode Island Housing and Mortgage Finance Corporation - Multifamily 5.350 07/01/03 4,032,176
Housing Revenue - Series 1995 A
South Dakota
250 South Dakota Student Loan Assistance Corporation Revenue - Series C 7.250 08/01/96 257,178
2,375 South Dakota Student Loan Assistance Corporation Revenue - Series A 6.600 08/01/96 2,421,479
</TABLE>
14 Limited Term
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
Tennessee
$ 135 Metropolitan Nashville and Davidson County - Tennessee Health and
Educational Facilities Board Revenue - Mur-Ci Homes Project - Series
1992A 8.500% 10/01/95 $ 137,020
1,250 Metropolitan Nashville and Davidson County - Tennessee Industrial 6.000 05/01/03 1,268,788
Development Board Revenue - OSCO Treatment - Series 1993
1,000 Tennessee Housing Development Agency - Mortgage Finance Program - 5.100 07/01/01 997,370
Series 1993 A
605 Tennessee Housing Development Agency - Mortgage Finance Program - 5.300 01/01/00 602,538
Series 1994 B
260 Tennessee Housing Development Agency - Mortgage Finance Program - 5.300 07/01/00 258,843
Series 1994 B
Texas
1,575 Anderson County, TX Department of Criminal Justice - Coffield Prison Farm - 5.300 03/15/00 1,612,264
Series 1992
1,730 Brazos, TX Higher Education Authority - Student Loan Revenue - Series 1993-A 5.900 12/01/00 1,786,467
1,235 Brazos, TX Higher Education Authority - Student Loan Revenue - Series 1993-A 6.050 12/01/01 1,278,521
5,000 Dallas-Fort Worth, TX Regional Airport Revenue - Series 1992B 5.500 11/01/98 5,135,750
3,085 Harris County, TX Toll Road Revenue - Series 1992 0.000 08/15/98 2,652,329
1,000 Pasadena, TX Industrial Development Corporation Revenue - Lunar and 7.050 10/01/01 1,002,870
Planetary Institute Project
815 Texas State Higher Education - College Student Loan Revenue 6.900 04/01/99 872,726
805 Texas State Higher Education - College Student Loan Revenue 7.000 04/01/00 833,143
1,660 Texas State Higher Education - College Student Loan Revenue 7.100 04/01/01 1,724,624
Utah
600 Carbon County, UT Solid Waste Disposal Revenue - East Carbon 8.000 07/01/97 639,792
Development Project - Series 1992 A
Vermont
545 Vermont Municipal Bond Bank - Series 1992 A 5.100 12/01/98 553,186
325 Vermont Municipal Bond Bank - Series 1992 A 5.300 12/01/99 332,163
2,000 Vermont State Student Assistance Corporation - Educational Loan Finance 5.800 06/15/99 2,054,860
Revenue - Series 1992A-3
2,000 Vermont State Student Assistance Corporation - Educational Loan Finance 5.800 12/15/99 2,060,920
Revenue - Series 1992A-3
1,000 Vermont State Student Assistance Corporation - Educational Loan Finance 5.900 12/15/00 1,035,710
Revenue - Series 1992A-3
1,000 Vermont State Student Assistance Corporation - Educational Loan Finance 6.050 12/15/01 1,044,330
Revenue - Series 1992A-3
Virgin Islands
1,500 Virgin Islands Public Finance Authority Revenue - General Obligation - 6.500 10/01/97 1,555,860
Series 1992 A
Washington
1,000 Port Tacoma, WA General Revenue - Series 1992 A 5.000 11/01/99 1,016,580
1,860 Washington State Health Care Facilities Authority Revenue - Franciscan Health 4.875 01/01/01 1,857,675
System\St. Joseph Hospital and Health Care Center, Tacoma - Series 1993
500 Washington State Health Care Facilities Authority Revenue - Kadlec Medical 6.900 06/01/96 509,865
Center
1,670 Washington State Health Care Facilities Authority Revenue - Children's 6.000 10/01/02 1,773,440
Hospital and Medical Center
</TABLE>
Limited Term 15
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<C> <S> <C> <C> <C>
$ 500 Washington State Public Power Supply System - Nuclear Project Number 1 7.250% 07/01/99 $ 541,250
Revenue - Series A
1,340 Washington State Public Power Supply System - Nuclear Project Number 3 6.700 07/01/96 1,369,467
Revenue - Series B
8,500 Washington State Public Power Supply System - Nuclear Project Number 3 0.000 07/01/03 5,460,485
Revenue - Series 1990 B
1,535 Washington State Public Power Supply System - Nuclear Project Number 3 5.100 07/01/98 1,544,486
Revenue - Series A
Wisconsin
1,100 Wisconsin State Health and Educational Facilities Authority Revenue - 5.200 02/15/00 1,114,091
Lutheran Hospital-La Crosse, Inc. - Series 1993A
1,155 Wisconsin State Health and Educational Facilities Authority Revenue - 5.300 02/15/01 1,173,642
Lutheran Hospital-La Crosse, Inc. - Series 1993A
Total Investments in Securities - Municipal Bonds (cost $552,006,394) - 99.4% 565,773,358
Excess of Other Assets over Liabilities - 0.6% 3,422,502
Total Net Assets - 100.0% $569,195,860
</TABLE>
*Securities purchased on a "when issued" basis.
**Maturity date represents actual maturity or earlier put date.
See notes to financial statements.
16 Limited Term
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $552,006,394) $565,773,358
Receivable for investments sold 14,860,179
Receivable for Fund shares sold 1,768,120
Interest receivable 9,593,681
Other 209,748
Total assets 592,205,086
LIABILITIES:
Bank borrowings (Note G) 5,105,980
Payable for investments purchased 12,403,170
Payable for Fund shares reacquired 2,833,565
Distributions payable 2,302,845
Accrued expenses 363,666
Total liabilities 23,009,226
NET ASSETS:
Applicable to 53,457,647 shares of beneficial interest
issued and outstanding $569,195,860
Net asset value per share $ 10.65
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 35,486,828
EXPENSES:
Distribution fees (Note E) 2,525,898
Investment advisory fees (Note E) 1,827,318
Custody and accounting fees 308,350
Transfer agent's fees 337,650
Registration fees 12,969
Legal fees 11,680
Audit fees 25,545
Reimbursement of organizational expenses (Note F) 13,834
Trustees' fees 11,759
Shareholder services fees (Note E) 54,580
Other 24,213
Advisory fees waived (Note E) (458,100)
Total expenses 4,695,696
Net investment income 30,791,132
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (5,742,847)
Change in unrealized appreciation (depreciation)
of investments 4,887,243
Net loss on investments (855,604)
Net increase in net assets resulting from operations $ 29,935,528
See notes to financial statements.
Limited Term 17
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS May 31, 1995 May 31, 1994
Operations:
Net investment income $ 30,791,132 $ 32,750,790
Net realized loss on security transactions (5,742,847) (2,056,958)
Change in unrealized appreciation
(depreciation) of investments 4,887,243 (11,073,750)
Net increase in net assets resulting
from operations 29,935,528 19,620,082
Distributions to shareholders:
Dividends from net investment income (30,390,875) (32,802,075)
Distributions from net realized capital
gains (213,471)
Distributions in excess of net realized
capital gains (175,394)
Net decrease in net assets from
distributions to shareholders (30,390,875) (33,190,940)
Fund share transactions:
Proceeds from shares sold 95,311,674 429,705,913
Net asset value of shares issued in
reinvestment of distributions 20,137,204 20,898,847
Cost of shares reacquired (250,424,873) (302,924,997)
Net (decrease) increase in net assets from
Fund share transactions (134,975,995) 147,679,763
Total (decrease) increase in net assets (135,431,342) 134,108,905
NET ASSETS:
Beginning of year 704,627,202 570,518,297
End of year $ 569,195,860 $ 704,627,202
NET ASSETS CONSIST OF:
Paid-in surplus $ 563,004,432 $ 697,980,427
Undistributed net investment income 400,257
Accumulated net realized gain (loss) on
security transactions (7,975,793) (2,232,946)
Unrealized appreciation (depreciation)
of investments 13,766,964 8,879,721
$ 569,195,860 $ 704,627,202
See notes to financial statements.
18 Limited Term
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Limited Term Tax Exempt Fund is a sub-trust of the Flagship Tax
Exempt Funds Trust (Trust), a Massachusetts business trust organized on
March 8, 1985. The Fund is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund commenced investment operations on October 19, 1987. Shares of
beneficial interest in the Fund, which are registered under the Securities
Act of 1933, as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were $7,309,501 "when issued" purchase
commitments included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Limited Term 19
<PAGE>
Notes to Financial Statements
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
Shares sold 9,118,327 39,591,132
Shares issued in reinvestment
of distributions 1,925,540 1,930,490
Shares reacquired (24,055,595) (28,161,712)
Net (decrease) increase
in shares outstanding (13,011,728) 13,359,910
Outstanding at beginning
of year 66,469,375 53,109,465
Outstanding at end of year 53,457,647 66,469,375
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $123,428,240 and $255,645,841, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $13,766,964 of which $14,646,072
related to appreciated securities and $879,108 related to depreciated
securities.
At May 31,1995, the Fund has available a capital loss carryforward of
approximately $7,923,300 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of .30% of the average daily net assets of
$500 million or less plus .25% of the average daily net assets in excess of
$500 million. During the year ended May 31, 1995, the Advisor, at its
discretion, permanently waived $458,100 of its advisory fees. Included in
accrued expenses at May 31, 1995 are accrued advisory fees of $101,585.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor each
month for its actual expenses incurred in the distribution and promotion of
sales of the Fund's shares. The maximum amount payable for these expenses on
an annual basis is .40% of the Fund's average daily net assets. Included in
accrued expenses at May 31, 1995 are accrued distribution fees of $193,495.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the
Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $797,200 for the year ended May 31, 1995, of which
approximately $637,100 was paid to other dealers. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($69,000) are
being reimbursed to the Advisor on a straight-line basis over a period of
five years. As of May 31, 1995, $55,373 has been reimbursed. In the event
that the Advisor's current investment in the Trust falls below $100,000
prior to the full reimbursement of the organizational expenses, then it will
forego any further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $30
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $2,132,389, with a weighted
average annualized interest rate of 6.39%. At May 31, 1995, the Fund had
$5,105,980 outstanding under the line of credit.
20 Limited Term
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.60 $10.74 $10.29 $10.04 $9.92
Income from investment operations:
Net investment income 0.51 0.52 0.55 0.60 0.63
Net realized and unrealized gain (loss) 0.04 (0.13) 0.45 0.26 0.13
on securities
Total from investment operations 0.55 0.39 1.00 0.86 0.76
Less distributions:
Dividends from net investment income (0.50) (0.52) (0.55) (0.60) (0.64)
Distributions from net realized capital gains (0.01) (0.01)
Total distributions (0.50) (0.53) (0.55) (0.61) (0.64)
Net asset value, end of year $10.65 $10.60 $10.74 $10.29 $10.04
Total return(a) 5.41% 3.58% 10.02% 9.04% 8.08%
Ratios to average net assets:
Actual net of waivers and reimbursements:
Expenses 0.74% 0.70% 0.70% 0.47% 0.56%
Net investment income 4.88% 4.76% 5.10% 5.88% 6.32%
Assuming no waivers and reimbursements:
Expenses 0.82% 0.79% 0.82% 0.93% 1.00%
Net investment income 4.80% 4.67% 4.98% 5.42% 5.88%
Net assets at end of year (000's) $569,196 $704,627 $570,518 $284,479 $67,471
Portfolio turnover rate 19.74% 22.16% 19.84% 48.35% 166.77%
</TABLE>
(a) The total returns shown do not
include the effect of
applicable front-end sales
charge.
Limited Term 21
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP LIMITED TERM
TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Limited Term Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the years presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship Limited
Term Tax Exempt Fund at May 31, 1995, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated years,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
22 Limited Term
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
---------------------------------------------------------------------------------------------------------------------
$ 750 Louisiana Public Facilities Authority Revenue - Loyola University - Series A 7.250% 10/01/09 $ 816,038
380 Louisiana Public Facilities Authority Revenue - Loyola College and 6.750 04/01/10 409,142
University - Series 1992
Health Care
---------------------------------------------------------------------------------------------------------------------
3,345 Louisiana Housing Finance Agency - Mortgage Revenue - GNMA Collateralized 6.950 09/01/36 3,519,475
Mortgage Loan - St. Dominic Assisted Care Facility Project - Series 1995
500 Louisiana Public Facilities Authority Revenue - Mary Bird Perkins Cancer 6.200 01/01/19 511,585
Center Project - Series 1994
Hospitals
---------------------------------------------------------------------------------------------------------------------
750 Jefferson Parish, LA Hospital Revenue - Service District Number 1 - Series 1993 5.250 01/01/13 714,382
1,000 Jefferson Parish, LA Hospital Revenue - Service District Number 1 - Series 1993 5.250 01/01/19 930,950
1,000 Jefferson Parish, LA Hospital Revenue - Service District Number 2 - Series 1993 5.750 07/01/16 987,910
1,125 Louisiana Public Facilities Authority Hospital Revenue - Woman's Hospital 7.250 10/01/22 1,146,195
Foundation - Series 1992
1,000 Louisiana Public Facilities Authority Hospital Revenue - Lafayette General 6.400 10/01/12 1,047,810
Medical Center - Series 1992
2,000 Louisiana Public Facilities Authority Hospital Revenue - Lafayette General 6.500 10/01/22 2,099,620
Medical Center - Series 1992
2,090 Louisiana Public Facilities Authority Hospital Revenue - Woman's Hospital 5.950 10/01/14 2,112,091
Foundation - Series 1994
1,325 Louisiana Public Facilities Authority Revenue - Alton Ochsner Medical 6.500 05/15/22 1,387,142
Foundation
500 Louisiana Public Facilities Authority Revenue - Sisters of Mercy - Series 1993 A 5.500 06/01/13 476,930
500 Louisiana Public Facilities Authority Revenue - Sisters of Mercy - Series 1993 A 5.000 06/01/19 434,540
2,500 Louisiana Public Facilities Authority Revenue - General Health Inc. - Series 1994 6.375 11/01/24 2,586,975
1,400 Ouachita Parish, LA Hospital Service District Number 1 Revenue - 7.500 07/01/21 1,493,184
Glenwood Regional Medical Center - Series 1991
2,180 St. Tammany Parish, LA Hospital Service District Number 2 - Series 1994 6.250 10/01/14 2,242,174
2,135 Tangipahoa Parish, LA Hospital Service District Number 1 - Series 1994 6.250 02/01/24 2,197,555
Housing/Multifamily
---------------------------------------------------------------------------------------------------------------------
750 Lake Charles, LA Non-Profit Housing Development Corporation Revenue - 7.875 02/15/25 759,750
Chateau Project
735 Louisiana Public Facilities Authority Revenue - Walmsley Housing - Series A 7.500 06/01/21 794,469
500 Louisiana Public Facilities Authority Revenue - Multifamily Housing 7.750 01/01/16 543,915
Housing/Single Family
---------------------------------------------------------------------------------------------------------------------
1,260 East Baton Rouge, LA Mortgage Finance Authority - Single Family 7.875 08/01/23 1,345,516
460 East Baton Rouge, LA Mortgage Finance Authority - Single Family - Series 1993 C 5.350 10/01/14 407,739
485 East Baton Rouge, LA Mortgage Finance Authority - Single Family - Series 1993 B 5.400 10/01/25 421,533
1,200 Louisiana Housing Finance Agency - Single Family Mortgage Revenue - 6.550 12/01/26 1,213,896
Series 1995 A-2
1,740 Louisiana Housing Finance Agency - Mortgage Revenue - GNMA Collateralized 7.100 01/20/35 1,830,132
Mortgage Loan - Villa Maria Retirement Center Project - Series 1993
</TABLE>
4 Louisiana
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 665 New Orleans, LA Home Mortgage Authority Revenue - Single Family 7.750% 12/01/22 $ 702,007
Housing - Series 1988
327 St. Bernard Parish, LA Home Mortgage Authority Revenue - Single Family - 8.000 03/25/12 355,427
Series A
381 St. Mary, LA Public Trust Financing Authority - Single Family Housing 7.625 03/25/12 415,136
Revenue - Series A
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
1,000 Lake Charles, LA Harbor and Terminal District Port Facilities - Occidental 7.200 12/01/20 1,041,840
Petroleum Corporation - Series 1992
2,800 Lake Charles, LA Harbor and Terminal District Port Facilities - Trunkline 7.750 08/15/22 3,095,960
LNG Company Project - Series 1992
900 Louisiana State Offshore Terminal Authority - Deepwater Port Revenue - 7.600 09/01/10 983,952
Series E
500 Louisiana State Offshore Terminal Authority - Deepwater Port Revenue - 7.200 09/01/08 544,850
Series B
2,500 Natchitoches Parish, LA Solid Waste Disposal Revenue - Willamette 5.875 12/01/23 2,328,950
Industries Project - Series 1993
1,500 St. Charles Parish, LA Environmental Improvement Revenue - Louisiana 5.950 12/01/23 1,485,750
Power and Light Company - Series 1993 B
500 St. Charles Parish, LA Pollution Control Revenue - Louisiana Power and 8.000 12/01/14 553,355
Light Company
1,650 St. Charles Parish, LA Pollution Control Revenue - Union Carbide - Series 1992 7.350 11/01/22 1,730,916
500 St. Charles Parish, LA Solid Waste Disposal - Louisiana Power and Light 7.000 12/01/22 511,470
Company - Series 1992 A
Municipal Appropriation Obligations
---------------------------------------------------------------------------------------------------------------------
685 Louisiana Public Facilities Authority Revenue - Jefferson Parish Eastbank 7.700 08/01/10 763,761
1,500 Office Facilities Corporation A Louisiana Non-Profit Corporation - Capital 7.750 12/01/10 1,657,380
Facilities
Municipal Revenue/Other
---------------------------------------------------------------------------------------------------------------------
1,000 New Orleans, LA Audubon Park Commission - Aquarium Revenue - Series 1992A 8.000 04/01/12 1,089,290
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
355 Greater New Orleans Louisiana Expressway Revenue - Series 1992 6.000 11/01/16 358,788
500 Greater New Orleans Louisiana Expressway Revenue - Series 1992 6.000 11/01/16 510,055
500 Guam Airport Authority General Revenue - Series 1993 B 6.600 10/01/10 516,575
1,500 Guam Airport Authority General Revenue - Series 1993 A 6.700 10/01/23 1,540,290
250 Commonwealth of Puerto Rico Highway and Transportation Authority 5.250 07/01/20 229,458
Revenue - Series 1993 W
130 Commonwealth of Puerto Rico Highway and Transportation Authority 5.250 07/01/21 119,136
Revenue - Series 1993 X
</TABLE>
Louisiana 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
$ 1,500 Louisiana Public Facilities Authority Revenue - Baton Rouge Water Works - 6.400% 02/01/10 $ 1,586,640
Series 1992
500 Shreveport, LA Water and Sewer Revenue - Series 1993 A 5.950 12/01/14 507,655
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
1,000 New Orleans, LA General Obligation - Series 1991 0.000 09/01/06 544,320
2,000 New Orleans, LA General Obligation 0.000 09/01/10 826,440
2,000 New Orleans, LA General Obligation 0.000 09/01/16 564,760
1,000 New Orleans, LA General Obligation 0.000 09/01/17 265,490
10,440 Orleans Parish, LA Public School Board Revenue - Series 1991 0.000 02/01/15 3,111,538
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
1,000 Jefferson Parish, LA Home Mortgage Authority - Single Family Mortgage 0.000 05/01/17 259,270
Revenue - Series 1985
800 Louisiana Public Facilities Authority Hospital Revenue - Southern Baptist 8.000 05/15/12 969,896
Hospital
500 Louisiana Public Facilities Authority Revenue - Sisters of Mercy - Series B 7.375 06/01/19 560,455
1,000 Louisiana State General Obligation 7.125 09/01/10 1,132,230
500 St. Charles Parish, LA Public Improvement Sales Tax 9.900 11/01/08 519,525
250 Shreveport, LA Home Mortgage Authority - Single Family Revenue 6.750 09/01/10 271,808
Special Tax Revenue
---------------------------------------------------------------------------------------------------------------------
1,250 East Baton Rouge Parish, LA Sales and Use Tax - Series 1993 A 4.900 02/01/18 1,111,888
1,000 Jefferson Parish, LA Sales Tax District - Special Sales Tax Revenue - Series B 6.750 12/01/06 1,101,130
500 Lafayette, LA Public Improvement - Sales Tax - Series 1993 B 5.000 03/01/17 456,630
1,000 Louisiana Stadium and Exposition District - Hotel Occupancy - Series 1994 A 6.000 07/01/24 1,010,010
1,500 St. John the Baptist Parish, LA Public Improvement Sales Tax 7.800 12/01/14 1,625,985
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
1,000 Guam Government - Series 1993 A 5.375 11/15/13 908,990
500 Louisiana State General Obligation 5.625 08/01/13 501,935
300 Commonwealth of Puerto Rico - General Obligation - Series 1993 5.250 07/01/18 277,695
Total Investments in Securities - Municipal Bonds (cost $67,583,118) - 99.6% 71,079,284
Excess of Other Assets over Liabilities - 0.4% 286,618
Total Net Assets - 100.0% $ 71,365,902
See notes to financial statements.
</TABLE>
6 Louisiana
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost 67,583,118) $71,079,284
Cash 182,506
Receivable for investments sold 20,000
Receivable for Fund shares sold 263,580
Interest receivable 1,218,774
Other 22,306
Total assets 72,786,450
LIABILITIES:
Payable for investments purchased 907,215
Payable for Fund shares reacquired 116,010
Distributions payable 332,547
Accrued expenses 64,776
Total liabilities 1,420,548
NET ASSETS $71,365,902
Class A:
Applicable to 6,307,262 shares of beneficial
interest issued and outstanding $68,145,474
Net asset value per share $ 10.80
Class C:
Applicable to 298,203 shares of beneficial
interest issued and outstanding $ 3,220,428
Net asset value per share $ 10.80
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 4,467,529
EXPENSES:
Distribution fees-Class A (Note E) 260,584
Distribution fees-Class C (Note E) 21,744
Investment advisory fees (Note E) 337,219
Custody and accounting fees 91,250
Transfer agent's fees 51,950
Registration fees 4,280
Legal fees 1,095
Audit fees 15,208
Reimbursement of organizational expenses (Note F) 14,418
Trustees' fees 1,290
Shareholder services fees (Note E) 7,600
Other 4,164
Advisory fees waived (Note E) (240,777)
Total expenses 570,025
Net investment income 3,897,504
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on security transactions 110,924
Change in unrealized appreciation (depreciation) of investments 1,861,960
Net gain on investments 1,972,884
Net increase in net assets resulting from operations $ 5,870,388
See notes to financial statements.
Louisiana 7
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statements of Changes in Net Assets
====================================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 3,897,504 $ 3,504,673
Net realized gain (loss) on security transactions 110,924 (122,852)
Change in unrealized appreciation (depreciation) of investments 1,861,960 (2,727,114)
Net increase in net assets resulting from operations 5,870,388 654,707
Distributions to shareholders:
Dividends from net investment income-Class A (3,785,632) (3,510,450)
Dividends from net investment income-Class C (119,767) (17,056)
Distributions from net realized capital gains-Class A (179,423)
Distributions in excess of net realized captial gains - Class A (46,209)
Net decrease in net assets from distributions to shareholders-Class A (3,785,632) (3,736,082)
Net decrease in net assets from distributions to shareholders-Class C (119,767) (17,056)
Fund share transactions:
Proceeds from shares sold-Class A 8,403,348 18,925,258
Proceeds from shares sold-Class C 1,810,651 1,581,408
Net asset value of shares issued in reinvestment of distributions-Class A 2,245,257 2,159,420
Net asset value of shares issued in reinvestment of distributions-Class C 80,923 5,612
Cost of shares reacquired-Class A (11,187,669) (5,710,967)
Cost of shares reacquired-Class C (273,344) (23,418)
Net (decrease) increase in net assets from Fund share transactions-Class A (539,064) 15,373,711
Net increase in net assets from Fund share transactions-Class C 1,618,230 1,563,602
Total increase in net assets 3,044,155 13,838,882
NET ASSETS:
Beginning of year 68,321,747 54,482,865
End of year $ 71,365,902 $ 68,321,747
NET ASSETS CONSIST OF:
Paid-in surplus $ 67,927,873 $ 66,856,602
Accumulated net realized gain (loss) on security transactions (58,137) (169,061)
Unrealized appreciation (depreciation) of investments 3,496,166 1,634,206
$ 71,365,902 $ 68,321,747
</TABLE>
See notes to financial statements.
8 Louisiana
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Louisiana Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on September 12, 1989. On
February 2, 1994, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C
shares are sold with no front-end sales charge but are assessed a contingent
deferred sales charge if redeemed within one year from the time of purchase.
Both classes of shares have identical rights and privileges except with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privilege of each class.
Shares of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of
Louisiana 9
<PAGE>
Notes to Financial Statements
================================================================================
securities as collateral, purchase and sell portfolio securities on a "when
issued" basis. These securities are registered by a municipality or
government agency, but have not been issued to the public. Delivery and
payment take place after the date of the transaction and such securities are
subject to market fluctuations during this period. The current market value
of these securities is determined in the same manner as other portfolio
securities. There were no "when issued" purchase commitments included in the
statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 814,297 1,718,305
Shares issued in reinvestment
of distributions 218,176 195,827
Shares reacquired (1,100,408) (525,464)
Net (decrease) increase in
shares outstanding (67,935) 1,388,668
Outstanding at beginning
of year 6,375,197 4,986,529
Outstanding at end of year 6,307,262 6,375,197
Period From
Year Ended February 2, 1994
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 173,642 144,959
Shares issued in reinvestment
of distributions 7,881 536
Shares reacquired (26,574) (2,241)
Net increase in shares
outstanding 154,949 143,254
Outstanding at beginning
of period 143,254 - 0 -
Outstanding at end of period 298,203 143,254
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995,
aggregated $30,022,514 and $29,382,234, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $3,496,166 of which $3,808,984
related to appreciated securities and $312,818 related to depreciated
securities.
At May 31,1995, the Fund has available a capital loss carryforward of
approximately $58,100 to offset future net capital gains expiring on
May 31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly, on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $240,777 of its
advisory fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospect uses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A and Class C shares,
respectively. Included in accrued expenses at May 31, 1995 are accrued
distribution fees of $22,784 and $2,389 for Class A and Class C shares,
respectively. Certain non-promotional expenses directly attributable to
current shareholders are aggregated by the Dis-
10 Louisiana
<PAGE>
Notes to Financial Statements
================================================================================
tributor and passed through to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $246,500 for the year ended May 31, 1995, of which
approximately $215,000 was paid to other dealers. For the year ended May 31,
1995, the Distributor received approximately $1,300 of contingent deferred
sales charges on redemptions of Class C shares. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($72,000) are
being reimbursed to the Advisor on a straight-line basis over a period of
five years. As of May 31, 1995, $57,711 has been reimbursed. In the event
that the Advisor's current investment in the Trust falls below $100,000
prior to the full reimbursement of the organizational expenses, then it will
forego any further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $3
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $180,936, with a weighted
average annualized interest rate of 6.26%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
Louisiana 11
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.48 $10.93 $10.30 $10.02 $9.63
Income from investment operations:
Net investment income 0.60 0.61 0.64 0.65 0.66
Net realized and unrealized gain 0.32 (0.40) 0.67 0.35 0.40
(loss) on securities
Total from investment operations 0.92 0.21 1.31 1.00 1.06
Less distributions:
Dividends from net investment (0.60) (0.62) (0.63) (0.65) (0.67)
income
Distributions from net realized (0.03) (0.05) (0.07)
capital gains
Distributions in excess of net (0.01)
realized capital gains
Total distributions (0.60) (0.66) (0.68) (0.72) (0.67)
Net asset value, end of year $10.80 $10.48 $10.93 $10.30 $10.02
Total return(a) 9.20% 1.77% 13.12% 10.35% 11.47%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.83% 0.66% 0.61% 0.49% 0.38%
Net investment income 5.80% 5.56% 5.95% 6.43% 6.79%
Assuming no waivers and
reimbursements:
Expenses 1.18% 1.12% 1.16% 1.22% 1.17%
Net investment income 5.45% 5.10% 5.40% 5.70% 6.00%
Net assets at end of year (000's) $68,145 $66,821 $54,483 $38,873 $27,762
Portfolio turnover rate 43.90% 22.40% 29.25% 42.51% 57.02%
(a)The total returns shown do not
include the effect of applicable
front-end sales charge.
</TABLE>
12 Louisiana
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
===============================================================================
Period From
Year Ended February 2, 1994 to
CLASS C May 31, 1995 May 31, 1994
-------------------------------------------------------------------------------
Net asset value, beginning of period $10.48 $11.29
Income from investment operations:
Net investment income 0.54 0.16
Net realized and unrealized gain 0.32 (0.81)
(loss) on securities
Total from investment operations 0.86 (0.65)
Less distributions:
Dividends from net investment (0.54) (0.16)
income
Total distributions (0.54) (0.16)
Net asset value, end of period $10.80 $10.48
Total return(a) 8.59% (17.21%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.37% 1.23%
Net investment income 5.21% 4.79%
Assuming no waivers and
reimbursements:
Expenses 1.73% 1.68%
Net investment income 4.85% 4.34%
Net assets at end of period (000's) $3,220 $1,501
Portfolio turnover rate 43.90% 22.40%
(a)The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where
appropriate.
Louisiana 13
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP LOUISIANA
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Louisiana Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
Louisiana Double Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
14 Louisiana
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
--------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,500 Eastern Michigan University General Revenue - Series 1992 6.375% 06/01/14 $ 2,610,200
1,000 Grand Valley, MI State University Revenue 7.875 10/01/08 1,126,600
1,000 Michigan State University Revenues - Series 1992 A 6.250 08/15/15 1,038,090
3,000 Michigan State University Revenues - Series 1992 A 5.500 08/15/22 2,853,690
5,490 Michigan State University Revenues - Series A 5.500 08/15/22 5,360,820
1,000 Oakland County, MI Economic Development Corporation - Limited Obligation 6.900 11/01/14 1,086,490
Revenue -Cranbrook Educational Community Project - Series 1994 C
2,000 Western Michigan University Revenue - Series 1991 B 6.500 07/15/21 2,116,040
1,000 Western Michigan University Revenue - Series 1992A 6.250 11/15/12 1,049,420
General Obligations
--------------------------------------------------------------------------------------------------------------------
1,500 Portage Lake, MI Water and Sewage Authority - Houghton County, 6.200 10/01/20 1,552,185
Michigan - General Obligation Limited Tax - Series 1995
Health Care
--------------------------------------------------------------------------------------------------------------------
475 Independence, MI Economic Development Corporation Revenue 9.400 08/01/17 496,560
Hospitals
--------------------------------------------------------------------------------------------------------------------
500 Farmington Hills, MI Hospital Finance Authority - Botsford General Hospital - 6.500 02/15/11 534,175
Series 1992A
2,700 Farmington Hills, MI Hospital Finance Authority - Botsford General Hospital - 6.500 02/15/22 2,838,753
Series 1992A
1,180 Kalamazoo, MI Hospital Finance Authority Facility Revenue - Bronson 6.375 05/15/17 1,236,180
Methodist Hospital - Series 1992 A
1,290 Kent County, MI Hospital Facilities Revenue - Pine Rest Christian Hospital 6.500 11/01/10 1,381,306
930 Marquette, MI City Hospital Finance Authority Revenue - Marquette General 7.500 04/01/07 1,009,878
Hospital - Series C
2,240 Marquette, MI City Hospital Finance Authority Revenue - Marquette General 7.500 04/01/19 2,432,394
Hospital - Series C
500 Michigan State Hospital Finance Authority Revenue - Sisters of Mercy 6.250 02/15/22 512,405
Health Corporation - Series 1992 M
750 Michigan State Hospital Finance Authority Revenue - Henry Ford Health 5.750 09/01/17 736,980
System - Series 1992
3,000 Michigan State Hospital Finance Authority Revenue - Memorial Hospital 7.375 01/01/03 3,083,760
Owosso Michigan - Series A
3,000 Michigan State Hospital Finance Authority Revenue - St. John Hospital - 6.000 05/15/13 3,037,980
Series 1993A
6,500 Michigan State Hospital Finance Authority Revenue - Detroit Medical Center - 6.500 08/15/18 6,635,200
Series 1993A
10 Michigan State Hospital Finance Authority Revenue - Harper, Grace, and 10.000 10/01/16 10,388
Huron Valley Hospitals - Series A
1,000 Michigan State Hospital Finance Authority Revenue - Oakland General 7.000 07/01/15 1,084,340
Hospital - Series 1989
1,000 Michigan State Hospital Finance Authority Revenue - Henry Ford Health 7.000 07/01/10 1,075,090
System - Series A
1,000 Michigan State Hospital Finance Authority Revenue - Sparrow Group 6.500 11/15/11 1,048,260
2,840 Pontiac, MI Hospital Finance Authority Revenue - NOMC Group - Series 1993 6.000 08/01/23 2,403,918
2,750 Royal Oak, MI Hospital Finance Authority Revenue - William Beaumont 6.750 01/01/20 2,949,678
Hospital - Series 1991D
</TABLE>
4 Michigan
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,500 Royal Oak, MI Hospital Finance Authority Revenue - William Beaumont 6.250% 01/01/19 $ 1,541,970
Hospital - Series 1992F
2,585 Royal Oak, MI Hospital Finance Authority Revenue - William Beaumont 6.625 01/01/19 2,699,050
Hospital - Series 1992E
2,000 Saginaw, MI Hospital Finance Authority Revenue - Saginaw General Hospital 7.625 10/01/08 2,141,300
500 Saginaw, MI Hospital Finance Authority Revenue - St. Luke's Hospital - Series C 6.750 07/01/17 536,685
3,000 University of Michigan Hospital Revenue - Series A 5.500 12/01/21 2,859,450
1,500 University of Michigan Hospital Revenue 6.375 12/01/24 1,525,320
3,500 University of Michigan University Revenues - Medical Service Plan 6.500 12/01/21 3,684,135
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
750 Grand Rapids, MI Housing Finance Authority - Multifamily 7.625 09/01/23 810,570
545 Michigan State Housing Development Authority - Multifamily - Series A 8.625 07/01/03 563,372
6,000 Michigan State Housing Development Authority - Section 8 - Series I 0.000 04/01/14 887,460
1,000 Michigan State Housing Development Authority Revenue - Walled Lake Villa 6.000 04/15/18 1,000,740
5,000 Michigan State Housing Development Authority Revenue - Rental Housing - 7.550 04/01/23 5,355,000
Series B
500 Michigan State Housing Development Authority Revenue - Rental Housing - 7.100 04/01/21 526,175
Series B
1,175 Michigan State Housing Development Authority Revenue - Rental Housing - 5.900 04/01/23 1,152,828
Series 1993 A
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
730 Michigan State Housing Development Authority - Single Family - Series A 7.700 12/01/16 775,048
1,280 Michigan State Housing Development Authority - Single Family - Series A 7.500 06/01/15 1,368,346
3,250 Michigan State Housing Development Authority - Single Family - Series C 7.550 12/01/15 3,468,562
2,000 Michigan State Housing Development Authority - Single Family - Series A 6.450 12/01/14 2,079,880
3,930 Michigan State Housing Development Authority - Single Family - Series C 6.500 06/01/16 4,035,638
500 Michigan State Housing Development Authority - Single Family - Series A 6.800 12/01/16 523,400
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
700 Michigan State Strategic Fund Revenue - Detroit Edison Company - Pollution 6.050 10/01/23 711,214
Control Project
2,500 Michigan State Strategic Fund Revenue - Ford Motor Company 7.100 02/01/06 2,745,125
2,500 Michigan State Strategic Fund Revenue - Detroit Edison Company 6.875 12/01/21 2,713,750
3,585 Michigan State Strategic Fund Revenue - Detroit Edison Company - Pollution 6.500 02/15/16 3,789,704
Control Project - Series 1992
3,500 Michigan State Strategic Fund Revenue - Detroit Edison Company - Series 1994 6.450 06/15/24 3,703,980
2,725 Monroe County, MI Pollution Control Revenue - Detroit Edison Company - Series A 10.500 12/01/16 2,890,680
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------
1,000 Michigan State Building Authority Revenue - Series I 6.750 10/01/11 1,085,800
5,000 Michigan State Building Authority Revenue - Series I 6.250 10/01/20 5,067,400
9,585 Michigan State Building Authority Revenue - Series 1991 I 6.250 10/01/20 9,714,206
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
2,260 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/12 2,394,922
Revenue - Series V
750 Wayne Charter County, MI Airport Revenue - Detroit Metropolitan Airport - 5.875 12/01/08 778,268
Series A
</TABLE>
Michigan 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,000 Bay City, MI Electric Utility System Revenue 6.600% 01/01/12 $ 1,068,480
540 Michigan Public Power Agency Revenue - Belle River Project - Series A 5.250 01/01/18 504,765
3,000 Michigan State South Central Power Agency - Power Supply System 7.000 11/01/11 3,206,790
Revenue - Series 1994
5,200 Wyandotte, MI Electric Revenue Refunding - Series 1992 6.250 10/01/17 5,385,276
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
2,500 Detroit, MI Sewer Disposal Revenue 6.625 07/01/21 2,668,000
1,000 Detroit, MI Water Supply System Revenue - Series 1992 6.375 07/01/22 1,035,060
1,000 Grand Rapids, MI Sanitary Sewer System Improvement Revenue - Series 1990 7.000 01/01/16 1,071,800
3,250 Michigan Municipal Bond Authority Revenue - State Revolving Fund - 6.550 10/01/13 3,481,562
Series 1992 A
1,000 Michigan Municipal Bond Authority Revenue - State Revolving Fund - 6.500 10/01/14 1,072,070
Series 1994
1,000 Michigan Municipal Bond Authority Revenue - State Revolving Fund - 6.500 10/01/17 1,062,590
Series 1994
2,000 Western Townships Michigan Utility Authority - Sewer Disposal System 8.200 01/01/18 2,258,020
3,600 Western Townships Michigan Utility Authority - Sewer Disposal System - 6.500 01/01/19 3,758,076
Series 1991
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
2,000 Allendale, MI Public School District - General Obligation - Ottawa County - 6.000 05/01/19 2,038,380
Series 1994
5,000 Brighton, MI Area School District - Series II 0.000 05/01/20 1,118,750
4,625 Cedar Springs, MI Public Schools - Kent and Newaygo Counties, Michigan - 5.875 05/01/19 4,702,052
School Building and Site - General Obligation Unlimited Tax - Series 1995
1,000 Coldwater, MI Public School District - General Obligation - Series 1994 6.300 05/01/23 1,043,260
750 Detroit, MI General Obligation - Series 1991 8.000 04/01/11 819,878
500 East Lansing, MI Building Authority 7.000 10/01/16 527,495
2,430 Garden City, MI School District - Wayne County, Michigan - General 6.400 05/01/11 2,595,337
Obligation Unlimited Tax - Series 1994
2,000 Goodrich, MI School District - Genesee, Oakland and Lapeer Counties, 5.875 05/01/24 2,022,940
Michigan - School Building and Site Refunding - General Obligation Unlimited Tax - Series 1995
750 Hudsonville, MI Building Authority Revenue - Ottawa County - Series 1992 6.600 10/01/17 809,715
500 Huron Valley, MI School District - Series 1993 6.125 05/01/20 511,715
3,000 Huron Valley, MI School District 0.000 05/01/16 864,090
600 Ingham County, MI Building Authority 7.400 05/01/08 662,706
3,000 Kent County, MI Refuse Disposal System Revenue 8.400 11/01/10 3,335,460
1,300 Laingsburg, MI Community School District - General Obligation - Series 1991 6.375 05/01/21 1,345,903
4,000 Lake Orion, MI Community School District - Oakland County, Michigan - 7.000 05/01/15 4,518,120
School Building and Site - General Obligation Unlimited Tax - Series 1994
2,000 Lansing, MI Building Authority Revenue - Ingham and Eaton Counties - 5.600 06/01/19 1,956,080
Series 1995
555 Livingston County, MI Building Authority 6.000 07/01/10 559,951
2,700 Livonia, MI General Obligation - Public Schools School District - Wayne 0.000 05/01/08 1,309,689
County Site and School Building - Series 1992 II
1,000 Menominee, MI General Obligation Public School District 6.000 05/01/20 1,020,140
250 Michigan Municipal Bond Authority Revenue - Local Government - Series C 7.250 05/01/20 275,012
</TABLE>
6 Michigan
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,850 Michigan Municipal Bond Authority Revenue - Local Government - Series A 8.625% 11/01/16 $ 2,059,772
500 Michigan Municipal Bond Authority Revenue - Local Government - Series B 7.250 11/01/10 544,505
2,800 Michigan Municipal Bond Authority Revenue - Local Government - Series C 0.000 06/15/08 1,348,956
3,000 Michigan Municipal Bond Authority Revenue - Local Government - Series C 0.000 06/15/15 912,210
4,610* Mona Shores, MI Public Schools District - Muskegon County, Michigan - 5.500 05/01/14 4,493,367
School Building and Site - General Obligation Unlimited Tax - Series 1995
1,000 Mt. Pleasant, MI Public School District - General Obligation - Isabella 6.100 05/01/10 1,029,660
County - Series 1994
1,000 Okemos, MI General Obligation - Public School District 0.000 05/01/17 270,820
1,020 Okemos, MI General Obligation - Public School District 0.000 05/01/18 259,090
2,635 Pontiac, MI Street Improvement Revenue 8.400 06/01/00 2,863,033
200 Commonwealth of Puerto Rico Municipal Finance Agency - Series 1994 A 6.000 07/01/14 206,696
750 South Lyon, MI Community School District - General Obligation - Series 1991 6.250 05/01/14 774,975
2,500 Waterford, MI School District - Oakland County, Michigan - School District - 6.250 06/01/13 2,612,625
General Obligation Unlimited Tax - Series 1995
2,470 Waterford, MI School District - Oakland County, Michigan - School District - 6.375 06/01/14 2,602,787
General Obligation Unlimited Tax - Series 1995
5,000 Wayland, MI Union School District - Allegan, Barry and Kent Counties - 6.250 05/01/14 5,225,050
General Obligation Unlimited Tax - School Building and Site - Series 1994
750 Wayne County, MI Ecorse Creek Pollution Abatement Drain Number 1 - 7.500 11/01/09 818,828
Phase III - Drainage District - Series 1988
2,555 West Ottawa, MI Public Schools - Ottawa County, Michigan - General 0.000 05/01/17 691,945
Obligation Unlimited Tax - Series 1992
1,850 Zeeland, MI Public Schools Building Site - Ottawa and Allegan Counties - 6.050 05/01/19 1,880,914
General Obligation - Series 1994 B
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
1,895 Buena Vista, MI School District - School Building and Site - General 7.200 05/01/16 2,169,093
Obligation Unlimited Tax - Saginaw County, Michigan - Series 1991
1,000 Central Michigan University General Revenue 7.000 10/01/10 1,125,940
300 Detroit, MI City School District - Wayne County School 7.750 05/01/10 345,225
1,650 Detroit, MI City School District - Wayne County, Michigan - School 7.150 05/01/11 1,886,346
Building and Site - Unlimited Tax General Obligation - Series 1991
1,000 Detroit, MI Sewer Disposal Revenue 7.125 07/01/19 1,106,220
1,500 Detroit, MI Water Supply System Revenue 7.875 07/01/19 1,674,900
2,000 Detroit, MI Water Supply System Revenue 7.250 07/01/20 2,269,440
1,250 Eastern Michigan University Revenue - Special Projects Student Fee 7.875 10/01/14 1,323,850
1,580 Grand Rapids, MI Water Supply System Revenue 7.875 01/01/18 1,742,471
3,000 Grand Rapids, MI Water Supply System Revenue 7.250 01/01/20 3,373,710
1,000 Grand Traverse County, MI Hospital Finance Authority Revenue - Munson 7.625 12/01/15 1,070,650
Medical Center
2,500 Haslett, MI Public School District 7.500 05/01/20 2,829,750
500 Holland, MI Electric Revenue - Ottawa and Allegan Counties 6.600 07/01/10 538,355
2,000 Huron Valley, MI School District 7.100 05/01/08 2,270,140
500 Ingham County, MI Ingham Medical Center Revenue 8.300 05/01/01 518,760
775 Mattawan, MI Consolidated School District 7.550 05/01/14 854,740
775 Mattawan, MI Consolidated School District 7.550 05/01/15 854,740
825 Menominee, MI Area Public School District 7.400 05/01/20 937,200
3,000 Michigan Higher Education Facilities Authority Revenue - Aquinas College 7.350 05/01/11 3,282,180
250 Michigan State Hospital Finance Authority Revenue - Henry Ford Hospital - 8.875 05/01/00 296,072
Series B
</TABLE>
Michigan 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,310 Michigan State Hospital Finance Authority Revenue - Henry Ford Health 8.000% 05/01/08 $ 1,382,757
System - Series A
1,000 Michigan State Hospital Finance Authority Revenue - Mercy Medical 7.750 06/01/07 1,110,740
Hospital - Series A
6,000 Michigan State Hospital Finance Authority Revenue - Oakwood Hospital 7.100 07/01/18 6,767,940
800 Michigan State Hospital Finance Authority Revenue - Sisters of Mercy 7.200 02/15/18 912,568
Health Corporation
2,460 Oakland County, MI Economic Development Authority - Pontiac 9.625 01/01/20 2,982,553
Osteopathic Hospital
1,800 Commonwealth of Puerto Rico Highway Authority - Series Q 7.750 07/01/16 2,096,388
1,040 Rockford, MI Public Schools 7.375 05/01/19 1,172,007
620 Saginaw Valley State College - Michigan Housing and Auxiliary Facilities 8.125 07/01/10 678,144
Revenue - Series C
7,000 Vicksburg, MI Community Schools 0.000 05/01/20 1,460,200
500 Western Michigan University Revenue - Series A 6.500 07/15/21 556,020
Resource Recovery
--------------------------------------------------------------------------------------------------------------------
1,750 Greater Detroit Resource Recovery Authority - Michigan Revenue - Series G 9.250 12/13/08 1,830,150
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
1,000 Battle Creek, MI Downtown Development Authority - Calhoun County, 7.600 05/01/16 1,083,350
State of Michigan - Development - Series 1994
1,800 Battle Creek, MI Tax Increment Finance Authority - Calhoun County, State 7.400 05/01/16 1,945,602
of Michigan - Development - Series 1994
1,650 Grand Rapids, MI Downtown Development Authority - Tax Increment 6.875 06/01/24 1,825,890
Revenue - Series 1994
510 Livingston County, MI Drainage District - Genoa-Oceola Sanitary Sewer Drain 6.000 05/01/07 528,008
510 Livingston County, MI Drainage District - Genoa-Oceola Sanitary Sewer Drain 6.000 05/01/08 526,182
210 Livingston County, MI Drainage District - Genoa-Oceola Sanitary Sewer Drain 6.000 05/01/09 215,914
5,500 Michigan Municipal Bond Authority Revenue - Local Government 0.000 12/01/07 2,764,300
1,500 Michigan State Comprehensive Transportation Revenue - Series 1992 A 5.500 05/15/22 1,427,220
1,000 Michigan State Trunk Line Fund - Series 1992 A 5.500 10/01/21 953,180
1,550 Michigan State Trunk Line Fund - Series 1992 A 5.500 10/01/21 1,477,429
2,000 Michigan State Trunk Line Fund - Series 1992 B-2 5.500 10/01/21 1,906,360
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
400 Commonwealth of Puerto Rico - Public Improvement - General Obligation - 5.375 07/01/22 384,812
Series 1995
3,125 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 3,258,031
2,370 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 2,506,085
1,200 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - 7.900 07/01/07 1,336,812
Series A
Total Investments in Securities - Municipal Bonds (cost $266,902,506) - 99.2% 285,193,577
Excess of Other Assets over Liabilities - 0.8% 2,308,877
Total Net Assets - 100.0% $287,502,454
*Securities purchased on a "when issued" basis.
See notes to financial statements.
</TABLE>
8 Michigan
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $266,902,506) $285,193,577
Receivable for investments sold 3,370,982
Receivable for Fund shares sold 595,560
Interest receivable 4,804,121
Other 23,688
Total assets 293,987,928
LIABILITIES:
Bank Overdraft 299,843
Payable for investments purchased 4,442,813
Payable for Fund shares reacquired 150,394
Distributions payable 1,339,221
Accrued expenses 253,203
Total liabilities 6,485,474
NET ASSETS $287,502,454
Class A:
Applicable to 21,601,829 shares of beneficial interest $250,380,353
issued and outstanding
Net asset value per share $ 11.59
Class C:
Applicable to 3,207,012 shares of beneficial interest $ 37,122,101
issued and outstanding
Net asset value per share $ 11.58
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 17,936,213
EXPENSES:
Distribution fees - Class A (Note E) 952,982
Distribution fees - Class C (Note E) 311,853
Investment advisory fees (Note E) 1,355,298
Custody and accounting fees 107,950
Transfer agent's fees 168,075
Registration fees 16,049
Legal fees 4,015
Audit fees 20,503
Trustees' fees 4,775
Shareholder services fees (Note E) 31,920
Other 11,680
Advisory fees waived (Note E) (626,290)
Total expenses 2,358,810
Net investment income 15,577,403
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on security transactions 748,965
Change in unrealized appreciation (depreciation) 5,974,456
of investments
Net gain on investments 6,723,421
Net increase in net assets resulting from operations $ 22,300,824
See notes to financial statements.
9 Michigan
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS May 31, 1995 May 31, 1994
Operations:
Net investment income $ 15,577,403 $ 14,332,775
Net realized gain (loss) on
security transactions 748,965 (2,260,911)
Change in unrealized appreciation
(depreciation) of investments 5,974,456 (8,632,654)
Net increase in net assets resulting
from operations 22,300,824 3,439,210
Distributions to shareholders:
Dividends from net investment
income - Class A (13,802,197) (13,622,482)
Dividends from net investment
income - Class C (1,718,167) (819,132)
Distributions from net realized
capital gains - Class A (125,156)
Distributions from net realized
capital gains - Class C (8,988)
Distributions in excess of net
realized capital gains - Class A (452,530)
Distributions in excess of net
realized capital gains - Class C (32,626)
Net decrease in net assets from
distributions to shareholders - Class A (13,802,197) (14,200,168)
Net decrease in net assets from
distributions to shareholders - Class C (1,718,167) (860,746)
Fund share transactions:
Proceeds from shares sold - Class A 31,899,426 48,291,621
Proceeds from shares sold - Class C 12,496,961 32,525,352
Net asset value of shares issued in
reinvestment of distributions - Class A 7,703,995 7,887,118
Net asset value of shares issued in
reinvestment of distributions - Class C 1,136,107 492,525
Cost of shares reacquired - Class A (38,141,919) (30,547,691)
Cost of shares reacquired - Class C (7,407,668) (1,324,807)
Net increase in net assets from Fund
share transaction - Class A 1,461,502 25,631,048
Net increase in net assets from Fund
share transaction - Class C 6,225,400 31,693,070
Total increase in net assets 14,467,362 45,702,414
NET ASSETS:
Beginning of year 273,035,092 227,332,678
End of year $ 287,502,454 $ 273,035,092
NET ASSETS CONSIST OF:
Paid-in surplus $ 271,150,903 $ 263,464,001
Undistributed net investment income 57,039
Accumulated net realized gain (loss)
on security transactions (1,996,559) (2,745,524)
Unrealized appreciation (depreciation)
of investments 18,291,071 12,316,615
$ 287,502,454 $ 273,035,092
See notes to financial statements.
10 Michigan
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Michigan Triple Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on June 27, 1985. On June
22, 1993, the Fund began to offer Class C shares to the investing public.
Class A shares are sold with a front-end sales charge. Class C shares are
sold with no front-end sales charge but are assessed a contingent deferred
sales charge if redeemed within one year from the time of purchase. Both
classes of shares have identical rights and privileges except with respect
to the effect of sales charges, the distribution and/or service fees borne
by each class, expenses specific to each class, voting rights on matters
affecting a single class and the exchange privilege of each class. Shares of
beneficial interest in the Fund, which are registered under the Securities
Act of 1933, as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
Michigan 11
<PAGE>
Notes to Financial Statements
================================================================================
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were $4,426,614 "when issued" purchase
commitments included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 2,859,234 4,086,517
Shares issued in reinvestment
of distributions 691,869 664,441
Shares reacquired (3,424,769) (2,585,708)
Net increase in shares
outstanding 126,334 2,165,250
Outstanding at beginning
of year 21,475,495 19,310,245
Outstanding at end of year 21,601,829 21,475,495
Period From
Year Ended June 22, 1993
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 1,121,353 2,729,946
Shares issued in reinvestment
of distributions 102,187 41,926
Shares reacquired (674,994) (113,406)
Net increase in shares
outstanding 548,546 2,658,466
Outstanding at beginning
of period 2,658,466 - 0 -
Outstanding at end of period 3,207,012 2,658,466
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $107,362,816 and $98,196,844, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $18,291,071 of which $18,893,562
related to appreciated securities and $602,491 related to depreciated
securities.
At May 31,1995, the Fund has available a capital loss carryforward of
approximately $1,997,100 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $626,290 of its
advisory fees. Included in accrued expenses at May 31, 1995 are accrued
advisory fees of $72,276.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A and Class C shares,
respectively. Included in accrued expenses at May 31, 1995 are accrued
distribution fees of $84,011 and $29,349 for Class A and Class C shares,
12 Michigan
<PAGE>
Notes to Financial Statements
================================================================================
respectively. Certain non-promotional expenses directly attributable to
current shareholders are aggregated by the Distributor and passed through to
the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $593,700 for the year ended May 31, 1995, of which
approximately $513,100 was paid to other dealers. For the year ended May 31,
1995, the Distributor received approximately $20,400 of contingent deferred
sales charges on redemptions of Class C shares. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $12
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $499,955, with a weighted
average annualized interest rate of 6.18%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
Michigan 13
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.31 $11.77 $11.12 $10.80 $10.61
Income from investment operations:
Net investment income 0.65 0.66 0.68 0.69 0.69
Net realized and unrealized gain 0.28 (0.43) 0.65 0.32 0.20
(loss) on securities
Total from investment operations 0.93 0.23 1.33 1.01 0.89
Less distributions:
Dividends from net investment (0.65) (0.66) (0.68) (0.69) (0.70)
income
Distributions from net realized (0.01)
capital gains
Distributions in excess of net (0.02)
realized capital gains
Total distributions (0.65) (0.69) (0.68) (0.69) (0.70)
Net asset value, end of year $11.59 $11.31 $11.77 $11.12 $10.80
Total return(a) 8.57% 1.87% 12.27% 9.74% 8.73%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.80% 0.75% 0.81% 0.81% 0.90%
Net investment income 5.82% 5.56% 5.85% 6.34% 6.56%
Assuming no waivers and
reimbursements:
Expenses 1.03% 1.02% 1.02% 1.01% 1.03%
Net investment income 5.59% 5.29% 5.64% 6.14% 6.43%
Net assets at end of year(000's) $250,380 $242,993 $227,333 $176,584 $134,243
Portfolio turnover rate 36.57% 27.78% 9.55% 11.48% 23.01%
(a) The total returns shown do not
include the effect of
applicable front-end sales
charge.
</TABLE>
14 Michigan
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
===============================================================================
Period From
Year Ended June 22, 1993 to
CLASS C May 31, 1995 May 31, 1994
-------------------------------------------------------------------------------
Net asset value, beginning of period $11.30 $11.86
Income from investment operations:
Net investment income 0.58 0.54
Net realized and unrealized gain 0.28 (0.52)
(loss) on securities
Total from investment operations 0.86 0.02
Less distributions:
Dividends from net investment (0.58) (0.55)
income
Distributions from net realized (0.01)
capital gains
Distributions in excess of net (0.02)
realized capital gains
Total distributions (0.58) (0.58)
Net asset value, end of period $11.58 $11.30
Total return(a) 7.98% 0.19%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.35% 1.25%
Net investment income 5.25% 4.89%
Assuming no waivers and
reimbursements:
Expenses 1.58% 1.61%
Net investment income 5.02% 4.53%
Net assets at end of period (000's) $37,122 $30,042
Portfolio turnover rate 36.57% 27.78%
(a) The total returns shown do not
include the effect of
applicable contingent deferred
sales charge and are annualized
where appropriate.
Michigan 15
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP MICHIGAN
TRIPLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Michigan Triple Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
Michigan Triple Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
16 Michigan
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
---------------------------------------------------------------------------------------------------------------------
$ 1,500 Missouri State Health and Educational Facilities Authority Revenue - Saint 6.350% 10/01/14 $ 1,550,340
Louis University High School - Series 1994
1,155 Northwest Missouri State University Recreational Facilities Revenue - Series 1992 6.375 06/01/13 1,218,178
795 Northwest Missouri State University Housing System Improvement Revenue - 6.375 12/01/13 839,520
Series 1992
945 University of Puerto Rico System Revenue - Series 1995 N 0.000 06/01/09 443,318
500 University of Puerto Rico System Revenue - Series 1995 N 0.000 06/01/13 184,370
Health Care
---------------------------------------------------------------------------------------------------------------------
415 Dent County, MO Industrial Development Authority Revenue - Southeast 8.500 06/01/12 444,457
Community Treatment Center Project- Series 1992
775 Farmington, MO Industrial Development Authority Revenue - Southeast 8.500 06/01/12 830,010
Community Treatment Center Project - Series 1992
4,565 St. Louis County, MO Industrial Development Authority - Health Facilities 7.375 02/01/14 4,875,831
Revenue - Lutheran Health Care Association - Series 1992A
2,650 St. Louis County, MO Industrial Development Authority - Lutheran Health 7.625 02/01/22 2,847,955
Care Association - Series 1992A
Hospitals
---------------------------------------------------------------------------------------------------------------------
400 Audrain County, MO Hospital Revenue - Audrain Medical Center 7.350 11/01/08 457,116
1,000 Jackson County, MO Industrial Development Authority Health Care Revenue - 6.500 07/01/19 960,050
St. Joseph Hospital - Series 1992
500 Jackson County, MO Industrial Development Authority Health Care Revenue - 5.750 07/01/24 494,390
Carondelet Health System - St. Mary's Hospital - Series 1994
6,250 Jackson County, MO Industrial Development Authority Health Care Revenue - 6.500 07/01/19 6,614,000
St. Joseph Hospital - Series 1992
2,000 Jackson County, MO Industrial Development Authority Health Care Revenue - 6.500 07/01/12 2,144,320
St. Joseph Hospital - Series 1992
250 Joplin, MO Catholic Health Corporation Industrial Development Authority 7.125 06/01/14 266,385
Facilities Revenue - St. John's Regional Medical Center
2,565 Missouri State Health and Educational Facilities Authority Revenue - Health 6.250 02/15/12 2,673,910
Midwest - Series 1992B
4,675 Missouri State Health and Educational Facilities Authority Revenue - Health 6.250 02/15/22 4,823,151
Midwest - Series 1992B
555 Missouri State Health and Educational Facilities Authority Revenue - 6.875 11/15/04 575,457
Heartland Health Systems - Series 1992
2,000 Missouri State Health and Educational Facilities Authority Revenue - SSM 6.250 06/01/07 2,133,160
Health Care - Series 1992AA
2,000 Missouri State Health and Educational Facilities Authority Revenue - SSM 6.250 06/01/16 2,080,880
Health Care - Series 1992AA
1,000 Missouri State Health and Educational Facilities Authority Revenue - 6.350 11/15/17 1,049,210
Heartland Health Systems - Series 1992
915 Missouri State Health and Educational Facilities Authority Revenue - 6.000 08/15/23 805,200
Jefferson Memorial Hospital - Series 1993
650 Missouri State Health and Educational Facilities Authority Revenue - BJC 6.500 05/15/20 676,858
Health System - Series 1994 A
6,300 Missouri State Health and Educational Facilities Authority Revenue - Lester 0.000 09/01/22 1,212,309
E. Cox Medical Centers - Series 1992 H
</TABLE>
4 Missouri
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 4,000 Missouri State Health and Educational Facilities Authority Revenue - Lester 0.000% 09/01/17 $ 1,048,280
E. Cox Medical Centers - Series 1992 H
5,690 Missouri State Health and Educational Facilities Authority Revenue - Lester 0.000 09/01/21 1,151,428
E. Cox Medical Centers - Series 1992 H
200 Missouri State Health and Educational Facilities Authority Revenue - 8.125 10/01/10 228,360
Heartland Health Systems
100 Missouri State Health and Educational Facilities Authority Revenue - Lake of 8.000 02/15/11 104,766
the Ozarks Hospital
300 Missouri State Health and Educational Facilities Authority Revenue - C.E 7.625 02/01/08 303,423
Still Osteopathic Hospital
3,630 Missouri State Health and Educational Facilities Authority Revenue - 6.350 06/01/14 3,768,267
University Health Sciences
250 University of Missouri Revenue - Columbia Hospital and Clinics 6.500 11/01/11 266,748
Housing/Multifamily
---------------------------------------------------------------------------------------------------------------------
3,000* Kansas City, MO Industrial Development Authority - Multifamily Housing 6.300 07/01/20 3,024,990
Revenue - Series 1995
2,000 Missouri State Economic Development Export and Infrastructure Board - 7.500 09/15/21 2,136,980
Multifamily Housing Revenue - Quality Hill
2,000 St. Louis County, MO Housing Authority - Multifamily Housing Revenue 6.650 03/01/20 2,067,300
Refunding - Kensington Square Apartments Project - Series 1995
500 St. Louis County, MO Industrial Development Authority - Multifamily 7.500 09/20/19 529,595
Housing Revenue
1,890 St. Louis, MO Land Clearance Redevelopment Authority - Multifamily 6.250 08/01/27 1,903,740
Mortgage Revenue - St. Louis Place Apartments - Series 1993
Housing/Single Family
---------------------------------------------------------------------------------------------------------------------
165 Missouri State Housing Development Commission - Single Family - Series A 7.625 02/01/22 173,258
1,115 Missouri State Housing Development Commission - Single Family - Series B 7.750 06/01/22 1,183,517
1,655 Missouri State Housing Development Commission - Single Family - Series A 7.375 08/01/23 1,743,178
1,000 Missouri Housing Development Commission - Single Family Mortgage 6.700 12/01/07 1,058,230
Revenue - GNMA Mortgage-Backed Securities Program - Series 199A
4,500 Missouri Housing Development Commission - Single Family Mortgage 7.125 12/01/14 4,796,685
Revenue - GNMA Mortgage-Backed Securities Program - Series 199A
2,000 Missouri Housing Development Commission - Single Family Mortgage 7.200 12/01/17 2,130,520
Revenue - GNMA Mortgage-Backed Securities Program - Series 199A
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
1,000 Grandview, MO Industrial Development Authority Revenue - KMart 6.500 12/01/08 1,007,550
Corporation - Series 1992
500 Jefferson, MO Industrial Development Revenue - Scholastic Incorporated - 7.200 04/01/03 513,430
Series 1992
775 Liberty, MO Industrial Development Authority Revenue - KMart Corporation 6.950 11/01/09 794,576
Project - Series 1994
2,300 Missouri State Industrial Development Revenue - Drury Inn 8.250 12/01/12 2,438,069
445 Missouri State Environmental Improvement and Energy Resource Authority - 8.250 11/15/14 472,278
Pollution Control Revenue
</TABLE>
Missouri 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,000 Missouri State Environmental Improvement and Energy Resource Authority 5.800% 09/01/09 $ 1,004,700
Pollution Control Revenues - American Cyanamid Company
1,500 Missouri State Environmental Improvement and Energy Resource Authority - 7.400 05/01/20 1,604,655
Union Electric Company Project
1,000 Missouri State Environmental Improvement and Energy Resource Authority - 6.050 07/01/16 1,022,630
Water Pollution Control Revenue - State Revolving Fund Program - City of
Kansas City Project - Series 1995 B
Municipal Appropriation Obligations
---------------------------------------------------------------------------------------------------------------------
1,500 Clay County, MO Public Building Authority and Improvement Revenue - 7.625 05/15/14 1,655,895
Paradise Pointe Golf Course Project - Series 1992
1,435 Excelsior Springs, MO Facilities Authority - Leasehold Refunding and 6.250 12/15/14 1,494,639
Improvement Revenue - Series 1994
350 Jackson County, MO Lease Participation Certificate - Longview Recreation 8.000 11/01/07 378,252
Complex
2,000 Jackson County, MO Public Facilities Authority Leasehold Revenue - Capital 6.125 12/01/15 2,082,520
Improvement Project - Series 1994
1,400 Kansas City, MO Municipal Assistance Corporation Revenue - Bartle 7.125 04/15/16 1,538,320
Convention Center
645 Kansas City, MO Municipal Assistance Corporation Revenue - Truman 7.000 11/01/09 677,489
Medical Center
695 Kansas City, MO Municipal Assistance Corporation Revenue - Truman 7.000 11/01/10 726,254
Medical Center
1,000 Kansas City, MO Municipal Assistance Corporation Revenue - Bartle 6.625 04/15/15 1,069,750
Convention Center - Series B
1,020 Lake St. Louis, MO Certificates of Participation - Public Facilities Revenue - 6.900 12/01/05 1,113,279
Municipal Golf Course
2,720 Lake St. Louis, MO Certificates of Participation - Public Facilities Revenue - 7.550 12/01/14 2,945,706
Municipal Golf Course
375 Missouri School Board Association Certificates of Participation 7.875 03/01/06 407,299
680 Missouri School Board Association Lease Participation - Valley Park 7.375 03/01/10 735,046
1,120 Missouri State Psychiatric Rehabilitation Center Project - Certificates of 6.000 11/01/15 1,138,133
Participation - Series 1995 A
2,000 Missouri State Regional Convention and Sports Complex Authority - Series 1993 A 5.500 08/15/13 1,915,520
1,000 Missouri State Regional Convention and Sports Complex Authority - Series 1993 A 5.500 08/15/21 930,520
2,000 St. Louis County, MO Regional Convention and Sports Complex Authority - 5.500 08/15/13 1,904,800
Series 1993 B
1,700 St. Louis County, MO Regional Convention and Sports Complex Authority - 5.750 08/15/21 1,603,423
Series 1993 B
500 St. Louis County, MO Regional Convention and Sports Complex Authority - 5.500 08/15/16 467,900
Series 1993 B
1,470 St. Louis, MO Land Clearance Redevelopment Authority Revenue - Station 7.750 07/01/21 1,523,082
East Redevelopment Project - Series 1990
950 St. Louis, MO Municipal Finance Corporation - Leasehold Revenue 6.250 02/15/12 1,018,448
Improvement - Series 1992
500 St. Louis, MO Public School District Building Corporation Revenue 7.400 04/01/09 522,160
1,000 St. Louis, MO Regional Convention and Sports Complex Authority - Series C 7.900 08/15/21 1,096,130
515 Southeast Missouri State Correctional Facility, Incorporated - Correctional 5.750 10/15/16 510,576
Facility Lease Revenue - Series 1992
</TABLE>
6 Missouri
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Other
---------------------------------------------------------------------------------------------------------------------
$ 650 St. Louis County, MO Industrial Development Revenue Authority - Kiel 7.625% 12/01/09 $ 679,224
Center Multipurpose Arena - Series 1992
1,000 St. Louis County, MO Industrial Development Revenue Authority - Kiel 7.750 12/01/13 1,047,870
Center Multipurpose Arena - Series 1992
500 St. Louis County, MO Industrial Development Revenue Authority - Kiel 7.875 12/01/24 523,980
Center Multipurpose Arena - Series 1992
3,975 St. Louis, MO Parking Revenue - Series 1992 6.625 12/15/21 4,153,318
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
1,250 Guam Airport Authority General Revenue - Series 1993 A 6.700 10/01/23 1,283,575
400 Kansas City, MO Airport Revenue 7.750 09/01/02 429,356
250 Kansas City, MO Airport Revenue - Series B 7.200 09/01/09 276,385
4,000 Kansas City, MO Airport Revenue - General Improvement - Series 1994B 6.875 09/01/14 4,467,800
1,500 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/12 1,589,550
Revenue - Series V
500 Commonwealth of Puerto Rico Highway and Transportation Authority 5.750 07/01/18 491,190
Revenue - Series V
1,230 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/18 1,300,491
Revenue - Series 1992 T
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
2,000 Higginsville, MO Electric System Revenue - Series 1994 A 6.750 06/01/16 2,159,760
250 Independence, MO Electric Utility Revenue 7.200 06/01/14 270,595
800 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 817,160
4,000 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.375 07/01/24 4,139,520
1,875 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.000 07/01/16 1,879,369
2,250 Sikeston, MO Electric Revenue - Series 1992 6.250 06/01/12 2,358,788
5,250 Sikeston, MO Electric Revenue - Series 1992 6.250 06/01/22 5,451,075
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
380 Adair County, MO Public Water Supply District Number 1 - Waterworks Revenue 7.600 12/15/08 414,382
50 Boone County, MO Public Water Supply District Number 4 - Water System 7.100 08/01/04 54,091
Revenue
50 Callaway County, MO Public Water Supply District Number 1 8.375 01/01/05 55,434
2,000 Cape Girardeau, MO Waterworks System Revenue - Series 1992 6.400 03/01/12 2,105,920
50 Carroll County, MO Public Water Supply District Number 1 8.000 03/01/09 55,775
50 Clay County, MO Public Water Supply District Number 6 8.200 06/01/01 52,277
50 Cole County, MO Public Water Supply District Number 1 - Waterworks Revenue 7.500 03/01/02 51,640
50 DeKalb County, MO Public Water Supply District Number 001 8.000 01/01/09 56,124
400 East Central Missouri Water and Sewer System Authority Revenue - St. 7.000 08/01/08 418,580
Charles County Public Water Supply District Number 2 - Series 1992
50 Fulton, MO Waterworks Revenue 7.500 10/01/02 56,278
50 Hamilton, MO Waterworks Revenue 7.750 07/01/14 55,504
800 Jefferson County, MO Public Water Supply System District Number 2 - 6.100 01/01/17 823,920
Series 1992
400 Jefferson County, MO Public Water Supply District Number 3 - Waterworks 7.625 12/01/10 446,268
Revenue
</TABLE>
Missouri 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,000 Johnson County, MO Public Water Supply District Number 2 Revenue 6.625% 01/01/11 $ 1,065,180
50 Kahoka, MO Water and Sewer System Revenue 8.000 01/01/05 54,528
50 Knox County, MO Public Water Supply District Number 1 - Water System 8.000 01/01/09 54,682
Revenue
50 La Monte, MO Waterworks and Sewage System Revenue 8.000 03/01/04 55,464
50 Laclede County, MO Public Water Supply District Number 3 - Waterworks 8.125 01/01/07 53,275
Revenue
1,000 Missouri State Economic Development Export and Infrastructure Board - 7.125 05/01/17 1,024,810
Community Water Company - Series 1992
1,150 Missouri State Environmental Improvement and Energy Resource Authority - 6.900 02/01/21 1,207,477
Water Facility Revenue - St. Louis Water
750 Missouri State Environmental Improvement and Energy Resource Authority - 7.000 10/01/10 807,142
Water Pollution Control Revenue
3,600 Missouri State Environmental Improvement and Energy Resource Authority - 6.875 06/01/14 3,854,340
Water Pollution Control Revenue
2,000 Missouri State Environmental Improvement and Energy Resource Authority - 6.550 07/01/14 2,108,980
Water Pollution Control Revenue - Series 1992A
600 Missouri State Environmental Improvement and Energy Resource Authority - 7.200 07/01/16 666,666
Water Pollution Control Revenue - Series 1994 A
2,000 Missouri State Environmental Improvement and Energy Resource Authority - 5.800 01/01/15 2,004,880
Water Pollution Control Revenue - State Revolving Fund Program - City of
Kansas City Project - Series 1995 B
125 Osceola, MO Sewer System Improvement Revenue 8.000 11/01/09 137,875
100 Pike County, MO Public Water Supply District Number 1 - Water Revenue 7.750 07/01/09 106,808
1,175 St. Louis, MO Water Revenue 6.000 07/01/14 1,210,896
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
565 Chesterfield, MO General Obligation - Series 1995 6.300 02/15/14 592,516
1,250 Columbia, MO School District - General Obligation - Series 1994 5.000 03/01/13 1,174,225
1,025 Excelsior Springs, MO School District Building Corporation - Leasehold 0.000 03/01/14 334,642
Revenue - Excelsior Springs 40 School District - Series 1994
1,000 Jefferson City, MO School District - General Obligation - Series 1991 A 6.700 03/01/11 1,120,740
100 Commonwealth of Puerto Rico Municipal Finance Agency - Series A 8.250 07/01/08 112,305
1,000 St. Charles, MO School District - General Obligation - Series 1994 6.500 02/01/14 1,083,150
1,500 Troy, MO Lincoln County R-III School District - General Obligation - Series 1994 6.100 03/01/14 1,583,280
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
200 Callaway County, MO Public Water Supply District Number 2 8.500 03/01/10 217,492
9,000 Cape Girardeau County, MO Single Family Mortgage Revenue - Series 1983 0.000 12/01/14 2,733,390
100 Cass County, MO Public Water Supply District Number 2 8.000 10/01/10 111,574
750 Central Missouri State University Revenue 7.250 07/01/15 851,040
50 Clark County, MO Public Water Supply District Number 1 8.250 12/01/15 56,297
50 Concordia, MO Waterworks and Sewer System Revenue 8.375 07/01/08 55,514
50 Cooper County, MO Nursing Home - General Obligation 8.375 03/01/08 53,455
1,435 Green County, MO Single Family Mortgage Revenue 0.000 03/01/16 403,795
450 Jackson County, MO Industrial Development Authority Health Care Revenue - 8.250 07/01/07 493,268
St. Joseph Hospital
1,000 Jackson County, MO School District Number 002 - Series A 6.650 03/15/11 1,059,730
</TABLE>
8 Missouri
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,500 Jackson County, MO Single Family Mortgage Revenue - Series 1983 0.000% 03/01/15 $ 452,985
50 Johnson County, MO Public Water Supply District Number 1 Revenue 8.500 05/01/09 54,342
200 Johnson County, MO Public Water Supply District Number 2 Revenue 8.500 01/01/09 223,484
450 Kansas City, MO School District Building Corporation - Capital 7.900 02/01/08 497,668
Improvement Project
1,500 Kirkwood, MO Industrial Development Authority Health Care System 6.500 12/01/15 1,675,485
Revenue - St. Joseph Hospital
2,500 Kirkwood, MO Industrial Development Authority Health Care System 6.500 07/01/12 2,786,650
Revenue - St. Joseph Hospital
250 Macon County, MO Public Water Supply District Number 1 - Waterworks Revenue 7.625 06/01/08 272,428
100 Macon County, MO Public Water Supply District Number 1 - Waterworks Revenue 7.550 12/15/10 109,530
50 Marion County, MO Public Water Supply District Number 1 - Water Revenue 8.250 01/01/12 56,590
625 Missouri School Board Association Lease Participation - North St. Francois County 7.375 04/01/10 682,006
335 Missouri School Board Association Lease Participation - North St. Francois County 7.000 04/01/10 361,703
225 Missouri State Health and Educational Facilities Authority Revenue - St. 7.875 06/01/12 244,390
Louis University - Series B
100 Missouri State Health and Educational Facilities Authority Revenue - General 7.250 06/01/09 111,638
Tuition - St. Louis University
500 Missouri State Health and Educational Facilities Authority Revenue - St. 6.500 11/15/17 558,195
Luke's Hospital of Kansas City
1,250 Missouri State Regional Convention and Sports Complex Authority - Series A 6.900 08/15/21 1,426,188
100 Missouri State Health and Educational Facilities Authority Revenue - 7.875 04/01/08 110,149
Bethesda Health Group
300 Missouri State Health and Educational Facilities Authority Revenue - 8.000 04/01/13 331,206
Bethesda Health Group
450 Missouri State Health and Educational Facilities Authority Revenue - SSM 7.750 06/01/16 499,833
Health Care Project
395 Missouri State Health and Educational Facilities Authority Revenue - Sisters 7.250 06/01/19 440,970
of Mercy Health System
1,700 Missouri State Health and Educational Facilities Authority Revenue - Barnes 7.125 12/15/20 1,934,158
Hospital
650 Missouri State Health and Educational Facilities Authority Revenue - SSM 7.000 06/01/15 787,988
Health Care Project
500 Phelps County, MO Hospital Revenue - Phelps County Regional Medical Center 8.200 03/01/05 583,555
1,250 Phelps County, MO Hospital Revenue - Phelps County Regional Medical Center 8.300 03/01/20 1,463,575
150 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 6.875 07/01/21 172,256
Education and Health Facilities - Series K
1,000 St. Louis County, MO GNMA Collateralized Mortgage Revenue - 5.400 07/01/15 946,040
Certificates of Receipt - Series 1993 H
1,000 St. Louis County, MO Regional Convention and Sports Complex Authority - 7.000 08/15/11 1,146,940
Series B
200 St. Louis, MO Land Clearance Redevelopment Authority Revenue 7.400 08/15/04 217,488
500 St. Louis, MO Land Clearance Redevelopment Authority Revenue 7.600 08/15/07 546,675
445 St. Louis, MO School District - General Obligation - Series 1991 6.750 04/01/11 502,111
250 University of Missouri Revenue - Columbia Recreational Facilities 7.100 10/01/07 275,020
470 University of Missouri Revenue - Columbia Parking Garage 7.125 05/01/10 492,438
50 Vandalia, MO Water and Sewer System Revenue 7.625 04/01/06 56,476
50 Vandalia, MO Water and Sewer System Revenue 7.625 04/01/07 56,476
</TABLE>
Missouri 9
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
$ 5,000 Commonwealth of Puerto Rico - Public Improvement - General Obligation - 5.375% 07/01/22 $ 4,810,150
Series 1995
2,500 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 2,606,425
3,350 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 3,542,357
750 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - 7.000 07/01/19 805,462
Series A
1,500 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 5.500 07/01/21 1,433,970
Education and Health Facilities - Series M
Student Loan Revenue Bonds
---------------------------------------------------------------------------------------------------------------------
1,000 Missouri Higher Education Loan Authority - Student Loan Subordinate Lien 6.500 02/15/06 1,045,820
Revenue - Series 1992
4,190 Missouri Higher Education Loan Authority - Student Loan Subordinate 6.750 02/15/09 4,435,115
Revenue - Series 1994 F
Total Investments in Securities - Municipal Bonds (cost $196,207,943) - 99.2% 207,303,219
Excess of Other Assets over Liabilities - 0.8% 1,774,725
Total Net Assets - 100.0% $209,077,944
*Securities purchased on a "when issued" basis.
See notes to financial statements.
</TABLE>
10 Missouri
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $196,207,943) $207,303,219
Cash 462,665
Receivable for investments sold 587,783
Receivable for Fund shares sold 364,344
Interest receivable 4,560,513
Other 36,088
Total assets 213,314,612
LIABILITIES:
Payable for investments purchased 3,012,075
Payable for Fund shares reacquired 176,003
Distributions payable 974,504
Accrued expenses 74,086
Total liabilities 4,236,668
NET ASSETS: $209,077,944
Class A:
Applicable to 19,126,759 shares of beneficial
interest issued and outstanding $205,088,902
Net asset value per share $ 10.72
Class C:
Applicable to 372,251 shares of beneficial
interest issued and outstanding $ 3,989,042
Net asset value per share $ 10.72
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 12,523,672
EXPENSES:
Distribution fees - Class A (Note E) 765,227
Distribution fees - Class C (Note E) 27,665
Investment advisory fees (Note E) 971,095
Custodian's fees 75,775
Transfer agent's fees 187,100
Registration fees 16,777
Legal fees 2,920
Audit fees 16,791
Reimbursement of organizational expenses (Note F) 16,790
Trustees' fees 3,396
Shareholder services fees (Note E) 22,820
Other 8,739
Distribution and advisory fees waived (Note E) (796,476)
Total expenses 1,318,619
Net investment income 11,205,053
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (2,995,152)
Change in unrealized appreciation (depreciation) of investments 7,465,017
Net gain on investments 4,469,865
Net increase in net assets resulting from operations $ 15,674,918
See notes to financial statements.
Missouri 11
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statements of Changes in Net Assets
====================================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 11,205,053 $ 9,792,385
Net realized loss on security transactions (2,995,152) (2,526,369)
Change in unrealized appreciation (depreciation) of investments 7,465,017 (4,545,381)
Net increase in net assets resulting from operations 15,674,918 2,720,635
Distributions to shareholders:
Dividends from net investment income-Class A (11,116,432) (9,891,090)
Dividends from net investment income-Class C (151,944) (14,249)
Distributions from net realized capital gains-Class A (304,720)
Distributions in excess of net realized capital gains - Class A (151,848)
Net decrease in net assets from distributions to shareholders-Class A (11,116,432) (10,347,658)
Net decrease in net assets from distributions to shareholders-Class C (151,944) (14,249)
Fund share transactions:
Proceeds from shares sold-Class A 31,183,676 60,842,463
Proceeds from shares sold-Class C 2,160,775 1,961,728
Net asset value of shares issued in reinvestment of distributions-Class A 6,311,985 5,904,122
Net asset value of shares issued in reinvestment of distributions-Class C 88,066 4,268
Cost of shares reacquired-Class A (24,044,260) (16,575,451)
Cost of shares reacquired-Class C (252,428) (47,611)
Net increase in net assets from Fund share transactions-Class A 13,451,401 50,171,134
Net increase in net assets from Fund share transactions-Class C 1,996,413 1,918,385
Total increase in net assets 19,854,356 44,448,247
NET ASSETS:
Beginning of year 189,223,588 144,775,341
End of year $ 209,077,944 $ 189,223,588
NET ASSETS CONSIST OF:
Paid-in surplus $ 203,656,037 $ 188,271,546
Accumulated net realized gain (loss) on security transactions (5,673,369) (2,678,217)
Unrealized appreciation (depreciation) of investments 11,095,276 3,630,259
$ 209,077,944 $ 189,223,588
</TABLE>
See notes to financial statements.
12 Missouri
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Missouri Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on August 3, 1987. On
February 2, 1994, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C
shares are sold with no front-end sales charge but are assessed a contingent
deferred sales charge if redeemed within one year from the time of purchase.
Both classes of shares have identical rights and privileges except with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privilege of each class.
Shares of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of
Missouri 13
<PAGE>
Notes to Financial Statements
================================================================================
securities as collateral, purchase and sell portfolio securities on a "when
issued" basis. These securities are registered by a municipality or
government agency, but have not been issued to the public. Delivery and
payment take place after the date of the transaction and such securities are
subject to market fluctuations during this period. The current market value
of these securities is determined in the same manner as other portfolio
securities. There were $3,000,000 "when issued" purchase commitments
included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 3,030,807 5,497,033
Shares issued in reinvestment
of distributions 613,522 535,692
Shares reacquired (2,358,031) (1,511,116)
Net increase in shares
outstanding 1,286,298 4,521,609
Outstanding at beginning
of year 17,840,461 13,318,852
Outstanding at end of year 19,126,759 17,840,461
Period From
Year Ended February 2, 1994
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 209,323 182,649
Shares issued in reinvestment
of distributions 8,579 407
Shares reacquired (24,434) (4,273)
Net increase in shares
outstanding 193,468 178,783
Outstanding at beginning
of period 178,783 - 0 -
Outstanding at end of period 372,251 178,783
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $91,331,059 and $77,058,742, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $11,095,276 of which $11,684,455
related to appreciated securities and $589,179 related to depreciated
securities.
At May 31,1995, the Fund has available a capital loss carryforward of
approximately $5,673,400 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $726,130 of its
advisory fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospect and reports used for sales purposes. Pursuant to Rule 12b-1 under
the Investment Company Act of 1940, the Fund has adopted a plan to reimburse
the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A and Class C shares,
respectively. During the year ended May 31, 1995, the Distributor, at its
discretion,
14 Missouri
<PAGE>
Notes to Financial Statements
================================================================================
permanently waived distribution fees of $68,986 and $1,360 for Class A and
Class C shares, respectively. Included in accrued expenses at May 31, 1995
are accrued distribution fees of $1,758 for Class C shares. Certain
non-promotional expenses directly attributable to current shareholders are
aggregated by the Distributor and passed through to the Fund as shareholder
services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $892,200 for the year ended May 31, 1995, of which
approximately $772,500 was paid to other dealers. For the year ended May 31,
1995, the Distributor received approximately $2,700 of contingent deferred
sales charges on redemptions of Class C shares. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($83,600) are
being reimbursed to the Advisor on a straight-line basis over a period of
five years. As of May 31, 1995, $67,206 has been reimbursed. In the event
that the Advisor's current investment in the Trust falls below $100,000
prior to the full reimbursement of the organizational expenses, then it will
forego any further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $10
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $105,030, with a weighted
average annualized interest rate of 6.15%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
Missouri 15
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.50 $10.87 $10.32 $10.04 $9.76
Income from investment operations:
Net investment income 0.60 0.61 0.64 0.65 0.65
Net realized and unrealized gain 0.22 (0.34) 0.60 0.29 0.28
(loss) on securities
Total from investment operations 0.82 0.27 1.24 0.94 0.93
Less distributions:
Dividends from net investment (0.60) (0.61) (0.63) (0.65) (0.65)
income
Distributions from net realized (0.02) (0.06) (0.01)
capital gains
Distributions in excess of net (0.01)
realized capital gains
Total distributions (0.60) (0.64) (0.69) (0.66) (0.65)
Net asset value, end of year $10.72 $10.50 $10.87 $10.32 $10.04
Total return(a) 8.19% 2.42% 12.54% 9.70% 9.92%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.67% 0.62% 0.55% 0.47% 0.58%
Net investment income 5.78% 5.52% 5.99% 6.39% 6.57%
Assuming no waivers and
reimbursements:
Expenses 1.08% 1.06% 1.11% 1.13% 1.23%
Net investment income 5.37% 5.08% 5.43% 5.73% 5.92%
Net assets at end of year (000's) $205,089 $187,347 $144,775 $76,069 $43,391
Portfolio turnover rate 40.08% 34.30% 33.26% 31.73% 44.08%
</TABLE>
(a)The total returns shown do not
include the effect of applicable
front-end sales charge.
16 Missouri
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
================================================================================
Period From
Year Ended February 2, 1994 to
CLASS C May 31, 1995 May 31, 1994
--------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.50 $11.33
Income from investment operations:
Net investment income 0.53 0.02
Net realized and unrealized gain 0.23 (0.83)
(loss) on securities
Total from investment operations 0.76 (0.81)
Less distributions:
Dividends from net investment (0.54) (0.02)
income
Total distributions (0.54) (0.02)
Net asset value, end of period $10.72 $10.50
Total return(a) 7.60% (17.62%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.20% 1.15%
Net investment income 5.19% 4.44%
Assuming no waivers and
reimbursements:
Expenses 1.63% 1.61%
Net investment income 4.76% 3.98%
Net assets at end of period (000's) $3,989 $1,877
Portfolio turnover rate 40.08% 34.30%
</TABLE>
(a)The total return shown does not
include the effect of applicable
contingent deferred sales charge
and is annualized where
appropriate.
Missouri 17
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP MISSOURI
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Missouri Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
Missouri Double Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
18 Missouri
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds - New Jersey Intermediate
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
---------------------------------------------------------------------------------------------------------------------
$ 140 New Jersey Educational Facilities Financing Authority Revenue - Seton Hall 6.600% 07/01/02 $ 151,999
University - Series 1991 D
330 New Jersey Educational Facilities Authority - St. Peter's College - Series 1992 B 6.000 07/01/99 346,378
160 New Jersey Educational Facilities Authority - Steven's Institute of 6.400 07/01/03 172,203
Technology - Series 1992 A
100 New Jersey State Educational Facilities Authority - Ramapo College - Series 5.250 07/01/05 101,877
1993 D
85 New Jersey State Educational Facilities Authority - Monmouth College - Series 5.625 07/01/13 80,340
1993 A
185 Perth Amboy, NJ General Obligation - Series 1994 6.200 08/01/04 200,723
Hospitals
---------------------------------------------------------------------------------------------------------------------
300 New Jersey Health Care Facilities Financing Authority Revenue - Newark 5.800 07/01/07 309,138
Beth Israel Medical Center - Series 1994
100 New Jersey Health Care Facilities Financing Authority Revenue - West 6.000 07/01/07 104,843
Jersey Health System - Series 1992
250 New Jersey Health Care Facilities Financing Authority Revenue - Bayonne 6.400 07/01/07 271,938
Hospital Obligated Group Issue - Series 1994
250 New Jersey Health Care Facilities Financing Authority Revenue - Monmouth 5.700 07/01/02 262,750
Medical Center - Series C
250 New Jersey Health Care Facilities Financing Authority Revenue - Dover 5.900 07/01/05 264,995
Medical Center - Series 1994
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
150 New Jersey Economic Development Authority - Electric Energy Facility 6.750 06/01/99 155,403
Revenue - Vineland Cogeneration Project - Series 1992
70 New Jersey Economic Development Authority Revenue - Series 1992 R-1 5.800 06/01/01 73,650
Municipal Appropriation Obligations
300 New Jersey Economic Development Authority Revenue - Market Transition 7.000 07/01/04 343,122
Facility - Series 1994 A
100 Commonwealth of Puerto Rico Urban Renewal and Housing 0.000 10/01/99 79,717
Municipal Revenue/Other
---------------------------------------------------------------------------------------------------------------------
330 Hoboken, NJ Parking Authority Revenue - Hudson County - Series 1992A 5.850 03/01/00 339,593
250 New Jersey Economic Development Authority District - Heating and Cooling 6.100 12/01/04 263,348
Revenue - Trigen Trenton Project - Series 1993 A
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
100 Guam Airport Authority General Revenue - Series 1993 B 6.000 10/01/00 102,091
340 New Jersey State Turnpike Authority Revenue - Series 1991 C 6.400 01/01/07 366,976
200 Port Authority of New York-New Jersey - Series 95 5.500 07/15/05 204,346
300 Port Authority of New York-New Jersey - Series 95 5.875 07/15/09 305,991
100 South Jersey Transportation System Revenue Authority - Series 1992 B 5.900 11/01/06 108,003
</TABLE>
New Jersey 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds - New Jersey Intermediate (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
$100 Guam Power Authority Revenue - Series 1992 A 5.250% 10/01/05 $ 98,118
250 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 Q 5.900 07/01/01 263,135
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
200 Atlantic City, NJ Municipal Utilities Authority - Water System Revenue - 5.650 05/01/07 198,960
Series 1993
100 Hoboken-Union City, NJ Weehawken Sewerage Authority Revenue - Series 1992 5.500 08/01/01 104,668
100 North Jersey District Water Supply - Wanaque South Project - Series 1993 5.700 07/01/05 105,324
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
100 Atlantic City, NJ Board of Education - School Revenue - Series 1992 6.000 12/01/06 108,227
100 Camden, NJ General Obligation - Series 1992 5.500 06/01/02 103,939
100 Cherry Hill Township New Jersey General Obligation - Camden County - 7.625 06/01/01 114,745
Series 1992
100 Essex County, NJ Improvement Authority - General Obligation Lease 5.300 12/01/05 101,529
Revenue - Series 1993
320 Essex County, NJ Improvement Authority - General Obligation Lease 6.350 04/01/07 329,824
Revenue - City of Newark - Series 1994
100 Essex County, NJ Improvement Authority Revenue - General Obligation - 5.450 12/01/03 104,422
Orange Municipal Utility and Lease - Series 1993
100 Gloucester Township, NJ General Obligation - Series 1993 5.300 07/15/05 102,274
400 Jersey City, NJ General Obligation - City School 6.500 02/15/02 435,688
250 Mercer County, NJ Improvement Revenue - Special Services School District - 0.000 04/01/04 161,475
Series 1992 A
100 Monmouth County, NJ Improvement Authority Revenue - Howell Township 6.000 07/01/03 105,828
Board of Education - Series 1992
100 Montclair, NJ General Obligation - Series 1992 5.800 03/01/06 104,048
200 Ocean County, NJ General Obligation - Series 1991 A 6.250 10/01/06 214,754
500 Commonwealth of Puerto Rico Municipal Finance Agency - Series 1992 A 5.800 07/01/04 509,150
250 Union City, NJ General Obligation - Series 1992 6.375 11/01/10 274,995
100 Woodbridge Township, NJ General Obligation - Series 1992 6.150 08/15/06 106,719
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
100 New Jersey Health Care Facilities Financing Authority Revenue - St. Clares 6.900 07/01/98 106,974
Riverside Medical Center - Series D
100 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/18 113,274
Revenue - Series S
30 Commonwealth of Puerto Rico Highway Authority - Series Q 7.750 07/01/16 34,940
Resource Recovery
---------------------------------------------------------------------------------------------------------------------
100 Warren County, NJ Pollution Control Financing Authority - Landfill - Series 5.400 12/01/00 93,923
1992 B
Special Tax Revenue
---------------------------------------------------------------------------------------------------------------------
100 New Jersey Sports and Exposition Authority - Convention Center Luxury Tax - 6.000 07/01/07 106,250
Series 1992 A
</TABLE>
6 New Jersey
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds - New Jersey Intermediate (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
$ 200 New Jersey State General Obligation - Series 1992 D 0.000% 02/15/03 $ 137,316
Student Loan Revenue Bonds
05 New Jersey State Higher Education Assistance Authority - Student Loan 5.200 01/01/98 204,938
Revenue - NJClass Loan Program - Series 1992 A
95 New Jersey State Higher Education Assistance Authority - Student Loan 6.000 01/01/06 96,722
Revenue - NJClass Loan Program - Series 1992 A
Total Investments in Securities - Municipal Bonds (cost $8,781,690) - 99.3% 9,151,583
Excess of Other Assets over Liabilities - 0.7% 64,922
Total Net Assets - 100.0% $ 9,216,505
</TABLE>
See notes to financial statements.
New Jersey 7
<PAGE>
(SHIP GRAPHIC) New Jersey Intermediate
Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $8,781,690) $9,151,583
Cash 38,357
Receivable for investments sold 10,000
Receivable for Fund shares sold 18,131
Interest receivable 189,924
Other 2,344
Total assets 9,410,339
LIABILITIES:
Payable for Fund shares reaquired 132,074
Distributions payable 39,251
Accrued expenses 22,509
Total liabilities 193,834
NET ASSETS:
Applicable to 899,259 shares of beneficial
interest issued and outstanding $9,216,505
Net asset value per share $10.25
(SHIP GRAPHIC) New Jersey Intermediate
Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $519,346
EXPENSES:
Distribution fees (Note E) 36,281
Investment advisory fees (Note E) 45,333
Custody and accounting fees 47,745
Transfer agent's fees 17,505
Registration fees 1,039
Legal fees 365
Audit fees 11,680
Trustees' fees 213
Shareholder services fees (Note E) 2,156
Other 1,445
Advisory fees waived (Note E) (45,333)
Expense subsidy (Note E) (56,229)
Total expenses 62,200
Net investment income 457,146
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (155,497)
Change in unrealized appreciation (depreciation) of investments 346,033
Net gain on investments 190,536
Net increase in net assets resulting from operations $647,682
See notes to financial statements.
8 New Jersey
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) New Jersey Intermediate
Statements of Changes in Net Assets
====================================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 457,146 $ 413,766
Net realized loss on security transactions (155,497) (75,305)
Change in unrealized appreciation (depreciation) of investments 346,033 (132,687)
Net increase in net assets resulting from operations 647,682 205,774
Distributions to shareholders:
Dividends from net investment income (463,100) (408,882)
Distributions from net realized capital gains (2,196)
Distributions in excess of net realized capital gains (15,831)
Net decrease in net assets from distributions to shareholders (463,100) (426,909)
Fund share transactions:
Proceeds from shares sold 1,291,018 4,865,785
Net asset value of shares issued in reinvestment of distributions 272,616 255,338
Cost of shares reacquired (1,852,497) (1,228,407)
Net (decrease) increase in net assets from Fund share transactions (288,863) 3,892,716
Total (decrease) increase in net assets (104,281) 3,671,581
NET ASSETS:
Beginning of year 9,320,786 5,649,205
End of year $ 9,216,505 $ 9,320,786
NET ASSETS CONSIST OF:
Paid-in surplus $ 9,091,963 $ 9,380,826
Undistributed net investment income 1,282 7,236
Accumulated net realized gain (loss) on security transactions (246,633) (91,136)
Unrealized appreciation (depreciation) of investments 369,893 23,860
$ 9,216,505 $ 9,320,786
</TABLE>
See notes to financial statements
New Jersey 9
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds - New Jersey Double Tax Exempt
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
---------------------------------------------------------------------------------------------------------------------
$ 325 New Jersey State Educational Facilities Authority - Monmouth College - 5.625% 07/01/13 $ 307,184
Series 1993 A
Hospitals
---------------------------------------------------------------------------------------------------------------------
200 New Jersey Health Care Facilities Financing Authority Revenue - Newark 6.000 07/01/16 204,868
Beth Israel Medical Center - Series 1994
250 New Jersey Health Care Facilities Financing Authority Revenue - Irvington 6.375 08/01/15 258,758
General Hospital - FHA Insured Mortgage - Series 1994
200 New Jersey Health Care Facilities Financing Authority Revenue - Bayonne 6.250 07/01/12 209,100
Hospital Obligated Group Issue - Series 1994
250 New Jersey Health Care Facilities Financing Authority Revenue - Monmouth 6.250 07/01/16 260,960
Medical Center - Series C
Housing/Single Family
---------------------------------------------------------------------------------------------------------------------
100 New Jersey State Housing and Mortgage Finance Agency - Home Buyer 6.600 11/01/14 103,319
Project - Series 1
250 New Jersey State Housing and Mortgage Finance Agency - Home Buyer 6.300 10/01/16 255,992
Project - Series K
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
50 New Jersey Economic Development Authority - Natural Gas Facilities 6.750 10/01/21 51,738
Revenue - Elizabethtown Gas Company - Series A
335 New Jersey Economic Development Authority - Electric Energy Facility 6.750 06/01/99 347,067
Revenue - Vineland Cogeneration Project - Series 1992
100 New Jersey Economic Development Authority - Water Facilities Revenue - New 5.500 06/01/23 96,406
Jersey-American Water Company Incorporated Project - Series 1993 A and B
185 New Jersey Economic Development Authority Revenue - Economic Growth - 6.550 12/01/07 194,228
Series 1992A-3
250 Union County, NJ Industrial Pollution Control Financing Authority Revenue - 5.800 09/01/09 254,835
American Cyanamid - Series A
Municipal Appropriation Obligations
---------------------------------------------------------------------------------------------------------------------
300 New Jersey Economic Development Authority Revenue - RWJ Health Care 6.250 07/01/14 314,910
Corporation at Hamilton Obligated Group Project - Series 1994
300 New Jersey Economic Development Authority Revenue - Economic 6.000 03/15/21 306,171
Recovery - Series 1992 A
Municipal Revenue/Other
---------------------------------------------------------------------------------------------------------------------
100 Hoboken, NJ Parking Authority Revenue - Hudson County - Series 1992A 6.625 03/01/09 103,302
100 New Jersey Economic Development Authority District - Heating and Cooling 6.200 12/01/10 97,858
Revenue - Trigen Trenton Project - Series 1993 A
</TABLE>
10 New Jersey
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds - New Jersey Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
$ 125 Port Authority of New York-New Jersey - Series 96 6.600% 10/01/23 $ 133,598
250 Commonwealth of Puerto Rico Highway and Transportation Authority 6.000 07/01/20 250,632
Revenue - Series Q
50 South Jersey Transportation System Revenue Authority - Series 1992 B 6.000 11/01/12 51,852
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
200 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 204,290
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
50 Atlantic City, NJ Municipal Utilities Authority - Water System Revenue - 5.650 05/01/07 49,490
Series 1993
100 Atlantic City, NJ Municipal Utilities Authority - Water System Revenue - 5.750 05/01/17 99,746
Series 1993
150 Bergen County, NJ Utilities Authority - Water Pollution Control System 6.000 12/15/13 155,842
Revenue - Series 1992 B
75 Evesham Municipal Utilities Authority - Burlington County, NJ - Series 1993 B 5.600 07/01/15 75,454
250 Hoboken-Union City, NJ Weehawken Sewerage Authority Revenue - Series 1992 6.200 08/01/19 258,622
200 North Jersey District Water Supply - Wanaque South Project - Series 1993 6.000 07/01/21 204,850
25 Ocean County, NJ Utilities Authority - Wastewater Revenue 6.750 01/01/13 26,218
35 Stafford, NJ Municipal Utility Authority - Water and Sewer Revenue - Series 6.000 12/01/12 36,085
1992 A
50 Stafford, NJ Municipal Utility Authority - Water and Sewer Revenue - Series 6.125 12/01/22 51,466
1992 A
75 Wanaque Valley, NJ Regional Sewer Authority - Series 1993 A 6.125 09/01/22 73,675
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
200 Atlantic City, NJ General Obligation - Series 1994 5.650 08/15/04 204,298
50 Atlantic City, NJ Board of Education - School Revenue - Series 1992 6.150 12/01/12 53,102
200 Atlantic County, NJ General Obligation - Series 1994 6.000 01/01/07 210,396
25 Cherry Hill Township New Jersey General Obligation - Camden County - 6.300 06/01/12 26,278
Series 1992
300 Essex County, NJ Improvement Authority - General Obligation Lease 6.350 04/01/07 309,210
Revenue - City of Newark - Series 1994
100 Essex County, NJ Improvement Authority - General Obligation Lease 6.900 12/01/14 114,009
Revenue - County Jail and Youth House Project - Series 1994
50 Monmouth County, NJ Improvement Authority Revenue - Howell Township 6.450 07/01/08 54,202
Board of Education - Series 1992
200 New Jersey Wastewater Treatment Trust - Wastesater Treatment - Series 1994 6.500 04/01/14 213,614
165 Parsippany Troy Hills Township, NJ General Obligation - Morris County, 0.000 04/01/07 89,054
New Jersey - Series 1992
25 Woodbridge Township, NJ General Obligation - Series 1992 6.150 08/15/06 26,681
Pre-refunded or Escrowed
495 Commonwealth of Puerto Rico Highway Authority - Series Q 7.750 07/01/16 576,507
</TABLE>
New Jersey 11
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds - New Jersey Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Special Tax Revenue
---------------------------------------------------------------------------------------------------------------------
$ 100 New Jersey Sports and Exposition Authority - Convention Center Luxury Tax - 5.500% 07/01/22 $ 99,020
Series 1992 A
250 New Jersey Sports and Exposition Authority - Convention Center Luxury Tax - 6.250 07/01/20 260,708
Series 1992 A
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
165 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 184,128
200 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - 7.000 07/01/19 214,790
Series A
Total Investments in Securities - Municipal Bonds (cost $7,369,148) - 99.4% 7,674,513
Excess of Other Assets over Liabilities - 0.6% 48,538
Total Net Assets - 100.0% $ 7,723,051
</TABLE>
See notes to financial statements.
12 New Jersey
<PAGE>
(SHIP GRAPHIC) New Jersey Double Tax Exempt
Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $7,369,148) $7,674,513
Cash 28,057
Receivable for Fund shares sold 10,123
Interest receivable 172,764
Other 1,788
Total assets 7,887,245
LIABILITIES:
Payable for Fund shares reaquired 109,325
Distributions payable 36,194
Accrued expenses 18,675
Total liabilities 164,194
NET ASSETS:
Applicable to 765,280 shares of beneficial
interest issued and outstanding $7,723,051
Net asset value per share $ 10.09
(SHIP GRAPHIC) New Jersey Double Tax Exempt
Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 385,136
EXPENSES:
Distribution fees (Note E) 25,219
Investment advisory fees (Note E) 31,524
Custody and accounting fees 41,075
Transfer agent's fees 16,740
Registration fees 1,381
Legal fees 365
Audit fees 11,680
Trustees' fees 213
Shareholder services fees (Note E) 1,336
Other 1,105
Distribution and advisory fees waived (Note E) (34,333)
Expense subsidy (Note E) (73,895)
Total expenses 22,410
Net investment income 362,726
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (58,873)
Change in unrealized appreciation (depreciation) of investments 299,124
Net gain on investments 240,251
Net increase in net assets resulting from operations $ 602,977
See notes to financial statements.
New Jersey 13
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) New Jersey Double Tax Exempt
Statements of Changes in Net Assets
===============================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 362,726 $ 203,234
Net realized loss on security transactions (58,873) (85,231)
Change in unrealized appreciation (depreciation) of investments 299,124 (65,561)
Net increase in net assets resulting from operations 602,977 52,442
Distributions to shareholders:
Dividends from net investment income (361,591) (204,306)
Distributions in excess of net realized capital gains (34,607)
Net decrease in net assets from distributions to shareholders (361,591) (238,913)
Fund share transactions:
Proceeds from shares sold 3,549,177 3,111,800
Net asset value of shares issued in reinvestment of distributions 166,570 106,177
Cost of shares reacquired (1,113,709) (539,811)
Net increase in net assets from Fund share transactions 2,602,038 2,678,166
Total increase in net assets 2,843,424 2,491,695
NET ASSETS:
Beginning of year 4,879,627 2,387,932
End of year $ 7,723,051 $ 4,879,627
NET ASSETS CONSIST OF:
Paid-in surplus $ 7,596,177 $ 4,994,139
Undistributed net investment income 1,135
Accumulated net realized gain (loss) on security transactions (179,626) (120,753)
Unrealized appreciation (depreciation) of investments 305,365 6,241
$7,723,051 $ 4,879,627
</TABLE>
See notes to financial statements.
14 New Jersey
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
Flagship's New Jersey Intermediate Tax Exempt Fund (New Jersey Intermediate)
and New Jersey Double Tax Exempt Fund (New Jersey Double Tax Exempt) are
sub-trusts of the Flagship Tax Exempt Funds Trust (Trust), a Massachusetts
business trust organized on March 8, 1985. The Funds are open-end,
non-diversified management investment companies registered under the
Investment Company Act of 1940, as amended. The Funds commenced investment
operations on September 16, 1992. Shares of beneficial interest in each
Fund, which are registered under the Securities Act of 1933, as amended, are
offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities having remaining
maturities of 60 days or less are stated at amortized cost, which is
equivalent to fair value.
Federal Income Taxes: It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to their shareholders all of their tax-exempt
net investment income and realized gains on security transactions.
Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Funds amortize
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Funds have entered into agreements with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Funds may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were no "when issued" purchase commitments
included in the New Jersey Intermediate and New Jersey Double Tax Exempt
Funds' statement of investments at May 31, 1995.
New Jersey 15
<PAGE>
Notes to Financial Statements
================================================================================
C. TRUST SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
NEW JERSEY
INTERMEDIATE
Shares sold 130,179 466,182
Shares issued in reinvestment
of distributions 27,564 24,656
Shares reacquired (187,184) (118,472)
Net (decrease) increase
in shares outstanding (29,441) 372,366
Outstanding at beginning
of year 928,700 556,334
Outstanding at end of year 899,259 928,700
Year Ended Year Ended
May 31, 1995 May 31, 1994
NEW JERSEY
DOUBLE TAX EXEMPT
Shares sold 366,626 305,241
Shares issued in reinvestment
of distributions 17,363 10,320
Shares reacquired (116,890) (53,272)
Net increase in shares
outstanding 267,099 262,289
Outstanding at beginning
of year 498,181 235,892
Outstanding at end of year 765,280 498,181
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated:
Fund Purchases Sales
Intermediate $3,167,394 $3,430,092
Double Tax Exempt $4,788,799 $2,088,144
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes of $369,893 and $305,365, respectively,
includes:
Unrealized Unrealized
Fund Appreciation Depreciation
Intermediate $ 380,387 $ 10,494
Double Tax Exempt $ 319,378 $ 14,013
At May 31, 1995, the Funds have available capital loss carryforwards of
approximately $246,600 and $179,600, respectively, to offset future net
capital gains expiring in May 31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of agreements which
provide for furnishing of investment advice, office space and facilities to
the Funds, receives fees computed monthly, on the average daily net assets
of the Funds at an annualized rate of .50%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived all of its advisory
fees for the Funds amounting to $45,333 for the New Jersey Intermediate Fund
and $31,524 for the New Jersey Double Tax Exempt Fund. Also, under
agreements with the Funds, the Advisor has agreed to subsidize certain
expenses (excluding advisory and distribution fees) until the Funds reach
sufficient size to maintain a normal expense ratio to average net assets.
The Funds have Distribution Agreements with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Funds' shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, each Fund has adopted a plan to reimburse the Distributor
monthly for its actual expenses incurred in the distribution and promotion
of sales of the Fund's shares. The maximum amount payable for these expenses
on an annual basis is .40% of each Fund's average daily net assets. During
the year ended May 31, 1995, the Distributor,
16 New Jersey
<PAGE>
Notes to Financial Statements
================================================================================
at its discretion, permanently waived distribution fees of $2,809 for the
New Jersey Double Tax Exempt Fund. Included in accrued expenses at May 31,
1995 are accrued distribution fees of $3,147 for the New Jersey Intermediate
Tax Exempt Fund. Certain non-promotional expenses directly attributable to
current shareholders are aggregated by the Distributor and passed through to
the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Funds, the Distributor received commissions on sales of the Funds' shares
for the year ended May 31, 1995, as follows:
Gross Paid to Other
Fund Commissions Dealers
Intermediate $ 30,800 $ 25,200
Double Tax Exempt $ 115,700 $ 101,000
Certain officers and trustees of the Funds are also officers and/or
directors of the Distributor and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Funds, amounting to
$32,200 for the New Jersey Intermediate Fund and $58,900 for the New Jersey
Double Tax Exempt Fund, will be reimbursed to the Advisor on a straight-line
basis over a period of five years from the first day of the year following
the year in which each Fund's net assets exceed $20 million. In the event
that the Advisor's current investment in the Trust falls below $100,000
prior to the full reimbursement of the organizational expenses, then it will
forego any further reimbursement.
New Jersey 17
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) New Jersey Intermediate Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
=============================================================================================================================
Period From
Year Ended Year Ended September 16, 1992 to
May 31, 1995 May 31, 1994 May 31, 1993
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.04 $10.15 $9.70
Income from investment operations:
Net investment income 0.50 0.53 0.34
Net realized and unrealized gain 0.22 (0.10) 0.45
(loss) on securities
Total from investment operations 0.72 0.43 0.79
Less distributions:
Dividends from net investment (0.51) (0.52) (0.34)
income
Distributions in excess of net (0.02)
realized capital gains
Total distributions (0.51) (0.54) (0.34)
Net asset value, end of period $10.25 $10.04 $10.15
Total return(a) 7.42% 4.27% 11.07%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 0.69% 0.16% 0.40%
Net investment income 5.04% 5.10% 4.84%
Assuming no waivers and
reimbursements:
Expenses 1.81% 1.81% 2.70%
Net investment income 3.92% 3.45% 2.54%
Net assets at end of period (000's) $9,217 $9,321 $5,649
Portfolio turnover rate 35.32% 26.50% 28.93%
(a)The total returns shown do not
include the effect of applicable
front-end sales charge and are
annualized where appropriate.
</TABLE>
18 New Jersey
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) New Jersey Double Tax Exempt Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
==============================================================================================================================
Period From
Year Ended Year Ended September 16, 1992 to
May 31, 1995 May 31, 1994 May 31, 1993
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.79 $10.12 $9.58
Income from investment operations:
Net investment income 0.55 0.57 0.38
Net realized and unrealized gain 0.30 (0.23) 0.54
(loss) on securities
Total from investment operations 0.85 0.34 0.92
Less distributions:
Dividends from net investment (0.55) (0.57) (0.38)
income
Distributions in excess of net (0.10)
realized capital gains
Total distributions (0.55) (0.67) (0.38)
Net asset value, end of period $10.09 $9.79 $10.12
Total return(a) 9.16% 3.24% 13.02%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 0.36% 0.01% 0.00%
Net investment income 5.75% 5.52% 5.43%
Assuming no waivers and
reimbursements:
Expenses 2.07% 2.81% 5.80%
Net investment income 4.04% 2.72% (0.37%)
Net assets at end of period (000's) $7,723 $4,880 $2,388
Portfolio turnover rate 33.58% 90.63% 75.40%
(a)The total returns shown do not
include the effect of applicable
front-end sales charge and are
annualized where appropriate.
</TABLE>
New Jersey 19
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP NEW JERSEY
TAX EXEMPT FUNDS
We have audited the accompanying statements of assets and liabilities, including
the statements of investments in securities and net assets, of the Flagship New
Jersey Intermediate Tax Exempt Fund and the Flagship New Jersey Double Tax
Exempt Fund as of May 31, 1995, the related statements of operations for the
year then ended, and the statements of changes in net assets and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Funds' custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship New
Jersey Intermediate Tax Exempt Fund and New Jersey Double Tax Exempt Fund at May
31, 1995, the results of their operations, the changes in their net assets, and
the financial highlights for the respective stated periods, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
20 New Jersey
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
--------------------------------------------------------------------------------------------------------------------
$ 500* Albuquerque, NM Educational Facilities Revenue - Albuquerque Academy 5.750% 10/15/15 $ 499,960
Project - Series 1995
500 New Mexico State University Revenue - Series 1993 5.400 04/01/12 478,125
500 Commonwealth of Puerto Rico Industrial, Medical and Environmental - 5.600 12/01/07 499,990
Pollution Control Facilities Financing Authority - Catholic University of
Puerto Rico Project - Series 1993
2,600 University of New Mexico Regents - System Revenue - Series 1992A 6.000 06/01/21 2,705,092
500 University of New Mexico - University Revenue - Series 1994 5.000 06/01/14 458,066
Health Care
--------------------------------------------------------------------------------------------------------------------
500 Las Cruces, NM Health Facilities Revenue - Evangelical Lutheran Good 6.450 12/01/17 526,090
Samaritan Society - Series 1992
Hospitals
--------------------------------------------------------------------------------------------------------------------
450 Albuquerque, NM Hospital System - Presbyterian Healthcare Services - 6.375 08/01/07 484,965
Series 1992A
750 Albuquerque, NM Hospital System - Presbyterian Healthcare Services - 5.100 08/01/05 749,355
Series 1993B
1,500 Albuquerque, NM Evangelical Lutheran Good Samaritan Society - Series 1993 5.900 06/01/13 1,518,045
350 Socorro, NM Health Facilities Revenue - Evangelical Lutheran Good 6.000 05/01/08 366,544
Samaritan Society - Series 1994
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
1,000 Las Cruces, NM Housing Development Corporation - Multifamily Mortgage 6.400 10/01/19 1,003,220
Revenue - Series 1993A
1,675 New Mexico Mortgage Finance Authority - Rent Housing Revenue - 5.450 01/01/17 1,530,213
Netherwood Village Apartments - Series 1993 C
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
1,250 New Mexico Mortgage Finance Authority - Single Family Mortgage Program - 6.650 07/01/26 1,275,925
Series 1995 A
190 New Mexico Mortgage Finance Authority - Single Family - Series 1992 A-1 6.850 07/01/10 198,599
940 New Mexico Mortgage Finance Authority - Single Family - Series 1992 A-2 6.900 07/01/24 977,826
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
1,985 Farmington, NM Pollution Control Revenue - Public Service Company - San 6.375 12/15/22 2,075,059
Juan and Four Corners - Series 1992 A
2,800 Farmington, NM Pollution Control Revenue - Southern California Edison - 5.875 06/01/23 2,828,448
Four Corners Project - Series 1993 A
2,000 Lordsburg, NM Pollution Control Revenue - Phelps Dodge Corporation - 6.500 04/01/13 2,073,240
Series 1993
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------
850 Commonwealth of Puerto Rico Urban Renewal and Housing 7.875 10/01/04 960,322
</TABLE>
4 New Mexico
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
$ 1,000 Albuquerque, NM Airport Revenue - Series 1995 A 6.600% 07/01/16 $ 1,066,670
500 Guam Airport Authority General Revenue - Series 1993 B 6.600 10/01/10 516,575
250 Guam Airport Authority General Revenue - Series 1993 A 6.700 10/01/23 256,715
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
950 Farmington, NM Utility System Revenue - Series 1992 5.750 05/15/13 955,900
425 Gallup, NM Joint Utility Revenue and Improvement - Series 1993 5.250 06/01/07 414,660
250 Las Cruces, NM Utility and Improvement Revenue 6.250 07/01/12 258,552
1,000 Los Alamos County, NM Incorporated Utility System Revenue - Series 1994 A 5.700 07/01/05 1,044,380
1,500 Los Alamos County, NM Incorporated Utility System Revenue - Series 1994 A 6.000 07/01/15 1,541,460
100 Rio Grande, NM Natural Gas Association System Revenue and Improvement - 6.000 07/01/07 100,565
Dona Ana County - Series 1993
1,000 Rio Grande, NM Natural Gas Association System Revenue and Improvement - 6.125 07/01/13 999,920
Dona Ana County - Series 1993
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
1,000 Albuquerque, NM Joint Water and Sewer System Revenue - Series 1990 A 0.000 07/01/07 514,260
2,125 Albuquerque, NM Joint Water and Sewer System Revenue - Series 1992 5.500 07/01/17 2,066,669
100 Grants, NM Water and Sewer Improvement Revenue - Series 1993 B 5.600 01/01/08 97,442
500 Grants, NM Water and Sewer Improvement Revenue - Series 1993 B 5.800 01/01/13 484,970
1,490* Rio Rancho, NM Water and Wastewater System Revenue - Series 1995 A 6.000 05/15/22 1,501,831
500 Santa Fe, NM Water and Sewer Revenue - Series 1994 6.300 06/01/24 521,255
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
500 Bernalillo County, NM General Obligation 5.800 08/01/98 521,645
1,000 Bernalillo County, NM General Obligation 5.800 10/01/06 1,050,630
480 Grants/Cibola County, NM School District Number 1 - General Obligation - 6.250 05/01/08 490,488
School District of Cibola County - Series 1994
510 Grants/Cibola County, NM School District Number 1 - General Obligation - 6.250 05/01/09 517,614
School District of Cibola County - Series 1994
200 Torrance County, NM General Obligation - Series 1993 5.500 07/01/04 201,662
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
250 Albuquerque, NM Joint Water and Sewer System Revenue - Series 1990 A 6.000 07/01/15 265,925
300 Commonwealth of Puerto Rico - Public Improvement 7.300 07/01/20 343,314
2,000 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 6.875 07/01/21 2,296,740
Education and Health Facilities - Series K
327 Santa Fe County, NM Office and Training Facilities Revenue Project 9.000 07/01/07 433,595
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
1,500 Dona Ana County, NM Gross Receipts Tax and Improvement Revenue - 6.000 06/01/14 1,515,720
Series 1993
2,550 Dona Ana County, NM Gross Receipts Tax and Improvement Revenue - 6.000 06/01/19 2,553,748
Series 1993
810 Espanola, NM Gross Receipts Tax Refunding and Improvement Revenue - 5.900 03/01/08 833,044
Series 1994
</TABLE>
New Mexico 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 465 Grants, NM Gross Receipts Tax and Improvement Revenue - Series 1993 B 5.800% 07/01/13 $ 450,301
250 Las Cruces, NM Gross Receipts Tax Revenue - Series 1992 6.250 12/01/05 265,385
200 Las Vegas, NM Gross Receipts Tax and Improvement Revenue - Series 1993 5.400 06/01/15 194,634
200 Rio Rancho, NM Gross Receipts - Tax Revenue - Series 1994 A 5.100 12/01/07 196,198
300 Roswell, NM Sales Tax Revenue - Series 1993 6.000 06/01/12 306,900
225 Sandoval County, NM Gross Receipts Tax/Fire District Revenue - Series 1993 6.600 12/01/04 234,117
200 Sandoval County, NM Gross Receipts Tax/Fire District Revenue - Series 1993 6.900 12/01/07 208,204
375 Sandoval County, NM Gross Receipts Tax Revenue - Series 1992 6.900 11/01/12 402,330
130 Sandoval County, NM Gross Receipts Tax Revenue - Series 1992A 6.500 12/01/06 137,842
500 Sandoval County, NM Gross Receipts Tax Revenue 7.150 11/01/10 540,370
500 Silver City, NM Sales Tax Revenue - Series 1993 5.850 07/01/09 498,065
470 Tucumcari, NM Municipal Gross Receipts/Lodgers' Tax Improvement 5.875 06/01/12 456,967
Revenue - Series 1993
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
200 Guam Government - Series 1993 A 5.000 11/15/05 187,730
500 Guam Government - Series 1993 A 5.400 11/15/18 445,220
500 Commonwealth of Puerto Rico - General Obligation - Series 1993 5.400 07/01/07 501,735
Student Loan Revenue Bonds
--------------------------------------------------------------------------------------------------------------------
1,875 New Mexico Educational Assistance Foundation - Student Loan Revenue - 6.850 04/01/05 2,028,731
Series A
500 New Mexico Educational Assistance Foundation - Student Loan Revenue - 6.550 12/01/05 531,125
Series 1A
475 New Mexico Educational Assistance Foundation - Student Loan Revenue - 6.850 12/01/05 493,696
Series 1A
Total Investments in Securities - Municipal Bonds (cost $51,515,393) - 101.0% 52,654,583
Excess of Liabilities over Other Assets - (1.0)% (504,180)
Total Net Assets - 100.0% $52,150,403
</TABLE>
*Securities purchased on a "when issued" basis.
See notes to financial statements.
6 New Mexico
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $51,515,393) $52,654,583
Cash 471,672
Receivable for Fund shares sold 213,976
Interest receivable 1,120,171
Other 6,223
Total assets 54,466,625
LIABILITIES:
Payable for investments purchased 1,990,910
Payable for Fund shares reacquired 43,904
Distributions payable 230,596
Accrued expenses 50,812
Total liabilities 2,316,222
NET ASSETS:
Applicable to 5,211,198 shares of beneficial interest
issued and outstanding $52,150,403
Net asset value per share $ 10.01
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 3,012,851
EXPENSES:
Distribution fees (Note E) 195,737
Investment advisory fees (Note E) 244,687
Custody and accounting fees 64,600
Transfer agent's fees 29,510
Registration fees 3,209
Legal fees 730
Audit fees 12,775
Reimbursement of organizational expenses (Note F) 10,330
Trustees' fees 874
Shareholder services fees (Note E) 6,080
Other 3,694
Advisory fees waived (Note E) (226,715)
Expense subsidy (Note E) (15,300)
Total expenses 330,211
Net investment income 2,682,640
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (878,425)
Change in unrealized appreciation
(depreciation) of investments 2,239,449
Net gain on investments 1,361,024
Net increase in net assets resulting from operations $ 4,043,664
See notes to financial statements.
New Mexico 7
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS May 31, 1995 May 31, 1994
Operations:
Net investment income $ 2,682,640 $ 2,367,116
Net realized loss on security transactions (878,425) (213,079)
Change in unrealized appreciation
(depreciation) of investments 2,239,449 (1,943,642)
Net increase in net assets
resulting from operations 4,043,664 210,395
Distributions to shareholders:
Dividends from net investment income (2,699,610) (2,375,504)
Distributions from net realized
capital gains (23,428)
Distributions in excess of net realized
capital gains (101,859)
Net decrease in net assets from
distributions to shareholders (2,699,610) (2,500,791)
Fund share transactions:
Proceeds from shares sold 11,354,468 25,756,462
Net asset value of shares issued in
reinvestment of distributions 1,363,952 1,260,585
Cost of shares reacquired (13,079,330) (5,058,116)
Net (decrease) increase in net assets
from Fund share transactions (360,910) 21,958,931
Total increase in net assets 983,144 19,668,535
NET ASSETS:
Beginning of year 51,167,259 31,498,724
End of year $ 52,150,403 $ 51,167,259
NET ASSETS CONSIST OF:
Paid-in surplus $ 52,204,748 $ 52,582,628
Accumulated net realized gain (loss)
on security transactions (1,193,535) (315,110)
Unrealized appreciation (depreciation)
of investments 1,139,190 (1,100,259)
$ 52,150,403 $ 51,167,259
See notes to financial statements.
8 New Mexico
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship New Mexico Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end non-diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund commenced investment operations on September 16,
1992. Shares of beneficial interest in the Fund, which are registered under
the Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were $1,976,070 "when issued" purchase
commitments included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
New Mexico 9
<PAGE>
Notes to Financial Statements
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
Shares sold 1,187,721 2,521,372
Shares issued in reinvestment
of distributions 143,686 124,080
Shares reacquired (1,406,966) (496,788)
Net (decrease) increase
in shares outstanding (75,559) 2,148,664
Outstanding at beginning
of year 5,286,757 3,138,093
Outstanding at end of year 5,211,198 5,286,757
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995,
aggregated $18,596,113 and $19,667,103, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting
purposes aggregated $1,139,190 of which $1,494,422 related to appreciated
securities and $355,232 related to depreciated securities. For federal
income tax purposes, the net unrealized appreciation is reduced by $108,000
due to the disallowance of certain wash sale losses.
At May 31,1995, the Fund has available a capital loss carryforward of
approximately $1,092,700 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly, on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $226,715 of its
advisory fees. Included in accrued expenses at May 31, 1995, are accrued
advisory fees of $4,340. Also, under an agreement with the Fund, the Advisor
has agreed to subsidize certain expenses (excluding advisory and
distribution fees) until the Fund reaches a sufficient size to maintain a
normal expense ratio to average net assets.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor each
month for its actual expenses incurred in the distribution and promotion of
sales of the Fund's shares. The maximum amount payable for these expenses on
an annual basis is .40% of the Fund's average daily net assets. Included in
accrued expenses at May 31, 1995 are accrued distribution fees of $17,362.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the
Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $191,100 for the year ended May 31, 1995, of which
approximately $162,700 was paid to other dealers. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($51,677) are
being reimbursed to the Advisor on a straight-line basis over a period of
five years. As of May 31, 1995, $20,660 has been reimbursed. In the event
that the Advisor's current investment in the Trust falls below $100,000
prior to the full reimbursement of the organizational expenses, then it will
forego any further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $2
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $224,862, with a weighted
average annualized interest rate of 6.09%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
10 New Mexico
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
==============================================================================================
Period From
Year Ended Year Ended September 16, 1992 to
May 31, 1995 May 31, 1994 May 31, 1993
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.68 $10.04 $9.58
Income from investment operations:
Net investment income 0.52 0.53 0.37
Net realized and unrealized gain 0.33 (0.33) 0.46
(loss) on securities
Total from investment operations 0.85 0.20 0.83
Less distributions:
Dividends from net investment (0.52) (0.53) (0.37)
income
Distributions from net realized (0.01)
capital gains
Distributions in excess of net (0.02)
realized capital gains
Total distributions (0.52) (0.56) (0.37)
Net asset value, end of period $10.01 $9.68 $10.04
Total return(a) 9.25% 1.92% 11.72%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 0.67% 0.40% 0.14%
Net investment income 5.48% 5.24% 5.28%
Assuming no waivers and
reimbursements:
Expenses 1.17% 1.14% 1.37%
Net investment income 4.98% 4.50% 4.05%
Net assets at end of period (000's) $52,150 $51,167 $31,499
Portfolio turnover rate 38.06% 38.88% 36.11%
</TABLE>
(a) The total returns shown do not
include the effect of
applicable front-end sales
charge and are annualized where
appropriate.
New Mexico 11
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP NEW MEXICO
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship New
Mexico Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship New
Mexico Double Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
12 New Mexico
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
--------------------------------------------------------------------------------------------------------------------
$ 750 Brookhaven, NY Industrial Development Agency - Civic Facility Revenue - 6.750% 03/01/23 $ 758,422
Dowling College\The National Aviation and Transportation Center - Series 1993
250 Monroe County, NY Industrial Development Agency Revenue - Civic 7.400 09/01/11 270,698
Facility - Roberts Wesleyan
1,000 New Rochelle, NY Industrial Development Agency - Civic Facility Revenue - 6.625 07/01/12 1,031,210
College of New Rochelle - Series 1992
2,100 New York State Dormitory Authority Revenue - University of Rochester - 6.500 07/01/19 2,217,054
Series 1994 A
500 Suffolk County, NY Industrial Development Authority Revenue - Dowling 6.625 06/01/24 517,570
College Civic Facility - Series 1994
Health Care
--------------------------------------------------------------------------------------------------------------------
400 New York State Dormitory Authority Revenue - Menorah Campus 7.400 02/01/31 450,140
Hospitals
--------------------------------------------------------------------------------------------------------------------
150 New York State Dormitory Authority Revenue - United Health Services - 7.350 08/01/29 162,246
Series 1989
245 New York State Dormitory Authority Revenue - Iroquois Nursing Home 7.000 02/01/15 263,777
500 New York State Medical Care Facilities Finance Agency Revenue - Hospital 7.450 08/15/31 546,155
and Nursing Home - Series 1991A
300 New York State Medical Care Facilities Finance Agency Revenue - Our Lady 6.625 11/01/16 320,400
of Victory Hospital - Series A
1,120 New York State Medical Care Facilities Finance Agency Revenue - Hospital 5.500 02/15/22 1,058,579
and Nursing Home FHA Insured Mortgage - Series 1993
1,000 New York State Medical Care Facilities Finance Agency - FHA-Insured 6.100 02/15/15 1,010,720
Mortgage Project Revenue - Series 1995 B
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
250 New York City Housing Development Corporation - Multifamily 7.350 06/01/19 268,212
500 New York State Housing Finance Agency Revenue - Multifamily - Series 1992A 7.000 08/15/22 526,240
1,000 New York State Housing Finance Agency Revenue - Multifamily - Series 1994C 6.450 08/15/14 1,035,850
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
1,500 New York State Mortgage Agency Revenue - Homeowner - Series 43 6.450 10/01/17 1,544,550
250 New York State Mortgage Agency Revenue - Homeowner 7.950 10/01/21 265,558
600 New York State Mortgage Agency Revenue - Single Family - Series UU 7.750 10/01/23 643,104
1,000 New York State Mortgage Agency Revenue - Homeowner - Series 46 6.600 10/01/19 1,033,910
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
1,000 Herkimer County, NY Industrial Development Agency Revenue - Burrows 8.000 01/01/09 1,063,020
Paper Recycling
750 Jefferson County, NY Industrial Development Agency - Solid Waste 7.200 12/01/20 791,190
Disposal Revenue - Champion International
350 New York State Energy Research and Development Authority Electric 7.500 01/01/26 378,084
Facility - Consolidated Edison Company - Series A
1,250 New York State Energy Research and Development Authority Electric 7.150 09/01/19 1,254,050
Facility - Long Island Lighting Company - Series 1992 A
500 New York State Energy Research and Development Authority Electric 6.900 08/01/22 489,140
Facility - Long Island Lighting Company - Series 1992 D
</TABLE>
4 New York
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 500 New York State Energy Research and Development Authority - Brooklyn 6.750% 02/01/24 $ 534,085
Union Gas Company - Series 1989B
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------
500 Albany, NY Industrial Development Agency Lease Revenue - New York 7.750 01/01/10 546,380
State Assembly Building - Series A
500 Albany, NY Parking Authority Revenue - Green and Hudson Street Garage - 7.150 09/15/16 549,865
Series A
1,500 Albany, NY Parking Authority Revenue - Series 1992A 0.000 11/01/17 384,135
600 Franklin County, NY Industrial Development Agency Lease Revenue - 6.750 11/01/12 629,772
County Correctional Facility - Series 1992
2,300 Metropolitan Transit Authority of New York - Service Contract Commuter 0.000 07/01/13 762,427
Facilities - Series 1993-7
1,000 Metropolitan Transit Authority of New York -Commuter Facilities Revenue -Series 3 6.000 07/01/19 988,630
500 New York State Dormitory Authority Revenue - Library Facilities Services 7.000 07/01/09 529,430
Contract
2,000 New York State Dormitory Authority Revenue - City University - Series B 6.000 05/15/17 1,980,660
300 New York State Dormitory Authority Revenue - Department of Education 7.750 07/01/21 331,572
500 New York State Dormitory Authority Revenue - State University Athletic Facility 7.250 07/01/21 539,745
250 New York State Dormitory Authority Revenue - Department of Health - 7.250 07/01/21 269,872
Veteran's Home
985 New York State Dormitory Authority Revenue - State University College 7.400 07/01/24 1,099,299
Revenue - Series 1994 X
165 New York State Dormitory Authority Revenue - State University Educational 7.375 05/15/14 178,316
Facilities - Series 1990B
1,500 New York State Dormitory Authority Revenue - Court Facilities Lease - 5.250 05/15/21 1,340,220
Series 1993 A
1,500 New York State Dormitory Authority Revenue - Department of Health - 6.625 07/01/24 1,565,220
Series 1995
1,000 New York State Housing Finance Agency - Service Contract Obligation 6.125 03/15/20 997,980
Revenue - Series 1993 C
250 New York State Municipal Bond Bank Agency Special Program Revenue - 6.875 03/15/06 266,445
Buffalo - Series A
250 New York State Municipal Bond Bank Agency Special Program Revenue - 6.750 03/15/11 268,020
Rochester - Series A
110 New York State Medical Care Facilities Finance Agency Revenue - Mental 7.700 02/15/18 118,476
Health Services - Series A
50 New York State Medical Care Facilities Finance Agency Revenue - Mental 7.750 02/15/20 54,660
Health Services
950 New York State Urban Development Corporation Revenue - Syracuse 7.875 01/01/17 1,022,276
University Center of Science and Technology - Series 1987
1,000 New York State Urban Development Corporation Revenue - Correctional 6.000 01/01/19 988,730
Facilities - Series G
180 New York State Urban Development Corporation Revenue - Onondaga 7.500 01/01/00 197,600
County Convention Center - Series 1990
500 Triborough Bridge and Tunnel Authority New York Revenue - Convention 7.250 01/01/10 562,750
Center Project - Series E
Municipal Revenue/Other
--------------------------------------------------------------------------------------------------------------------
240 New York City Industrial Development Agency Civic Facility Revenue - 6.950 11/01/11 255,209
Federation of Protestant Welfare
</TABLE>
New York 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 500 New York City Industrial Development Agency Civic Facility Revenue - 6.500% 07/01/22 $ 510,605
Lighthouse Incorporated Project
500 New York State Local Government Assistance Corporation 6.500 04/01/15 521,080
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
1,000 Metropolitan Transit Authority of New York - Commuter Facilities Revenue - 6.375 07/01/18 1,053,150
Series 1994 A
1,000 New York City Industrial Development Agency Special Facility Revenue - 6.125 01/01/24 980,760
Terminal One Group Association, L.P. Project - John F. Kennedy - Series 1994
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
1,450 New York State Power Authority Revenue and General Purpose - Series 1991 Z 6.500 01/01/19 1,541,944
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
1,855 New York City Municipal Water Finance Authority - Water and Sewer 6.200 06/15/21 1,907,942
System Revenue - Series C
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
75 Endwell, NY Fire District - General Obligation 7.000 03/01/11 82,757
50 Endwell, NY Fire District - General Obligation 7.000 03/01/12 55,206
50 Endwell, NY Fire District - General Obligation 7.000 03/01/13 55,158
50 Endwell, NY Fire District - General Obligation 7.000 03/01/14 55,146
50 Endwell, NY Fire District - General Obligation 7.000 03/01/15 55,052
50 Endwell, NY Fire District - General Obligation 7.000 03/01/16 55,126
150 Jamestown, NY General Obligation - Series A 7.000 03/15/04 162,132
750 Jamestown, NY General Obligation - Series A 7.000 03/15/05 808,275
275 Leray, NY General Obligation - Public Improvement 7.600 11/15/02 316,266
275 Leray, NY General Obligation - Public Improvement 7.600 11/15/04 318,447
150 Leray, NY General Obligation - Public Improvement 7.600 11/15/06 174,417
225 Minerva, NY Central School District - General Obligation 7.000 06/15/06 253,040
500 New York City General Obligation - Series A 7.750 08/15/04 560,695
1,000 New York City General Obligation - Series B 7.000 08/15/16 1,058,170
40 New York City General Obligation - Series F 8.250 11/15/19 45,792
Resource Recovery
--------------------------------------------------------------------------------------------------------------------
750 Onondaga County, NY Resource Recovery Agency Facility Revenue - Series 1992 7.000 05/01/15 755,858
1,400 Ulster County, NY Resource Recovery Agency - Solid Waste System 6.000 03/01/14 1,328,922
Revenue - Series 1993
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
300 New York State General Obligation 7.300 03/01/12 335,406
710 New York State General Obligation 6.625 11/01/09 759,246
Total Investments in Securities - Municipal Bonds (cost $45,955,512) - 99.2% 48,612,245
Excess of Other Assets over Liabilities - 0.8% 405,315
Total Net Assets - 100.0% $49,017,560
</TABLE>
See notes to financial statements.
6 New York
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $45,955,512) $48,612,245
Receivable for Fund shares sold 89,867
Interest receivable 931,029
Other 6,177
Total assets 49,639,318
LIABILITIES:
Bank borrowings (Note G) 149,273
Payable for Fund shares reacquired 190,370
Distributions payable 241,319
Accrued expenses 40,796
Total liabilities 621,758
NET ASSETS:
Applicable to 4,616,738 shares of beneficial interest
issued and outstanding $49,017,560
Net asset value per share $ 10.62
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 3,111,821
EXPENSES:
Distribution fees (Note E) 189,117
Investment advisory fees (Note E) 236,428
Custody and accounting fees 42,700
Transfer agent's fees 30,430
Registration fees 4,279
Legal fees 730
Audit fees 12,775
Reimbursement of organizational expenses (Note F) 51,410
Trustees' fees 960
Shareholder services fees (Note E) 6,080
Other 3,625
Advisory fees waived (Note E) (236,428)
Expense subsidy (Note E) (138,257)
Total expenses 203,849
Net investment income 2,907,972
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (1,184,251)
Change in unrealized appreciation (depreciation) of investments 2,143,233
Net gain on investments 958,982
Net increase in net assets resulting from operations $ 3,866,954
See notes to financial statements.
New York 7
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS May 31, 1995 May 31, 1994
Operations:
Net investment income $ 2,907,972 $ 2,513,437
Net realized loss on security transactions (1,184,251) (29,731)
Change in unrealized appreciation
(depreciation) of investments 2,143,233 (1,912,792)
Net increase in net assets
resulting from operations 3,866,954 570,914
Distributions to shareholders:
Dividends from net investment income (2,892,313) (2,529,597)
Distributions from net realized capital gains (275,761)
Distributions in excess of net capital gains (361,490)
Net decrease in net assets from
distributions to shareholders (2,892,313) (3,166,848)
Fund share transactions:
Proceeds from shares sold 8,779,466 19,253,098
Net asset value of shares issued in
reinvestment of distributions 1,503,289 1,391,025
Cost of shares reacquired (10,673,547) (3,610,739)
Net (decrease) increase in net assets from Fund
share transactions (390,792) 17,033,384
Total increase in net assets 583,849 14,437,450
NET ASSETS:
Beginning of year 48,433,711 33,996,261
End of year $ 49,017,560 $ 48,433,711
NET ASSETS CONSIST OF:
Paid-in surplus $ 47,920,640 $ 48,311,432
Undistributed net investment income 15,659
Accumulated net realized gain (loss)
on security transactions (1,575,472) (391,221)
Unrealized appreciation (depreciation)
of investments 2,656,733 513,500
$ 49,017,560 $ 48,433,711
See notes to financial statements.
8 New York
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship New York Tax Exempt Fund (Fund) is a sub-trust of the Flagship
Tax Exempt Funds Trust (Trust), a Massachusetts business trust organized on
March 8, 1985. The Fund is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund commenced investment operations on January 16, 1991. Shares of
beneficial interest in the Fund, which are registered under the Securities
Act of 1933, as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were no "when issued" purchase commitments
included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
New York 9
<PAGE>
Notes to Financial Statements
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
Shares sold 865,004 1,755,211
Shares issued in reinvestment
of distributions 148,376 126,553
Shares reacquired (1,060,848) (333,001)
Net (decrease) increase
in shares outstanding (47,468) 1,548,763
Outstanding at beginning
of year 4,664,206 3,115,443
Outstanding at end of year 4,616,738 4,664,206
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995,
aggregated $27,292,797 and $27,268,942, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated 2,656,733 of which $2,805,409 related
to appreciated securities and $148,676 related to depreciated securities.
At May 31, 1995, the Fund has available a capital loss carryforward of
approximately $1,575,500 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly, on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived all of its advisory
fees amounting to $236,428. Also, under an agreement with the Fund, the
Advisor has agreed to subsidize certain expenses (excluding advisory and
distribution fees) until the Fund reaches a sufficient size to maintain a
normal expense ratio to average net assets.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor each
month for its actual expenses incurred in the distribution and promotion of
sales of the Fund's shares. The maximum amount payable for these expenses on
an annual basis is .40% of the Fund's average daily net assets. Included in
accrued expenses at May 31, 1995 are accrued distribution fees of $16,440.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the
Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $242,700 for the year ended May 31, 1995, of which
approximately $210,900 was paid to other dealers. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund (approximately
$257,000) are being reimbursed to the Advisor on a straight-line basis over
a period of five years. As of May 31, 1995, $154,230 has been reimbursed. In
the event that the Advisor's current investment in the Trust falls below
$100,000 prior to the full reimbursement of the organizational expenses,
then it will forego any further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $2
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $82,075, with a weighted
average annualized interest rate of 6.23%. At May 31, 1995, the Fund had
$149,273 borrowings outstanding under the line of credit.
10 New York
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
====================================================================================================================================
Period From
Year Ended Year Ended Year Ended Year Ended January 16, 1991
May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 to May 31, 1991
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.38 $10.91 $10.10 $ 9.69 $9.58
Income from investment operations:
Net investment income 0.62 0.64 0.66 0.68 0.22
Net realized and unrealized gain 0.24 (0.37) 0.88 0.41 0.11
(loss) on securities
Total from investment operations 0.86 0.27 1.54 1.09 0.33
Less distributions:
Dividends from net investment (0.62) (0.64) (0.66) (0.68) (0.22)
income
Distributions from net realized (0.07) (0.07)
capital gains
Distributions in excess of net (0.09)
realized capital gains
Total distributions (0.62) (0.80) (0.73) (0.68) (0.22)
Net asset value, end of year $10.62 $10.38 $10.91 $10.10 $9.69
Total return(a) 8.74% 2.38% 15.87% 11.71% 8.14%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.43% 0.30% 0.28% 0.18% 0.16%
Net investment income 6.15% 5.83% 6.28% 6.89% 6.14%
Assuming no waivers and
reimbursements:
Expenses 1.22% 1.26% 1.44% 1.43% 1.85%
Net investment income 5.36% 4.87% 5.12% 5.64% 4.45%
Net assets at end of year (000's) $49,018 $48,434 $33,996 $20,701 $9,496
Portfolio turnover rate 58.69% 59.70% 45.65% 36.89% 17.41%
(a) The total returns shown do not
include the effect of
applicable front-end sales
charge and are annualized where
appropriate.
</TABLE>
New York 11
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP NEW YORK
TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship New
York Tax Exempt Fund as of May 31, 1995, the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship New
York Tax Exempt Fund at May 31, 1995, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
12 New York
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
--------------------------------------------------------------------------------------------------------------------
$ 2,800 North Carolina Educational Facilities Finance Agency Revenue - Duke 7.400% 10/01/17 $ 2,955,512
University - Series A
165 North Carolina Educational Facilities Finance Agency Revenue - High Point 7.050 12/01/05 179,796
College
175 North Carolina Educational Facilities Finance Agency Revenue - High Point 7.100 12/01/06 190,377
College
2,250 North Carolina Educational Facilities Finance Agency Revenue - Duke 6.750 10/01/21 2,410,425
University - Series 1991C
175 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/02 185,201
195 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/03 205,982
205 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/04 216,105
220 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/05 231,444
235 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/06 246,811
255 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/07 267,370
270 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/08 282,625
295 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/09 308,281
315 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/10 328,570
340 University of North Carolina Asheville Revenue - Dorm and Dining Hall System 7.000 06/01/11 354,450
295 University of North Carolina Chapel Hill Revenue - Student Recreation 7.000 06/01/08 325,922
Center Series 1991
Hospitals
--------------------------------------------------------------------------------------------------------------------
6,750 Charlotte-Mecklenburg, NC Hospital Authority - Health Care System 6.250 01/01/20 6,906,870
Revenue - Series 1992
1,035 Charlotte-Mecklenburg, NC Hospital Authority - Health Care System 6.000 01/01/22 1,045,288
Revenue - Series 1992
2,500 Craven, NC Regional Medical Authority - Health Care Facilities Revenue 5.625 10/01/17 2,485,625
3,900 North Carolina Medical Care Commission Health Care Facilities Revenue - 7.250 02/15/19 4,108,650
Gaston Health Care Support
2,055 North Carolina Medical Care Commission Health Care Facilities Revenue - 7.800 10/01/19 2,177,416
Stanly Memorial Hospital
1,500 North Carolina Medical Care Commission Hospital Revenue - Rex Hospital - 6.250 06/01/17 1,522,245
Series 1993
4,300 North Carolina Medical Care Commission Hospital Revenue - Presbyterian 5.500 10/01/20 4,146,017
Health Services - Series 1993
1,000 North Carolina Medical Care Commission Hospital Revenue - Scotland 5.375 10/01/11 947,350
Memorial Hospital - Series 1993
1,000 North Carolina Medical Care Commission Hospital Revenue - Annie Pen 7.500 08/15/21 1,032,030
Memorial Hospital - Series 1991
1,100 North Carolina Medical Care Commission Hospital Revenue - Alamance 6.375 08/15/20 1,150,886
Health Services - Series 1992A
275 North Carolina Medical Care Commission Hospital Revenue - Halifax 6.750 08/15/14 272,624
Memorial Hospital - Series 1992
1,000 North Carolina Medical Care Commission Hospital Revenue - Halifax 6.750 08/15/24 977,420
Memorial Hospital - Series 1992
2,200 North Carolina Medical Care Commission Hospital Revenue - Roanoke- 7.750 10/01/19 2,318,536
Chowan Hospital
</TABLE>
4 North Carolina
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 600 North Carolina Medical Care Commission Hospital Revenue - Transylvania 8.000% 10/01/19 $ 635,772
Community Hospital
1,000 North Carolina Medical Care Commission Hospital Revenue - Mercy 6.500 08/01/15 1,017,120
Hospital - Series 1992
3,400 North Carolina Medical Care Commission Hospital Revenue - Community 8.100 10/01/15 3,776,006
Hospital Thomasville
1,500 Northern Hospital District Surry County, NC Hospital Revenue - Series 1991 7.875 10/01/21 1,573,875
1,785 Pitt County, NC Revenue - Pitt County Memorial Hospital - Series A 6.900 12/01/21 1,914,698
1,000 Pitt County, NC Revenue - Pitt County Memorial Hospital - Series B 6.750 12/01/14 1,083,320
1,955 Stokes County, NC Hospital Revenue - Stokes-Reynolds Memorial Hospital 8.000 01/01/07 2,059,456
1,750 University of North Carolina Hospital Chapel Hill - Series 1992 6.000 02/15/24 1,709,995
500 Wake County, North Carolina Hospital Revenue 7.400 10/01/16 541,240
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
1,495 Charlotte, NC Housing Development Corporation Mortgage Revenue - 6.600 07/15/21 1,524,676
Vantage 78 Apartments - Series 1994
620 North Carolina Housing Finance Agency - Multifamily - Series 1992B 6.900 07/01/24 647,571
7,535 North Carolina Housing Finance Agency - Multifamily Revenue - Series D 0.000 07/01/28 291,831
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
1,050 North Carolina Housing Finance Agency - Single Family Revenue - Series C 8.000 03/01/17 1,107,393
590 North Carolina Housing Finance Agency - Single Family Revenue - Series D 8.200 09/01/07 631,341
550 North Carolina Housing Finance Agency - Single Family Revenue - Series E 8.125 09/01/19 587,510
1,075 North Carolina Housing Finance Agency - Single Family Revenue - Series G 7.800 03/01/21 1,141,263
970 North Carolina Housing Finance Agency - Single Family Revenue - Series O 7.600 03/01/21 1,017,190
2,000 North Carolina Housing Finance Agency - Single Family Revenue - Series Y 6.350 03/01/18 2,056,440
2,250 North Carolina Housing Finance Agency - Single Family Revenue - 1985 6.500 09/01/26 2,281,050
Resolution - Series BB
885 Winston Salem, NC Single Family Housing Revenue 8.000 09/01/07 927,161
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
1,400 Gaston County, NC Industrial Facilities and Pollution Control Financing 8.850 11/01/15 1,525,440
Authority - Combustion Engineering Project
1,900 Martin County, NC Industrial Facilities and Pollution Control Finance 7.250 09/01/14 2,048,485
Authority Revenue - Solid Waste Disposal - Weyerhaeuser
6,000 Martin County, NC Industrial Facilities and Pollution Control Finance 6.800 05/01/24 6,306,360
Authority Revenue - Solid Waste Disposal - Weyerhaeuser - Series 1994
1,100 New Hanover County, NC Industrial Facilities and Pollution Control 6.700 07/01/19 1,109,581
Financing Authority Revenue - Occidental Petroleum - Series 1992
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------
1,500 Buncombe County, NC Certificates of Participation - Series 1992 6.625 12/01/10 1,614,390
3,000 Durham, NC Certificates of Participation - Hospital and Office - Series 1994 6.000 05/01/14 3,038,160
1,500 Durham, NC Certificates of Participation - Hospital and Office - Series 1994 6.000 05/01/17 1,509,450
705 Durham, NC Certificates of Participation 7.250 09/01/10 777,946
1,000 Durham, NC Certificates of Participation 6.750 12/01/11 1,078,190
1,000 Harnett County, NC Certificates of Participation - Harnett County Project - 6.200 12/01/06 1,089,360
Series 1994
</TABLE>
North Carolina 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,750 Harnett County, NC Certificates of Participation - Harnett County Project - 6.200% 12/01/09 $1,861,055
Series 1994
500 Harnett County, NC Certificates of Participation - Harnett County Project - 6.400 12/01/14 533,140
Series 1994
1,000 Pitt County, NC Certificates of Participation 6.900 04/01/08 1,094,120
900 Scotland County, NC Certificates of Participation - Jail/Courthouse 6.750 03/01/11 979,065
715 Stokes County, NC Certificates of Participation 7.000 03/01/06 787,322
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
2,475 Commonwealth of Puerto Rico Highway and Transportation Authority 5.250 07/01/20 2,271,629
Revenue - Series 1993 W
4,000 Commonwealth of Puerto Rico Highway and Transportation Authority 5.250 07/01/21 3,665,720
Revenue - Series 1993 X
1,700 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/18 1,797,427
Revenue - Series 1992 T
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
1,250 Concord, NC Utilities System Revenue - Series 1993 5.750 12/01/17 1,259,088
1,000* Fayetteville, NC Public Works Commission Revenue - Series 1995 A 5.375 03/01/20 958,350
1,250 Gastonia, NC Combined Utilities System Revenue - Series 1994 6.000 05/01/14 1,287,262
1,880 Gastonia, NC Combined Utilities System Revenue - Series 1994 6.100 05/01/19 1,937,302
2,000 Greenville, NC Utilities Commission Combined Enterprise System Revenue - 6.000 09/01/16 2,035,780
Series 1994
2,000 North Carolina Eastern Municipal Power Agency Revenue - Series 1993B 6.250 01/01/12 1,989,660
5,300 North Carolina Eastern Municipal Power Agency Revenue - Series 1993B 6.000 01/01/18 5,507,018
505 North Carolina Eastern Municipal Power Agency Revenue - Series 1991A 6.500 01/01/18 527,018
1,000 North Carolina Eastern Municipal Power Agency Revenue - Series A 7.250 01/01/21 1,045,290
700 North Carolina Municipal Power Agency Number 1 - Catawba Electric Revenue 7.000 01/01/16 732,788
3,500 North Carolina Municipal Power Agency Number 1 - Catawba Electric Revenue 7.500 01/01/17 3,782,275
2,500 North Carolina Municipal Power Agency Number 1 - Catawba Electric Revenue - 6.200 01/01/18 2,574,425
Series 1992
355 North Carolina Municipal Power Agency Number 1 - Catawba Electric Revenue 7.625 01/01/14 386,009
2,000 North Carolina Municipal Power Agency Number 1 - Catawba Electric 0.000 01/01/10 877,440
Revenue - Series 1992
6,000 North Carolina Municipal Power Agency Number 1 - Catawba Electric 0.000 01/01/09 2,818,620
Revenue - Series 1992
4,315 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 4,407,557
5,000 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 S 6.125 07/01/09 5,208,450
1,115 Shelby, NC Combined Revenue Producing Facilities System - Series 1992 6.625 06/01/12 1,192,916
1,000 Shelby, NC Combined Revenue Producing Facilities System - Series 1992 6.625 06/01/17 1,059,380
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
750 Buncombe County, NC Metropolitan Sewer District - Series 1993A 5.500 07/01/22 741,615
662 Woodfin, NC Treatment Facilities - Certificates of Participation - Series 1993 5.500 12/01/03 670,934
</TABLE>
6 North Carolina
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
$ 800 Rutherford County, NC Public Facilities - Certificates of Participation - 6.000% 06/01/09 $ 839,416
Series 1994
100 Spindale, NC Sanitary Sewer Revenue 7.600 02/01/07 108,847
100 Spindale, NC Sanitary Sewer Revenue 7.600 02/01/08 108,847
200 Spindale, NC Sanitary Sewer Revenue 7.600 02/01/09 217,694
1,410 Union City, NC Certificates of Participation - Series 1992 6.375 04/01/12 1,521,531
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
145 Asheville, NC Housing Development Corporation Revenue - Ashville Gardens 10.500 05/01/11 185,026
1,000 Buncombe County, NC Metropolitan Sewer District - Series 1992B 6.750 07/01/16 1,137,290
3,300 Charlotte-Mecklenburg, NC Hospital Authority - Health Care System 7.875 10/01/15 3,621,816
Revenue - Series G
3,000 Charlotte, NC Certificates of Participation - Convention Facilities Project 6.750 12/01/21 3,399,840
600 Cleveland County, NC General Obligation 7.200 06/01/08 679,686
1,300 Cleveland County, NC General Obligation 7.200 06/01/09 1,472,653
2,300 Cleveland County, NC General Obligation 7.200 06/01/10 2,605,463
1,900 Craven, NC Regional Medical Authority - Health Care Facilities Revenue 7.200 10/01/19 2,164,803
750 Cumberland County, NC Hospital Facilities Revenue 7.875 10/01/14 843,885
1,450 Greensboro, NC Certificates of Participation - Greensboro Center City 7.900 07/01/09 1,621,898
Corporation
500 North Carolina Eastern Municipal Power Agency Revenue - Series A 7.625 01/01/23 548,905
690 North Carolina Eastern Municipal Power Agency Revenue - Series A 7.500 01/01/21 770,502
500 North Carolina Eastern Municipal Power Agency Revenue - Series A 7.250 01/01/23 554,235
3,590 North Carolina Eastern Municipal Power Agency Revenue 8.000 01/01/21 3,972,766
490 North Carolina Eastern Municipal Power Agency Revenue 8.000 01/01/21 542,244
995 North Carolina Eastern Municipal Power Agency Revenue - Series 1991A 6.500 01/01/18 1,113,017
115 North Carolina Medical Care Commission Hospital Revenue - Memorial 7.625 10/01/08 134,056
Mission Hospital
2,000 North Carolina Medical Care Commission Hospital Revenue - Carolina 7.875 05/01/15 2,170,020
Medicorp - Series A
280 North Carolina Medical Care Commission Hospital Revenue - Scotland 8.000 10/01/97 301,902
Memorial Hospital
190 North Carolina Medical Care Commission Hospital Revenue - Scotland 8.100 10/01/98 210,687
Memorial Hospital
200 North Carolina Medical Care Commission Hospital Revenue - Scotland 8.150 10/01/99 225,792
Memorial Hospital
1,000 North Carolina Medical Care Commission Hospital Revenue - Scotland 8.625 10/01/11 1,143,170
Memorial Hospital
600 North Carolina Municipal Power Agency Number 1 - Catawba Electric Revenue 7.875 01/01/19 662,316
700 Pender County, NC Certificates of Participation - Series 1991 7.700 06/01/11 820,085
500 Commonwealth of Puerto Rico - General Obligation 7.750 07/01/06 558,245
2,000 Commonwealth of Puerto Rico - General Obligation 7.750 07/01/13 2,232,980
780 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 876,447
2,650 Commonwealth of Puerto Rico Electric Power Authority - Series K 9.375 07/01/17 2,969,590
200 Commonwealth of Puerto Rico Electric Power Authority - Series M 8.000 07/01/08 224,730
295 University of North Carolina Charlotte Revenue - Housing and Dining 7.500 01/01/04 322,683
System - Series K
200 Washington County, NC General Obligation 7.600 03/01/08 220,372
200 Washington County, NC General Obligation 7.600 03/01/09 220,372
</TABLE>
North Carolina 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Resource Recovery
--------------------------------------------------------------------------------------------------------------------
$ 1,000 Coastal Regional, NC Solid Waste Management Authority System Revenue - 6.500% 06/01/08 $ 1,042,140
Series 1992
1,000 Coastal Regional, NC Solid Waste Management Authority System Revenue - 6.300 06/01/04 1,068,630
Series 1992
1,250 Iredell County, NC Solid Waste System - Series 1992 6.250 06/01/12 1,281,075
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
2,450 Commonwealth of Puerto Rico Infrastructure Financing Authority - Series A 7.750 07/01/08 2,708,377
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
220 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 245,505
1,000 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.350 07/01/10 1,044,450
2,000 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.400 07/01/11 2,098,640
1,000 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - 7.900 07/01/07 1,114,010
Series A
850 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - 7.875 07/01/17 946,305
Series A
4,000 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 5.500 07/01/21 3,823,920
Education and Health Facilities - Series M
Total Investments in Securities - Municipal Bonds (cost $182,887,218) - 98.6% 195,087,616
Excess of Other Assets over Liabilities - 1.4% 2,811,612
Total Net Assets - 100.0% $197,899,228
</TABLE>
*Securities purchased on a "when issued" basis.
See notes to financial statements.
8 North Carolina
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $182,887,218) $195,087,616
Cash 723,560
Receivable for Fund shares sold 255,714
Interest receivable 4,022,092
Other 17,985
Total assets 200,106,967
LIABILITIES:
Payable for investments purchased 954,164
Payable for Fund shares reacquired 151,422
Distributions payable 927,614
Accrued expenses 174,539
Total liabilities 2,207,739
NET ASSETS $197,899,228
Class A:
Applicable to 18,752,370 shares of beneficial interest $191,850,319
issued and outstanding
Net asset value per share $10.23
Class C:
Applicable to 592,086 shares of beneficial interest $ 6,048,909
issued and outstanding
Net asset value per share $10.22
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $12,809,812
EXPENSES:
Distribution fees - Class A (Note E) 752,253
Distribution fees - Class C (Note E) 46,826
Investment advisory fees (Note E) 964,933
Custody and accounting fees 117,550
Transfer agent's fees 135,475
Registration fees 6,874
Legal fees 3,103
Audit fees 18,250
Trustees' fees 3,642
Shareholder services fees (Note E) 20,672
Other 8,850
Advisory fees waived (Note E) (289,460)
Total expenses 1,788,968
Net investment income 11,020,844
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (2,530,209)
Change in unrealized appreciation 5,165,137
(depreciation) of investments
Net gain on investments 2,634,928
Net increase in net assets resulting from operations $13,655,772
See notes to financial statements.
North Carolina 9
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS May 31, 1995 May 31, 1994
Operations:
Net investment income $ 11,020,844 $ 10,450,256
Net realized loss on security transactions (2,530,209) (1,400,122)
Change in unrealized appreciation 5,165,137 (7,815,258)
(depreciation) of investments
Net increase in net assets 13,655,772 1,234,876
resulting from operations
Distributions to shareholders:
Dividends from net investment income - (10,778,846) (10,462,482)
Class A
Dividends from net investment income - (253,254) (79,449)
Class C
Net decrease in net assets from distributions (10,778,846) (10,462,482)
to shareholders - Class A
Net decrease in net assets from distributions (253,254) (79,449)
to shareholders - Class C
Fund share transactions:
Proceeds from shares sold - Class A 19,667,401 44,195,511
Proceeds from shares sold - Class C 2,635,090 4,387,771
Net asset value of shares issued in 6,006,500 5,896,453
reinvestment of distributions - Class A
Net asset value of shares issued in 158,840 42,926
reinvestment of distributions - Class C
Cost of shares reacquired - Class A (32,425,504) (14,861,362)
Cost of shares reacquired - Class C (1,015,075) (50,291)
Net (decrease) increase in net assets from (6,751,603) 35,230,602
Fund share transactions - Class A
Net increase in net assets from Fund 1,778,855 4,380,406
share transactions - Class C
Total (decrease) increase in net assets (2,349,076) 30,303,953
NET ASSETS:
Beginning of year 200,248,304 169,944,351
End of year $197,899,228 $200,248,304
NET ASSETS CONSIST OF:
Paid-in surplus $191,317,382 $196,301,386
Accumulated net realized gain (loss) (5,618,552) (3,088,343)
on security transactions
Unrealized appreciation (depreciation) 12,200,398 7,035,261
of investments
$197,899,228 $200,248,304
See notes to financial statements.
10 North Carolina
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship North Carolina Triple Tax Exempt Fund (Fund) is a sub-trust of
the Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on March 27, 1986. On
October 4, 1993, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C
shares are sold with no front-end sales charge but are assessed a
contingent deferred sales charge if redeemed within one year from the time
of purchase. Both classes of shares have identical rights and privileges
except with respect to the effect of sales charges, the distribution and/or
service fees borne by each class, expenses specific to each class, voting
rights on matters affecting a single class and the exchange privilege of
each class. Shares of beneficial interest in the Fund, which are registered
under the Securities Act of 1933, as amended, are offered to the public on
a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
tax-exempt net investment income and realized gains on security
transactions. Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of
certain book-to-tax timing differences is presented as excess distributions
in the statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and
losses on security transactions are determined on the identified cost
basis. Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and
estimated expenses are accrued daily. Daily dividends are declared from net
investment income and paid monthly. Net realized gains from security
transactions, to the extent they exceed available capital loss
carryforwards, are distributed to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets
of each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of
North Carolina 11
<PAGE>
Notes to Financial Statements
================================================================================
securities as collateral, purchase and sell portfolio securities on a
"when issued" basis. These securities are registered by a municipality or
government agency, but have not been issued to the public. Delivery and
payment take place after the date of the transaction and such securities
are subject to market fluctuations during this period. The current market
value of these securities is determined in the same manner as other
portfolio securities. There were $950,730 "when issued" purchase
commitments included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in
shares were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 2,002,418 4,152,847
Shares issued in reinvestment
of distributions 607,677 557,135
Shares reacquired (3,316,397) (1,425,880)
Net (decrease) increase
in shares outstanding (706,302) 3,284,102
Outstanding at beginning
of year 19,458,672 16,174,570
Outstanding at end of year 18,752,370 19,458,672
Period From
Year Ended October 4, 1993
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 266,917 414,239
Shares issued in reinvestment
of distributions 16,107 4,135
Shares reacquired (104,445) (4,867)
Net increase in shares
outstanding 178,579 413,507
Outstanding at beginning
of period 413,507 - 0 -
Outstanding at end of period 592,086 413,507
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $66,220,298 and $70,442,367, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting
and federal income tax purposes aggregated $12,200,398 of which $12,259,227
related to appreciated securities and $58,829 related to depreciated
securities.
At May 31,1995, the Fund has available capital loss carryforwards of
approximately $5,618,600 to offset future net capital gains in the amounts
of $1,577,600 through May 31,1996, $104,100 through May 31, 1997, $5,200
through May 31, 1998, $600 through May 31, 1999, $1,400,900 through May 31,
2002, and $2,530,200 through May 31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities
to the Fund, receives fees computed monthly on the average daily net assets
of the Fund at an annualized rate of 1/2 of 1%. During the year ended May
31, 1995, the Advisor, at its discretion, permanently waived $289,460 of
its advisory fees. Included in accrued expenses at May 31, 1995 are accrued
advisory fees of $58,305.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity
is responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in
the
12 North Carolina
<PAGE>
Notes to Financial Statements
================================================================================
distribution and promotion of all classes of the Fund's shares. The
maximum amount payable for these expenses on an annual basis is .40% and
.95% of the Fund's average daily net assets for Class A and Class C shares,
respectively. Included in accrued expenses at May 31, 1995 are accrued
distribution fees of $64,601 and $4,828 for Class A and Class C shares,
respectively. Certain non-promotional expenses directly attributable to
current shareholders are aggregated by the Distributor and passed through
to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of
the Fund, the Distributor received commissions on sales of the Fund's Class
A shares of approximately $438,500 for the year ended May 31, 1995, of
which approximately $391,600 was paid to other dealers. For the year ended
May 31, 1995, the Distributor received approximately $4,500 of contingent
deferred sales charges on redemptions of Class C shares. Certain officers
and trustees of the Funds are also officers and/or directors of the
Distributor and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $10
million under the line of credit. Borrowings are collateralized with
pledged securities and are due on demand with interest at 1% above the
federal funds rate. The average daily amount of borrowings under the line
of credit during the year ended May 31, 1995 was approximately $374,047,
with a weighted average annualized interest rate of 6.29%. At May 31, 1995,
the Fund had no borrowings outstanding under the line of credit.
North Carolina 13
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.08 $10.51 $9.97 $9.70 $9.46
Income from investment operations:
Net investment income 0.57 0.57 0.58 0.60 0.61
Net realized and unrealized gain 0.15 (0.42) 0.55 0.27 0.24
(loss) on securities
Total from investment operations 0.72 0.15 1.13 0.87 0.85
Less distributions:
Dividends from net investment (0.57) (0.58) (0.59) (0.60) (0.61)
income
Total distributions (0.57) (0.58) (0.59) (0.60) (0.61)
Net asset value, end of year $10.23 $10.08 $10.51 $9.97 $9.70
Total return(a) 7.45% 1.30% 11.66% 9.30% 9.28%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.91% 0.89% 0.95% 0.98% 0.99%
Net investment income 5.73% 5.41% 5.70% 6.10% 6.36%
Assuming no waivers and
reimbursements:
Expenses 1.06% 1.04% 1.04% 1.05% 1.06%
Net investment income 5.58% 5.26% 5.61% 6.03% 6.29%
Net assets at end of year (000's) $191,850 $196,087 $169,944 $131,488 $108,917
Portfolio turnover rate 34.67% 21.23% 11.52% 16.91% 11.52%
(a) The total returns shown do not
include the effect of
applicable front-end sales
charge.
</TABLE>
14 North Carolina
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
===============================================================================
Period From
Year Ended October 4, 1993 to
CLASS C May 31, 1995 May 31, 1994
--------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.06 $10.84
Income from investment operations:
Net investment income 0.51 0.32
Net realized and unrealized gain 0.16 (0.78)
(loss) on securities
Total from investment operations 0.67 (0.46)
Less distributions:
Dividends from net investment (0.51) (0.32)
income
Total distributions (0.51) (0.32)
Net asset value, end of period $10.22 $10.06
Total return(a) 6.97% (6.26%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.46% 1.49%
Net investment income 5.13% 4.65%
Assuming no waivers and
reimbursements:
Expenses 1.61% 1.79%
Net investment income 4.98% 4.35%
Net assets at end of period (000's) $6,049 $4,161
Portfolio turnover rate 34.67% 21.23%
(a) The total return shown does
not include the effect of
applicable contingent deferred
sales charge and is annualized
where appropriate.
North Carolina 15
</TABLE>
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP NORTH CAROLINA
TRIPLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship North
Carolina Triple Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship North
Carolina Triple Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
16 North Carolina
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 300 Miami University, OH General Receipts 0.000% 12/01/06 $ 164,202
450 Miami University, OH General Receipts 0.000 12/01/08 216,608
1,000 Miami University, OH General Receipts - Series 1993 5.600 12/01/13 1,006,300
2,050 Miami University Ohio State University Revenue 6.900 12/01/04 2,203,709
2,025 Ohio State Higher Educational Facilities Commission Revenue - University 6.600 12/01/17 2,207,392
of Dayton - Series 1992
2,545 Ohio State Higher Educational Facilities Commission Revenue - Case 7.625 10/01/08 2,759,213
Western Reserve
750 Ohio State Higher Educational Facilities Commission Revenue - Case 6.500 10/01/20 842,910
Western Reserve University - Series 1990
1,870 Ohio State Higher Educational Facilities Commission Revenue - Case 7.125 10/01/14 2,025,378
Western Reserve University - Series 1990
1,900 Ohio State Public Facilities Commission Higher Education - Series A 7.250 05/01/04 2,095,700
750 University of Puerto Rico System Revenue - Series 1995 N 5.250 06/01/25 712,050
4,000 University of Puerto Rico System Revenue - Series 1995 N 0.000 06/01/09 1,876,480
1,230 Youngstown, OH State University General Receipts - State University of 6.000 12/15/16 1,265,027
Ohio - Series 1994 A
Health Care
---------------------------------------------------------------------------------------------------------------------
4,030 Cuyahoga County, OH Health Care Facilities Revenue - Altenheim Nursing Home 9.280 06/01/15 4,575,380
2,600 Franklin County, OH Industrial Development Revenue - First Community 5.600 08/01/21 2,367,820
Village - Series 1993 A
2,825 Warren County, OH Hospital Facility Improvement Revenue - Otterbein 7.200 07/01/11 3,057,441
Home Project
Hospitals
---------------------------------------------------------------------------------------------------------------------
500 Athens County, OH Community Mental Health Hospital - West Center - 6.900 06/01/10 531,520
Series I
3,000 Barberton, OH Hospital Facilities - Barberton Citizens Hospital - Series 1992 7.250 01/01/12 3,216,480
500 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 8.000 12/01/06 539,225
1,000 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 8.000 12/01/11 1,069,170
670 Clark County, OH Hospital Improvement Revenue - Community Hospital - 9.100 04/01/97 692,016
Series A
1,000 Clermont County, OH Hospital Facilities Revenue - Mercy Health Care System 9.750 09/01/13 1,032,640
1,000 Clermont County, OH Hospital Facilities Revenue - Mercy Health Care 5.875 09/01/15 1,005,630
System - Series 1993 B
3,000 Cuyahoga County, OH Hospital Facilities Revenue - Fairview 5.500 08/15/14 2,975,130
General Hospital - Series 1994
250 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 6.250 08/15/14 255,978
5,500 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 6.250 08/15/24 5,574,360
7,000 Cuyahoga County, OH Hospital Facilities Revenue - Cleveland Clinic Foundation 8.000 12/01/15 7,579,320
2,000 Cuyahoga County, OH Hospital Facilities Revenue - University Hospital 6.875 01/15/19 2,155,520
Health System
3,000 Cuyahoga County, OH Hospital Facilities Revenue - Meridia Health System 7.250 08/15/19 3,195,420
650 Cuyahoga County, OH Hospital Facilities Revenue - Mt. Sinai Medical Center 6.625 11/15/21 697,690
900 Cuyahoga County, OH Hospital Improvement Revenue - University 6.500 01/15/19 922,257
Hospitals Health System, Incorporated Project - Series 1992
</TABLE>
4 Ohio
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,500 Cuyahoga County, OH Hospital Facilities Revenue - Fairview General 6.250% 08/15/10 $ 1,608,075
Hospital - Series 1993
2,000 Cuyahoga County, OH Industrial Development Revenue - University Health 7.300 08/01/11 2,206,620
Care Center
2,010 Erie County, OH Hospital Improvement Revenue - Firelands Community 6.750 01/01/08 2,104,370
Hospital - Series 1992
2,000 Fairfield County, OH Hospital Improvement Revenue - Lancaster and 5.375 06/15/12 1,959,500
Fairfield Hospitals
2,000 Fairfield County, OH Hospital Improvement Revenue - Lancaster and 5.500 06/15/21 1,948,640
Fairfield Hospitals
7,000 Franklin County, OH Hospital Facilities Refunding Revenue - Riverside 5.750 05/15/20 6,972,140
United Methodist Hospital - Series 1993 A
1,350 Franklin County, OH Hospital Facilities Refunding Revenue - Riverside 7.250 05/15/20 1,503,022
United Methodist Hospital
1,500 Franklin County, OH Hospital Revenue - Holy Cross Hospital 7.625 06/01/09 1,698,660
3,500 Garfield Heights, OH Hospital and Improvement Revenue - Marymont 6.700 11/15/15 3,649,065
Hospital - Series 1992 A
500 Geauga County, OH Hospital Improvement Revenue - Geauga Hospital 8.700 11/15/04 543,065
Association
1,200 Geauga County, OH Hospital Improvement Revenue - Geauga Hospital 8.750 11/15/13 1,302,804
Association
3,000 Hamilton County, OH Hospital Facilities Revenue - Bethesda Hospital - 6.250 01/01/12 3,053,820
Series 1992A
1,470 Hamilton County, OH Health System Revenue - Providence Hospital - Series 1992 6.875 07/01/15 1,459,592
2,325 Hancock County, OH Hospital Revenue - Blanchard Valley Hospital 7.625 11/15/14 2,535,622
2,000 Lake County, OH Hospital Facilities Revenue - Lake Hospital System - 5.500 08/15/20 1,949,240
Series 1993
3,860 Lorain, OH Hospital Revenue - Lakeland Community Hospital - Series 1992 6.500 11/15/12 3,952,872
1,500 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series A 8.125 12/01/11 1,615,095
2,750 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 6.125 12/01/13 2,586,430
2,900 Lucas County, OH Hospital Improvement Revenue - St. Vincent Medical 5.250 08/15/12 2,773,125
Center - Series 1993 B
6,500 Lucas County, OH Hospital Improvement Revenue - St. Vincent Medical 5.250 08/15/20 6,118,840
Center - Series 1993 B
4,140 Lucas County, OH Hospital Improvement Revenue - St. Vincent Medical 5.250 08/15/22 3,889,033
Center - Series 1993 C
2,750 Mahoning County, OH Hospital Facilities Improvement Revenue - YHA Project 7.000 10/15/14 3,041,500
500 Mansfield, OH Hospital Improvement Revenue - Mansfield General Hospital 6.700 12/01/09 546,930
1,250 Maumee, Ohio Hospital Facilities Revenue - St. Luke's Hospital - Series 1994 5.800 12/01/14 1,259,388
4,875 Miami County, OH Hospital Facilities Revenue - Upper Valley Medical 8.375 05/01/13 5,296,102
Center - Series A
3,000 Middleburg Heights, OH Hospital Improvement Revenue - Southwest 7.200 08/15/19 3,209,310
General Hospital
2,750 Montgomery County, OH Hospital Revenue - Miami Valley Hospital - Series A 9.375 12/01/05 2,877,435
3,250 Montgomery County, OH Hospital Revenue - Miami Valley Hospital - Series 6.250 11/15/16 3,379,188
1992A
2,500 Montgomery County, OH Hospital Revenue - Sisters of Charity Health Care 6.250 05/15/08 2,663,925
Systems - Series 1992A
</TABLE>
Ohio 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,000 Richland County, OH Hospital Improvement Revenue - Mansfield General 9.375% 12/01/09 $ 1,043,520
Hospital
1,725 Shelby County, OH Hospital Facilities and Improvement Revenue - Wilson 7.700 09/01/18 1,814,338
Memorial Hospital
1,750 Trumbull County, OH Hospital Revenue - Trumbull Memorial Hospital - 6.900 11/15/12 1,927,345
Series B
1,500 Washington County, OH Hospital Facilities Revenue - Marietta Area Health 7.375 09/01/12 1,576,650
Care Project
1,500 Westerville, OH Minerva Park and Blendon Joint Township Hospital District 7.100 09/15/21 1,675,380
Improvement Revenue - St. Ann's Hospital - Series 1991A
Housing/Multifamily
---------------------------------------------------------------------------------------------------------------------
2,500 Fairlawn, OH Health Care Facilities Revenue - The Village at St. Edward 8.750 10/01/19 2,702,750
1,000 Ohio Capital Corporation for Housing - Multifamily Revenue 7.500 11/01/11 1,079,190
3,000 Ohio Capital Corporation for Housing - Multifamily Revenue 7.600 11/01/23 3,202,440
Housing/Single Family
---------------------------------------------------------------------------------------------------------------------
2,000 Ohio Housing Finance Agency - Residential Mortgage Revenue - GNMA 6.100 09/01/14 2,024,100
Mortgage-Backed Securities Program - Series 1994 A-2
5,270 Ohio Housing Finance Agency - Residential Mortgage Revenue - GNMA 6.375 09/01/14 5,451,183
Mortgage-Backed Securities Program - Series 1994 B-1
40 Ohio Housing Finance Agency - Single Family Mortgage Revenue - Series A 11.375 08/01/14 41,445
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
2,125 Ashtabula County, OH Industrial Development Revenue - Ashland Oil - Series A 6.900 05/01/10 2,225,576
5,770 Cuyahoga County, OH Improvement Revenue - Medical Center Corporation 7.800 06/01/09 6,059,135
7,000 Ohio State Air Quality Development Authority Revenue - Columbus 6.250 12/01/20 6,724,550
Southern Power Company - Series 1985 B
285 Ohio State Air Quality Development Authority Revenue - Cincinnati Gas and 10.125 12/01/15 299,903
Electric
4,000 Ohio State Air Quality Development Authority Revenue - Dayton Power and 9.500 12/01/15 4,195,280
Light Company
4,900 Ohio State Air Quality Development Authority Revenue - Ohio Power 7.400 08/01/09 5,135,739
Company - Series B
1,000 Ohio State Air Quality Development Authority - Ashland Oil, Inc. - Series 1992 6.850 04/01/10 1,031,620
500 Ohio State Air Quality Development Authority Revenue - Pollution Control 6.150 08/01/23 517,095
Revenue - Pennsylvania Power Company - Series 1994
4,500 Ohio State Water Development Authority Revenue - Cincinnati Gas - Series 5.450 01/01/24 4,378,995
1994 A
7,050 Ohio State Water Development Authority Pollution Control Revenue - Ohio 7.625 07/01/23 7,254,098
Edison Company
2,700 Ohio State Air Quality Development Authority Revenue - Pollution Control 6.150 08/01/23 2,787,831
Revenue - Pennsylvania Power Company - Series 1994
1,000 Summitt County, OH Industrial Development Authority Revenue - Century 7.750 11/01/05 1,061,710
Products Inc.
1,650 Toledo-Lucas County, OH Port Authority Revenue - Cargill - Series 1992 7.250 03/01/22 1,808,218
</TABLE>
6 Ohio
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Appropriation Obligations
---------------------------------------------------------------------------------------------------------------------
$ 190 Ohio State Building Authority - Columbus State Office Building - Series B 8.800% 04/01/00 $ 198,449
2,600 Ohio State Building Authority - James A. Rhodes State Office Tower - Series 6.250 06/01/11 2,706,080
1991A
1,500 Ohio State Building Authority - Correctional Facilities - Series B 7.125 09/01/09 1,573,200
1,500 Ohio State Building Authority Facilities - Juvenile Correction Building Fund 6.600 10/01/14 1,645,230
Projects - Series 1994 A
1,100 Ohio State Department of Transportation - Certificates of Participation - 6.500 04/15/12 1,180,322
Panhandle Rail Line
Municipal Revenue/Other
---------------------------------------------------------------------------------------------------------------------
400 Springboro, OH Certificates of Participation - Special Obligation - Series 1993 7.150 12/01/10 404,840
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
5,910 Commonwealth of Puerto Rico Highway and Transportation Authority 5.250 07/01/20 5,424,375
Revenue - Series 1993 W
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
6,800 Cleveland, OH Public Power System Improvement Revenue - Series A 7.000 11/15/24 7,830,268
10,685 Cleveland, OH Public Power System First Mortgage Revenue - Series 1994 7.000 11/15/17 11,925,315
1,900 Cleveland, OH Public Power System First Mortgage Revenue - Series 1994 7.000 11/15/17 2,120,552
1,545 Commonwealth of Puerto Rico Electric Power Authority - Series O 0.000 07/01/17 398,255
4,000 Commonwealth of Puerto Rico Electric Power Authority - Series P 7.000 07/01/21 4,401,160
4,000 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.375 07/01/24 4,139,520
2,150 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.000 07/01/16 2,155,010
1,000 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 U 6.000 07/01/14 1,003,950
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
1,000 Delphos, OH Sewer System Revenue 7.250 09/01/20 1,111,990
1,200 Greenville, OH Wastewater System Mortgage Revenue - Darke County - 6.350 12/01/17 1,275,600
Series 1992
1,000 Hamilton, OH Waterworks Revenue - Series A 6.400 10/15/10 1,070,050
775 Hubbard, OH - Sewer System Mortgage Revenue 8.800 11/15/17 860,490
1,075 Lorain, OH Sewer System Revenue 8.750 04/01/11 1,196,196
1,000 Mahoning Valley, OH Sanitary District 7.800 12/15/11 1,109,170
1,375 Mahoning Valley, OH Sanitary District 7.900 12/15/14 1,533,249
1,000 Mahoning Valley, OH Sanitary District 7.900 12/15/15 1,115,090
2,000 Montgomery County, OH Water Revenue - Greater Moraine and Beavercreek 6.250 11/15/12 2,112,420
Sewer District - Series 1992
1,000 Mt. Gilead, OH Water System Revenue - Series 1992 7.200 12/01/17 1,082,570
480 Ohio State Water Development Authority Revenue 9.375 12/01/18 498,331
4,630 Ohio State Water Development Authority Revenue - Pure Water and 6.000 12/01/16 4,859,833
Improvement - Series 1990 I
780 Orrville, OH Sewer Improvement Mortgage Revenue - Series 1994 6.000 12/01/11 812,230
500 Orrville, OH Sewer Improvement Mortgage Revenue - Series 1994 6.125 12/01/18 516,460
1,000 Ottawa County, OH Special Assessment - Portage-Catawba Island Sewer Project 7.000 09/01/11 1,117,980
750 Toledo, OH Sewerage System Mortgage Revenue - Series 1994 6.350 11/15/17 797,070
</TABLE>
Ohio 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 500 Toledo, OH Water System Mortgage Revenue - Series 1994 6.450% 11/15/24 $ 535,565
1,050 Warren County, OH Sewer System Revenue - Warren County Sewer District - 5.450 12/01/15 1,037,222
Series 1993
750 Warren County, OH Waterworks System Revenue - Series 1992 6.600 12/01/16 819,832
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
3,000* Adams County, OH Valley School District - Adams and Highland Counties, 7.000 12/01/15 3,516,360
Ohio - School Improvement Unlimited Tax General Obligation - Series 1995
3,000* Adams County, OH Valley School District - Adams and Highland Counties, 5.250 12/01/21 2,828,220
Ohio - School Improvement Unlimited Tax General Obligation - Series 1995
1,085 Amherst, OH Police and Jail Facility - General Obligation Unlimited Tax - 5.375 12/01/18 1,053,296
Series 1993
1,880 Avon Lake, OH City School District - General Obligation - Library 5.650 12/01/13 1,846,160
Improvement - Series 1993
2,905 Batavia, OH Local School District Board of Education - Clermont County, 6.300 12/01/22 3,088,770
Ohio - School Improvement Unlimited Tax - Series 1995
1,570 Centerville, OH Recreational Facilities - Series 1993 5.800 12/01/20 1,584,428
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/04 150,610
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/05 148,551
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/06 148,509
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/07 148,910
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/08 148,745
130 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/09 154,452
500 Cleveland, OH General Obligation - Series 1992 6.375 07/01/12 530,185
4,745 Cleveland, OH General Obligation - Series 1994 6.625 11/15/14 5,209,725
590 Columbus, OH General Obligation 9.375 04/15/06 794,341
500 Columbus, OH General Obligation 9.375 04/15/07 679,410
1,000 Cuyahoga Falls, OH Electric Distribution System Improvement Revenue 7.000 12/01/10 1,064,440
200 Dayton, OH General Obligation 10.500 10/01/99 244,536
375 Delaware County, OH General Obligation - Library District 0.000 11/01/04 229,770
335 Delaware County, OH General Obligation - Library District 0.000 11/01/05 195,650
290 Delaware County, OH General Obligation - Library District 0.000 11/01/06 159,422
250 East Holmes, OH Local School District - General Obligation 7.700 12/01/08 278,810
850 Eastern Local School District Board of Education - Brown, Highland and Adams, 6.250 12/01/13 930,716
Ohio - School Improvement Unlimited Tax General Obligation - Series 1995
1,500 Euclid, OH City School District 7.100 12/01/11 1,649,940
1,575 Garaway, OH Local School District 7.200 12/01/14 1,763,906
1,200 Jefferson County, OH Human Services Building - General Obligation 6.625 12/01/14 1,295,304
1,885 Kent, OH General Obligation - Sewer System Improvement - Series 1992 6.500 12/01/10 2,053,896
1,070 Kettering, OH General Obligation 6.650 12/01/12 1,146,655
1,000 Kettering, OH City School District Improvement - Series 1994 5.250 12/01/22 952,510
1,000 Lakeview, OH Local School District - School Improvement Revenue - 6.900 12/01/14 1,135,240
General Obligation Unlimited Tax - Series 1994
1,440 Lakewood, OH Various Purpose General Obligation - Limited Tax 5.750 12/01/15 1,451,491
Obligation - Series 1995 A and B
935 Logan-Hocking, OH Local School District - General Obligation - Hocking, 0.000 12/01/07 479,748
Perry and Vinton Counties - Series 1993A
590 Logan-Hocking, OH Local School District - General Obligation - Hocking, 0.000 12/01/10 247,641
Perry and Vinton Counties - Series 1993A
</TABLE>
8 Ohio
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,640 Lucas County, OH General Obligation - Series 1992 6.650% 12/01/12 $ 1,694,760
2,100 Miami County, OH General Obligation 6.350 12/01/17 2,216,424
1,000 Muskingum County, OH General Obligation - Justice Center Improvement 6.375 12/01/17 1,058,020
1,200 North Central, OH Local School District Improvement - General Obligation - 6.350 12/01/15 1,266,012
Series 1992
2,200 North Royalton, OH City School District - General Obligation - Unlimited 6.000 12/01/14 2,286,724
Tax - Series 1994
2,900 North Royalton, OH City School District - General Obligation - Unlimited 6.100 12/01/19 3,016,638
Tax - Series 1994
500 Olmsted Falls, OH Local School District 7.050 12/15/11 559,940
1,500 Painesville, OH General Obligation - Waterworks Improvement 6.400 12/01/12 1,562,805
885 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/08 429,367
940 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/09 426,196
650 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/10 274,892
500 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/11 198,755
500 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/13 175,500
1,665 Reynoldsburg, OH City School District - General Obligation 6.550 12/01/17 1,803,062
500 Sandusky County, OH General Obligation - Series 1994 6.200 12/01/13 527,795
1,200 Solon, OH City School District - School Improvement Refunding - General 0.000 12/01/07 621,000
Obligation Unlimited Tax - Series 1993
1,035 South-Western City, OH School District - Franklin & Pickway Counties - 6.200 12/01/06 1,108,609
General Obligation-Unlimited Tax - Series 1994A
1,000 Sylvania, OH City School District - General Obligation - Series 1992 6.600 06/01/16 1,078,090
1,000 Trumbull County, OH General Obligation - Series 1993 5.300 12/01/14 972,760
540 Trumbull County, OH General Obligation - Series 1994 6.200 12/01/14 564,862
1,300 Trumbull County, OH Capital Appreciation - General Obligation Limited Tax - 0.000 12/01/10 545,649
Series 1995
1,320 Twinsburg, OH City School District - General Obligation 6.700 12/01/11 1,449,254
1,000 Woodridge, OH Local School District - General Obligation Unlimited Tax - 6.000 12/01/19 1,024,190
Series 1994
925 Wooster, OH City School District - General Obligation 6.500 12/01/17 1,006,067
1,650 Youngstown, OH General Obligation 7.550 12/01/11 1,817,888
300 Youngstown, OH General Obligation - Series 1994 6.125 12/01/14 312,189
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
2,000 Athens, OH Sewer System Revenue 7.300 12/01/14 2,226,780
1,730 Bedford, OH Hospital Improvement Revenue - Community Hospital of Bedford 8.500 05/15/09 2,070,862
1,400 Canton, OH General Obligation 7.875 12/01/08 1,569,764
3,085 Carroll County, OH Hospital Improvement Revenue - Timken Mercy 7.125 12/01/18 3,551,082
Medical Center
1,085 Clermont County, OH Hospital Facilities Revenue - Mercy Health Care 7.500 09/01/19 1,249,030
System - Series 1989
3,660 Clermont County, OH Hospital Facilities Revenue - Mercy Health Care 7.500 09/01/19 4,140,668
System - Series 1989
1,000 Clermont County, OH Sewer System Revenue 7.250 12/01/11 1,143,060
2,700 Clermont County, OH Sewer System Revenue 7.100 12/01/21 3,104,190
1,000 Clermont County, OH Waterworks System Revenue 8.200 12/01/12 1,109,490
1,010 Cleveland, OH General Obligation 7.500 08/01/08 1,183,144
1,010 Cleveland, OH General Obligation 7.500 08/01/09 1,183,144
</TABLE>
Ohio 9
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 790 Cleveland, OH City School District 8.250% 12/01/08 $ 959,732
4,775 Cleveland, OH Public Power System Improvement Revenue 8.375 08/01/17 5,260,092
2,000 Cleveland, OH Waterworks Revenue - Series E 7.625 01/01/13 2,139,280
4,000 Cuyahoga County, OH Hospital Facilities Revenue - Fairview General Hospital 7.375 08/01/19 4,498,600
975 Dayton, OH Airport Revenue - James M. Cox Dayton International Airport 8.250 01/01/16 1,019,304
2,600 Erie County, OH Franciscan Services Corporation - Providence Hospital 7.625 01/01/19 2,902,952
1,900 Erie County, OH Hospital Improvement Revenue - Firelands Community 8.875 01/01/15 2,050,214
Hospital - Series 1992
1,500 Findlay, OH Sewer System Revenue 7.200 08/01/11 1,672,245
1,000 Franklin County, OH Hospital Facilities Refunding Revenue - Riverside 7.600 05/15/20 1,147,040
United Methodist Hospital
6,750 Hamilton, OH Electric System Mortgage Revenue - Series B 8.000 10/15/22 7,617,578
720 Huber Heights, OH General Obligation 9.250 12/01/08 816,206
1,000 Hudson, OH Local School District - Series A 7.100 12/15/13 1,134,430
1,000 Hudson, OH Local School District - Series A 7.100 12/15/14 1,136,530
155 Logan County, OH General Obligation - Sanitary Sewer System 7.750 12/01/02 181,493
Improvement - Indian Lake Sewer District
155 Logan County, OH General Obligation - Sanitary Sewer System 7.750 12/01/03 183,164
Improvement - Indian Lake Sewer District
155 Logan County, OH General Obligation - Sanitary Sewer System 7.750 12/01/04 184,464
Improvement - Indian Lake Sewer District
155 Logan County, OH General Obligation - Sanitary Sewer System 7.750 12/01/05 185,419
Improvement - Indian Lake Sewer District
155 Logan County, OH General Obligation - Sanitary Sewer System 7.750 12/01/06 186,198
Improvement - Indian Lake Sewer District
1,000 Lucas County, OH Hospital Improvement Revenue - St. Vincent Medical 6.750 08/15/20 1,103,950
Center - Series A
3,000 Lucas County, OH Hospital Improvement Revenue - St. Vincent Medical 6.500 08/15/12 3,307,440
Center - Series 1992
1,850 Massillon, OH City School District 7.200 12/01/11 2,110,202
2,190 Muskingum County, OH Certificates of Participation - Office Building Project 9.200 06/01/10 2,340,847
6,460 Ohio Housing Finance Agency - Single Family Mortgage Revenue - Series 1985 A 0.000 01/15/15 1,757,701
5,700 Ohio Housing Finance Agency - Single Family Mortgage Revenue - Series 1985 A 0.000 01/15/15 1,584,030
20 Ohio State Building Authority - Frank J. Lausche State Office Building - Series A 10.125 10/01/06 26,050
3,250 Ohio State Building Authority - Correctional Facilities - Series A 7.350 08/01/06 3,641,495
5,660 Ohio State Higher Educational Facilities Commission Revenue - Case 7.700 10/01/18 6,142,345
Western Reserve University Project - Series 1988
1,000 Ohio State Higher Educational Facilities Commission Revenue - John Carroll 9.250 10/01/07 1,126,300
University
1,600 Pickerington, OH Local School District - General Obligation 7.250 12/01/13 1,828,896
500 Portage County, OH Hospital Revenue - Robinson Memorial Hospital 9.375 10/01/07 518,775
2,000 Commonwealth of Puerto Rico - General Obligation 7.750 07/01/06 2,232,980
780 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 876,447
700 Commonwealth of Puerto Rico Highway and Transportation Authority 7.750 07/01/10 815,262
Revenue - Series Q
2,000 Commonwealth of Puerto Rico Electric Power Authority - Series K 9.375 07/01/17 2,241,200
1,250 Ross County, OH Hospital Revenue - Medical Center Hospital 7.500 12/01/14 1,373,475
605 Scioto County, OH General Obligation 7.150 08/01/11 689,089
750 Southwest Local School District - Ohio General Obligation 7.650 12/01/10 863,692
</TABLE>
10 Ohio
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,500 Stark County, OH Sanitary Sewer System Revenue 7.750% 11/15/18 $ 1,685,220
1,220 Trumbull County, OH Hospital Revenue - St. Joseph Riverside Hospital 7.750 11/01/13 1,337,584
1,000 University of Cincinnati - Ohio General Receipt Revenue - Series I 7.300 06/01/09 1,099,920
1,750 University of Toledo - Ohio General Receipt Revenue 7.700 06/01/18 1,941,362
1,000 Warren, OH General Obligation 8.625 11/15/13 1,150,550
Special Tax Revenue
---------------------------------------------------------------------------------------------------------------------
550 Columbiana County, OH Jail Facilities Construction - General Obligation 6.600 12/01/17 586,074
Limited Tax - Series 1994
250 East Cleveland, OH Local Government Revenue 7.900 12/01/97 269,355
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
750 Ohio State Full Faith and Credit General Obligation Infrastructure 6.200 08/01/13 789,240
Improvement Revenue - College Savings - Current Interest - Series 1995
2,000 Ohio State Full Faith and Credit General Obligation Infrastructure 6.200 08/01/14 2,099,240
Improvement Revenue - College Savings - Current Interest - Series 1995
220 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 245,505
2,320 Commonwealth of Puerto Rico - General Obligation - Series 1993 5.500 07/01/13 2,247,570
1,000 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 1,042,570
8,785 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.350 07/01/10 9,175,493
1,000 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - 7.900 07/01/07 1,114,010
Series A
3,600 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - 7.875 07/01/17 4,007,880
Series A
14,000 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 5.500 07/01/21 13,383,720
Education and Health Facilities - Series M
Total Investments in Securities - Municipal Bonds (cost $437,072,840) - 99.4% 470,976,758
Excess of Other Assets over Liabilities - 0.6% 3,050,638
Total Net Assets - 100.0% $474,027,396
</TABLE>
*Securities purchased on a "when issued" basis.
See notes to financial statements.
Ohio 11
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $437,072,840) $470,976,758
Cash 4,102,077
Receivable for investments sold 458,605
Receivable for Fund shares sold 1,190,902
Interest receivable 9,970,721
Other 37,876
Total assets 486,736,939
LIABILITIES:
Payable for investments purchased 9,041,667
Payable for Fund shares reacquired 1,014,517
Distributions payable 2,226,588
Accrued expenses 426,771
Total liabilities 12,709,543
NET ASSETS $474,027,396
Class A:
Applicable to 38,967,649 shares of beneficial
interest issued and outstanding $445,566,437
Net asset value per share $ 11.43
Class C:
Applicable to 2,489,211 shares of beneficial
interest issued and outstanding $ 28,460,959
Net asset value per share $ 11.43
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 30,976,487
EXPENSES:
Distribution fees - Class A (Note E) 1,734,738
Distribution fees - Class C (Note E) 252,166
Investment advisory fees (Note E) 2,301,882
Custody and accounting fees 201,130
Transfer agent's fees 294,625
Registration fees 12,490
Legal fees 7,300
Audit fees 23,611
Trustees' fees 8,300
Shareholder services fees (Note E) 51,680
Other 17,853
Advisory fees waived (Note E) (375,587)
Total expenses 4,530,188
Net investment income 26,446,299
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (3,578,718)
Change in unrealized appreciation (depreciation) of investments 12,308,189
Net gain on investments 8,729,471
Net increase in net assets resulting from operations $ 35,175,770
See notes to financial statements.
12 Ohio
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 26,446,299 $ 25,178,778
Net realized loss on security transactions (3,578,718) (685,100)
Change in unrealized appreciation
(depreciation) of investments 12,308,189 (16,726,741)
Net increase in net assets resulting from
operations 35,175,770 7,766,937
Distributions to shareholders:
Dividends from net investment income - Class A (24,987,149) (24,664,196)
Dividends from net investment income - Class C (1,382,811) (691,730)
Net decrease in net assets from distributions
to shareholders - Class A (24,987,149) (24,664,196)
Net decrease in net assets from distributions
to shareholders - Class C (1,382,811) (691,730)
Fund share transactions:
Proceeds from shares sold - Class A 39,954,959 73,794,172
Proceeds from shares sold - Class C 8,083,410 28,644,688
Net asset value of shares issued in reinvestment
of distributions - Class A 14,385,121 14,238,047
Net asset value of shares issued in reinvestment
of distributions - Class C 976,597 423,058
Cost of shares reacquired - Class A (62,325,986) (36,973,068)
Cost of shares reacquired - Class C (6,797,949) (2,059,695)
Net (decrease) increase in net assets from Fund
share transactions - Class A (7,985,906) 51,059,151
Net increase in net assets from Fund share
transactions - Class C 2,262,058 27,008,051
Total increase in net assets 3,081,962 60,478,213
NET ASSETS:
Beginning of year 470,945,434 410,467,221
End of year $ 474,027,396 $ 470,945,434
NET ASSETS CONSIST OF:
Paid-in surplus $ 445,465,373 $ 451,189,221
Undistributed net investment income 76,339
Accumulated net realized loss on security
transactions (5,418,234) (1,839,516)
Unrealized appreciation (depreciation) of
investments 33,903,918 21,595,729
$ 474,027,396 $ 470,945,434
See notes to financial statements.
Ohio 13
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Ohio Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on June 27, 1985. On
August 3, 1993, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C
shares are sold with no front-end sales charge but are assessed a contingent
deferred sales charge if redeemed within one year from the time of purchase.
Both classes of shares have identical rights and privileges except with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privilege of each class.
Shares of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
14 Ohio
<PAGE>
Notes to Financial Statements
================================================================================
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were $6,226,800 "when issued" purchase
commitments included in the statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 3,620,183 6,283,174
Shares issued in reinvestment
of distributions 1,305,755 1,217,212
Shares reacquired (5,696,668) (3,179,447)
Net (decrease) increase
in shares outstanding (770,730) 4,320,939
Outstanding at beginning
of year 39,738,379 35,417,440
Outstanding at end of year 38,967,649 39,738,379
Period From
Year Ended August 3, 1993
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 734,040 2,430,972
Shares issued in reinvestment
of distributions 88,671 36,468
Shares reacquired (625,068) (175,872)
Net increase in shares
outstanding 197,643 2,291,568
Outstanding at beginning
of period 2,291,568 -0-
Outstanding at end of period 2,489,211 2,291,568
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated 142,816,879 and $151,642,107, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $33,903,918 of which $34,853,597
related to appreciated securities and $949,679 related to depreciated
securities.
At May 31, 1995, the Fund has available capital loss carryforwards of
approximately $5,419,600 to offset future net capital gains in the amounts
of $533,300 through May 31,1996, $111,200 through May 31, 1997, $443,400
through May 31,1999, $753,000 through May 31, 2002, and $3,578,700 through
May 1, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $375,587 of its
advisory fees. Included in accrued expenses at May 31, 1995 are accrued
advisory fees of $179,391.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor
Ohio 15
<PAGE>
Notes to Financial Statements
================================================================================
each month for its actual expenses incurred in the distribution and
promotion of all classes of the Fund's shares. The maximum amount payable
for these expenses on an annual basis is .40% and .95% of the Fund's average
daily net assets for Class A and Class C shares, respectively. Included in
accrued expenses at May 31, 1995 are accrued distribution fees of $149,938
and $22,610 for Class A and Class C shares, respectively. Certain
non-promotional expenses directly attributable to current shareholders are
aggregated by the Distributor and passed through to the Fund as shareholder
services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $1,065,900 for the year ended May 31, 1995, of which
approximately $924,800 was paid to other dealers. For the year ended May 30,
1995, the Distributor received approximately $7,800 of contingent deferred
sales charges on redemptions of Class C shares. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $22
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $992,457, with a weighted
average annualized interest rate of 6.14%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
16 Ohio
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.21 $11.59 $11.05 $10.72 $10.45
Income from investment operations:
Net investment income 0.64 0.64 0.66 0.68 0.68
Net realized and unrealized gain 0.22 (0.38) 0.54 0.33 0.28
(loss) on securities
Total from investment operations 0.86 0.26 1.20 1.01 0.96
Less distributions:
Dividends from net investment (0.64) (0.64) (0.66) (0.68) (0.69)
income
Total distributions (0.64) (0.64) (0.66) (0.68) (0.69)
Net asset value, end of year $11.43 $11.21 $11.59 $11.05 $10.72
Total return(a) 7.99% 2.24% 11.20% 9.77% 9.51%
Ratios to average net assets:
Actual net of waivers and reimbursements:
Expenses 0.95% 0.93% 0.96% 0.95% 1.02%
Net investment income 5.78% 5.48% 5.81% 6.24% 6.53%
Assuming no waivers and reimbursements:
Expenses 1.03% 1.02% 1.02% 0.99% 1.02%
Net investment income 5.70% 5.39% 5.75% 6.20% 6.53%
Net assets at end of year (000's) $445,566 $445,272 $410,467 $325,273 $268,213
Portfolio turnover rate 31.25% 9.14% 14.93% 17.50% 13.88%
</TABLE>
(a) The total returns shown do not
include the effect of applicable
front-end sales charge.
Ohio 17
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
===============================================================================
Period From
Year Ended August 3, 1993 to
CLASS C May 31, 1995 May 31, 1994
-------------------------------------------------------------------------------
Net asset value, beginning of period $11.20 $11.69
Income from investment operations:
Net investment income 0.57 0.46
Net realized and unrealized gain 0.23 (0.49)
(loss) on securities
Total from investment operations 0.80 (0.03)
Less distributions:
Dividends from net investment (0.57) (0.46)
income
Total distributions (0.57) (0.46)
Net asset value, end of period $11.43 $11.20
Total return(a) 7.50% (0.17%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and reimbursements:
Expenses 1.50% 1.46%
Net investment income 5.21% 4.79%
Assuming no waivers and reimbursements:
Expenses 1.58% 1.60%
Net investment income 5.13% 4.65%
Net assets at end of period (000's) $28,461 $25,674
Portfolio turnover rate 31.25% 9.14%
(a) The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where
appropriate.
18 Ohio
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP OHIO
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship Ohio
Double Tax Exempt Fund as of May 31, 1995, the related statement of operations
for the year then ended, and the statements of changes in net assets and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship Ohio
Double Tax Exempt Fund at May 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
Ohio 19
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
--------------------------------------------------------------------------------------------------------------------
$ 750 Northeastern Pennsylvania Hospital and Education Authority - Guaranteed 6.625% 08/15/15 $ 809,798
College Revenue - Luzerne County Community College Project - Series 1994
250 Pennsylvania State Higher Educational Facilities Authority Revenue - Drexel 7.250 05/01/10 274,818
University
Health Care
--------------------------------------------------------------------------------------------------------------------
1,000 Butler County, PA Industrial Development Authority - Health Center 5.750 06/01/16 911,510
Revenue - Sherwood Oaks Project - Series 1993
400 Columbia County, PA Industrial Development Authority - Orangeville 9.000 12/01/12 399,892
Nursing Center
Hospitals
--------------------------------------------------------------------------------------------------------------------
200 Allegheny County, PA Hospital Development Authority - St. Margaret 7.125 10/01/21 206,696
Memorial Hospital - Series 1991A
1,150 Allegheny County, PA Hospital Development Authority - Hospital Revenue - 6.200 09/01/15 1,189,813
Allegheny General Hospital Project - Series 1995 A
250 Beaver County, PA Hospital Authority Revenue - Medical Center - Series 1992 6.625 07/01/10 267,300
115 Blair County, PA Hospital Authority Revenue - Altoona Hospital - Series 1987 A 7.875 07/01/09 124,517
200 Butler County, PA Hospital Authority Revenue - North Hills Passavant Hospital 7.000 06/01/22 218,372
500 Clarion County, PA Hospital Authority Revenue - Clarion Hospital 8.100 07/01/12 519,075
500 Dauphin County, PA Hospital Authority Revenue - Harrisburg Hospital 8.250 07/01/14 545,285
350 Falls Township, PA Hospital Authority Revenue - Delaware Valley Medical 7.000 08/01/22 369,817
Center - Series 1992
500 Montgomery County, PA Higher Education and Health Authority Revenue - 7.625 02/01/20 551,600
Holy Redeemer Hospital
1,000 Sayre, PA Health Care Facilities Authority Revenue - Series C 7.700 12/01/15 1,122,030
440 Scranton-Lackawanna, PA Health and Welfare Authority Revenue - St. 7.750 12/15/15 459,527
Joseph's Hospital - Carbondale
1,500 Westmoreland County, PA Industrial Development Authority Revenue - 8.250 07/01/13 1,630,185
Citizens General Hospital
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
500 Bucks County, PA Redevelopment Authority Mortgage Revenue - 6.875 08/01/23 517,320
Westminster Heights - Series 1992 A
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
300 Pennsylvania Housing Finance Agency - Single Family - Series S 7.600 04/01/16 323,406
250 Pennsylvania Housing Finance Agency - Single Family - Series 30 7.300 10/01/17 267,652
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
426 Allegheny County, PA Industrial Development Authority - Solid Waste 8.000 03/01/98 457,302
Disposal - Conversion Systems, Inc. - Series 1991
1,500 Lawrence County, PA Industrial Development Authority Pollution Control 7.150 03/01/17 1,572,480
Revenue - Pennsylvania Power Company
3,575 Lehigh County, PA Industrial Development Authority Pollution Control 6.400 09/01/29 3,753,071
Revenue - Pennsylvania Power and Light Company - Series 1994 B
</TABLE>
4 Pennsylvania
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,000 Montgomery County, PA Industrial Development Authority Pollution 8.875% 06/01/16 $ 1,053,330
Control Revenue - Philadelphia Electric - Series A
2,000 Pennsylvania Economic Development Financing Authority - Exempt Facilities 7.600 12/01/20 2,157,820
Revenue - MacMillan Bloedel Clarion Limited Partnership Porject - Series 1995
1,000 Pennsylvania Economic Development Finance Authority - Wastewater Treatment 7.600 12/01/24 1,078,880
Revenue - Sun Company, Incorporated R & M Project - Series 1994 A
250 Philadelphia, PA Industrial Development Authority - National Board of 6.750 05/01/12 263,492
Medical Examiners - Series 1992
Municipal Revenue/Other
--------------------------------------------------------------------------------------------------------------------
2,545 Reading, PA General Obligation - Parking Authority - Series 1993 0.000 11/15/15 763,984
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
2,000 Pennsylvania State Turnpike Commission - Pennsylvania Turnpike Revenue - 5.500 12/01/17 1,952,080
Series 1991
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
650 Philadelphia, PA Gas Works Revenue - Twelfth Series 7.000 05/15/20 791,616
1,400 Philadelphia, PA Gas Works Revenue - Fourteenth Series 6.375 07/01/26 1,410,752
750 Philadelphia, PA Gas Works Revenue - Fourteenth Series 6.375 07/01/26 781,942
465 Commonwealth of Puerto Rico Electric Power Authority - Series O 0.000 07/01/17 119,863
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
500 Allentown, PA Guaranteed Water Revenue - Series 1994 6.625 10/15/12 524,335
1,000 Philadelphia, PA Water and Wastewater Revenue - Series 1995 5.600 08/01/18 978,320
940 South Wayne County, PA Water and Sewer Authority Revenue 8.200 04/15/13 1,048,899
1,755 Westmoreland County, PA Municipal Service Authority Revenue - Series 1993 0.000 08/15/22 344,033
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
250 Dauphin County, PA General Authority Revenue 7.400 01/01/06 264,952
2,195 Montour, Pa School District - General Obligation - Allegheny County - Series 0.000 01/01/14 731,659
1993 B
500 Northeastern York County, PA School District - Series B 0.000 09/01/13 172,715
1,495 Oley Valley, PA School District 0.000 05/15/16 434,896
1,495 Oley Valley, PA School District 0.000 05/15/17 409,137
580 Oley Valley, PA School District 0.000 05/15/18 148,961
1,000 Westmoreland County, PA General Obligation - Series 1993 G 0.000 06/01/15 308,340
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
500 Delaware County, PA University Authority Revenue - Villanova University 7.750 08/01/18 556,255
300 Delaware Water Gap Municipal Authority - Pennsylvania Sewer Revenue 8.700 06/01/17 303,000
300 Dubois, PA Hospital Authority Revenue - Dubois Regional Medical Center 8.750 07/01/11 330,915
750 Harrisburg, PA Water and Sewer Authority Revenue - Series A 8.000 11/01/12 823,642
500 Pennsylvania State Higher Educational Facilities Authority Revenue - 8.375 10/01/18 567,925
Lycoming College
700 Pennsylvania State Higher Educational Facilities Authority Revenue - 8.000 01/01/18 773,822
Thomas Jefferson University
</TABLE>
Pennsylvania 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 150 Philadelphia, PA Municipal Authority Revenue 7.800% 04/01/18 $ 166,252
1,450 Philadelphia, PA Municipal Authority Revenue 7.800 04/01/18 1,648,984
1,500 Washington County, PA Hospital Authority Revenue - Washington Hospital 9.500 07/01/17 1,663,665
Project
Resource Recovery
--------------------------------------------------------------------------------------------------------------------
1,650 Cambria County, PA Industrial Development Authority Resource Recovery 7.750 09/01/19 1,760,500
Revenue - Cambria CoGen Project
750 Delaware County, PA Industrial Development Authority Revenue - Resource 8.100 12/01/13 792,562
Recovery
1,015 Lancaster County, PA Solid Waste Management Authority - Resource 7.875 12/15/09 1,047,358
Recovery System
400 York County, PA Solid Waste and Refuse Authority Industrial Development 8.200 12/01/14 438,470
Revenue - Resource Recovery - Series C
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
1,500 Pennsylvania Intergovernmental Cooperation Authority - Special Tax 7.000 06/15/14 1,679,160
Revenue - City of Philadelphia Funding Program - Series 1994
Total Investments in Securities - Municipal Bonds (cost $42,008,271) - 98.0% 44,783,982
Excess of Other Assets over Liabilities - 2.0% 933,585
Total Net Assets - 100.0% $ 45,717,567
</TABLE>
See notes to financial statements.
6 Pennsylvania
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $42,008,271) $44,783,982
Cash 376,394
Receivable for Fund shares sold 107,660
Interest receivable 991,287
Other 32,261
Total assets 46,291,584
LIABILITIES:
Payable for Fund shares reacquired 303,212
Distributions payable 229,849
Accrued expenses 40,956
Total liabilities 574,017
NET ASSETS: $45,717,567
Class A:
Applicable to 4,170,556 shares of beneficial
interest issued and outstanding $42,599,699
Net asset value per share $ 10.21
Class C:
Applicable to 305,336 shares of beneficial
interest issued and outstanding $ 3,117,868
Net asset value per share $ 10.21
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 3,096,812
EXPENSES:
Distribution fees - Class A (Note E) 169,240
Distribution fees - Class C (Note E) 20,840
Investment advisory fees (Note E) 222,518
Custody and accounting fees 74,450
Transfer agent's fees 46,400
Registration fees 5,169
Legal fees 15,066
Audit fees 14,600
Trustees' fees 4,358
Shareholder services fees (Note E) 9,260
Other 3,282
Distribution and advisory fees waived (Note E) (179,909)
Total expenses 405,274
Net investment income 2,691,538
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (78,262)
Change in unrealized appreciation (depreciation) of investments 623,383
Net gain on investments 545,121
Net increase in net assets resulting from operations $ 3,236,659
See notes to financial statements.
Pennsylvania 7
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 2,691,538 $ 2,503,800
Net realized loss on security transactions (78,262) (60,957)
Change in unrealized appreciation
(depreciation) of investments 623,383 (1,379,144)
Net increase in net assets resulting from
operations 3,236,659 1,063,699
Distributions to shareholders:
Dividends from net investment income-Class A (2,597,708) (2,479,990)
Dividends from net investment income-Class C (121,479) (18,577)
Net decrease in net assets from distributions
to shareholders-Class A (2,597,708) (2,479,990)
Net decrease in net assets from distributions
to shareholders-Class C (121,479) (18,577)
Fund share transactions:
Proceeds from shares sold-Class A 9,405,651 5,109,834
Proceeds from shares sold-Class C 1,442,441 1,758,881
Net asset value of shares issued in reinvestment
of distributions-Class A 1,191,490 1,172,592
Net asset value of shares issued in reinvestment
of distributions-Class C 87,219 8,756
Cost of shares reacquired-Class A (10,689,804) (3,372,480)
Cost of shares reacquired-Class C (159,436) (24,932)
Net (decrease) increase in net assets from Fund
share transactions-Class A (92,663) 2,909,946
Net increase in net assets from Fund share
transactions-Class C 1,370,224 1,742,705
Total increase in net assets 1,795,033 3,217,783
NET ASSETS:
Beginning of year 43,922,534 40,704,751
End of year $ 45,717,567 $ 43,922,534
NET ASSETS CONSIST OF:
Paid-in surplus $ 43,754,125 $ 42,476,564
Undistributed net investment income 4,862 32,511
Accumulated net realized gain (loss) on security
transactions (817,131) (738,869)
Unrealized appreciation (depreciation) of
investments 2,775,711 2,152,328
$ 45,717,567 $ 43,922,534
See notes to financial statements.
8 Pennsylvania
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Pennsylvania Triple Tax Exempt Fund (Fund), an unincorporated
common law trust established under the laws of the Commonwealth of
Pennsylvania by Declaration of Trust dated July 26, 1986, is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The Fund commenced investment
operations on October 29, 1986. On February 2, 1994, the Fund began to offer
Class C shares to the investing public. Class A shares are sold with a
front-end sales charge. Class C shares are sold with no front-end sales
charge but are assessed a contingent deferred sales charge if redeemed
within one year from the time of purchase. Both classes of shares have
identical rights and privileges except with respect to the effect of sales
charges, the distribution and/or service fees borne by each class, expenses
specific to each class, voting rights on matters affecting a single class
and the exchange privilege of each class. Shares of beneficial interest in
the Fund, which are registered under the Securities Act of 1933, as amended,
are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Fund expenses not specific to any class of shares
are prorated among the classes based upon the eligible net assets of each
class. Net realized gains from security transactions, to the extent they
exceed available capital loss carryforwards, are distributed to
shareholders.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market
Pennsylvania 9
<PAGE>
Notes to Financial Statements
================================================================================
value of these securities is determined in the same manner as other portfolio
securities. There were no "when issued" purchase commitments included in the
statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 948,108 486,499
Shares issued in reinvestment
of distributions 120,686 111,843
Shares reacquired (1,093,815) (323,768)
Net (decrease) increase
in shares outstanding (25,021) 274,574
Outstanding at beginning
of year 4,195,577 3,921,003
Outstanding at end of year 4,170,556 4,195,577
Period From
Year Ended February 2, 1994
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 144,307 170,278
Shares issued in reinvestment
of distributions 8,840 870
Shares reacquired (16,468) (2,491)
Net increase in shares
outstanding 136,679 168,657
Outstanding at beginning
of period 168,657 -0-
Outstanding at end of period 305,336 168,657
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995,
aggregated $22,917,637 and $21,926,622, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $2,775,711 of which $2,905,949
related to appreciated securities and $130,238 related to depreciated
securities.
At May 31,1995, the Fund has available capital loss carryforwards of
approximately $767,600 to offset future net capital gains in the amounts of
$64,500 through May 31, 1996, $388,400 through May 31,1997, $93,100 through
May 31,1998, $131,900 through May 31,1999, $60,900 through May 31, 2002, and
$28,800 through May 31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $164,423 of its
advisory fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A and Class C shares,
respectively. During the year ended May 31, 1995, the Distributor, at its
discretion, permanently waived distribution fees of $14,468 and $1,018 for
Class A and Class C shares, respectively. Included in accrued expenses at
May
10 Pennsylvania
<PAGE>
Notes to Financial Statements
================================================================================
31, 1995 are accrued distribution fees of $1,347 for Class C shares. Certain
non-promotional expenses directly attributable to current shareholders are
aggregated by the Distributor and passed through to the Fund as shareholder
services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $118,700 for the year ended May 31, 1995, of which
approximately $103,400 was paid to other dealers. For the year ended May 31
1995, the Distributor received approximately $800 of contingent deferred
sales charges on redemptions of Class C shares. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. LINE OF CREDIT
The Fund participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $2
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $76,856, with a weighted
average annualized interest rate of 6.14%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
G. SUBSEQUENT EVENT
Effective June 1, 1995, as approved by the shareholders and Board of
Trustees on April 21, 1995, the Fund transferred all its assets and
liabilities at net asset value to a newly organized sub-trust of the
Flagship Tax Exempt Funds Trust (the "Trust"). There are no changes in the
Funds' name, objectives, policies or other operations except that cost
savings and efficiencies should be realized to the extent that certain
direct costs previously borne by the Fund as a separate registered
investment company will now be shared among the sub-trusts of the Trust.
Pennsylvania 11
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.06 $10.38 $9.90 $9.60 $9.39
Income from investment operations:
Net investment income 0.60 0.61 0.62 0.63 0.62
Net realized and unrealized gain 0.16 (0.32) 0.47 0.30 0.22
(loss) on securities
Total from investment operations 0.76 0.29 1.09 0.93 0.84
Less distributions:
Dividends from net investment (0.61) (0.61) (0.61) (0.63) (0.63)
income
Total distributions (0.61) (0.61) (0.61) (0.63) (0.63)
Net asset value, end of year $10.21 $10.06 $10.38 $9.90 $9.60
Total return(a) 7.90% 2.70% 11.34% 9.98% 9.26%
Ratios to average net assets:
Actual net of waivers and reimbursements:
Expenses 0.89% 0.91% 0.92% 0.83% 0.91%
Net investment income 6.08% 5.80% 6.07% 6.47% 6.63%
Assuming no waivers and reimbursements:
Expenses 1.29% 1.17% 1.32% 1.31% 1.29%
Net investment income 5.68% 5.55% 5.67% 5.99% 6.25%
Net assets at end of year (000's) $42,600 $42,226 $40,705 $36,917 $35,408
Portfolio turnover rate 49.86% 20.70% 22.69% 41.33% 23.01%
(a) The total returns shown do not
include the effect of applicable
front-end sales charge.
</TABLE>
12 Pennsylvania
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
===============================================================================
Period From
Year Ended February 7, 1994 to
Class C May 31, 1995 May 31, 1994
-------------------------------------------------------------------------------
Net asset value, beginning of period $10.06 $10.71
Income from investment operations:
Net investment income 0.54 0.16
Net realized and unrealized gain 0.16 (0.64)
(loss) on securities
Total from investment operations 0.70 (0.48)
Less distributions:
Dividends from net investment (0.55) (0.17)
income
Total distributions (0.55) (0.17)
Net asset value, end of period $10.21 $10.06
Total return(a) 7.31% (13.46%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and reimbursements:
Expenses 1.39% 1.41%
Net investment income 5.50% 4.91%
Assuming no waivers and reimbursements:
Expenses 1.84% 1.68%
Net investment income 5.05% 4.64%
Net assets at end of period (000's) $3,118 $1,697
Portfolio turnover rate 49.86% 20.70%
(a) The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where
appropriate.
Pennsylvania 13
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP PENNSYLVANIA
TRIPLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Pennsylvania Triple Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
Pennsylvania Triple Tax Exempt Fund at May 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
14 Pennsylvania
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
---------------------------------------------------------------------------------------------------------------------
$ 400 Coastal Carolina University Revenue - South Carolina - Series 1994 6.800% 06/01/19 $ 439,036
400 Commonwealth of Puerto Rico Industrial, Medical and Environmental - 5.600 12/01/07 399,992
Pollution Control Facilities Financing Authority - Catholic University of
Puerto Rico Project - Series 1993
Hospitals
---------------------------------------------------------------------------------------------------------------------
200 Greenville, SC Hospital System Board of Trustees - Hospital Facilities 6.000 05/01/20 193,712
Revenue - Series 1990
200 Greenville, SC Hospital System Board of Trustees - Hospital Facilities 5.500 05/01/16 187,932
Revenue - Series 1993 C
340 Medical University of South Carolina - Hospital Facilities Revenue - Series 1993 5.400 07/01/07 342,686
250 Medical University of South Carolina - Hospital Facilities Revenue 5.600 07/01/12 248,085
Housing/Multifamily
---------------------------------------------------------------------------------------------------------------------
300 South Carolina Regional Housing Development Corporation - Number 1 6.625 07/01/17 308,103
Multifamily Revenue - Redwood - Series A
Housing/Single Family
---------------------------------------------------------------------------------------------------------------------
250 South Carolina State Housing Finance and Development Authority - 6.150 07/01/08 262,070
Homeownership Mortgage Purchase Revenue - Series A
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
350 Fairfield County, SC Pollution Control Revenue - South Carolina Electric and 6.500 09/01/14 367,759
Gas Company
500 Richland County, SC Solid Waste Disposal Facilities Revenue - Union Camp 6.750 05/01/22 516,855
Corporation Project - Series 1992 A
Municipal Appropriation Obligations
---------------------------------------------------------------------------------------------------------------------
250 Berkeley County, SC School District - Certificates of Participation - Berkeley 6.250 02/01/12 262,075
School Facilities Group, Incorporated - Series 1994
250 Berkeley County, SC School District - Certificates of Participation - Berkeley 6.300 02/01/16 260,825
School Facilities Group, Incorporated - Series 1994
400 Chesterfield County, SC School District Facilities, Incorporated - Certificates 6.000 07/01/15 406,156
of Participation - Series 1995
400 Greenville County, SC Certificates of Participation - Greenville Technical 5.900 04/01/19 403,692
College Project - Series 1995
Municipal Revenue/Other
---------------------------------------------------------------------------------------------------------------------
700 South Carolina State Public Service Authority Revenue - Series 1991 B 7.000 07/01/12 796,040
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
200 Guam Airport Authority General Revenue - Series 1993 B 6.400 10/01/05 206,696
250 South Carolina State Ports Authority Revenue - Series 1991 6.750 07/01/21 264,480
</TABLE>
4 South Carolina
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
$ 200 Guam Power Authority Revenue - Series 1992 A 6.300% 10/01/12 $ 203,360
100 Commonwealth of Puerto Rico Electric Power Authority - Series P 7.000 07/01/21 110,029
185 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.125 07/01/08 190,160
400 Rock Hill, SC Utility System Revenue 5.750 01/01/18 400,164
200 South Carolina State Public Service Authority Revenue - Series 1992 A 6.375 07/01/21 207,160
100 South Carolina State Public Service Authority Revenue - Series 1995 5.875 01/01/19 100,479
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
290 Columbia, SC Water and Sewer Revenue - Series 1991 6.300 02/01/00 309,842
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
250 Charleston County, SC Public Facilities Corporation - Certificates of 6.875 06/01/14 277,975
Participation - Series 1994 B
250 Lexington County, SC General Obligation - Series 1995 6.300 02/01/10 263,838
250 Richland-Lexington, SC Airport District - Airport Revenue - Columbia 6.000 01/01/15 251,612
Metropolitan Airport - Series 1995
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
100 Commonwealth of Puerto Rico Electric Power Authority - Series M 8.000 07/01/08 112,365
Resource Recovery
---------------------------------------------------------------------------------------------------------------------
250 Charleston County, SC Solid Waste User Fee - Resources Recovery Revenue - 6.000 01/01/14 255,002
Series 1994
Student Loan Revenue Bonds
---------------------------------------------------------------------------------------------------------------------
500 South Carolina State Education Assistance Authority Revenue Bond - 6.300 09/01/08 508,615
Guaranteed Student Loan - Series 1994
Total Investments in Securities - Municipal Bonds (cost $8,700,823) - 100.5% 9,056,795
Excess of Liabilities over Other Assets - (0.5)% (43,415)
Total Net Assets - 100.0% $ 9,013,380
</TABLE>
See notes to financial statements.
South Carolina 5
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $8,700,823) $9,056,795
Cash 3,515
Receivable from Fund shares sold 2,882
Interest receivable 183,435
Other 2,101
Total assets 9,248,728
LIABILITIES:
Payable for Fund shares reacquired 169,243
Distributions payable 41,064
Accrued expenses 25,041
Total liabilities 235,348
NET ASSETS:
Applicable to 953,478 shares of beneficial
interest issued and outstanding $9,013,380
Net asset value per share $ 9.45
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 446,237
EXPENSES:
Distribution fees (Note E) 30,017
Investment advisory fees (Note E) 37,587
Custody and accounting fees 41,060
Transfer agent's fees 15,520
Registration fees 1,375
Legal fees 365
Audit fees 10,950
Trustees' fees 213
Shareholder services fees (Note E) 1,394
Other 1,385
Advisory fees waived (Note E) (37,587)
Expense subsidy (Note E) (72,306)
Total expenses 29,973
Net investment income 416,264
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (272,777)
Change in unrealized appreciation (depreciation) of investments 579,007
Net gain on investments 306,230
Net increase in net assets resulting from operations $ 722,494
See notes to financial statements.
6 South Carolina
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Period From
Year Ended July 6, 1993 to
May 31, 1995 May 31, 1994
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 416,264 $ 230,608
Net realized loss on security transactions (272,777) (65,343)
Change in unrealized appreciation
(depreciation) of investments 579,007 (223,035)
Net increase (decrease) in net assets resulting from
operations 722,494 (57,770)
Distributions to shareholders:
Dividends from net investment income (414,509) (217,171)
Distributions in excess of net realized capital
gains (16,167)
Net decrease in net assets from distributions to
shareholders (414,509) (233,338)
Fund share transactions:
Proceeds from shares sold 2,874,732 6,628,992
Net asset value of shares issued in reinvestment
of distributions 311,960 169,885
Cost of shares reacquired (764,883) (224,183)
Net increase in net assets from Fund share
transactions 2,421,809 6,574,694
Total increase in net assets 2,729,794 6,283,586
NET ASSETS:
Beginning of period 6,283,586 --
End of period $9,013,380 $6,283,586
NET ASSETS CONSIST OF:
Paid-in surplus $8,996,503 $6,574,694
Undistributed net investment income 15,192 13,437
Accumulated net realized gain (loss) on security
transactions (354,287) (81,510)
Unrealized appreciation (depreciation) of
investments 355,972 (223,035)
$9,013,380 $6,283,586
See notes to financial statements.
South Carolina 7
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship South Carolina Double Tax Exempt Fund (Fund) is a sub-trust of
the Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end non-diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund commenced investment operations on July 6, 1993.
Shares of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were no "when issued" purchase commitments
included in the statement of investments at May 31, 1995.
8 South Carolina
<PAGE>
Notes to Financial Statements
================================================================================
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Period From
Year Ended July 6, 1993
May 31, 1995 to May 31, 1994
Shares sold 320,800 688,637
Shares issued in reinvestment
of distributions 34,512 17,618
Shares reacquired (84,566) (23,523)
Net increase in shares
outstanding 270,746 682,732
Outstanding at beginning
of period 682,732 -0-
Outstanding at end of period 953,478 682,732
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995,
aggregated $8,491,146 and $6,445,723, respectively.
At May 31, 1995, net unrealized depreciation for financial reporting and
federal income tax purposes aggregated $355,972 of which $376,852 related to
appreciated securities and $20,880 related to depreciated securities.
At May 31, 1995, the Fund has available a capital loss carryforward of
approximately $354,300 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived all of its advisory
fees amounting to $37,587. Also, under an agreement with the Fund, the
Advisor has agreed to subsidize certain expenses (excluding advisory and
distribution fees) until the Fund reaches a sufficient size to maintain a
normal expense ratio to average net assets.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor each
month for its actual expenses incurred in the distribution and promotion of
sales of the Fund's shares. The maximum amount payable for these expenses on
an annual basis is .40% of the Fund's average daily net assets. Included in
accrued expenses at May 31, 1995 are accrued distribution fees of $3,074.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the
Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $44,300 for the year ended May 31, 1995, of which
approximately $38,600 was paid to other dealers. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($35,430) will be
reimbursed to the Advisor on a straight-line basis over a period of five
years from the first day of the year following the year in which the Fund's
net assets exceed $20 million. In the event that the Advisor's current in
vestment in the Trust falls below $100,000 prior to the full reimbursement
of the organizational expenses, then it will forego any further
reimbursement.
South Carolina 9
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
================================================================================
Period From
Year Ended July 6, 1993 to
May 31, 1995 May 31, 1994
--------------------------------------------------------------------------------
Net asset value, beginning of period $9.20 $9.58
Income from investment operations:
Net investment income 0.50 0.42
Net realized and unrealized gain 0.25 (0.38)
(loss) on securities
Total from investment operations 0.75 0.04
Less distributions:
Dividends from net investment (0.50) (0.39)
income
Distributions in excess of net capital gains (0.03)
Total distributions (0.50) (0.42)
Net asset value, end of period $9.45 $9.20
Total return(a) 8.54% 0.15%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and reimbursements:
Expenses 0.40% 0.40%
Net investment income 5.54% 4.82%
Assuming no waivers and reimbursements:
Expenses 1.86% 2.12%
Net investment income 4.08% 3.10%
Net assets at end of period (000's) $9,013 $6,284
Portfolio turnover rate 86.81% 87.96%
(a) The total returns shown do not
include the effect of applicable
front-end sales charge and are
annualized where appropriate.
10 South Carolina
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP SOUTH CAROLINA
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship South
Carolina Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship South
Carolina Double Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
South Carolina 11
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 750 Metropolitan Nashville and Davidson County - Tennessee Health and 6.300% 10/01/14 $ 777,435
Educational Facilities Board Revenue - Vanderbilt University - Series B
2,000 Metropolitan Nashville and Davidson County - Tennessee Health and 6.000 10/01/22 2,019,700
Educational Facilities Board Revenue - Vanderbilt University - Series 1992A
1,000* Metropolitan Nashville and Davidson County - Tennessee Health and 5.125 07/01/13 943,650
Educational Facilities Board Revenue - Vanderbilt University - Series 1993
1,000 Metropolitan Nashville and Davidson County - Tennessee Health and 7.625 05/01/08 1,092,870
Educational Facilities Board Revenue - Vanderbilt University - Series A
2,850 Metropolitan Nashville and Davidson County - Tennessee Health and 7.625 05/01/16 3,114,680
Educational Facilities Board Revenue - Vanderbilt University- Series A
125 Tennessee State School Bond Authority - Higher Educational Facilities 7.000 05/01/20 132,588
3,705 Tennessee State School Bond Authority - Higher Educational Facilities - 6.250 05/01/22 3,801,071
Series 1992 A
Health Care
--------------------------------------------------------------------------------------------------------------------
1,045 Metropolitan Nashville and Davidson County - Tennessee Health and 7.100 07/01/14 1,102,642
Educational Facilities Board Revenue - Bethany Health Care Center
1,245 Metropolitan Nashville and Davidson County - Tennessee Health and 9.000 10/01/22 1,327,656
Educational Facilities Board Revenue - Mur-Ci Homes Project - Series 1992A
Hospitals
--------------------------------------------------------------------------------------------------------------------
1,500 Bristol, TN Health and Educational Facilities Board Revenue - Bristol 5.125 09/01/13 1,409,265
Memorial Hospital - Series 1993
2,480 Chattanooga-Hamilton County, TN Hospital Authority - Erlanger Medical 5.500 10/01/13 2,432,062
Center - Series 1993
2,300 Chattanooga-Hamilton County, TN Hospital Authority - Erlanger Medical 5.625 10/01/18 2,222,973
Center - Series 1993
2,300 Chattanooga-Hamilton County, TN Hospital Authority - Erlanger Medical Center 5.500 10/01/23 2,254,506
1,930 Chattanooga, TN Health, Education and Housing Facility Board Revenue - 6.600 09/01/12 2,061,163
Memorial Hospital - Series A
1,000 Clarksville, TN Hospital and Improvement Revenue - Clarksville Memorial 6.250 07/01/08 1,006,600
Project - Series 1993
1,775 Clarksville, TN Hospital and Improvement Revenue - Clarksville Memorial 6.250 07/01/13 1,720,720
Project - Series 1993
1,250 Clarksville, TN Hospital and Improvement Revenue - Clarksville Memorial 6.375 07/01/18 1,209,625
Project - Series 1993
4,550 Cookeville, TN Industrial Development Board Hospital Revenue - Cookeville 5.750 10/01/10 4,344,386
General Hospital - Series 1993
500 Johnson City, TN Health and Educational Facilities Board Revenue - Johnson 5.000 07/01/13 461,845
Medical Center Hospital - Series 1994
2,090 Johnson City, TN Health and Educational Facilities Board Revenue - Johnson 6.750 07/01/16 2,241,128
Medical Center Hospital - Series 1994
1,790 Knox County, TN Health, Education and Housing Facilities Board Hospital 8.000 01/01/08 1,962,037
Revenue - Fort Sanders Regional Medical Center
3,250 Knox County, TN Health, Education and Housing Facilities Board Hospital 5.875 09/01/15 3,270,768
Revenue - Mercy Health System - Series 1993 B
1,500 Knox County, TN Health, Education and Housing Facilities Board Hospital 5.750 01/01/11 1,532,505
Revenue - Fort Sanders Alliance Obligated Group - Series 1993 A
1,000 Knox County, TN Health, Education and Housing Facilities Board Hospital 6.250 01/01/13 1,083,780
Revenue - Fort Sanders Alliance Obligated Group - Series A
</TABLE>
4 Tennessee
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,455 Knox County, TN Health, Education and Housing Facilities Board Hospital 5.250% 01/01/23 $ 1,349,207
Revenue - Fort Sanders Alliance - Series 1993 A
1,000* Metropolitan Nashville and Davidson County - Tennessee Health and 5.750 11/15/25 965,000
Educational Facilities Board Revenue - Adventist Health System/Sunbelt
Obligated Group - Series 1995
2,395 Metropolitan Nashville and Davidson County - Tennessee Health and 7.000 11/15/16 2,642,356
Educational Facilities Board Revenue - Adventist/Sunbelt Systems
390 Shelby County, TN Health, Educational and Housing Facilities Board 5.500 08/15/19 377,302
Revenue - LeBonheur Children's Medical Center - Series 1993 D
3,000 Sullivan County, TN Health, Educational and Housing Facilities Board - 5.750 02/15/13 2,993,100
Hospital Revenue - Holston Valley Health Care - Series 1993
2,500 Sumner County, TN Health, Educational and Housing Facilities Board 7.500 11/01/14 2,715,975
Revenue - Sumner Regional Health Systems, Incorporated Project - Series 1994
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
1,200 Chattanooga, TN Health, Education and Housing Facility Board Revenue - 5.950 07/01/14 1,182,444
Windridge Apartments - Series 1993A
1,475 Greater Tennessee Housing Assistance Corporation - Mortgage Revenue - 6.000 07/01/24 1,462,861
Section 8 Projects - Series 1993A
250 Metropolitan Nashville and Davidson County - Tennessee Health and 7.000 06/01/17 266,660
Educational Facilities Board Revenue - Herman Street Apartments - Series 1992
495 Metropolitan Nashville and Davidson County - Tennessee Health and 7.250 06/01/32 527,987
Educational Facilities Board Revenue - Herman Street Apartments - Series 1992
1,250 Metropolitan Nashville and Davidson County - Tennessee Industrial 8.125 10/01/28 1,347,988
Development Board - Multifamily Housing Revenue - St. Paul Retirement
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
365 Hamilton County, TN Single Family Revenue 8.000 09/01/23 387,491
650 Commonwealth of Puerto Rico Housing Authority - Single Family - Series D 6.850 10/15/24 683,274
320 Tennessee Housing Development Agency - Homeownership Program - Issue B 8.000 07/01/13 331,968
700 Tennessee Housing Development Agency - Homeownership Program - Issue J 7.750 07/01/17 739,060
500 Tennessee Housing Development Agency - Homeownership Program - Issue L 8.125 07/01/12 523,915
2,000 Tennessee Housing Development Agency - Homeownership Program - Issue O 7.750 07/01/20 2,102,940
1,115 Tennessee Housing Development Agency - Homeownership Program - Issue P 7.700 07/01/16 1,185,055
170 Tennessee Housing Development Agency - Homeownership Program - Issue U 7.400 07/01/16 179,489
3,900 Tennessee Housing Development Agency - Homeownership Program - Issue T 7.375 07/01/23 4,114,188
3,030 Tennessee Housing Development Agency - Homeownership Program - Issue WR 6.800 07/01/17 3,158,866
450 Tennessee Housing Development Agency - Homeownership Program - Issue XR 6.875 07/01/22 465,142
1,800 Tennessee Housing Development Agency - Homeownership Program - Issue Z 6.100 07/01/24 1,768,590
1,000 Tennessee Housing Development Agency - Mortgage Finance Program - 6.900 07/01/25 1,034,360
Series 1994 A
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------
3,000 Chattanooga, TN Industrial Development Board - Pollution Control Revenue - 6.350 07/01/22 3,124,800
Du Pont - Series 1993 A
12,000 Humphreys County, TN Industrial Development Board Facility Revenue - 6.700 05/01/24 12,460,440
E.I. Du Pont De Nemours and Company - Series 1994
8,500 Loudon County, TN Industrial Development Board - Solid Waste Disposal 6.200 02/01/23 8,566,555
Revenue - Kimberly-Clark Corporation - Series 1993
</TABLE>
Tennessee 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 2,500 McMinn County, TN Industrial Development Board - Pollution Control 7.625% 03/01/16 $ 2,646,950
Revenue - Bowater Incorporated Project
3,000 McMinn County, TN Industrial Development Board - Solid Waste Recycling 7.400 12/01/22 3,213,300
Facilities Revenue - Calhoun Newsprint Company - Bowater Incorporated
Project - Series 1992
5,545 Memphis-Shelby County, TN Airport Authority Special Facilities and Project 7.875 09/01/09 6,117,798
Revenue - Federal Express
4,100 Memphis-Shelby County, TN Airport Authority Special Facilities and Project 6.750 09/01/12 4,215,702
Revenue - Federal Express - Series 1992
250 Memphis-Shelby County, TN Industrial Development Board Revenue - 9.500 04/01/01 298,348
Colonial Baking Company Project
2,000 Metropolitan Nashville and Davidson County - Tennessee Industrial 6.000 05/01/03 2,030,060
Development Board Revenue - OSCO Treatment - Series 1993
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------
2,660 Tennessee State Local Development Authority Revenue - Series 1992 7.000 10/01/21 2,843,806
1,500 Wilson County, TN Educational Facilities Corporation - Certificates of 6.125 06/30/10 1,541,805
Participation - Series 1994
1,500 Wilson County, TN Educational Facilities Corporation - Certificates of 6.250 06/30/15 1,538,475
Participation - Series 1994
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
1,000 Memphis-Shelby County, TN Airport Authority Revenue - Series 1993 B 5.500 02/15/12 979,580
145 Metropolitan Nashville Airport Authority - Tennessee Airport Improvement 6.625 07/01/07 157,379
Revenue - Series C
6,285 Metropolitan Nashville Airport Authority - Tennessee Airport Improvement 6.600 07/01/15 6,701,444
Revenue - Series C
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
1,650 Harpeth Valley, TN Utilities District of Davidson and Williamson Counties - 5.500 09/01/11 1,646,304
Utilities Revenue - Series 1993
315 Jackson, TN Electric System Revenue - Series E 6.300 08/01/09 329,729
335 Jackson, TN Electric System Revenue - Series E 6.300 08/01/10 348,655
355 Jackson, TN Electric System Revenue - Series E 6.300 08/01/11 368,831
380 Jackson, TN Electric System Revenue - Series E 6.300 08/01/12 393,900
1,000 Middle Tennessee Utility District - Gas System Revenue - Cannon, Cumberland, 6.250 10/01/12 1,044,810
Dekalb, Putnam, Rhea, Rutherford, Smith, Warren, White and Wilson Counties
400 Commonwealth of Puerto Rico Electric Power Authority - Series P 7.000 07/01/21 440,116
1,825 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 1,864,146
1,100 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.125 07/01/08 1,130,679
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
500 Clarksville, TN Water, Sewer and Gas Revenue - Series 1992 6.125 02/01/12 512,955
1,520 Clarksville, TN Water, Sewer and Gas Revenue - Series 1992 0.000 02/01/16 439,052
425 Clinton, TN Water and Sewer System Revenue 6.300 12/01/08 449,905
450 Clinton, TN Water and Sewer System Revenue 6.300 12/01/09 473,247
525 Clinton, TN Water and Sewer System Revenue 6.300 12/01/10 548,504
395 Clinton, TN Water and Sewer System Revenue 6.300 12/01/11 411,870
1,125 Eastside Utility District of Hamilton County, TN Water System Revenue - 6.750 11/01/11 1,179,292
Series 1992
</TABLE>
6 Tennessee
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 2,490 Metropolitan Nashville and Davidson County - Tennessee Water and Sewer 5.100% 01/01/16 $ 2,324,465
Revenue - Series 1993
2,500 Mt. Juliet, TN Public Building Authority Revenue - Utility District 7.800 02/01/19 3,068,225
1,020 Mt. Juliet, TN Public Building Authority Revenue - Utility District 7.550 02/01/19 1,131,833
1,500 Northeast Knox County, TN Utility District - Water Revenue 7.000 01/01/20 1,648,650
1,325 Tennessee State Local Development Authority Revenue - State Loan 7.000 03/01/12 1,410,224
Program - Series A
1,175 Tennessee State Local Development Authority Revenue - State Loan 7.000 03/01/21 1,253,337
Program - Series A
2,300 White House, TN Water and Improvement Revenue - Utility District of 6.375 01/01/22 2,396,186
Robertson and Sumner Counties - Series 1992B
1,500 Wilson County, TN Water and Wastewater Authority - Waterworks 6.000 03/01/14 1,494,808
Improvement Revenue - Series 1993
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
2,025 Hamilton County, TN General Obligation - Series 1995 6.300 02/01/25 2,111,508
1,490 Hamilton County, TN General Obligation - Series 1995 6.250 02/01/20 1,547,395
5,000 Johnson City, TN School Sales Tax and Unlimited Tax Revenue - Series 1994 6.700 05/01/21 5,452,950
1,435 Memphis, TN Airport Revenue - Series B 7.050 07/01/10 1,509,347
3,030 Metropolitan Nashville and Davidson County, TN Government - General 6.125 05/15/14 3,134,262
Obligation Multi-Purpose Improvement - Series 1994
1,225 Metropolitan Nashville and Davidson County, TN Government - General 6.125 05/15/19 1,245,629
Obligation Multi-Purpose Improvement - Series 1994
525 Rhea County, TN General Obligation - Series 1992 6.250 03/01/09 558,017
550 Rhea County, TN General Obligation - Series 1992 6.350 03/01/10 584,430
550 Rhea County, TN General Obligation - Series 1992 6.400 03/01/11 584,776
600 Rhea County, TN General Obligation - Series 1992 6.400 03/01/12 636,546
200 Sevier County, TN Public Building Authority - Solid Waste Facility - Series 1991 6.750 08/01/09 214,212
2,530 Shelby County, TN General Obligation - Series 1994 B 6.000 03/01/16 2,589,076
2,695 Shelby County, TN General Obligation - Series 1994 B 6.000 03/01/17 2,754,667
1,000 Shelby County, TN General Obligation - Series 1995 A 5.625 04/01/14 999,330
1,000 Shelby County, TN General Obligation - Series A 6.250 12/01/15 1,039,370
2,675 Shelby County, TN General Obligation - Series 1994 A 5.950 03/01/17 2,725,745
3,560 Shelby County, TN General Obligation - Series 1994 A 5.950 03/01/18 3,621,837
3,790 Shelby County, TN General Obligation - Series 1994 A 5.950 03/01/19 3,849,730
2,115 Shelby County, TN General Obligation - Series A 6.250 12/01/12 2,209,498
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
2,400 Anderson County, TN Health and Educational Facilities Revenue Hospital 8.125 07/01/08 2,693,256
Improvement - Methodist Medical Center
250 Anderson County, TN Health and Educational Facilities Revenue Hospital 8.125 07/01/08 281,030
Improvement - Methodist Medical Center
2,250 Bristol, TN Health and Educational Facilities Board Revenue - Bristol 7.000 09/01/11 2,545,988
Memorial Hospital
7,375 Bristol, TN Health and Educational Facilities Board Revenue - Bristol 7.000 09/01/21 8,345,181
Memorial Hospital
300 Chattanooga, TN Municipal Public Improvement - Sewage Facility 8.000 06/01/10 337,488
1,200 Chattanooga, TN Municipal Public Improvement - Sewage Facility 8.000 06/01/11 1,349,952
1,000 Chattanooga, TN General Obligation 7.250 05/01/12 1,129,470
500 Chattanooga, TN General Obligation 7.000 05/01/13 559,295
</TABLE>
Tennessee 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,700 Clarksville, TN Water, Sewer and Gas Revenue 7.700% 02/01/18 $ 1,871,615
1,455 Gladeville, TN Utility District Waterworks Revenue 7.400 10/01/10 1,647,075
1,615 Johnson City, TN Health and Educational Facilities Board Revenue - Johnson 6.750 07/01/16 1,816,326
Medical Center Hospital - Series 1994
3,000 Knox County, TN Health, Education and Housing Facilities Board Hospital 7.600 09/01/19 3,405,660
Revenue - Mercy Health System
3,065 Knox County, TN Health, Education and Housing Facilities Board Hospital 7.000 01/01/15 3,415,452
Revenue - Fort Sanders Alliance
500 Metropolitan Nashville and Davidson County - Tennessee Water and Sewer 7.000 01/01/14 518,290
Revenue
545 Metropolitan Nashville Airport Authority - Tennessee Airport Improvement 6.500 07/01/11 606,116
Revenue - Series 1991B
1,365 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 1,533,782
1,000 Commonwealth of Puerto Rico Highway and Transportation Authority 8.125 07/01/13 1,127,230
Revenue - Series P
2,650 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 7.875 07/01/16 2,891,018
Education and Health Facilities - Series H
1,000 Commonwealth of Puerto Rico Electric Power Authority - Series M 8.000 07/01/08 1,123,650
865 Selmer, TN General Obligation 8.200 07/01/13 974,232
500 Shelby County, TN General Obligation - Series A 6.500 03/01/11 542,210
1,000 Shelby County, TN Health, Educational and Housing Facilities Board 7.625 08/15/09 1,112,740
Revenue - LeBonheur Children's Medical Center
2,000 Shelby County, TN Health, Educational and Housing Facilities Board 7.600 08/15/19 2,224,000
Revenue - LeBonheur Children's Medical Center
4,000 Sullivan County, TN Health, Educational and Housing Facilities Board 7.250 02/15/20 4,508,120
Revenue - Holston Valley Health
1,000 West Knox Utility District of Knox County, TN - Water and Sewer 7.750 12/01/08 1,124,750
Improvement Revenue
1,000 Wilson County, TN Water and Wastewater Authority - Waterworks 7.875 03/01/09 1,129,120
Improvement Revenue
950 Wilson County, TN Water and Wastewater Authority - Waterworks 8.000 03/01/14 1,076,360
Improvement Revenue
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
385 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 429,633
3,000 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 3,127,710
500 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.400 07/01/11 524,660
1,200 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 5.750 07/01/15 1,178,904
Education and Health Facilities - Series 1993 M
Total Investments in Securities - Municipal Bonds (cost $237,124,632) - 98.8% 251,295,676
Excess of Other Assets over Liabilities - 1.2% 2,975,879
Total Net Assets - 100.0% $254,271,555
</TABLE>
*Securities purchased on a "when issued" basis.
See notes to financial statements.
8 Tennessee
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $237,124,632) $251,295,676
Cash 41,495
Receivable for investments sold 2,869,784
Receivable for fund shares sold 488,178
Interest receivable 4,793,517
Other 20,349
Total assets 259,508,999
LIABILITIES:
Payable for investments purchased 3,314,536
Payable for fund shares reacquired 512,038
Distributions payable 1,164,006
Accrued expenses 246,864
Total liabilities 5,237,444
NET ASSETS $254,271,555
Class A:
Applicable to 21,966,862 shares of beneficial $241,778,047
interest issued and outstanding
Net asset value per share $ 11.01
Class C:
Applicable to 1,135,636 shares of beneficial $ 12,493,508
interest issued and outstanding
Net asset value per share $ 11.00
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 15,922,540
EXPENSES:
Distribution fees - Class A (Note E) 928,442
Distribution fees - Class C (Note E) 109,004
Investment advisory fees (Note E) 1,218,988
Custody and accounting fees 142,900
Transfer agent's fees 189,400
Registration fees 16,049
Legal fees 3,650
Audit fees 19,895
Trustees' fees 4,520
Shareholder services fees (Note E) 25,840
Other 11,014
Advisory fees waived (Note E) (442,963)
Total expenses 2,226,739
Net investment income 13,695,801
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (1,931,572)
Change in unrealized appreciation (depreciation) of investments 6,499,989
Net gain on investments 4,568,417
Net increase in net assets resulting from operations $ 18,264,218
See notes to financial statements
Tennessee 9
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 13,695,801 $ 12,401,381
Net realized loss on security transactions (1,931,572) (3,222,191)
Change in unrealized appreciation 6,499,989 (7,564,668)
(depreciation) of investments
Net increase in net assets resulting from 18,264,218 1,614,522
operations
Distributions to shareholders:
Dividends from net investment
income - Class A (13,101,540) (12,209,574)
Dividends from net investment
income - Class C (583,052) (227,595)
Distributions from net realized capital (18,554)
gains - Class A
Distributions from net realized capital (398)
gains - Class C
Distributions in excess of net realized (433,155)
capital gains - Class A
Distributions in excess of net realized (9,455)
capital gains - Class C
Net decrease in net assets from distributions (13,101,540) (12,661,283)
to shareholders - Class A
Net decrease in net assets from distributions (583,052) (237,448)
to shareholders - Class C
Fund share transactions:
Proceeds from shares sold - Class A 27,606,878 66,902,297
Proceeds from shares sold - Class C 4,475,943 11,572,058
Net asset value of shares issued in 6,930,735 6,591,346
reinvestment of distributions - Class A
Net asset value of shares issued in 422,962 147,447
reinvestment of distributions - Class C
Cost of shares reacquired - Class A (33,357,985) (18,442,634)
Cost of shares reacquired - Class C (3,267,751) (416,600)
Net increase in net assets from Fund share 1,179,628 55,051,009
transactions - Class A
Net increase in net assets from Fund share 1,631,154 11,302,905
transactions - Class C
Total increase in net assets 7,390,408 55,069,705
NET ASSETS:
Beginning of year 246,881,147 191,811,442
End of year $ 254,271,555 $ 246,881,147
NET ASSETS CONSIST OF:
Paid-in surplus $ 245,685,704 $ 242,874,922
Undistributed net investment income 11,209
Accumulated net realized loss on security (5,596,402) (3,664,830)
transactions
Unrealized appreciation (depreciation) of 14,171,044 7,671,055
investments
$ 254,271,555 $ 246,881,147
See notes to financial statements
10 Tennessee
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Tennessee Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
am ended. The Fund commenced investment operations on November 2, 1987. On
October 4, 1993, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C
shares are sold with no front-end sales charge but are assessed a contingent
deferr ed sales charge if redeemed within one year from the time of
purchase. Both classes of shares have identical rights and privileges except
with respect to the effect of sales charges, the distribution and/or service
fees borne by each class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privilege of each class.
Shares of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and v arious relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is e quivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
feder al income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are dist
ributed to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of share
s are prorated among the classes based upon the eligible net assets of each
class. Specifically identified direct expenses of each class are charged to
that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities
Tennessee 11
<PAGE>
Notes to Financial Statements
================================================================================
as collateral, purchase and sell portfolio securities on a "when issued"
basis. These securities are registered by a municipality or government
agency, but have not been issued to the public. Delivery and payment take
place after the date of the transaction and such securities are subject to
market fluctuations during this period. The current market value of these
securities is determined in the same manner as other portfolio securities.
There were $965,000 "when issued" purchase commitments included in the
statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 2,599,849 5,884,739
Shares issued in reinvestment
of distributions 654,188 581,880
Shares reacquired (3,192,266) (1,638,994)
Net (decrease) increase
in shares outstanding 61,771 4,827,625
Outstanding at beginning
of year 21,905,091 17,077,466
Outstanding at end of year 21,966,862 21,905,091
Period From
Year Ended October 4, 1993
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 420,452 1,011,861
Shares issued in reinvestment
of distributions 39,944 13,252
Shares reacquired (312,865) (37,008)
Net increase in shares
outstanding 147,531 988,105
Outstanding at beginning
of period 988,105 - 0 -
Outstanding at end of period 1,135,636 988,105
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995,
aggregated $59,943,621 and $56,428,166, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $14,171,044 of which $14,533,048
related to appreciated securities and $362,004 related to depreciated
securities.
At May 31,1995, the Fund has available a capital loss carryforward of
approximately $5,596,400 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31,
1995, the Advisor, at its discretion, permanently waived $442,963 of its
advisory fees. Included in accrued expenses at May 31, 1995 are accrued
advisory fees of $74,707.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuse and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maxim
amount payabl e for these expenses on an annual basis is .40% and .95%
12 Tennessee
<PAGE>
Notes to Financial Statements
================================================================================
of the Fund's average daily net assets for Class A and Class C shares,
respectively. Included in accrued expenses at May 31, 1995 are accrued
distribution fees of $81,157 and $10,028 for Class A and Class C shares,
respectively. Certain non-promotional expenses directly attributable to
current shareholders are aggregated by the Distributor and passed through
to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $845,900 for the year ended May 31, 1995, of which
approximately $732,500 was paid to other dealers. For the year ended May 31
1995, the Distributor received approximately $16,300 of contingent deferred
sales charges on redemptions of Class C shares. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $12
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $492,516, with a weighted
average annualized interest rate of 6.18%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
Tennessee 13
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.78 $11.23 $10.56 $10.34 $10.09
Income from investment operations:
Net investment income 0.60 0.61 0.62 0.65 0.67
Net realized and unrealized gain 0.23 (0.43) 0.68 0.22 0.26
(loss) on securities
Total from investment operations 0.83 0.18 1.30 0.87 0.93
Less distributions:
Dividends from net investment income (0.60) (0.61) (0.63) (0.65) (0.67)
Distributions from net realized capital gains (0.01)
Distributions in excess of net realized
capital gains (0.02)
Total distributions (0.60) (0.63) (0.63) (0.65) (0.68)
Net asset value, end of year $11.01 $10.78 $11.23 $10.56 $10.34
Total return(a) 8.04% 1.55% 12.60% 8.66% 9.73%
Ratios to average net assets:
Actual net of waivers and reimbursements:
Expenses 0.89% 0.76% 0.88% 0.84% 0.76%
Net investment income 5.64% 5.42% 5.66% 6.18% 6.60%
Assuming no waivers and reimbursements:
Expenses 1.07% 1.02% 1.05% 1.04% 1.07%
Net investment income 5.46% 5.16% 5.49% 5.98% 6.29%
Net assets at end of year (000's) $241,778 $236,230 $191,811 $126,833 $92,431
Portfolio turnover rate 23.38% 16.93% 15.07% 34.57% 29.63%
</TABLE>
(a) The total returns shown do not
include the effect of applicable
front-end sales charge.
14 Tennessee
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
===============================================================================
Period From
Year Ended October 4, 1993 to
CLASS C May 31, 1995 May 31, 1994
-------------------------------------------------------------------------------
Net asset value, beginning of period $10.78 $11.61
Income from investment operations:
Net investment income 0.54 0.35
Net realized and unrealized gain 0.22 (0.83)
(loss) on securities
Total from investment operations 0.76 (0.48)
Less distributions:
Dividends from net investment (0.54) (0.34)
income
Distributions in excess of net (0.01)
realized capital gains
Total distributions (0.54) (0.35)
Net asset value, end of period 11.00 10.78
Total return(a) 7.35% -5.92%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.44% 1.23%
Net investment income 5.08% 4.80%
Assuming no waivers and
reimbursements:
Expenses 1.62% 1.63%
Net investment income 4.90% 4.40%
Net assets at end of period (000's) $12,494 $10,652
Portfolio turnover rate 23.38% 16.93%
(a) The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where
appropriate.
Tennessee 15
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP TENNESSEE
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Tennessee Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. An audit also
includes assessing the accounting principles used and si gnificant 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 present
fairly, in all material respects, the financial position of the Flagship
Tennessee Double Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the res pective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
16 Tennessee
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
---------------------------------------------------------------------------------------------------------------------
$ 500 Hampton Roads, VA Medical College Revenue - Series 1991A 6.875% 11/15/16 $ 531,395
500 Loudoun County, VA Industrial Development Authority - George 6.250 05/15/12 519,420
Washington University
1,225 Loudoun County, VA Industrial Development Authority - George 6.250 05/15/22 1,273,449
Washington University
1,250 Rockingham County, VA Industrial Development Authority Revenue - 6.000 10/01/23 1,203,800
Bridgewater College - Series 1993
2,000 University of Virginia - Rector and Visitors General Pledge - Series 1993B 5.375 06/01/20 1,903,680
750 Virginia College Building Authority Educational Facilities Revenue - 6.400 01/01/12 790,928
Washington and Lee University - Series 1992
2,000 Virginia College Building Authority Educational Facilities Revenue - 6.625 10/15/12 2,041,040
Roanoke College - Series 1992
3,250 Virginia College Building Authority Educational Facilities Revenue - 5.750 04/01/14 3,158,740
Hampton University - Series 1993
775 Winchester, VA Industrial Development Authority Educational Facilities 6.750 10/01/19 824,189
First Mortgage Revenue - Shenandoah University Project - Series 1994
1,800 Winchester, VA Industrial Development Authority Educational Facilities 6.700 10/01/14 1,919,139
First Mortgage Revenue - Shenandoah University Project - Series 1994
Health Care
---------------------------------------------------------------------------------------------------------------------
715 Albemarle County, VA Industrial Development Authority - First Mortgage 8.900 07/15/26 843,536
Revenue
500 Front Royal & Warren County, VA Industrial Development Authority 9.450 07/15/24 577,190
Revenue - Heritage Hall
1,210 Henrico County, VA Industrial Development Authority - Nursing Facility - 5.875 07/01/19 1,175,769
Cambridge Manor Nursing Home - Series 1993
3,500 Norfolk, VA Industrial Development Authority Revenue - James Barry- 7.700 10/01/06 3,670,030
Robinson Institute Project
400 Richmond, VA Industrial Development Authority Revenue - Richmond 7.125 02/01/11 426,512
Metropolitan Blood Service
Hospitals
---------------------------------------------------------------------------------------------------------------------
1,125 Albemarle County, VA Industrial Development Authority Revenue - 6.500 10/01/22 1,146,926
University of Virginia Health Services Foundation - Series 1992
1,000 Alexandria, VA Industrial Development Authority - Alexandria Community 5.500 07/01/14 981,410
Healthcare - Series 1993B
1,210 Buena Vista, VA Industrial Development Authority - Stonewall Jackson 8.375 11/01/14 1,330,359
Hospital
750 Chesapeake, VA Hospital Authority Facility Mortgage Revenue - 5.500 07/01/12 739,335
Chesapeake General Hospital - Series 1993
500 Fairfax County, VA Redevelopment and Housing Authority Revenue - 7.500 11/01/19 525,855
Vinson Pravalion - Series A
1,000 Harrisonburg, VA Industrial Development Authority Hospital Revenue - 5.250 12/01/22 932,630
Rockingham Memorial Hospital - Series 1993
250 Martinsville, VA Industrial Development Authority Hospital Facility 7.000 01/01/11 262,545
Revenue - Memorial Hospital Martinsville and Henry
</TABLE>
4 Virginia
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,150 Norfolk, VA Industrial Development Authority Revenue - Children's 6.500% 06/01/21 $ 1,209,214
Hospital of The King's Daughters - Series 1991
2,000 Peninsula Ports Authority - Virginia Hospital Facility Revenue - Mary 7.000 08/01/17 2,015,100
Immaculate Hospital - Series 1994
Housing/Multifamily
---------------------------------------------------------------------------------------------------------------------
1,750 Alexandria, VA Redevelopment and Housing Authority - Arha Apartments 8.600 07/20/29 1,843,205
2,475 Harrisonburg, VA Redevelopment and Housing Authority Revenue - 7.100 12/01/15 2,593,330
Multifamily - United Dominion - Series 1992
1,750 Harrisonburg, VA Redevelopment and Housing Authority Revenue - 7.000 12/01/08 1,851,955
Multifamily - United Dominion - Series 1992
2,000 Newport News, VA Redevelopment and Housing Authority - Mortgage 6.550 07/01/24 2,053,840
Revenue - Berkley West Apartments - Series 1992A
1,500 Richmond, VA Redevelopment and Housing Authority Revenue - Old 6.800 03/01/15 1,596,060
Manchester Project - Series 1994
700 Virginia State Housing Development Authority - Multifamily - Series 1991F 7.000 05/01/04 735,420
Housing/Single Family
---------------------------------------------------------------------------------------------------------------------
535 Commonwealth of Puerto Rico Housing Authority - Single Family - Series B 7.650 10/15/22 570,850
200 Virginia State Housing Development Authority - Commonwealth Mortgage - 7.500 07/01/17 212,588
Series D
1,000 Virginia State Housing Development Authority - Commonwealth Mortgage - 7.100 01/01/22 1,060,500
Series A
3,000 Virginia State Housing Development Authority - Commonwealth Mortgage - 7.100 01/01/17 3,171,300
Series A
Industrial Development and Pollution Control
---------------------------------------------------------------------------------------------------------------------
2,000 Covington-Alleghany County, VA Industrial Development Authority - 6.650 09/01/18 2,103,340
Pollution Control Facilities Refunding Revenue - Westvaco Corporation
Project - Series 1994
3,295 Isle of Wight County, VA Industrial Development Authority - Solid Waste 6.550 04/01/24 3,403,043
Disposal Facilities - Union Camp Corporation Series 1994
300 Loudoun County, VA Industrial Development Authority - Air Cargo Facility 6.625 01/01/00 304,404
Revenue - Washington Dulles - Series 1992
3,000 Loudoun County, VA Industrial Development Authority - Air Cargo Facility 7.000 01/01/09 3,083,040
Revenue - Washington Dulles - Series 1992
2,500 Mecklenburg County, VA Industrial Development Authority Revenue - 7.350 05/01/08 2,658,300
Mecklenburg Cogeneration
1,000 Russell County, VA Industrial Development Authority Pollution Control 7.700 11/01/07 1,097,960
Revenue - Appalachian Power Company
Municipal Appropriation Obligations
---------------------------------------------------------------------------------------------------------------------
1,460 Fairfax County, VA Redevelopment and Housing Authority Revenue - Office 7.500 06/15/18 1,572,026
Building - Series 1992 A
2,000 Henrico County, VA Industrial Development Authority - Public Facility 7.000 08/01/13 2,233,280
Lease Revenue - Henrico County Regional Jail Project - Series 1994
750 Loudoun County, VA Certificates of Participation 7.200 10/01/10 883,440
</TABLE>
Virginia 5
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 250 Prince William County, VA Industrial Development Authority - Commuter 7.250% 03/01/11 $ 265,858
Parking Facilities
1,200 Commonwealth of Puerto Rico Urban Renewal and Housing 7.875 10/01/04 1,355,748
1,000 Riverside, VA Regional Jail Authority - Jail Facility Revenue Bonds - Series 6.000 07/01/25 1,016,260
1995
3,000 Virginia Public Building Authority - State Building Revenue - Series 1994 A 6.250 08/01/15 3,134,160
2,000 Virginia State Transportation Board - U.S. Route 58 Corridor Development 5.500 05/15/18 1,949,060
Program - Series 1993B
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------
3,155 Chesapeake Bay, VA Bridge and Tunnel Commission District Revenue - 5.750 07/01/25 3,110,357
Series 1994
1,000 Chesapeake Bay, VA Bridge and Tunnel Commission District Revenue 6.375 07/01/22 1,037,270
1,500 Peninsula Airport Commission - Virginia Airport Improvement Revenue - 7.300 07/15/21 1,633,170
Series 1991
1,930 Commonwealth of Puerto Rico Highway and Transportation Authority 6.000 07/01/20 1,934,883
Revenue - Series Q
1,000 Richmond, VA Metropolitan Authority Expressway Revenue - Series 1992 B 6.250 07/15/12 1,048,040
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------
2,110 Halifax County, VA Industrial Development Authority - Exempt Facilities 6.500 12/01/12 2,165,577
Revenue - Old Dominion Electric Cooperative - Series 1992
1,275 Commonwealth of Puerto Rico Electric Power Authority - Series N 5.000 07/01/12 1,165,261
1,400 Commonwealth of Puerto Rico Electric Power Authority - Series O 0.000 07/01/17 360,878
1,000 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 1,021,450
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------
1,000 Blacksburg, VA Polytechnic Institute Sanitation Authority - Sewer System 6.250 11/01/12 1,020,610
Revenue - Series 1992
1,000 Fairfax County, VA Water Authority Revenue - Series 1992 6.000 04/01/22 1,013,040
1,000 Frederick-Winchester Service Authority, VA Regional Sewer System 5.750 10/01/15 1,001,450
Revenue - Series 1993
750 Henry County, VA Public Service Authority Water and Sewer Revenue 6.250 11/15/19 772,455
1,000 Virginia State Resource Authority - Sewer System Revenue - Harrisonburg- 6.000 05/01/22 1,001,170
Rockingham - Series 1992 A
105 Virginia State Resource Authority - Water and Sewer System Revenue - 8.125 11/01/16 112,090
Pooled Loan Program - Series A
110 Virginia State Resource Authority - Water and Sewer System Revenue - 8.125 11/01/16 117,296
Pooled Loan Program - Series A
120 Virginia State Resource Authority - Water and Sewer System Revenue - 8.125 11/01/16 127,960
Pooled Loan Program - Series A
130 Virginia State Resource Authority - Water and Sewer System Revenue - 8.125 11/01/16 138,470
Pooled Loan Program - Series A
140 Virginia State Resource Authority - Water and Sewer System Revenue - 8.125 11/01/16 149,121
Pooled Loan Program - Series A
1,000 Virginia State Resource Authority - Water and Sewer System Revenue - 5.625 10/01/13 986,970
Greensville County Lot 13
</TABLE>
6 Virginia
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 275 Virginia State Resource Authority - Water and Sewer System Revenue - 7.600% 11/01/16 $ 292,416
Pooled Loan Program - Series A
305 Virginia State Resource Authority - Water and Sewer System Revenue - 7.600 11/01/16 323,584
Pooled Loan Program - Series A
410 Virginia State Resource Authority - Water and Sewer System Revenue - 7.650 11/01/16 442,251
Pooled Loan Program - Series A
500 Virginia State Resource Authority - Water and Sewer System Revenue - Lot 7 7.125 10/01/16 536,125
1,500 Virginia State Resource Authority - Water and Sewer System Revenue - Lot 9 - 6.000 10/01/12 1,526,640
Fredrick County Sanitation
1,500 Virginia State Resource Authority - Water and Sewer System Revenue - 6.125 04/01/19 1,528,740
Series 1992A
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------
730 Danville, VA General Improvement Revenue 6.500 05/01/12 768,128
585 Isle of Wight County, VA General Obligation - Series 1991 6.700 01/01/12 620,860
1,500 Portsmouth, VA Public Utility General Obligation - Series 1993 5.500 08/01/19 1,436,130
1,000 Richmond, VA General Obligation - Public Improvement Revenue - Series 6.250 01/15/21 1,018,090
1991A
1,000 Virginia Public School Authority - School Financing - 1991 Resolution - 6.200 08/01/13 1,046,680
Series 1994 A
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------
500 Albemarle County, VA Service Authority - Water and Sewer Revenue 7.800 08/01/11 535,540
750 Manassas, VA Industrial Development Authority Hospital Revenue - Prince 8.125 04/01/19 854,752
William Hospital
325 Nelson County, VA Service Authority - Water and Sewer Revenue 7.750 07/01/09 340,782
175 Nelson County, VA Service Authority - Water and Sewer Revenue 7.875 07/01/18 183,729
500 Norfolk, VA General Obligation 7.000 10/01/07 548,505
500 Norfolk, VA Industrial Development Authority Revenue - Children's 7.000 06/01/11 567,930
Hospital of The King's Daughters - Series 1991
500 Northern Virginia Transportation District - Virginia Railway Express 7.000 07/01/10 561,750
100 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 7.875 07/01/16 109,095
Education and Health Facilities - Series G
200 Commonwealth of Puerto Rico Electric Power Authority - Series K 9.375 07/01/17 224,120
1,000 Southeastern Public Service Authority Virginia Revenue - Regional Solid 7.000 07/01/13 1,109,380
Waste System
500 Strasburg, VA General Obligation 7.875 03/01/19 533,625
250 Virginia Beach, VA Certificates of Participation - Judicial Center Project 7.250 09/01/10 284,500
1,000 Virginia College Building Authority Educational Facilities Revenue - 7.750 04/01/14 1,127,010
Hampton University - Series A
550 Virginia College Building Authority Educational Facilities Revenue - 7.000 01/01/15 612,887
Washington and Lee University - Series B
465 Warrenton, VA General Obligation 7.500 07/01/08 502,832
</TABLE>
Virginia 7
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Resource Recovery
---------------------------------------------------------------------------------------------------------------------
$ 2,000 Roanoke, VA Valley Resource Authority - Solid Waste System Revenue - 5.750% 09/01/12 $ 1,963,340
Series 1992
1,000 Virginia State Resource Authority Solid Waste Disposal System Revenue - 6.750 11/01/12 1,077,160
Series 1992 B
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------
2,575 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 2,684,618
2,500 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 2,643,550
Total Investments in Securities - Municipal Bonds (cost $110,191,498) - 97.9% 116,673,425
Excess of Other Assets over Liabilities - 2.1% 2,506,335
Total Net Assets - 100.0% $119,179,760
</TABLE>
See notes to financial statements.
8 Virginia
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $110,191,498) $116,673,425
Cash 656,061
Receivable for Fund shares sold 530,877
Interest receivable 2,269,186
Other 11,688
Total assets 120,141,237
LIABILITIES:
Payable for Fund shares reacquired 305,364
Distributions payable 557,555
Accrued expenses 98,558
Total liabilities 961,477
NET ASSETS $119,179,760
Class A:
Applicable to 10,666,088 shares of beneficial
interest issued and outstanding $112,642,531
Net asset value per share $ 10.56
Class C:
Applicable to 619,280 shares of beneficial
interest issued and outstanding $ 6,537,229
Net asset value per share $ 10.56
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 7,426,343
EXPENSES:
Distribution fees - Class A (Note E) 427,994
Distribution fees - Class C (Note E) 52,794
Investment advisory fees (Note E) 562,880
Custody and accounting fees 90,950
Transfer agent's fees 86,000
Registration fees 6,419
Legal fees 1,643
Audit fees 16,181
Trustees' fees 2,110
Shareholder services fees (Note E) 13,680
Other 6,128
Advisory fees waived (Note E) (351,513)
Total expenses 915,266
Net investment income 6,511,077
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (2,300,229)
Change in unrealized appreciation (depreciation) of investments 4,479,267
Net gain on investments 2,179,038
Net increase in net assets resulting from operations $ 8,690,115
See notes to financial statements.
Virginia 9
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statements of Changes in Net Assets
====================================================================================================================================
Year Ended Year Ended
May 31, 1995 May 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 6,511,077 $ 5,947,749
Net realized gain (loss) on security transactions (2,300,229) 325,335
Change in unrealized appreciation (depreciation) of investments 4,479,267 (3,961,646)
Net increase in net assets resulting from operations 8,690,115 2,311,438
Distributions to shareholders:
Dividends from net investment income - Class A (6,193,219) (5,880,253)
Dividends from net investment income - Class C (290,174) (92,453)
Distributions from net realized capital gains - Class A (1,403,378)
Distributions from net realized capital gains - Class C (25,724)
Distributions in excess of net realized capital gains - Class A (101,221)
Distributions in excess of net realized capital gains - Class C (2,201)
Net decrease in net assets from distributions to shareholders - Class A (6,193,219) (7,384,852)
Net decrease in net assets from distributions to shareholders - Class C (290,174) (120,378)
Fund share transactions:
Proceeds from shares sold - Class A 12,128,107 22,224,831
Proceeds from shares sold - Class C 3,607,953 5,650,414
Net asset value of shares issued in reinvestment of distributions - Class A 3,497,701 3,966,058
Net asset value of shares issued in reinvestment of distributions - Class C 182,018 51,474
Cost of shares reacquired - Class A (12,549,022) (9,865,346)
Cost of shares reacquired - Class C (2,154,894) (677,195)
Net increase in net assets from Fund share transactions - Class A 3,076,786 16,325,543
Net increase in net assets from Fund share transactions - Class C 1,635,077 5,024,693
Total increase in net assets 6,918,585 16,156,444
NET ASSETS:
Beginning of year 112,261,175 96,104,731
End of year $ 119,179,760 $ 112,261,175
NET ASSETS CONSIST OF:
Paid-in surplus $ 115,074,634 $ 110,362,771
Undistributed net investment income 27,684
Accumulated net realized gain (loss) on security transactions (2,404,485) (104,256)
Unrealized appreciation (depreciation) of investments 6,481,927 2,002,660
$ 119,179,760 $ 112,261,175
</TABLE>
See notes to financial statements.
10 Virginia
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Virginia Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on March 27, 1986. On
October 4, 1993, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C
shares are sold with no front-end sales charge but are assessed a contingent
deferred sales charge if redeemed within one year from the time of purchase.
Both classes of shares have identical rights and privileges except with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privilege of each class.
Shares of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax-exempt net
investment income and realized gains on security transactions. Therefore, no
federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of
Virginia 11
<PAGE>
Notes to Financial Statements
================================================================================
securities as collateral, purchase and sell portfolio securities on a "when
issued" basis. These securities are registered by a municipality or
government agency, but have not been issued to the public. Delivery and
payment take place after the date of the transaction and such securities are
subject to market fluctuations during this period. The current market value
of these securities is determined in the same manner as other portfolio
securities. There were no "when issued" purchase commitments included in the
statement of investments at May 31, 1995.
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
Year Ended Year Ended
May 31, 1995 May 31, 1994
CLASS A
Shares sold 1,189,750 2,032,501
Shares issued in reinvestment
of distributions 344,907 363,369
Shares reacquired (1,243,117) (904,841)
Net increase in shares
outstanding 291,540 1,491,029
Outstanding at beginning
of year 10,374,548 8,883,519
Outstanding at end of year 10,666,088 10,374,548
Period From
Year Ended October 4, 1993
May 31, 1995 to May 31, 1994
CLASS C
Shares sold 355,128 518,142
Shares issued in reinvestment
of distributions 17,948 4,817
Shares reacquired (213,209) (63,546)
Net increase in shares
outstanding 159,867 459,413
Outstanding at beginning
of period 459,413 - 0 -
Outstanding at end of period 619,280 459,413
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $59,229,124 and $55,797,058, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting and
federal income tax purposes aggregated $6,481,927 of which $6,561,932
related to appreciated securities and $80,005 related to depreciated
securities.
At May 31, 1995, the Fund has available a capital loss carryforward of
approximately $2,404,500 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the year ended May 31 ,
1995, the Advisor, at its discretion, permanently waived $351,513 of its
advisory fees. Included in accrued expenses at May 31, 1995 are accrued
advisory fees of $24,944.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospect and reports used for sales purposes. Pursuant to Rule 12b-1 under
the Investment Company Act of 1940, the Fund has adopted a plan to reimburse
the Distributor each month for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95%
12 Virginia
<PAGE>
Notes to Financial Statements
================================================================================
of the Fund's average daily net assets for Class A and Class C shares,
respectively. Included in accrued expenses at May 31, 1995 are accrued
distribution fees of $37,807 and $4,996 for Class A and Class C shares,
respectively. Certain non-promotional expenses directly attributable to
current share holders are aggregated by the Distributor and passed through
to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $381,200 for the year ended May 31, 1995, of which
approximately $331,400 was paid to other dealers. For the year ended May 31,
1995, the Distributor received approximately $9,600 of contingent deferred
sales charges on redemptions of Class C shares. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit provided by State Street Bank &
Trust Co. The Fund may temporarily for emergency purposes, borrow up to $6
million under the line of credit. Borrowings are collateralized with pledged
securities and are due on demand with interest at 1% above the federal funds
rate. The average daily amount of borrowings under the line of credit during
the year ended May 31, 1995 was approximately $526,897, with a weighted
average annualized interest rate of 6.68%. At May 31, 1995, the Fund had no
borrowings outstanding under the line of credit.
Virginia 13
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
====================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992 May 31, 1991
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.36 $10.82 $10.24 $9.97 $9.70
Income from investment operations:
Net investment income 0.59 0.60 0.62 0.63 0.63
Net realized and unrealized gain 0.20 (0.31) 0.62 0.27 0.28
(loss) on securities
Total from investment operations 0.79 0.29 1.24 0.90 0.91
Less distributions:
Dividends from net investment (0.59) (0.60) (0.62) (0.63) (0.64)
income
Distributions from net realized (0.11) (0.04)
capital gains
Distributions in excess of net (0.04)
realized capital gains
Total distributions (0.59) (0.75) (0.66) (0.63) (0.64)
Net asset value, end of year $10.56 $10.36 $10.82 $10.24 $9.97
Total return(a) 7.99% 2.62% 12.41% 9.37% 9.72%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.79% 0.64% 0.68% 0.75% 0.91%
Net investment income 5.81% 5.53% 5.82% 6.28% 6.48%
Assuming no waivers and
reimbursements:
Expenses 1.10% 1.06% 1.07% 1.14% 1.18%
Net investment income 5.50% 5.11% 5.43% 5.89% 6.21%
Net assets at end of year (000's) $112,643 $107,502 $96,105 $64,628 $48,062
Portfolio turnover rate 50.17% 17.37% 30.33% 26.59% 22.02%
</TABLE>
(a)The total returns shown do not
include the effect of applicable
front-end sales charge.
14 Virginia
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the period.
===============================================================================
Period From
Year Ended October 4, 1993 to
Class C May 31, 1995 May 31, 1994
-------------------------------------------------------------------------------
Net asset value, beginning of period $10.36 $11.24
Income from investment operations:
Net investment income 0.53 0.34
Net realized and unrealized gain 0.20 (0.78)
(loss) on securities
Total from investment operations 0.73 (0.44)
Less distributions:
Dividends from net investment (0.53) (0.34)
income
Distributions from net realized (0.07)
capital gains
Distributions in excess of net (0.03)
realized capital gains
Total distributions (0.53) (0.44)
Net asset value, end of period $10.56 $10.36
Total return(a) 7.40% (7.13%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses 1.34% 1.14%
Net investment income 5.24% 4.85%
Assuming no waivers and
reimbursements:
Expenses 1.65% 1.79%
Net investment income 4.93% 4.20%
Net assets at end of period (000's) $6,537 $4,759
Portfolio turnover rate 50.17% 17.37%
(a)The total returns shown do not
include the effect of applicable
contingent deferred sales charge
and are annualized where
appropriate.
Virginia 15
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP VIRGINIA
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Virginia Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the Fund's custodian and brokers. 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 present
fairly, in all material respects, the financial position of the Flagship
Virginia Double Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
16 Virginia
<PAGE>
<TABLE>
<CAPTION>
(SHIP GRAPHIC) Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Education
--------------------------------------------------------------------------------------------------------------------
$ 175 University of Puerto Rico System Revenue - Series 1995 N 5.500% 06/01/15 $ 174,156
Hospitals
--------------------------------------------------------------------------------------------------------------------
250 Commonwealth of Puerto Rico Industrial, Tourist, Educational, Medical and 6.250 07/01/24 262,610
Environmental Control Facilities Financing Authority - Hospital Revenue -
Hospital Auxilio Mutuo Obligated Group
100 Superior, WI Redevelopment Authority Revenue - FHA Insured Mortgage 5.300 05/01/04 102,060
Loan - Superior Memorial Hospital, Incorporated - Series 1994
210 Superior, WI Redevelopment Authority Revenue - FHA Insured Mortgage 5.300 11/01/04 214,326
Loan - Superior Memorial Hospital, Incorporated - Series 1994
150 Superior, WI Redevelopment Authority Revenue - FHA Insured Mortgage 5.600 11/01/07 152,943
Loan - Superior Memorial Hospital, Incorporated - Series 1994
175 Superior, WI Redevelopment Authority Revenue - FHA Insured Mortgage 5.700 11/01/09 178,542
Loan - Superior Memorial Hospital, Incorporated - Series 1994
170 Superior, WI Redevelopment Authority Revenue - FHA Insured Mortgage 5.800 05/01/10 173,427
Loan - Superior Memorial Hospital, Incorporated - Series 1994
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------
25 Dane County, WI Housing Authority Revenue - Forest Harbor Apartments 5.900 07/01/12 25,173
Project - Series 1994
50 Dane County, WI Housing Authority Revenue - Forest Harbor Apartments 5.950 07/01/13 49,832
Project - Series 1994
50 Dane County, WI Housing Authority Revenue - Forest Harbor Apartments 6.000 07/01/14 49,716
Project - Series 1994
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------
125 Atlanta, GA New Public Housing Authority - Series 1970 5.000 05/01/07 123,888
100 Hagerstown, MD New Public Housing Authority - Series 1971 5.000 09/01/07 102,587
150 Commonwealth of Puerto Rico Housing Authority - Single Family - Series D 6.850 10/15/24 157,678
300 Puerto Rico Housing Bank and Finance Agency - Single Family Mortgage 6.250 04/01/29 303,720
Revenue - Portfolio I
300 Virgin Islands Housing Finance Authority - Single Family Mortgage Revenue 6.450 03/01/16 307,164
Refunding - GNMA Mortgage-Backed Securities Program - Series 1995 A and B
Municipal Revenue/Other
--------------------------------------------------------------------------------------------------------------------
300 Madison, WI Community Development Authority - Lease Revenue - Monona 6.100 03/01/10 318,294
Terrace Community and Convention Center Project - Series 1995
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
425 Guam Airport Authority General Revenue - Series 1993 A 6.700 10/01/23 436,416
300 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/12 317,910
Revenue - Series V
250 Commonwealth of Puerto Rico Highway and Transportation Authority 5.500 07/01/13 242,195
Revenue - Series 1993 X
</TABLE>
4 Wisconsin
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets May 31, 1995
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
$ 315 Guam Power Authority Revenue - Series 1992 A 6.300% 10/01/22 $ 318,730
35 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 35,751
125 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.375 07/01/24 129,360
615 Commonwealth of Puerto Rico Electric Power Authority - Series T 6.000 07/01/16 616,433
125 Commonwealth of Puerto Rico Telephone Authority Revenue - Series 1993 M 5.400 01/01/08 126,202
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
150 Commonwealth of Puerto Rico Municipal Finance Agency - Series A 8.250 07/01/08 168,458
450 Commonwealth of Puerto Rico Municipal Finance Agency - Series 1994 A 6.000 07/01/14 465,066
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------
790 Commonwealth of Puerto Rico - Public Improvement - Series 1992 6.800 07/01/21 903,144
625 Commonwealth of Puerto Rico Highway and Transportation Authority 6.500 07/01/22 703,275
Revenue - Series T
150 Commonwealth of Puerto Rico Highway and Transportation Authority 6.625 07/01/18 169,911
Revenue - Series 1992 T
125 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public 6.875 07/01/21 143,546
Education and Health Facilities - Series K
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------
100 Commonwealth of Puerto Rico - Public Improvement - General Obligation - 5.375 07/01/22 96,203
Series 1995
450 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 485,352
Total Investments in Securities - Municipal Bonds (cost $7,738,421) - 97.3% 8,054,068
Excess of Other Assets over Liabilities - 2.7% 224,174
Total Net Assets - 100.0% $8,278,242
</TABLE>
See notes to financial statements.
Wisconsin 5
<PAGE>
(SHIP GRAPHIC) Statement of Assets and Liabilities May 31, 1995
================================================================================
ASSETS:
Investments, at market value (cost $7,738,421) $8,054,068
Cash 40,407
Receivable for Fund shares sold 87,130
Interest receivable 151,040
Other 840
Total assets 8,333,485
LIABILITIES:
Distributions payable 34,180
Accrued expenses 21,063
Total liabilities 55,243
NET ASSETS:
Applicable to 845,263 shares of beneficial interest $8,278,242
issued and outstanding
Net asset value per share $ 9.79
(SHIP GRAPHIC) Statement of Operations For the year ended May 31, 1995
================================================================================
INVESTMENT INCOME - INTEREST $ 249,063
EXPENSES:
Distribution fees (Note E) 17,667
Investment advisory fees (Note E) 22,083
Custody and accounting fees 34,075
Transfer agent's fees 15,240
Registration fees 3,628
Legal fees 168
Audit fees 8,220
Trustees' fees 168
Shareholder services fees (Note E) 686
Other 282
Distribution and advisory fees waived (Note E) (22,424)
Expense Subsidy(Note E) (62,467)
Total expenses 17,326
Net investment income 231,737
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on security transactions (53,926)
Change in unrealized appreciation (depreciation) of investments 315,647
Net gain on investments 261,721
Net increase in net assets resulting from operations $ 493,458
See notes to financial statements.
6 Wisconsin
<PAGE>
(SHIP GRAPHIC) Statements of Changes in Net Assets
================================================================================
Year Ended
INCREASE (DECREASE) IN NET ASSETS May 31, 1995
Operations:
Net investment income $ 231,737
Net realized loss on security transactions (53,926)
Change in unrealized appreciation 315,647
(depreciation) of investments
Net increase in net assets resulting 493,458
from operations
Distributions to shareholders:
Dividends from net investment income (227,772)
Net decrease in net assets from distributions (227,772)
to shareholders
Fund share transactions:
Proceeds from shares sold 8,245,900
Net asset value of shares issued in reinvestment 89,742
of distributions
Cost of shares reacquired (323,086)
Net increase in net assets from Fund share 8,012,556
transactions
Total increase in net assets 8,278,242
NET ASSETS:
Beginning of year --
End of year $ 8,278,242
NET ASSETS CONSIST OF:
Paid-in surplus $ 8,012,556
Undistributed net investment income 3,965
Accumulated net realized gain (loss) on (53,926)
security transactions
Unrealized appreciation (depreciation) 315,647
of investments
$ 8,278,242
See notes to financial statements.
Wisconsin 7
<PAGE>
(SHIP GRAPHIC) Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Wisconsin Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end non-diversified
management investment company registered under the Investment Company Act
of 1940, as amended. The Fund commenced investment operations on June 1,
1994. Shares of beneficial interest in the Fund, which are registered under
the Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its
tax-exempt net investment income and realized gains on security
transactions. Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of
certain book-to-tax timing differences is presented as excess distributions
in the statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and
losses on security transactions are determined on the identified cost
basis. Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if appropriate, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and
estimated expenses are accrued daily. Daily dividends are declared from net
investment income and paid monthly. Net realized gains from security
transactions, to the extent they exceed available capital loss
carryforwards, are distributed to shareholders.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred.
The Fund has entered into an agreement with the custodian to reduce
monthly custodian charges for compensating cash balances maintained on
deposit. The compensating balance credit is based on 80% of the daily
effective federal funds rate.
Securities Purchased on a "When Issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner
as other portfolio securities. There were no "when issued" purchase
commitments included in the statement of investments at May 31, 1995.
8 Wisconsin
<PAGE>
Notes to Financial Statements
================================================================================
C. FUND SHARES
At May 31, 1995, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class . Transactions in
shares were as follows:
Year Ended
May 31, 1995
Shares sold 870,892
Shares issued in reinvestment
of distributions 9,567
Shares reacquired (35,196)
Net increase in shares
outstanding 845,263
Outstanding at beginning
of year - 0 -
Outstanding at end of year 845,263
For federal income tax purposes, all of the dividends from net investment
income are exempt from taxation.
D. PURCHASES AND SALES OF
MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1995
aggregated $10,133,870 and $2,338,205, respectively.
At May 31, 1995, net unrealized appreciation for financial reporting
and federal income tax purposes aggregated $315,647 of which $316,099
related to appreciated securities and $452 related to depreciated
securities.
At May 31, 1995, the Fund has available a capital loss carryforward of
approximately $53,900 to offset future net capital gains expiring on May
31, 2003.
E. TRANSACTIONS WITH INVESTMENT
ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities
to the Fund, receives fees computed monthly on the average daily net assets
of the Fund at an annualized rate of 1/2 of 1%. During the year ended May
31, 1995, the Advisor, at its discretion, permanently waived all of its
advisory fees amounting to $22,083. Also, under an agreement with the Fund,
the Advisor has agreed to subsidize certain expenses (excluding advisory
and distribution fees) until the Fund reaches a sufficient size to maintain
a normal expense ratio to average net assets.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for
all sales and promotional efforts including printing of prospectuses and
reports used for sales purposes. Pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund has adopted a plan to reimburse
the Distributor each month for its actual expenses incurred in the
distribution and promotion of the Fund's shares. The maximum amount payable
for these expenses on an annual basis is .40% of the Fund's average daily
net assets. The Distributor, at its discretion, permanently waived
distribution fees of $341. Included in accrued expenses at May 31, 1995 are
accrued distribution fees of $2,648. Certain non-promotional expenses
directly attributable to current shareholders are aggregated by the
Distributor and passed through to the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of
the Fund, the Distributor received commissions on sales of the Fund's
shares of approximately $272,200 for the year ended May 31, 1995, of which
approximately $248,400 was paid to other dealers. Certain officers and
trustees of the Funds are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund ($98,083) will
be reimbursed to the Advisor on a straight-line basis over a period of five
years from the first day of the year following the year in which the Fund's
net assets exceed $20 million. In the event that the Advisor's current
investment in the Trust falls below $100,000 prior to the full
reimbursement of the organizational expenses, then it will forego any
further reimbursement.
Wisconsin 9
<PAGE>
Selected data for each share of beneficial
(SHIP GRAPHIC) Financial Highlights interest outstanding throughout the year.
===============================================================================
Year Ended
May 31, 1995
-------------------------------------------------------------------------------
Net asset value beginning of year $9.58
Income from investment operations:
Net investment income 0.49
Net realized and unrealized gain 0.21
(loss) on securities
Total from investment operations 0.70
Less distributions:
Dividends from net investment income (0.49)
Total distributions (0.49)
Net asset value at end of year $9.79
Total return(a) 7.36%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses 0.39%
Net investment income 5.25%
Assuming no waivers and
reimbursements:
Expenses 2.31%
Net investment income 3.33%
Net assets at end of year (000's) $8,278
Portfolio turnover rate 51.74%
(a) The total returns shown do not
include the effect of
applicable front-end sales
charge.
10 Wisconsin
<PAGE>
(SHIP GRAPHIC) Independent Auditors' Report
================================================================================
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP WISCONSIN
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Wisconsin Double Tax Exempt Fund as of May 31, 1995, the related statement of
operations, the statement of changes in net assets and the financial highlights
for the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of May 31, 1995, by
correspondence with the Fund's custodian and brokers. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of the Flagship
Wisconsin Double Tax Exempt Fund at May 31, 1995, the results of its operations,
the changes in its net assets, and the financial highlights for the stated
period, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 6, 1995
Wisconsin 11
<PAGE>
APPENDIX TO FINANCIAL STATEMENTS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Double rules take place of graphic--Rope Line
<PAGE>
APPENDIX I
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
Standard & Poor's Ratings Group -- A brief description of the applicable
Standard & Poor's Ratings Group rating symbols and their meanings (as
published by Standard & Poor's Corporation) follows:
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default -- capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under the laws
of bankruptcy and other laws affecting creditors' rights.
1. Long-term municipal bonds
AAA Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in
small degree.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than bonds in higher rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB-D Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on balance,
as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "C"
the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions. The "CI" is reserved for income bonds on which no
interest is being paid. Debt rated "D" is in default, and payment
of interest and/or repayment of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or a minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "P" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with respect to
such likelihood and risk.
I-1
<PAGE>
2. Short-term tax exempt notes
Standard & Poor's tax exempt note ratings are generally given to such
notes that mature in three years or less. The three rating categories are as
follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strongcharacteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
3. Tax-exempt commercial paper
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 165 days. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest. The four categories
are as follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2, and 3 to indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having speculative capacity for timely
payment.
C&D These ratings indicate that the issue is either in default or expected
to be in default upon maturity.
Moody's Investors Service, Inc. -- A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
1. Long-term municipal bonds
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large, or by an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are more unlikely to impair the fundamentally strong position of such issues.
With the occasional exception of oversupply in a few specific instances, the
safety of obligations of this class is so absolute that their market value is
affected solely by money market fluctuations.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
the Aaa Securities. These Aa bonds are high grade, their market value
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as higher medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to A-rated bonds may be influenced
to some degree by credit circumstances during a sustained period of depressed
business conditions. During periods of normalcy, bonds of this quality
frequently move in parallel with Aaa and Aa obligations, with the occasional
exception of oversupply in a few specific instances.
Baa -- Bonds which are rated Baa are considered as lower medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments but certain protective elements may be lacking or may be
I-2
<PAGE>
characteristically unreliable of over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to change in economic circumstances, and aside from occasional
speculative factors applying to some bonds of this class, Baa market
valuations move in parallel with Aaa, Aa, and A obligations during periods of
economic normalcy, except in instances of oversupply.
Ba-C -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often, the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. Bonds which are rated C
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
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 generic
rating category.
Con. -- Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit status upon
completion of construction or elimination of basis of condition.
2. Short-term tax exempt notes
Short-term Notes. The four ratings of Moody's for short-term notes are MIG
1, MIG 2, MIG 3, and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality... but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk but having protection... and not
distinctly or predominantly speculative".
3. Tax-exempt commercial paper
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short- term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Fitch Investors Service, Inc. -- A brief description of the applicable
Fitch Investors Service, Inc. rating symbols and their meanings follows:
1. Long-term municipal bonds
<TABLE>
<CAPTION>
<S> <C>
AAA Bonds considered to be investment grade and the of 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.
I-3
<PAGE>
AA Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated 'AAA'. Because bonds 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+'.
A Bonds 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.
BBB Bonds 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.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs,
however, are not used in the 'AAA' category.
NR Indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful completion of a project or
the occurrence of a specific event.
Suspended A rating is suspended when Fitch deems the amount of information available
from the issuer to be inadequate for rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is called or refinanced,
and, at Fitch's discretion, when an issuer fails to furnish proper and timely
information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an occurrence that is
likely to result in a rating change and the likely direction of such change.
These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," where ratings may be
raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
Credit Trend Credit trend indicators show whether credit fundamentals are improving,
stable, declining, or uncertain, as follows:
Improving
Stable
Declining
Uncertain
Credit trend indicators are not predictions that any rating change will
occur, and have a longer-term time frame than issues placed on FitchAlert
</TABLE>
I-4
<PAGE>
APPENDIX II
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various series'
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 series'
existing or anticipated holdings of long-term debt securities. When a series
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the series'
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 series
must make additional payments to cover debits to its account and has the
right to withdraw credits in excess of the liquidity, the series 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 series to settle the
final determination and the series 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 series'
existing or anticipated holdings of long-term debt securities. For example,
if a series 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 series' portfolio would decline, but the
value of the series' financial futures would be expected to increase at
approximately the same rate thereby keeping the net asset value of the series
from declining as much as it otherwise would have.
Among the risks associated with the use of financial futures by the Fund's
series 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
series 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 series 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 series might find it difficult or impossible to close
out a particular transaction.
Options on Financial Futures. The Fund's series 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 series 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 series. 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.
II-1
<PAGE>
Index Options. The Fund's series 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 Manager's opinion, the market for
such instruments has developed sufficiently.
REPURCHASE AGREEMENTS
A series may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the series 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 series is authorized to invest. Repurchase agreements may be
characterized as loans secured by the underlying securities. The series 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 Manager will monitor the continued creditworthiness of
Qualified Institutions, subject to the oversight of the series 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 series will seek to dispose of such securities,
which action could involve costs or delays. If the seller becomes insolvent
and subject to liquidation or reorganization under applicable bankruptcy or
other laws, the series' ability to dispose of the underlying securities may
be restricted. Finally, it is possible that the series 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 series 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 Series to keep all its assets earning interest while
retaining "overnight" flexibility in pursuit of investments of a longer-term
nature.
II-2
<PAGE>
Investor Guide
[Graphic A.]
Flagship's
National
Tax Exempt Funds(sm)
[Graphic B.]
[Graphic C.] Limited Term Fund
[Graphic C.] Intermediate Fund
[Graphic C.] All-American Fund
Conservative Approach
to Tax-Free Income
Flagship
[Graphic D.]
THIS BROCHURE INCLUDES A PROSPECTUS WHICH DESCRIBES IN DETAIL THE FUND'S
OBJECTIVES, INVESTMENT POLICIES, RISKS, SALES CHARGES, FEES, AND OTHER
MATTERS OF INTEREST. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
<PAGE>
Pursue High Tax-Free Income By Investing In America
As an investor in the Funds, you are buying a professionally
managed, diversified portfolio of America.
Keeping More of What You Earn
As you and your broker plan your investment strategy, you must evaluate the
wide range of investments available today. This means examining each specific
investment's characteristics, including its relative safety, focus on
preservation of capital, role in your portfolio, liquidity* and return.
Flagship's national municipal bond mutual funds have all of these
characteristics, plus their dividends are free from federal** taxes. You see the
real advantage in this investment--the opportunity to keep more of what you
earn. After all, what you keep is what really matters.
Investing in America
Flagship's National Tax Exempt Funds invest primarily in high investment quality
municipal bonds which are debt obligations of a state, county, other issuing
agency or political subdivision. Proceeds from the bonds are used for schools,
hospitals, airports and roads. Because the bonds are issued to finance public
projects, their dividends are free from federal income taxes. As an investor in
the Funds, you are buying a professionally managed, diversified portfolio of
America. Not only will you be helping to improve the quality of life across the
United States, you may be earning a high, current tax-free yield from your
investment.
[Graphic E.]
* Shares, when redeemed, may be worth more or less than their original cost.
Investment in the Fund is not FDIC insured. The value of the Funds may
fluctuate. The return on the investment is not guaranteed. **Certain
investors may be subject to the federal alternative minimum tax and/or local
taxes.
[Graphic F.]
Not a part of the prospectus.
<PAGE>
Taking Advantage of the Yield Curve
[Graphic G.]
The Funds
Flagship offers three national funds, each with a nationally diversified
portfolio of investment quality or better municipal bonds. Because income from
municipal bonds is free from federal taxes, investors in the Funds keep more of
what they earn. To limit price changes, the Funds utilize defensive hedging and
other specialized techniques.
The Funds seek to provide:
* High, Current Tax-Free Income
* Monthly Dividends Free from Federal Income Taxes
* Daily Liquidity at the Then Current Net Asset Value
* High Quality, Diversified Portfolios of Municipal Bonds
* Attentive, Professional Management
[Graphic H.]
The Limited Term Fund
With a five-year average maturity, this Fund seeks to provide higher yields than
short-term bonds with less price fluctuation than longer-term bonds. Its shorter
average maturity reduces price volatility compared to longer-term bond funds.
The Intermediate Fund
With a five to ten-year average maturity, this Fund seeks to provide slightly
higher yields than shorter-term bonds but less than longer-term bonds. Its
intermediate maturity may result in relatively less change in the fund's share
price compared to longer-term bond funds.
The All-American Fund
With a 15 to 25-year average maturity, this Fund pursues the highest yields and
is the most actively managed of Flagship's national funds. The Fund seeks to
provide higher returns than shorter-term funds, however, it has the potential
for more change in the fund's share price.
[Graphic I.]
Not a part of the prospectus.
<PAGE>
Your Investment Objectives
You and your broker can select the combination of funds which balances your
desire for tax-free income with your comfort level for price changes.
[Graphic J.]
Maturity and Interest Rates
In order to structure the portfolio that best suits your objectives, you need a
clear understanding of how a bond's price will react to interest rate movement.
Many investors look at a bond's maturity when considering the effects of
interest rates on its price. Bond prices are affected by interest rate changes,
therefore the value of your investment may change. As one goes up, the other
goes down--by how much is determined by a security's maturity. The table below
illustrates the yield and the potential change in value of different maturity
bonds relative to a 30-year bond. For example, a 1% change in interest rates
might alter the value of a 30-year bond by as much as 10% while it would only
alter the value of a five-year bond by 2% to 3%.
Laddering to Minimize Price Changes
Flagship's National Tax Exempt Funds offer different maturity structures. By
purchasing shares of each Fund, investors can seek to minimize normal price
fluctuations over economic cycles. This approach is called laddering, and
eliminates the need to second-guess the economy or forecast interest rates.
Instead, you can maintain a desired average maturity over time, in all sorts
of interest rate environments.
[Graphic K.]
[Graphic L.]
Not a part of the prospectus.
<PAGE>
Tax-Free Income and The Power of Compounding
If the opportunity for high, current tax-free returns, monthly income and
professional management fit within your investment strategy, these Flagship
funds may be for you.
The Tax-Free Advantage
Tax obligation can take a huge bite out of your investment returns. You may
be writing checks to the government for 40% or more of your taxable investment
income. You would have to earn significantly more from a taxable investment to
equal the tax-free return from a Flagship fund.
[Graphic M.]
The Power of Tax-Free Compounding
Compound your tax-free earnings even faster by using Flagship's free monthly
dividend reinvestment plan. With this plan, dividends are automatically
reinvested in additional shares of your fund. The accompanying chart compares
the value over time of a hypothetical investment.
[Graphic N.]
[Graphic O.]
Not a part of the prospectus.
<PAGE>
The Benefits of Professional Management
A Professional, Team Approach
Flagship's success in the municipal bond market is a direct result of our
portfolio management team's ability to expertly manage fixed income securities.
Through a team structure with lead managers, the Flagship portfolio management
and credit research teams remain intimately involved with each portfolio. They
work together, from investment policy and economic outlook formulation, to
strategy implementation and trading execution.
[Graphic P.]
Credit Research and Surveillance
The municipal bond market is vast and complex. With thousands of issues of
municipal bonds in fifty states and three territories, Flagship portfolio
managers augment information from both rating agencies and their own credit
research team to carefully identify the individual bonds which best meet the
standards of the funds' portfolios. The team of highly skilled and experienced
financial analysts maintains vigilant surveillance of each issue. Flagship's
research, a disciplined combination of its people, systems and documentation, is
a focused effort. Flagship's research staff, a recognized leader in the credit
field, reviews municipal bonds using a distinctive credit model for each of the
16 portfolio sectors. Flagship funds benefit from the improved performance which
may come from our credit insight and portfolio management expertise.
[Graphic Q.]
Not a part of the prospectus.
<PAGE>
The Fund's Investment Advisor
Flagship
Flagship was originally founded in 1970 as the money management division of The
Mead Corporation, the forest products company. Since the launch of Flagship and
its family of specialty fixed income mutual funds, assets under management have
grown to nearly $4.5 billion with a shareholder base of over 100,000. The
company is based in Dayton, Ohio.
[Graphic R.]
Performance
As a specialist in fixed income portfolio management, Flagship is well
positioned to uncover investment opportunities as it seeks to enhance
shareholder value. Flagship's portfolio management team utilizes an active
strategy to anticipate the changing economic conditions, as well as state and
federal tax laws as they seek to achieve your investment objectives.
Service
Flagship's well-trained, responsive customer service team exists solely to
meet your needs. Their goal is to give every shareholder request
individualized attention, promptly providing accurate information and
requested services.
Reliability
The investment strategies and disciplines of the portfolio management team are
supported by the company-wide commitment to provide consistently reliable
performance. Flagship's professional staff is focused on meeting investor
expectations and in fulfilling their mission: to seek to provide superior
investment returns on the assets they manage for clients.
[Graphic S.]
[Graphic T.]
Not a part of the prospectus.
<PAGE>
[Graphic U.]
FLAGSHIP
One Dayton Centre
One South Main Street
Dayton, Ohio 45402-2030
This brochure is authorized for distribution only when accompanied or preceded
by an effective prospectus.
Copyright 1995, Flagship Funds Inc. NF-A-100 (9-14-95)
[Graphic V.]
<PAGE>
Graphics Narrative Appendix
National Investor Guide
Outside Cover
[Graphic A - Multigenerational family photo]
[Graphic B - US map outline with stars and stripes like US flag]
[Graphic C - Stars used as bullet points]
[Graphic D - Clipper ship]
Page 1
[Graphic E - Older woman reading to two young children photo]
[Graphic F - American flag]
Page 2
[Graphic G - Professional man and woman walking with two children photo]
[Graphic H - Bond Yield vs. Maturity chart]
Bond Maturity Percent of 30 year Bond Yield
in Years Yield Curve Limited Term Intermediate Term Long Term
1 year 24 N/A N/A N/A
5 years 79 79 N/A N/A
10 years 89 N/A 89 N/A
15 years 92 N/A N/A N/A
20 years 95 N/A N/A N/A
25 years 97 N/A N/A 97
30 years 100 N/A N/A 100
Bond Maturity in Years
The illustration of the traditional yield curve indicates where each Fund's
maturity is positioned. As you can see, each investment may provide an
attractive tax-free return. But remember, each will react to interest rate
movement according to its maturity structure. The limited term investment should
fluctuate less, given a change in interest rates, the longer-term more. Source:
Flagship internal research based on historical data from J.J. Kenny, Inc.
[Graphic I - American flag]
Page 3
[Graphic J - Relative Bond Price Change graph]
Line graph illustrating the relationship of bond prices going down as
interest rates go up. No specific plot points are used. Limited Term 5 years;
Intermediate Term 10 years; and All-American 25 years are used as samples with
arrows pointed down.
[Graphic K - Risk and Reward chart]
Maturity Risk Reward
Limited term
5-Year Bond 36% 79%
Intermediate term
10-Year Bond 60% 89%
Long term
25-Year Bond 95% 97%
30-Year Bond 100% 100%
1 Risk equals the percentage of a 30-year bond's price fluctuation given a 1%
change in interest rates. 2 Reward equals the percentage of a traditionally
higher yielding 30-year bond's yield.
Source: Flagship internal research based on historical data from
J.J. Kenny, Inc.
[L - American flag]
Page 4
[Graphic M - Taxable vs. Tax-Free Yield chart]
Tax-Free Yield for a Fund Taxable Equivalent Yield for a Fund
4% 6.3%
5% 7.8%
6% 9.4%
Because you pay no federal income taxes on the fund's dividends, you would have
to earn 8.7% on a taxable investment to earn the same amount of income from a
tax-free return of 6%. This chart is for illustration purposes only and is not
indicative of past or future performance of any investment offered by Flagship.
[Graphic N - Growth of a $10,000 Investment graph]
Value of a Tax Exempt Investment Value of Fully Taxable Investment
0 years $10,000 $10,000
5 years $13,489 $12,007
10 years $18,194 $14,416
15 years $24,541 $17,309
20 years $33,102 $20,782
25 years $44,650 $24,953
Note: Assumes $10,000 of principal is invested at a nominal annual interest rate
of 6.0% compounded monthly (6.17% equivalent effective yield). This rate is for
illustrative purposes only and is not meant to be indicative of the Fund's
actual return, which will vary. On a fully taxable investment, an investor is
assumed to pay taxes at a 39.6% rate on the total amount of interest credited to
the account.
[Graphic O - American flag]
Page 5
[Graphic P - Multigenerational family washing car photo]
[Graphic Q - American flag]
Inside back cover
[Graphic R - Investment Policy Committee photo]
Flagship's Investment Policy Committee: (Seated left to right) Bruce P. Bedford
- Chairman, Richard P. Davis - President. (Standing left to right) Michael
D. Kalbfleisch, Chief Financial Officer, Michael S. Davern, Richard A. Huber,
Jan E. Terbrueggen, and Walter K. Parker, Portfolio Managers.
[Graphic S - Flagship service seal with Flagship clipper ship; Flagship and
words performance, service and reliability around seal]
[Graphic T - American flag]
Back Cover
[Graphic U - Screen of American flag]
[Graphic V - Clipper ship]
<PAGE>
Investor Guide
Flagship
Ohio Double
Tax Exempt
Fund (sm)
[Graphic A.]
Tax-Free Income is Just
One of the Benefits of
Investing Where You Live
[Graphic B.]
THIS BROCHURE INCLUDES A PROSPECTUS WHICH DESCRIBES IN DETAIL THE FUND'S
OBJECTIVES, INVESTMENT POLICIES, RISKS, SALES CHARGES, FEES, AND OTHER
MATTERS OF INTEREST. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
[Graphic C.]
Flagship
<PAGE>
Flagship Ohio Double
Tax Exempt Fund
The Flagship Ohio Double Tax Exempt Fund invests primarily in high investment
quality municipal bonds which are issued to finance public projects such as
roads, bridges and schools in Ohio.
Keeping More of What You Earn
As you and your broker plan your investment strategy, you must evaluate the wide
range of investments available today. This means examining each specific
investment's characteristics, including its relative safety, focus on
preservation of capital, role in your portfolio, liquidity* and return. The
Flagship Ohio Double Tax Exempt Fund has all of these characteristics, plus its
dividends are free from both state and federal** taxes. You see the real
advantage in this investment the opportunity to keep more of what you earn.
After all, what you keep is what really matters.
Investing in Ohio
The Flagship Ohio Double Tax Exempt Fund invests primarily in high investment
quality municipal bonds which are debt obligations of the state of Ohio, its
counties, other issuing agencies or political subdivisions within the state.
Proceeds from the bonds are used for schools, hospitals, airports, and other
public works. Because the bonds are issued to finance public projects, their
dividends are free from federal and state income taxes. Not only will you be
helping to improve the quality of life in Ohio, you may be earning a high,
current tax-free yield from your investment.
Examine these key features of the Fund. You'll see that it can pay to invest
where you live and it's double tax free.
* Seeks High, Current After-Tax Income
* Dividends Free from Federal Income Taxes
* Dividends Free from Ohio Income Taxes
* Monthly Dividends, with Free Reinvestment
* High Quality, Diversified Portfolio of Municipal Bonds
[Graphic D.]
Not a part of the prospectus
<PAGE>
Your Investment Objectives
We wanted the opportunity to earn higher tax-free yields and the flexibility to
make decisions consistent with our comfort level. Our broker helped us choose
Flagship as part of our financial future.
If you are seeking to earn a high, current investment return, pay lower taxes
and keep more of what you earn even 100% Flagship's tax exempt funds may be for
you. Flagship's funds are investments which seek to provide high, current
tax-free income while preserving your capital.
Flagship's mutual funds are professionally managed, high investment quality
portfolios of municipal bonds. Because of the special focus given to generating
tax-free income, dividends from the funds are 100% yours. And, by purchasing
shares of a fund, you provide financing for public projects in the state where
you live.
The Tax-Free Advantage
Tax obligations may take a huge bite out of your investment returns. You may be
writing checks to the government for as much as 30% to 40% or more of your
taxable investment income. With this kind of tax bite you would have to earn
significantly more from a taxable investment to equal the tax-free return from a
Flagship fund.
[Graphic F.]
*Shares, when redeemed, may be worth more or less than their original cost.
Investment in the Fund is not FDIC insured. The value of the Fund may fluctuate.
The return on the investment is not guaranteed. **Certain investors may be
subject to the federal alternative minimum tax and/or local taxes.
[Graphic G.]
Not a part of the prospectus
<PAGE>
The Flagship Fund Advantage
If the opportunity for high, current tax-free returns, monthly income and
professional management fit your investment strategy, Flagship funds may be for
you.
The Power of Compounding
Flagship offers a free monthly dividend reinvestment plan to enable investors to
compound their tax-free earnings even faster. In this plan, dividends are
automatically reinvested in additional shares of your fund. The chart at the
right compares the value over time of a tax-free investment with dividends
reinvested to a fully taxable investment.
[Graphic H.]
Maturity and Interest Rates
In order to structure the portfolio that best suits your objectives, you need a
clear understanding of how a bond's price will react to interest rate movement.
Many investors look at a bond's maturity when considering the effects of
interest rates on its price. Bond prices are affected by interest rate changes,
therefore the value of your investment may change. As one goes up, the other
goes down by how much is determined by a security's maturity. The table at the
left illustrates the yield and the potential change in value of different
maturity bonds relative to a 30-year bond. For example, a 1% change in interest
rates might alter the value of a 30-year bond by as much as 10% while it would
only alter the value of a five-year bond by 2% to 3%.
[Graphic I.]
[Graphic J.]
Not a part of the prospectus
<PAGE>
Demand for municipal bonds is expected to remain strong since it is one of the
few investments which may provide both competitive yields and tax advantages.
Preservation of Capital and Convenience
As an active manager, Flagship can react to economic and interest rate activity
to help preserve your capital as it seeks to enhance your return. Flagship can
consistently focus on the growth of your investment by taking a defensive
posture to minimize the potential share price depreciation associated with
rising interest rates.
[Graphic K.]
Purchasing shares of a Flagship fund enables you to benefit from professional
management, as well as convenience. To make changes in your mutual fund
investment all you have to do is call your broker.
The benefits of purchasing shares of a Flagship fund are:
* Attentive, Professional Management
* Convenience and Daily Liquidity at the Then Current
Net Asset Value
* No Administrative Burdens
* No Transaction Costs Associated with Purchasing and
Holding Individual Bonds
* Ability to Buy or Sell Shares or Make Additional Investments
in a Fund any Business Day
[Graphic L.]
Not a part of the prospectus
<PAGE>
The Benefits of Professional Management
A Professional, Team Approach
Flagship's success in the municipal bond market is a direct result of our
portfolio management team's ability to expertly manage fixed income securities.
Through a team structure with lead managers, the Flagship portfolio management
and credit research teams remain intimately involved with each portfolio. They
work together, from investment policy and economic outlook formulation, to
strategy implementation and trading execution.
[Graphic M.]
Credit Research and Surveillance
The municipal bond market is vast and complex. With thousands of issues of
municipal bonds in fifty states and three territories, Flagship portfolio
managers augment information from both rating agencies and their own credit
research team to carefully identify the individual bonds which best meet the
standards of the funds' portfolios. The team of highly skilled and
experienced financial analysts maintains vigilant surveillance of each issue.
Flagship's research, a disciplined combination of its people, systems and
documentation, is a focused effort. Flagship's research staff, a recognized
leader in the credit field, reviews municipal bonds using a distinctive
credit model for each of the 16 portfolio sectors. Flagship funds benefit
from the improved performance which may come from our credit insight and
portfolio management expertise.
[Graphic N.]
Not a part of the prospectus
<PAGE>
The Fund's Investment Advisor
Flagship
Flagship was originally founded in 1970 as the money management division of The
Mead Corporation, the forest products company. Since the launch of Flagship and
its family of specialty fixed income mutual funds, assets under management have
grown to nearly $4.5 billion with a shareholder base of over 100,000. The
company is based in Dayton, Ohio.
[Graphic O.]
Performance
As a specialist in fixed income portfolio management, Flagship is
well positioned to uncover investment opportunities as it seeks to enhance
shareholder value. Flagship's portfolio management team utilizes an active
strategy to anticipate the changing economic conditions, as well as state and
federal tax laws as they seek to achieve your investment objectives.
Service
Flagship's well-trained, responsive customer service team exists solely to
meet your needs. Their goal is to give every shareholder request individualized
attention, promptly providing accurate information and requested services.
Reliability
The investment strategies and disciplines of the portfolio management team
are supported by the company-wide commitment to provide
consistently reliable performance. Flagship's professional staff is focused
on meeting investor expectations and in fulfilling their mission: to seek to
provide superior investment returns on the assets they manage for clients.
[Graphic P.]
[Graphic Q.]
Not a part of the prospectus
<PAGE>
[Graphic S.]
Flagship
One Dayton Centre
One South Main Street
Dayton, Ohio 45402-2030
This brochure is authorized for distribution only when accompanied or
preceded by an effective prospectus.
Copyright 1995, Flagship Funds Inc. OH-L-100 (9-14-95)
<PAGE>
Graphics Narrative Appendix
State (Ohio) Investor Guide
Outside Cover
[Graphic A - Multigenerational family photo]
[Graphic B - Outlines of state of Ohio with stars and stripes like US flag]
[Graphic C - Clipper ship]
Page 1
[Graphic D - American flag]
Page 2
[Graphic E - Older couple sitting on porch swing photo]
[Graphic F - Taxable vs. Tax-Free Yield chart]
Tax-Free Yield for a Fund Taxable Equivalent Yield for a Fund
4% 6.3%
5% 7.8%
6% 9.4%
Because you pay no federal income taxes on the fund's dividends, you would have
to earn 9.4% on a taxable investment to earn the same amount of income from a
tax-free return of 6%. This chart assumes a 36% tax rate and is for illustrative
purposes only. It is not indicative of past or future performance of any
investment offered by Flagship.
[Graphic G - American flag]
Page 3
[Graphic H - Growth of a $10,000 Investment graph]
Value of a Tax Exempt Investment Value of Fully Taxable Investment
0 years $10,000 $10,000
5 years $13,489 $12,007
10 years $18,194 $14,416
15 years $24,541 $17,309
20 years $33,102 $20,782
25 years $44,650 $24,953
Note: Assumes $10,000 of principal is invested at a nominal annual interest rate
of 6.0% compounded monthly (6.17% equivalent effective yield). This rate is for
illustrative purposes only and is not meant to be indicative of the Fund's
actual return, which will vary. On a fully taxable investment, an investor is
assumed to pay taxes at a 39.6% rate on the total amount of interest credited to
the account.
<PAGE>
[Graphic I - Risk and Reward chart]
Maturity Risk Reward
Limited term
5-Year Bond 36% 79%
Intermediate term
10-Year Bond 60% 89%
Long term
25-Year Bond 95% 97%
30-Year Bond 100% 100%
1 Risk equals the percentage of a 30-year bond's price fluctuation given a 1%
change in interest rates.
2 Reward equals the percentage of a traditionally higher yielding 30-year
bond's yield.
Source: Flagship internal research based on historical data from J.J.
Kenny, Inc.
[Graphic J - American flag]
Page 4
[Graphic K - Young family with soccer ball photo]
[Graphic L - American flag]
Page 5
[Graphic M - Multigenerational family washing car photo]
[Graphic N - American flag]
Inside back cover
[Graphic O - Investment Policy Committee photo]
Flagship's Investment Policy Committee: (Seated left to right) Bruce P.
Bedford - Chairman, Richard P. Davis - President. (Standing left to right)
Michael D. Kalbfleisch, Chief Financial Officer, Michael S. Davern,
Richard A. Huber, Jan E. Terbrueggen, and Walter K. Parker, Portfolio Managers.
[Graphic P - Flagship service seal with Flagship clipper ship; Flagship and
words performance, service and reliability around seal]
[Graphic Q - American flag]
Back Cover
[Graphic R - Screen of American flag]
[Graphic S - Clipper ship]
<PAGE>
Flagship
National
Tax Exempt Funds (sm)
[Graphic A.]
The Funds
Flagship National Tax Exempt Funds are municipal bond funds which invest in
high investment grade securities. Their objectives are to earn a tax-free, high
current yield for taxpayers consistent with preservation of the investor's
capital.
The Key Features
* Three Funds, Each with a Different
Maturity Structure
* Seek High Current Yield
* Tax-Free Income Opportunities
* Investment Quality Portfolios
* Commitment to Capital Preservation
* Attentive, Professional Management
The table on the back assumes the taxpayer's highest tax rate is applicable
to the entire amount of any decrease or increase in taxable income resulting
from a switch from taxable to tax-free securities or vice versa. *Taxable
income is based upon the net amount subject to federal income tax after
deductions and exemptions. The table reflects the limitations on federal
itemized deductions and the disallowance of personal exemptions. Although
the limitations on itemized deductions and the disallowance of personal
exemptions are based on adjusted gross income amounts, for simplicity the tax
table applies the adjustments based on taxable income. The effective
combined tax rates for the tax brackets indicated with an * are increased by
.58%, .68% and .74% for the 31%, 36% and 39.6% federal tax rates,
respectively. The table assumes a married couple with no dependents. Certain
investors may be subject to the federal alternative minimum tax and/or local
taxes. The table is provided for illustrative purposes only and does not
reflect the past or future performance of any Flagship fund. For more
information, call your broker or write Flagship for an effective prospectus
which describes management fees, charges and expenses. Read it carefully
before you invest or send money. Copyright 1995, Flagship Funds Inc.
NF-A-3003 (01-95)
Flagship
National
Tax Exempt Funds (sm)
To use this table, simply find your taxable income in the appropriate taxable
income column and read across to determine your marginal tax rate and the
taxable equivalent for different tax-free yields. Then you will see the
potential benefit of investing in a fund where interest income is tax exempt
from federal income taxes.
<TABLE>
<CAPTION>
---------------------------------------------
Taxable Equivalent Yield Table 1995 Tax Rates
-----------------------------------------------------------------------------------------------------
State Taxpayer Income A Tax-Free Yield Of:
-----------------------------------------------------------------------------------------------------
Effective 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
New Tax Rates 1995 Combined
Tax Rate Is Equivalent To A Taxable Yield Of:
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 39,000 - 94,250 28.00% 6.94 7.64 8.33 9.03 9.72 10.42 11.11
Joint $ 94,250 - 143,600 31.00% 7.25 7.97 8.70 9.42 10.14 10.87 11.59
Return $143,600 - 172,050 36.00% 7.81 8.59 9.37 10.16 10.94 11.72 12.50
$172,050 - 256,500* 37.44% 7.99 8.79 9.59 10.39 11.18 11.99 12.79
$256,500 - 297,050* 41.18% 8.50 9.35 10.20 11.05 11.89 12.75 13.60
$297,050 & over 39.60% 8.28 9.11 9.93 10.76 11.59 12.42 13.25
----------------------------------------------------------------------------------------------------
$ 23,350 - 56,550 28.00% 6.94 7.64 8.33 9.03 9.72 10.42 11.11
Single $ 56,550 - 114,700 31.00% 7.25 7.97 8.70 9.42 10.14 10.87 11.59
Return $114,700 - 117,950* 31.62% 7.31 8.04 8.77 9.50 10.24 10.97 11.70
$117,950 - 239,700* 36.72% 7.90 8.69 9.48 10.27 11.06 11.85 12.64
$239,700 - 256,500 36.00% 7.81 8.59 9.37 10.16 10.94 11.72 12.50
$256,500 & over 39.60% 8.28 9.11 9.93 10.76 11.59 12.42 13.25
----------------------------------------------------------------------------------------------------
</TABLE>
FLAGSHIP
<PAGE>
GRAPHICS NARRATIVE APPENDIX
NATIONAL TAX EQUIVALENT YIELD CARD
[Graphic A-Outline of US map with stars and stripes like American flag.]
<PAGE>
[Graphic A.]
Flagship
Ohio
Double
Tax Exempt Fund (sm)
The Fund
Flagship Ohio Double Tax Exempt Fund is a municipal bond fund which invests in
high investment grade securities. Its objective is to earn a double tax-free,
high current yield for taxpayers consistent with preservation of the investor's
capital.
The Key Features
* Seeks High Current Yield
* Tax-Free Income Opportunities
* Investment Quality Portfolios
* Commitment to Capital Preservation
* Attentive, Professional Management
The table on the back assumes the taxpayer's highest tax rate is applicable
to the entire amount of any decrease or increase in taxable income resulting
from a switch from taxable to tax-free securities or vice versa. *Taxable
income is based upon the net amount subject to federal income tax after
deductions and exemptions. The table reflects the limitations on federal
itemized deductions and the disallowance of personal exemptions. Although
the limitations on itemized deductions and the disallowance of personal
exemptions are based on adjusted gross income amounts, for simplicity the tax
table applies the adjustments based on taxable income. The effective
combined tax rates for the tax brackets indicated with an * are increased by
.58%, .68% and .74% for the 31%, 36% and 39.6% federal tax rates,
respectively. The table assumes a married couple with no dependents. Certain
investors may be subject to the federal alternative minimum tax and/or local
taxes. The table is provided for illustrative purposes only and does not
reflect the past or future performance of any Flagship fund. For more
information, call your broker or write Flagship for an effective prospectus
which describes management fees, charges and expenses. Read it carefully
before you invest or send money. Copyright 1995, Flagship Funds Inc.
OH-L-3003 (01-95)
Flagship
Ohio
Double Tax
Exempt Fund (sm)
To use this table, simply find your taxable income in the appropriate taxable
income column and read across to determine your marginal tax rate and the
taxable equivalent for different tax-free yields. Then you will see the
potential benefit of investing in a fund where interest income is tax exempt
from federal income taxes.
<TABLE>
<CAPTION>
---------------------------------------------
Taxable Equivalent Yield Table 1995 Tax Rates
-----------------------------------------------------------------------------------------------------
State Taxpayer Income A Tax-Free Yield Of:
-----------------------------------------------------------------------------------------------------
Effective 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
New Tax Rates 1995 Combined
Tax Rate Is Equivalent To A Taxable Yield Of:
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 39,000 - 40,000 31.21% 7.27 8.00 8.72 9.45 10.18 10.90 11.63
Joint $ 40,000 - 80,000 31.74% 7.33 8.06 8.79 9.52 10.26 10.99 11.72
Return $ 80,000 - 94,250 32.28% 7.38 8.12 8.86 9.60 10.34 11.07 11.81
$ 94,250 - 100,000 35.10% 7.70 8.47 9.25 10.02 10.79 11.56 12.33
$100,000 - 114,700 35.76% 7.78 8.56 9.34 10.12 10.90 11.68 12.45
$114,700 - 143,600 35.83% 7.79 8.57 9.35 10.13 10.91 11.69 12.47
$143,600 - 172,050 40.49% 8.40 9.24 10.80 10.92 11.76 12.60 13.44
$172,050 - 200,000* 41.83% 8.60 9.46 10.32 11.17 12.03 12.89 13.75
$200,000 - 256,500* 42.22% 8.65 9.52 10.38 11.25 12.11 12.98 13.84
$256,500 - 297,050* 45.68% 9.21 10.13 11.05 11.97 12.89 13.81 14.73
$297,050 & over 44.22% 8.96 9.86 10.76 11.65 12.55 13.45 14.34
----------------------------------------------------------------------------------------------------
$ 23,350 - 40,000 31.21% 7.27 8.00 8.72 9.45 10.18 10.90 11.63
Single $ 40,000 - 56,550 31.74% 7.33 8.06 8.79 9.52 10.26 10.99 11.72
Return $ 56,550 - 80,000 34.59% 7.64 8.41 9.17 9.94 10.70 11.47 12.23
$ 80,000 - 100,000 35.10% 7.70 8.47 9.25 10.02 10.79 11.56 12.33
$100,000 - 114,700 35.76% 7.78 8.56 9.34 10.12 10.90 11.68 12.45
$114,700 - 117,950* 36.40% 7.86 8.65 9.43 10.22 11.01 11.79 12.58
$117,950 - 200,000* 41.16% 8.50 9.35 10.20 11.05 11.90 12.75 13.60
$200,000 - 239,700* 41.55% 8.55 9.41 10.26 11.12 11.98 12.83 13.69
$239,700 - 256,500 40.88% 8.46 9.30 10.15 10.99 11.84 12.69 13.53
$256,500 & over 44.22% 8.96 9.86 10.76 11.65 12.55 13.45 14.34
----------------------------------------------------------------------------------------------------
</TABLE>
FLAGSHIP
<PAGE>
GRAPHICS NARRATIVE APPENDIX
OHIO TAX EQUIVALENT YIELD CARD
[Graphic A - Outline of Ohio map with stars and stripes like American flag]
<PAGE>
Flagship Template
[Graphic A. Name of the Fund]
[Graphic B. Current Date]
[Graphic C. List Maximum Offer Price, Average Maturity, Average Duration, Net
Assets in millions, Annualized Dividend and Number of Holdings for each
class of shares.]
[Graphic D. Block showing Why A Flagship Fund]
- Interest Free from Federal Income Taxes*
- 100% Investment Grade Portfolio
- Commitment to Capital Preservation
- Nationally Diversified Portfolio
- Attentive, Professional Management
- Monthly Dividends/ Free Reinvestment
Footnote at * - Certain investors may be subject to the federal
alternative minimum tax and/or local taxes.
[Graphic E. Graph showing Quality Analysis
- Breakdown of quality between AAA, AA, A, BBB, NR (non-rated) and below
investment grade bonds.]
[Graphic F. Chart showing Fund Performance which includes distribution yield*,
SEC yield** and tax equivalent yield*** of both classes of funds.]
Disclosure reads: *Distribution yield is annualized dividend divided by
maximum offer price as of (current date).
**SEC yield for the period ending (last month end )
including maximum sales charge of (maximum sales charge for
the fund) for A shares and 1% CDSC for C shares. Yield may
reflect expense waiver and subsidization.
***Tax equivalent yield is calculated for the SEC yield and
based on the 36% federal tax rate and maximum state rate
(if applicable). May vary depending on family size and
nature and amount of itemized deductions.
Authorized for use only when preceded or accompanied by the
Fund's current prospectus.
[Graphic G. Chart showing Average Annual Total Return which includes one year,
three years, five years, ten years and since inception* of both
classes of funds - Class A**, Class C***.]
Disclosure reads: *Since the inception date of the funds: (date of A
shares) for A shares;
(date of C shares ) for C shares.
**For the period ending (last month end) including maximum
sales charge of (maximum sales charge for the fund)
***No initial sales load; 1 $ CDSC if redeemed within
1 year of purchase.
Returns assume reinvestment of dividends and capital gains
and reflect past investment results. Past performance does
not indicate future results. The investment return and
principal will fluctuate with market conditions so that
shares, upon redemption, may be worth more or less than the
original cost.
[Graphic H. Graph showing NAV price movement over time. The Y axis shows price
and the X axis shows time in months.]
Disclosure reads: Must be proceeded or accompanied by the Fund's current
prospectus before it can be given to any prospective
investor. The prospectus contains more information
regarding sales charges, expenses and fees.
[Graphic I. Pie graph showing sector analysis. Sectors are broken down into
education, health care, hospitals, housing, industrial dev. rev. and PCR,
muni appropriation obligation, municipal revenue, non-state general
obligation, pollution control, pre-refunded or escrowed, resource recovery,
special tax revenue, state general obligations and student loan revenue
bonds.]
[Graphic J. Chart showing Why Professional Management]
- Over 1,500,000 municipal issues outstanding from over 50,000
issuers*
- Compared to 5,000 investment grade, corporate bonds
- Lack of data available on issuers
- Inefficient market
- Negotiable market
- No centralized exchange
- Lack of availability
- Most new issues purchased by institutions
Disclosure reads: *Source: "The Trouble With Munis", Business Week,
9/6/93
[Graphic K. Chart showing Who Is Flagship]
- Over 20 years fixed income management experience
- Formerly a division of Mead Corporation
- Over 3.8 billion in assets under management
- Attentive and active investment style
- Comprehensive ongoing credit review
<PAGE>
--------------------------------------------------------------------------------
At this point in the S.A.I. the Value Line report for the following funds would
normally appear and does appear in the printed version:
Flagship Limited Term Tax Exempt Fund - Report #1797, 1/10/95
Flagship Pennsylvania Triple Tax Exempt Fund - Report #1998, 1/24/95
Flagship Ohio Double Tax Exempt Fund - Report #1983, 6/13/95
Flagship Michigan Triple Tax Exempt Fund - Report #1982, 6/13/95
Flagship Kentucky Triple Tax Exempt Fund - Report #1981, 6/13/95
Flagship Florida Double Tax Exempt Fund - Report #1979, 6/13/95
If you would like to obtain a copy of these reports, they are available through:
a) Flagship Funds at 1-800-227-4648 and ask for a copy of the S.A.I.
b) Value Line at 1-800-284-7607 and request the appropriate report
number and date
c) your local public library
Value Line reports are not available through any of the on-line electronic
services as of the date of this filing.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
At this point in the S.A.I. the Morningstar report for the following funds
would normally appear and does appear in the printed version:
Flagship Limited Term Tax Exempt Fund - Report #1165, 8/4/95
Flagship All American Tax Exempt Fund Class A - Report #1164, 8/4/95
If you would like to obtain a copy of these reports, they are available through:
a) Flagship Funds at 1-800-227-4648 and ask for a copy of the S.A.I.
b) Morningstar at 312-696-6000 and request the appropriate report
number
c) your local public library
d) America Online, Keyword: Morningstar and the reports in the
"Detailed Fund Reports" folder under the Muni-Bond National headings
--------------------------------------------------------------------------------
<PAGE>
APPENDIX I
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
Standard & Poor's Ratings Group -- A brief description of the applicable
Standard & Poor's Ratings Group rating symbols and their meanings (as
published by Standard & Poor's Corporation) follows:
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default -- capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under
the laws of bankruptcy and other laws affecting creditors' rights.
1. Long-term municipal bonds
AAA Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in
small degree.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB-D Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of
speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. The "CI" is reserved
for income bonds on which no interest is being paid. Debt rated
"D" is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or a minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "P" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with respect to
such likelihood and risk.
I-1
<PAGE>
2. Short-term tax exempt notes
Standard & Poor's tax exempt note ratings are generally given to such
notes that mature in three years or less. The three rating categories are as
follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics will be given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
3. Tax-exempt commercial paper
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 165 days. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest. The four categories
are as follows:
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designation 1, 2, and 3 to indicate the
relative degree of safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B Issues rated "B" are regarded as having speculative capacity for
timely payment.
C&D These ratings indicate that the issue is either in default or expected
to be in default upon maturity.
Moody's Investors Service, Inc. -- A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
1. Long-term municipal bonds
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large, or by an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are more unlikely to impair the fundamentally strong position of such issues.
With the occasional exception of oversupply in a few specific instances, the
safety of obligations of this class is so absolute that their market value is
affected solely by money market fluctuations.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
the Aaa Securities. These Aa bonds are high grade, their market value
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as higher medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to A-rated bonds may be influenced
to some degree by credit circumstances during a sustained period of depressed
business conditions. During periods of normalcy, bonds of this quality
frequently move in parallel with Aaa and Aa obligations, with the occasional
exception of oversupply in a few specific instances.
Baa -- Bonds which are rated Baa are considered as lower medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments but certain protective elements may be lacking or may be
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characteristically unreliable of over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to change in economic circumstances, and aside from occasional
speculative factors applying to some bonds of this class, Baa market
valuations move in parallel with Aaa, Aa, and A obligations during periods of
economic normalcy, except in instances of oversupply.
Ba-C -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often, the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. Bonds which are rated C
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
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 generic
rating category.
Con. -- Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit status upon
completion of construction or elimination of basis of condition.
2. Short-term tax exempt notes
Short-term Notes. The four ratings of Moody's for short-term notes are MIG
1, MIG 2, MIG 3, and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality...but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk but having protection...and not
distinctly or predominantly speculative".
3. Tax-exempt commercial paper
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Fitch Investors Service, Inc. -- A brief description of the applicable
Fitch Investors Service, Inc. rating symbols and their meanings follows:
1. Long-term municipal bonds
AAA Bonds considered to be investment grade and the of
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.
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AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as
strong as bonds rated 'AAA'. Because bonds 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+'.
A Bonds 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.
BBB Bonds 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.
Plus (+) Plus and minus signs are used with a rating symbol to
Minus (-) indicate the relative position of a credit within the
rating category. Plus and minus signs, however, are not
used in the 'AAA' category.
NR Indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful
completion of a project or the occurrence of a specific
event.
Suspended A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate
for rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is
called or refinanced, and, at Fitch's discretion, when an
issuer fails to furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of
an occurrence that is likely to result in a rating change
and the likely direction of such change. These are
designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," where
ratings may be raised or lowered. FitchAlert is
relatively short-term, and should be resolved within 12
months.
Credit Trend Credit trend indicators show whether credit fundamentals
are improving, stable, declining, or uncertain, as
follows:
Improving
Stable
Declining
Uncertain
Credit trend indicators are not predictions that any
rating change will occur, and have a longer-term time
frame than issues placed on FitchAlert
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APPENDIX II
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various series'
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 series'
existing or anticipated holdings of long-term debt securities. When a series
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the series'
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 series
must make additional payments to cover debits to its account and has the
right to withdraw credits in excess of the liquidity, the series 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 series to settle the
final determination and the series 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 series'
existing or anticipated holdings of long-term debt securities. For example,
if a series 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 series' portfolio would decline, but the
value of the series' financial futures would be expected to increase at
approximately the same rate thereby keeping the net asset value of the series
from declining as much as it otherwise would have.
Among the risks associated with the use of financial futures by the Fund's
series 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
series 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 series 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 series might find it difficult or impossible to close
out a particular transaction.
Options on Financial Futures. The Fund's series 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 series 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 series. 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.
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Index Options. The Fund's series 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 Manager's opinion, the market for
such instruments has developed sufficiently.
Repurchase Agreements
A series may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the series 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 series is authorized to invest. Repurchase agreements may be
characterized as loans secured by the underlying securities. The series 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 Manager will monitor the continued creditworthiness of
Qualified Institutions, subject to the oversight of the series 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 series will seek to dispose of such securities,
which action could involve costs or delays. If the seller becomes insolvent
and subject to liquidation or reorganization under applicable bankruptcy or
other laws, the series' ability to dispose of the underlying securities may
be restricted. Finally, it is possible that the series 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 series 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 Series to keep all its assets earning interest while
retaining "overnight" flexibility in pursuit of investments of a longer-term
nature.
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