As filed with the Securities and Exchange Commission on June 14, 1995.
Registration Nos. 2-96544
811-4263
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 20 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ ]
Amendment No. 21 [x]
FLAGSHIP TAX EXEMPT FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
One Dayton Centre
One South Main Street
Dayton, Ohio 45402
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:
(513) 461-0332
Please Send Copy of Communications to:
RICHARD P. DAVIS RICHARD T. PRINS, ESQ.
President Skadden, Arps, Slate,
Flagship Tax Exempt Meagher & Flom
Funds Trust 919 Third Avenue
One Dayton Centre New York, New York 10022
One South Main Street (212) 735-3000
Dayton, Ohio 45402
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b), or
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2), or
[x] on September 14, 1995 pursuant to paragraph (a)(2) of Rule 485
Registrant has registered an indefinite number of its shares of beneficial
interest pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended, and will file a Rule 24f-2 Notice with the Commission for its most
recent fiscal year ended May 31, 1995.
<PAGE>
CROSS REFERENCE SHEET
(as required by Item 501(b) of Regulation S-K)
N-1A Item
No. Location
Part A
Item 1. Cover Page Cover Page
Item 2. Synopsis Fees and Expenses
Item 3. Condensed Financial
Information Financial Highlights
Item 4. Gemeral Description of Investing in Mutual Funds; About
Registrant Flagship Tax Exempt Funds; What
the Funds Own and their Strategies;
Flagship State Tax Exempt Funds;
Flagship National Tax Exempt
Funds; About the Trust; The Funds
and Their Objectives
Item 5. Management of the Fund How the Funds are Managed
Item 5A. Management's Discussion of
Fund Performance Not Applicable
Item 6. Capital Stock and Other How To Buy Shares; How to Sell
Securities Shares; Fees and Expenses; Taxes;
Distributions and Yield; About the
Trust
Item 7. Purchase of Securities Being How To Buy Shares; How Fund
Offered Shares are Priced; Distributions
and Yield
Item 8. Redemption or Repurchase How to Sell Shares; How to
Exchange Shares; Shareholder
Services; About the Distributor;
Additional Information
Item 9. Pending Legal Proceedings Not Applicable
Part B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and
History Not Applicable
Item 13. Investment Objectives and Investment Objectives and
Policies Policies
Item 14. Management of the Fund Officers and Trustees
Item 15. Control Persons and
Principal Holders of
Securities Officers and Trustees
Item 16. Investment Advisory and Investment Advisory Services;
Other Services Distributor; Officers and
Trustees; Custodian and Transfer
Agent
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other
Securities Shares of the Fund
Item 19. Purchase, Redemption and
Pricing of Securities Being Purchase, Redemption and Pricing
Offered of Shares; Exchange and
Reinvestment Privileges;
Systematic Withdrawal Plan;
Shares of the Fund Dividend Payment
Options
Item 20. Tax Status Taxes
Item 21. Underwriters Distributor
Item 22. Calculations of Yield
Quotations of Money Market Yield and Total Return
Funds Calculation
Item 23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
<PAGE>
Prospectus dated September 14, 1995
[Flagship logo -- Tall Ship] 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 17
How to Exchange Shares 18
Shareholder Services 18
How Fund Shares are Priced 19
Taxes 19
Distributions and Yield 20
About the Distributor 20
About the Trust 21
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 advisor ("Manager") for the Funds is Flagship
Financial Inc., a registered investment advisor since 1978.
Each Tax Exempt Fund seeks as high a level of current 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, as is 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
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>
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 0.25 0.40 0.25 0.90
Arizona--Class C (a)* N/A 1.0(c) 0.25 0.95(d) 0.25 1.45
Arkansas (b) 4.2 N/A 0.00 0.40 0.20 0.60
California (b) 4.2 N/A 0.10 0.40 0.10 0.60
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 (a)* 4.2 N/A 0.30 0.40 0.20 0.90
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 0.20 0.40 0.10 0.70
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 0.20 0.40 0.10 0.70
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 0.10 0.40 0.10 0.60
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 (a) 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
Limited Term (b) 2.5 N/A 0.10 0.40 0.20 0.70
Kentucky
Limited Term--Class A (b)
Limited Term--Class C (b)
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
Class C Shares (b)
(All state 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 N/A 1.0(c) 0.20 0.70(d) 0.10 1.00
National Funds
All-American--
Class A (a)* 4.2 N/A 0.20 0.40 0.30 0.90
All-American--
Class C (a)* N/A 1.0(c) 0.20 0.95(d) 0.30 1.45
Intermediate (a)* 3.0 N/A 0.10 0.40 0.20 0.70
Limited Term (a)* 2.5 N/A 0.25 0.40 0.05 0.70
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 0.00 0.40 0.20 0.60
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 national and insured
funds not otherwise noted
above) N/A 1.0(c) 0.20 0.95(d) 0.30% 1.45%
<CAPTION>
Total Fund
Operating Example of Expenses
Expenses An investor in a Flagship Fund would pay
Without the following dollar amount of expenses
Waiver or on a $1,000 investment assuming
Reimburse- (1) 5% annual return and
ment (2) Redemption at the end of each period
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C> <C>
State long-term Funds
Alabama (a) 34.92% $ 48 $60 $74 $114
Arizona--Class A (a)* 1.09 51 69 90 148
Arizona--Class C (a)* 1.62 25(c) 46 79 174
Arkansas (b) 1.10 48 60 N/A N/A
California (b) 1.10 48 60 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)* 1.77 25(c) 46 79 174
Florida (a)* 1.00 51 69 90 148
Georgia--Class A (a)* 1.06 51 71 92 154
Georgia--Class C (a)* 1.60 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) 1.06 49 63 79 125
Kentucky--Class A (a)* 1.03 51 69 90 148
Kentucky--Class C (a)* 1.65 25(c) 46 79 174
Louisiana--Class A (a)* 1.12 51 69 90 148
Louisiana--Class C (a)* 1.68 25(c) 46 79 174
Michigan--Class A (a)* 1.02 51 71 92 154
Michigan--Class C (a)* 1.61 25(c) 48 82 180
Missouri--Class A (a)* 1.06 51 69 90 148
Missouri--Class C (a)* 1.61 25 46 79 174
New Jersey (a) 2.81 49 63 79 125
New Mexico (a) 1.14 49 63 79 125
New York (a)* 1.26 49 63 79 125
North Carolina--Class A (a)* 1.04 51 71 92 154
North Carolina--Class C (a)* 1.79 25(c) 48 82 180
Ohio--Class A (a)* 1.02 51 71 92 154
Ohio--Class C (a)* 1.60 25(c) 48 82 180
Oregon (b) 1.10 48 60 N/A N/A
Pennsylvania--Class A (a)* 1.17 51 71 92 154
Pennsylvania--Class C (a)* 1.68 25(c) 48 82 180
South Carolina (a) 2.12 48 60 N/A 114
Tennessee--Class A (a)* 1.02 51 71 92 154
Tennessee--Class C (a)* 1.63 25(c) 48 82 180
Virginia--Class A (a)* 1.06 51 71 92 154
Virginia--Class C (a)* 1.79 25(c) 48 82 180
Wisconsin--Class A (a) 1.10 49 63 79 125
Wisconsin--Class C (a) 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) 6.70 37 52 68 114
Intermediate--Class C (a) 7.38 23(c) 40 69 151
Limited Term (b) 0.79 32 47 N/A N/A
-2-
<PAGE>
Kentucky
Limited Term--Class A (b)
Limited Term--Class C (b)
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
Class C Shares (b)
(All state intermediate and
limited term funds not
otherwise noted above)
Intermediate 1.55 23(c) 40 69 150
Limited 1.30 20(c) 32 55 122
National Funds
All-American--
Class A (a)* 1.05 51 69 90 148
All-American--
Class C (a)* 1.63 25(c) 46 79 174
Intermediate (a)* 1.29 42 57 N/A N/A
Limited Term (a)* 0.79 32 47 63 110
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 48 60 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 national and insured
funds not otherwise noted
above) 1.75 25(c) 46 79 174
</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.
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 Income from
(Inception Date) Investment Operations Less Distributions
Dividends Distri-
Net Asset Net Realized Total From From Net butions
Value Net & Unrealized Invest- Invest- From Returns Total
Year Ended Beginning Investment Gains(Loss) ment ment Capital of Distri-
May 31, of Period Income on 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
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
Class C
(2/7/94)
1994(a) $11.22 $.14 ($.79) ($ .65) $.14 $.14
1995
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
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
Class C
(10/4/93)
1994(a) $11.06 $.33 ($.84) ($ .51) $.33 $.06 $.39
1995
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
Ratio of
Net
Net Ratio of Investment
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
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
Class C
(2/7/94)
1994(a) $10.43 (16.61%) 1,122 1.20% 4.36% 21.08%
1995
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
1995
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%
1995
Class C
(10/4/93)
1994(a) $10.16 (6.48%) 4,360 1.22% 4.77% 30.19%
1995
</TABLE>
-4-
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Fund Name
Share Class Income from
(Inception Date) Investment Operations Less Distributions
Dividends Distri-
Net Asset Net Realized Total From From Net butions
Value Net & Unrealized Invest- Invest- From Returns Total
Year Ended Beginning Investment Gains(Loss) ment ment Capital of Distri-
May 31, of Period Income on 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 $9.87
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
Florida Intermediate
Class A
(2/1/94)
1994(a) $ 9.70 $.12 ($.04) $ .08 $.12 $ .12
1995
Class C
(2/2/94)
1994(a) $ 9.70 $.11 ($.06) $ .05 $.09 $ .09
1995
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
Class C
(1/4/94)
1994(a) $10.91 $.19 ($.69) ($ .50) $.20 $ .20
1995
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
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
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
Ratio of
Net
Net Ratio of Investment
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) 9.81% 136,509 0.19% 6.86% 152.36%
1992 $10.18 10.32% 276,811 0.26% 6.59% 49.72%
1993 $10.7 612.49% 369,123 0.45% 6.01% 22.60%
1994 $10.38 2.00% 372,082 0.58% 5.51% 31.92%
1995
Florida Intermediate
Class A
(2/1/94)
1994(a) $ 9.66 1.75% 964 0.29% 3.79% 28.15%
1995
Class C
(2/2/94)
1994(a) $ 9.66 1.33% 1,058 0.68% 3.42% 28.15%
1995
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
Class C
(1/4/94)
1994(a) $10.21 (10.96%) 4,348 1.27% 4.55% 39.48%
1995
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
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
</TABLE>
-5-
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Fund Name
Share Class Income from
(Inception Date) Investment Operations Less Distributions
Dividends Distri-
Net Asset Net Realized Total From From Net butions
Value Net & Unrealized Invest- Invest- From Returns Total
Year Ended Beginning Investment Gains(Loss) ment ment Capital of Distri-
May 31, of Period Income on 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
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
Class C
(2/2/94)
1994(a) $11.29 $.16 ($.81) ($ .65) $.16 $.16
1995
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
Class C
(6/22/93)
1994(a) $11.86 $.54 ($.52) $ .02 $.55 $.03 $.58
1995
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
Class C
(2/2/94)
1994(a) $11.33 $.02 ($.83) ($ .81) $.02 $.02
1995
New Jersey
(9/16/93)
1993(a) $ 9.58 $.38 $.54 $ .92 $.38 $.38
1994 $10.12 $.57 ($.23) $ .34 $.57 $.10 $.67
1995
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
Ratio of
Net
Net Ratio of Investment
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
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
Class C
(2/2/94)
1994(a) $10.48 (17.21%) 1,501 1.23% 4.79% 22.40%
1995
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 .75% 5.56% 27.78%
1995
Class C
(6/22/93)
1994(a) $11.30 .19% 30,042 1.25% 4.89% 27.78%
1995
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
Class C
(2/2/94)
1994(a) $10.50 (17.62%) 1,877 1.15% 4.44% 34.40%
1995
New Jersey
(9/16/93)
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
</TABLE>
-6-
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Fund Name
Share Class Income from
(Inception Date) Investment Operations Less Distributions
Dividends Distri-
Net Asset Net Realized Total From From Net butions
Value Net & Unrealized Invest- Invest- From Returns Total
Year Ended Beginning Investment Gains(Loss) ment ment Capital of Distri-
May 31, of Period Income on Securities Operations Income Gains Capital butions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Jersey
Intermediate
(9/16/93)
1993(a) $ 9.70 $.34 $ .45 $ .79 $.34 $.34
1994 $10.15 $.53 ($ .10) $ .43 $.52 $.02 $.54
1995
New Mexico
(9/16/93)
1993(a) $ 9.58 $.37 $ .46 $ .83 $.37 $.37
1994 $10.04 $.53 ($ .33) $ .20 $.53 $.03 $.56
1995
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
North Carolina
Class A
(3/27/86)
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
Class C
(10/4/93)
1994(a) $10.84 $.32 ($ .78) ($ .46) $.32 $.32
1995
Ohio
Class A
(6/27/85)
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
Class C
(8/3/93)
1994(a) $10.84 $.32 ($ .78) ($ .46) $.32 $.32
1995
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
Ratio of
Net
Net Ratio of Investment
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
(9/16/93)
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
New Mexico
(9/16/93)
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
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
North Carolina
Class A
(3/27/86)
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
Class C
(10/4/93)
1994(a) $10.06 (6.26%) 4,161 1.49% 4.65% 21.23%
1995
Ohio
Class A
(6/27/85)
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
Class C
(8/3/93)
1994(a) $10.06 (6.26%) 4,161 1.49% 4.65% 21.23%
1995
</TABLE>
-7-
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Fund Name
Share Class Income from
(Inception Date) Investment Operations Less Distributions
Dividends Distri-
Net Asset Net Realized Total From From Net butions
Value Net & Unrealized Invest- Invest- From Returns Total
Year Ended Beginning Investment Gains(Loss) ment ment Capital of Distri-
May 31, of Period Income on 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
Class C
(2/2/94)
1994(a) $10.71 $.16 ($.64) ($ .48) $.17 $.17
1995
South Carolina
(7/6/93)
1994(a) $ 9.58 $.42 ($.38) $ .04 $.39 $.03 $.42
1995
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
Class C
(10/4/93)
1994(a) $11.61 $.35 ($.83) ($ .48) $.34 $.01 $.35
1995
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
Class C
(10/4/93)
1994(a) $11.24 $.34 ($.78) ($ .44) $.34 $.10 $.44
1995
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
Ratio of
Net
Net Ratio of Investment
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
Class C
(2/2/94)
1994(a) $10.06 (13.46%) 1,697 1.41% 4.91% 20.70%
1995
South Carolina
(7/6/93)
1994(a) $ 9.20 .15% 6,284 0.40% 4.82% 87.96%
1995
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
Class C
(10/4/93)
1994(a) $10.78 ( 5.92%) 10,652 1.23% 4.80% 16.93%
1995
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
Class C
(10/4/93)
1994(a) $10.36 (5.14%) 4,759 1.14% 4.85% 17.37%
1995
</TABLE>
-8-
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Fund Name
Share Class Income from
(Inception Date) Investment Operations Less Distributions
Dividends Distri-
Net Asset Net Realized Total From From Net butions
Value Net & Unrealized Invest- Invest- From Returns Total
Year Ended Beginning Investment Gains(Loss) ment ment Capital of Distri-
May 31, of Period Income on 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
Class C
(6/2/93)
1994(a) $11.09 $.57 ($.32) $ .25 $.57 $.17 $.74
1995
Intermediate
(9/15/92)
1993(a) $ 9.70 $.36 $.64 $1.00 $.35 $.35
1994 $10.35 $.52 ($.13) $ .39 $.52 $.06 $.58
1995
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
<CAPTION>
Fund Name
Share Class
(Inception Date) Performance Ratios/Supplemental Data
Ratio of
Net
Net Ratio of Investment
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
Class C
(6/2/93)
1994(a) $10.60 2.16% 39,997 1.09% 5.16% 81.29%
1995
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
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
</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 current 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
invest only in
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<PAGE>
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. See "Taxes"
for a discussion of tax consequences.
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, uunder 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 Corporation(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 "Our Nationwide 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.
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<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.
* 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.
* A financial future is similar to an index future, except the trade is settled
with the underlying securities.
* 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.
* 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
, 1995, as well as national averages for comparison purposes. Unless
indicated, there are no other material tax considerations for state residents
except as discussed under "Tax Considerations." See the SAI for further
information.
National Averages
The national average personal income was and the unemployment rate was % in
1994.
Alabama - In 1994, Alabama population was , average personal income was
and the unemploy-
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<PAGE>
ment rate was %. Alabama's economy is distributed relatively evenly between
manufacturing, trade, and government. 1994 general fund revenues were $
billion against expenditures of $ billion. General obligation bonds are
rated Aa by Moody's, AA by Standard & Poor's and AA by Fitch.
Tax Considerations: Possible intangible property tax consequences.
Arizona - In 1994, Arizona population was , average personal income was
and the unemployment rate was %. Arizona's economy is based primarily on
employment in the government and service sectors. 1994 general fund revenues
were $3.788 billion against expenditures of $3.707 billion. There are no
general obligation ratings, however, outstanding certificates of participation
are rated A by Moody's.
Arkansas - In 1994, Arkansas population was , average personal income
was , and the unemployment rate was %. The non-farming economy of Arkansas
is based primarily on manufacturing. 1994 general fund revenues were $
billion against expenditures of the same amount. General obligation ratings are
Aa by Moody's and AA by Standard & Poor's.
California - In 1994, California population was , average personal income
was and the unemployment rate was %. California's economy is based primarily on
the service industry. 1994 general fund revenues were $ billion against
expenditures of $ billion. General obligation ratings are Aa by Moody's,
A+ by Standard & Poor's and AA by Fitch.
Tax Considerations: Individual shareholders not subject to California income
tax on the portion of exempt-interest dividends derived from obligations of
California or its political subdivisions, or obligations of the United States,
Puerto Rico, the U.S. Virgin Islands or Guam, provided that, at the close of
each quarter, at least 50% of Fund assets consists of such obligations.
Colorado - In 1994, Colorado population was , average personal income was
and the unemployment rate was %. Colorado's economy is based primarily on
services. 1994 general fund revenues were $ billion against expenditures of
$ 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 , average personal
income was and the unemployment rate was %. Connecticut's economy is based
primarily on the service sector. 1994 general fund revenues were $ billion
against expenditures of $ billion. General obligation ratings are Aa by
Moody's, AA- by Standard & Poor's and AA+ by Fitch.
Florida - In 1994, Florida population was , average personal income was
and the unemployment rate was %. Florida's economy is based primarily on the
service sector, which includes tourism. 1994 general fund revenues were $
billion against expenditures of $ billion. General obligation ratings are
Aa by Moody's, AA by Standard & Poor's and AA by Fitch.
Tax Considerations: No personal income tax on distributions to individuals. Not
subject to the Florida intangible personal property tax with respect to any
calendar year, provided that, as of 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 , average personal income was
and the unemployment rate was %. Georgia's economy is based heavily on trade,
which is due primarily to its central location in the Southeast. 1994 general
fund revenues were $ billion against expenditures of $ billion. General
obligation ratings are Aaa by Moody's, AA+ by Standard & Poor's and AAA by
Fitch.
Tax Considerations: Not exempt from the Georgia intangibles tax.
Indiana - In 1994, Indiana population was , average personal income was
and the unemployment rate was %. Indiana's economy is based primarily on
manufacturing. 1994 general fund revenues were $ billion against
expenditures of $ billion. The state has no long-term debt, therefore
there are no debt ratings to report.
Tax Considerations: No tax on exempt-interest dividends attributable to
interest derived from obligations of Indiana or any other state.
Iowa - In 1994, Iowa population was , average personal income was and the
unemployment rate was %. Iowa's economy is based primarily on services. 1994
general fund revenues were $ billion against expenditures of $
billion. The State has no outstanding general obligation debt.
Tax Considerations: Individual shareholders not subject to Iowa income tax on
dividends attributable to interest on certain obligations of Iowa, its
political subdivisions, agencies or instrumentalities, or from obligations of
the United States, Puerto Rico, the U.S. Virgin Islands or Guam, provided that
all assets consist of such obligations, or the Fund provides documentation as
to the percentage of dividends attributable to such securities.
Kansas - In 1994, Kansas population was , average personal income was
and the unemployment rate was %. Kansas' economy is based primarily on
agriculture. 1994 general fund revenues were $ billion against expenditures
of $ billion. There is no long-term debt and thus are no ratings to report.
Tax Considerations: No Kansas income tax on distributions to individuals
attributable to interest on obligations issued after December 31, 1987, by
Kansas or its political subdivisions, nor on distributions attributable to
interest on certain specific Kansas obligations issued before January 1, 1988.
The Kansas Fund intends to invest only in obligations that will permit
distributions to be free from Kansas income tax. Not subject to local
intangibles tax imposed by various counties, cities and townships.
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<PAGE>
Kentucky - In 1994, Kentucky population was , average personal income was
and the unemployment rate was %. Kentucky's economy is based primarily on
trade. 1994 general fund revenues were $ billion against expenditures of
$ billion. General obligation ratings are Aa by Moody's and AA by Standard
& Poor's.
Tax Considerations: Not subject to Kentucky intangibles tax to the extent that
holdings consist of obligations of Kentucky or its political subdivisions or
instrumentalities of the United States, Puerto Rico, the U.S. Virgin Islands or
Guam.
Louisiana - In 1994, Louisiana population was , average personal income
was and the unemployment rate was %. Louisiana's economy is based primarily on
services. 1994 general fund revenues were $ billion against expenditures
of $ billion. General obligation ratings are Baa1 by Moody's and A by
Standard & Poor's.
Michigan - In 1994, Michigan population was , average personal income was
and the unemployment rate was %. Michigan's economy is based primarily on
services. 1994 general fund revenues were $ billion against expenditures
of $ 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 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 , average personal income was
and the unemployment rate was %. Missouri's economy is based primarily on
services. 1994 general fund revenues were $ billion against expenditures
of $ 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 , average personal income
was and the unemployment rate was %. New Jersey's economy is based primarily
on services. 1994 general fund revenues were $ billion against
expenditures of $ billion. General obligation ratings are Aa1 by Moody's,
AA+ by Standard & Poor's and AA+ by Fitch.
Tax Considerations: Individual shareholders not subject to New Jersey income
tax on distributions to the extent 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 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 , average personal income
was and the unemployment rate was %. New Mexico's economy is based primarily
on services. 1994 general fund revenues were $ billion against
expenditures of $ billion. General obligation ratings are Aa by Moody's
and AA by Standard & Poor's.
New York - In 1994, New York population was , average personal income was
and the unemployment rate was %. New York's economy is based primarily on
services. 1994 general fund revenues were $ billion against expenditures
of $ billion. General obligation ratings are Aa by Moody's and AA by
Standard & Poor's.
North Carolina - In 1994, North Carolina population was , average personal
income was and the unemployment rate was %. North Carolina's economy is based
primarily on manufacturing. 1994 general fund revenues were $ billion
against expenditures of $ 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 , average personal income was and the
unemployment rate was %. Ohio's non-farming economy is based primarily on
services. 1994 general fund revenues were $ billion against total
expenditures of $ 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 , average personal income was and
the unemployment rate was %. Oregon's economy is based primarily on services.
1994 general fund revenues were $ billion against expenditures of $
billion. General obligation ratings are AA- by Standard & Poor's, Aa by Moody's
and AA by Fitch.
Pennsylvania - In 1994, Pennsylvania population was , average personal
income was and the unemployment rate was %. Pennsylvania's economy is based
primarily on services. 1994 general fund showed total revenues of $
billion against total expenditures of $ 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 subdivisions, the United States, Puerto Rico, the U.S. Virgin Islands
or Guam; (ii) the Pennsylvania personal property tax on shares to the extent
that the Fund's portfolio consists of such obligations; (iii) for those who
reside in Pittsburgh not subject to additional personal property taxes
("intangibles taxes") imposed by the City of Pittsburgh on their residents.
Consult your tax advisor with respect to the Philadelphia School District
Investment Net Income Tax.
South Carolina - In 1994, South Carolina population was , average personal
income was and
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<PAGE>
the unemployment rate was %. 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 $ billion against expenditures of $ billion. General obligation
ratings are Aaa by Moody's, AA+ by Standard & Poor's and AAA by Fitch.
Tennessee - In 1994, Tennessee population was , average personal income
was and the unemployment rate was %. Tennessee's economic base is reasonably
well diversified, with services the largest employment sector. 1994 general
fund revenues were $ billion against expenditures of $ 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 , average personal income was
and the unemployment rate was %. Virginia's economy remains strong and
diversified. 1994 general fund revenues were $6.537 billion against
expenditures of $6.436 billion. General obligation ratings are Aaa by Moody's,
AAA by Standard & Poor's and AAA by Fitch.
Wisconsin - In 1994, Wisconsin population was , average personal income
was and the unemployment rate was %. Wisconsin's economy is based largely on
services. 1994 general fund revenues were $ billion against expenditures
of $ billion. General obligation ratings are Aa by Moody's, AA by Standard
& Poor's and AA- by Fitch.
Tax Considerations: Individual shareholders not subject to Wisconsin income tax
on 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. 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 advisor
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 its 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 the Fund's value nor any of its
securities is insured by the Federal Deposit Insurance Corporation. The 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,
the 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 advisor 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 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
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<PAGE>
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. Where there is more than one Fund in a state, a single portfolio
manager is responsible for all of them.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 Advisors (Louisville, KY). 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.
Richard Huber
Jan Terbrueggen Michael Davern Portfolio
Vice President Vice President Manager
Arizona Louisiana Alabama Kansas All-American
Arkansas* New Mexico Florida Michigan Connecticut
California* North Georgia Missouri Kentucky
Colorado Carolina Indiana* Ohio Limited Term
Intermediate Oregon* Insured* Pennsylvania Maryland
Iowa* South Insured Short Term* New Jersey
Carolina Intermediate* U.S. New York
Tennessee Insured Limited Territories* Virginia
Term* Wisconsin
* 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.
Fee Fee Fee Paid
Paid to Paid to to
Fund Manager Fund Manager Fund Manager
Alabama Louisiana Ohio
Arizona Michigan Pennsylvania
Colorado South
Missouri Carolina
Connecticut New
Jersey Tennessee
Florida New
Jersey
Int. Virginia
Florida New
Int. Mexico Wisconsin
Georgia New York All-American
Kansas North Limited
Carolina Term
Kentucky
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The Manager, which has been a registered investment advisor since 1978, also
renders investment advisory and management services to others. The Manager
manages approximately $ billion in assets, primarily of mutual funds,
corporations, insurance companies, employee benefit plans and individuals. The
Manager is investment advisor to the Trust, with assets of approximately $
billion and to Flagship Admiral Funds Inc., an investment company with assets
of approximately $ million. All assets are as of July 31, 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
should 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.
Class A Shares--Offered By All Funds
Total Sales Charge
Percentage Percentage Dealer Concession or
Size of Transaction of of Agency
At Public Offering Offering Net Asset Commission as Percentage
Price Price Value of 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)
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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 (of which 0.75% is an
asset based sales charge and 0.20% is a service fee) and 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, 0.75% is paid to the dealer and 0.20% to the Distributor.
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 monthly 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 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 State
Street Bank and Trust Company 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:
* rights of accumulation and combinations
* letter of intent
* group purchases
* 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 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 his dealer will inform State Street 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.
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<PAGE>
Upon receipt of your request in good order by the Transfer Agent 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. He/she must receive your request before 4:00
p.m. Eastern time to receive that day's price. He/she 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 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 10.
Payment will be made by check to you at the address on your most recent
Application. Checks will normally be sent out 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
The Transfer Agent 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 advisor.
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
"SWIP" 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
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<PAGE>
exhaust the number of shares in the account. You should not consider a SWIP if
you intend to add to your SWIP account concurrently because (a) new purchases
of Class A shares will incur a sales charge, and/or (b) Class B shares incur a
contingent deferred sales charge if sold within seven years of purchase
(Flagship's service agent redeems first the principal shares purchased
earliest). To terminate your SWIP, to change the amount or frequency or to
designate a new payee of your payments, contact Flagship in writing. Flagship's
service agent may charge the account for services rendered and expenses
incurred beyond those normally assumed by the Fund with respect to the
liquidation of shares. Flagship's Service Agent 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. 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 maturities of 60 days or less
are valued at their amortized cost under rules adopted by the Securities and
Exchange Commission. 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 advisors 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
pur-
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<PAGE>
poses as for federal income tax purposes. Shareholders are urged to consult
their own tax advisors 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 advisors 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 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 permits each Fund, under the Distribution Agreements, to reimburse the
Distributor each month for its actual
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expenses incurred in the financing of any activity which is primarily intended
to result in the sale of shares of the Fund. 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 sales
of specific funds during specified time periods. 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 in the Fund's 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
Fund's 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.
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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 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 Advisor 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,
Meagher & Flom Deloitte & Touche, LLP
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)
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<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.
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
PLEASE MAIL THIS APPLICATION & YOUR CHECK TO:
State Street Bank and Trust Company
BFDS-Service Agent
Attn.: Flagship Tax Exempt Funds
P.O. Box 8509
4. Your Initial Investment
I want to invest in this Flagship Tax Exempt Fund.
Please indicate class of shares
Name of Fund Amount* A Shares** C 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
___________________________________________
Investment Professional's Name Rep #
___________________________________________
Branch Address
___________________________________________
City
_____ _____________ _______
State Zip Code
( ) -
___________________________________________
Investment Professional's Phone Number
X
___________________________________________
Signature of Investment Professional
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<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 #
___________________________________________
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 #
___________________________________________
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
Signatures(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
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
___________________________________________
Signature Date
X
___________________________________________
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
___________________________________________
Signature Date
X
___________________________________________
Signature (Joint Tenant) Date
Thank you for your investment in the Flagship Fund(s). You will receive a
confirmation statement shortly.
-24-
<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
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 Triple Tax Exempt Fund--Class A Shares
Flagship North Carolina Triple 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
1
<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
Flagship Limited Term Tax Exempt Fund
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 800-227-4648, 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
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 Fund and Its Objective" 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 referendum, 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
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 advisor 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
advisor to be active and sufficiently liquid. For further information regarding
these investment strategies and risks presented thereby, see Appendix II to
Statement of Additional Information incorporated by reference into this
Prospectus.
Each series of the Fund reserves the right, if necessary in the judgment of the
Trustees and the investment advisor 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"). 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 (see "Shares of the Fund" in the Statement of
Additional Information.) 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 this Prospectus under "How Fund Shares Are Priced".
The net assets attributable to Class A Shares are subject to an ongoing
distribution services fee (see "About the 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 "Reduced
Sales Charges" 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 (see "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") without a sales charge at the time of purchase. Instead,
the Class C Shares are subject to a 1% contingent deferred sales charge if they
are redeemed within one year after purchase. The net assets attributable to
Class C Shares are subject to an ongoing distribution services fee of 0.95%, of
which .75% is an asset based sales charge and .20% is a service fee (see "About
the Distributor" below). The Class C Shares have no conversion rights.
The contingent deferred sales charge 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 contingent
deferred sales charge 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
this 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) are indicated by an asterisk (*).
Position
with the Principal Occupation
Name and Address Fund During Past Five Years
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 President and Chief Operating
and Officer of Flagship, the Manager,
President and the Distributor for more than
five years.
Robert P. Bremner Trustee Private Investor and Management
3725 Huntington Street, NW Consultant.
Washington, DC 20015
Joseph F. Castellano Trustee Professor and former Dean, College
4249 Honeybrook Avenue of Business and Administration,
Dayton, Ohio 45415 Wright State University.
Paul F. Nezi Trustee Executive Vice President, Marketing
227 E. Dixon Avenue Sales & Product Development,
Dayton, Ohio 45419 ChoiceCare; prior to March 1993,
Vice President and General Manager,
Advanced Imaging Products, a
division of AM Graphics; prior to
March 1991, Partner, Hooper & Nezi,
a marketing and communications
firm.
William J. Schneider Trustee Senior Partner, Miller-Valentine
4000 Miller-Valentine Ct. Partners; Vice President,
P.O. Box 744 Miller-Valentine Realty, Inc.
Dayton, OH 45401
M. Patricia Madden Vice Vice President, Operations--of the
President Distributor
Michael D. Kalbfleisch Treasurer Vice President and Controller of
and Flagship, the Manager and the
Secretary Distributor
Sharon M. Luster Assistant Compliance Manager of the
Secretary Distributor; Assistant Secretary of
Flagship, the Manager and the
Distributor
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 9, 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 NFSC FEBO
Lester Wooten
Rt. 2, Box 260
Decatur, AL 35603-9753
Mary E. Barnett
26 Mavry Drive
Mobile, AL 36606
J.C. Bradford & Co. Cust. FBO
Thomas R. Schlinkert
330 Commerce St.
Nashville, TN 37201-1805
NFSC FEBO
William H. Lee
Adie W. Lee JT WROS
1714 Sandra St.
Decatur, AL 35601-5458
Connecticut Fund Painewebber FBO
Karen E. Heldmann
25 Grandview Terr.
South Windsor, CT 06074-3723
Florida Intermediate Fund Margaret S. Buzzelli
4444 Ocean Boulevard
Sarasota, FL 34242-1317
9
<PAGE>
Bonnie Marie Zatko TR
Bonnie Marie Zatko Trust
755 Muirfield Circle
Atlantis, FL 33462-1230
Charles W. McDowell SR
Ruth S. McDowell TRSE
McDowell Revocable Trust
800 Lake Port Blvd. #H211
Leesburg, FL 34748-7663
Edward C. Wechsler
341 Chicasaw Ct.
Jacksonville, FL 32259-4329
Louisiana Fund Edward D. Jones & Co. F/A/O
R. Lynn Lanoux
P.O. Box 2500
Maryland Heights, MO 63043-8500
Edward D. Jones & Co. F/A/O
Earl K. Rush
P.O. Box 2500
Maryland Heights, MO 63043-8500
PaineWebber FBO
Brigette Belair
Charles Belair Ten Comm
115 Sherwood Drive
Belle Chasse, LA 70037-2630
South Carolina Fund Jeanette G. Garrison*
1926 Byrnes Road
North Augusta, SC 29841
Jeanette G. Garrison, Guardian*
FBO Janece Marsha Garrison
1926 Byrnes Road
North Augusta, SC 29841
Jeanette G. Garrison, Guardian*
FBO Joseph Christopher Garrison
1926 Byrnes Road
North Augusta, SC 29841
James G. McMillan
6 Black Duck Rd.
Hilton Head, SC 29928-5613
* This person could be considered to control the South Carolina series.
As of such date, no person beneficially owned more than 5% of the outstanding
shares of the following sub-trusts of the Trust: All-American Fund, Arizona
Fund, Colorado Fund, Florida Fund, Georgia Fund, Intermediate Fund, Kansas
Fund, Kentucky Fund, Limited Term 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 advisor
(the "Manager") to the Fund and each series pursuant to separate Investment
Advisory Agreements (the "Advisory Agreements") with each series. See "About
the Investment Manager" in the Prospectus for a description of the Manager's
duties as investment advisor. 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, State Street Bank and Trust Company.
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,
and New Mexico series; June 15, 1992, with respect to the Alabama, Florida
Intermediate and South Carolina series; February 4, 1994 with respect to the
Wisconsin series; and July 25, 1986, with respect to the Pennsylvania Fund, 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, 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
Colorado -- --
Connecticut 199,861 255,441
Florida -- 314,749
Florida Intermediate -- --
Georgia 39,417 165,095
Kansas -- --
Kentucky 152,758 294,356
Louisiana -- 24,821
Michigan 593,670 645,194
Missouri -- 107,595
New Jersey -- --
New Jersey Intermediate -- --
New Mexico -- --
New York -- --
North Carolina 620,139 676,431
Ohio 1,637,396 1,901,128
Pennsylvania 38,843 104,513
South Carolina -- --
Tennessee 523,894 548,942
Virginia 117,621 133,981
Wisconsin -- --
National Series
All-American 143,764 267,846
Intermediate -- --
Limited Term 779,936 1,313,071
TOTAL $4,847,299 $6,798,798
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
Arizona 313,951 377,569
Colorado 102,647 162,901
Connecticut 620,466 768,360
Florida 1,644,672 1,676,047
Florida Int. -- 2,503
Georgia 392,472 421,674
Kansas 154,728 425,046
Kentucky 1,117,934 1,521,748
Louisiana 232,711 290,721
Michigan 428,778 653,131
Missouri 540,339 779,519
New Jersey 4,410 18,392
New Jersey Intermediate 12,674 40,542
New Mexico 56,556 225,840
New York 129,777 215,688
North Carolina 136,705 290,321
Ohio 202,914 404,687
Pennsylvania 155,441 111,454
South Carolina -- 23,928
Tennessee 267,995 597,902
Virginia 288,709 404,880
Wisconsin -- --
National Series
All-American 603,916 753,169
Intermediate 35,050 146,230
Limited Term 497,955 657,881
TOTAL $7,940,800 $10,970,240
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 $
Colorado
Florida Intermediate
Kansas
New Jersey
New Jersey Intermediate
New Mexico
New York
South Carolina
Wisconsin
National Series
Intermediate
Total
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
12
<PAGE>
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
Investment Company Act of 1940, 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, $58,000 for the New Jersey series, $31,200 for the New Jersey
Intermediate series, $51,700 for the New Mexico series, $30,700 for the
Intermediate series, $35,100 for the South Carolina series, $27,400 for the
Florida Intermediate series, $45,800 for the Alabama series, and $ 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 of more clients when one of 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 originally dated March 8, 1985, with
respect to the All-American, Michigan and Ohio series; November 21, 1985, with
respect to the Georgia, Texas, North Carolina and Virginia series; July 25, 1986
with respect to the Arizona series; February 2, 1987, with respect to Colorado,
Connecticut, Kentucky and Missouri series; and July 20, 1987 with respect to the
New York, Florida, Limited Term, Louisiana, New Jersey, and Tennessee series;
June 15, 1990, with respect to the Kansas series; May 15, 1992, with respect to
the New Jersey, New Jersey Intermediate, New Mexico, and Intermediate series;
June 15, 1992, with respect to the Alabama, Florida Intermediate and South
Carolina series; and July 25, 1986 with regard to the Pennsylvania Fund.
Following shareholder approval of multiple classes of shares and consequent
changes to the Distribution Plan, revised Distribution Agreements were executed
on September 2, 1992, for all of the above-named funds. 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 "Investment Advisor" 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 Directors 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 Investment Company Act of 1940, 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.
13
<PAGE>
The Plan permits each series of the fund, pursuant to the Distribution
Agreements, to reimburse the Distributor each month for its actual expenses
incurred for the purpose of financing or assisting in the financing of any
activity which is primarily intended to result in the sale of shares of the
Fund. 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 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 advisor'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 advisor 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:
Compensation Advertising Salaries
to Upfront & &
State Brokers Commissions Promotions Benefits Other Total
Series
Alabama $ $ $ $ $ $
Arizona
- Class A
- Class C
Colorado
Connecticut
- Class A
- Class C
14
<PAGE>
Compensation Advertising Salaries
to Upfront & &
State Brokers Commissions Promotions Benefits Other Total
Florida
Florida
Int.
- Class A
- Class C
Georgia
- Class A
- Class C
Kansas
Kentucky
- Class A
- Class C
Louisiana
- Class A
- Class C
Michigan
- Class A
- Class C
Missouri
- Class A
- Class C
New Jersey
New Jersey
Intermediate
New Mexico
New York
N. Carolina
- Class A
- Class C
Ohio
- Class A
- Class C
Pennsylvania
- Class A
- Class C
South Carolina
Tennessee
- Class A
- Class C
Virginia
- Class A
- Class C
Wisconsin
National Series
All-American
- Class A
- Class C
Intermediate
Limited Term
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
15
<PAGE>
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 directors 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 amendments 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 $ --
Arizona 823,000 88,000 743,600 84,700
Colorado 384,000 49,000 326,900 43,800
Connecticut 1,290,000 147,000 1,033,000 137,900
Florida 3,103,000 311,000 2,135,700 296,700
Florida Intermediate -- -- 24,400 --
Georgia 967,000 136,000 945,300 127,200
Kansas 1,141,000 149,000 1,400,000 185,200
Kentucky 3,201,000 445,000 3,192,800 423,600
Louisiana 499,000 65,000 575,400 71,400
Michigan 1,316,000 184,000 1,222,500 139,300
Missouri 2,015,000 280,000 2,103,300 278,200
New Jersey 77,000 2,000 112,100 10,800
New Jersey Intermediate 5,000 -- 117,500 20,400
New Mexico 903,000 63,000 646,900 85,500
New York 454,000 43,000 596,817 69,217
N. Carolina 1,155,000 165,000 1,076,400 146,300
Ohio 2,837,000 387,000 2,337,100 274,500
Pennsylvania 185,000 20,000 173,900 20,000
S. Carolina -- -- 111,100 6,100
Tennessee 2,028,000 278,000 2,123,600 284,800
Virginia 920,000 131,000 677,600 88,700
Wisconsin
National Series
All-American 1,095,000 147,000 1,188,000 161,798
Intermediate 394,000 43,000 460,600 89,100
Limited Term 5,276,000 1,068,000 4,055,400 818,100
TOTAL $30,068,000 $4,201,000 $27,394,417 $3,863,315
</TABLE>
CLASS C SHARES
1994 1995
Contingent
Deferred Contingent Deferred
Sales Charge Sales Charge
State Series
Arizona $ --
Connecticut 800
Florida Intermediate 400
Georgia 600
16
<PAGE>
1994 1995
Contingent
Deferred Contingent Deferred
Sales Charge Sales Charge
Kentucky 5,900
Louisiana 200
Michigan 10,500
Missouri 100
North Carolina 400
Ohio 11,600
Pennsylvania 100
Tennessee 3,900
Virginia 1,200
National Series
All-American 26,000
TOTAL $61,700
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, 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.
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 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):
Current Average Annual Total
Yield Return
Prior 30 1 5 10 Inception
State Funds Days Year Year Year Date
Alabama Apr 11, 1994
Arizona
- Class A Oct 29, 1986
Arizona
- Class C Feb 7, 1994
Colorado May 4, 1987
Connecticut
- Class A Jul 13, 1987
Connecticut
- Class C Oct 4, 1993
Florida Jun 15, 1990
Florida
Intermediate
- Class A Feb 1, 1994
Florida
Intermediate
- Class C Feb 2, 1994
Georgia
- Class A Mar 27, 1986
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<PAGE>
Current Average Annual Total
Yield Return
Prior 30 1 5 10 Inception
State Funds Days Year Year Year Date
Georgia
- Class C Jan 4, 1994
Kansas Jan 9, 1992
Kentucky
- Class A May 4, 1987
Kentucky
- Class C - Oct 4, 1993
Louisiana
- Class A - Sep 12, 1989
Louisiana
- Class C Feb 2, 1994
Michigan
- Class A Jun 27, 1985
Michigan
- Class C Jun 22, 1993
Missouri
- Class A Aug 3, 1987
Missouri
- Class C Feb 2, 1994
New Jersey Sep 16, 1992
New Jersey
Intermediate Sep 16, 1992
New Mexico Sep 16, 1992
New York Jan 16, 1991
North Carolina
- Class A Mar 27, 1986
North Carolina
- Class C Oct 4, 1993
Ohio
- Class A Jun 27, 1985
Ohio
- Class C Aug 3, 1993
Pennsylvania
- Class A Oct 29, 1986
Pennsylvania
- Class C Feb 2, 1994
South Carolina Jul 6, 1993
Tennessee
- Class A Nov 2, 1987
Tennessee
- Class C Oct 4, 1993
Virginia
- Class A Mar 27, 1986
Virginia
- Class C Oct 4, 1993
Wisconsin Jun 1, 1994
National Funds
All-American
- Class A Oct 3, 1988
All-American
- Class C Jun 2, 1993
Intermediate Sep 14, 1992
Limited Term Oct 19, 1987
* 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 accounts. 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
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<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 CDSL.
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 State Street, the Fund's custodian, by the close of trading on the
New York Stock Exchange on a particular day in order for you to receive
21
<PAGE>
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
State Street 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 State
Street 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 State Street 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, State Street 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.
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<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. The Fund's transfer agent 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 monthly 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).
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<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 1-800-227-4648, 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.
Shareholders can use Automatic Clearing House ("ACH") to have dividends
deposited electronically into their bank accounts. The Fund's prospectus
contains complete information.
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<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
Securities and Exchange Commission under the Securities Act of 1933 with
respect to the securities offered by the Prospectus, certain portions of which
have been omitted pursuant 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 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 Additional Statement form a part, each such statement
being qualified in all respects by such reference.
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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 Triple 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
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APPENDIX I
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
Standard & Poor's Corporation -- A brief description of the applicable Standard
& Poor's Corporation 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" and "CC" 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 "CC" 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 "C"
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.
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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 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
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. These issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-1 This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming
as for issues designated "A-1".
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designation.
B Issues rated "B" are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
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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PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
List all financial statements and exhibits as part of the Registration
Statement.
(a) Financial Statements:
(1) The condensed financial information for each subtrust is included in
Part A of the Registration Statement under the heading "Per Share
Income and Capital Changes."
(2) The audited financial statements for each subtrust for the period ended
May 31, 1995, are included in Part B of the Registration Statement.*
(b) Exhibits
(1)(a) Declaration of Trust as amended*
(b) Form of Designation of Sub-Trust**
(2) By-Laws**
(4) Form of Certificate of unit of interest**
(5) Form of Investment Advisory Agreements**
(5)(a) Form of Advisory Agreement for Limited Term Series**
(6)(a) Form of Distribution Agreement**
(b) Form of Selling Agreement**
(c) Form of Multiple Class Distribution Plan and Agreements**
(8)(a) Custodian Agreement as amended*
(b) Transfer Agency Agreement**
(c) Form of Bank Clearing Agreement**
(10) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom**
(11)(a) Opinion and Consent of Deloitte & Touche as to tax matters*
(b) Consent of Deloitte & Touche*
(c) Auditor's Report on Multiple Class Procedures*
(13) Letter of understanding relating to initial capital**
(15)(a) Distribution Plan**
(b) Form of Distribution Agreements**
(c) Form of Selling Agreement**
(d) Form of Service Agreement**
(16) Total Return Calculations**
(17) Financial Data Schedule*
(18) Letter of Transmittal for Exchange**
(19) Power of Attorney**
(20) Application Form**
(21) Code of Ethics as amended*
* To be filed.
** Previously filed.
-C-1-
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Item 25. Persons Controlled by or Under Common Control with Registrant.
Insofar as the following registered investment companies have identical Boards
of Directors or Trustees, as the case may be, they may be deemed to be under
common control with Registrant: Flagship Admiral Funds Inc. (and Flagship
Pennsylvania Triple Tax Exempt Fund until May 31, 1995).
Item 26. Number of Holders of Securities.
As of April 28, 1995:
(1) (2)
Number of
Record
Title of Class Holders
Shares of beneficial interest, without par value.... 65,921
Item 27. Indemnification.
Please see Section 5.3 of the Registrant's Declaration of Trust (Exhibit 1(a)).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant and the investment advisor and distributor pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant and the principal underwriter in
connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such director, officer or controlling person
or the Distributor in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Adviser.
See "Officers and Directors" in the statement of Additional Information.
Item 29. Principal Underwriters.
(a) (1) Flagship Admiral Funds Inc.
(2) Flagship Pennsylvania Triple Tax Exempt Fund.
(b) See "Officers and Trustees" in the Statement of Additional Information
constituting Part B of this Registrant Statement.
(c) Not applicable. The Registrant's only principal underwriter is an
affiliated person of an affiliated person of the Registrant.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder will be
maintained at the offices of Flagship Tax Exempt Funds Trust, located at One
Dayton Centre, One South Main Street, Dayton, Ohio 45402-2030, or at Boston
Financial, 225 Franklin Street, Boston, Massachusetts.
Item 31. Management Services.
Other than as set forth under the caption "About the Distributor" and "How the
Funds are Managed" in the Prospectus constituting Part A of this Registration
Statement, the Registrant is not a party to any management-related service
contract.
Item 32. Undertakings.
1. With respect to any new series of the Registrant, Registrant will file a
post-effective amendment containing unaudited financial statements of each such
series within four to six months after the commencement of the public offering
of such series' shares.
2. Registrant undertakes that if it does not hold annual meetings that it will
abide by section 16(c) of the 1940 Act which provides certain rights to
shareholders.
3. Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Dayton, and State of Ohio, on the 10th day of
June, 1995.
FLAGSHIP TAX EXEMPT FUNDS TRUST
By /s/ Richard P. Davis
Richard P. Davis
President
POWER OF ATTORNEY
Know all Men by These Presents, that each person whose name appears below
constitutes and appoints Bruce Paul Bedford and Richard P. Davis, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
This Power of Attorney may be executed in multiple counterparts, each of which
shall be deemed to be an original, but which taken together shall constitute
one instrument.
Pursuant to the requirements of the Securities Act of 1933, this amendment to
its Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ BRUCE PAUL BEDFORD*
Bruce Paul Bedford Chairman of the Board June 10, 1995
/s/ RICHARD P. DAVIS
Richard P. Davis President and Trustee June 10, 1995
/s/ MICHAEL D. KALBFLEISCH*
Michael D. Kalbfleisch Treasurer June 10, 1995
/s/ ROBERT P. BREMNER*
Robert P. Bremner Trustee June 10, 1995
/s/ JOSEPH F. CASTELLANO*
Joseph F. Castellano Trustee June 10, 1995
/s/ PAUL F. NEZI*
Paul F. Nezi Trustee June 10, 1995
/s/ WILLIAM J. SCHNEIDER*
William J. Schneider Trustee June 10, 1995
* Signed by Richard P. Davis pursuant to a power of attorney.
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SCHEDULE OF EXHIBITS TO FORM N-1A
Exhibit Page
Number Exhibit Number
(1)(a) Declaration of Trust as amended **
(b) Form of Designation of Sub-Trust *
(2) By-Laws *
(4) Form of Certificate of unit of interest *
(5) Form of Investment Advisory Agreement *
(a) Form of Investment Advisory Agreement for Limited Term
Series *
(6)(a) Form of Distribution Agreements *
(b) Form of Selling Agreement *
(c) Form of Multiple Class Distribution Plan and
Agreements *
(8)(a) Custodian Agreement as amended **
(b) Transfer Agency Agreement *
(c) Form of Bank Clearing Agreement *
(10) Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom *
(11)(a) Opinion and consent of Deloitte & Touche as to tax
matters **
(b) Consent of Deloitte & Touche **
(c) Auditor's Report on Multiple Class Procedures **
(13) Letter of understanding relating to initial capital *
(15)(a) Distribution Plan *
(b) Form of Distribution Agreements *
(c) Form of Selling Agreement *
(d) Form of Service Agreement *
(16) Total Return Calculation *
(17) Financial Data Schedule **
(18) Letter of Transmittal for Exchange *
(19) Power of Attorney *
(20) Application Form *
(21) Code of Ethics as amended **
* Previously filed.
** To be filed.
-C-4-
