1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OR ABOUT JANUARY 12, 1999 REGISTRATION NOS. 333- 811-07751 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. [ ] Post-Effective Amendment No. [ ] NUVEEN FLAGSHIP MULTISTATE TRUST IV (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) 333 West Wacker Drive Chicago, Illinois 60606 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (312) 917-7700 Copy to: GIFFORD R. ZIMMERMAN, ESQ. DAVID A. STURMS, ESQ. VICE PRESIDENT AND SECRETARY VEDDER, PRICE, KAUFMAN & KAMMHOLZ JOHN NUVEEN & CO. INCORPORATED 222 NORTH LASALLE STREET 333 WEST WACKER DRIVE CHICAGO, ILLINOIS 60601 CHICAGO, ILLINOIS 60606 (NAME AND ADDRESS OF AGENT FOR SERVICE) THOMAS S. HARMAN, ESQ. MORGAN LEWIS & BOCKIUS LLP 1800 M STREET, NW WASHINGTON, DC 20036 APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after this Registration Statement becomes effective. ---------------- It is proposed that this filing will become effective on February 11, 1999 pursuant to Rule 488. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 NUVEEN FLAGSHIP MULTISTATE TRUST IV CROSS-REFERENCE SHEET PURSUANT TO RULE 481(A) OF REGULATION C UNDER THE SECURITIES ACT OF 1933 FORM N-14 ITEM NO. PROSPECTUS/PROXY --------- ---------------- PART A INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT Item 1. Beginning of Registration Statement and Outside Front Cover Page of Prospectus/Proxy Statement.............. Outside front cover page of Prospectus/Proxy Statement Item 2. Beginning and Outside Back Cover Page of Prospectus/Proxy Statement.............. Outside back cover page of Prospectus/Proxy Statement Item 3. Fee Table, Synopsis Information and Risk Factors................................. Summary; Risk Factors Item 4. Information about the Transaction....... Summary; The Proposed Reorganization Item 5. Information about the Registrant........ Outside front cover page of Prospectus/Proxy Statement; Summary; The Proposed Reorganization; Other Information; Exhibit A; Prospectus and Statement of Additional Information of the Kentucky Fund (incorporated by reference) Item 6. Information about the Company Being Acquired................................ Outside front cover page of Prospectus/Proxy Statement; Summary; Exhibit A; Prospectus Statement of Additional Information of the Kentucky Limited Term Fund (incorporated by reference) Item 7. Voting Information...................... Other Information; Voting Information and Requirements Item 8. Interest of Certain Persons and Experts................................. Summary; The Proposed Reorganization Item 9. Additional Information Required for Reoffering by Persons Deemed to be Underwriters............................ Not applicable PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION Item 10. Cover Page.............................. Cover Page Item 11. Table of Contents....................... Table of Contents Item 12. Additional Information about the Registrant.............................. Additional Information about the Kentucky Fund; Incorporation of Documents by Reference Item 13. Additional Information about the Company Being Acquired.......................... Additional Information about the Kentucky Limited Term Fund; Incorporation of Documents by Reference Item 14. Financial Statements.................... Financial Statements; Incorporation of Documents by Reference PART C OTHER INFORMATION Items 15-17. Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement. - --------------- * References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. 3 NUVEEN LOGO IMPORTANT INFORMATION FOR SHAREHOLDERS OF NUVEEN FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND Your Nuveen Flagship Kentucky Limited Term Municipal Bond Fund will host a Special Meeting of Shareholders on Thursday, April 15, 1999, at our headquarters in Chicago, Illinois. The purpose is to vote on an important proposal affecting your fund. The first few pages of this booklet summarize Nuveen's proposal and explain the proxy process -- including how to cast your votes. Before you vote, please read the full text of the proxy statement for a complete understanding of the proposal. Q. WHAT ARE SHAREHOLDERS BEING ASKED TO VOTE ON AT THE UPCOMING SPECIAL SHAREHOLDER MEETING ON APRIL 15? A. The Board of Trustees for the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund (the "Kentucky Limited Term Fund") has called a Special Shareholder Meeting for Thursday, April 15, 1999 at which you will be asked to vote on a reorganization (the "Reorganization") of your fund into the Nuveen Flagship Kentucky Municipal Bond Fund (the "Kentucky Fund"). Q. ARE THERE ANY DIFFERENCES BETWEEN THE FUNDS? A. The Kentucky Fund is substantially the same as the Kentucky Limited Term Fund in its philosophy, investment objectives and policies and day-to-day portfolio management except that the Kentucky Limited Term Fund maintains a weighted average portfolio maturity between 1 and 7 years while the Kentucky Fund maintains a weighted average portfolio maturity between 15 and 30 years. In evaluating the Reorganization, the Kentucky Limited Term Fund shareholders should consider the impact of investing in a long-term municipal bond fund. Q. WHAT ADVANTAGES WILL THIS PRODUCE FOR FUND SHAREHOLDERS? A. We expect the proposed Reorganization to (i) lower gross operating expenses as a percentage of net assets due to the Kentucky Fund's larger net assets and greater economies of scale; (ii) improve portfolio diversification; (iii) lower portfolio transaction costs; and (iv) retain the exemption of dividends from the Kentucky state personal income tax. The Board believes that these potential benefits, together with the potentially higher distributions from the Kentucky Fund, should offset the risks associated with investments in a long term bond fund. Q. HAS THE FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSAL? A. The Board of Trustees for the Kentucky Limited Term Fund unanimously agreed that this Reorganization is in your best interests and recommends that you vote in favor of it. Q. WHAT IS THE TIMETABLE FOR THE REORGANIZATION? A. Effective December 31, 1998, the Kentucky Limited Term Fund was closed to new investors; existing investors, however, may continue to make additional purchases and reinvest dividends. If approved by shareholders on April 15, 1999, the Reorganization is expected to take effect on April 23, 1999. Q. WILL I RECEIVE NEW SHARES IN EXCHANGE FOR MY CURRENT SHARES? A. Yes. Upon approval and completion of the Reorganization, shareholders of the Kentucky Limited Term Fund will exchange their shares for shares of the Kentucky Fund based upon a specified exchange ratio determined by the ratio of the respective net asset values of the funds. You will receive Kentucky Fund shares whose aggregate value at the time of issuance will equal the aggregate value of your Kentucky Limited Term Fund shares on that date. 4 Q. IF I OWN SHARES IN CERTIFICATE FORM, WILL I NEED TO EXCHANGE THEM FOR CERTIFICATES OF MY NEW FUND? A. Certificates for Kentucky Fund shares will not be issued automatically as part of the Reorganization, although we will send you certificates upon request. If you currently own Kentucky Limited Term Fund shares in certificate form, you will need to return these certificates to Nuveen in order to receive new certificates for your Kentucky Fund shares. If you prefer, however, you may exchange your certificates for book entry shares. These shares are held in a convenient computerized system that enables shareholders to receive a complete and accurate record of their holdings without having to worry about the safekeeping of certificates or the expense involved with replacing a lost or stolen certificate. Just complete the appropriate section of the Letter of Transmittal requesting book entry shares. Regardless of the way you choose to hold your shares after the Reorganization, certificates should be returned to the fund's transfer agent by certified mail as soon as possible. Q. WILL I HAVE TO PAY ANY FEES OR EXPENSES IN CONNECTION WITH THE REORGANIZATION? A. You will pay no fees or sales charges directly in connection with the implementation of the proposed changes. However, the costs associated with the Reorganization will be borne by the Kentucky Limited Term Fund. These costs are estimated to be $0.066 per share. The costs are expected to be more than offset over time by the anticipated lower operating costs of the Kentucky Fund. Q. HOW DO MANAGEMENT FEES AND OTHER FUND OPERATING EXPENSES COMPARE BETWEEN THE TWO FUNDS? A. The Kentucky Fund has a higher investment management fee schedule than the Kentucky Limited Term Fund. Total gross operating expenses (before waivers and reimbursements) as a percentage of net assets for the Kentucky Fund are lower than those for the Kentucky Limited Term Fund, reflecting the larger net assets and greater economies of scale of the Kentucky Fund. For the past fiscal year, net operating expenses (after waivers and reimbursements) as a percentage of net assets for the Kentucky Limited Term Fund were lower than those for the Kentucky Fund, but only because of voluntary expense waivers/reimbursements by Nuveen. There can be no assurance that Nuveen will continue these waivers/reimbursements for the Kentucky Limited Term Fund if the Reorganization is not approved. Q. WILL THIS REORGANIZATION CREATE A TAXABLE EVENT FOR ME? A. The Reorganization is intended to be done on a tax-free basis for federal income tax purposes. Therefore, you will recognize no gain or loss for federal income tax purposes as a result of the Reorganization. In addition, the tax basis and holding period of the Kentucky Fund shares you receive will be the same as the tax basis and holding period of your Kentucky Limited Term Fund shares. Q. CAN I EXCHANGE OR REDEEM MY KENTUCKY LIMITED TERM FUND SHARES BEFORE THE REORGANIZATION TAKES PLACE? A. You may exchange your Kentucky Limited Term Fund shares for shares of any other Nuveen Mutual Fund, or redeem your shares, at any time. If you choose to do so, your request will be treated as a normal exchange or redemption of shares and will be a taxable transaction for federal income tax purposes. Nuveen will waive any deferred sales charge that would otherwise apply to a redemption or exchange of shares. Q. HOW DO I VOTE MY SHARES? A. You can vote your shares by completing and signing the enclosed proxy card(s), and mailing them in the enclosed postage-paid envelope. If you need any assistance, or have any questions regarding the proposals or how to vote your shares, please call your financial adviser or Nuveen at (800) 621-7227 weekdays from 7:00 a.m. to 7:00 p.m. Central time. Q. WILL NUVEEN CONTACT ME? A. You may receive a call from D.F. King, our proxy solicitation agent, to verify that you received your proxy materials and to answer any questions you may have about the Reorganization. 5 NUVEEN LOGO February 15, 1999 DEAR NUVEEN FUND SHAREHOLDER: Enclosed is a proxy asking you to vote on the reorganization of your Fund into the Nuveen Flagship Kentucky Municipal Bond Fund, a mutual fund that pursues a similar investment objective. Subject to shareholder approval, you will become a shareholder of the Nuveen Flagship Kentucky Municipal Bond Fund. The enclosed Prospectus/Proxy Statement contains information you will need to make an informed decision. For your convenience, we also have provided a brief question and answer section, which we hope you will find useful as you review your materials before voting. For more detailed information about the reorganization, please refer to the Prospectus/Proxy Statement. THE PROPOSAL HAS BEEN APPROVED BY THE TRUSTEES FOR YOUR FUND, WHO UNANIMOUSLY RECOMMEND YOU VOTE "FOR" THE PROPOSAL. Please give this matter your prompt attention. We will need to receive your proxy card before the shareholder meeting scheduled for April 15, 1999. YOUR IMMEDIATE RESPONSE WILL HELP SAVE ON THE COSTS OF ADDITIONAL SOLICITATIONS. We look forward to your participation, and we thank you for your continued confidence in Nuveen. PLEASE SIGN AND RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. Sincerely, /s/ Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board 6 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS APRIL 15, 1999 February 15, 1999 NUVEEN FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND Notice is hereby given that a Special Meeting of shareholders of the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund (the "Kentucky Limited Term Fund" or a "Fund"), a series of the Nuveen Flagship Multistate Trust IV (the "Trust"), a Massachusetts business trust, will be held in the 31st floor conference room of John Nuveen & Co. Incorporated, 333 West Wacker Drive, in Chicago on Thursday, April 15, 1999 at 10:00 a.m., Central Time (the "Special Meeting"), for the following purposes: 1. To approve an Agreement and Plan of Reorganization pursuant to which the Kentucky Limited Term Fund would (i) transfer all of its assets to the Nuveen Flagship Kentucky Municipal Bond Fund (the "Kentucky Fund") in exchange solely for Class A, C and R shares of beneficial interest of the Kentucky Fund and the Kentucky Fund's assumption of the liabilities of the Kentucky Limited Term Fund, (ii) distribute such shares of the Kentucky Fund to the holders of shares of the Kentucky Limited Term Fund and (iii) be liquidated, dissolved and terminated as a series of the Trust in accordance with the Trust's Declaration of Trust. 2. To transact such other business as may properly come before the Special Meeting. Shareholders of record as of the close of business on February 1, 1999 are entitled to notice of and to vote at the Special Meeting or any adjournment thereof. IN ORDER TO AVOID DELAY AND ADDITIONAL EXPENSE, AND TO ASSURE THAT YOUR SHARES ARE REPRESENTED, IF YOU DO NOT EXPECT TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, YOU ARE REQUESTED TO FILL IN, SIGN AND MAIL THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. Gifford R. Zimmerman Vice President and Secretary 7 PROSPECTUS/ PROXY STATEMENT NUVEEN FLAGSHIP KENTUCKY MUNICIPAL BOND FUND RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF NUVEEN FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND This Prospectus/Proxy Statement is being furnished to shareholders of the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund (the "Kentucky Limited Term Fund" or a "Fund"), a series of the Nuveen Flagship Multistate Trust IV (the "Trust"), a Massachusetts business trust, and relates to the special meeting of shareholders of the Kentucky Limited Term Fund to be held in the 31st floor conference room of John Nuveen & Co., Incorporated, 333 West Wacker Drive, in Chicago on Thursday, April 15, 1999 at 10:00 a.m., Central Time and at any and all adjournments thereof (the "Special Meeting"). Shareholders of record as of the close of business on February 1, 1999 are entitled to vote at the Special Meeting or any adjournment thereof. The primary purpose of the Special Meeting is to approve or disapprove the proposed reorganization of the Kentucky Limited Term Fund into the Nuveen Flagship Kentucky Municipal Bond Fund (the "Kentucky Fund," which may also sometimes be referred to as a "Fund") (the "Reorganization"). The Reorganization will result in shareholders of the Kentucky Limited Term Fund in effect exchanging their Class A, C and R shares of the Kentucky Limited Term Fund for corresponding Class A, C and R shares of the Kentucky Fund. The purpose of the Reorganization is to permit the shareholders of the Kentucky Limited Term Fund to (i) achieve certain economies of scale from the Kentucky Fund's larger net asset size and the potentially lower operating expenses associated therewith, and (ii) obtain greater portfolio diversity and potentially lower portfolio transaction costs. The Kentucky Fund is also a series of the Trust. The investment objective of the Kentucky Fund is to provide as high a level of current interest income exempt from regular federal, state and, in some cases, local income taxes as is consistent with preservation of capital. There can be no assurance that the Kentucky Fund will achieve its investment objective. The address, principal executive office and telephone number of the Funds is 333 West Wacker Drive, Chicago, Illinois 60606, (312) 917-7700 or (800) 621-7227. The enclosed proxy and this Prospectus/Proxy Statement are first being sent to shareholders of the Kentucky Limited Term Fund on or about February , 1999. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE REGULATORS, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ This Prospectus/Proxy Statement sets forth concisely the information shareholders of the Kentucky Limited Term Fund should know before voting on the Reorganization (in effect, investing in Class A, C or R shares of the Kentucky Fund) and constitutes an offering of Class A, C or R shares of beneficial interest, par value $.01 per share, of the Kentucky Fund only. Please read it carefully and retain it for future reference. A Statement of Additional Information dated February , 1999, relating to this Prospectus/Proxy Statement (the "Reorganization SAI") has been filed with the Securities and Exchange Commission (the "SEC") and is incorporated herein by reference. A Prospectus (the "Funds' Prospectus") and Statement of Additional Information containing additional information about the Kentucky Fund and the Kentucky Limited Term Fund, each dated September 30, 1998, have been filed with the SEC and are incorporated herein by reference. A copy of the Funds' Prospectus accompanies this Prospectus/Proxy Statement. Copies of the foregoing may be obtained without charge by calling or writing the Funds at the telephone number or address shown above. If you wish to request the Reorganization SAI, please ask for the "Reorganization SAI." IN ADDITION, EACH FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL REPORT AND SUBSEQUENT SEMI-ANNUAL REPORT TO A SHAREHOLDER UPON REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE RESPECTIVE FUND BY CALLING (800) 621-7227 OR BY WRITING THE RESPECTIVE FUND AT 333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606. ------------------------ No person has been authorized to give any information or make any representation not contained in this Prospectus/Proxy Statement and, if so given or made, such information or representation must not be relied upon as having been authorized. This Prospectus/Proxy Statement does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any person to whom, it is unlawful to make such offer or solicitation. ------------------------ The Trust is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended (the "1940 Act"), and in accordance therewith files reports and other information with the SEC. Such reports, other information and proxy statements filed by the Trust can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Office at 500 West Madison Street, Chicago, Illinois. Copies of such material can also be obtained from the SEC's 8 Public Reference Branch, Office of Consumer Affairs and Information Services, Washington, D.C. 20549, at prescribed rates. In addition, the SEC maintains a Web site (http://www.sec.gov) that contains reports, other information and proxy statements filed by the Trust, such information is filed electronically with the SEC through the SEC's Electronic Data Gathering, Analysis and Retrieval system (EDGAR). THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS FEBRUARY , 1999. 9 PROSPECTUS/ PROXY STATEMENT NUVEEN FLAGSHIP KENTUCKY MUNICIPAL BOND FUND RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF NUVEEN FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND TABLE OF CONTENTS PAGE ---- PROPOSAL 1: THE PROPOSED REORGANIZATION......... 1 SUMMARY......................................... 1 The Reorganization.......................... 1 Reasons for the Proposed Reorganization..... 1 Comparison of the Kentucky Fund with the Kentucky Limited Term Fund................ 2 RISK FACTORS.................................... 10 Similarities of Risks....................... 10 Differences in Risks........................ 10 THE PROPOSED REORGANIZATION..................... 11 Terms of the Agreement...................... 11 Description of Securities to be Issued...... 11 Continuation of Shareholder Accounts and Plans; Share Certificates................. 12 PAGE ---- Certain Federal Income Tax Consequences..... 12 Expenses.................................... 13 Legal Matters............................... 13 Financial Statements........................ 13 RECOMMENDATION OF THE BOARD..................... 13 OTHER INFORMATION............................... 14 SHAREHOLDERS OF THE KENTUCKY FUND AND THE KENTUCKY LIMITED TERM FUND............. 14 SHAREHOLDER PROPOSALS....................... 15 VOTING INFORMATION AND REQUIREMENTS............. 15 Exhibit A: Financial Highlights................. A-1 10 PROPOSAL 1. THE PROPOSED REORGANIZATION A. SUMMARY The following is a summary of, and is qualified by reference to, the more complete information contained in this Prospectus/ Proxy Statement and the information attached hereto or incorporated herein by reference (including the Agreement and Plan of Reorganization). As discussed more fully below and elsewhere in this Prospectus/Proxy Statement, the Board of Trustees of the Trust (the "Board") believes the proposed Reorganization (as defined herein) is in the best interests of shareholders of the Kentucky Limited Term Fund and would not result in dilution of shareholders' interest. As a result of the Reorganization, shareholders of the Kentucky Limited Term Fund will become shareholders of the Kentucky Fund and will cease to be shareholders of the Kentucky Limited Term Fund. Shareholders should read the entire Prospectus/Proxy Statement carefully together with the Funds' Prospectus incorporated herein by reference and accompanying this Prospectus/Proxy Statement. This Prospectus/Proxy Statement constitutes an offering of Class A, C and R shares of the Kentucky Fund only. THE REORGANIZATION This Prospectus/Proxy Statement is being furnished to shareholders of the Kentucky Limited Term Fund in connection with the proposed combination of the Fund with and into the Kentucky Fund pursuant to the terms and conditions of the Agreement and Plan of Reorganization dated December 18, 1998 between the Kentucky Limited Term Fund and the Kentucky Fund (the "Agreement"). The Agreement provides that the Kentucky Limited Term Fund will (i) transfer all of its assets to the Kentucky Fund in exchange solely for Class A, C and R shares of the Kentucky Fund and the Kentucky Fund's assumption of the liabilities of the Kentucky Limited Term Fund, (ii) distribute to each shareholder of the Kentucky Limited Term Fund shares of the respective class of shares of the Kentucky Fund equal in value to their existing shares of the Kentucky Limited Term Fund as a distribution in liquidation of the Kentucky Limited Term Fund and (iii) be liquidated, dissolved and terminated as a series of the Trust in accordance with the Trust's Declaration of Trust promptly following the Closing (as defined herein) (the "Reorganization"). The Board of Trustees of the Trust has determined that the Reorganization is in the best interests of the Kentucky Limited Term Fund and that the interests of existing shareholders of the Kentucky Limited Term Fund will not be diluted as a result of the Reorganization. The Board of the Trust unanimously approved the Reorganization and the Agreement on December 18, 1998. The Kentucky Limited Term Fund will pay all of the Funds' costs associated with the Reorganization, which are estimated to be $72,000 (or $0.066 per share). However, the Board of Trustees of the Trust believes that these costs will be more than offset over time by the anticipated lower operating costs of the Kentucky Fund. The Board is asking shareholders of the Kentucky Limited Term Fund to approve the Reorganization at the Special Meeting to be held on April 15, 1999. If shareholders of the Kentucky Limited Term Fund approve the Reorganization, it is expected that the Closing of the Reorganization will be after the close of business on April 23, 1999, but it may be at a different time as described herein. THE BOARD RECOMMENDS A VOTE "FOR" THE REORGANIZATION. FOR THE KENTUCKY LIMITED TERM FUND, APPROVAL OF THE REORGANIZATION REQUIRES THE FAVORABLE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES ENTITLED TO VOTE. SEE "VOTING INFORMATION AND REQUIREMENTS" BELOW. REASONS FOR THE PROPOSED REORGANIZATION The Board believes that the proposed Reorganization would be in the best interests of the Kentucky Limited Term Fund because it would permit the shareholders of the Fund to (i) achieve certain economies of scale and potentially lower operating expenses from the Kentucky Fund's larger net asset size, and (ii) obtain greater portfolio diversity and potentially lower portfolio transaction costs. In determining whether to recommend approval of the Reorganization to shareholders of the Kentucky Limited Term Fund, the Board considered a number of factors, including, but not limited to: (i) the expenses and advisory fees applicable to the Kentucky Limited Term Fund and the Kentucky Fund before the Reorganization and the estimated expense ratios of the Kentucky Fund after the Reorganization; (ii) the investment performance of the Kentucky Limited Term Fund compared to the Kentucky Fund: (iii) the terms and conditions of the Agreement and whether the Reorganization would result in dilution of the Kentucky Limited Term Fund's shareholder interests; (iv) the economies of scale potentially realized through the combination of the Funds; (v) the compatibility of the Funds' investment objectives and policies, particularly the Kentucky Fund's focus on longer maturity bonds and its higher interest rate risk compared to the Kentucky Limited Term Fund; (vi) the compatibility of the Funds' service features available to shareholders, including the retention of applicable holding periods and exchange privileges; (vii) the costs estimated to be incurred by the respective Funds as a result of the Reorganization; (viii) the future growth prospects of the Kentucky Limited Term Fund; (ix) the anticipated federal income tax consequences of the Reorganization; and (x) the similarities in state tax treatment of the Kentucky Limited Term Fund's distributions compared with the Kentucky Fund. 1 11 In this regard, the Board reviewed information provided by Nuveen Advisory Corp. (the "Adviser") relating to the anticipated impact on the shareholders of the Kentucky Limited Term Fund as a result of the Reorganization. The Board considered the probability that the increase in asset levels of the combined fund after the Reorganization would result in the following potential benefits for shareholders of the Kentucky Limited Term Fund, although there can be no assurances in this regard: A. Achievement of Economies of Scale and Reduced Per Share Expenses. Combining the net assets of the Kentucky Limited Term Fund with the assets of the Kentucky Fund will lead to reduced total operating expenses for shareholders of the Kentucky Limited Term Fund, respectively, on a per share basis, by allowing fixed and relatively fixed costs, such as accounting, legal and printing expenses, to be spread over a larger asset base. Any reductions in expenses on a per share basis should, in turn, increase portfolio net income available for distributions to shareholders of the Kentucky Limited Term Fund. For the Kentucky Limited Term Fund, the Adviser currently is voluntarily waiving some or all of its fees or reimbursing certain expenses and, for the Kentucky Fund, the Adviser has done so in the past. Before these waivers/ reimbursements, the net operating expenses of the Kentucky Fund is lower than those of the Kentucky Limited Term Fund. However, there can be no assurance that the Adviser will continue the waivers/reimbursements for the Kentucky Limited Term Fund if the Reorganization is not completed. B. Benefits to the Portfolio Management Process. The larger net asset size of the Kentucky Fund generally permits it to purchase larger individual portfolio investments that may result in reduced transaction costs or more favorable pricing and provide the opportunity for greater portfolio diversity. A larger more diverse fund may also be able to produce a more stable and consistent dividend rate than a smaller, less diverse fund. The Board also considered that the costs of the Reorganization will be paid by the Kentucky Limited Term Fund regardless of whether or not the Reorganization is completed (and such costs are not subject to the current waivers/reimbursements). In addition, the Board considered that the Reorganization would result in benefits and economies for the Adviser, including those from the higher advisory fee schedule for the Kentucky Fund and the elimination of the voluntary waivers/reimbursements for the Kentucky Limited Term Fund. COMPARISON OF THE KENTUCKY FUND WITH THE KENTUCKY LIMITED TERM FUND Investment Objectives. The Kentucky Fund and the Kentucky Limited Term Fund have similar investment objectives. The investment objective of the Funds is to provide as high a level of current interest income exempt from regular federal, state and, in some cases, local income taxes as is consistent with preservation of capital. Both funds seek income exempt from the Kentucky personal income tax. Investment Policies. The Kentucky Fund and the Kentucky Limited Term Fund have similar investment policies, except that the Kentucky Fund invests in longer-term municipal bonds and therefore bears more interest rate risk. The Funds invest substantially all of their assets (at least 80%) in municipal bonds that pay interest that is exempt for regular federal, state, and in some cases, local income taxes. Both Funds purchase only quality municipal bonds that either are rated investment grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of purchase or are non-rated but judged to be investment grade by the Adviser. Both Funds invest at least 80% of their net assets in investment-grade quality municipal bonds. Bond ratings are furnished by Standard & Poor's Corporation ("S&P"), Moody's Investor Services ("Moody's"), and Fitch Investors Service, Inc. ("Fitch"). According to published guidelines, securities rated BBB by S&P are regarded by S&P as having an adequate capacity to pay interest and repay principal. Whereas such securities normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely, in the opinion of S&P, to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. According to published guidelines, securities rated Baa by Moody's are considered by Moody's as medium grade obligations. Such securities are, in the opinion of Moody's, neither highly protected nor poorly secured. Interest payments and principal security appear to Moody's to be adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. In the opinion of Moody's they lack outstanding investment characteristics and in fact have speculative characteristics as well. The Kentucky Limited Term Fund and the Kentucky Fund have different policies with respect to diversification. The Kentucky Fund is a diversified fund, whereas the Kentucky Limited Term Fund is non-diversified. A non-diversified fund may invest a higher percentage of its assets in relatively fewer issuers than a diversified fund. The primary difference between the Funds is that the Kentucky Limited Term Fund is a limited-term fund that under normal market conditions maintains an overall weighted average portfolio maturity of 1 to 7 years while the Kentucky Fund is a long-term fund that under normal market conditions maintains a weighted average portfolio maturity of 15 to 30 years. The Board, however, believes that the benefits to the Kentucky Limited Term Fund's shareholders, including potentially lower operating costs and potentially higher distributions, should, for most shareholders, offset over time any increased risks of investing in longer-term bonds. In evaluating the Reorganization, each Kentucky Limited Term Fund shareholder should consider the impact of investing in a long-term fund. For a description of the risks involved in investing in a long-term fund, please see the section below entitled "Differences in Risks." 2 12 Credit Quality. A comparison of the credit qualities of the respective portfolios of the Kentucky Fund and the Kentucky Limited Term Fund, as of November 30, 1998, is set forth in the table below. PORTFOLIO CREDIT QUALITY - ------------------------------------------------------------------------------------------------------------------ KENTUCKY KENTUCKY CREDIT RATING FUND LIMITED TERM FUND PRO FORMA (1) - ------------------------------------------------------------------------------------------------------------------ AAA 54.85 44.11 54.62 AA 5.96 19.35 6.48 A 22.22 25.60 22.06 BBB/Unrated 16.97 10.94 16.84 ------------- ----------------- ------------- TOTAL 100.00 100.00 100.00 - ------------------------------------------------------------------------------------------------------------------ (1) Reflects the effect of the Reorganization. As of November 30, 1998, the Kentucky Limited Term Fund and Kentucky Fund were invested in similarly-rated securities. On November 30, 1998, the average portfolio credit quality was AA for both the Kentucky Limited Term Fund and the Kentucky Fund. Maturity and Duration. A comparison of the maturity and duration of the respective portfolios of the Kentucky Fund and the Kentucky Limited Term Fund as of November 30, 1998, is set forth in the table below. PORTFOLIO MATURITY INFORMATION - -------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE FUND MATURITY EFFECTIVE MATURITY MODIFIED DURATION - -------------------------------------------------------------------------------------------------------------------- Kentucky 21.5 19.9 6.3 Kentucky Limited Term 7.2 5.7 4.8 Pro-Forma (1) 21.2 19.6 6.3 - -------------------------------------------------------------------------------------------------------------------- (1) Reflects the effect of the Reorganization. Funds with longer average maturities and duration will generally be subject to greater interest rate risk. Please see "B. Risk Factors -- Differences in Risks" below for a description of maturity, duration and interest rate risk. Performance Information. A comparison of the total returns for the Kentucky Fund and the Kentucky Limited Term Fund for the periods ending November 30, 1998, is set forth in the table below. TOTAL RETURNS (1) - --------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE ----------------------------------------------------------- FUND CLASS INCEPTION DATE YTD RETURN 1 YEAR 3 YEAR 5 YEAR TEN YEAR INCEPTION - --------------------------------------------------------------------------------------------------------------------------------- Kentucky A (NAV) 5/87 5.20 6.69 6.40 6.12 8.12 8.03 A (Offer) 5/87 0.78 2.19 4.89 5.21 7.66 7.63 C 10/93 4.70 6.05 5.84 5.53 7.53 7.44 R 2/97 5.42 6.93 6.48 6.16 8.14 8.05 Kentucky Limited Term A (NAV) 9/95 4.36 5.36 5.45 N/A N/A 5.99 A (Offer) 9/95 1.75 2.71 4.58 N/A N/A 5.16 C 9/95 3.92 4.99 5.08 N/A N/A 5.62 R 2/97 4.49 5.62 5.53 N/A N/A 6.07 - --------------------------------------------------------------------------------------------------------------------------------- (1) Class A share returns are actual. Class C and R share returns are actual for the period since class inception; returns prior to class inception are Class A share returns adjusted for differences in sales charges and expenses, which are primarily differences in distribution and service fees. Class A shares have a 4.20% and 2.50% maximum sales charge for the Kentucky Fund and the Kentucky Limited Term Fund, respectively. Class C shares have a 1% CDSC for redemptions within one year which is not reflected in the one-year total return. 3 13 The following table is a comparison of the respective yields and distribution rates for the Kentucky Fund and the Kentucky Limited Term Fund as of November 30, 1998. SEC YIELD AND DISTRIBUTION INFORMATION (1) - --------------------------------------------------------------------------------------------------------------------- SEC 30-DAY YIELD -------------------------------------- DISTRIBUTION BEFORE WAIVERS/ AFTER WAIVERS/ FUND CLASS RATE REIMBURSEMENTS REIMBURSEMENTS - --------------------------------------------------------------------------------------------------------------------- Kentucky A (NAV) 4.87 3.98 3.98 A (Offer) 4.67 3.82 3.82 C 4.35 3.44 3.44 R 5.09 4.18 4.18 Kentucky Limited Term A (NAV) 4.12 2.93 3.19 A (Offer) 4.02 2.86 3.11 C 3.77 2.62 2.85 R 4.37 3.13 3.39 Pro-Forma A (NAV) 4.87 3.97 3.97 A (Offer) 4.67 3.81 3.81 C 4.35 3.38 3.38 R 5.09 4.17 4.17 - --------------------------------------------------------------------------------------------------------------------- (1) The SEC 30-Day Yield is computed in accordance with SEC rules by dividing the net investment income per share (computed in accordance with a standardized method prescribed by the rules) earned during the 30-day period by the NAV (or the maximum offering price where noted). The Distribution Rate is computed by taking the monthly dividend per share, multiplying it by 12 to annualize it, and dividing by the NAV (or the maximum offering price where noted). The Distribution Rate differs from the SEC Yield and total return and is not intended to be a complete measure of performance. Distribution Rate may differ from SEC Yield due to a number of factors, including that Distribution Rates may not include the effect of amortization of bond premiums to the extent such premiums arise after the bonds were purchased and that there may be differences between the amount a Fund is earning and what it is paying out. The total returns, yields and distribution rates are not necessarily indicative of future results. The performance of an investment company is the result of conditions in the securities markets, portfolio management and operating expenses. Although information such as that shown above is useful in reviewing a fund's performance and in providing some basis for comparison with other investment alternatives, it should not be used for comparison with other investments using different reinvestment assumptions or time periods. In the absence of expense reimbursements for the Kentucky Fund and the Kentucky Limited Term Fund, the Funds' total returns, yields and distribution rates would have been reduced. Investment Adviser. The Kentucky Fund and the Kentucky Limited Term Fund are both managed by the Adviser. The Adviser is a wholly owned subsidiary of John Nuveen & Co. Incorporated ("Nuveen"). Nuveen is the sponsor and principal underwriter of both Fund's shares and has sponsored or underwritten more than $60 billion of investment company securities. Nuveen and its affiliates currently have more than $50 billion in assets under management. Today it offers a broad range of quality investments designed for individuals seeking to build and maintain wealth. Founded in 1898, Nuveen is a subsidiary of The John Nuveen Company which, in turn, is approximately 78% owned by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located in St. Paul, Minnesota and is principally engaged in providing property liability insurance through subsidiaries. The Adviser's principal office is located at 333 West Wacker Drive, Chicago, Illinois 60606. Advisory and Other Fees. The contractual advisory fees and total operating expenses of the Kentucky Fund are different from those of the Kentucky Limited Term Fund. Pursuant to an investment management agreement between the Adviser and the Trust, the Kentucky Fund and the Kentucky Limited Term Fund pay the Adviser annual management fees at the rates set forth below: KENTUCKY FUND - --------------------------------------------------- AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE - --------------------------------------------------- For the first $125 million 0.5500% For the next $125 million 0.5375% For the next $250 million 0.5250% For the next $500 million 0.5125% For the next $1 billion 0.5000% For assets over $2 billion 0.4750% - --------------------------------------------------- 4 14 KENTUCKY LIMITED TERM FUND - --------------------------------------------------- AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE - --------------------------------------------------- For the first $125 million 0.4500% For the next $125 million 0.4375% For the next $250 million 0.4250% For the next $500 million 0.4125% For the next $1 billion 0.4000% For assets over $2 billion 0.3750% - --------------------------------------------------- For the fiscal year ended May 31, 1998, the Kentucky Fund paid the Adviser $2,227,288 (after expense reimbursement) and would have paid $2,537,577 (assuming no expense reimbursement). For the fiscal year ended May 31, 1998, the Kentucky Limited Term Fund paid the Adviser $0 (after expense reimbursement) and would have paid $52,982 (assuming no expense reimbursement). For a complete description of the advisory services provided to the Funds, see the Kentucky Fund and the Kentucky Limited Term Fund Summaries in the Funds' Prospectus and the sections of the Funds' Prospectus and Statement of Additional Information entitled "Fund Service Providers Investment Adviser" and "Investment Adviser and Investment Management Agreement," respectively. For the Kentucky Limited Term Fund, the Adviser is currently voluntarily waiving some or all of its fees or reimbursing certain expenses. Before these waivers/reimbursements, the net operating expenses of the Kentucky Fund is lower than those of the Kentucky Limited Term Fund. However, there can be no assurance that such waivers or reimbursements will continue for the Kentucky Limited Term Fund if the Reorganization is not completed. The Kentucky Fund and the Kentucky Limited Term Fund have adopted similar distribution and service plans (the "Distribution and Service Plans") pursuant to Rule 12b-1 under the 1940 Act. The Distribution and Service Plans authorize each Fund to pay Nuveen an annual 0.20% service fee on the average daily net assets of Class A and C shares outstanding. The plans also authorize each Fund to pay Nuveen an annual distribution fee on the average daily net assets of Class C shares outstanding of 0.55% for the Kentucky Fund and 0.35% for the Kentucky Limited Term Fund. In order to help compensate Nuveen for the sales commissions paid to financial advisers at the time of sale of Class C shares, Nuveen retains the first year's service and distribution fees on sales of Class C shares. After the first year, Nuveen pays these fees to the broker of record. The distributor of the Kentucky Limited Term Fund's shares and the Kentucky Fund's shares is Nuveen. For a complete description of these arrangements with respect to the Kentucky Fund, see the sections of the Funds' Prospectuses and Statement of Additional Information entitled "Fund Service Providers -- The Distributor" and "Distribution and Service Plan," respectively. The tables below set forth (i) the fees and expenses paid by the Kentucky Fund and the Kentucky Limited Term Fund during the fiscal year ended May 31, 1998 and (ii) pro forma expenses for the combined fund for Class A, C and R shares. 5 15 EXPENSE COMPARISON TABLE CLASS A SHARES - --------------------------------------------------------------------------------------------------------- KENTUCKY KENTUCKY LIMITED TERM FUND FUND PRO FORMA (1) - --------------------------------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of Offering Price)(2) 4.20% 2.50% 4.20% Contingent Deferred Sales Charge (CDSC) (as a percentage of the lower of the original purchase price or redemption proceeds)(2) none none none ANNUAL FUND OPERATING EXPENSES Management Fees .54% .45% .54% Rule 12b-1 Fees .20% .20% .20% Other Expenses .10% .69% .10% -------- ------------ ------------- Total Gross Fund Operating Expenses (before waivers and reimbursements) .84% 1.34% .84% -------- ------------ ------------- Total Net Fund Operating Expenses (after waivers and reimbursements)(3) .77% .66% .77% EXPENSE EXAMPLE OF TOTAL OPERATING EXPENSES ASSUMING REDEMPTION AT THE END OF THE PERIOD (4) One Year $ 502 $ 383 $ 502 Three Years $ 677 $ 664 $ 677 Five Years $ 866 $ 966 $ 866 Ten Years $1,414 $1,822 $1,414 - --------------------------------------------------------------------------------------------------------- Notes to Expense Comparison Table (1) The Pro Forma column reflects expenses estimated to be paid on new shares purchased from the combined fund subsequent to the Reorganization and reflects the effect of the Reorganization. (2) The sales charge may be reduced or waived based on the amount of purchase or for certain eligible categories of investors. A CDSC of 1% for the Kentucky Fund and .50% for the Kentucky Limited Term Fund is imposed on redemptions of certain purchases of $1 million or more within 18 months of purchase. (3) The Adviser stopped voluntarily waiving its fees and reimbursing certain expenses for the Kentucky Fund on June 3, 1998. (4) Expense examples reflect what an investor would pay on a $10,000 investment, assuming a 5% annual return and reinvestment of all dividends, based on total fund operating expenses before waivers and reimbursements. Actual returns will differ. 6 16 EXPENSE COMPARISON TABLE CLASS C SHARES - ------------------------------------------------------------------------------------------------------------ KENTUCKY KENTUCKY LIMITED TERM FUND FUND PRO FORMA (1) - ------------------------------------------------------------------------------------------------------------ SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases none none none Contingent Deferred Sales Charge (CDSC) (as a percentage of the lower of the original purchase price or redemption proceeds) (2) 1.00% 1.00% 1.00% ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees .54% .45% .54% Rule 12b-1 Fees .75% .55% .75% Other Expenses .10% .69% .10% -------- ------------ ------------- Total Gross Fund Operating Expenses (before waivers and reimbursements) 1.39% 1.69% 1.39% -------- ------------ ------------- Total Net Fund Operating Expenses (after waivers and reimbursements) (3) 1.33% 1.01% 1.33% EXPENSE EXAMPLE OF TOTAL OPERATING EXPENSES ASSUMING REDEMPTION AT THE END OF THE PERIOD (4) One Year $ 142 $ 172 $ 142 Three Years $ 440 $ 533 $ 440 Five Years $ 761 $ 918 $ 761 Ten Years $1,669 $1,998 $1,669 - ------------------------------------------------------------------------------------------------------ Notes to Expense Comparison Table (1) The Pro Forma column reflects expenses estimated to be paid on new shares purchased from the combined fund subsequent to the Reorganization and reflects the effect of the Reorganization. (2) Imposed only on redemptions within 12 months of purchase. (3) The Adviser stopped voluntarily waiving its fees and reimbursing certain expenses for the Kentucky Fund on June 3, 1998. (4) Expense examples reflect what an investor would pay on a $10,000 investment, assuming a 5% annual return and reinvestment of all dividends and distributions, based on total fund operating expenses before waivers and reimbursements. Actual returns will differ. EXPENSE COMPARISON TABLE CLASS R SHARES - ------------------------------------------------------------------------------------------------------------ KENTUCKY KENTUCKY LIMITED TERM FUND FUND PRO FORMA (1) - ------------------------------------------------------------------------------------------------------------ SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases none none none Contingent Deferred Sales Charge (CDSC) (as a percentage of the lower of the original purchase price or redemption proceeds) none none none ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees .54% .45% .54% Rule 12b-1 Fees -- -- -- Other Expenses .10% .68% .10% -------- ------------ ------------- Total Gross Fund Operating Expenses (before waivers and reimbursements) .64% 1.13% .64% -------- ------------ ------------- Total Net Fund Operating Expenses (after waivers and reimbursements) (2) .58% .46% .58% EXPENSE EXAMPLE OF TOTAL OPERATING EXPENSES ASSUMING REDEMPTION AT THE END OF THE PERIOD (3) One Year $ 65 $ 115 $ 65 Three Years $205 $ 359 $205 Five Years $357 $ 622 $357 Ten Years $798 $1,375 $798 - ------------------------------------------------------------------------------------------------------ Notes to Expense Comparison Table (1) The Pro Forma column reflects expenses estimated to be paid on new shares purchased from the combined fund subsequent to the Reorganization and reflects the effect of the Reorganization. (2) The Adviser stopped voluntarily waiving its fees and reimbursing certain expenses for the Kentucky Fund on June 3, 1998. (3) Expense examples reflect what an investor would pay on a $10,000 investment, assuming a 5% annual return and reinvestment of all dividends and distributions, based on total fund operating expenses before waivers and reimbursements. Actual returns will differ. Distribution, Purchase, Valuation, Redemption and Exchange of Shares. The Kentucky Fund offers four (4) classes of shares and the Kentucky Limited Term Fund offers three (3) classes of shares. The Class A shares of the Kentucky Fund and the Kentucky Limited Term Fund are subject to an initial sales charge and a 0.20% annual service fee. The following Class A sales charges and commissions apply to the Kentucky Fund and the Kentucky Limited Term Fund. 7 17 KENTUCKY CLASS A SALES CHARGES AND COMMISSIONS - -------------------------------------------------------------------------------- AUTHORIZED DEALER SALES CHARGE COMMISSION ---------------------------------- -------------- AS % OF PUBLIC AS % OF YOUR AS % OF PUBLIC PURCHASE AMOUNT OFFERING PRICE NET INVESTMENT Offering Price - ---------------------------------------------------------------------------------------------------------------- Less than $50,000 4.20% 4.38% 3.70% $50,000 but less than $100,000 4.00 4.18 3.50 $100,000 but less than $250,000 3.50 3.63 3.00 $250,000 but less than $500,000 2.50 2.56 2.00 $500,000 but less than $1,000,000 2.00 2.04 1.50 $1,000,000 and over --(1) -- 1.00(1) - ---------------------------------------------------------------------------------------------------------------- KENTUCKY LIMITED TERM CLASS A SALES CHARGES AND COMMISSIONS - -------------------------------------------------------------------------------- AUTHORIZED DEALER SALES CHARGE COMMISSION ---------------------------------- -------------- AS % OF PUBLIC AS % OF YOUR AS % OF PUBLIC PURCHASE AMOUNT OFFERING PRICE NET INVESTMENT Offering Price - ---------------------------------------------------------------------------------------------------------------- Less than $50,000 2.50% 2.56% 2.00% $50,000 but less than $100,000 2.00 2.04 1.60 $100,000 but less than $250,000 1.50 1.52 1.20 $250,000 but less than $500,000 1.25 1.27 1.00 $500,000 but less than $1,000,000 0.75 0.76 .60 $1,000,000 and over --(1) -- .50(1) - ---------------------------------------------------------------------------------------------------------------- (1) You can buy $1 million or more of Class A shares at net asset value without an up-front sales charge. Nuveen pays authorized dealers a commission equal to the sum of 1.00% (0.50% for the Kentucky Limited Term Fund) of the first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any amount over $5 million. If you redeem your shares within 18 months of purchase, you may have to pay a contingent deferred sales charge (CDSC) of 1.00% (0.50% for the Kentucky Limited Term Fund) of either your purchase price or your redemption proceeds, whichever is lower. You do not have to pay this CDSC if your financial adviser has made arrangements with Nuveen and agrees to waive the commission. The initial sales charge applicable to Class A shares of the Kentucky Fund will be waived for Class A shares acquired in the Reorganization. Any subsequent purchases of Class A shares of the Kentucky Fund after the Reorganization will be subject to the initial sales charge, excluding Class A shares purchased through the dividend reinvestment plan. The Class C shares of the Kentucky Fund and the Kentucky Limited Term Fund do not incur a sales charge when purchased, but each are subject to a .20% annual service fee and an annual distribution fee of .55% and .35%, respectively. Class C shares are also subject to a CDSC of 1.00% if redeemed within the first year after purchase. Class R shares of the Kentucky Fund and the Kentucky Limited Term Fund have no sales charges or ongoing fees. For a complete description of the Class A, C and R shares, see the sections of the Funds' Prospectus and Statement of Additional Information entitled "Section 3 -- How You Can Buy and Sell Shares" and "Additional Information on the Purchase and Redemption of Fund Shares," respectively. No contingent deferred sales charge will be imposed on Class C shares of the Kentucky Limited Term Fund in connection with the Reorganization. The holding period and conversion period for Class C shares of the Kentucky Fund received in connection with the Reorganization will be measured from the earlier of the time (i) the holder purchased such shares from the Kentucky Limited Term Fund or (ii) the holder purchased such shares from any other Nuveen national or state fund and subsequently exchanged them for shares of the Kentucky Limited Term Fund. Shares of the Kentucky Fund and the Kentucky Limited Term Fund may be purchased through a financial adviser, by check, by electronic transfer, and by exchange from certain other open-end mutual funds distributed by Nuveen. For a complete description regarding purchase of shares and exchange of shares of the Kentucky Fund and the Kentucky Limited Term Fund, see the sections of the Funds' Prospectus and Statement of Additional Information entitled "Section 3 -- How You Can Buy and Sell Shares" and "Additional Information on the Purchase and Redemption of Fund Shares," respectively. Shares of the Kentucky Fund and the Kentucky Limited Term Fund properly presented for redemption may be redeemed or exchanged at the next determined net asset value per share (subject to any applicable deferred sales charge). Nuveen will waive any deferred sales charge that would otherwise apply to a redemption or exchange of Kentucky Limited Term Fund shares made prior to the Reorganization. Shares of either the Kentucky Fund or the Kentucky Limited Term Fund may be redeemed or exchanged through a financial adviser by mail or by special redemption privileges (telephone exchange, telephone redemption, by check or by electronic transfer). If any shares of the Kentucky Fund or the Kentucky Limited Term Fund were purchased less than 15 days prior to your request, the Funds do not mail the redemption proceeds until the check for the purchase has cleared, which can take up to 15 days. In addition, the Kentucky Fund and the Kentucky Limited Term 8 18 Fund may suspend redemptions or delay payment on redemptions for more than seven days (three days for street name accounts) in certain extraordinary circumstances as described in the Funds' Statement of Additional Information. In order to limit excessive exchange activity and in other circumstances where the Adviser believes doing so would be in the best interests of a Fund, the Kentucky Fund and the Kentucky Limited Term Fund reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges, or reject any exchange. Shareholders are notified in the event this happens to the extent required by law. No further purchases of the shares of the Kentucky Limited Term Fund may be made after the date on which the shareholders of the Kentucky Limited Term Fund approve the Reorganization, and the stock transfer books of the Kentucky Limited Term Fund will be permanently closed as of the date of Closing. Only redemption requests and transfer instructions received in proper form by the close of business on the day prior to the date of Closing will be fulfilled by the Kentucky Limited Term Fund. Redemption requests or transfer instructions received by the Kentucky Limited Term Fund after that date will be treated by the Fund as requests for the redemption or instructions for transfer of the shares of the Kentucky Fund credited to the accounts of the shareholders of the Kentucky Limited Term Fund. Redemption requests or transfer instructions received by the Kentucky Limited Term Fund after the close of business on the day prior to the date of Closing will be forwarded to the Kentucky Fund. For a complete description of the redemption arrangements for the Funds, see the sections of the Funds' Prospectuses entitled "Investing in the Funds -- How to Sell Fund Shares." Capitalization. The following table sets forth the capitalization of the Kentucky Fund and the Kentucky Limited Term Fund as of November 30, 1998, and the pro forma capitalization of the combined fund as if the Reorganization had occurred on that date. These numbers may differ at the time of Closing. CAPITALIZATION TABLE AS OF NOVEMBER 30, 1998 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- KENTUCKY KENTUCKY LIMITED FUND TERM FUND Pro Forma (1) - --------------------------------------------------------------------------------------------------------------- NET ASSETS Class A shares 466,860,435 8,147,214 475,007,649 Class B shares 6,554,245 N/A 6,554,245 Class C shares 31,145,672 2,987,159 34,132,831 Class R shares 794,895 18,577 813,472 ----------- ---------- ----------- Total 505,355,247 11,152,950 516,508,197 =========== ========== =========== NET ASSET VALUE PER SHARE Class A shares 11.46 10.19 11.46 Class B shares 11.46 N/A 11.46 Class C shares 11.45 10.18 11.45 Class R shares 11.44 10.17 11.44 SHARES OUTSTANDING Class A shares 40,739,829 799,642 41,450,755 Class B shares 571,833 N/A 571,833 Class C shares 2,720,086 293,307 2,980,973 Class R shares 69,511 1,827 71,135 ----------- ---------- ----------- Total 44,101,259 1,094,776 45,074,696 =========== ========== =========== SHARES AUTHORIZED Class A shares Unlimited Unlimited Unlimited Class B shares Unlimited N/A Unlimited Class C shares Unlimited Unlimited Unlimited Class R shares Unlimited Unlimited Unlimited - --------------------------------------------------------------------------------------------------------------- (1) The pro forma figures reflect the effect of the Reorganization. N/A The Kentucky Limited Term Fund is not authorized to issue Class B Shares. 9 19 B. RISK FACTORS SIMILARITIES OF RISKS The investment objectives of the Kentucky Fund and the Kentucky Limited Term Fund are substantially the same. The investment policies of the Funds are substantially the same insofar as they may purchase only quality municipal bonds that are either rated investment grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the time of purchase or are nonrated but judged to be investment grade by the Adviser. If suitable municipal bonds from Kentucky are not available at attractive prices and yields, the Funds may invest in municipal bonds of U.S. territories (such as Puerto Rico and Guam) which are exempt from regular federal, state, and local income taxes. The Funds may purchase municipal bonds that represent lease obligations. These carry special risks because the issuer of the bonds may not be obligated to appropriate money annually to make payments under the lease. In order to reduce this risk, the Funds may only purchase leases where the issuer has a strong incentive to continue making appropriations until maturity. The Kentucky Fund and the Kentucky Limited Term Fund also engage in certain common investment practices such as the purchase and sale of securities on a "when-issued" and "delayed delivery" basis. In addition, the Funds may periodically engage in hedging transactions as described in the sections of the Funds' Statement of Additional Information entitled "Investment Policies and Investment Portfolio -- Hedging and Other Defensive Actions." To the extent that the investment objectives and investment policies and practices are substantially the same, the risks associated with an investment in the Funds are substantially the same. The Funds invest at least 80% of their total assets in Kentucky municipal securities. A fund, such as the Funds, that concentrates its investments in issuers located in any one state generally is more susceptible to economic, political or regulatory events that adversely affect the state in which such company has concentrated its investments than a fund that does not concentrate its investments in any one state. For a general description of the risks involved in investing in Kentucky municipal bonds, see the sections of the Funds' Statement and Additional Information entitled "Investment Policies and Investment Portfolio -- Factors Pertaining to Kentucky," and of the Funds' Prospectus entitled "Appendix: Additional State Information." The Kentucky Fund and the Kentucky Limited Term Fund may also invest a substantial portion of their assets in securities that are subject to the federal alternative minimum tax. As with the Kentucky Limited Term Fund, the Kentucky Fund may not be a suitable investment for shareholders subject to the federal alternative minimum tax. Investment in either the Kentucky Fund or the Kentucky Limited Term Fund may not be appropriate for all investors. The Funds are not intended to be a complete investment program, and investors should consider their long-term investment goals and financial needs when making an investment decision with respect to the Funds. An investment in either Fund is intended to be a long-term investment and should not be used as a trading vehicle. DIFFERENCES IN RISKS The Kentucky Fund and the Kentucky Limited Term Fund engage in some dissimilar investment practices. To the extent that the investment practices of the Funds differ, the risks associated with an investment in the Kentucky Fund are different from the risks associated with an investment in the Kentucky Limited Term Fund. An investment in the Kentucky Fund may not be appropriate for all Kentucky Limited Term Fund's shareholders. For a complete description of the risks of an investment in the Kentucky Fund or the Kentucky Limited Term Fund, see the sections in the Funds' Prospectus entitled "Fund Strategies." Diversification. The Kentucky Limited Term Fund is a non-diversified fund, whereas the Kentucky Fund is a diversified fund. Non-diversified funds generally are more susceptible to economic, political or regulatory events that adversely affect an issuer in which such fund invests than a diversified fund. A diversified fund, however, is less likely to benefit from economic, political or regulatory events that beneficially affect issuers in which it invests because it generally invests a smaller percentage of its assets in each issuer in which it invests. Maturity and Duration. The Kentucky Limited Term Fund is a limited-term fund and normally maintains a weighted average portfolio maturity of 1 to 7 years. The Kentucky Fund is a long-term fund and normally maintains a weighted average portfolio maturity of 15 to 30 years. For a comparison of the Funds' average portfolio maturity and duration, including pro-forma figures, see "Comparison of the Kentucky Fund with the Kentucky Limited Term Fund -- Maturity and Duration" above. Both dollar-weighted average maturity and duration reflect the sensitivity of a Fund to interest rate fluctuations, whereby a fund with a longer maturity and duration reacts more strongly to interest rate changes than a Fund with a shorter maturity and duration. The average dollar-weighted maturity of a Fund is the dollar-weighted average of the stated maturities of all debt instruments held by the Fund. Duration is the weighted present value of principal and interest payments expressed in years and may measure the sensitivity of a Fund's net asset value to incremental changes in interest rates more accurately than average maturity. For example, a Fund with a duration of 5.0 years should have about half the interest rate sensitivity of a Fund with a duration of 10.0 years, because the Fund with the shorter duration will receive payments (and can reinvest at prevailing interest rates) twice as quickly (on average). 10 20 C. THE PROPOSED REORGANIZATION The material features of the Agreement are summarized below. This summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Agreement attached as Appendix A to the Reorganization SAI, a copy of which may be obtained without charge by calling the Funds at (800) 621-7227 and asking for the "Reorganization SAI." TERMS OF THE AGREEMENT Pursuant to the Agreement, the Kentucky Fund series of the Trust will acquire all of the assets and the liabilities of the Kentucky Limited Term Fund series of the Trust on the date of the Closing in consideration for Class A, C and R shares of the Kentucky Fund. Subject to the Kentucky Limited Term Fund's shareholders approving the Reorganization, the closing (the "Closing") will occur April 23, 1999 or such later date as soon as practicable thereafter as the Kentucky Fund and the Kentucky Limited Term Fund may mutually agree. On the date of the Closing, the Kentucky Limited Term Fund will transfer to the Kentucky Fund all of its assets and liabilities. The Kentucky Fund will in turn transfer to the Kentucky Limited Term Fund a number of its Class A, C and R shares equal in value to the value of the net assets of the Fund, transferred to the Kentucky Fund as of the date of the Closing, as determined in accordance with the valuation method described in the Kentucky Fund's then current prospectus. In order to minimize any potential for undesirable federal income and excise tax consequences in connection with the Reorganization, the Kentucky Fund and the Kentucky Limited Term Fund may individually distribute on or before the Closing all or substantially all of their respective undistributed net investment income (including net capital gains) as of such date. The Kentucky Limited Term Fund will distribute in complete liquidation the Class A, C and R shares of the Kentucky Fund to the shareholders of the respective class of the Kentucky Limited Term Fund promptly after the Closing and then will be liquidated, dissolved and terminated as a series of the Trust in accordance with the Trust's Declaration of Trust. The Kentucky Limited Term Fund has made certain standard representations and warranties to the Kentucky Fund regarding its capitalization, status and conduct of business. Unless waived in accordance with the Agreement, the obligations of the parties to the Agreement are conditioned upon, among other things: A. the approval of the Reorganization by shareholders of the Kentucky Limited Term Fund; B. the absence of any rule, regulation, order, injunction or proceeding preventing or seeking to prevent the consummation of the transactions contemplated by the Agreement; C. the receipt of all necessary approvals, registrations and exemptions under federal and state laws; D. the truth in all material respects as of the Closing of the representations and warranties of the parties and performance and compliance in all material respects with the parties' agreements, obligations and covenants required by the Agreement; E. the effectiveness under applicable law of the registration statement of the Kentucky Fund of which this Prospectus/Proxy Statement forms a part and the absence of any stop orders under the Securities Act of 1933, as amended, pertaining thereto; and F. the receipt of opinions of counsel relating to, among other things, the tax-free nature of the Reorganization for federal income tax purposes. The Agreement may be terminated or amended with respect to a Reorganization by the mutual consent of the parties either before or after approval thereof by the shareholders of the Kentucky Limited Term Fund, provided that no such amendment after such approval shall be made if it would have a material adverse affect on the interests of the Fund's shareholders. The Agreement also may be terminated by the non-breaching party if there has been a material misrepresentation, material breach of any representation or warranty, material breach of contract or failure of any condition to Closing. The Board recommends that you vote to approve the Reorganization, as it believes the Reorganization is in the best interests of the Kentucky Limited Term Fund and that the interests of existing shareholders will not be diluted as a result of consummation of the proposed Reorganization. DESCRIPTION OF SECURITIES TO BE ISSUED Shares of Beneficial Interest. Beneficial interests in the Kentucky Fund being offered hereby are represented by transferable Class A, C and R shares, par value $0.01 per share. The Declaration of Trust of the Municipal Trust permits the trustees, as they deem necessary or desirable, to create one or more separate investment portfolios and to issue a separate series of 11 21 shares for each portfolio and, subject to compliance with the 1940 Act, to further subdivide the shares of a series into one or more classes of shares for such portfolio. Voting Rights of Shareholders. Holders of shares of the Kentucky Fund are entitled to one vote per share on matters as to which they are entitled to vote; however, separate votes generally are taken by each series on matters affecting an individual series. The Kentucky Fund operates as a series of the Trust, an open-end management investment company registered with the SEC under the 1940 Act. In addition to the specific voting rights described above, shareholders of the Kentucky Fund are entitled, under current law, to vote with respect to certain other matters, including changes in fundamental investment policies and restrictions and the ratification of the selection of independent auditors. Moreover, under the 1940 Act, shareholders owning not less than 10% of the outstanding shares of the Trust may request that the board of trustees call a shareholders' meeting for the purpose of voting upon the removal of trustee(s). CONTINUATION OF SHAREHOLDER ACCOUNTS AND PLANS; SHARE CERTIFICATES If the Reorganization is approved, the Kentucky Fund will establish an account for each Kentucky Limited Term Fund's shareholder containing the appropriate number of shares of the appropriate class of the Kentucky Fund. The shareholder services and shareholder programs of the Kentucky Fund and the Kentucky Limited Term Fund are substantially identical. Shareholders of the Kentucky Limited Term Fund who are accumulating shares of the Kentucky Limited Term Fund under the dividend reinvestment plan, or who are receiving payment under the systematic withdrawal plan with respect to shares of the Kentucky Limited Term Fund, will retain the same rights and privileges after the Reorganization in connection with the Kentucky Fund Class A, C or R shares received in the Reorganization through substantially identical plans maintained by the Kentucky Fund. Chase Manhattan Bank, custodian for the Kentucky Limited Term Fund, serves as the custodian for the assets of the Kentucky Fund. Upon approval of the Reorganization, shareholders of the Kentucky Limited Term Fund who currently own shares in certificate form are asked to surrender these shares to the Kentucky Limited Term Fund's transfer agent, Chase Global Fund Services, P.O. Box 5186, NY, NY 10274. Kentucky Limited Term Fund shareholders must submit a written request to Chase in order to receive certificates for their Kentucky Fund shares. No certificates for Kentucky Fund shares will be issued as part of the Reorganization except upon request. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion of the material federal income tax consequences of the Reorganization to shareholders of the Kentucky Limited Term Fund and shareholders of the Kentucky Fund. The discussion set forth below is for general information only and may not apply to a holder subject to special treatment under the Internal Revenue Code of 1986, as amended (the "Code"), such as a holder that is a bank, an insurance company, a dealer in securities, a tax-exempt organization, or a foreign person, or that acquired its Class A, C and R shares of the Kentucky Limited Term Fund pursuant to the exercise of employee stock options or otherwise as compensation. It is based upon the Code, legislative history, Treasury regulations, judicial authorities, published positions of the Internal Revenue Service (the "Service") and other relevant authorities, all as in effect on the date hereof and all of which are subject to change or different interpretations (possibly on a retroactive basis). This summary is limited to shareholders who hold their Kentucky Limited Term Fund shares as capital assets. No advance rulings have been or will be sought from the Service regarding any matter discussed in this Prospectus/ Proxy Statement. Accordingly, no assurances can be given that the Service could not successfully challenge the intended federal income tax treatment described below. Shareholders should consult their own tax advisers to determine the specific federal income tax consequences of all transactions relating to the Reorganization, as well as the effects of state, local and foreign tax laws and possible changes to the tax laws. The Reorganization is intended to qualify as a "reorganization" within the meaning of Section 368(a)(1) of the Code. It is a condition to the Closing of the Reorganization that the Trust and the Fund receive an opinion from Vedder, Price, Kaufman & Kammholz ("Vedder Price") substantially to the effect that for federal income tax purposes: A. The acquisition by the Kentucky Fund of the assets of the Kentucky Limited Term Fund in exchange solely for Class A, C and R shares of the Kentucky Fund and the assumption by the Kentucky Fund of the liabilities of the Kentucky Limited Term Fund will qualify as tax-free reorganization within the meaning of Section 368(a)(1)(c) of the Code. B. No gain or loss will be recognized by the Kentucky Limited Term Fund or the Kentucky Fund upon the transfer to the Kentucky Fund of the assets of the Kentucky Limited Term Fund in exchange solely for the Class A, C and R shares of the Kentucky Fund and the assumption by the Kentucky Fund of the liabilities of the Kentucky Limited Term Fund. C. The Kentucky Fund's basis in the Kentucky Limited Term Fund's assets received in the Reorganization will equal the basis of such assets in the hands of the Kentucky Limited Term Fund immediately prior to the 12 22 transfer, and the Kentucky Fund's holding period of such assets will, in each instance, include the period during which the assets were held by the Kentucky Limited Term Fund. D. No gain or loss will be recognized by the shareholders of the Kentucky Limited Term Fund upon the exchange of their shares of the Kentucky Limited Term Fund for the Class A, C and R shares of the Kentucky Fund. E. The aggregate tax basis in the Class A, C and R shares of the Kentucky Fund received by the shareholders of the Kentucky Limited Term Fund will be the same as the aggregate tax basis of the shares of the Kentucky Limited Term Fund surrendered in exchange therefor. F. The holding period of the Class A, C and R shares of the Kentucky Fund received by the shareholders of the Kentucky Limited Term Fund will include the holding period of the shares of the Kentucky Limited Term Fund surrendered in exchange therefor provided such surrendered shares of the Kentucky Limited Term Fund are held as capital assets by such shareholder. In rendering its opinions, Vedder Price will rely upon certain representations of the management of the Kentucky Fund and the Kentucky Limited Term Fund and assume that the Reorganization will be consummated as described in the Agreement and that redemptions of shares of the Kentucky Limited Term Fund occurring prior to the Closing and post-Closing redemption of shares of the Kentucky Fund that are received in the Reorganization will consist solely of redemptions in the ordinary course of business. The Kentucky Fund intends to be taxed under the rules applicable to regulated investment companies as defined in Section 851 of the Code, which are the same rules currently applicable to the Kentucky Limited Term Fund and its shareholders. EXPENSES Because the benefits of the Reorganization is anticipated to accrue almost exclusively to shareholders of the Kentucky Limited Term Fund, the Kentucky Limited Term Fund will pay all of the costs associated with the Reorganization. The Board of Trustees of the Trust believes that these costs will be more than offset over time by the anticipated lower operating costs of the Funds. Management of the Kentucky Limited Term Fund estimates that expenses for the Reorganization will equal approximately $72,000. In addition, separate from the Reorganization, the Adviser has agreed to waive its right to seek reimbursement from the Kentucky Limited Term Fund for any remaining unamortized organizational expenses. The Board of the Trust has determined that the foregoing arrangement with respect to expenses is fair and reasonable. As noted above, shareholders of the Kentucky Limited Term Fund may redeem their shares or, exchange their shares for shares of certain other open-end mutual funds distributed by Nuveen including the Nuveen Flagship Limited Term Municipal Bond Fund, at any time prior to the closing of the Reorganization. See "Distribution, Purchase, Valuation, Redemption and Exchange of Shares" above. Redemptions and exchanges of shares generally are taxable transactions for federal income tax purposes, unless your shares are held in an account that is not subject to taxation, such as an individual retirement account or other tax-qualified retirement plan. Shareholders should consult with their own tax advisers regarding the federal, state and local tax consequences of potential transactions. LEGAL MATTERS Certain legal matters concerning the federal income tax consequences of the Reorganization and issuance of Class A, C and R shares of the Kentucky Fund will be passed on by Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Chicago, Illinois 60601. FINANCIAL STATEMENTS For condensed financial information for the Kentucky Fund and the Kentucky Limited Term Fund, see "Financial Highlights" in the Fund's Prospectus and Exhibit A to this Prospectus/Proxy Statement. In addition, incorporated by reference in their respective entireties are the unaudited financial statements for the six months ended November 30, 1998 and the audited financial statements for the fiscal year ended May 31, 1998 for the Kentucky Fund and the Kentucky Limited Term Fund attached as Exhibit C to the Reorganization SAI. D. RECOMMENDATION OF THE BOARD The Board of the Trust has unanimously approved the Agreement and has determined that participation in the Reorganization is in the best interests of the Kentucky Limited Term Fund. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSED REORGANIZATION. 13 23 OTHER INFORMATION A. SHAREHOLDERS OF THE KENTUCKY FUND AND THE KENTUCKY LIMITED TERM FUND As of February 1, 1999, the trustees and officers of the Kentucky Fund as a group own less than 1% of the shares of the Kentucky Fund. The following table sets forth the percentage of each person who, as of February 1, 1999, owns of record, or is known by the Trust to own of record or beneficially own 5% or more of any class of shares of the Kentucky Fund. - ------------------------------------------------------------------------------------------------ CLASS NAME AND ADDRESS OF OWNER PERCENTAGE OF OWNERSHIP - ------------------------------------------------------------------------------------------------ A B C R At the close of business on February 1, 1999, the record date with respect to the Special Meeting of shareholders of the Kentucky Limited Term Fund, there were Class A shares, Class C shares and Class R shares, respectively, of the Fund. As of February 1, 1999, the trustees and officers of the Kentucky Limited Term Fund as a group own less than 1% of the outstanding shares of the Kentucky Limited Term Fund. The following table sets forth the percentage of each person who, as of February 1, 1999, owns of record, or is known by the Trust to own of record or beneficially own 5% or more of any class of shares of the Kentucky Limited Term Fund. - ------------------------------------------------------------------------------------------------ CLASS NAME AND ADDRESS OF OWNER PERCENTAGE OF OWNERSHIP - ------------------------------------------------------------------------------------------------ A C R 14 24 B. SHAREHOLDER PROPOSALS As a general matter, the Kentucky Fund does not intend to hold future regular annual or special meetings of its shareholders unless required by the 1940 Act. In the event the Reorganization is not consummated, the Kentucky Limited Term Fund does not intend to hold future regular annual or special meetings of its shareholders unless required by the 1940 Act. Any shareholder who wishes to submit proposals for consideration at a meeting of shareholders of the Kentucky Fund or the Kentucky Limited Term Fund should send such proposal to the respective Fund at 333 West Wacker Drive, Chicago, Illinois 60606. To be considered for presentation at a shareholders' meeting, rules promulgated by the SEC require that, among other things, a shareholder's proposal must be received at the offices of the Fund a reasonable time before a solicitation is made. Timely submission of a proposal does not necessarily mean that such proposal will be included. VOTING INFORMATION AND REQUIREMENTS Holders of shares of the Kentucky Limited Term Fund are entitled to one vote per share on matters as to which they are entitled to vote. The Kentucky Limited Term Fund does not utilize cumulative voting. Each valid proxy given by a shareholder of the Kentucky Limited Term Fund will be voted by the persons named in the proxy in accordance with the instructions marked thereon and as the persons named in the proxy may determine on such other business as may come before the Special Meeting on which shareholders are entitled to vote. If no designation is made, the proxy will be voted by the persons named in the proxy as recommended by the Board "FOR" approval of the Reorganization. Abstentions and broker non-votes (i.e. shares held by brokers or nominees, typically in "street name," as to which (i) instructions have not been received from beneficial owners or persons entitled to vote and (ii) the broker or nominee does not have discretionary voting power on a particular matter) do not count as votes "FOR" the proposal and are treated as votes "AGAINST." Thirty percent of the outstanding shares of the Fund entitled to vote on the proposals must be present in person or by proxy to have a quorum to conduct business at the Special Meeting. Abstentions and broker non-votes will be deemed present for quorum purposes. Shareholders who execute proxies may revoke them at any time before they are voted by filing with the Kentucky Limited Term Fund a written notice of revocation, by delivering a duly executed proxy bearing a later date, or by attending the Special Meeting and voting in person. The giving of a proxy will not affect your right to vote in person if you attend the Special Meeting and wish to do so. It is not anticipated that any action will be asked of the shareholders of the Kentucky Limited Term Fund other than as indicated above, but if other matters are properly brought before the Special Meeting, it is intended that the persons named in the proxy will vote in accordance with their judgment. APPROVAL OF THE REORGANIZATION WILL REQUIRE THE FAVORABLE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF THE KENTUCKY LIMITED TERM FUND ENTITLED TO VOTE. In the event that sufficient votes in favor of a proposal are not received by the scheduled time of the Special Meeting, the persons named in the proxy may propose and vote in favor of one or more adjournments of the Special Meeting to permit further solicitation of proxies. If sufficient shares were present to constitute a quorum, but insufficient votes had been cast in favor of a proposal to approve it, proxies would be voted in favor of adjournment only if the Board determined that adjournment and additional solicitation was reasonable and in the best interest of the shareholders of the Kentucky Limited Term Fund, taking into account the nature of the proposal, the percentage of the votes actually cast, the percentage of negative votes, the nature of any further solicitation that might be made and the information provided to shareholders about the reasons for additional solicitation. Any such adjournment will require the affirmative vote of the holders of a majority of the outstanding shares voted at the session of the Special Meeting to be adjourned. Proxies of shareholders of the Kentucky Limited Term Fund are solicited by the Board. Additional solicitation may be made by mail, telephone, telegraph or personal interview by representatives of the Adviser or Nuveen, or by dealers or their representatives. In addition, such solicitation servicing may also be provided by D. F. King, at a cost estimated to be approximately $2,000, plus reasonable expenses. February , 1999 PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY. YOUR VOTE IS IMPORTANT AND YOUR PARTICIPATION IN THE AFFAIRS OF YOUR FUND DOES MAKE A DIFFERENCE. 15 25 FINANCIAL HIGHLIGHTS (UNAUDITED) EXHIBIT A Selected data for a share outstanding throughout each period is as follows: - ----------------------------------------------------------------------------------------------------------------------------------- CLASS INVESTMENT OPERATIONS LESS DISTRIBUTIONS (INCEPTION DATE) -------------------------------- ---------------------------- NET REALIZED/ ENDING BEGINNING NET UNREALIZED NET NET YEAR ENDED NET ASSET INVESTMENT INVESTMENT INVESTMENT CAPITAL ASSET TOTAL MAY 31, VALUE INCOME(A) GAIN (LOSS) TOTAL INCOME GAIN TOTAL VALUE RETURN(B) - ----------------------------------------------------------------------------------------------------------------------------------- KENTUCKY** CLASS A (5/87) 1999(d) $11.39 $.28 $ .07 $ .35 $(.28) $ -- $(.28) $11.46 3.13% 1998 11.05 .59 .38 .97 (.58) (.05) (.63) 11.39 9.00 1997 10.82 .60 .24 .84 (.60) (.01) (.61) 11.05 7.87 1996 10.99 .61 (.17) .44 (.61) -- (.61) 10.82 4.04 1995 10.65 .61 .35 .96 (.62) -- (.62) 10.99 9.42 1994 11.06 .62 (.40) .22 (.63) -- (.63) 10.65 1.90 CLASS B (2/97) 1999(d) 11.39 .24 .07 .31 (.24) -- (.24) 11.46 2.75 1998 11.06 .50 .38 .88 (.50) (.05) (.55) 11.39 8.10 1997(c) 11.07 .17 (.01) .16 (.17) -- (.17) 11.06 1.47 CLASS C (10/93) 1999(d) 11.38 .25 .07 .32 (.25) -- (.25) 11.45 2.86 1998 11.04 .52 .39 .91 (.52) (.05) (.57) 11.38 8.43 1997 10.81 .54 .24 .78 (.54) (.01) (.55) 11.04 7.29 1996 10.99 .54 (.17) .37 (.55) -- (.55) 10.81 3.38 1995 10.65 .55 .35 .90 (.56) -- (.56) 10.99 8.82 1994(c) 11.46 .36 (.81) (.45) (.36) -- (.36) 10.65 (5.88)* CLASS R (2/97) 1999(d) 11.37 .29 .08 .37 (.30) -- (.30) 11.44 3.24 1998 11.03 .61 .39 1.00 (.61) (.05) (.66) 11.37 9.25 1997(c) 11.08 .20 (.04) .16 (.21) -- (.21) 11.03 1.42 - ----------------------------------------------------------------------------------------------------------------------------------- KENTUCKY LIMITED*** CLASS A (9/95) 1999(d) $10.12 $.21 $ .07 $ .28 $(.21) $ -- $(.21) $10.19 2.80% 1998 9.92 .44 .20 .64 (.44) -- (.44) 10.12 6.53 1997 9.79 .45 .12 .57 (.44) -- (.44) 9.92 5.96 1996(c) 9.75 .31 .04 .35 (.31) -- (.31) 9.79 5.45* CLASS C (9/95) 1999(d) 10.12 .19 .06 .25 (.19) -- (.19) 10.18 2.52 1998 9.92 .40 .20 .60 (.40) -- (.40) 10.12 6.17 1997 9.79 .41 .13 .54 (.41) -- (.41) 9.92 5.64 1996(c) 9.75 .29 .04 .33 (.29) -- (.29) 9.79 5.12* CLASS R (2/97) 1999(d) 10.10 .22 .07 .29 (.22) -- (.22) 10.17 2.93 1998 9.92 .46 .18 .64 (.46) -- (.46) 10.10 6.58 1997(c) 9.98 .15 (.10) .05 (.11) -- (.11) 9.92 .56 - ----------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- CLASS RATIOS/SUPPLEMENTAL DATA (INCEPTION DATE) ----------------------------------------------------------------------------------------- RATIO OF NET RATIO OF RATIO OF INVESTMENT RATIO OF NET INVESTMENT ENDING EXPENSES TO INCOME TO EXPENSES INCOME NET AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE PORTFOLIO YEAR ENDED ASSETS ASSETS BEFORE ASSETS BEFORE NET ASSETS AFTER NET ASSETS AFTER TURNOVER MAY 31, (000) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT(A) REIMBURSEMENT(A) RATE - ---------------------------------------------------------------------------------------------------------------------------- KENTUCKY** CLASS A (5/87) 1999(d) $466,860 .85%* 4.89%* .85%* 4.89%* 5% 1998 451,338 .84 5.12 .77 5.19 12 1997 430,803 .99 5.20 .75 5.44 13 1996 410,808 1.02 5.19 .71 5.50 17 1995 394,457 1.04 5.49 .68 5.85 28 1994 369,495 1.03 5.15 .58 5.60 12 CLASS B (2/97) 1999(d) 6,554 1.59* 4.13* 1.59* 4.13* 5 1998 4,273 1.59 4.33 1.54 4.38 12 1997(c) 544 1.59* 4.56* 1.39* 4.76* 13 CLASS C (10/93) 1999(d) 31,146 1.40* 4.34* 1.40* 4.34* 5 1998 28,630 1.39 4.57 1.33 4.63 12 1997 24,468 1.54 4.64 1.29 4.89 13 1996 20,647 1.57 4.63 1.27 4.93 17 1995 15,831 1.58 4.92 1.23 5.27 28 1994(c) 11,172 1.65* 4.39* 1.08* 4.96* 12 CLASS R (2/97) 1999(d) 795 .65* 5.09* .65* 5.09* 5 1998 675 .64 5.31 .58 5.37 12 1997(c) 455 .64* 5.62* .49* 5.77* 13 - ---------------------------------------------------------------------------------------------------------------------------- KENTUCKY LIMITED*** CLASS A (9/95) 1999(d) $ 8,147 1.25%* 3.70%* .87%* 4.08%* --% 1998 8,989 1.34 3.67 .66 4.35 36 1997 8,870 1.68 3.37 .53 4.52 56 1996(c) 8,389 1.67* 3.07* .37* 4.37* 48 CLASS C (9/95) 1999(d) 2,987 1.60* 3.35* 1.22* 3.73* -- 1998 2,416 1.69 3.32 1.01 4.00 36 1997 2,144 2.00 3.03 .84 4.19 56 1996(c) 1,767 1.98* 2.78* .64* 4.12* 48 CLASS R (2/97) 1999(d) 19 1.05* 3.90* .67* 4.28* -- 1998 16 1.13 3.87 .46 4.54 36 1997(c) -- .86* 4.87* -- 5.73* 56 - ---------------------------------------------------------------------------------------------------------------------------- * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Kentucky. *** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Kentucky Limited. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. (d) For the six months ended November 30, 1998. A-1 26 Supplement Dated December 31,1998 to the Prospectus Dated September 30,1998 - ------------------- NUVEEN FLAGSHIP MULTISTATE TRUST IV NUVEEN FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND - ------------------- We at John Nuveen & Co. Incorporated appreciate the level of trust you have placed in us and are committed to providing you with the latest information regarding your investments. That is why we want to inform you in advance of a proposed merger of the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund (the "Fund") into the Nuveen Flagship Kentucky Municipal Bond Fund (the "Acquired Fund"). The board of directors of the Kentucky Limited Term Fund have determined that the merger would benefit shareholders in a number of ways, including: - - lower gross operating expenses as a percentage of net assets; - - improved portfolio diversification and lower portfolio transaction costs; - - continued exemption of dividends from Kentucky state income taxes; and - - higher dividends per share. The Board believes that these potential benefits, together with the potentially higher distributions from the Kentucky Fund, should offset the risks associated with investments in a long-term bond fund. The Trustees of the Nuveen Flagship Multistate Trust IV have approved a tax-free reorganization of the Fund as described below. The Fund is closed to new investors effective December 31, 1998. Only shareholders with existing accounts may continue to make additional purchases and to reinvest dividends into existing accounts. Under the terms of the reorganization, the Fund would transfer all of its assets and liabilities to the Acquiring Fund, a series of the Nuveen Flagship Municipal Trust IV, in a tax-free exchange for an equal value of shares of the Acquiring Fund. The Acquiring Fund is a municipal bond fund whose investment objective is to provide as high a level of current interest income exempt from regular federal, state and, in some cases, local income taxes as is consistent with preservation of capital. As with any mutual fund, there is no assurance that the Acquiring Fund will meet its investment objective. The reorganization is subject to certain regulatory approvals and the approval of the Fund's shareholders. A meeting of shareholders has been called for April 15, 1999 for the purpose of voting on the proposed reorganization. Further information regarding the proposed reorganization and the shareholder meeting will be contained in a proxy statement that is scheduled to be mailed in mid February, 1999. 27 NUVEEN MUNICIPAL BOND FUNDS September 30, 1998 - ------------------------------- Prospectus - ------------------------------- Dependable, tax-free income to help you keep more of what you earn. KANSAS KENTUCKY MICHIGAN MISSOURI [PHOTO APPEARS HERE] OHIO WISCONSIN - ------------------------------- NOT FDIC- MAY LOSE VALUE INSURED NO BANK GUARANTEE - ------------------------------- Like all mutual fund shares 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. 28 TABLE OF CONTENTS SECTION 1 THE FUNDS This section provides you with an overview of the funds including investment objectives, portfolio holdings and historical performance information. Introduction................................................................. 1 Nuveen Flagship Kansas Municipal Bond Fund................................... 2 Nuveen Flagship Kentucky Municipal Bond Fund................................. 4 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund.................... 6 Nuveen Flagship Michigan Municipal Bond Fund................................. 8 Nuveen Flagship Missouri Municipal Bond Fund................................. 10 Nuveen Flagship Ohio Municipal Bond Fund..................................... 12 WE HAVE USED THE ICONS Nuveen Flagship Wisconsin Municipal Bond Fund................................ 14 BELOW THROUGHOUT THIS PROSPECTUS TO MAKE IT SECTION 2 HOW WE MANAGE YOUR MONEY EASY FOR YOU TO FIND THE This section gives you a detailed discussion of our investment and risk TYPE OF INFORMATION management strategies. YOU NEED. Who Manages the Funds........................................................ 16 Management Fees.............................................................. 17 What Securities We Invest In................................................. 17 How We Select Investments.................................................... 18 What the Risks Are........................................................... 19 How We Manage Risk........................................................... 20 SECTION 3 HOW YOU CAN BUY AND SELL SHARES Investment Strategy This section provides the information you need to move money into or out of your account. How to Choose a Share Class.................................................. 21 Risks How to Reduce Your Sales Charge.............................................. 23 How to Buy Shares............................................................ 23 Systematic Investing......................................................... 24 Fees, Charges Systematic Withdrawal........................................................ 25 and Expenses Special Services............................................................. 25 How to Sell Shares........................................................... 26 Shareholder SECTION 4 GENERAL INFORMATION Instructions This section summarizes the funds' distribution policies and other general fund information. Performance and Distributions and Taxes...................................................... 28 Current Portfolio Distribution and Service Plans............................................... 29 Information Net Asset Value.............................................................. 30 Fund Service Providers....................................................... 30 SECTION 5 FINANCIAL HIGHLIGHTS This section provides the funds' financial performance for the past 5 years. 31 APPENDIX ADDITIONAL STATE INFORMATION.................................. 38 29 September 30,1998 Section 1 The Funds Nuveen Flagship Kansas Municipal Bond Fund Nuveen Flagship Kentucky Municipal Bond Fund Nuveen Flagship Kentucky Limited Term Municipal Bond Fund Nuveen Flagship Michigan Municipal Bond Fund Nuveen Flagship Missouri Municipal Bond Fund Nuveen Flagship Ohio Municipal Bond Fund Nuveen Flagship Wisconsin Municipal Bond Fund Prospectus This prospectus is intended to provide important information to help you evaluate whether one of the Nuveen Mutual Funds listed above may be right for you. Please read it carefully before investing and keep it for future reference. To learn more about how Nuveen Mutual Funds can help you achieve your financial goals, talk with your financial adviser. Or call us at (800) 257-8787 for more information A Century of Investment Experience Since our founding in 1898, John Nuveen & Co. Incorporated has been synonymous with investments that withstand the test of time. Today we offer a broad range of quality investments designed for individuals seeking to build and maintain wealth. Section 1 The Funds 1 30 NUVEEN FLAGSHIP KANSAS MUNICIPAL BOND FUND FUND OVERVIEW INVESTMENT OBJECTIVE The investment objective of the fund is to provide you with as high a level of current interest income exempt from regular federal, state and, in some cases, local income taxes as is consistent with preservation of capital. HOW THE FUND PURSUES ITS OBJECTIVE The fund purchases only quality municipal bonds that are rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings agencies. The fund may buy non-rated municipal bonds if the fund's investment adviser judges them to be investment grade. The fund's investment adviser uses a value-oriented strategy and looks for higher-yielding and undervalued municipal bonds that offer the potential for above-average total return. WHAT ARE THE RISKS OF INVESTING IN THE FUND? The principal risks of investing in the fund are interest rate and credit risk. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Credit risk is the risk that an issuer of a municipal bond will be unable to make interest and principal payments. In general, lower rated bonds carry greater credit risk. The fund may bear additional risk because it invests primarily in Kansas bonds. The fund is non-diversified, and may invest more of its assets in a single issuer than a diversified fund. Greater concentration may increase risk. As with any mutual fund investment, loss of money is a risk of investing. The fund seeks to limit risk by buying investment grade quality bonds in a variety of industry sectors. IS THIS FUND RIGHT FOR YOU? The fund may be a suitable investment for you if you seek to: . Earn regular monthly tax-free dividends; . Preserve investment capital over time; . Reduce taxes on investment income; . Set aside money systematically for retirement, estate planning or college funding. You should not invest in this fund if you seek to: . Pursue an aggressive, high-growth investment strategy; . Invest through an IRA or 401(k) plan; . Avoid fluctuations in share price. HOW THE FUND HAS PERFORMED The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier Adviser(SM) for municipal bond investing. The chart and table below illustrate annual fund returns for each of the past five years as well as annualized fund, peer group and market benchmark returns for the one-, five-year and inception periods ending December 31, 1997. This information is intended to help you assess the variability of fund returns over the past five years (and consequently, the potential rewards and risks of a fund investment). Total Returns/1/ [BAR CHART APPEARS HERE] Class A Annual Returns 1993 14.1% 1994 -8.3% 1995 17.7% 1996 3.4% 1997 9.7% From inception in January 1992 to December 31, 1997, the highest and lowest quarterly returns were 6.96% and -7.73%, respectively for the quarters ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales charges, which would reduce returns, while the average annual return table does. Average Annual Total Returns for the Periods Ending December 31, 1997 ------------------------------------ Class 1 Year 5 Year Inception - ------------------------------------------------------------------ Class A (Offer) 5.11% 5.98% 6.82% Class A (NAV) 9.67% 6.90% 7.60% Class B 4.30% 6.00% 6.76% Class C 9.31% 6.54% 7.23% Class R 10.47% 7.06% 7.73% - ------------------------------------------------------------------ LB Market Benchmark/2/ 9.19% 7.36% 7.67% Lipper Peer Group/3/ 7.84% 6.33% 6.85% 2 Section 1 The Funds 31 WHAT ARE THE COSTS OF INVESTING? SHAREHOLDER TRANSACTION EXPENSES/4/ Paid Directly From Your Investment Share Class A B C R/5/ - -------------------------------------------------------------------------- Maximum Sales Charge Imposed on Purchases 4.20%/6/ None None None Maximum Sales Charge Imposed on Reinvested Dividends None None None None Exchange Fees None None None None Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None ANNUAL FUND OPERATING EXPENSES/11/ Paid From Fund Assets Share Class A B C R Management Fees .55% .55% .55% .55% 12b-1 Distribution and Service Fees .20% .95% .75% --% Other Expenses .15% .15% .14% .15% Total Annual Fund Operating Expenses-Gross+ .90% 1.65% 1.44% .70% + After Expense Reimbursements Reimbursements (.19%) (.20%) (.20%) (.19%) Total Annual Fund Operating Expenses-Net .71% 1.45% 1.24% .51% The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated and then either redeem or do not redeem your shares at the end of a period. The example assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Your actual returns and costs may be higher or lower. Redemption No Redemption Share Class A B C R A B C R - ------------------------------------------------------------------------------- 1 Year $ 508 $ 563 $ 147 $ 72 $ 508 $ 168 $ 147 $ 72 3 Years $ 695 $ 839 $ 456 $ 224 $ 695 $ 520 $ 456 $ 224 5 Years $ 898 $1,011 $ 787 $ 390 $ 898 $ 897 $ 787 $ 390 10 Years $1,481 $1,754 $1,724 $ 871 $1,481 $1,754 $1,724 $ 871 HOW THE FUND IS INVESTED (AS OF 5/31/98) PORTFOLIO STATISTICS Weighted Average Maturity 20.6 years Weighted Average Duration 7.6 years Weighted Average Credit Quality AA Number of Issues 60 CREDIT QUALITY AAA 49% AA 24% A 17% BBB/NR 10% INDUSTRY DIVERSIFICATION (TOP 5) [PIE CHART APPEARS HERE] Utilities (8%) Other (27%) Tax Obligation-Limited (20%) Health Care (20%) U.S. Guaranteed (13%) Housing-Multifamily (12%) 1. Class A total returns reflect actual performance for all periods; Class B, C and R total returns reflect actual performance for periods since class inception, and Class A performance for periods prior to class inception, adjusted for the differences in fees between the classes (see "What are the Costs of Investing?"). The year-to-date return as of 6/30/98 was 2.69%. 2. Market Benchmark returns reflect the performance of the Lehman Brothers Municipal Bond Index, an unmanaged index comprised of a broad range of investment-grade municipal bonds. 3. Peer Group returns represent the average annualized returns of the funds in the Lipper Kansas Municipal Debt Category. Returns assume reinvestment of dividends and do not reflect any applicable sales charges. 4. As a percent of offering price unless otherwise noted. Authorized Dealers and other firms may charge additional fees for shareholder transactions or for advisory services. Please see their materials for details. 5. Class R shares may be purchased only under limited circumstances, or by specified classes of investors. See "How You Can Buy and Sell Shares. 6. Reduced sales charges apply to purchases of $50,000 or more. See "How You Can Buy and Sell Shares." 7. As a percentage of lesser of purchase price or redemption proceeds. 8. Certain Class A purchases at net asset value of $1 million or more may be subject to a contingent deferred sales charge (CDSC) if redeemed within 18 months of purchase. See "How You Can Buy and Sell Shares." 9. Class B shares redeemed within six years of purchase are subject to a CDSC of 5% during the first year, 4% during the second and third years, 3% during the fourth, 2% during the fifth and 1% during the sixth year. 10. Class C shares redeemed within one year of purchase are subject to a 1% CDSC. 11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1 fees and CDSCs than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers Conduct Rules. Section 1 The Funds 3 32 NUVEEN FLAGSHIP KENTUCKY MUNICIPAL BOND FUND Fund Overview Investment Objective The investment objective of the fund is to provide you with as high a level of current interest income exempt from regular federal, state and, in some cases, local income taxes as is consistent with preservation of capital. How the Fund Pursues Its Objective The fund purchases only quality municipal bonds that are rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings agencies. The fund may buy non-rated municipal bonds if the fund's investment adviser judges them to be investment grade. The fund's investment adviser uses a value-oriented strategy and looks for higher-yielding and undervalued municipal bonds that offer the potential for above-average total return. What are the Risks of Investing in the Fund? The principal risks of investing in the fund are interest rate and credit risk. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Credit risk is the risk that an issuer of a municipal bond will be unable to make interest and principal payments. In general, lower rated bonds carry greater credit risk. The fund may bear additional risk because it invests primarily in Kentucky bonds. As with any mutual fund investment, loss of money is a risk of investing. The fund seeks to limit risk by buying investment grade quality bonds in a variety of industry sectors. Is This Fund Right For You? The fund may be a suitable investment for you if you seek to: . Earn regular monthly tax-free dividends; . Preserve investment capital over time; . Reduce taxes on investment income; . Set aside money systematically for retirement, estate planning or college funding. You should not invest in this fund if you seek to: . Pursue an aggressive, high-growth investment strategy; . Invest through an IRA or 401(k) plan; . Avoid fluctuations in share price. How The Fund Has Performed The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier Adviser(SM) for municipal bond investing. The chart and table below illustrate annual fund returns for each of the past ten years as well as annualized fund, peer group and market benchmark returns for the one-, five- and ten-year periods ending December 31, 1997. This information is intended to help you assess the variability of fund returns over the past ten years (and consequently, the potential rewards and risks of a fund investment). TOTAL RETURNS/1/ [BAR CHART APPEARS HERE] Class A Annual Returns 1988 13.5% 1989 10.8% 1990 6.5% 1991 12.4% 1992 9.3% 1993 12.3% 1994 -5.4% 1995 17.3% 1996 3.9% 1997 9.1% During the ten years ending December 31, 1997, the highest and lowest quarterly returns were 7.13% and -5.54%, respectively for the quarters ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales charges, which would reduce returns, while the 1-, 5- and 10-year average annual return table does. Average Annual Total Returns for the Periods Ending December 31, 1997 Class 1 Year 5 Year 10 Year ------------------------------------------------------------------------------ Class A (Offer) 4.46% 6.21% 8.32% Class A (NAV) 9.08% 7.12% 8.79% Class B 4.29% 6.34% 8.31% Class C 8.41% 6.52% 8.19% Class R 9.11% 7.13% 8.79% ------------------------------------------------------------------------------ LB Market Benchmark/2/ 9.19% 7.36% 8.58% Lipper Peer Group/3/ 8.43% 6.80% 8.42% 4 Section 1 The Funds 33 What are the Costs of Investing? Shareholder Transaction Expenses/4/ Paid Directly From Your Investment Share Class A B C R/5/ - ----------------------------------------------------------------------------- Maximum Sales Charge Imposed on Purchases 4.20%/6/ None None None Maximum Sales Charge Imposed on Reinvested Dividends None None None None Exchange Fees None None None None Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None Annual Fund Operating Expenses/11/ Paid From Fund Assets Share Class A B C R - ---------------------------------------------------------------------------- Management Fees .54% .54% .54% .54% 12b-1 Distribution and Service Fees .20% .95% .75% --% Other Expenses .10% .10% .10% .10% Total Annual Fund Operating Expenses-Gross .84% 1.59% 1.39% .64% After Expense Reimbursements Reimbursements (.07%) (.05%) (.06%) (.06%) Total Annual Fund Operating Expenses-Net .77% 1.54% 1.33% .58% The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated and then either redeem or do not redeem your shares at the end of a period. The example assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Your actual returns and costs may be higher or lower. Redemption No Redemption Share Class A B C R A B C R - ----------------------------------------------------------------------------------------- 1 Year $ 502 $ 557 $ 142 $ 65 $ 502 $ 162 $ 142 $ 65 3 Years $ 677 $ 821 $ 440 $205 $ 677 $ 502 $ 440 $205 5 Years $ 866 $ 980 $ 761 $357 $ 866 $ 866 $ 761 $357 10 Years $1,414 $1,688 $1,669 $798 $1,414 $1,688 $1,669 $798 How the Fund Is Invested (as of 5/31/98) Portfolio Statistics Weighted Average Maturity 20.3 years Weighted Average Duration 6.4 years Weighted Average Credit Quality AA Number of Issues 177 Credit Quality AAA 52% AA 6% A 24% BBB/NR 18% Industry Diversification (Top 5) [PIE CHART APPEARS HERE] Water/Sewer (6%) Other (29%) Tax Obligation-Limited (23%) Health Care (23%) Utilities (10%) U.S.Guaranteed (9%) 1. Class A total returns reflect actual performance for all periods; Class B, C and R total returns reflect actual performance for periods since class inception, and Class A performance for periods prior to class inception, adjusted for the differences in fees between the classes (see "What are the Costs of Investing?"). The year-to-date return as of 6/30/98 was 2.44%. 2. Market Benchmark returns reflect the performance of the Lehman Brothers Municipal Bond Index, an unmanaged index comprised of a broad range of investment-grade municipal bonds. 3. Peer Group returns represent the average annualized returns of the funds in the Lipper Kentucky Municipal Debt Category. Returns assume reinvestment of dividends and do not reflect any applicable sales charges. 4. As a percent of offering price unless otherwise noted. Authorized Dealers and other firms may charge additional fees for shareholder transactions or for advisory services. Please see their materials for details. 5. Class R shares may be purchased only under limited circumstances, or by specified classes of investors. See "How You Can Buy and Sell Shares." 6. Reduced sales charges apply to purchases of $50,000 or more. See "How You Can Buy and Sell Shares." 7. As a percentage of lesser of purchase price or redemption proceeds. 8. Certain Class A purchases at net asset value of $1 million or more may be subject to a contingent deferred sales charge (CDSC) if redeemed within 18 months of purchase. See "How You Can Buy and Sell Shares." 9. Class B shares redeemed within six years of purchase are subject to a CDSC of 5% during the first year, 4% during the second and third years, 3% during the fourth, 2% during the fifth and 1% during the sixth year. 10. Class C shares redeemed within one year of purchase are subject to a 1% CDSC. 11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1 fees and CDSCs than the economic equivalent of the maximum front- end sales charge permitted under the National Association of Securities Dealers Conduct Rules. Section 1 The Funds 5 34 NUVEEN FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND Fund Overview INVESTMENT OBJECTIVE The investment objective of the fund is to provide you with as high a level of current interest income exempt from regular federal, state and, in some cases, local income taxes as is consistent with preservation of capital. HOW THE FUND PURSUES ITS OBJECTIVE The fund purchases only quality municipal bonds that are rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings agencies. The fund may buy non-rated municipal bonds if the fund's investment adviser judges them to be investment grade. The fund's investment adviser uses a value-oriented strategy and looks for higher-yielding and undervalued municipal bonds that offer the potential for above-average total return. WHAT ARE THE RISKS OF INVESTING IN THE FUND? The principal risks of investing in the fund are interest rate and credit risk. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Credit risk is the risk that an issuer of a municipal bond will be unable to make interest and principal payments. In general, lower rated bonds carry greater credit risk. The fund may bear additional risk because it invests primarily in Kentucky bonds. The fund is non-diversified, and may invest more of its assets in a single issuer than a diversified fund. Greater concentration may increase risk. As with any mutual fund investment, loss of money is a risk of investing. The fund seeks to limit risk by buying investment grade quality bonds in a variety of industry sectors. IS THIS FUND RIGHT FOR YOU? The fund may be a suitable investment for you if you seek to: . Earn regular monthly tax-free dividends; . Preserve investment capital over time; . Reduce taxes on investment income; . Set aside money systematically for retirement, estate planning or college funding. You should not invest in this fund if you seek to: . Pursue an aggressive, high-growth investment strategy; . Invest through an IRA or 401(k) plan; . Avoid fluctuations in share price. HOW THE FUND HAS PERFORMED The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier Adviser(SM) for municipal bond investing. The chart and table below illustrate annual fund returns for each of the past two years as well as annualized fund, peer group and market benchmark returns for the one-year and inception periods ending December 31, 1997. This information is intended to help you assess the variability of fund returns over the past two years (and consequently, the potential rewards and risks of a fund investment). TOTAL RETURNS/1/ [BAR CHART APPEARS HERE] Class A Annual Returns 1996 4.4% 1997 6.9% From inception in September 1995 to December 31, 1997, the highest and lowest quarterly returns were 2.70% and .21%, respectively for the quarters ending 12/31/95 and 3/31/96. The bar chart and highest/lowest quarterly returns do not reflect sales charges, which would reduce returns, while the average annual return table does. Average Annual Total Returns for the Periods Ending December 31, 1997 ------------------------------------ Class 1 Year Inception -------------------------------------------------------------------------- Class A (Offer) 4.28% 5.06% Class A (NAV) 6.91% 6.24% Class C 6.57% 5.87% Class R 7.01% 6.29% -------------------------------------------------------------------------- LB Market Benchmark/2/ 6.38% 5.65% Lipper Peer Group/3/ 5.61% 4.96% 6 Section 1 The Funds 35 What are the Costs of Investing? SHAREHOLDER TRANSACTION EXPENSES/4/ Paid Directly From Your Investment Share Class A C R/5/ - ------------------------------------------------------------------ Maximum Sales Charge Imposed on Purchases 2.50%/6/ None None - ------------------------------------------------------------------ Maximum Sales Charge Imposed on Reinvested Dividends None None None - ------------------------------------------------------------------ Exchange Fees None None None - ------------------------------------------------------------------ Deferred Sales Charge/7/ None/8/ 1%/9/ None - ------------------------------------------------------------------ ANNUAL FUND OPERATING EXPENSES/10/ Paid From Fund Assets Share Class A C R - ------------------------------------------------------------------- Management Fees .45% .45% .45% - ------------------------------------------------------------------- 12b-1 Distribution and Service Fees .20% .55% --% - ------------------------------------------------------------------- OTHER EXPENSES .69% .69% .68% - ------------------------------------------------------------------- Total Annual Fund Operating Expenses-Gross 1.34% 1.69% 1.13% After Expense Reimbursements - ------------------------------------------------------------------- Reimbursements (.68%) (.68%) (.67%) - ------------------------------------------------------------------- Total Annual Fund Operating Expenses-Net .66% 1.01% .46% - ------------------------------------------------------------------- The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated and then either redeem or do not redeem your shares at the end of a period. The example assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Your actual returns and costs may be higher or lower. Redemption No Redemption Share Class A C R A C R - ----------------------------------------------------------------------- 1 Year $ 383 $ 172 $ 115 $ 383 $ 172 $ 115 - ----------------------------------------------------------------------- 3 Years $ 664 $ 533 $ 359 $ 664 $ 533 $ 359 - ----------------------------------------------------------------------- 5 Years $ 966 $ 918 $ 622 $ 966 $ 918 $ 622 - ----------------------------------------------------------------------- 10 Years $1,822 $1,998 $1,375 $1,822 $1,998 $1,375 - ----------------------------------------------------------------------- How the Fund Is Invested (as of 5/31/98) PORTFOLIO STATISTICS Weighted Average Maturity 6.1 years - ------------------------------------------------ Weighted Average Duration 5.0 years - ------------------------------------------------ Weighted Average Credit Quality AA - ------------------------------------------------ Number of Issues 33 - ------------------------------------------------ CREDIT QUALITY AAA 45% - ------------------------------------------------ AA 19% - ------------------------------------------------ A 25% - ------------------------------------------------ BBB/NR 11% - ------------------------------------------------ INDUSTRY DIVERSIFICATION (TOP 5) [PIE CHART APPEARS HERE] Transportation (9%) Health Care (23%) Tax Obligation-Limited (22%) Other (22%) Education and Civic Organizations (14%) Housing-Multifamily (10%) 1. Class A total returns reflect actual performance for all periods; Class C and R total returns reflect actual performance for periods since class inception, and Class A performance for periods prior to class inception, adjusted for the differences in fees between the classes (see "What are the Costs of Investing?"). The year-to-date return as of 6/30/98 was 1.78%. 2. Market Benchmark returns reflect the performance of the Lehman Brothers 5 Year Municipal Bond Index, an unmanaged index comprised of a broad range of investment-grade municipal bonds. 3. Peer Group returns represent the average annualized returns of the funds in the Lipper Other States Short-Intermediate Municipal Debt Category. Returns assume reinvestment of dividends and do not reflect any applicable sales charges. 4. As a percent of offering price unless otherwise noted. Authorized Dealers and other firms may charge additional fees for shareholder transactions or for advisory services. Please see their materials for details. 5. Class R shares may be purchased only under limited circumstances, or by specified classes of investors. See "How You Can Buy and Sell Shares." 6. Reduced sales charges apply to purchases of $50,000 or more. See "How You Can Buy and Sell Shares." 7. As a percentage of lesser of purchase price or redemption proceeds. 8. Certain Class A purchases at net asset value of $1 million or more may be subject to a contingent deferred sales charge (CDSC) if redeemed within 18 months of purchase. See "How You Can Buy and Sell Shares." 9. Class C shares redeemed within one year of purchase are subject to a 1% CDSC. 10. Long-term holders of Class C shares may pay more in Rule 12b-1 fees and CDSCs than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers Conduct Rules. Section 1 The Funds 7 36 NUVEEN FLAGSHIP MICHIGAN MUNICIPAL BOND FUND Fund Overview Investment Objective The investment objective of the fund is to provide you with as high a level of current interest income exempt from regular federal, state and, in some cases, local income taxes as is consistent with preservation of capital. How the Fund Pursues Its Objective The fund purchases only quality municipal bonds that are rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings agencies. The fund may buy non-rated municipal bonds if the fund's investment adviser judges them to be investment grade. The fund's investment adviser uses a value-oriented strategy and looks for higher-yielding and undervalued municipal bonds that offer the potential for above-average total return. What are the Risks of Investing in the Fund? The principal risks of investing in the fund are interest rate and credit risk. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Credit risk is the risk that an issuer of a municipal bond will be unable to make interest and principal payments. In general, lower rated bonds carry greater credit risk. The fund may bear additional risk because it invests primarily in Michigan bonds. As with any mutual fund investment, loss of money is a risk of investing. The fund seeks to limit risk by buying investment grade quality bonds in a variety of industry sectors. Is This Fund Right For You? The fund may be a suitable investment for you if you seek to: . Earn regular monthly tax-free dividends; . Preserve investment capital over time; . Reduce taxes on investment income; . Set aside money systematically for retirement, estate planning or college funding. You should not invest in this fund if you seek to: . Pursue an aggressive, high-growth investment strategy; . Invest through an IRA or 401(k) plan; . Avoid fluctuations in share price. How the Fund Has Performed The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier Adviser(SM) for municipal bond investing. The chart and table below illustrate annual fund returns for each of the past ten years as well as annualized fund, peer group and market benchmark returns for the one-, five- and ten-year periods ending December 31, 1997. This information is intended to help you assess the variability of fund returns over the past ten years (and consequently, the potential rewards and risks of a fund investment). Total Returns(1) [BAR CHART APPEARS HERE] Class A Annual Returns 1988 12.5% 1989 10.2% 1990 5.3% 1991 11.6% 1992 9.6% 1993 12.0% 1994 -5.0% 1995 16.3% 1996 3.8% 1997 8.9% During the ten years ending December 31, 1997, the highest and lowest quarterly returns were 6.10% and -5.31%, respectively for the quarters ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales charges, which would reduce returns, while the 1-, 5- and 10-year average annual return table does. Average Annual Total Returns for the Periods Ending December 31, 1997 Class 1 Year 5 Year 10 Year ------------------------------------------------------------------- Class A (Offer) 4.38% 6.02% 7.89% Class A (NAV) 8.93% 6.93% 8.36% Class B 4.22% 6.17% 7.89% Class C 8.34% 6.26% 7.72% Class R 9.13% 6.97% 8.38% ------------------------------------------------------------------- LB Market Benchmark/2/ 9.19% 7.36% 8.58% Lipper Peer Group/3/ 8.50% 6.66% 8.24% 8 Section 1 The Funds 37 What are the Costs of Investing? Shareholder Transaction Expenses/4/ Paid Directly From Your Investment Share Class A B C R/5/ - -------------------------------------------------------------------------- Maximum Sales Charge Imposed on Purchases 4.20%/6/ None None None Maximum Sales Charge Imposed on Reinvested Dividends None None None None Exchange Fees None None None None Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/1/ None Annual Fund Operating Expenses/11/ Paid From Fund Assets Share Class A B C R - ------------------------------------------------------------------------- Management Fees .54% .54% .54% .54% 12b-1 Distribution and Service Fees .20% .95% .75% --% Other Expenses .10% .10% .10% .10% Total Operating Expenses .84% 1.59% 1.39% .64% The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated and then either redeem or do not redeem your shares at the end of a period. The example assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Your actual returns and costs may be higher or lower. Redemption No Redemption Share Class A B C R A B C R - ---------------------------------------------------------------------------------------------- 1 Year $ 502 $ 557 $ 142 $ 65 $ 502 $ 162 $ 142 $ 65 3 Years $ 677 $ 821 $ 440 $205 $ 677 $ 502 $ 440 $205 5 Years $ 866 $ 980 $ 761 $357 $ 866 $ 866 $ 761 $357 10 Years $1,414 $1,688 $1,669 $798 $1,414 $1,688 $1,669 $798 How the Fund Is Invested (as of 5/31/98) Portfolio Statistics Weighted Average Maturity 18.1 years Weighted Average Duration 6.5 years Weighted Average Credit Quality AA Number of Issues 56 Credit Quality AAA 54% AA 19% A 14% BBB/NR 13% Industry Diversification (Top 5) [PIE CHART APPEARS HERE] Tax Obligation-Limited (16%) Other (21%) Tax Obligation-General (16%) Health Care (24%) U.S. Guaranteed (17%) Water/Sewer (6%) 1. Class A total returns reflect actual performance for all periods; Class B, C and R total returns reflect actual performance for periods since class inception, and Class A performance for periods prior to class inception, adjusted for the differences in fees between the classes (see "What are the Costs of Investing?"). The year-to-date return as of 6/30/98 was 2.43%. 2. Market Benchmark returns reflect the performance of the Lehman Brothers Municipal Bond Index, an unmanaged index comprised of a broad range of investment-grade municipal bonds. 3. Peer Group returns represent the average annualized returns of the funds in the Lipper Michigan Municipal Debt Category. Returns assume reinvestment of dividends and do not reflect any applicable sales charges. 4. As a percent of offering price unless otherwise noted. Authorized Dealers and other firms may charge additional fees for shareholder transactions or for advisory services. Please see their materials for details. 5. Class R shares may be purchased only under limited circumstances, or by specified classes of investors. See "How You Can Buy and Sell Shares." 6. Reduced sales charges apply to purchases of $50,000 or more. See "How You Can Buy and Sell Shares." 7. As a percentage of lesser of purchase price or redemption proceeds. 8. Certain Class A purchases at net asset value of $1 million or more may be subject to a contingent deferred sales charge (CDSC) if redeemed within 18 months of purchase. See "How You Can Buy and Sell Shares." 9. Class B shares redeemed within six years of purchase are subject to a CDSC of 5% during the first year, 4% during the second and third years, 3% during the fourth, 2% during the fifth and 1% during the sixth year. 10. Class C shares redeemed within one year of purchase are subject to a 1% CDSC. 11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1 fees and CDSCs than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers Conduct Rules. Section 1 The Funds 9 38 NUVEEN FLAGSHIP MISSOURI MUNICIPAL BOND FUND Fund Overview Investment Objective The investment objective of the fund is to provide you with as high a level of current interest income exempt from regular federal, state and, in some cases, local income taxes as is consistent with preservation of capital. How the Fund Pursues Its Objective The fund purchases only quality municipal bonds that are rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings agencies. The fund may buy non-rated municipal bonds if the fund's investment adviser judges them to be investment grade. The fund's investment adviser uses a value-oriented strategy and looks for higher-yielding and undervalued municipal bonds that offer the potential for above-average total return. What are the Risks of Investing in the Fund? The principal risks of investing in the fund are interest rate and credit risk. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Credit risk is the risk that an issuer of a municipal bond will be unable to make interest and principal payments. In general, lower rated bonds carry greater credit risk. The fund may bear additional risk because it invests primarily in Missouri bonds. The fund is non-diversified, and may invest more of its assets in a single issuer than a diversified fund. Greater concentration may increase risk. As with any mutual fund investment, loss of money is a risk of investing. The fund seeks to limit risk by buying investment grade quality bonds in a variety of industry sectors. Is This Fund Right For You? The fund may be a suitable investment for you if you seek to: . Earn regular monthly tax-free dividends; . Preserve investment capital over time; . Reduce taxes on investment income; . Set aside money systematically for retirement, estate planning or college funding. You should not invest in this fund if you seek to: . Pursue an aggressive, high-growth investment strategy; . Invest through an IRA or 401(k) plan; . Avoid fluctuations in share price. How the Fund Has Performed The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier Adviser(SM) for municipal bond investing. The chart and table below illustrate annual fund returns for each of the past ten years as well as annualized fund, peer group and market benchmark returns for the one-, five- and ten-year periods ending December 31, 1997. This information is intended to help you assess the variability of fund returns over the past ten years (and consequently, the potential rewards and risks of a fund investment). Total Returns/1/ [Bar Chart Appears Here] Class A Annual Returns 1988 10.5% 1989 10.2% 1990 6.4% 1991 12.0% 1992 9.0% 1993 13.5% 1994 -6.1% 1995 16.3% 1996 3.9% 1997 9.4% During the ten years ending December 31, 1997, the highest and lowest quarterly returns were 6.61% and -5.65%, respectively for the quarters ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales charges, which would reduce returns, while the 1-, 5- and 10-year average annual return table does. Average Annual Total Returns for the Periods Ending December 31, 1997 ------------------------------------ Class 1 Year 5 Year 10 Year --------------------------------------------------------------- Class A (Offer) 4.79% 6.17% 7.87% Class A (NAV) 9.35% 7.09% 8.34% Class B 4.47% 6.29% 7.86% Class C 8.76% 6.48% 7.74% Class R 9.45% 7.10% 8.35% --------------------------------------------------------------- LB Market Benchmark/2/ 9.19% 7.36% 8.58% Lipper Peer Group/3/ 8.69% 6.75% 8.29% 10 Section 1 The Funds 39 What are the Costs of Investing? Shareholder Transaction Expenses/4/ Paid Directly From Your Investment Share Class A B C R/5/ - -------------------------------------------------------------------------- Maximum Sales Charge Imposed on Purchases 4.20%/6/ None None None Maximum Sales Charge Imposed on Reinvested Dividends None None None None Exchange Fees None None None None Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None Annual Fund Operating Expenses/11/ Paid From Fund Assets Share Class A B C R - --------------------------------------------------------------------------- Management Fees .54% .54% .54% .54% 12b-1 Distribution and Service Fees .20% .95% .75% --% Other Expenses .13% .13% .13% .13% Total Operating Expenses .87% 1.62% 1.42% .67% The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated and then either redeem or do not redeem your shares at the end of a period. The example assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Your actual returns and costs may be higher or lower. Redemption No Redemption Share Class A B C R A B C R - ----------------------------------------------------------------------------------------- 1 Year $ 505 $ 560 $ 145 $ 68 $ 505 $ 165 $ 145 $ 68 3 Years $ 686 $ 830 $ 449 $214 $ 686 $ 511 $ 449 $214 5 Years $ 882 $ 996 $ 776 $373 $ 882 $ 881 $ 776 $373 10 Years $1,448 $1,721 $1,702 $835 $1,448 $1,721 $1,702 $835 How the Fund Is Invested (as of 5/31/98) Portfolio Statistics Weighted Average Maturity 19.5 years Weighted Average Duration 7.2 years Weighted Average Credit Quality AA- Number of Issues 143 Credit Quality AAA 61% AA 10% A 12% BBB/NR 17% Industry Diversification (Top 5) [PIE CHART APPEARS HERE] Tax Obligation-Limited (17%) Other (34%) Housing-Single-Family (8%) Health Care (17%) U.S. Guaranteed (13%) Housing-Multifamily (11%) 1. Class A total returns reflect actual performance for all periods; Class B, C and R total returns reflect actual performance for periods since class inception, and Class A performance for periods prior to class inception, adjusted for the differences in fees between the classes (see "What are the Costs of Investing?"). The year-to-date return as of 6/30/98 was 2.50%. 2. Market Benchmark returns reflect the performance of the Lehman Brothers Municipal Bond Index, an unmanaged index comprised of a broad range of investment-grade municipal bonds. 3. Peer Group returns represent the average annualized returns of the funds in the Lipper Missouri Category. Returns assume reinvestment of dividends and do not reflect any applicable sales charges. 4. As a percent of offering price unless otherwise noted. Authorized Dealers and other firms may charge additional fees for shareholder transactions or for advisory services. Please see their materials for details. 5. Class R shares may be purchased only under limited circumstances, or by specified classes of investors. See "How You Can Buy and Sell Shares." 6. Reduced sales charges apply to purchases of $50,000 or more. See "How You Can Buy and Sell Shares." 7. As a percentage of lesser of purchase price or redemption proceeds. 8. Certain Class A purchases at net asset value of $1 million or more may be subject to a contingent deferred sales charge (CDSC) if redeemed within 18 months of purchase. See "How You Can Buy and Sell Shares." 9. Class B shares redeemed within six years of purchase are subject to a CDSC of 5% during the first year, 4% during the second and third years, 3% during the fourth, 2% during the fifth and 1% during the sixth year. 10. Class C shares redeemed within one year of purchase are subject to a 1% CDSC. 11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1 fees and CDSCs than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers Conduct Rules. Section 1 The Funds 11 40 NUVEEN FLAGSHIP OHIO MUNICIPAL BOND FUND Fund Overview Investment Objective The investment objective of the fund is to provide you with as high a level of current interest income exempt from regular federal, state and, in some cases, local income taxes as is consistent with preservation of capital. How the Fund Pursues Its Objective The fund purchases only quality municipal bonds that are rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings agencies. The fund may buy non-rated municipal bonds if the fund's investment adviser judges them to be investment grade. The fund's investment adviser uses a value-oriented strategy and looks for higher-yielding and undervalued municipal bonds that offer the potential for above-average total return. What are the Risks of Investing in the Fund? The principal risks of investing in the fund are interest rate and credit risk. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Credit risk is the risk that an issuer of a municipal bond will be unable to make interest and principal payments. In general, lower rated bond carry greater credit risk. The fund may bear additional risk because it invests primarily in Ohio bonds. As with any mutual fund investment, loss of money is a risk of investing. The fund seeks to limit risk by buying investment grade quality bonds in a variety of industry sectors. Is This Fund Right For You? The fund may be a suitable investment for you if you seek to: . Earn regular monthly tax-free dividends; . Preserve investment capital over time; . Reduce taxes on investment income; . Set aside money systematically for retirement, estate planning or college funding. You should not invest in this fund if you seek to: . Pursue an aggressive, high-growth investment strategy; . Invest through an IRA or 401(k) plan; . Avoid fluctuations in share price. How the Fund Has Performed The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier Adviser(SM) for municipal bond investing. The chart and table below illustrate annual fund returns for each of the past ten years as well as annualized fund, peer group and market benchmark returns for the one-, five- and ten-year periods ending December 31, 1997. This information is intended to help you assess the variability of fund returns over the past ten years (and consequently, the potential rewards and risks of a fund investment). Total Returns(1) [BAR CHART APPEARS HERE] Class A Annual Returns 1988 13.1% 1989 9.7% 1990 6.2% 1991 11.8% 1992 8.5% 1993 11.6% 1994 -4.6% 1995 15.5% 1996 3.3% 1997 8.3% During the ten years ending December 31, 1997, the highest and lowest quarterly returns were 6.05% and -4.69%, respectively for the quarters ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales charges, which would reduce returns, while the 1-, 5- and 10-year average annual return table does. Average Annual Total Returns for the Periods Ending December 31, 1997 Class 1 Year 5 Year 10 Year ----------------------------------------------------------------------------- Class A (Offer) 3.74% 5.67% 7.72% Class A (NAV) 8.26% 6.57% 8.18% Class B 3.48% 5.80% 7.71% Class C 7.69% 6.00% 7.59% Class R 8.46% 6.61% 8.20% ----------------------------------------------------------------------------- LB Market Benchmark/2/ 9.19% 7.36% 8.58% Lipper Peer Group/3/ 8.44% 6.85% 8.24% 12 Section 1 The Funds 41 What are the Costs of Investing? Shareholder Transaction Expenses/4/ Paid Directly From Your Investment Share Class A B C R/5/ - ------------------------------------------------------------------------- Maximum Sales Charge Imposed on Purchases 4.20%/6/ None None None Maximum Sales Charge Imposed on Reinvested Dividends None None None None Exchange Fees None None None None Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None Annual Fund Operating Expenses/11/ Paid From Fund Assets Share Class A B C R - -------------------------------------------------------------------- Management Fees .53% .53% .53% .53% 12b-1 Distribution and Service Fees .20% .95% .75% --% Other Expenses .12% .13% .12% .12% Total Operating Expenses .85% 1.61% 1.40% .65% The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated and then either redeem or do not redeem your shares at the end of a period. The example assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Your actual returns and costs may be higher or lower. Redemption No Redemption Share Class A B C R A B C R - ----------------------------------------------------------------------------------------- 1 Year $ 503 $ 559 $ 143 $ 66 $ 503 $ 164 $ 143 $ 66 3 Years $ 680 $ 827 $ 443 $208 $ 680 $ 508 $ 443 $208 5 Years $ 872 $ 991 $ 766 $362 $ 872 $ 876 $ 766 $362 10 Years $1,425 $1,708 $1,680 $810 $1,425 $1,708 $1,680 $810 How the Fund Is Invested (as of 5/31/98) Portfolio Statistics Weighted Average Maturity 18.9 years Weighted Average Duration 6.4 years Weighted Average Credit Quality AA Number of Issues 273 Credit Quality AAA 68% AA 7% A 12% BBB/NR 13% Industry Diversification (Top 5) [PIE CHART APPEARS HERE] Water/Sewer (7%) Other (29%) U.S. Guaranteed (20%) Tax Obligation-General (18%) Health Care (15%) Utilities (11%) 1. Class A total returns reflect actual performance for all periods; Class B, C and R total returns reflect actual performance for periods since class inception, and Class A performance for periods prior to class inception, adjusted for the differences in fees between the classes (see "What are the Costs of Investing?"). The year-to-date return as of 6/30/98 was 2.53%. 2. Market Benchmark returns reflect the performance of the Lehman Brothers Municipal Bond Index, an unmanaged index comprised of a broad range of investment-grade municipal bonds. 3. Peer Group returns reflect the performance of the Lipper Ohio Municipal Debt Index, a managed index that represents the average annualized returns of the 30 largest funds in the Lipper Ohio Municipal Debt Category. Returns assume reinvestment of dividends and do not reflect any applicable sales charges. 4. As a percent of offering price unless otherwise noted. Authorized Dealers and other firms may charge additional fees for shareholder transactions or for advisory services. Please see their materials for details. 5. Class R shares may be purchased only under limited circumstances, or by specified classes of investors. See "How You Can Buy and Sell Shares." 6. Reduced sales charges apply to purchases of $50,000 or more. See "How You Can Buy and Sell Shares." 7. As a percentage of lesser of purchase price or redemption proceeds. 8. Certain Class A purchases at net asset value of $1 million or more may be subject to a contingent deferred sales charge (CDSC) if redeemed within 18 months of purchase. See "How You Can Buy and Sell Shares." 9. Class B shares redeemed within six years of purchase are subject to a CDSC of 5% during the first year, 4% during the second and third years, 3% during the fourth, 2% during the fifth and 1% during the sixth year. 10. Class C shares redeemed within one year of purchase are subject to a 1% CDSC. 11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1 fees and CDSCs than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers Conduct Rules. Section 1 The Funds 13 42 NUVEEN FLAGSHIP WISCONSIN MUNICIPAL BOND FUND Fund Overview INVESTMENT OBJECTIVE The investment objective of the fund is to provide you with as high a level of current interest income exempt from regular federal income taxes as is consistent with preservation of capital. HOW THE FUND PURSUES ITS OBJECTIVE The fund purchases only quality municipal bonds that are rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings agencies. The fund may buy non-rated municipal bonds if the fund's investment adviser judges them to be investment grade. The fund's investment adviser uses a value-oriented strategy and looks for higher-yielding and undervalued municipal bonds that offer the potential for above-average total return. WHAT ARE THE RISKS OF INVESTING IN THE FUND? The principal risks of investing in the fund are interest rate and credit risk. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Credit risk is the risk that an issuer of a municipal bond will be unable to make interest and principal payments. In general, lower rated bonds carry greater credit risk. The fund may bear additional risk because it invests primarily in Wisconsin bonds. The fund is non-diversified, and may invest more of its assets in a single issuer than a diversified fund. Greater concentration may increase risk. As with any mutual fund investment, loss of money is a risk of investing. The fund seeks to limit risk by buying investment grade quality bonds in a variety of industry sectors. IS THIS FUND RIGHT FOR YOU? The fund may be a suitable investment for you if you seek to: . Earn regular monthly tax-free dividends; . Preserve investment capital over time; . Reduce taxes on investment income; . Set aside money systematically for retirement, estate planning or college funding. You should not invest in this fund if you seek to: . Pursue an aggressive, high-growth investment strategy; . Invest through an IRA or 401(k) plan; . Avoid fluctuations in share price. How The Fund Has Performed The fund's investment adviser is Nuveen Advisory Corp, Nuveen's Premier Adviser(SM) for municipal bond investing. The chart and table below illustrate annual fund returns for each of the past three years as well as annualized fund, peer group and market benchmark returns for the one-year, and inception periods ending December 31, 1997. This information is intended to help you assess the variability of fund returns over the past three years (and consequently, the potential rewards and risks of a fund investment). Total Returns/1/ [BAR CHART APPEARS HERE] Class A Annual Returns 1995 17.2% 1996 2.5% 1997 9.4% From inception in June 1994 to December 31, 1997, the highest and lowest quarterly returns were 6.57% and -2.64%, respectively for the quarters ending 3/31/95 and 3/31/96. The bar chart and highest/lowest quarterly returns do not reflect sales charges, which would reduce returns, while the average annual return table does. Average Annual Total Returns for the Periods Ending December 31, 1997 Class 1 Year Inception ----------------------------------------------------- Class A (Offer) 4.81% 6.01% Class A (NAV) 9.40% 7.32% Class B 4.94% 6.04% Class C 9.05% 6.95% Class R 9.87% 7.45% ----------------------------------------------------- LB Market Benchmark/2/ 9.19% 8.47% Lipper Peer Group/3/ 8.45% 7.44% 14 Section 1 The Funds 43 WHAT ARE THE COSTS OF INVESTING? SHAREHOLDER TRANSACTION EXPENSES/4/ PAID DIRECTLY FROM YOUR INVESTMENT Share Class A B C R/5/ - ------------------------------------------------------------------------- Maximum Sales Charge Imposed on Purchases 4.20%/6/ None None None Maximum Sales Charge Imposed on Reinvested Dividends None None None None Exchange Fees None None None None Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None ANNUAL FUND OPERATING EXPENSES/11/ PAID FROM FUND ASSETS Share Class A B C R - ------------------------------------------------------------------------- Management Fees .55% .55% .55% .55% 12b-1 Distribution and Service Fees .20% .95% .75% --% Other Expenses .61% .58% .59% .57% Total Annual Fund Operating Expenses-Gross+ 1.36% 2.08% 1.89% 1.12% +After Expense Reimbursements Reimbursements (.81%) (.76%) (.78%) (.80%) Total Annual Fund Operating Expenses-Net .55% 1.32% 1.11% .32% The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated and then either redeem or do not redeem your shares at the end of a period. The example assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. Your actual returns and costs may be higher or lower. Redemption No Redemption Share Class A B C R A B C R 1 Year $ 553 $ 605 $ 192 $ 114 $ 553 $ 211 $ 192 $ 114 3 Years $ 833 $ 966 $ 594 $ 356 $ 833 $ 652 $ 594 $ 356 5 Years $1,133 $1,231 $1,021 $ 617 $1,133 $1,119 $1,021 $ 617 10 Years $1,986 $2,226 $2,212 $1,363 $1,986 $2,226 $2,212 $1,363 HOW THE FUND IS INVESTED (AS OF 5/31/98) PORTFOLIO STATISTICS Weighted Average Maturity 22.2 years Weighted Average Duration 8.6 years Weighted Average Credit Quality A+ Number of Issues 60 CREDIT QUALITY AAA 41% AA 5% A 18% BBB/NR 36% Industry Diversification (Top 5) [PIE CHART APPEARS HERE] Health Care (6%) Tax Obligation-Limited (46%) Other (19%) Long-Term Care (10%) Housing-Multifamily (10%) Utilities (9%) 1. Class A total returns reflect actual performance for all periods; Class B, C and R total returns reflect actual performance for periods since class inception, and Class A performance for periods prior to class inception, adjusted for the differences in fees between the classes (see "What are the Costs of Investing?"). The year-to-date return as of 6/30/98 was 3.03%. 2. Market Benchmark returns reflect the performance of the Lehman Brothers Municipal Bond Index, an unmanaged index comprised of a broad range of investment-grade municipal bonds. 3. Peer Group returns represent the average annualized returns of the funds in the Lipper Other States Municipal Debt Category. Returns assume reinvestment of dividends and do not reflect any applicable sales charges. 4. As a percent of offering price unless otherwise noted. Authorized Dealers and other firms may charge additional fees for shareholder transactions or for advisory services. Please see their materials for details. 5. Class R shares may be purchased only under limited circumstances, or by specified classes of investors. See "How You Can Buy and Sell Shares." 6. Reduced sales charges apply to purchases of $50,000 or more. See "How You Can Buy and Sell Shares." 7. As a percentage of lesser of purchase price or redemption proceeds. 8. Certain Class A purchases at net asset value of $1 million or more may be subject to a contingent deferred sales charge (CDSC) if redeemed within 18 months of purchase. See "How You Can Buy and Sell Shares." 9. Class B shares redeemed within six years of purchase are subject to a CDSC of 5% during the first year, 4% during the second and third years, 3% during the fourth, 2% during the fifth and 1% during the sixth year. 10. Class C shares redeemed within one year of purchase are subject to a 1% CDSC. 11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1 fees and CDSCs than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers Conduct Rules. Section 1 The Funds 15 44 Section 2 How We Manage Your Money To help you understand the funds better, this section includes a detailed discussion of our investment and risk management strategies. For a more complete discussion of these matters, please consult the Statement of Additional Information. Who Manages the Funds Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, IL 60606, ("Nuveen Advisory"), serves as the investment adviser to the funds and in this capacity is responsible for the selection and on-going monitoring of the municipal bonds in each fund's investment portfolio, managing the funds' business affairs and providing certain clerical, bookkeeping and other administrative services. Nuveen Advisory serves as investment adviser to investment portfolios with more than $35 billion in municipal assets under management. Overall investment management strategy and operating policies for the funds are set by the Investment Policy Committee of Nuveen Advisory. The Investment Policy Committee is comprised of the principal executive officers and portfolio managers of Nuveen Advisory and meets regularly to review economic conditions, the outlook for the financial markets in general and the status of the municipal markets in particular. Day-to-day operation of each fund and the execution of its specific investment strategies is the responsibility of the designated portfolio manager described below. Michael S. Davern has been the portfolio manager for the Kansas and Missouri Funds since 1992, the Michigan Fund since 1993, and the Wisconsin Fund since 1994. Mr. Davern became a Vice President of Flagship Financial Inc., the Funds' prior investment adviser in 1991, and subsequently became a Vice President of Nuveen Advisory upon the acquisition of Flagship Resources Inc. by The John Nuveen Company in January 1997. Mr. Davern currently manages investments for seventeen Nuveen-sponsored investment companies, including the Arizona, Colorado, and Louisiana Funds. Thomas J. O'Shaughnessy has been the portfolio manager for the Kentucky Funds since July 1998, and has been a portfolio manager for Nuveen Advisory since 1983. Mr. O'Shaughnessy currently manages investments for fourteen Nuveen-sponsored investment companies, including the Georgia, Florida, North Carolina, Pennsylvania, and Tennessee Funds. J. Thomas Futrell has been the portfolio manager for the Ohio Fund since July 1998. Mr. Futrell is a Chartered Financial Analyst and has been a Vice President of Nuveen Advisory since 1991. He currently manages investments for ten Nuveen-sponsored investment companies, including the Massachusetts, Massachusetts Insured, and New Jersey Funds. 16 Section 2 How We Manage Your Money 45 Management Fees For providing these services, Nuveen Advisory is paid an annual management fee. The following schedule applies to each fund described in this prospectus except the Kentucky Limited Term Fund: --------------------------------------------------------------- AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE --------------------------------------------------------------- For the first $125 million 0.5500% For the next $125 million 0.5375% For the next $250 million 0.5250% For the next $500 million 0.5125% For the next $1 billion 0.5000% For assets over $2 billion 0.4750% The following schedule applies to the Kentucky Limited Term Fund: --------------------------------------------------------------- AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE --------------------------------------------------------------- For the first $125 million 0.4500% For the next $125 million 0.4375% For the next $250 million 0.4250% For the next $500 million 0.4125% For the next $1 billion 0.4000% For assets over $2 billion 0.3750% For the most recent fiscal year, the funds paid after expense reimbursements the following management fees to Nuveen Advisory, as a percentage of average net assets: Nuveen Flagship Kansas Municipal Bond Fund .36% Nuveen Flagship Kentucky Municipal Bond Fund .47% Nuveen Flagship Kentucky Limited Term Municipal Bond Fund .00% Nuveen Flagship Michigan Municipal Bond Fund .54% Nuveen Flagship Missouri Municipal Bond Fund .54% Nuveen Flagship Ohio Municipal Bond Fund .53% Nuveen Flagship Wisconsin Municipal Bond Fund .00% What Securities We Invest In Each fund's investment objective may not be changed without shareholder approval. The following investment policies may be changed by the Board of Trustees without shareholder approval unless otherwise noted in this prospectus or the Statement of Additional Information. Municipal Obligations The funds invest primarily in municipal bonds that pay interest that is exempt from regular federal, state and, in some cases, local income tax. Income from these bonds may be subject to the federal alternative minimum tax. Section 2 How We Manage Your Money 17 46 States, local governments and municipalities issue municipal bonds to raise money for various public purposes such as building public facilities, refinancing outstanding obligations and financing general operating expenses. The funds may purchase municipal bonds that represent lease obligations. These carry special risks because the issuer of the bonds may not be obligated to appropriate money annually to make payments under the lease. In order to reduce this risk, the funds will only purchase these bonds where the issuer has a strong incentive to continue making appropriations until maturity. Quality Municipal Bonds The funds purchase only quality municipal bonds that are either rated investment grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the time of purchase or are non-rated but judged to be investment grade by the funds' investment adviser. Each fund will invest at least 80% of its net assets in investment-grade quality municipal bonds. If suitable municipal bonds from a specific state are not available at attractive prices and yields, a fund may invest in municipal bonds of U.S. territories (such as Puerto Rico and Guam) which are exempt from regular federal, state, and local income taxes. The Michigan and Ohio Funds may not invest more than 20% of their net assets in these territorial municipal bonds. Portfolio Maturity Each fund buys municipal bonds with different maturities in pursuit of its investment objective, but maintains under normal market conditions an investment portfolio with an overall weighted average maturity within a defined range. The Kentucky Limited Term Fund maintains a weighted average portfolio maturity of 1 to 7 years. All of the other funds described in this prospectus are long-term funds and normally maintain a weighted average portfolio maturity of 15 to 30 years. Short-term Investments Under normal market conditions, each fund may invest up to 20% of net assets in short-term, high quality municipal bonds. See "How We Manage Risk -- Hedging and Other Defensive Investment Strategies." The funds may invest in short-term, high quality taxable securities if suitable short-term municipal bonds are not available at reasonable prices and yields. For more information on eligible short-term investments, see the Statement of Additional Information. Delayed Delivery Transactions The funds may buy or sell securities on a when-issued or delayed- delivery basis, paying for or taking delivery of the securities at a later date, normally within 15 to 45 days of the trade. Such transactions involve an element of risk because the value of the security to be purchased may decline before the settlement date. How We Select Investments Nuveen Advisory selects municipal obligations for the funds based upon its assessment of a bond's relative value in terms of current yield, price, credit quality and future prospects. Nuveen Advisory is supported by 18 Section 2 How We Manage Your Money 47 Nuveen's award-winning team of specialized research analysts who review municipal securities available for purchase, monitor the continued creditworthiness of each fund's municipal investments, and analyze economic, political and demographic trends affecting the municipal markets. We utilize these resources to identify municipal obligations with favorable characteristics we believe are not yet recognized by the market. We then select those higher-yielding and undervalued municipal obligations that we believe represent the most attractive values. Portfolio Turnover A fund buys and sells portfolio securities in the normal course of its investment activities. The proportion of the fund's investment portfolio that is sold and replaced with new securities during a year is known as the fund's portfolio turnover rate. The funds intend to keep portfolio turnover relatively low in order to reduce trading costs and the realization of taxable capital gains. Each fund, however, may make limited short-term trades to take advantage of market opportunities or reduce market risk. What the Risks Are Risk is inherent in all investing. Investing in a mutual fund -- even the most conservative -- involves risk, including the risk that you may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing you should consider carefully the following risks that you assume when you invest in these funds. Because of these and other risks, you should consider an investment in any of these funds to be a long-term investment. Interest rate risk: the risk that the value of the fund's portfolio will decline because of rising market interest rates (bond prices move in the opposite direction of interest rates). The longer the average maturity (duration) of a fund's portfolio, the greater its interest rate risk. See "What Securities We Invest In--Portfolio Maturity." Income risk: the risk that the income from the fund's portfolio will decline because of falling market interest rates. This can result when the fund invests the proceeds from new share sales, or from matured or called bonds, at market interest rates that are below the portfolio's current earnings rate. Credit risk: the risk that an issuer of a bond is unable to meet its obligation to make interest and principal payments due to changing market conditions. Generally, lower rated bonds provide higher current income but are considered to carry greater credit risk than higher rated bonds. Year 2000 issues may affect the ability of municipal issuers to meet their payment obligations to their bond holders, and may adversely affect their credit ratings. State Concentration risk: because the funds primarily purchase municipal bonds from a specific state, each fund also bears investment risk from the economic, political or regulatory changes that could adversely affect municipal bond issuers in that state and therefore the value of the funds' investment portfolio. See "Appendix--Additional State Information." These risks may be greater for the Kansas, Kentucky Limited, Missouri and Section 2 How We Manage Your Money 19 48 Wisconsin Funds, which as "non-diversified" funds may concentrate their investment in municipal bonds of certain issuers to a greater extent than the Kentucky, Michigan and Ohio Funds described in this prospectus, which are diversified funds. Inflation risk: the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the funds' assets can decline as can the value of the funds' distributions. How We Manage Risk In pursuit of its investment objective, each fund assumes investment risk, chiefly in the form of interest rate and credit risk. The funds limit this investment risk generally by restricting the type and maturities of municipal bonds they purchase, and by diversifying their investment portfolios geographically as well as across different industry sectors. Investment Limitations The funds have adopted certain investment limitations (based on total assets) that cannot be changed without shareholder approval and are designed to limit your investment risk and maintain portfolio diversification. Each fund may not have more than: . 25% in any one industry such as electric utilities or health care. . 10% in borrowings (33% if used to meet redemptions). As diversified funds, the Kentucky, Michigan and Ohio Funds may not have more than: . 5% in securities in any one issuer (except for U.S. Government securities or for 25% of the fund's total assets). Hedging and Other Defensive Investment Strategies Each fund may invest up to 100% in cash equivalents and short- term investments as a temporary defensive measure in response to adverse market conditions, or to keep cash on hand fully invested. During these periods, the weighted average maturity of a fund's investment portfolio may fall below the defined range described under "Portfolio Maturity." Each fund may also use various investment strategies designed to limit the risk of bond price fluctuations and to preserve capital. These hedging strategies include using financial futures contracts, options on financial futures, or options based on either an index of long-term tax-free securities or on debt securities whose prices, in the opinion of the funds' investment adviser, correlate with the prices of the funds' investments. The funds, however, have no present intent to use these strategies. 20 Section 2 How We Manage Your Money 49 Section 3 How You Can Buy and Sell Shares You can choose from four classes of fund shares, each with a different combination of sales charges, fees, eligibility requirements and other features. Your financial adviser can help you determine which class is best for you. We offer a number of features for your convenience. Please see the Statement of Additional Information for further details. How to Choose a Share Class In deciding whether to purchase Class A, Class B, Class C or Class R shares, you should consider: . the amount of your purchase; . any current holdings of fund shares; . how long you expect to hold the shares; . the amount of any up-front sales charge; . whether a contingent deferred sales charge (CDSC) would apply upon redemption; . the amount of any distribution or service fees that you may incur while you own the shares; . whether you will be reinvesting income or capital gain distributions in additional shares; . whether you qualify for a sales charge waiver or reduction. For a summary of the charges and expenses for each class, please see "What are the Costs of Investing?" Class A Shares You can buy Class A shares at the offering price, which is the net asset value per share plus an up-front sales charge. You may qualify for a reduced sales charge, or the sales charge may be waived, as described in "How to Reduce Your Sales Charge." Class A shares are also subject to an annual service fee of .20% which compensates your financial adviser for providing ongoing service to you. The up-front Class A sales charge for all funds described in the prospectus except the Kentucky Limited Term Fund is as follows: ------------------------------------------------------------------------------------------------------------ Authorized Dealer Sales Charge as % of Sales Charge as % of Commission as % of Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price ------------------------------------------------------------------------------------------------------------ Less than $50,000 4.20% 4.38% 3.70% $50,000 but less than $100,000 4.00% 4.18% 3.50% $100,000 but less than $250,000 3.50% 3.63% 3.00% $250,000 but less than $500,000 2.50% 2.56% 2.00% $500,000 but less than $1,000,000 2.00% 2.04% 1.50% $1,000,000 and over --(1) -- 1.00%(1) Section 3 How You Can Buy and Sell Shares 21 50 The following Class A sales charges and commissions apply to the Kentucky Limited Term Fund: ------------------------------------------------------------------------------------------------------------ Authorized Dealer Sales Charge as % of Sales Charge as % of Commission as % of Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price ------------------------------------------------------------------------------------------------------------ Less than $50,000 2.50% 2.56% 2.00% $50,000 but less than $100,000 2.00% 2.04% 1.60% $100,000 but less than $250,000 1.50% 1.52% 1.20% $250,000 but less than $500,000 1.25% 1.27% 1.00% $500,000 but less than $1,000,000 0.75% 0.76% 0.60% $1,000,000 and over --(1) -- 0.50%(1) (1) You can buy $1 million or more of Class A shares at net asset value without an up-front sales charge. Nuveen pays authorized dealers of record on these share purchases a sales commission of 1.00% (0.50% for the Kentucky Limited Term fund) of the first $2.5 million, plus .50% of the next $2.5 million, plus .25% of the amount over $5.0 million. If you redeem your shares within 18 months of purchase, you may have to pay a CDSC of 1% (0.50% for the Kentucky Limited Term fund) of either your purchase price or your redemption proceeds, whichever is lower. You do not have to pay this CDSC if your financial adviser has made arrangements with Nuveen and agrees to waive the commission. Class B Shares You can buy Class B shares at the offering price, which is the net asset value per share without any up-front sales charge so that the full amount of your purchase is invested in the fund. However, you will pay annual distribution and service fees of .95% of average daily assets. The annual .20% service fee compensates your financial adviser for providing ongoing service to you. The annual .75% distribution fee compensates Nuveen for paying your financial adviser a 4% up-front sales commission, which includes an advance of the first year's service fee. If you sell your shares within six years of purchase, you will have to pay a CDSC based on either your purchase price or what you sell your shares for, whichever amount is lower, according to the following schedule. You do not pay a CDSC on any Class B shares you purchase by reinvesting dividends. The Kentucky Limited Term Fund does not currently offer B shares. Class B shares automatically convert to Class A shares eight years after you buy them so that the distribution fees you pay over the life of your investment are limited. You will continue to pay an annual service fee on any converted Class B shares. ----------------------------------------------------------------- Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6 ----------------------------------------------------------------- CDSC 5% 4% 4% 3% 2% 1% Class C Shares You can buy Class C shares at the offering price, which is the net asset value per share without any up-front sales charge so that the full amount of your purchase is invested in the fund. However, you will pay annual distribution and service fees of 1%. The annual .20% service fee compensates your financial adviser for providing ongoing service to you. The annual .55% (0.35% for the Kentucky Limited Term Fund) distribution fee reimburses Nuveen for paying your financial adviser an ongoing sales commission. Nuveen advances the first year's service and distribution fees. If you sell your shares within 12 months of purchase, you may have to 22 Section 3 How You Can Buy and Sell Shares 51 pay a 1% CDSC based on either your purchase price or what you sell your shares for, whichever amount is lower. Class R Shares Under limited circumstances, you may purchase Class R Shares at the offering price, which is the net asset value on the day of purchase. In order to qualify, you must be eligible under one of the programs described in "How to Reduce Your Sales Charge" (below) or meet certain other purchase size criteria. Class R Shares are not subject to sales charges or ongoing service or distribution fees. Class R shares have lower ongoing expenses than the other classes. How to Reduce Your Sales Charge We offer a number of ways to reduce or eliminate the up-front sales charge on Class A shares or to qualify to purchase Class R shares. Class A Sales Charge Class A Sales Charge Class R Eligibility Reductions Waivers . Rights of accumulation . Nuveen Defined Portfolio . Certain employees and directors of . Letter of intent reinvestment Nuveen or employees of authorized dealers . Group purchase . Purchases using redemptions . Bank trust departments from unrelated funds . Retirement plans . Certain employees and directors of Nuveen or employees of authorized dealers . Bank trust departments In addition, Class A shares at net asset value and Class R shares may be purchased through registered investment advisers, certified financial planners and registered broker-dealers who charge asset-based or comprehensive "wrap" fees for their services. Please refer to the Statement of Additional Information for detailed program descriptions and eligibility requirements. Additional information is available from your financial adviser or by calling (800) 257-8787. Your financial adviser can also help you prepare any necessary application forms. You or your financial adviser must notify Nuveen at the time of each purchase if you are eligible for any of these programs. The funds may modify or discontinue these programs at any time. How to Buy Shares You may open an account with $3,000 per fund share class and make additional investments at any time with as little as $50. There is no minimum if you are reinvesting Nuveen Defined Portfolio distributions. The share price you pay will depend on when Nuveen receives your order. Orders received before the close of trading on a business day will receive that day's closing share price, otherwise you will receive the next business day's price. A business day is any day the New York Stock Exchange is open for business and usually ends at 4 p.m. New York time when the Exchange closes. Section 3 How You Can Buy and Sell Shares 23 52 Through a Financial Adviser You may buy shares through your financial adviser, who can handle all the details for you, including opening a new account. Financial advisers can also help you review your financial needs and formulate long-term investment goals and objectives. In addition, financial advisers generally can help you develop a customized financial plan, select investments and monitor and review your portfolio on an ongoing basis to help assure your investments continue to meet your needs as circumstances change. Financial advisers are paid either from fund sales charges and fees or by charging you a separate fee in lieu of a sales charge for ongoing investment advice and services. If you do not have a financial adviser, call (800) 257-8787 and Nuveen can refer you to one in your area. By Mail You may open an account and buy shares by mail by completing the enclosed application and mailing it along with your check to: Nuveen Investor Services, P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186. Systematic Investing Once you have established a fund account, systematic investing allows you to make regular investments through automatic deductions from your bank account (simply complete the appropriate section of the account application form) or directly from your paycheck. To invest directly from your paycheck, contact your financial adviser or call Nuveen at (800) 257-8787. Systematic investing may also make you eligible for reduced sales charges. The chart below illustrates the benefits of systematic investing based on a $3,000 initial investment and subsequent monthly investments of $100 over 20 years. The example assumes you earn a return of 4%, 5% or 6% annually on your investment and that you reinvest all dividends. These annual returns do not reflect past or projected fund performance. [GRAPH APPEARS HERE] 24 Section 3 How You Can Buy and Sell Shares 53 One of the benefits of systematic investing is dollar cost averaging. Because you regularly invest a fixed amount of money over a period of years regardless of the share price, you buy more shares when the price is low and fewer shares when the price is high. As a result, the average share price you pay should be less than the average share price of fund shares over the same period. To be effective, dollar cost averaging requires that you invest over a long period of time, and does not assure that you will profit. Systematic Investment Plan You can make regular investments of $50 or more per month by authorizing us to draw preauthorized checks on your bank account. You can stop the withdrawals at any time. There is no charge for this plan. Payroll Direct Deposit Plan You can, with your employer's consent, make regular investments of $25 or more per pay period (meeting the monthly minimum of $50) by authorizing your employer to deduct this amount automatically from your paycheck. You can stop the deductions at any time. There is no charge for this plan. Systematic Withdrawal If the value of your fund account is at least $10,000, you may request to have $50 or more withdrawn automatically from your account. You may elect to receive payments monthly, quarterly, semi-annually or annually, and may choose to receive a check, have the monies transferred directly into your bank account (see "Fund Direct--Electronic Funds Transfer" below), paid to a third party or sent payable to you at an address other than your address of record. You must complete the appropriate section of the account application or Account Update Form to participate in the fund's systematic withdrawal plan. You should not establish systematic withdrawals if you intend to make concurrent purchases of Class A, B or C shares because you may unnecessarily pay a sales charge or CDSC on these purchases. Special Services To help make your investing with us easy and efficient, we offer you the following services at no extra cost. Exchanging Shares You may exchange fund shares into an identically registered account at any time for the same class of another Nuveen mutual fund available in your state. Your exchange must meet the minimum purchase requirements of the fund into which you are exchanging. Because an exchange is treated for tax purposes as a concurrent sale and purchase, and any gain may be subject to tax, you should consult your tax adviser about the tax consequences of any contemplated exchange. The exchange privilege is not intended to allow you to use a fund for short-term trading. Because excessive exchanges may interfere with portfolio management, raise fund operating expenses or otherwise have Section 3 How You Can Buy and Sell Shares 25 54 an adverse effect on other shareholders, each fund reserves the right to revise or suspend the exchange privilege, limit the amount or number of exchanges, or reject any exchange. Reinstatement Privilege If you redeem fund shares, you may reinvest all or part of your redemption proceeds up to one year later without incurring any additional charges. You may only reinvest into the same share class you redeemed. If you paid a CDSC, we will refund your CDSC and reinstate your holding period. You may use this reinstatement privilege only once for any redemption. Fund Direct You may link your fund account to your bank account and transfer money electronically between these accounts and perform a variety of account transactions, including buying shares by telephone and systematic investment. You may also have dividends, distributions, redemption payments or Systematic Withdrawals sent directly to your bank account. Your financial adviser can help you complete the forms for these services, or you can call Nuveen at (800) 257-8787 for copies of the necessary forms. How to Sell Shares You may use one of the following ways to sell (redeem) your shares on any day the New York Stock Exchange is open. You will receive the share price next determined after Nuveen has received your properly completed redemption request. Your redemption request must be received before the close of trading for you to receive that day's price. While the funds do not charge a redemption fee, you may be assessed a CDSC, if applicable. When you redeem Class A, Class B, or Class C shares subject to a CDSC, the fund will first redeem any shares that are not subject to a CDSC or that represent an increase in the value of your fund account due to capital appreciation, and then redeem the shares you have owned for the longest period of time, unless you ask the fund to redeem your shares in a different order. No CDSC is imposed on shares you buy through the reinvestment of dividends and capital gains. The holding period is calculated on a monthly basis and begins on the first day of the month in which you buy shares. When you redeem shares subject to a CDSC, the CDSC is calculated on the lower of your purchase price or redemption proceeds, deducted from your redemption proceeds, and paid to Nuveen. The CDSC may be waived under certain special circumstances as described in the Statement of Additional Information. Through Your Financial Adviser You may sell your shares through your financial adviser who can prepare the necessary documentation. Your financial adviser may charge for this. By Telephone If you have authorized telephone redemption privileges, you can redeem your shares by telephone up to $50,000. You may not redeem by telephone shares held in certificate form. Checks will be issued only to the shareholder of record and mailed to the address of record. If you have established electronic funds transfer privileges, you may have redemption proceeds transferred electronically to your bank account. We will normally mail your check the next business day. Nuveen and Chase Global Funds Services will be liable for losses resulting from unauthorized telephone redemptions only if they do not follow reasonable procedures designed to 26 Section 3 How You Can Buy and Sell Shares 55 verify the identity of the caller. You should immediately verify your trade confirmations when you receive them. By Mail You can sell your shares at any time by sending a written request to the appropriate fund, Nuveen Investor Services, P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186. Your request must include the following information: . The fund's name; . Your name and account number; . The dollar or share amount you wish to redeem; . The signature of each owner exactly as it appears on the account; . The name of the person to whom you want your redemption proceeds paid (if other than to the shareholder of record); . The address where you want your redemption proceeds sent (if other than the address of record); . Any certificates you have for the shares; and . Any required signature guarantees. We will normally mail your check the next business day, but in no event more than seven days after we receive your request. If you purchased your shares by check, your redemption proceeds will not be mailed until your check has cleared. Guaranteed signatures are required if you are redeeming more than $50,000, you want the check payable to someone other than the shareholder of record or you want the check sent to another address (or the address of record has been changed within the last 60 days). Signature guarantees must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by a fund. A notary public cannot provide a signature guarantee. AN IMPORTANT NOTE ABOUT INVOLUNTARY REDEMPTION. FROM TIME TO TIME, THE FUNDS MAY ESTABLISH MINIMUM ACCOUNT SIZE REQUIREMENTS. THE FUNDS RESERVE THE RIGHT TO LIQUIDATE YOUR ACCOUNT UPON 30 DAYS' WRITTEN NOTICE IF THE VALUE OF YOUR ACCOUNT FALLS BELOW AN ESTABLISHED MINIMUM. THE FUNDS PRESENTLY HAVE SET A MINIMUM BALANCE OF $100 UNLESS YOU HAVE AN ACTIVE NUVEEN DEFINED PORTFOLIO REINVESTMENT ACCOUNT. YOU WILL NOT BE ASSESSED A CDSC ON AN INVOLUNTARY REDEMPTION. Section 3 How You Can Buy and Sell Shares 27 56 Section 4 General Information To help you understand the tax implications of investing in the funds, this section includes important details about how the funds make distributions to shareholders. We discuss some other fund policies, as well. Distributions and Taxes The funds pay tax-free dividends monthly and any taxable capital gains or other taxable distributions once a year in December. The funds declare dividends monthly to shareholders of record as of the ninth of each month, payable the first business day of the following month. Payment and Reinvestment Options The funds automatically reinvest your dividends in additional fund shares unless you request otherwise. You may request to have your dividends paid to you by check, deposited directly into your bank account, paid to a third party, sent to an address other than your address of record or reinvested in shares of another Nuveen mutual fund. For further information, contact your financial adviser or call Nuveen at (800) 257-8787. Taxes and Tax Reporting Because the funds invest in municipal bonds, the regular monthly dividends you receive will be exempt from regular federal income tax. All or a portion of these dividends, however, may be subject to state and local taxes or to the federal alternative minimum tax (AMT). Although the funds do not seek to realize taxable income or capital gains, the funds may realize and distribute taxable income or capital gains from time to time as a result of each fund's normal investment activities. Each fund will distribute in December any taxable income or capital gains realized over the preceding year. Net short-term gains are taxable as ordinary income. Net long-term capital gains are taxable as long-term capital gains regardless of how long you have owned your investment. Taxable dividends do not qualify for a dividends received deduction if you are a corporate shareholder. Early in each year, you will receive a statement detailing the amount and nature of all dividends and capital gains, including any percentage of your fund dividends attributable to municipal obligations, that you were paid during the prior year. You will receive this statement from the firm where you purchased your fund shares if you hold your investment in street name. Nuveen will send you this statement if you hold your shares in registered form. The tax status of your dividends is not affected by whether you reinvest your dividends or receive them in cash. If you receive social security benefits, you should be aware that any tax-free income is taken into account in calculating the amount of these benefits that may be subject to federal income tax. 28 Section 4 General Information 57 Tax laws are subject to change, so we urge you to consult your tax adviser about your particular tax situation and how it might be affected by current tax law. Please note that if you do not furnish us with your correct Social Security number or employer identification number, federal law requires us to withhold federal income tax from your distributions and redemption proceeds at a rate of 31%. BUYING OR SELLING SHARES CLOSE TO A RECORD DATE Buying fund shares shortly before the record date for a taxable dividend is commonly known as "buying the dividend." The entire dividend may be taxable to you even though a portion of the dividend effectively represents a return of your purchase price. Similarly, if you sell or exchange fund shares shortly before the record date for a tax-exempt dividend, a portion of the price you receive may be treated as a taxable capital gain even though it reflects tax-free income earned but not yet distributed by the fund. TAXABLE EQUIVALENT YIELDS The taxable equivalent yield is the current yield you would need to earn on a taxable investment in order to equal a stated tax-free yield on a municipal investment. To assist you to more easily compare municipal investments like the funds with taxable alternative investments, the table below presents the taxable equivalent yields for a range of hypothetical tax-free yields and tax rates: TAXABLE EQUIVALENT OF TAX-FREE YIELDS TAX-FREE YIELD Tax Rate 4.00% 4.50% 5.00% 5.50% 6.00% 28.0% 5.56% 6.25% 6.94% 7.64% 8.33% 31.0% 5.80% 6.52% 7.25% 7.97% 8.70% 36.0% 6.25% 7.03% 7.81% 8.59% 9.37% 39.6% 6.62% 7.45% 8.28% 9.11% 9.93% The yields and tax rates shown above are hypothetical and do not predict your actual returns or effective tax rate. For more detailed information, see the statement of additional information or consult your tax adviser. Distribution and Service Plans John Nuveen & Co. Incorporated serves as the selling agent and distributor of the funds' shares. In this capacity, Nuveen manages the offering of the funds' shares and is responsible for all sales and promotional activities. In order to reimburse Nuveen for its costs in connection with these activities, including compensation paid to authorized dealers, each fund has adopted a distribution and service plan under Rule 12b-1 under the Investment Company Act of 1940. (See "How to Choose a Share Class" for a description of the distribution and service fees paid under this plan.) Nuveen receives the distribution fee for Class B and Class C shares primarily for providing compensation to authorized dealers, including Nuveen, in connection with the distribution of shares. Nuveen uses the service fee for Class A, Class B, and Class C shares to compensate authorized dealers, including Nuveen, for providing account services to Section 4 General Information 29 58 shareholders. These services may include establishing and maintaining shareholder accounts, answering shareholder inquiries, and providing other personal services to shareholders. These fees also compensate Nuveen for other expenses, including printing and distributing prospectuses to persons other than shareholders, and preparing, printing, and distributing advertising and sales literature and reports to shareholders used in connection with the sale of shares. Because these fees are paid out of the funds' assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Net Asset Value The price you pay for your shares is based on the fund's net asset value per share which is determined as of the close of trading (normally 4:00 p.m. eastern time) on each day the New York Stock Exchange is open for business. Net asset value is calculated for each class by taking the fair value of the class' total assets, including interest or dividends accrued but not yet collected, less all liabilities, and dividing by the total number of shares outstanding. The result, rounded to the nearest cent, is the net asset value per share. All valuations are subject to review by the funds' Board of Trustees or its delegate. In determining net asset value, expenses are accrued and applied daily and securities and other assets for which market quotations are available are valued at market value. The prices of municipal bonds are provided by a pricing service and based on the mean between the bid and asked price. When price quotes are not readily available (which is usually the case for municipal securities), the pricing service establishes fair market value based on prices of comparable municipal bonds. Fund Service Providers The custodian of the assets of the funds is The Chase Manhattan Bank, 4 New York Plaza, New York, NY 10004-2413. Chase also provides certain accounting services to the funds. The funds' transfer, shareholder services and dividend paying agent, Chase Global Funds Services Company, P.O. Box 5186, New York, NY 10274-5186, performs bookkeeping, data processing and administrative services for the maintenance of shareholder accounts. Nuveen Advisory and Chase Global Funds Services each rely on computer systems to manage the funds' investments, process shareholder transactions and provide shareholder account maintenance. Because of the way computers historically have stored dates, some of these systems currently may not be able to correctly process activity occurring in the year 2000. Nuveen Advisory is working with the funds' service providers to adapt their systems to address this "Year 2000" issue. Nuveen advisory and the funds expect, but there can be no absolute assurance, that the necessary work will be completed on a timely basis. 30 Section 4 General Information 59 Section 5 Financial Highlights The following tables are intended to help you better understand each fund's recent past performance. The tables are excerpted from each fund's latest financial statements audited by Arthur Andersen LLP. You may obtain the complete statements along with the auditor's report by requesting from Nuveen a free copy of the fund's latest annual shareholder report. Kansas Municipal Bond Fund** Investment Operations Less Distributions -------------------------------------- ------------------------------ Class (Inception Date) Net Realized and Ending Ending Year Beginning Net Unrealized Net Net Net Ending Net Asset Investment Investment Investment Capital Asset Total Assets May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000) - ----------------------------------------------------------------------------------------------------------------------------------- Class A (1/92) 1998 $10.19 $.52 $ .41 $.93 $(.52) $ -- $(.52) $10.60 9.32% $102,217 1997 9.83 .53 .36 .89 (.53) -- (.53) 10.19 9.21 95,891 1996 10.01 .54 (.18) .36 (.54) -- (.54) 9.83 3.63 96,694 1995 9.83 .55 .18 .73 (.55) -- (.55) 10.01 7.80 83,683 1994 10.38 .56 (.46) .10 (.58) (.07)+ (.65) 9.83 .62 80,060 Class B (2/97) 1998 10.13 .44 .41 .85 (.44) -- (.44) 10.54 8.57 3,238 1997(c) 10.23 .13 (.12) .01 (.11) -- (.11) 10.13 .13 605 Class C (2/97) 1998 10.21 .47 .42 .89 (.47) -- (.47) 10.63 8.85 1,716 1997(c) 10.18 .15 .04 .19 (.16) -- (.16) 10.21 1.85 91 Class R (2/97) 1998 10.22 .56 .43 .99 (.55) -- (.55) 10.66 9.84 12 1997(c) 10.20 .18 (.02) .16 (.14) -- (.14) 10.22 1.55 -- - ------------------------------------------------------------------------------------------------------------------------------------ Ratios/Supplemental Data ---------------------------------------------- Class (Inception Date) Ratio of Net Ratio of Investment Expenses Income Year to Average to Average Portfolio Ending Net Net Turnover May 31, Assets(a) Assets(a) Rate - ---------------------------------------------------------------------- Class A (1/92) 1998 .71% 4.98% 13% 1997 .68 5.24 40 1996 .57 5.31 55 1995 .54 5.67 72 1994 .26 5.37 93 Class B (2/97) 1998 1.45 4.22 13 1997(c) 1.27* 4.62* 40 Class C (2/97) 1998 1.24 4.41 13 1997(c) 1.09* 4.85* 40 Class R (2/97) 1998 .51 5.16 13 1997(c) -- 6.61* 40 - ---------------------------------------------------------------------- * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Kansas. + The amounts shown reflect distributions in excess of capital gains of $.05 per share. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total Returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. Section 5 Financial Highlights 31 60 Kentucky Municipal Bond Fund** Investment Operations Less Distributions -------------------------------------- ----------------------------- Class (Inception Date) Net Realized and Ending Year Beginning Net Unrealized Net Net Net Ending Net Asset Investment Investment Investment Capital Asset Total Assets May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000) - ----------------------------------------------------------------------------------------------------------------------------------- Class A (5/87) 1998 $11.05 $.59 $ .38 $ .97 $(.58) $(.05) $(.63) $11.39 9.00% $451,338 1997 10.82 .60 .24 .84 (.60) (.01) (.61) 11.05 7.87 430,803 1996 10.99 .61 (.17) .44 (.61) -- (.61) 10.82 4.04 410,808 1995 10.65 .61 .35 .96 (.62) -- (.62) 10.99 9.42 394,457 1994 11.06 .62 (.40) .22 (.63) -- (.63) 10.65 1.90 369,495 Class B (2/97) 1998 11.06 .50 .38 .88 (.50) (.05) (.55) 11.39 8.10 4,273 1997(c) 11.07 .17 (.01) .16 (.17) -- (.17) 11.06 1.47 544 Class C (10/93) 1998 11.04 .52 .39 .91 (.52) (.05) (.57) 11.38 8.43 28,630 1997 10.81 .54 .24 .78 (.54) (.01) (.55) 11.04 7.29 24,468 1996 10.99 .54 (.17) .37 (.55) -- (.55) 10.81 3.38 20,647 1995 10.65 .55 .35 .90 (.56) -- (.56) 10.99 8.82 15,831 1994(c) 11.46 .36 (.81) (.45) (.36) -- (.36) 10.65 (5.88)* 11,172 Class R (2/97) 1998 11.03 .61 .39 1.00 (.61) (.05) (.66) 11.37 9.25 675 1997(c) 11.08 .20 (.04) .16 (.21) -- (.21) 11.03 1.42 455 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios/Supplemental Data -------------------------------------------- Class (Inception Date) Ratio of Net Ratio of Investment Expenses Income Year to Average to Average Portfolio Ending Net Net Turnover May 31, Assets(a) Assets(a) Rate - --------------------------------------------------------------------- Class A (5/87) 1998 .77% 5.19% 12% 1997 .75 5.44 13 1996 .71 5.50 17 1995 .68 5.85 28 1994 .58 5.60 12 Class B (2/97) 1998 1.54 4.38 12 1997(c) 1.39* 4.76* 13 Class C (10/93) 1998 1.33 4.63 12 1997 1.29 4.89 13 1996 1.27 4.93 17 1995 1.23 5.27 28 1994(c) 1.08* 4.96* 12 Class R (2/97) 1998 .58 5.37 12 1997(c) .49* 5.77* 13 - ---------------------------------------------------------------------- * Annualized. ** Information included prior to the fiscal year ended May 31, 1997 reflects the financial highlights of Flagship Kentucky. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. 32 Section 5 Financial Highlights 61 Kentucky Limited Term Municipal Bond Fund** Investment Operations Less Distributions -------------------------------------- --------------------------------- Class (Inception Date) Net Realized and Ending Ending Year Beginning Net Unrealized Net Net Net Ending Net Asset Investment Investment Investment Capital Asset Total Assets May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000) - ------------------------------------------------------------------------------------------------------------------------------------ Class A (9/95) 1998 9.92 $.44 $ .20 $.64 $(.44) $-- $(.44) $10.12 6.53% 8,989 1997 9.79 .45 .12 .57 (.44) -- (.44) 9.92 5.96 8,870 1996(c) 9.75 .31 .04 .35 (.31) -- (.31) 9.79 5.45* 8,389 Class C (9/95) 1998 9.92 .40 .20 .60 (.40) -- (.40) 10.12 6.17 2,416 1997 9.79 .41 .13 .54 (.41) -- (.41) 9.92 5.64 2,144 1997(c) 9.75 .29 .04 .33 (.29) -- (.29) 9.79 5.12* 1,767 Class R (2/97) 1998 9.92 .46 .18 .64 (.46) -- (.46) 10.10 6.58 16 1997(c) 9.98 .15 (.10) .05 (.11) -- (.11) 9.92 .56 -- - ------------------------------------------------------------------------------------------------------------------------------------ Ratios/Supplemental Data --------------------------------------- Class (Inception Date) Ratio of Net Ratio of Investment Expenses Income Year to Average to Average Portfolio Ending Net Net Turnover May 31, Assets(a) Assets(a) Rate - ------------------------------------------------------------ Class A (9/95) 1998 .66% 4.35% 36% 1997 .53 4.52 56 1996(c) .37* 4.37* 48 Class C (9/95) 1998 1.01 4.00 36 1997 .84 4.19 56 1997(c) .64* 4.12* 48 Class R (2/97) 1998 .46 4.54 36 1997(c) -- 5.73* 56 - ------------------------------------------------------------ * Annualized. ** Information included prior to the fiscal year ended May 31, 1997 reflects the financial highlights of Flagship Kentucky Limited Term. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. Section 5 Financial Highlights 33 62 Michigan Municipal Bond Fund** Investment Operations Less Distributions ------------------------------ ------------------------------------ Class (Inception Date) Net Realized and Ending Ending Year Beginning Net Unrealized Net Net Net Ending Net Asset Investment Investment Investment Capital Asset Total Assets May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000) - ------------------------------------------------------------------------------------------------------------------------------------ Class A (6/85) 1998 $11.68 $.61 $ .42 $1.03 $(.61) $(.03) $(.64) $12.07 8.95% $263,632 1997 11.37 .62 .31 .93 (.61) (.01) (.62) 11.68 8.42 59,055 1996 11.59 .63 (.22) .41 (.63) -- (.63) 11.37 3.61 248,422 1995 11.31 .65 .28 .93 (.65) -- (.65) 11.59 8.57 250,380 1994 11.77 .66 (.43) .23 (.66) (.03)+ (.69) 11.31 1.87 242,993 Class B (2/97) 1998 11.70 .52 .42 .94 (.52) (.03) (.55) 12.09 8.12 3,839 1997(c) 11.66 .17 .04 .21 (.17) -- (.17) 11.70 1.86 380 Class C (6/93) 1998 11.66 .54 .43 .97 (.54) (.03) (.57) 12.06 8.45 45,690 1997 11.35 .55 .32 .87 (.55) (.01) (.56) 11.66 7.84 41,649 1996 11.58 .56 (.22) .34 (.57) -- (.57) 11.35 2.96 41,365 1995 11.30 .58 .28 .86 (.58) -- (.58) 11.58 7.98 37,122 1994(c) 11.86 .54 (.52) .02 (.55) (.03)+ (.58) 11.30 .19* 30,042 Class R (2/97) 1998 11.68 .63 .42 1.05 (.63) (.03) (.66) 12.07 9.16 26,904 1997(c) 11.66 .21 .02 .23 (.21) -- (.21) 11.68 2.01 26,211 - ----------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data ------------------------------------------- Class (Inception Date) Ratio of Net Ratio of Investment Expenses Income Year to Average to Average Portfolio Ending Net Net Turnover May 31, Assets(a) Assets(a) Rate - ------------------------------------------------------------- Class A (6/85) 1998 .84% 5.11% 13% 1997 .85 5.33 34 1996 .82 5.42 54 1995 .80 5.82 37 1994 .75 5.56 28 Class B (2/97) 1998 1.59 4.32 13 1997(c) 1.59* 4.52* 34 Class C (6/93) 1998 1.39 4.56 13 1997 1.40 4.77 34 1996 1.37 4.86 54 1995 1.35 5.25 37 1994(c) 1.25* 4.89* 28 Class R (2/97) 1998 .64 5.31 13 1997(c) .65* 5.57* 34 - ------------------------------------------------------------- * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Michigan. + The amount shown includes a distribution in excess of capital gains of $.02 per share. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. 34 Section 5 Financial Highlights 63 Missouri Municipal Bond Fund** Investment Operations Less Distributions ------------------------------ ---------------------------- Class (Inception Date) Net Realized and Ending Year Beginning Net Unrealized Net Net Ending Net Asset Investment Investment Investment Capital Asset May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value - ------------------------------------------------------------------------------------------------------------------------- Class A (8/87) 1998 $10.80 $.56 $ .43 $ .99 $(.56) $ -- $(.56) $11.23 1997 10.51 .56 .29 .85 (.56) -- (.56) 10.80 1996 10.72 .58 (.21) .37 (.58) -- (.58) 10.51 1995 10.50 .60 .22 .82 (.60) -- (.60) 10.72 1994 10.87 .61 (.34) .27 (.61) (.03)+ (.64) 10.50 Class B (2/97) 1998 10.80 .47 .44 .91 (.48) -- (.48) 11.23 1997(c) 10.81 .16 (.01) .15 (.16) -- (.16) 10.80 Class C (2/94) 1998 10.80 .50 .43 .93 (.50) -- (.50) 11.23 1997 10.50 .51 .29 .80 (.50) -- (.50) 10.80 1996 10.72 .51 (.21) .30 (.52) -- (.52) 10.50 1995 10.50 .53 .23 .76 (.54) -- (.54) 10.72 1994(c) 11.33 .02 (.83) (.81) (.02) -- (.02) 10.50 Class R (2/97) 1998 10.80 .58 .43 1.01 (.58) -- (.58) 11.23 1997(c) 10.90 .17 (.12) .05 (.15) -- (.15) 10.80 Ratios/Supplemental Data -------------------------------- Ratio of Net Ratio of Investment Ending Expenses Income Year Net to Average to Average Portfolio Ending Total Assets Net Net Turnover May 31, Return(b) (000) Assets(a) Assets(a) Rate - --------------------------------------------------------------------------------------------------- Class A (8/87) 1998 9.32% $233,456 .87% 5.02% 19% 1997 8.29 218,924 .86 5.27 41 1996 3.51 212,717 .80 5.37 38 1995 8.19 205,089 .67 5.78 40 1994 2.42 187,347 .62 5.52 34 Class B (2/97) 1998 8.53 1,677 1.62 4.25 19 1997(c) 1.40 454 1.45* 4.59* 41 Class C (2/94) 1998 8.74 11,253 1.42 4.47 19 1997 7.80 7,968 1.40 4.72 41 1996 2.84 6,220 1.35 4.79 38 1995 7.60 3,989 1.20 5.19 40 1994(c) (17.62)* 1,877 1.15* 4.44* 34 Class R (2/97) 1998 9.56 41 .67 5.22 19 1997(c) .43 34 .55* 5.65* 41 - --------------------------------------------------------------------------------------------------- * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Missouri. + The amounts shown reflect distributions in excess of capital gains of $.01 per share for Missouri. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total Returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. Section 5 Financial Highlights 35 64 Ohio Municipal Bond Fund** Investment Operations Less Distributions ------------------------------ ---------------------------- Class (Inception Date) Net Realized and Ending Year Beginning Net Unrealized Net Net Ending Net Asset Investment Investment Investment Capital Asset May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value - ------------------------------------------------------------------------------------------------------------------------- Class A (6/85) 1998 $11.41 $.60 $ .38 $ .98 $(.60) $(.05) $(.65) $11.74 1997 11.21 .61 .20 .81 (.61) -- (.61) 11.41 1996 11.43 .62 (.21) .41 (.63) -- (.63) 11.21 1995 11.21 .64 .22 .86 (.64) -- (.64) 11.43 1994 11.59 .64 (.38) .26 (.64) -- (.64) 11.21 Class B (2/97) 1998 11.41 .51 .38 .89 (.52) (.05) (.57) 11.73 1997(c) 11.42 .17 (.01) .16 (.17) -- (.17) 11.41 Class C (8/93) 1998 11.41 .54 .37 .91 (.54) (.05) (.59) 11.73 1997 11.21 .55 .20 .75 (.55) -- (.55) 11.41 1996 11.43 .55 (.21) .34 (.56) -- (.56) 11.21 1995 11.20 .57 .23 .80 (.57) -- (.57) 11.43 1994(c) 11.69 .46 (.49) (.03) (.46) -- (.46) 11.20 Class R (2/97) 1998 11.41 .62 .37 .99 (.62) (.05) (.67) 11.73 1997(c) 11.42 .21 (.01) .20 (.21) -- (.21) 11.41 Ratios/Supplemental Data -------------------------------- Ratio of Net Ratio of Investment Ending Expenses Income Year Net to Average to Average Portfolio Ending Total Assets Net Net Turnover May 31, Return(b) (000) Assets(a) Assets(a) Rate - --------------------------------------------------------------------------------------------------- Class A (6/85) 1998 8.76% $472,821 .85% 5.15% 15% 1997 7.38 463,253 .89 5.39 17 1996 3.59 443,077 .92 5.41 31 1995 7.99 445,566 .95 5.78 31 1994 2.24 445,272 .93 5.48 9 Class B (2/97) 1998 7.89 7,422 1.61 4.39 15 1997(c) 1.45 1,649 1.60* 4.63* 17 Class C (8/93) 1998 8.12 47,036 1.40 4.60 15 1997 6.80 40,713 1.44 4.84 17 1996 3.03 34,939 1.47 4.84 31 1995 7.50 28,461 1.50 5.21 31 1994(c) (.17)* 25,674 1.46* 4.79* 9 Class R (2/97) 1998 8.89 162,220 .65 5.35 15 1997(c) 1.77 160,312 .65* 5.65* 17 - --------------------------------------------------------------------------------------------------- * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Ohio. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total Returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. 36 Section 5 Financial Highlights 65 Wisconsin Municipal Bond Fund** Investment Operations Less Distributions ------------------------------------- ----------------------------- Class (Inception Date) Net Realized and Ending Ending Year Beginning Net Unrealized Net Net Net Ending Net Asset Investment Investment Investment Capital Asset Total Assets May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000) - ---------------------------------------------------------------------------------------------------------------------------------- Class A (6/94) 1998 $9.80 $.49 $ .49 $ .98 $(.50) $ -- $(.50) $10.28 10.19% $24,313 1997 9.61 .51 .19 .70 (.51) -- (.51) 9.80 7.40 14,004 1996 9.79 .50 (.18) .32 (.50) -- (.50) 9.61 3.35 12,370 1995(c) 9.58 .49 .21 .70 (.49) -- (.49) 9.79 7.36* 8,278 Class B (2/97) 1998 9.82 .42 .49 .91 (.42) -- (.42) 10.31 9.46 1,877 1997(c) 9.87 .12 (.06) .06 (.11) -- (.11) 9.82 .60 20 Class C (2/97) 1998 9.82 .44 .49 .93 (.45) -- (.45) 10.30 9.59 1,366 1997(c) 9.87 .13 (.07) .06 (.11) -- (.11) 9.82 .65 76 Class R (2/97) 1998 9.82 .53 .48 1.01 (.52) -- (.52) 10.31 10.47 45 1997(c) 9.87 .15 (.07) .08 (.13) -- (.13) 9.82 .84 40 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data --------------------------------------------- Class (Inception Date) Ratio of Net Ratio of Investment Expenses Income Year to Average to Average Portfolio Ending Net Net Turnover May 31, Assets(a) Assets(a) Rate - -------------------------------------------------------------------- Class A (6/94) 1998 .55% 4.87% 10% 1997 .51 5.20 42 1996 .64 5.02 47 1995(c) .39* 5.25* 52 Class B (2/97) 1998 1.32 4.04 10 1997(c) .94* 4.81* 42 Class C (2/97) 1998 1.11 4.25 10 1997(c) .69* 4.91* 42 Class R (2/97) 1998 .32 5.08 10 1997(c) -- 5.67* 42 - --------------------------------------------------------------------- * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Wisconsin. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total Returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. Section 5 Financial Highlights 37 66 Appendix Additional State Information Because the funds primarily purchase municipal bonds from a specific state, each fund also bears investment risk from economic, political or regulatory changes that could adversely affect municipal bond issuers in that state and therefore the value of the fund's investment portfolio. The following discussion of special state considerations was obtained from official offering statements of these issuers and has not been independently verified by the funds. The discussion includes general state tax information related to an investment in fund shares. Because tax laws are complex and often change, you should consult your tax adviser about the state tax consequences of a specific fund investment. See the Statement of Additional Information for further information. KANSAS Growth in the State's trade, services and manufacturing sectors has decreased the historical dominance of agriculture in the State economy. Economic performance has been improving, due largely to gains in aircraft manufacturing and recovery in agriculture. Personal income grew at 5.4% in 1997 to $24,379, about 95% of the national median. The State's unemployment rate dropped to 3.5% in June 1998 from its peak of 5.5% in 1993. The Kansas State Treasury does not issue general obligation debt. The State instead relies on revenue and lease financing through the Department of Transportation (KDOT) and the Development Finance Authority (KDFA). KDFA provides financing for various public purpose projects including prison construction, state offices, energy conservation and university facilities. The KDOT bonds are rated Aa2/AA+/AA by Moody's, Standard & Poor's, and Fitch respectively. KDFA ratings vary and when not insured are generally rated A or better by the major rating agencies. Tax Treatment The Kansas Fund's regular monthly dividends will not be subject to Kansas personal income taxes to the extent they are paid out of income earned on all Kansas municipal bonds issued after December 31, 1987, on specified Kansas municipal bonds issued before that date, or on U.S. government securities. You will be subject to Kansas personal income taxes, however, to the extent the Kansas Fund distributes any taxable income or realized capital gains, or if you sell or exchange Kansas Fund shares and realize a capital gain on the transaction. The treatment of corporate shareholders of the Kansas Fund is similar to that described above. 38 Appendix 67 KENTUCKY Growth in Kentucky's economy surpassed national growth rates in many areas during the 1990's in part due to its lower cost of living and aggressive business recruitment. The Commonwealth's economic base is concentrated in manufacturing and service industries such as industrial machinery, electronics and apparel production and insurance and real estate. Kentucky's "Golden Triangle" bounded by Cincinnati, Lexington and Louisville has experienced the most intense economic growth. Kentucky's average unemployment rate in June 1998 was 4.4%, compared to the national average of 4.5% in June 1998 and the Commonwealth's 5.5% average in June 1997. Per capita income in 1997 was $20,657, approximately 81% of national average. In the past, the Commonwealth has experienced difficulty balancing its budget, but recent economic growth and moderate debt levels improve the Commonwealth's financial outlook. Although Kentucky has not issued general obligation debt since 1965, the Commonwealth actively issues appropriation-secured debt from several agencies, including the Kentucky Turnpike Authority, the Kentucky Infrastructure Authority, and the Kentucky Schools Facilities Construction Commission. Bonds secured by Commonwealth appropriations generally receive ratings of "A" or higher from the major rating services. All of Kentucky's general obligation debt matured in 1995. Like the Commonwealth, Kentucky Municipalities have not issued general obligation debt, relying instead on appropriation-secured bonds. TAX TREATMENT The Kentucky Funds' regular monthly dividends will not be subject to the Kentucky individual income tax to the extent they are paid out of income earned on Kentucky municipal bonds or U.S. government securities. You will be subject to Kentucky personal income tax, however, to the extent the Kentucky Funds distribute any taxable income or realized capital gains, or if you sell or exchange Kentucky Funds' shares and realize a capital gain on the transaction. You will not be subject to the Kentucky intangible property tax on the portion of your Kentucky Funds' shares that is attributable to Kentucky municipal bonds or U.S. government securities. If you are employed in Louisville or Jefferson County, you will not be subject to local occupational license fees on income earned from the Kentucky Funds. If you are employed elsewhere in Kentucky, you generally will not be subject to local occupational license fees. The treatment of corporate shareholders is similar to that described above, except that they may be subject to local occupational license fees. MICHIGAN Michigan's economy has improved significantly since the 1980's. The State's unemployment rate was 3.6% in June 1998, compared to national average of 4.5%. Per capita income has increased each year over the past decade, and was $25,560 in 1997. Population has remained stable in the State, increasing by a negligible amount annually. The manufacturing industry and the presence of the "Big 3" automobile manufacturers are the primary influence in the economy. Despite recent strikes and lower automobile sales and profits, the positive economic impact of the manufacturing industry has contributed to the tax base and job growth. Appendix 39 68 Michigan's economic and financial improvements are reflected in the state's rating of Aa1/AA+/AA+ by Moody's, Standard & Poor's and Fitch, respectively. All three rating agencies upgraded the State's credit rating in 1998. TAX TREATMENT The Michigan Fund's regular monthly dividends will not be subject to the Michigan individual income tax to the extent they are paid out of income earned on Michigan municipal bonds or paid out of income earned on or capital gains realized from, the sale of U.S. government securities. You will be subject to Michigan personal income tax, however, to the extent the Michigan Fund distributes any taxable income or realized capital gains (other than capital gains realized from the sale of U.S. government securities), or if you sell or exchange Michigan Fund shares and realize a capital gain on the transaction. If you reside in a Michigan city that imposes local income taxes, you will not be subject to these taxes on the Michigan Fund's distributions of income attributable to interest earned on U.S. government securities or municipal bonds, or to gains on the sale of U.S. government securities. The treatment of corporate shareholders of the Michigan Fund differs from that described above. Corporate shareholders should refer to the Statement of Additional Information for more detailed information. MISSOURI Missouri maintains a diversified economy, mirroring that of the nation. Although recent industry growth has shifted to services and tourism, defense and manufacturing are important elements of the State economy. Population in Missouri has increased approximately 5.6% from 1990. The State's unemployment rate has steadily declined from the high of 6.7% in 1991 and was 4.2% in June 1998, compared to the national average of 4.5%. Per capita income increased 4.4% during 1997 to $24,001, about 94% of the national average. Missouri retains substantial governmental balances through strategic budget management. The State's unreserved fund balance in 1997 was $1.2 billion, or 12.4% of General Fund revenues. Missouri's overall creditworthiness is reflected in its longstanding Aaa/AAA/AAA rating by Moody's Standard & Poors, and Fitch, respectively. TAX TREATMENT The Missouri Fund's regular monthly dividends will not be subject to the Missouri individual income tax to the extent they are paid out of income earned on Missouri municipal bonds or U.S. government securities. You will be subject to Missouri personal income tax, however, to the extent the Missouri Fund distributes any taxable income or realized capital gains, or if you sell or exchange Missouri Fund shares and realize a capital gain on the transaction. The treatment of corporate shareholders of the Missouri Fund is similar to that described above. 40 Appendix 69 OHIO The Ohio economy has historically relied on durable goods manufacturing, but recent growth has brought healthy diversification. Employment growth in recent years has been concentrated among non- manufacturing industries, with manufacturing employment tapering off since its 1969 peak. Still, manufacturing remains an important component of the State's economy, providing approximately 21% of total employment in Ohio compared with 15% of national employment. General economic activity in Ohio tends to be more cyclical than in non- industrialized states, but during the current national expansion it has had positive implications in Ohio. From 1990-1998, the State's unemployment rate ranked at or below the national average. Ohio's unemployment rate registered 4.5% in June 1998, comparable to the national average of 4.5% in June 1998, and slightly higher than the State's 4.4% rate in June 1997. Per capita income in 1997 was $24,661, approximately 96% of the national average. The State cannot by law operate with a deficit and has well- established procedures to ensure that appropriations and expenditures are matched by revenues from the General Revenue Fund. The State is currently working on revamping its school funding formula, which was deemed unconstitutional in March 1997 by the Ohio Supreme Court. Changes to the formula likely will require the State to increase its aid to local public schools, which could affect the State's financial position. Moody's gives Ohio general obligation bonds an Aa1 rating, while Standard & Poor's and Fitch each rate the State AA+. TAX TREATMENT The Ohio Fund's regular monthly dividends will not be subject to Ohio personal income tax, Ohio school district income taxes and Ohio municipal income taxes to the extent they are derived from interest on Ohio municipal bonds or U.S. government securities or attributable to gain made on the sale, exchange or other disposition by the Fund of Ohio municipal bonds. You will, however, be subject to Ohio personal income taxes, Ohio school district income taxes and Ohio municipal income taxes to the extent the Ohio Fund distributes any taxable income or realized capital gains (other than capital gains on Ohio municipal bonds), or if you sell or exchange Ohio Fund shares and realize a net gain on the transaction. The treatment of corporate shareholders of the Ohio Fund differs from that described above. Corporate shareholders should refer to the Statement of Additional Information for more detailed information and are urged to consult their tax adviser. WISCONSIN Wisconsin's economy is diverse and strong with non-agricultural employment evenly spread between the manufacturing, service and trade sectors. The State continues its efforts to attract new businesses with grants and loans for major development projects, labor training and technology development. Manufacturing remains a dominant sector at 24% and is currently a source of strength. Appendix 41 70 The State's unemployment rate was 3.0% in June 1998. Per capita income was $24,475 in 1997, about 96% of the national average. The State's general obligations receive Aa2/AA ratings from Moody's and Standard and Poor's, respectively. TAX TREATMENT The Wisconsin Fund's regular monthly dividends will not be subject to Wisconsin personal income tax to the extent they are paid out of income earned on certain Wisconsin municipal obligations or on U.S. government securities. You will be subject to Wisconsin personal income tax, to the extent the Wisconsin Fund distributes any taxable income or realized capital gains, or if you sell or exchange Wisconsin Fund shares and realize capital gains on the transaction. A certain portion of such capital gains, however, will be exempt from Wisconsin personal income tax. The treatment of corporate shareholders of the Wisconsin Fund differs from that described above. Corporate shareholders should refer to the Statement of Additional Information for more detailed information and are urged to consult their tax adviser. Appendix 71 NUVEEN MUTUAL FUNDS Nuveen offers a variety of mutual funds designed to help you reach your financial goals. The funds below are grouped by investment objectives. GROWTH Nuveen Rittenhouse Growth Fund GROWTH AND INCOME European Value Fund Growth and Income Stock Fund Balanced Stock and Bond Fund Balanced Municipal and Stock Fund TAX-FREE INCOME NATIONAL MUNICIPAL BOND FUNDS Long-term Insured Long-term Intermediate-term Limited-term STATE MUNICIPAL BOND FUNDS Arizona Louisiana North Carolina California/1/ Maryland Ohio Colorado Massachusetts/1/ Pennsylvania Connecticut Michigan Tennessee Florida Missouri Virginia Georgia New Jersey Wisconsin Kansas New Mexico Kentucky/2/ New York/1/ Several additional sources of information are available to you. The Statement of Additional Information (SAI), incorporated by reference into this prospectus, contains detailed information on fund policies and operation. Shareholder reports contain management's discussion of market conditions, investment strategies and performance results as of the fund's latest semi-annual or annual fiscal year end. Call Nuveen at (800) 257-8787 to request a free copy of any of these materials or other fund information. You may also obtain this and other fund information directly from the Securities and Exchange Commission (SEC). The SEC may charge a copying fee for this information. Visit the SEC on-line at http://www.sec.gov or in person at the SEC's Public Reference Room in Washington, D.C. Call the SEC at (800) SEC-0330 for room hours and operation. You may also request fund information by writing to the SEC's Public Reference Section, Washington, D.C. 20549. The funds' Investment Company file number is 811-07751. 1. Long-term and insured long-term portfolios. 2. Long-term and limited-term portfolios. NUVEEN John Nuveen & Co. Incorporated 333 West Wacker Drive Chicago, IL 60606-1286 (800) 257-8787 www.nuveen.com 72 NUVEEN FLAGSHIP KENTUCKY MUNICIPAL BOND FUND Relating to the Acquisition of Assets and Liabilities of Nuveen Flagship Kentucky Limited Municipal Bond Fund DATED: FEBRUARY , 1999 STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information provides information about the Nuveen Flagship Kentucky Municipal Bond Fund (the "Kentucky Fund" or a "Fund"), a series of the Nuveen Flagship Multistate Trust IV, an open-end investment company organized as a Massachusetts business trust ("Multistate Trust"), in addition to information contained in the Prospectus/Proxy Statement of the Kentucky Fund, dated February , 1999, which also serves as the proxy statement of the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund (the "Kentucky Limited Term" or a "Fund"), a series of the Multistate Trust, in connection with the issuance of Class A, C and R shares of the Kentucky Fund to shareholders of the Kentucky Limited Term Fund. This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus/ Proxy Statement, into which it has been incorporated by reference and which may be obtained by contacting the Funds located at 333 West Wacker Drive, Chicago, Illinois 60606, or by calling (312) 917-7700 or (800) 257-8787. TABLE OF CONTENTS PAGE PROPOSED REORGANIZATION OF THE KENTUCKY LIMITED TERM FUND... 1 ADDITIONAL INFORMATION ABOUT THE KENTUCKY AND KENTUCKY LIMITED TERM FUNDS........................................ 1 FINANCIAL STATEMENTS........................................ 1 Plan and Agreement of Reorganization........................ Exhibit A Statement of Additional Information for the Kentucky and Kentucky Limited Term Funds............................... Exhibit B Financial Statements for the Kentucky Fund and the Kentucky Limited Term Fund......................................... Exhibit C The Funds will provide, without charge, upon the written or oral request of any person to whom this Statement of Additional Information is delivered, a copy of any and all documents that have been incorporated by reference in the registration statement of which this Statement of Additional Information is a part. PROPOSED REORGANIZATION OF THE KENTUCKY LIMITED TERM FUND The shareholders of the Kentucky Limited Term Fund are being asked to approve an acquisition of all of the assets of the Kentucky Limited Term Fund solely in exchange for Class A, C and R shares of the Kentucky Fund and the Kentucky Fund's assumption of the liabilities of the Kentucky Limited Term Fund (the "Reorganization") pursuant to an Agreement and Plan of Reorganization by and between the Kentucky Fund and the Kentucky Limited Term Fund (the "Agreement"). A copy of the form of the Agreement is attached hereto as Exhibit A. ADDITIONAL INFORMATION ABOUT THE KENTUCKY AND KENTUCKY LIMITED TERM FUNDS Incorporated herein by reference in its entirety is the Statement of Additional Information of the Kentucky and Kentucky Limited Term Funds, dated September 30, 1998, attached as Exhibit B to this Statement of Additional Information. FINANCIAL STATEMENTS Incorporated herein by reference in their respective entireties are the unaudited financial statements for the six months ended November 30, 1998 and the audited financial statements for the Kentucky and Kentucky Limited Term Funds for the fiscal year ended May 31, 1998, attached as Exhibit C. 73 EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization (the "Agreement") is made as of December 18, 1998, by and between the Nuveen Flagship Kentucky Municipal Bond Fund (the "Acquiring Fund"), a series of the Nuveen Flagship Multistate Trust IV, a business trust formed under the laws of the Commonwealth of Massachusetts (the "Acquiring Fund Trust"), and the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund (the "Acquired Fund"), a series of the Nuveen Flagship Multistate Trust IV (the "Acquired Fund Trust"). WITNESSETH: WHEREAS, the Board of Trustees of the Acquiring Fund Trust and the Acquired Fund Trust, on behalf of the Acquiring Fund and Acquired Fund respectively, have determined that entering into this Agreement for the Acquiring Fund to acquire the assets and liabilities of the Acquired Fund is in the best interests of the shareholders of each respective fund; and WHEREAS, the parties intend that this transaction qualify as a reorganization within the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"); NOW, THEREFORE, in consideration of the mutual promises contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. PLAN OF TRANSACTION. A. Transfer of Assets. Upon satisfaction of the conditions precedent set forth in Sections 7 and 8 hereof, the Acquired Fund will convey, transfer and deliver to the Acquiring Fund at the closing, provided for in Section 2 hereof, all of the existing assets of the Acquired Fund (including accrued interest to the Closing Date), free and clear of all liens, encumbrances and claims whatsoever (the assets so transferred collectively being referred to as the "Assets"). B. Consideration. In consideration thereof, the Acquiring Fund agrees that on the Closing Date, defined in Section 2 hereof, the Acquiring Fund will (i) deliver to the Acquired Fund, full and fractional Class A, Class C and Class R shares of beneficial interest of the Acquiring Fund having aggregate net asset value in an amount equal to the aggregate value of Class A, Class C and Class R shares, respectively, of the Acquired Fund determined pursuant to Section 3A of this Agreement (collectively, the "Acquiring Fund Shares") and (ii) assume all of the Acquired Fund's liabilities as described in Section 3E hereof (the "Liabilities"). The calculation of full and fractional Class A, Class C and Class R shares of beneficial interest of the Acquiring Fund to be exchanged shall be carried out to no less than two (2) decimal places. The Acquiring Fund Shares shall consist of a number of full and fractional Class A, Class C and Class R shares of the Acquiring Fund that will permit the Acquired Fund to make the distribution described below. On the Closing Date, the Acquiring Fund shall deliver to the Acquired Fund the Acquiring Fund Shares in the Amount determined pursuant to this Section 1B and the Acquired Fund thereafter shall, in order to effect the distribution of such shares to the Acquired Fund's shareholders in liquidation of the Acquired Fund and in exchange for the shareholders' shares of the Acquired Fund, instruct the Acquiring Fund to register the pro rata interest in the Acquiring Fund Shares (in full and fractional shares) of each of the holders of record of shares of the Acquired Fund in accordance with their holdings of Class A, Class C or Class R shares of the Acquired Fund and shall provide as part of such instruction a complete and updated list of such holders (including addresses and taxpayer identification numbers), and the Acquiring Fund agrees promptly to comply with said instruction. The Acquiring Fund shall have no obligation to inquire as to the validity, propriety or correctness of such instruction, but shall assume that such instruction is valid, proper and correct. All Acquiring Fund Shares delivered to the Acquired Fund in exchange for such Assets shall be delivered at net asset value without sales load, commission or other similar fee being imposed. A-1 74 2. CLOSING OF THE TRANSACTION. Closing Date. The closing shall occur April 23, 1999 or such later date as soon as practicable thereafter, as the parties may mutually agree (the "Closing Date"). 3. PROCEDURE FOR REORGANIZATION. A. Valuation. The value of the Assets and Liabilities of the Acquired Fund to be transferred and assumed, respectively, by the Acquiring Fund shall be computed as of the Closing Date, in the manner set forth in the most recent Prospectus and Statement of Additional Information of the Acquiring Fund (collectively, the "Acquiring Fund Prospectus"), copies of which have been delivered to the Acquired Fund. B. Delivery of Fund Assets. The Assets shall be delivered to The Chase Manhattan Bank, 4 New York Plaza, New York 10004, as custodian for the Acquiring Fund (the "Custodian") for the benefit of the Acquiring Fund, duly endorsed in proper form for transfer in such condition as to constitute a good delivery thereof, free and clear of all liens, encumbrances and claims whatsoever, in accordance with the custom of brokers, and shall be accompanied by all necessary state stock transfer stamps, the cost of which shall be borne by the Acquired Fund. C. Failure to Deliver Securities. If the Acquired Fund is unable to make delivery pursuant to Section 3B hereof to the Custodian of any of the Acquired Fund's securities for the reason that any of such securities purchased by the Acquired Fund have not yet been delivered to it by the Acquired Fund's broker or brokers, then, in lieu of such delivery, the Acquired Fund shall deliver to the Custodian, with respect to said securities, executed copies of an agreement of assignment and due bills executed on behalf of said broker or brokers, together with such other documents as may be required by the Acquiring Fund or Custodian, including brokers' confirmation slips. D. Shareholder Accounts. The Acquiring Fund, in order to assist the Acquired Fund in the distribution of the Acquiring Fund Shares to the Acquired Fund shareholders after delivery of the Acquiring Fund Shares to the Acquired Fund, will establish pursuant to the request of the Acquired Fund an open account with the Acquiring Fund for each shareholder of the Acquired Fund and, upon request by the Acquired Fund, shall transfer to such account the exact number of full and fractional Class A, Class C and Class R shares of the Acquiring Fund then held by the Acquired Fund specified in the instruction provided pursuant to Section 2 hereof. The Acquiring Fund is not required to issue certificates representing Acquiring Fund Shares. Upon liquidation or dissolution of the Acquired Fund, certificates representing shares of beneficial interest stock of the Acquired Fund shall become null and void. E. Liabilities. The Liabilities shall include all of Acquired Fund's liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether or not determinable at the Closing Date, and whether or not specifically referred to in this Agreement. F. Expenses. In the event that the transactions contemplated herein are consummated the Acquired Fund agrees to pay (i) for the reasonable outside expenses of the Acquired Fund and the Acquiring Fund for the transactions contemplated herein which are solely and directly related to the reorganization; including, but not by way of limitation, the preparation of the Acquiring Fund Trust's Registration Statement on Form N-14 (the "Registration Statement") and the solicitation of the Acquired Fund shareholder proxies; (ii) the Acquired Fund's and Acquiring Fund's legal counsel's reasonable attorney's fees, which fees shall be payable pursuant to receipt of an itemized statement; and (iii) the cost of rendering the tax opinion, more fully referenced in Section 7F below. In the event that the transactions contemplated herein are not consummated for any reason, then all reasonable outside expenses of the Acquired Fund and the Acquiring Fund incurred to the date of termination of this Agreement shall be borne by the Acquired Fund. G. Liquidation and Dissolution. As soon as practicable after the Closing Date but in no event later than one year after the Closing Date, the Board of Trustees of the Acquired Fund Trust and the Acquired Fund shall A-2 75 take all necessary and proper action to completely liquidate and terminate the Acquired Fund as a series in accordance with Massachusetts law and the Trust's Declaration of Trust. Immediately after the Closing Date, the stock transfer books relating to the Acquired Fund shall be closed and no transfer of shares shall thereafter be made on such books. 4. ACQUIRED FUND'S REPRESENTATIONS AND WARRANTIES. The Acquired Fund hereby represents and warrants to the Acquiring Fund, which representations and warranties are true and correct on the date hereof, and agrees with the Acquiring Fund that: A. Organization. The Acquired Fund Trust is a Massachusetts Business Trust duly formed and in good standing under the laws of the State of Massachusetts and is duly authorized to transact business in the State of Massachusetts. The Acquired Fund is a separate series of the Acquired Fund Trust duly designated in accordance with the applicable provisions of the Acquired Fund Trust's Declaration of Trust. The Acquired Fund Trust and Acquired Fund are qualified to do business in all jurisdictions in which they are required to be so qualified, except jurisdictions in which the failure to so qualify would not have a material adverse effect on the Acquired Fund Trust or Acquired Fund. The Acquired Fund has all material federal, state and local authorizations necessary to own all of the properties and assets and to carry on its business as now being conducted, except authorizations which the failure to so obtain would not have a material adverse effect on the Acquired Fund. B. Registration. The Acquired Fund Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end management company and such registration has not been revoked or rescinded. The Acquired Fund is a nondiversified series of the Acquired Fund Trust. The Acquired Fund Trust and the Acquired Fund are in compliance in all material respects with the 1940 Act and the rules and regulations thereunder. All of the outstanding shares of beneficial interest of the Acquired Fund have been duly authorized and are validly issued, fully paid and nonassessable (except that shareholders of the Acquired Fund may under certain circumstances be held personally liable for its obligations) and not subject to pre-emptive or dissenters' rights. C. Audited Financial Statements. The statement of assets and liabilities and the portfolio of investments and the related statements of operations and changes in net assets of the Acquired Fund audited as of and for the fiscal year ended May 31, 1998, true and complete copies of which have been heretofore furnished to the Acquiring Fund, fairly represent the financial condition and the results of operations of the Acquired Fund as of and for their respective dates and periods in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved. D. Financial Statements. The Acquired Fund shall furnish to the Acquiring Fund (i) an unaudited statement of assets and liabilities and the portfolio of investments and the related statements of operations and changes in net assets of the Acquired Fund for the period ended November 30, 1998 and (ii) an unaudited statement of assets and liabilities as of and for the interim period ending on the Closing Date; such financial statements will represent fairly the financial position and portfolio of investments and the results of the Acquired Fund's operations as of, and for the period ending on, the dates of such statements in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved and the results of its operations and changes in financial position for the periods then ended; and such financial statements shall be certified by the Treasurer of the Acquired Fund as complying with the requirements hereof. E. Contingent Liabilities. There are no contingent Liabilities of the Acquired Fund not disclosed in the financial statements delivered pursuant to Sections 4C and 4D which would materially affect the Acquired Fund's financial condition, and there are no legal, administrative, or other proceedings pending or, to its knowledge, threatened against the Acquired Fund which would, if adversely determined, materially affect the Acquired Fund's financial condition. All Liabilities were incurred by the Acquired Fund in the ordinary course of its business. F. Material Agreements. The Acquired Fund is in compliance with all material agreements, rules, laws, statutes, regulations and administrative orders affecting its operations or its assets; and except as referred to in A-3 76 the Acquired Fund's Prospectus and Statement of Additional Information, there are no material agreements outstanding relating to the Acquired Fund to which the Acquired Fund is a party. G. Tax Returns. At the date hereof, all Federal and other material tax returns and reports of the Acquired Fund required by law to have been filed by such dates shall have been filed, and all Federal and other taxes shown thereon shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to any such return. H. Corporate Authority. The Acquired Fund has the necessary power to enter into this Agreement and to consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by the Acquired Fund Trust's Board of Trustees, and except for obtaining approval of the holders of the shares of the Acquired Fund, no other corporate acts or proceedings by the Acquired Fund are necessary to authorize this Agreement and the transactions contemplated herein. This Agreement has been duly executed and delivered by the Acquired Fund and constitutes the legal, valid and binding obligation of Acquired Fund enforceable in accordance with its terms. I. No Violation; Consents and Approvals. The execution, delivery and performance of this Agreement by the Acquired Fund does not and will not (i) violate any provision of the Acquired Fund Trust's Declaration of Trust or the Designation of Series of the Acquired Fund, (ii) violate any statute, law, judgment, writ, decree, order, regulation or rule of any court or governmental authority applicable to the Acquired Fund, (iii) result in a violation or breach of, or constitute a default under any material contract, indenture, mortgage, loan agreement, note, lease or other instrument or obligations to which the Acquired Fund is subject, or (iv) result in the creation or imposition or any lien, charge or encumbrance upon any property or assets of the Acquired Fund. No consent, approval, authorization, order or filing with or notice to any court or governmental authority or agency is required for the consummation by the Acquired Fund of the transactions contemplated by this Agreement and no consent of or notice to any third party or entity is required for the consummation by the Acquired Fund of the transactions contemplated by this Agreement (except such as have been obtained under the Securities Act of 1933 (the "Securities Act"), the 1940 Act or the rules and regulations thereunder and the filing of an amendment to the Trust's Designation of Series in connection with the termination of the Acquired Fund). J. Title. The Acquired Fund has good and marketable title to the Assets, free and clear of all liens, mortgages, pledges, encumbrances, charges, claims and equities whatsoever, other than a lien for taxes not yet due and payable, and full right, power and authority to sell, assign, transfer and deliver such Assets; upon delivery of such Assets, the Acquiring Fund will receive good and marketable title to such Assets, free and clear of all liens, mortgages, pledges, encumbrances, charges, claims and equities other than a lien for taxes not yet due and payable. K. Prospectus/Proxy Statement. The Registration Statement and the Prospectus/Proxy Statement contained therein as of the effective date of the Registration Statement, as amended or as supplemented if it shall have been amended or supplemented, conforms and will conform as it relates to the Acquired Fund, in all material respects. to he applicable requirements of the applicable Federal and state securities laws and the rules and regulations of the SEC thereunder, and do not and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representations or warranties in this Section 4K apply to statements or omissions made in reliance upon and in conformity with written information concerning the Acquiring Fund furnished to the Acquired Fund by the Acquiring Fund. L. Tax Qualification. The Acquired Fund has qualified or will qualify as a regulated investment company within the meaning of Section 851 of the Code for each of its taxable years ending on or prior to the Closing Date; and has satisfied or will satisfy the distribution requirements imposed by Section 852 of the Code for each of its taxable years on or prior to the Closing Date. A-4 77 M. Fair Market Value. The fair market value on a going concern basis of the Assets will equal or exceed the Liabilities to be assumed by the Acquiring Fund and those to which the Assets are subject. 5. THE ACQUIRING FUND'S REPRESENTATIONS AND WARRANTIES. The Acquiring Fund hereby represents and warrants to the Acquired Fund, which representations and warranties are true and correct on the date hereof, and agrees with the Acquired Fund that: A. Organization. The Acquiring Fund Trust is a Massachusetts Business Trust duly formed and in good standing under the laws of the State of Massachusetts and is duly authorized to transact business in the State of Massachusetts. The Acquiring Fund is a separate series of the Acquiring Fund Trust duly designated in accordance with the applicable provisions of the Acquiring Fund Trust's Declaration of Trust. The Acquiring Fund Trust and Acquiring Fund are qualified to do business in all jurisdictions in which they are required to be so qualified, except jurisdictions in which the failure to so qualify would not have a material adverse effect on either the Acquiring Fund Trust or Acquiring Fund. The Acquiring Fund has all material federal, state and local authorizations necessary to own all of the properties and assets and to carry on its business and the business thereof as now being conducted, except authorizations which the failure to so obtain would not have a material adverse effect on the Acquiring Fund. B. Registration. The Acquiring Fund Trust is registered under the 1940 Act as an open-end management company and such registration has not been revoked or rescinded. The Acquiring Fund is a diversified series of the Acquiring Fund Trust. The Acquiring Fund Trust and the Acquiring Fund are in compliance in all material respects with the 1940 Act and the rules and regulations thereunder. All of the outstanding shares of beneficial interest of the Acquiring Fund have been duly authorized and are validly issued, fully paid and non-assessable (except that shareholders of the Acquired Fund may under certain circumstances be held personally liable for its obligations) and not subject to pre-emptive or dissenters rights. C. Audited Financial Statements. The statement of assets and liabilities and the portfolio of investments and the related statements of operations and changes in net assets of the Acquiring Fund audited as of and for the fiscal year ended May 31, 1998, true and complete copies of which have been heretofore furnished to the Acquired Fund fairly represent the financial condition and the results of operations of the Acquiring Fund as of and for their respective dates and periods in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved. D. Financial Statements. The Acquiring Fund shall furnish to the Acquired Fund (i) an unaudited statement of assets and liabilities and the portfolio of investments and the related statements of operations and changes in net assets of the Acquiring Fund for the period ended November 30, 1998, and (ii) an unaudited statement of assets and liabilities as of and for the interim period ending on the Closing Date; such financial statements will represent fairly the financial position and portfolio of investments and the results of its operations as of, and for the period ending on, the dates of such statements in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved and the results of its operations and changes in financial position for the periods then ended; and such financial statements shall be certified by the Treasurer of the Acquiring Fund as complying with the requirements hereof. E. Contingent Liabilities. There are no contingent liabilities of the Acquiring Fund not disclosed in the financial statements delivered pursuant to Sections 5C and 5D which would materially affect the Acquiring Fund's financial condition, and there are no legal, administrative, or other proceedings pending or, to its knowledge, threatened against the Acquiring Fund which would, if adversely determined, materially affect the Acquiring Fund's financial condition. F. Material Agreements. The Acquiring Fund is in compliance with all material agreements, rules, laws, statutes, regulations and administrative orders affecting its operations or its assets; and except as referred to in the Acquiring Fund Prospectus and Statement of Additional Information there are no material agreements outstanding relating to the Acquiring Fund to which the Acquiring Fund is a party. A-5 78 G. Tax Returns. At the date hereof, all Federal and other material tax returns and reports of the Acquiring Fund required by law to have been filed by such dates shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquiring Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to any such return. H. Corporate Authority. The Acquiring Fund has the necessary power to enter into this Agreement and to consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by the Acquiring Fund's Board of Trustees, no other corporate acts or proceedings by the Acquiring Fund are necessary to authorize this Agreement and the transactions contemplated herein. This Agreement has been duly executed and delivered by the Acquiring Fund and constitutes a valid and binding obligation of the Acquiring Fund enforceable in accordance with its terms. I. No Violation; Consents and Approvals. The execution, delivery and performance of this Agreement by the Acquiring Fund does not and will not (i) violate any provision of the Acquiring Fund Trust's Declaration of Trust or the Designation of Series of the Acquiring Fund, (ii) violate any statute, law, judgment, writ, decree, order, regulation or rule of any court or governmental authority applicable to the Acquiring Fund or (iii) result in a violation or breach of, or constitute a default under, any material contract, indenture, mortgage, loan agreement, note, lease or other instrument or obligation to which the Acquiring Fund is subject, or (iv) result in the creation or imposition or any lien, charge or encumbrance upon any property or assets of the Acquiring Fund. No consent, approval, authorization, order or filing with or notice to any court or governmental authority or agency is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement and no consent of or notice to any third party or entity is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement (except such as have been obtained under the Securities Act, the 1940 Act or the rules and regulations thereunder and the filing of an amendment to the Trust's Designation of Series in connection with the termination of the Acquired Fund). J. Absence of Proceedings. There are no legal, administrative or other proceedings pending or, to its knowledge, threatened against the Acquiring Fund which would materially affect its financial condition. K. Shares of the Acquiring Fund Registration. The Acquiring Fund Shares to be issued pursuant to Section I hereof will be duly registered under the Securities Act and all applicable state securities laws. L. Shares of the Acquiring Fund: Authorization. The shares of beneficial interest of the Acquiring Fund to be issued pursuant to Section I hereof have been duly authorized and, when issued in accordance with this Agreement, will be validly issued and fully paid and non-assessable (except that shareholders of the Acquired Fund may under certain circumstances be held personally liable for its obligations) by the Acquiring Fund Trust and conform in all material respects to the description thereof contained in the Acquiring Fund's Prospectus furnished to the Acquired Fund. M. Registration Statement. The Registration Statement and the Prospectus/Proxy Statement contained therein as of the effective date of the Registration Statement, and at all times subsequent thereto up to and including the Closing Date, as amended or as supplemented if they shall have been amended or supplemented, conforms and will conform as it relates to the Acquiring Fund, in all material respects, to the applicable requirements of the applicable Federal securities laws and the rules and regulations of the SEC thereunder, and do not and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representations or warranties in this Section 5M apply to statements or omissions made in reliance upon and in conformity with written information concerning the Acquired Fund furnished to the Acquiring Fund by the Acquired Fund. A-6 79 N. Tax Qualification. The Acquiring Fund has qualified or will qualify as a regulated investment company within the meaning of Section 851 of the Code for each of its taxable years ending prior to the Closing Date and for its taxable year that includes the Closing Date; and has satisfied or will satisfy the distribution requirements imposed by Section 852 of the Code for each of its taxable years ending prior to the Closing Date and for its taxable year that includes the Closing Date. 6. COVENANTS. During the period from the date of this Agreement and continuing until the Closing Date the Acquired Fund and Acquiring Fund (except as expressly contemplated or permitted by this Agreement) agree as follows: A. Other Actions. The Acquired Fund and Acquiring Fund shall operate only in the ordinary course of business consistent with prior practice. No party shall take any action that would, or reasonably would be expected to, result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect. B. Government Filings; Consents. The Acquired Fund and Acquiring Fund shall file all reports required to be filed by the Acquired Fund and Acquiring Fund with the SEC between the date of this Agreement and the Closing Date and shall deliver to the other party copies of all such reports promptly after the same are filed. Except where prohibited by applicable statutes and regulations, each party shall promptly provide the other (or its counsel) with copies of all other filings made by such party with any state, local or federal government agency or entity in connection with this Agreement or the transactions contemplated hereby. Each of the Acquired Fund and the Acquiring Fund shall use all reasonable efforts to obtain all consents, approvals, and authorizations required in connection with the consummation of the transactions contemplated by this Agreement and to make all necessary filings with the Secretary of State of the State of Massachusetts. C. Preparation of the Registration Statement and the Prospectus/Proxy Statement. In connection with the Registration Statement and the Prospectus/Proxy Statement, each party hereto will cooperate with the other and furnish to the other the information relating to the Acquired Fund or Acquiring Fund, as the case may be, required by the Securities Act or the Exchange Act and the rules and regulations thereunder, as the case may be, to be set forth in the Registration Statement or the Prospectus/Proxy Statement, as the case may be. The Acquired Fund shall promptly prepare and provide the Prospectus/Proxy Statement to the Acquiring Fund and the Acquiring Fund shall promptly prepare and file with the SEC the Registration Statement, in which the Prospectus/Proxy Statement will be included as a prospectus. In connection with the Registration Statement, insofar as it relates to the Acquired Fund and its affiliated persons, the Acquiring Fund shall only include such information as is approved by the Acquired Fund for use in the Registration Statement. The Acquiring Fund shall not amend or supplement any such information regarding the Acquired Fund and such affiliates without the prior written consent of the Acquired Fund which consent shall not be unreasonably withheld or delayed. The Acquiring Fund shall promptly notify and provide the Acquired Fund with copies of all amendments or supplements filed with respect to the Registration Statement. The Acquiring Fund shall use all reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing. The Acquiring Fund shall also take any action (other than qualifying to do business in any jurisdiction in which it is now not so qualified) required to be taken under any applicable state securities laws in connection with the issuance of the Acquiring Fund's shares of beneficial interest in the transactions contemplated by this Agreement, and the Acquired Fund shall furnish all information concerning the Acquired Fund and the holders of the Acquired Fund's shares of beneficial interest as may be reasonably requested in connection with any such action. D. Access to Information. During the period prior to the Closing Date, the Acquired Fund shall make available to the Acquiring Fund a copy of each report, schedule, registration statement and other document (the "Documents") filed or received by it during such period pursuant to the requirements of Federal or state securities laws (other than Documents which such party is not permitted to disclose under applicable law). During the period prior to the Closing Date, the Acquiring Fund shall make available to the Acquired Fund each Document pertaining A-7 80 to the transactions contemplated hereby filed or received by it during such period pursuant to Federal or state securities laws (other than Documents which such party is not permitted to disclose under applicable law). E. Shareholders Meeting. The Acquired Fund shall call a meeting of the Acquired Fund shareholders to be held as promptly as practicable for the purpose of voting upon the approval of this Agreement and the transactions contemplated herein, and shall furnish a copy of the Prospectus/Proxy Statement and form of proxy to each shareholder of the Acquired Fund as of the record date for such meeting of shareholders. The Board shall recommend to the Acquired Fund shareholders approval of this Agreement and the transactions contemplated herein, subject to fiduciary obligations under applicable law. F. Coordination of Portfolios. The Acquired Fund and Acquiring Fund covenant and agree to coordinate the respective portfolios of the Acquired Fund and Acquiring Fund from the date of the Agreement up to and including the Closing Date in order that at Closing, when the Assets are added to the Acquiring Fund's portfolio, the resulting portfolio will meet the Acquiring Fund's investment objective, policies and restrictions, as set forth in the Acquiring Fund's Prospectus, a copy of which has been delivered to the Acquired Fund. G. Distribution of the Shares. At Closing the Acquired Fund covenants that it shall cause to be distributed the Acquiring Fund Shares in the proper pro rata amount for the benefit of Acquired Fund's shareholders and such that the Acquired Fund shall not continue to hold amounts of said shares so as to cause a violation of Section 12(d)(1) of the 1940 Act. The Acquired Fund covenants further that, pursuant to Section 3G, it shall liquidate and dissolve as promptly as practicable after the Closing Date. The Acquired Fund covenants to use all reasonable efforts to cooperate with the Acquiring Fund and the Acquiring Fund's transfer agent in the distribution of said shares. H. Brokers or Finders. Each of the Acquired Fund and the Acquiring Fund represents that no agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement, and each party shall hold the other harmless from and against any all claims, liabilities or obligations with respect to any such fees, commissions or expenses asserted by any person to be due or payable in connection with any of the transactions contemplated by this Agreement on the basis of any act or statement alleged to have been made by such first party or its affiliate. I. Additional Agreements. In case at any time after the Closing Date any further action is necessary or desirable in order to carry out the purposes of this Agreement the appropriate party or parties to this Agreement shall take all such necessary action. J. Public Announcements. For a period of time from the date of this Agreement to the Closing Date, the Acquired Fund and the Acquiring Fund will consult with each other before issuing any press releases or otherwise making any public statements with respect to this Agreement or the transactions contemplated herein and shall not issue any press release or make any public statement prior to such consultation, except as may be required by law or the rules of any national securities exchange on which such party's securities are traded. K. Tax Status of Reorganization. The intention of the parties is that the transaction will qualify as a reorganization within the meaning of Section 368(a) of the Code. Neither the Acquired Fund Trust, the Acquiring Fund Trust, the Acquiring Fund nor the Acquired Fund shall take any action, or cause any action to be taken (including, without limitation, the filing of any tax return) that is inconsistent with such treatment or results in the failure of the transaction to qualify as a reorganization within the meaning of Section 368(a) of the Code. At or prior to the Closing Date, the Acquired Fund Trust, the Acquiring Fund Trust, the Acquiring Fund and the Acquired Fund will take such action, or cause such action to be taken, as is reasonably necessary to enable Vedder, Price, Kaufman & Kammholz, counsel to the Acquired Fund, to render the tax opinion contemplated herein. L. Declaration of Dividend. At or immediately prior to the Closing Date, the Acquired Fund may declare and pay to its stockholders a dividend or other distribution in an amount large enough so that it will have A-8 81 distributed substantially all (and in any event not less than 98%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and realized net capital gain, if any, for the current taxable year through the Closing Date. 7. CONDITIONS TO OBLIGATIONS OF THE ACQUIRED FUND. The obligations of the Acquired Fund hereunder with respect to the consummation of the Reorganization are subject to the satisfaction, or written waiver by the Acquired Fund, of the following conditions: A. Acquired Fund Shareholder Approval. This Agreement and the transactions contemplated herein shall have been approved by the affirmative vote of the holders of at least a majority of the outstanding shares of beneficial interest in the Acquired Fund. B. Representations, Warranties and Agreements. Each of the representations and warranties of the Acquiring Fund contained herein shall be true in all material respects as of the Closing Date, and as of the Closing Date there shall have been no material adverse change in the financial condition, results of operations, business properties or assets of the Acquiring Fund, and the Acquired Fund shall have received a certificate of an authorized officer of the Acquiring Fund satisfactory in form and substance to the Acquired Fund so stating. The Acquiring Fund shall have performed and complied in all material respects with all agreements, obligations and covenants required by this Agreement to be so performed or complied with by it on or prior to the Closing Date. C. Registration Statement Effective. The Registration Statement shall have become effective and no stop orders under the Securities Act pertaining thereto shall have been issued. D. Regulatory Approval. All necessary approvals, registrations, and exemptions under federal and state securities laws shall have been obtained. E. No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the transactions contemplated by this Agreement shall be in effect, nor shall any proceeding by any state, local or federal government agency or entity asking any of the foregoing be pending. There shall not be any action taken or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated by this Agreement, which makes the consummation of the transactions contemplated by this Agreement illegal or which has a material adverse effect on business operations of the Acquiring Fund. F. Tax Opinion. The Acquired Fund shall have obtained an opinion from Vedder, Price, Kaufman & Kammholz, counsel for the Acquired Fund, dated as of the Closing Date, addressed to the Acquiring Fund Trust, Acquired Fund Trust, Acquired Fund and Acquiring Fund, that the consummation of the transactions set forth in this Agreement comply with the requirements of a reorganization as described in Section 368(a) of the Code, substantially in the form attached as Annex A. G. Opinion of Counsel. The Acquired Fund shall have received the opinion of Vedder, Price, Kaufman & Kammholz, counsel for the Acquiring Fund Trust and Acquiring Fund, dated as of the Closing Date, addressed to the Acquired Fund substantially in the form and to the effect that: (i) the Acquiring Fund Trust is duly organized and existing under the laws of the State of Massachusetts as a voluntary association with transferable shares of beneficial interest commonly referred to as a "Massachusetts business trust;" (ii) the Board of Trustees of the Acquiring Fund Trust has duly designated the Acquiring Fund as a series of the Acquiring Fund Trust pursuant to the terms of the Declaration of Trust of the Acquiring Fund Trust; (iii) the Acquiring Fund Trust is registered as an open-end management company under the 1940 Act; (iv) this Agreement and the reorganization provided for herein and the execution of this Agreement have been duly authorized and approved by all requisite action of the Acquiring Fund Trust and this Agreement has been duly executed and delivered by the Acquiring Fund Trust on behalf of the Acquiring Fund and (assuming the Agreement is a valid and binding obligation of the other parties A-9 82 thereto) is a valid and binding obligation of the Acquiring Fund, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar law affecting creditors' rights generally, or by general principals of equity (regardless of whether enforcement is sought in a proceeding at equity at law); (v) neither the execution or delivery by the Acquiring Fund Trust on behalf of the Acquiring Fund of this Agreement nor the consummation by the Acquiring Fund Trust or Acquiring Fund of the transactions contemplated thereby contravene the Acquiring Fund Trust's Declaration of Trust, or, to the best of their knowledge, violate any provision of any statute or any published regulation or any judgment or order disclosed to it by the Acquiring Fund Trust as being applicable to the Acquiring Fund Trust or the Acquiring Fund; (vi) to the best of their knowledge based solely on the certificate of an appropriate officer of the Acquiring Fund attached hereto, there is no pending or threatened litigation which would have the effect of prohibiting any material business practice or the acquisition of any material property or the conduct of any material business of the Acquiring Fund or might have a material adverse effect on the value of any assets of the Acquiring Fund, (vii) the Acquiring Fund's Shares have been duly authorized and upon issuance thereof in accordance with this Agreement will, subject to certain matters regarding the liability of a shareholder of a Massachusetts business trust, be validly issued, fully paid and nonassessable; (viii) except as to financial statements and schedules and other financial and statistical data included or incorporated by reference therein and subject to usual and customary qualifications with respect to Rule 10b-5 type opinions, as of the effective date of the Registration Statement filed pursuant to the Agreement, the portions thereof pertaining to the Acquiring Fund comply as to form in all material respects with the requirements of the Securities Act, the Securities Exchange Act and the 1940 Act and the rules and regulations of the SEC thereunder and no facts have come to counsel's attention which would cause them to believe that as of the effectiveness of the portions of the Registration Statement applicable to the Acquiring Fund, the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (ix) to the best of their knowledge and information and subject to the qualifications set forth below, the execution and delivery by the Acquiring Fund Trust on behalf of the Acquiring Fund of the Agreement and the consummation of the transactions therein contemplated do not require, under the laws of the States of Massachusetts and Illinois or the federal laws of the United States, the consent, approval, authorization, registration, qualification or order of, or filing with, any court or governmental agency or body (except such as have been obtained). Counsel need express no opinion, however, as to any such consent, approval, authorization, registration, qualification, order or filing (a) which may be required as a result of the involvement of other parties to the Agreement in the transactions contemplated by the Agreement because of their legal or regulatory status or because of any other facts specifically pertaining to them; (b) the absence of which does not deprive the Acquired Fund of any material benefit under the Agreement; or (c) which can be readily obtained without significant delay or expense to the Acquired Fund, without loss to the Acquired Fund of any material benefit under the Agreement and without any material adverse effect on the Acquired Fund during the period such consent, approval, authorization, registration, qualification or order was obtained. The foregoing opinion relates only to consents, approvals, authorizations, registrations, qualifications, orders or filings under (a) laws which are specifically referred to in this opinion, (b) laws of the States of Massachusetts and Illinois and the federal laws of the United States which, in counsel's experience, are normally applicable to transactions of the type provided for in the Agreement and (c) court orders and judgments disclosed to counsel by the Acquiring Fund Trust on behalf of the Acquiring Fund in connection with the opinion. In addition, although counsel need not specifically have considered the possible applicability to the Acquiring Fund Trust or the Acquiring Fund of any other laws, orders or judgments, nothing has come to their attention in connection with their representation of the Acquiring Fund Trust and the Acquiring Fund in this transaction that has caused them to conclude that any other consent, approval, authorization, registration, qualification, order or filing is required. In giving the opinions set forth above, counsel may state that it is relying on certificates of officers of the Acquiring Fund with regard to matters of fact and certain certificates and written statements of government officers with respect to the good standing of the Acquiring Fund and on the opinion of Bingham Dana LLP as to matters of Massachusetts law. H. Officer Certificates. The Acquired Fund shall have received a certificate of an authorized officer of the Acquiring Fund, dated as of the Closing Date, certifying that (i) the representations and warranties set forth in Section 5 are true and correct on the Closing Date, together with certified copies of the resolutions adopted by the Board of Trustees shall be furnished to the Acquired Fund and that (ii) from the date hereof through the Closing Date, there shall not have been any change in the business, results of operations, assets or financial condition or the A-10 83 manner of conducting the business of the Acquiring Fund, other than changes in the ordinary course of its business, which has had a material adverse effect on such business, results of operations, assets or financial condition. 8. CONDITIONS TO OBLIGATIONS OF ACQUIRING FUND. The obligations of the Acquiring Fund hereunder with respect to the consummation of the Reorganization are subject to the satisfaction, or written waiver by the Acquiring Fund of the following conditions: A. Acquired Fund Shareholder Approval. This Agreement and the transactions contemplated herein shall have been approved by the affirmative vote of the holders of at least a majority of the outstanding shares of beneficial interest of the Acquired Fund. B. Representations, Warranties and Agreements. Each of the representations and warranties of the Acquired Fund contained herein shall be true in all material respects as of the Closing Date, and as of the Closing Date there shall have been no material adverse change in the financial condition, results of operations, business, properties or assets of the Acquired Fund, and the Acquiring Fund shall have received a certificate of an authorized officer of the Acquired Fund satisfactory in form and substance to the Acquiring Fund so stating. The Acquired Fund shall have performed and complied in all material respects with all agreements, obligations and covenants required by this Agreement to be so performed or complied with by them on or prior to the Closing Date. C. Registration Statement Effective. The Registration Statement shall have become effective and no stop orders under the Securities Act pertaining thereto shall have been issued. D. Regulatory Approval. All necessary approvals, registrations, and exemptions under federal and state securities laws shall have been obtained. E. No Injunctions or Restraints, Illegality. No Injunction preventing the consummation of the transactions contemplated by this Agreement shall be in effect, nor shall any proceeding by any state, local or federal government agency or entity seeking any of the foregoing be pending. There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the transactions contemplated by this Agreement, which makes the consummation of the transactions contemplated by this Agreement illegal. F. Tax Opinion. The Acquiring Fund shall have obtained an opinion from Vedder, Price, Kaufman & Kammholz, counsel for the Acquired Fund, dated as of the Closing Date, addressed to the Acquiring Fund Trust, Acquired Fund Trust, Acquired Fund and Acquiring Fund, that the consummation of the transactions set forth in this Agreement comply with the requirements of a reorganization as described in Section 368(a) of the Code substantially in the form attached as Annex A. G. Opinion of Counsel. The Acquiring Fund shall have received the opinion of Vedder, Price, Kaufman & Kammholz, counsel for the Acquired Fund Trust and the Acquired Fund, dated as of the Closing Date, addressed to the Acquiring Fund, substantially in the form and to the effect that: (i) the Acquired Fund Trust is duly organized and existing under the laws of the State of Massachusetts as a voluntary association with transferable shares of beneficial interest commonly referred to as a "Massachusetts business trust;" (ii) the Board of Trustees of the Acquired Fund Trust has duly designated the Acquired Fund as a series of the Acquired Fund Trust pursuant to the terms of the Declaration of Trust of the Acquired Fund Trust; (iii) the Acquired Fund Trust is registered as an open-end management company under the 1940 Act; (iv) this Agreement and the reorganization provided for herein and the execution of this Agreement have been duly authorized by all requisite action of the Acquired Fund Trust and this Agreement has been duly executed and delivered by the Acquired Fund Trust on behalf of the Acquired Fund and (assuming the Agreement is a valid and binding obligation of the other parties thereto) is a valid and binding obligation of the Acquired Fund, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar law affecting creditors' rights generally, or by general principals of equity (regardless of whether enforcement is sought in a proceeding at equity or law); (v) neither the execution or delivery by the Acquired Fund Trust on behalf of the Acquired Fund of this Agreement nor the A-11 84 consummation by the Acquired Fund Trust or Acquired Fund of the transactions contemplated thereby contravene the Acquired Fund Trust's Declaration of Trust or, to their knowledge, violate any provision of any statute, or any published regulation or any judgment or order disclosed to them by the Acquired Fund Trust as being applicable to the Acquired Fund Trust or Acquired Fund; (vi) to their knowledge based solely on the certificate of an appropriate officer of the Acquired Fund attached thereto, there is no pending, or threatened litigation involving the Acquired Fund except as disclosed therein; (vii) except as to financial statements and schedules and other financial and statistical data included or incorporated by reference therein and subject to usual and customary qualifications with respect to Rule 10b-5 type opinions, as of the effective date of the Registration Statement filed pursuant to the Agreement, the portions thereof pertaining to the Acquired Fund comply as to form in all material respects with their requirements of the Securities Act, the Securities Exchange Act and the 1940 Act and the rules and regulations of the SEC thereunder and no facts have come to counsel's attention which cause them to believe that as of the effectiveness of the portions of the Registration Statement applicable to the Acquired Fund, the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (viii) to their knowledge and subject to the qualifications set forth below, the execution and delivery by the Acquired Fund Trust on behalf of the Acquired Fund of the Agreement and the consummation of the transactions therein contemplated do not require, under the laws of the States of Massachusetts or Illinois, or the federal laws of the United States, the consent, approval, authorization, registration, qualification or order of, or filing with, any court or governmental agency or body (except such as have been obtained under the Securities Act, the 1940 Act or the rules and regulations thereunder and the filing of an amendment to the Trust's Designation of Series in connection with the termination of the Acquired Fund.) Counsel need express no opinion, however, as to any such consent, approval, authorization, registration, qualification, order or filing (a) which may be required as a result of the involvement of other parties to the Agreement in the transactions contemplated by the Agreement because of their legal or regulatory status or because of any other facts specifically pertaining to them; (b) the absence of which does not deprive the Acquiring Fund of any material benefit under such agreements; or (c) which can be readily obtained without significant delay or expense to the Acquiring Fund, without loss to the Acquiring Fund of any material benefit under the Agreement and without any material adverse effect on them during the period such consent, approval authorization, registration, qualification or order was obtained. The foregoing opinion relates only to consents, approvals, authorizations, registrations, qualifications, orders or filings under (a) laws which are specifically referred to in the opinion, (b) laws of the States of Massachusetts or Illinois and the federal laws of the United States which, in our experience, are normally applicable to transactions of the type provided for in the Agreement and (c) court orders and judgments disclosed to counsel by the Acquired Fund in connection with the opinion. In addition, although counsel need not specifically considered the possible applicability to the Acquired Fund of any other laws, orders or judgments, nothing has come to their attention in connection with their representation of the Acquired Fund in this transaction that has caused them to conclude that any other consent, approval, authorization, registration, qualification, order or filing is required. In giving the opinion set forth above, counsel may state that it is relying on certificates of officers of the Acquired Fund with regard to matters of fact and certain certificates and written statutes of government officers with respect to the good standing of the Acquired Fund and on the opinion of Bingham Dana LLP as to matters of Massachusetts law. H. Shareholder List. The Acquired Fund shall have delivered to the Acquiring Fund an updated list of all shareholders of the Acquired Fund, as reported by the Acquired Fund's transfer agent, as of one (1) business day prior to the Closing Date with each shareholder's respective holdings in the Acquired Fund, taxpayer identification numbers, Form W-9 and last known address. I. Officer Certificates. The Acquiring Fund shall have received a certificate of an authorized officer of the Acquired Fund. dated as of the Closing Date, certifying that (i) the representations and warranties set forth in Section 4 are true and correct on the Closing Date, together with certified copies of the resolutions adopted by the Board of Trustees and shareholders and that (ii) from the date of this Agreement through the Closing Date, there shall not have been: (1) any change in the business, results of operations, assets, or financial condition or the manner of conducting the business of the Acquired Fund, other than changes in the ordinary course of its A-12 85 business, or any pending or threatened litigation, which has had or may have a material adverse effect on such business, results of operations, assets or financial condition; (2) issued any option to purchase or other right to acquire shares of the Acquired Fund granted by the Acquired Fund to any person other than subscriptions to purchase shares at net asset value in accordance with terms in the Prospectus for the Acquired Fund; (3) any entering into, amendment or termination of any contract or agreement by Acquired Fund, except as otherwise contemplated by this Agreement; (4) any indebtedness incurred, other than in the ordinary course of business, by the Acquired Fund for borrowed money or any commitment to borrow money entered into by the Acquired Fund; (5) any amendment of the Acquired Fund Trust's Declaration of Trust or Designation of Series of the Acquired Fund; or (6) any grant or imposition of any lien, claim, charge or encumbrance (other than encumbrances arising in the ordinary course of business with respect to covered options) upon any asset of the Acquired Fund other than a lien for taxes not yet due and payable. 9. AMENDMENT, WAIVER AND TERMINATION. A. The parties hereto may, by agreement in writing authorized by the Board, amend this Agreement at any time before or after approval thereof by the shareholders of the Acquired Fund, provided, however, that after receipt of Acquired Fund shareholder approval, no amendment shall be made by the parties hereto which would have a material adverse affect on the interests of the Acquired Fund's shareholders without obtaining Acquired Fund's shareholder approval thereof. B. At any time prior to the Closing Date, either of the parties may by written instrument signed by it (i) waive any inaccuracies in the representations and warranties made to it contained herein and (ii) waive compliance with any of the covenants or conditions made for its benefit contained herein. No delay on the part of either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, or any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. C. This Agreement may be terminated, and the transactions contemplated herein may be abandoned at any time prior to the Closing Date: (1) by the mutual consents of the Board of the Acquiring Fund Trust and Acquired Fund Trust on behalf of the Acquired Fund and Acquiring Fund, respectively; (2) by the Acquired Fund, if the Acquiring Fund breaches in any material respect any of its representations, warranties, covenants or agreements contained in this Agreement and fails to cure promptly such breach after receipt of notice thereof, (3) by the Acquiring Fund, if the Acquired Fund breaches in any material respect any of its representations, warranties, covenants or agreements contained in this Agreement and fails to cure promptly such breach after receipt of notice thereof, (4) by either the Acquired Fund or Acquiring Fund, if the Closing has not occurred on or prior to September 30, 1999 (provided that the rights to terminate this Agreement pursuant to this A-13 86 subsection (C)(4) shall not be available to any party whose failure to fulfill any of its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such date); 10. REMEDIES. In the event of termination of this Agreement by either or both of the Acquired Fund and Acquiring Fund pursuant to Section 9C, written notice thereof shall forthwith be given by the terminating party to the other party hereto, and this Agreement shall therefore terminate and become void and have no effect, and the transactions contemplated herein and thereby shall be abandoned, without further action by the parties hereto. However, this Section 10 shall not limit the remedies available for a breach of this Agreement prior to its termination. 11. SURVIVAL. The provisions set forth in Sections 10 and 16 hereof shall survive the termination of this Agreement for any cause whatsoever. The representations and warranties included or provided for herein, or in the Schedules or other instruments delivered or to be delivered pursuant hereto shall not survive the Closing Date. 12. NOTICES. All notices hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally or sent by registered mail or certified mail, postage prepaid. Notice to the Acquired Fund shall be addressed to the Acquired Fund c/o Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606, Attention: General Counsel, or at such other address as the Acquired Fund may designate by written notice to the Acquiring Fund. Notice to the Acquiring Fund shall be addressed to the Acquiring Fund c/o Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois, 60606, Attention: General Counsel, or at such other address and to the attention of such other person as the Acquiring Fund may designate by written notice to the Acquired Fund. Any notice shall be deemed to have been served or given as of the date such notice is delivered personally or mailed. 13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. This Agreement shall not be assigned by any party without the prior written consent of the other party hereto. 14. BOOKS AND RECORDS. The Acquired Fund and the Acquiring Fund agree that copies of the books and records of the Acquired Fund relating to the Assets including, but not limited to all files, records, written materials; e.g., closing transcripts, surveillance files and credit reports shall be delivered by the Acquired Fund to the Acquiring Fund at the Closing Date. In addition to, and without limiting the foregoing, the Acquired Fund and the Acquiring Fund agree to take such action as may be necessary in order that the Acquiring Fund shall have reasonable access to such other books and records as may be reasonably requested, all for three years after the Closing Date and for the last three tax years ending May 31, 1996, May 31, 1997, and May 31, 1998; namely, general ledger, journal entries, voucher registers; distribution journal; payroll register, monthly balance owing report; income tax returns; tax depreciation schedules; and investment tax credit basis schedules. 15. GENERAL. This Agreement supersedes all prior agreements between the parties (written or oral), is intended as a complete and exclusive statement of the terms of the Agreement between the parties and may not be amended, modified or changed or terminated orally. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been executed by the Acquired Fund and Acquiring Fund and delivered to each of the parties hereto. The A-14 87 headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. This Agreement is for the sole benefit of the parties thereto, and nothing in this Agreement, expressed or implied, is intended to confer upon any other person any rights or remedies under or by reason of this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without regard to principles of conflicts or choice of law. 16. LIMITATION OF LIABILITY. Consistent with the Acquiring Fund Trust's and the Acquired Fund Trust's Declarations of Trust, notice is hereby given and the parties hereto acknowledge and agree that this instrument is executed on behalf of the Trustees of each Trust on behalf of the Acquiring Fund and the Acquired Fund, respectively, as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees or shareholders of the Acquiring Fund Trust, Acquired Fund Trust, Acquiring Fund or Acquired Fund individually but binding only upon the assets and property of the Acquiring Fund or the Acquired Fund as the case may be. IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be executed and delivered by their duly authorized officers as of the day and year first written above. ACQUIRING FUND TRUST, on behalf of ACQUIRING FUND By: -------------------------------------------- Title: ----------------------------------------- Attest: ---------------------------- Title: ----------------------------- ACQUIRED FUND TRUST, on behalf of ACQUIRED FUND By: -------------------------------------------- Title: ----------------------------------------- Attest: ---------------------------- Title: ----------------------------- A-15 88 Annex A , 199__ Nuveen Flagship Kentucky Municipal Bond Fund 333 West Wacker Drive Chicago, IL 60606 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund 333 West Wacker Drive Chicago, IL 60606 Gentlemen: You have requested our opinion regarding certain federal income tax consequences of the proposed reorganization ("Reorganization") of Nuveen Flagship Kentucky Limited Term Municipal Bond Fund ("Acquired Fund"), a series of the Nuveen Flagship Multistate Trust IV (the "Trust"), an open-end investment company organized as a business trust under the laws of the Commonwealth of Massachusetts into Nuveen Flagship Kentucky Municipal Bond Fund ("Acquiring Fund"), a series of the Trust. The Reorganization contemplates the acquisition by the Acquiring Fund of substantially all the assets of the Acquired Fund in exchange for voting shares of beneficial interest ("shares") of the Acquiring Fund and the assumption by the Acquiring Fund of the Acquired Fund's liabilities. Thereafter, the shares of the Acquiring Fund will be distributed to the shareholders of the Acquired Fund and the Acquired Fund will be completely liquidated and terminated. The foregoing will be accomplished pursuant to an Agreement and Plan of Reorganization, dated as of December 18, 1998 (the "Plan"), entered into by the Acquired Trust, on behalf of the Acquired Fund, and the Acquiring Fund. In rendering this opinion, we have received and relied upon statements made to us by certain of your officers. We have also examined certificates of such officers and such other agreements, documents, and corporate records that have been made available to us and such other matters as we have deemed relevant for purposes of this opinion. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies and the authenticity of the originals of such latter documents. Our opinion is based, in part, on the assumption that the proposed Reorganization described herein will occur in accordance with the Plan and agreements and the facts and representations set forth or referred to in this opinion letter, and that such facts and representations are accurate as of the date hereof and will be accurate on the effective date of the Reorganization (the "Effective Time"). As more fully discussed below, we have also assumed in issuing our opinion that the shareholders of the Acquired Fund do not have any plan or intention to dispose of a certain number of the Acquiring Fund shares received by them in the Reorganization. We have undertaken no independent investigation of the accuracy of the facts, representations and assumptions set forth or referred to herein. For the purposes indicated above, and based upon the facts, assumptions and conditions as set forth herein, and the representations made to us by duly authorized officers on behalf of the Acquired Fund and the Acquiring Fund in a letter dated ____________, 1998, it is our opinion that: (1) The acquisition by the Acquiring Fund of substantially all the assets of the Acquired Fund in exchange solely for Acquiring Fund voting shares and the assumption by the Acquiring Fund of the Acquired Fund's liabilities, if any, followed by the distribution by the Acquired Fund of the Acquiring Fund shares to the shareholders of the Acquired Fund in exchange for their Acquired Fund shares in complete liquidation of the Acquired Fund, will constitute a "reorganization" within the meaning of Section 368 (a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), and the Acquiring Fund and A-1 89 Nuveen Flagship Kentucky Municipal Bond Fund Nuveen Flagship Kentucky Limited Term Municipal Bond Fund _______________, 199__ Page 2 the Acquired Fund will each be "a party to a reorganization" within the meaning of Section 368(b) of the Code; (2) The Acquired Fund shareholders will recognize no gain or loss upon the exchange of all of their Acquired Fund shares for Acquiring Fund shares in complete liquidation of the Acquired Fund (Code Section 354(a)(1)); (3) No gain or loss will be recognized by the Acquired Fund upon the transfer of substantially all its assets to the Acquiring Fund in exchange solely for Acquiring Fund shares and the assumption by the Acquiring Fund of the Acquired Fund's liabilities, if any, and with respect to the subsequent distribution of those Acquiring Fund shares to the Acquired Fund shareholders in complete liquidation of the Acquired Fund (Code Section 361); (4) No gain or loss will be recognized by the Acquiring Fund upon the acquisition of substantially all the Acquired Fund's assets in exchange solely for Acquiring Fund shares and the assumption of the Acquired Fund's liabilities, if any (Code Section 1032(a)); (5) The basis of the assets acquired by the Acquiring Fund will be, in each instance, the same as the basis of those assets immediately before the transfer when such assets were held by the Acquired Fund, and the holding period of such assets acquired by the Acquiring Fund will include the holding period thereof when such assets were held by the Acquired Fund (Code Sections 362(b) and 1223(2)); (6) The basis of the Acquiring Fund shares to be received by the Acquired Fund shareholders upon liquidation of the Acquired Fund will be, in each instance, the same as the basis of the Acquired Fund shares surrendered in exchange therefor (Code Section 358(a)(1)); and (7) The holding period of the Acquiring Fund shares to be received by the Acquired Fund shareholders will include the period during which the Acquired Fund shares to be surrendered in exchange therefor were held, provided such Acquired Fund shares were held as capital assets by those shareholders on the date of the exchange (Code Section 1223(1)). FACTS Our opinion is based upon the above referenced representations and the following facts and assumptions, any alteration of which could adversely affect our conclusions. The Acquired Fund has been registered and operated since it commenced operations as a series of an open-end, management investment company under the Investment Company Act of 1940, 15 U.S.C. Section 80a, et seq. (the "1940 Act"). The Acquired Fund has qualified and will qualify as a regulated investment company under Section 851 of the Code for each of its taxable years, and has distributed and will distribute all or substantially all its income so that it and its shareholders have been and will be taxed in accordance with Section 852 of the Code. A-2 90 Nuveen Flagship Kentucky Municipal Bond Fund Nuveen Flagship Kentucky Limited Term Municipal Bond Fund _______________, 199__ Page 3 The Acquiring Fund is registered, has operated, and will continue to operate an open-end, management investment company under the 1940 Act. It has qualified and will qualify as a regulated investment company under Section 851 of the Code for each of its taxable years and anticipates so qualifying for all future years, and has distributed and will distribute all or substantially all its income so that it and its shareholders will be taxed in accordance with Section 852 of the Code. Upon satisfaction of certain terms and conditions set forth in the Plan on or before the Effective Time, the following will occur: (a) the Acquiring Fund will acquire substantially all the assets of the Acquired Fund in exchange for the Acquiring Fund's assumption of substantially all the liabilities of the Acquired Fund and the issuance of Acquiring Fund shares to the Acquired Fund; (b) the Acquiring Fund shares will be distributed to the shareholders of the Acquired Fund in exchange for their Acquired Fund shares; and (c) the Acquired Fund will be dissolved and liquidated. The assets of the Acquired Fund to be acquired by the Acquiring Fund consist primarily of short and intermediate-term U.S. Government securities, cash and other securities held in the Acquired Fund's portfolio. As soon as practicable after the Effective Time, the Acquired Fund will be liquidated and will distribute the newly issued Acquiring Fund shares it receives pro rata to its shareholders of record in exchange for such shareholders' interests in the Acquired Fund. The liquidation and distribution will be accomplished by opening accounts on the books of the Acquiring Fund in the names of the shareholders of the Acquired Fund (on a class by class basis) and transferring to those shareholder accounts the pro rata number of Acquiring Fund shares of each respective class as was previously credited to the Acquired Fund on the books. As a result of the Reorganization, every shareholder of the Acquired Fund will own Acquiring Fund shares that will have an aggregate per share net asset value immediately after the Effective Time equal to the aggregate per share net asset value of that shareholder's Acquired Fund shares immediately prior to the Effective Time. Since the Acquiring Fund shares issued to the shareholders of the Acquired Fund will be issued at net asset value in exchange for the net assets of the Acquired Fund having a value equal to the aggregate per share net asset value of those Acquiring Fund shares so issued, the net asset value of the Acquiring Fund shares should remain virtually unchanged by the Reorganization. The management of the Acquired Fund has represented to us that, to the best of their knowledge, there is no current plan or intention on the part of any Acquired Fund shareholders to sell, exchange, or otherwise dispose of a number of Acquiring Fund shares received in the Reorganization that would reduce the ownership by shareholders of the Acquired Fund to a number of shares of Acquiring Fund having a value, as of the Effective Time, of less than 50 percent of all the formerly outstanding shares of the Acquired Fund as of the same time. In issuing our opinion, we have assumed that there is, in fact, no such plan or intention. If such assumption were inaccurate, it could adversely affect the opinions contained herein. In approving the Reorganization, the Board of Trustees of the Acquired Trust identified certain benefits that are likely to result from combining the funds, including administrative and operating efficiencies. The Board also considered the possible risks and costs of combining the funds and determined that the Reorganization is likely to provide benefits to the shareholders of the funds that outweigh the costs incurred. CONCLUSION Based on the foregoing, it is our opinion that the acquisition by the Acquiring Fund, pursuant to the Plan, of substantially all the assets and liabilities of the Acquired Fund in exchange for voting shares of the Acquiring Fund will qualify as a reorganization under Code Section 368(a)(1). A-3 91 Nuveen Flagship Kentucky Municipal Bond Fund Nuveen Flagship Kentucky Limited Term Municipal Bond Fund _______________, 199__ Page 4 Our opinions set forth above with respect to (1) the nonrecognition of gain or loss to the Acquired Fund and the Acquiring Fund, (2) the basis and holding period of the assets received by the Acquiring Fund, (3) the nonrecognition of gain or loss to the Acquired Fund shareholders upon the receipt of the Acquiring Fund shares, and (4) the basis and holding period of the Acquiring Fund shares received by the Acquired Fund shareholders, follow as a matter of law from the opinion that the acquisition under the Plan will qualify as a reorganization under Code Section 368(a)(1). The opinions expressed in this letter are based on the Code, the Income Tax Regulations promulgated by the Treasury Department thereunder and judicial authority reported as of the date hereof. We have also considered the position of the Internal Revenue Service (the "Service") reflected in published and private rulings. Although we are not aware of any pending changes to these authorities that would alter our opinions, there can be no assurances that future legislative or administrative changes, court decisions or Service interpretations will not significantly modify the statements or opinions expressed herein. Our opinions are limited to those federal income tax issues specifically considered herein and are addressed to and are only for the benefit of the Acquired Fund, the Acquired Trust and the Acquiring Fund. We do not express any opinion as to any other federal income tax issues, or any state or local law issues, arising from the transactions contemplated by the Plan. Although the discussion herein is based upon our best interpretation of existing sources of law and expresses what we believe a court would properly conclude if presented with these issues, no assurance can be given that such interpretations would be followed if they were to become the subject of judicial or administrative proceedings. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the use of our name under the captions "PROPOSAL 1. APPROVAL OF THE REORGANIZATION--The Proposed Reorganization--Certain Federal Income Tax Consequences" and "Legal Matters" in the Prospectus/Proxy Statement contained in such Registration Statement. In giving such consent, we do not thereby concede that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, A-4 92 SEPTEMBER 30, 1998 NUVEEN FLAGSHIP MULTISTATE TRUST IV NUVEEN FLAGSHIP KANSAS MUNICIPAL BOND FUND NUVEEN FLAGSHIP KENTUCKY MUNICIPAL BOND FUND NUVEEN FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND NUVEEN FLAGSHIP MICHIGAN MUNICIPAL BOND FUND NUVEEN FLAGSHIP MISSOURI MUNICIPAL BOND FUND NUVEEN FLAGSHIP OHIO MUNICIPAL BOND FUND NUVEEN FLAGSHIP WISCONSIN MUNICIPAL BOND FUND STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information is not a prospectus. This Statement of Additional Information should be read in conjunction with the Prospectuses of the Nuveen Flagship Multistate Trust IV dated September 30, 1998. The Prospectuses may be obtained without charge from certain securities representatives, banks, and other financial institutions that have entered into sales agreements with John Nuveen & Co. Incorporated, or from the Funds, by mailing a written request to the Funds, c/o John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois 60606 or by calling (800) 257-8787. TABLE OF CONTENTS PAGE ---- Investment Policies and Investment Portfolio............................... S-2 Management................................................................. S-13 Investment Adviser and Investment Management Agreement..................... S-24 Portfolio Transactions..................................................... S-25 Net Asset Value............................................................ S-26 Tax Matters................................................................ S-27 Performance Information.................................................... S-35 Additional Information on the Purchase and Redemption of Fund Shares....... S-43 Distribution and Service Plan.............................................. S-50 Independent Public Accountants and Custodian............................... S-52 Financial Statements....................................................... S-52 Appendix A--Ratings of Investments......................................... A-1 Appendix B--Description of Hedging Techniques.............................. B-1 The audited financial statements for each Fund's most recent fiscal year appear in the Funds' Annual Reports; each is included herein by reference. 93 INVESTMENT POLICIES AND INVESTMENT PORTFOLIO INVESTMENT POLICIES The investment objective and certain fundamental investment policies of each Fund are described in the Prospectus. Each of the Funds, as a fundamental policy, may not, without the approval of the holders of a majority of the shares of that Fund: (1) Invest in securities other than Municipal Obligations and short-term securities, as described in the Prospectus. Municipal Obligations are municipal bonds that pay interest that is exempt from regular federal, state and, in some cases, local income taxes. (2) Invest more than 5% of its total assets in securities of any one issuer, except this limitation shall not apply to securities of the United States Government, and to the investment of 25% of such Fund's assets. This limitation shall apply only to the Kentucky Municipal Bond Fund, the Michigan Municipal Bond Fund, and the Ohio Municipal Bond Fund. (3) Borrow money, except from banks for temporary or emergency purposes and not for investment purposes and then only in an amount not exceeding (a) 10% of the value of its total assets at the time of borrowing or (b) one-third of the value of the Fund's total assets including the amount borrowed, in order to meet redemption requests which might otherwise require the untimely disposition of securities. While any such borrowings exceed 5% of such Fund's total assets, no additional purchases of investment securities will be made by such Fund. If due to market fluctuations or other reasons, the value of the Fund's assets falls below 300% of its borrowings, the Fund will reduce its borrowings within 3 business days. To do this, the Fund may have to sell a portion of its investments at a time when it may be disadvantageous to do so. (4) Pledge, mortgage or hypothecate its assets, except that, to secure borrowings permitted by subparagraph (2) above, it may pledge securities having a market value at the time of pledge not exceeding 10% of the value of the Fund's total assets. (5) Issue senior securities as defined in the Investment Company Act of 1940, except to the extent such issuance might be involved with respect to borrowings described under item (3) above or with respect to transactions involving futures contracts or the writing of options within the limits described in the Prospectus and this Statement of Additional Information. (6) Underwrite any issue of securities, except to the extent that the purchase or sale of Municipal Obligations in accordance with its investment objective, policies and limitations, may be deemed to be an underwriting. (7) Purchase or sell real estate, but this shall not prevent any Fund from investing in Municipal Obligations secured by real estate or interests therein or foreclosing upon and selling such security. (8) Purchase or sell commodities or commodities contracts or oil, gas or other mineral exploration or development programs, except for transactions involving futures contracts within the limits described in the Prospectus and this Statement of Additional Information. (9) Make loans, other than by entering into repurchase agreements and through the purchase of Municipal Obligations or temporary investments in accordance with its investment objective, policies and limitations. S-2 94 (10) Make short sales of securities or purchase any securities on margin, except for such short-term credits as are necessary for the clearance of transactions. (11) Write or purchase put or call options, except to the extent that the purchase of a stand-by commitment may be considered the purchase of a put, and except for transactions involving options within the limits described in the Prospectus and this Statement of Additional Information. (12) Invest more than 25% of its total assets in securities of issuers in any one industry; provided, however, that such limitations shall not be applicable to Municipal Obligations issued by governments or political subdivisions of governments, and obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. (13) Purchase or retain the securities of any issuer other than the securities of the Fund if, to the Fund's knowledge, those trustees of the Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen Advisory"), who individually own beneficially more than 1/2 of 1% of the outstanding securities of such issuer, together own beneficially more than 5% of such outstanding securities. In addition, each Fund, as a non-fundamental policy, may not invest more than 15% of its net assets in "illiquid" securities, including repurchase agreements maturing in more than seven days. For the purpose of applying the limitations set forth in paragraph (2) above, an issuer shall be deemed the sole issuer of a security when its assets and revenues are separate from other governmental entities and its securities are backed only by its assets and revenues. Similarly, in the case of a non- governmental user, such as an industrial corporation or a privately owned or operated hospital, if the security is backed only by the assets and revenues of the non-governmental user, then such non-governmental user would be deemed to be the sole issuer. Where a security is also backed by the enforceable obligation of a superior or unrelated governmental entity or other entity (other than a bond insurer), it shall also be included in the computation of securities owned that are issued by such governmental or other entity. Where a security is guaranteed by a governmental entity or some other facility, such as a bank guarantee or letter of credit, such a guarantee or letter of credit would be considered a separate security and would be treated as an issue of such government, other entity or bank. Where a security is insured by bond insurance, it shall not be considered a security issued or guaranteed by the insurer; instead the issuer of such security will be determined in accordance with the principles set forth above. The foregoing restrictions do not limit the percentage of the Fund's assets that may be invested in securities insured by any single insurer. The foregoing restrictions and limitations, as well as a Fund's policies as to ratings of portfolio investments, will apply only at the time of purchase of securities, and the percentage limitations will not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of an acquisition of securities, unless otherwise indicated. The foregoing fundamental investment policies, together with the investment objective of each Fund, cannot be changed without approval by holders of a "majority of the Fund's outstanding voting shares." As defined in the Investment Company Act of 1940, this means the vote of (i) 67% or more of the Fund's shares present at a meeting, if the holders of more than 50% of the Fund's shares are present or represented by proxy, or (ii) more than 50% of the Fund's shares, whichever is less. The Nuveen Flagship Multistate Trust IV (the "Trust") is an open-end management series investment company organized as a Massachusetts business trust on July 1, 1996. Each of the Funds is an open-end management investment company organized as a series of the Nuveen Flagship Multistate Trust IV. The Trust is S-3 95 an open-end management series company under SEC Rule 18f-2. Each Fund is a separate series issuing its own shares. The Trust currently has seven series: the Nuveen Flagship Kansas Municipal Bond Fund (formerly the Flagship Kansas Triple Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen Flagship Kentucky Municipal Bond Fund (formerly the Flagship Kentucky Triple Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund (formerly the Flagship Kentucky Limited Term Municipal Bond Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen Flagship Michigan Municipal Bond Fund (formerly the Flagship Michigan Triple Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen Flagship Missouri Municipal Bond Fund (formerly the Flagship Missouri Double Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen Flagship Ohio Municipal Bond Fund (formerly the Flagship Ohio Double Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); and the Nuveen Flagship Wisconsin Municipal Bond Fund (formerly the Flagship Wisconsin Double Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust). Certain matters under the Investment Company Act of 1940 which must be submitted to a vote of the holders of the outstanding voting securities of a series company shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding voting securities of each Fund affected by such matter. The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and requires that notice of this disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust further provides for indemnification out of the assets and property of the Trust for all loss and expense of any shareholder personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself were unable to meet its obligations. The Trust believes the likelihood of these circumstances is remote. PORTFOLIO SECURITIES As described in the Prospectus, each of the Funds invests substantially all of its assets (at least 80%) in a portfolio of Municipal Obligations free from regular federal, state and, in some cases, local income tax in each Fund's respective state, which generally will be Municipal Obligations issued within the Fund's respective state. In general, Municipal Obligations include debt obligations issued by states, cities and local authorities to obtain funds for various public purposes, including construction of a wide range of public facilities such as airports, bridges, highways, hospitals, housing, mass transportation, schools, streets and water and sewer works. Industrial development bonds and pollution control bonds that are issued by or on behalf of public authorities to finance various privately-rated facilities are included within the term Municipal Obligations if the interest paid thereon is exempt from federal income tax. The investment assets of each Fund will consist of (1) Municipal Obligations which are rated at the time of purchase within the four highest grades (Baa or BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and Poor's Corporation ("S&P") or by Fitch Investors Service, Inc. ("Fitch"), (2) unrated Municipal Obligations which, in the opinion of Nuveen Advisory, have credit characteristics equivalent to bonds rated within the four highest grades by Moody's, S&P or Fitch, and (3) temporary investments as described below, the income from which may be subject to state income tax or to both federal and state income taxes. See Appendix A for more information about ratings by Moody's, S&P, and Fitch. S-4 96 As described in the Prospectus, each Fund may invest in Municipal Obligations that constitute participations in a lease obligation or installment purchase contract obligation (hereafter collectively called "lease obligations") of a municipal authority or entity. Although lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged, a lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although nonappropriation lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. A Fund will seek to minimize the special risks associated with such securities by only investing in those nonappropriation leases where Nuveen Advisory has determined that the issuer has a strong incentive to continue making appropriations and timely payment until the security's maturity. Some lease obligations may be illiquid under certain circumstances. Lease obligations normally provide a premium interest rate which along with regular amortization of the principal may make them attractive for a portion of the assets of the Funds. Obligations of issuers of Municipal Obligations are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to the laws enacted in the future by Congress, state legislatures or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon municipalities to levy taxes. There is also the possibility that, as a result of legislation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its Municipal Obligations may be materially affected. YEAR 2000 ISSUES The "Year 2000" problem refers to the fact that many computer programs use only the last two digits of a year, and do not recognize a year that begins with "20" instead of "19." If this problem is not corrected, computers could function improperly or not at all, which could affect the global economy. The SEC has urged securities issuers to disclose the steps they are taking to correct any Year 2000 problems. The Funds invest primarily in municipal securities. If municipal issuers do not correct any Year 2000 problems in a timely manner, they could experience problems in conducting their operations or in making payments on their securities, which could cause the value of these securities to decline. Municipal issuers could experience three types of Year 2000 problems. First, if an issuer's internal computer systems experience Year 2000 problems, this could disrupt an issuer's operations (such as its ability to collect local taxes or fees). Second, an issuer may rely on other parties for the payments that support its debt service, such as servicers that collect mortgage or student loan payments, and those third parties may have Year 2000 problems that interfere with their ability to forward payments to the issuer. Third, an issuer may have mechanical problems in sending payments to its securities holders. Nuveen Advisory is obtaining information about the Year 2000 readiness of the issuers of its portfolio securities as part of its ongoing surveillance of the creditworthiness of those issuers. PORTFOLIO TRADING AND TURNOVER The Funds will make changes in their investment portfolio from time to time in order to take advantage of opportunities in the municipal market and to limit exposure to market risk. The Funds may also engage to a limited extent in short-term trading consistent with their investment objective. Securities may be sold in anticipation of market decline or purchased in anticipation of market rise and later sold. In addition, a security may be sold and another of comparable quality purchased at approximately the same time to take advantage of what Nuveen Advisory believes to be a temporary disparity in the normal yield relationship between the two S-5 97 securities. Each Fund may make changes in its investment portfolio in order to limit its exposure to changing market conditions. Changes in a Fund's investments are known as "portfolio turnover." While it is impossible to predict future portfolio turnover rates, the annual portfolio turnover rate for each of the Funds is generally not expected to exceed 75%. However, each Fund reserves the right to make changes in its investments whenever it deems such action advisable and, therefore, a Fund's annual portfolio turnover rate may exceed 75% in particular years depending upon market conditions. The portfolio turnover rates for the 1997 and 1998 fiscal years for the Funds were: FISCAL YEAR 1997 1998 ----- ----- Nuveen Flagship Kansas Municipal Bond Fund................... 40% 13% Nuveen Flagship Kentucky Municipal Bond Fund................. 13% 12% Nuveen Flagship Kentucky Limited Term Municipal Bond Fund.... 56% 36% Nuveen Flagship Michigan Municipal Bond Fund................. 34% 13% Nuveen Flagship Missouri Municipal Bond Fund................. 41% 19% Nuveen Flagship Ohio Municipal Bond Fund..................... 17% 15% Nuveen Flagship Wisconsin Municipal Bond Fund................ 42% 10% WHEN-ISSUED SECURITIES Each Fund may purchase and sell Municipal Obligations on a when-issued or delayed delivery basis. When-issued and delayed delivery transactions arise when securities are purchased or sold with payment and delivery beyond the regular settlement date. (When-issued transactions normally settle within 15-45 days.) On such transactions the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment. The commitment to purchase securities on a when-issued or delayed delivery basis may involve an element of risk because the value of the securities is subject to market fluctuation, no interest accrues to the purchaser prior to settlement of the transaction, and at the time of delivery the market value may be less than cost. At the time a Fund makes the commitment to purchase a Municipal Obligation on a when-issued or delayed delivery basis, it will record the transaction and reflect the amount due and the value of the security in determining its net asset value. Likewise, at the time a Fund makes the commitment to sell a Municipal Obligation on a delayed delivery basis, it will record the transaction and include the proceeds to be received in determining its net asset value; accordingly, any fluctuations in the value of the Municipal Obligation sold pursuant to a delayed delivery commitment are ignored in calculating net asset value so long as the commitment remains in effect. The Funds will maintain designated readily marketable assets at least equal in value to commitments to purchase when-issued or delayed delivery securities, such assets to be segregated by the Custodian specifically for the settlement of such commitments. The Funds will only make commitments to purchase Municipal Obligations on a when-issued or delayed delivery basis with the intention of actually acquiring the securities, but the Funds reserve the right to sell these securities before the settlement date if it is deemed advisable. If a when-issued security is sold before delivery any gain or loss would not be tax- exempt. The Funds commonly engage in when-issued transactions in order to purchase or sell newly-issued Municipal Obligations, and may engage in delayed delivery transactions in order to manage operations more effectively. SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL OBLIGATIONS OF DESIGNATED STATES As described in the Prospectus, except for investments in temporary investments, each of the Funds will invest substantially all of its assets (at least 80%) in municipal bonds that are exempt from federal and state tax in that state ("Municipal Obligations"), generally Municipal Obligations issued in its respective state. Each Fund is therefore more susceptible to political, economic or regulatory factors adversely affecting issuers of Municipal Obligations in its state. Brief summaries of these factors are contained in the Prospectus. Set forth below is S-6 98 additional information that bears upon the risk of investing in Municipal Obligations issued by public authorities in the states of currently offered Funds. This information was obtained from official statements of issuers located in the respective states as well as from other publicly available official documents and statements. The Funds have not independently verified any of the information contained in such statements and documents. The information below is intended only as a general summary, and is not intended as a discussion of any specific factor that may affect any particular obligation or issuer. FACTORS PERTAINING TO KANSAS Growth in the State's trade, services and manufacturing sectors has decreased the historical dominance of agriculture in the State economy. Economic performance has been improving due largely to gains in aircraft manufacturing and recovery in agriculture. Personal income grew at 5.4% in 1997 to $24,379, after posting a 5.7% gain in 1996. Per capita income stands at about 95% of the national median. The State's unemployment rate dropped to 3.5% in June 1998 from its peak of 5.5% in 1993. The Kansas State Treasury does not issue general obligation debt. The state instead relies on revenue and lease financing through the Department of Transportation (KDOT) and the Development Finance Authority (KDFA). KDFA is the conduit for most state debt and provides financing for various public purpose projects including prison construction, state offices, energy conservation and university facilities. The KDOT bonds are rated Aa2/AA+/AA from Moody's, Standard & Poor's, and Fitch, respectively. KDFA ratings vary according to the underlying purpose and when not insured are generally rated A or better by the major rating agencies. FACTORS PERTAINING TO KENTUCKY Growth in Kentucky's economy surpassed national growth rates in many areas during the 1990's in part due to its lower cost of living and aggressive business recruitment. The Kentucky economy has continued to prosper under the same favorable circumstances that have propelled the national economy. The State's economic base is concentrated in manufacturing and service industries such as industrial machinery, electronics and apparel production and insurance and real estate. Kentucky's "Golden Triangle" bounded by Cincinnati, Lexington and Louisville has experienced the most intense economic growth. The strong growth in Kentucky's economy is expected to continue, although at a slightly more moderate rate. Kentucky's average unemployment rate in June 1998 was 4.4%, compared to the national average of 4.5% in June 1998 and the State's 5.5% average in June 1997. Per capita income in 1997 was $20,657, approximately 81% of the national average. In the past, the State has experienced difficulty balancing its budget, but recent economic growth and moderate debt levels improve the Commonwealth's financial outlook. General Fund revenues that exceeded projections and expenditures that remained within the budget enabled the State to maintain its Reserve Trust Fund balance of $200 million in fiscal 1997. Although Kentucky has not issued general obligation debt since 1965, the State actively issues appropriation-secured debt from several agencies, including the Kentucky Turnpike Authority, the Kentucky Infrastructure Authority, and the Kentucky Schools Facilities Construction Commission. Bonds secured by Commonwealth appropriations generally receive ratings of "A" or higher from the major rating services. All of Kentucky's general obligation debt matured in 1995. Like the State, Kentucky municipalities have not issued general obligation debt, relying instead on appropriation-secured bonds. FACTORS PERTAINING TO MICHIGAN Michigan's economy has improved significantly since the 1980's. The State's unemployment rate was 3.6% in June 1998, compared to the national average of 4.5%. Michigan's per capita income has increased each year over the past decade, surpassing that of the nation's in 1994 after years of lagging the national average. 1997 per S-7 99 capita income was $25,560. Population has remained stable in the State, increasing by a negligible amount annually. The manufacturing industry and the presence of the "Big 3" automobile manufacturers are the primary influence in the economy. Despite recent strikes and lower automobile sales and profits, the positive economic impact of the manufacturing industry has contributed to the tax base and job growth. Education in Michigan is a top priority. One of the state's most significant achievements was the enactment of Proposal A in 1994. To promote equality among school districts of varying wealth levels, funding for Michigan school districts shifted from local property taxes to state sales taxes. According to the fiscal year 1999 budget, no district will enjoy per pupil spending below $5,170, compared to an average spending of $5,090 per pupil prior to reform. Michigan's economic and financial improvements are reflected in the state's rating of Aa1/AA+/AA+ by Moody's, Standard & Poor's and Fitch, respectively. All three rating agencies upgraded the State's credit rating in 1998. FACTORS PERTAINING TO MISSOURI Missouri maintains a diversified economy, mirroring that of the nation. Although recent industry growth has shifted to services and tourism, defense and manufacturing are important elements of the state economy. McDonnell Douglas Corporation, one of the largest private employers in the state, employs approximately 25,000 people, with Chrysler and Ford each employing approximately 10,000 people. Population in Missouri has increased approximately 5.6% from 1990. The State's unemployment rate has steadily declined since the high of 6.7% in 1991 and was 4.2% in June 1998, compared to the national average of 4.5%. Per capita income increased 4.4% during 1997 to $24,001, which is about 94% of the national average. Missouri retains substantial governmental balances through strategic budget management. The State's unreserved fund balance in 1997 was $1.2 billion, or 12.4% of General Fund revenues. Missouri's overall creditworthiness is reflected in its long-standing Aaa/AAA/AAA rating by Moody's, S&P, and Fitch, respectively. FACTORS PERTAINING TO OHIO The Ohio economy has historically relied on durable goods manufacturing, but recent growth has brought healthy diversification. Employment growth in recent years has been concentrated among non-manufacturing industries, with manufacturing employment tapering off since its 1969 peak. Still manufacturing remains an important component of the State's economy, providing approximately 21% of total employment in Ohio compared with 15% of national employment. General economic activity in Ohio tends to be more cyclical than in non- industrialized states, but during the current national expansion it has had positive implications in Ohio. From 1990 to 1998, the State's unemployment rate ranked at or below the national average. Ohio's unemployment rate registered 4.5% in June 1998, comparable to the national average of 4.5% in June 1998 and slightly higher than the State's 4.4% rate in June 1997. Per capita income in 1997 was $24,661, approximately 96% of the national average. The State cannot by law operate with a deficit and has well-established procedures to ensure that appropriations and expenditures are matched by revenues from the General Revenue Fund. Recently, as a result of the State's strong economic performance and its financial management practices, the State has been able to accumulate sizable financial reserves that should help it address potential cyclical fluctuations. The State is S-8 100 currently working on revamping its school funding formula, which was deemed unconstitutional in March 1997 by the Ohio Supreme Court. Changes to the formula will likely require the State to increase its aid to local public schools, which could affect the State's financial position. Moody's gives Ohio general obligation bonds an Aa1 rating, while Standard & Poor's and Fitch each rate the State AA+. FACTORS PERTAINING TO WISCONSIN Wisconsin's economy is diverse and strong with non-agricultural employment evenly spread between the manufacturing, service and trade sectors. The State continues its efforts to attract new businesses with grants and loans for major development projects, labor training and technology development. Manufacturing remains a dominant sector at 24% and is currently a source of strength. The State's unemployment rate was 3.0% in June 1998. Per capita income was $24,475 in 1997, which is about 96% of the national average. The State's general obligations receive Aa2/AA ratings from Moody's and Standard and Poors, respectively. HEDGING AND OTHER DEFENSIVE ACTIONS Each Fund may periodically engage in hedging transactions. Hedging is a term used for various methods of seeking to preserve portfolio capital value of offsetting price changes in one investment through making another investment whose price should tend to move in the opposite direction. It may be desirable and possible in various market environments to partially hedge the portfolio against fluctuations in market value due to interest rate fluctuations by investment in financial futures and index futures as well as related put and call options on such instruments. Both parties entering into an index or financial futures contract are required to post an initial deposit of 1% to 5% of the total contract price. Typically, option holders enter into offsetting closing transactions to enable settlement in cash rather than take delivery of the position in the future of the underlying security. Each Fund will only sell covered futures contracts, which means that the Fund segregates assets equal to the amount of the obligations. These transactions present certain risks. In particular, the imperfect correlation between price movements in the futures contract and price movements in the securities being hedged creates the possibility that losses on the hedge by a Fund may be greater than gains in the value of the securities in such series, portfolio. In addition, futures and options markets may not be liquid in all circumstances. As a result, in volatile markets, a Fund may not be able to close out the transaction without incurring losses substantially greater than the initial deposit. Finally, the potential daily deposit requirements in futures contracts create an ongoing greater potential financial risk than do options transactions, where the exposure is limited to the cost of the initial premium. Losses due to hedging transactions will reduce yield. Net gains, if any, from hedging and other portfolio transactions will be distributed as taxable distributions to shareholders. No Fund will make any investment (whether an initial premium or deposit or a subsequent deposit) other than as necessary to close a prior investment if, immediately after such investment, the sum of the amount of its premiums and deposits would exceed 5% of such series' net assets. Each series will invest in these instruments only in markets believed by the investment adviser to be active and sufficiently liquid. For further information regarding these investment strategies and risks presented thereby, see Appendix B to this Statement of Additional Information. Each Fund reserves the right for liquidity or defensive purposes (such as thinness in the market for municipal securities or an expected substantial decline in value of long-term obligations), to temporarily invest up to 20% of its assets in obligations issued or guaranteed by the U.S. Government and its agencies or S-9 101 instrumentalities, including up to 5% in adequately collateralized repurchase agreements relating thereto. Interest on each instrument is taxable for Federal income tax purposes and would reduce the amount of tax-free interest payable to shareholders. TEMPORARY INVESTMENTS The Prospectus discusses briefly the ability of the Funds to invest a portion of their assets in federally tax-exempt or taxable "temporary investments." Temporary investments will not exceed 20% of a Fund's assets except when made for defensive purposes. The Funds will invest only in taxable temporary investments that are either U.S. Government securities or are rated within the highest grade by Moody's, S&P, or Fitch and mature within one year from the date of purchase or carry a variable or floating rate of interest. See Appendix A for more information about ratings by Moody's, S&P, and Fitch. The Funds may invest in the following federally tax-exempt temporary investments: Bond Anticipation Notes (BANs) are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds. The ability of an issuer to meet its obligations on its BANs is primarily dependent on the issuer's access to the long-term municipal bond market and the likelihood that the proceeds of such bond sales will be used to pay the principal and interest on the BANs. Tax Anticipation Notes (TANs) are issued by state and local governments to finance the current operations of such governments. Repayment is generally to be derived from specific future tax revenues. Tax anticipation notes are usually general obligations of the issuer. A weakness in an issuer's capacity to raise taxes due to, among other things, a decline in its tax base or a rise in delinquencies, could adversely affect the issuer's ability to meet its obligations on outstanding TANs. Revenue Anticipation Notes (RANs) are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes. In general, they also constitute general obligations of the issuer. A decline in the receipt of projected revenues, such as anticipated revenues from another level of government, could adversely affect an issuer's ability to meet its obligations on outstanding RANs. In addition, the possibility that the revenues would, when received, be used to meet other obligations could affect the ability of the issuer to pay the principal and interest on RANs. Construction Loan Notes are issued to provide construction financing for specific projects. Frequently, these notes are redeemed with funds obtained from the Federal Housing Administration. Bank Notes are notes issued by local government bodies and agencies as those described above to commercial banks as evidence of borrowings. The purposes for which the notes are issued are varied but they are frequently issued to meet short-term working capital or capital-project needs. These notes may have risks similar to the risks associated with TANs and RANs. Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term unsecured, negotiable promissory notes, issued by states, municipalities and their agencies. Payment of principal and interest on issues of municipal paper may be made from various sources, to the extent the funds are available therefrom. Maturities of municipal paper generally will be shorter than the maturities of TANs, BANs or RANs. There is a limited secondary market for issues of municipal paper. Certain Municipal Obligations may carry variable or floating rates of interest whereby the rate of interest is not fixed, but varies with changes in specified market rates or indices, such as a bank prime rate or a tax-exempt money market index. S-10 102 While these various types of notes as a group represent the major portion of the tax-exempt note market, other types of notes are occasionally available in the marketplace and the Funds may invest in such other types of notes to the extent permitted under their investment objective, policies and limitations. Such notes may be issued for different purposes and may be secured differently from those mentioned above. The Funds may also invest in the following taxable temporary investments: U.S. Government Direct Obligations are issued by the United States Treasury and include bills, notes and bonds. --Treasury bills are issued with maturities of up to one year. They are issued in bearer form, are sold on a discount basis and are payable at par value at maturity. --Treasury notes are longer-term interest bearing obligations with original maturities of one to seven years. --Treasury bonds are longer-term interest-bearing obligations with original maturities from five to thirty years. U.S. Government Agencies Securities--Certain federal agencies have been established as instrumentalities of the United States Government to supervise and finance certain types of activities. These agencies include, but are not limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Government National Mortgage Association, Export-Import Bank of the United States, and Tennessee Valley Authority. Issues of these agencies, while not direct obligations of the United States Government, are either backed by the full faith and credit of the United States or are guaranteed by the Treasury or supported by the issuing agencies' right to borrow from the Treasury. There can be no assurance that the United States Government itself will pay interest and principal on securities as to which it is not legally so obligated. Certificates of Deposit (CDs)--A certificate of deposit is a negotiable interest bearing instrument with a specific maturity. CDs are issued by banks in exchange for the deposit of funds and normally can be traded in the secondary market, prior to maturity. The Funds will only invest in U.S. dollar denominated CDs issued by U.S. banks with assets of $1 billion or more. Commercial Paper--Commercial paper is the term used to designate unsecured short-term promissory notes issued by corporations. Maturities on these issues vary from a few days to nine months. Commercial paper may be purchased from U.S. corporations. Other Corporate Obligations--The Funds may purchase notes, bonds and debentures issued by corporations if at the time of purchase there is less than one year remaining until maturity or if they carry a variable or floating rate of interest. Repurchase Agreements--A repurchase agreement is a contractual agreement whereby the seller of securities (U.S. Government or Municipal Obligations) agrees to repurchase the same security at a specified price on a future date agreed upon by the parties. The agreed upon repurchase price determines the yield during a Fund's holding period. Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. The Funds will only enter into repurchase agreements with dealers, domestic banks or recognized financial institutions that in the opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds is limited to the ability of the issuer to pay the agreed-upon repurchase price on the delivery date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a risk of loss of both principal and interest. In the event of default, the collateral may be sold but a Fund S-11 103 might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by a Fund may be delayed or limited. Nuveen Advisory will monitor the value of collateral at the time the transaction is entered into and at all times subsequent during the term of the repurchase agreement in an effort to determine that the value always equals or exceeds the agreed upon price. In the event the value of the collateral declined below the repurchase price, Nuveen Advisory will demand additional collateral from the issuer to increase the value of the collateral to at least that of the repurchase price. Each of the Funds will not invest more than 10% of its assets in repurchase agreements maturing in more than seven days. S-12 104 MANAGEMENT The management of the Trust, including general supervision of the duties performed for the Funds under the Investment Management Agreement, is the responsibility of its Board of Trustees. The Trust currently has eight trustees, two of whom are "interested persons" (as the term "interested persons" is defined in the Investment Company Act of 1940) and six of whom are "disinterested persons." The names and business addresses of the trustees and officers of the Trust and their principal occupations and other affiliations during the past five years are set forth below, with those trustees who are "interested persons" of the Trust indicated by an asterisk. POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS - ---------------- --- ----------- ---------------------- Timothy R. Schwertfeger* 49 Chairman and Chairman since July 1, 1996 of The John 333 West Wacker Drive Trustee Nuveen Company, John Nuveen & Co. Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.; prior thereto Executive Vice President and Director of The John Nuveen Company, John Nuveen & Co. Incorporated, Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.; Chairman and Director (since January 1997) of Nuveen Asset Management, Inc.; Director (since 1996) of Institutional Capital Corporation. Anthony T. Dean* 53 President and President since July 1, 1996 of The John 333 West Wacker Drive Trustee Nuveen Company, John Nuveen & Co. Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.; prior thereto, Executive Vice President and Director of The John Nuveen Company, John Nuveen & Co. Incorporated, Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.; President and Director (since January 1997) of Nuveen Asset Management, Inc.; Chairman and Director (since 1997) of Rittenhouse Financial Services, Inc. Robert P. Bremner 58 Trustee Private Investor and Management Consultant. 3725 Huntington Street, N.W. Washington, D.C. 20015 Lawrence H. Brown 64 Trustee Retired (August 1989) as Senior Vice 201 Michigan Avenue President of The Northern Trust Company. Highwood, IL 60040 Anne E. Impellizzeri 65 Trustee Executive Director of Manitoga (Center for 5 Peter Cooper Rd. Russel Wright's Design with Nature); New York, NY 10010 formerly President and Chief Executive Officer of Blanton-Peale Institute. S-13 105 POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS - ---------------- --- ----------- ---------------------- Peter R. 65 Trustee Adjunct Professor of Business and Economics, Sawers University of Dubuque, Iowa; Adjunct 22 The Professor, Lake Forest Graduate School of Landmark Management, Lake Forest, Illinois; Chartered Northfield, Financial Analyst; Certified Management IL 60093 Consultant. William J. 54 Trustee Senior Partner, Miller-Valentine Partners, Schneider Vice President, Miller-Valentine Group. 4000 Miller- Valentine Ct. P.O. Box 744 Dayton, OH 45401 Judith M. 50 Trustee Executive Director, Gaylord and Dorothy Stockdale Donnelley Foundation (since 1994); prior 35 East thereto, Executive Director, Great Lakes Wacker Dr. Protection Fund (from 1990 to 1994). Suite 2600 Chicago, IL 60601 Alan G. 37 Vice President and Vice President and General Counsel (since Berkshire Assistant Secretary September 1997) and Secretary (since May 333 West 1998) of The John Nuveen Company, John Wacker Nuveen & Co. Incorporated, Nuveen Advisory Drive Corp. and Nuveen Institutional Advisory Chicago, Corp., prior thereto, Partner in the law IL 60606 firm of Kirkland & Ellis. Michael S. 41 Vice President Vice President of Nuveen Advisory Corp. Davern (since January 1997); prior thereto, Vice 333 W. President and Portfolio Manager of Flagship Wacker Financial. Drive Chicago, IL 60606 Lorna C. 53 Vice President Vice President of John Nuveen & Co. Ferguson Incorporated; Vice President (since January 333 West 1998); of Nuveen Advisory Corp. and Nuveen Wacker Institutional Advisory Corp. Drive Chicago, IL 60606 William M. 34 Vice President Vice President of Nuveen Advisory Corp. Fitzgerald (since December 1995); Assistant Vice 333 West President of Nuveen Advisory Corp. (from Wacker September 1992 to December 1995), prior Drive thereto, Assistant Portfolio Manager of Chicago, Nuveen Advisory Corp. IL 60606 Stephen D. 44 Vice President and Vice President of John Nuveen & Co. Foy Controller Incorporated. 333 West Wacker Drive Chicago, IL 60606 J. Thomas 43 Vice President Vice President of Nuveen Advisory Corp. Futrell 333 West Wacker Drive Chicago, IL 60606 Richard A. 35 Vice President Vice President of Nuveen Advisory Corp. Huber (since January 1997); prior thereto Vice 333 West President and Portfolio Manager of Flagship Wacker Financial. Drive Chicago, IL 60606 S-14 106 POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS - ---------------- --- ----------- ---------------------- Steven J. 41 Vice President Vice President of Nuveen Advisory Corp. Krupa 333 West Wacker Drive Chicago, IL 60606 Larry W. 47 Vice President Vice President, Assistant Secretary and Martin Assistant General Counsel of John Nuveen & 333 West Co. Incorporated; Vice President and Wacker Drive Assistant Secretary of Nuveen Advisory Chicago, IL Corp.; Vice President and Assistant 60606 Secretary of Nuveen Institutional Advisory Corp.; Assistant Secretary of The John Nuveen Company. Edward F. 33 Vice President Vice President (since September 1996), Neild, IV previously Assistant Vice President (since 333 West December 1993) of Nuveen Advisory Corp., Wacker Drive portfolio manager prior thereto; Vice Chicago, IL President (since September 1996), previously 60606 Assistant Vice President (since May 1995) of Nuveen Institutional Advisory Corp., portfolio manager prior thereto. Stephen S. 40 Vice President Vice President (since September 1997), Peterson previously Assistant Vice President (since 333 West September 1996) of Nuveen Advisory Corp., Wacker Drive Portfolio Manager prior thereto. Chicago, IL 60606 Stuart W. 42 Vice President Vice President of John Nuveen & Co. Rogers Incorporated 333 West Wacker Drive Chicago, IL 60606 Thomas C. 47 Vice President Vice President of Nuveen Advisory Corp. and Spalding, Jr. Nuveen Institutional Advisory Corp.; 333 West Chartered Financial Analyst. Wacker Drive Chicago, IL 60606 H. William 64 Vice President Vice President and Treasurer of The John Stabenow Nuveen Company, John Nuveen & Co. 333 West Incorporated, Nuveen Advisory Corp. and Wacker Drive Nuveen Institutional Advisory Corp. Chicago, IL 60606 William S. 33 Vice President Vice President of John Nuveen & Co. Swanson Incorporated (since October 1997), prior 333 West thereto, Assistant Vice President (since Wacker Drive September 1996); formerly, Associate of John Chicago, IL Nuveen & Co. Incorporated. 60606 Gifford R. 42 Vice President Vice President, Assistant Secretary and Zimmerman and Secretary Associate General Counsel of John Nuveen & 333 West Co. Incorporated; Vice President and Wacker Drive Assistant Secretary of Nuveen Advisory Chicago, IL Corp.; Vice President and Assistant 60606 Secretary of Nuveen Institutional Advisory Corp; Assistant Secretary of The John Nuveen Company (since May 1994). S-15 107 Anthony Dean, Peter Sawers and Timothy Schwertfeger serve as members of the Executive Committee of the Board of Trustees. The Executive Committee, which meets between regular meetings of the Board of Trustees, is authorized to exercise all of the powers of the Board of Trustees. The trustees of the Trust are directors or trustees, as the case may be, of 37 Nuveen open-end funds and 52 Nuveen closed-end funds advised by Nuveen Advisory Corp. The following table sets forth compensation paid by the Trust to each of the trustees of the Trust and the total compensation paid to each trustee during the fiscal year ended May 31, 1998. The Trust has no retirement or pension plans. The officers and trustees affiliated with Nuveen serve without any compensation from the Trust. TOTAL AGGREGATE COMPENSATION COMPENSATION FROM TRUST AND FROM THE SERIES FUND COMPLEX NAME OF TRUSTEE OF THIS TRUST PAID TO TRUSTEES --------------- --------------- ---------------- Robert P. Bremner........................ $6,010 $66,446 Lawrence H. Brown........................ $6,484 $79,000 Anne E. Impellizzeri..................... $6,010 $73,000 Margaret K. Rosenheim*................... $2,277(1) $29,506(2) Peter R. Sawers.......................... $6,010 $73,000 William J. Schneider..................... $6,010 $66,446 Judith M. Stockdale**.................... $4,223 $49,000 - -------- *Former trustee; retired July 1997. **Elected to the Board in July 1997. (1) Includes $52 in interest accrued on deferred compensation from prior years. (2) Includes $1,256 in interest accrued on deferred compensation from prior years. Each trustee who is not affiliated with Nuveen or Nuveen Advisory receives a fee. The Trust requires no employees other than its officers, all of whom are compensated by Nuveen. The officers and directors of each Fund, in the aggregate, own less than 1% of the shares of the Fund. The following table sets forth the percentage ownership of each person, who, as of September 1, 1998, owns of record, or is known by Registrant to own of record or beneficially 5% or more of any class of a Fund's shares. PERCENTAGE NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP - ---------------------- ------------------------- ------------ Nuveen Flagship Kansas Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 14.68% Class A Shares............ for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 PaineWebber for the benefit of 6.46 Sonya Ropfogel and Leonard Ropfogel Ttees Leonard Dated 8/20/81 155 N. Market, Suite 1000 Wichita KS 67202-1824 S-16 108 PERCENTAGE NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP - ---------------------- ------------------------- ------------ Nuveen Flagship Kansas Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 24.69% Class B Shares............ for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Prudential Securities Inc. FBO 7.02 Frank F. Castellano Patricia J. Castellano JT TEN 14032 Hayes St. Overland Park KS 66221-2013 Prudential Securities Inc. FBO 5.15 Anna Smisor Smith TTEE Anna Smisor Smith Living Trust UA DTD 05-18-87 PO Box 125 Sterling KS 67579-0125 Nuveen Flagship Kansas Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 35.33 Class C Shares............ for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 PaineWebber for the Benefit of 11.95 William C. Loewen Joyce A. Loewen JT WROS 312 Wind Rows Lake Dr Goddard KS 67052-9410 Mike Carter 6.60 Jennifer Carter JT TEN Special Funds Account 11300 Valley HI Wichita KS 67209-1041 Nuveen Flagship Kansas Municipal Bond Fund Donaldson Lufkin & Jenrette 75.11 Class R Shares............ Secs Corp PO Box 2052 Jersey City NJ 07303-2052 Alan K. Saunders 22.97 6616 W. 132nd St. Overland Park KS 66209-3929 S-17 109 PERCENTAGE NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP - ---------------------- ------------------------- ------------ Nuveen Flagship Kentucky Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 10.31% Class A Shares......... for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Nuveen Flagship Kentucky Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 16.16 Class B Shares......... for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Prudential Securities Inc. FBO 8.85 Mayne Bush Jett 13 Deepwood Dr. Lexington KY 40505-2105 NFSC FEBO A74-023639 5.64 Elizabeth S. Cuckler, Richard T. Cuckler 2813 Deerfield Dr. Covington KY 41017-4471 Nuveen Flagship Kentucky Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 33.77 Class C Shares......... for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Nuveen Flagship Kentucky Municipal Bond Fund Ronald G. Barlow 69.86 Class R Shares......... Nancy Barlow JT TEN 10136 Scale Rd. Bentok KY 42025-6748 Edward D. Jones & Co. FAO 7.80 Joseph E. Knight EDJ 421-04756-1-4 PO Box 2500 Maryland Heights MO 63043-8500 Hugh M. Cohen 7.71 3005 Aubert Ave. Louisville KY 40206-2601 Shelley Cohen 7.71 3005 Aubert Ave. Louisville KY 40206-2601 S-18 110 PERCENTAGE NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP - ---------------------- ------------------------- ------------ Nuveen Flagship Kentucky Limited Term Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 36.47% Class A Shares............. for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 PaineWebber 6.08 for the benefit of Ted M. Fiorita 6410 St. Andrews Drive Paducah KY 42001-8751 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 40.67 Class C Shares............. for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Niti Vermani 6.54 236 Bellefonte Cir. Ashland KY 41101-2176 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund James O. Carroll 100.00 Class R Shares............. Lucille Carroll JTWROS 6621 Astral Dr. Louisville, KY 40258-3315 Nuveen Flagship Michigan Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 55.44 Class A Shares............. for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Nuveen Flagship Michigan Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 48.30 Class B Shares............. for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Smith Barney Inc 5.91 00159755510 388 Greenwich Street New York NY 10013-2339 S-19 111 PERCENTAGE NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP - ---------------------- ------------------------- ------------ Nuveen Flagship Michigan Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 64.44% Class C Shares................... for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Nuveen Flagship Missouri Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 25.67 Class A Shares................... for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Nuveen Flagship Missouri Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 25.02 Class B Shares................... for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Smith Barney Inc 12.85 00159609738 388 Greenwich Street New York, NY 10013-2339 Smith Barney Inc 11.04 00159614216 388 Greenwich Street New York, NY 10013-2339 Marvin Labarge 6.91 and Rita Labarge JT WROS 3939 Towers Rd Saint Charles, MO 63304-7457 Carmella A Leonard 5.71 Carmella A Leonard Trust U/A 12/28/94 P.O. Box 286 Saint Albans, MO 63073-0286 Prudential Securities Inc. FBO 5.47 Mr. Keith McClanahan TTEE UW RELLA Maxine McClanahan FBO RELLA MAXINE 401 SE Oldham Pkwy Lees Summit, MO 64081-2930 S-20 112 PERCENTAGE NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP - ---------------------- ------------------------- ------------ Nuveen Flagship Missouri Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 52.81% Class C Shares............ for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6848 Nuveen Flagship Missouri Municipal Bond Fund Raymond R Powell 65.48 Class R Shares............ Rosa May Powell TRS Raymond R Powell Trust UA DTD 12/15/93 2500 Bluff Blvd. Columbia MO 65201-6108 Mary Jo Mustello 25.40 8320 NW Forest Dr Weatherby Lake MO 64152-1655 Pearl R Pavlo 9.08 Pearl Rose Pavlo Rev Liv Trust U/A 03/30/95 13915 NW 74th St. Parkville MO 64152-5111 Nuveen Flagship Ohio Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 37.29 Class A Shares............ for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Nuveen Flagship Ohio Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 32.60 Class B Shares............ for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 Dean Witter FBO 7.89 Raymond H Penick 1504 Blue Jay Rd. Church St. Station PO Box 250 New York NY 10013-0250 Nuveen Flagship Ohio Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 56.27 Class C Shares............ for the sole benefit of its customers Attn Fund Administration 4800 Deer Lake Dr E FL 3 Jacksonville FL 32246-6484 S-21 113 PERCENTAGE NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP - ---------------------- ------------------------- ------------ Nuveen Flagship Wisconsin Municipal Bond Fund Smith Barney Inc. 12.98% Class A Shares............ 00127113901 388 Greenwich Street NY NY 10013 PaineWebber 6.68 for the benefit of Richard A Uihlein PO Box 23434 Milwaukee WI 53223-0434 Nuveen Flagship Wisconsin Municipal Bond Fund MLPF&S 8.16 Class B Shares............ for the Sole Benefit of its Customers Attn Fund Admin Sec 97ND1 4800 Deer Lake Dr. E FL 3 Jacksonville FL 32246-6484 PaineWebber 8.10 for the Benefit of Mr. William J Hurkman and Mrs. Marian T Hurkman JT TEN 2304 South Arch Street Janesville WI 53546-6126 PaineWebber 7.73 for the Benefit of Karl G Gierhahn 3279 S Illinois Avenue Milwaukee WI 53207-3032 Jeffrey Blakemore 7.39 7000 W Good Hope Rd Milwaukee WI 53223-4609 Donaldson Lufkin Jenrette 5.69 Securities Corporation Inc PO Box 2052 Jersey City NJ 07303-2052 Dean Witter FBO 5.63 Lorraine Suminski 1121 North Waverly Pl Church St Station PO Box 250 New York NY 10013-0250 S-22 114 PERCENTAGE NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP - ---------------------- ------------------------- ------------ Nuveen Flagship Wisconsin Municipal Bond Fund Everen Clearing Corp 13.03% Class C Shares.................... Acct 3973-8110 Alan R Hyman & Harriet S Hyman 111 East Kilbourn Avenue Milwaukee WI 53202-6611 Gordon M Derzon 7.61 3440 Topping Madison WI 53705-1439 Affiliated Leasing Inc 7.04 PO Box 44509 Madison WI 53744-4509 Everen Clearing Corp 6.95 Acct 1810-7992 R Creighton Buck Family Trust 111 East Kilbourn Avenue Milwaukee WI 53202-6611 Everen Clearing Corp 5.22 Acct 6044-1401 Lyle Pagel TR 111 East Kilbourn Avenue Milwaukee WI 53202-6611 Everen Clearing Corp 5.04 Acct 7804-2234 Norris L. Tibbets 111 East Kilbourn Avenue Milwaukee WI 53202-6611 Nuveen Flagship Wisconsin Municipal Bond Fund Elizabeth H Sohn TR 99.47 Class R Shares.................... Elizabeth H Sohn Trust U/A Dtd 3/7/96 N14651 Wintergreen Lake Rd Park Falls WI 54552-7069 S-23 115 INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT Nuveen Advisory Corp. acts as investment adviser for and manages the investment and reinvestment of the assets of each of the Funds. Nuveen Advisory also administers the Trust's business affairs, provides office facilities and equipment and certain clerical, bookkeeping and administrative services, and permits any of its officers or employees to serve without compensation as trustees or officers of the Trust if elected to such positions. See "Fund Service Providers" in the Prospectus. Pursuant to an investment management agreement between Nuveen Advisory and the Trust, each of the Funds except the Kentucky Limited Term Fund has agreed to pay an annual management fee at the rates set forth below: AVERAGE DAILY NET ASSET VALUE FEE MANAGEMENT FEE - --------------------------------- -------------- For the first $125 million....................................... .5500 of 1% For the next $125 million........................................ .5375 of 1% For the next $250 million........................................ .5250 of 1% For the next $500 million........................................ .5125 of 1% For the next $1 billion.......................................... .5000 of 1% For assets over $2 billion....................................... .4750 of 1% The Kentucky Limited Term Fund has agreed to pay an annual management fee at the rates set forth below: AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE - ----------------------------- -------------- For the first $125 million....................................... .4500 of 1% For the next $125 million........................................ .4375 of 1% For the next $250 million........................................ .4250 of 1% For the next $500 million........................................ .4125 of 1% For the next $1 billion.......................................... .4000 of 1% For assets over $2 billion....................................... .3750 of 1% Nuveen Advisory has agreed to waive all or a portion of its management fee or reimburse certain expenses of the Ohio Fund in order to prevent total operating expenses (including Nuveen Advisory's fee, but excluding interest, taxes, fees incurred in acquiring and disposing of portfolio securities, any asset-based distribution or service fees and, to the extent permitted, extraordinary expenses) in any fiscal year from exceeding .75 of 1% of average daily net asset value of any class of shares of the Fund. For all of the Funds, Nuveen Advisory has committed through at least 1998 to continue Flagship's general dividend-setting practices. S-24 116 For the last three fiscal years, the Funds paid net management fees to Flagship Financial, predecessor to Nuveen Advisory, and beginning on February 1, 1997, to Nuveen Advisory, as follows: MANAGEMENT FEES NET OF FEE WAIVERS AND EXPENSE EXPENSE REIMBURSEMENT PAID REIMBURSEMENTS FOR THE YEAR ENDED FOR THE YEAR ENDED ----------------------------- ------------------------- 5/31/96 5/31/97 5/31/98 5/31/96 5/31/97 5/31/98 --------- --------- --------- --------- ------- ------- Kansas Municipal Bond Fund................... 38,552 159,550 360,823 496,188 339,334 191,060 Kentucky Municipal Bond Fund................... 799,646 1,300,570 2,227,288 1,328,971 989,872 310,289 Kentucky Limited Term Municipal Bond Fund.... 2,496 -- -- 50,402 108,413 79,972 Michigan Municipal Bond Fund................... 873,242 1,194,710 1,804,027 586,307 378,083 -- Missouri Municipal Bond Fund................... 494,006 823,757 1,308,176 598,909 326,922 -- Ohio Municipal Bond Fund................... 1,899,111 2,430,648 3,609,901 522,006 355,267 -- Wisconsin Municipal Bond Fund................... -- -- -- 102,593 146,340 156,639 In addition to the management fee of Nuveen Advisory, each Fund pays all other costs and expenses of its operations and a portion of the Trust's general administrative expenses allocated in proportion to the net assets of each Fund. Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co. Incorporated ("Nuveen"), the Funds' principal underwriter. Nuveen is the sponsor of the Nuveen Defined Portfolios, and is the principal underwriter for the Nuveen Mutual Funds, and has served as co-managing underwriter for the shares of the Nuveen Exchange-Traded Funds. Over 1,300,000 individuals have invested to date in Nuveen's funds and Defined Portfolios. Founded in 1898, Nuveen is a subsidiary of The John Nuveen Company which, in turn, is approximately 78% owned by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located in St. Paul, Minnesota and is principally engaged in providing property-liability insurance through subsidiaries. Effective January 1, 1997, The John Nuveen Company acquired Flagship Resources Inc., and as part of that acquisition, Flagship Financial, the adviser to the Flagship Funds, was merged with Nuveen Advisory. The Funds, the other Nuveen funds, Nuveen Advisory, and other related entities have adopted a code of ethics which essentially prohibits all Nuveen fund management personnel, including Nuveen fund portfolio managers, from engaging in personal investments which compete or interfere with, or attempt to take advantage of, a Fund's anticipated or actual portfolio transactions, and is designed to assure that the interests of Fund shareholders are placed before the interests of Nuveen personnel in connection with personal investment transactions. PORTFOLIO TRANSACTIONS Nuveen Advisory, in effecting purchases and sales of portfolio securities for the account of each Fund, will place orders in such manner as, in the opinion of management, will offer the best price and market for the execution of each transaction. Portfolio securities will normally be purchased directly from an underwriter or in the over-the-counter market from the principal dealers in such securities, unless it appears that a better price or execution may be obtained elsewhere. Portfolio securities will not be purchased from Nuveen or its affiliates except in compliance with the Investment Company Act of 1940. S-25 117 The Funds expect that all portfolio transactions will be effected on a principal (as opposed to an agency) basis and, accordingly, do not expect to pay any brokerage commissions. Purchases from underwriters will include a commission or concession paid by the issuer to the underwriter, and purchases from dealers will include the spread between the bid and asked price. Given the best price and execution obtainable, it will be the practice of the Funds to select dealers which, in addition, furnish research information (primarily credit analyses of issuers and general economic reports) and statistical and other services to Nuveen Advisory. It is not possible to place a dollar value on information and statistical and other services received from dealers. Since it is only supplementary to Nuveen Advisory's own research efforts, the receipt of research information is not expected to reduce significantly Nuveen Advisory's expenses. While Nuveen Advisory will be primarily responsible for the placement of the business of the Funds, the policies and practices of Nuveen Advisory in this regard must be consistent with the foregoing and will, at all times, be subject to review by the Board of Trustees. Nuveen Advisory reserves the right to, and does, manage other investment accounts and investment companies for other clients, which may have investment objectives similar to the Funds. Subject to applicable laws and regulations, Nuveen Advisory will attempt to allocate equitably portfolio transactions among the Funds and the portfolios of its other clients purchasing or selling securities whenever decisions are made to purchase or sell securities by a Fund and one or more of such other clients simultaneously. In making such allocations the main factors to be considered will be the respective investment objectives of the Fund and such other clients, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment by the Fund and such other clients, the size of investment commitments generally held by the Fund and such other clients and opinions of the persons responsible for recommending investments to the Fund and such other clients. While this procedure could have a detrimental effect on the price or amount of the securities available to a Fund from time to time, it is the opinion of the Board of Trustees that the benefits available from Nuveen Advisory's organization will outweigh any disadvantage that may arise from exposure to simultaneous transactions. Under the Investment Company Act of 1940, the Funds may not purchase portfolio securities from any underwriting syndicate of which Nuveen is a member except under certain limited conditions set forth in Rule 10f-3. The Rule sets forth requirements relating to, among other things, the terms of an issue of Municipal Obligations purchased by a Fund, the amount of Municipal Obligations which may be purchased in any one issue and the assets of a Fund which may be invested in a particular issue. In addition, purchases of securities made pursuant to the terms of the Rule must be approved at least quarterly by the Board of Trustees, including a majority of the trustees who are not interested persons of the Trust. NET ASSET VALUE As stated in the Prospectus, the net asset value of the shares of the Funds will be determined separately for each class of the Funds' shares by The Chase Manhattan Bank, the Funds' custodian, as of the close of trading (normally 4:00 p.m. Eastern Time) on each day on which the Exchange is normally open for trading. The Exchange is not open for trading on New Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value per share of a class of shares of a Fund will be computed by dividing the value of the Fund's assets attributable to the class, less the liabilities attributable to the class, by the number of shares of the class outstanding. In determining net asset value for the Funds, the Funds' custodian utilizes the valuations of portfolio securities furnished by a pricing service approved by the trustees. Securities for which quotations are not readily available (which constitute a majority of the securities held by the Funds) are valued at fair value as determined by the pricing service using methods which include consideration of the following: yields or prices of municipal S-26 118 bonds of comparable quality, type of issue, coupon, maturity and rating; indications as to value from dealers; and general market conditions. The pricing service may employ electronic data processing techniques and/or a matrix system to determine valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Trust under the general supervision of the Board of Trustees. TAX MATTERS FEDERAL INCOME TAX MATTERS The following discussion of federal income tax matters is based upon the advice of Morgan, Lewis & Bockius LLP, counsel to the Trust. Each Fund intends to qualify under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") for tax treatment as a regulated investment company. In order to qualify as a regulated investment company, a Fund must satisfy certain requirements relating to the source of its income, diversification of its assets, and distributions of its income to shareholders. First, a Fund must derive at least 90% of its annual gross income (including tax-exempt interest) from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities, foreign currencies or other income (including but not limited to gains from options and futures) derived with respect to its business of investing in such stock or securities (the "90% gross income test"). Second, for taxable years beginning on or before August 5, 1997, a Fund must derive less than 30% of its annual gross income from the sale or other disposition of any of the following which was held for less than three months: (i) stock or securities and (ii) certain options, futures, or forward contracts (the "short- short test"). The short-short test will not be a requirement for qualification as a regulated investment company for taxable years beginning after August 5, 1997. Third, a Fund must diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the value of its total assets is comprised of cash, cash items, United States Government securities, securities of other regulated investment companies and other securities limited in respect of any one issuer to an amount not greater in value than 5% of the value of a Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the total assets is invested in the securities of any one issuer (other than United States Government securities and securities of other regulated investment companies) or two or more issuers controlled by a Fund and engaged in the same, similar or related trades or businesses. As a regulated investment company, a Fund will not be subject to federal income tax in any taxable year for which it distributes at least 90% of the sum of (i) its "investment company taxable income" (which includes dividends, taxable interest, taxable original issue discount and market discount income, income from securities lending, net short-term capital gain in excess of long- term capital loss, and any other taxable income other than "net capital gain" (as defined below) and is reduced by deductible expenses) and (ii) its net tax- exempt interest (the excess of its gross tax-exempt interest income over certain disallowed deductions). A Fund may retain for investment its net capital gain (which consists of the excess of its net long-term capital gain over its short-term capital loss). However, if a Fund retains any net capital gain or any investment company taxable income, it will be subject to tax at regular corporate rates on the amount retained. If a Fund retains any capital gain, such Fund may designate the retained amount as undistributed capital gains in a notice to its shareholders who, if subject to federal income tax on long-term capital gains, (i) will be required to include in income for federal income tax purposes, as long-term capital gain, their shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by such Fund against their federal income tax liabilities if any, and to claim refunds to the extent the credit exceeds such liabilities. For federal income tax purposes, the tax basis of shares owned by a shareholder of the Fund will be increased by an amount equal under current law to 65% of the amount of undistributed capital gains included in the shareholder's gross income. Each Fund intends to distribute at least annually to its shareholders all or substantially all of its net tax-exempt interest and any investment company taxable income and net capital gain. S-27 119 Treasury regulations permit a regulated investment company, in determining its investment company taxable income and net capital gain, i.e., the excess of net long-term capital gain over net short-term capital loss for any taxable year, to elect (unless it has made a taxable year election for excise tax purposes as discussed below) to treat all or part of any net capital loss, any net long-term capital loss or any net foreign currency loss incurred after October 31 as if they had been incurred in the succeeding year. Each Fund also intends to satisfy conditions (including requirements as to the proportion of its assets invested in Municipal Obligations) that will enable it to designate distributions from the interest income generated by investments in Municipal Obligations, which is exempt from regular federal income tax when received by such Fund, as exempt-interest dividends. Shareholders receiving exempt-interest dividends will not be subject to regular federal income tax on the amount of such dividends. Insurance proceeds received by a Fund under any insurance policies in respect of scheduled interest payments on defaulted Municipal Obligations will be excludable from federal gross income under Section 103(a) of the Code. In the case of non-appropriation by a political subdivision, however, there can be no assurance that payments made by the insurer representing interest on "non-appropriation" lease obligations will be excludable from gross income for federal income tax purposes. See "Investment Policies and Investment Portfolio; Portfolio Securities." Distributions by a Fund of net interest received from certain taxable temporary investments (such as certificates of deposit, commercial paper and obligations of the U.S. Government, its agencies and instrumentalities) and net short-term capital gains realized by a Fund, if any, will be taxable to shareholders as ordinary income whether received in cash or additional shares. If a Fund purchases a Municipal Obligation at a market discount, any gain realized by the Fund upon sale or redemption of the Municipal Obligation will be treated as taxable interest income to the extent such gain does not exceed the market discount, and any gain realized in excess of the market discount will be treated as capital gains. Any net long-term capital gains realized by a Fund and distributed to shareholders in cash or additional shares, will be taxable to shareholders as long-term capital gains regardless of the length of time investors have owned shares of a Fund. Distributions by a Fund that do not constitute ordinary income dividends, exempt-interest dividends, or capital gain dividends will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his or her shares. Any excess will be treated as gain from the sale of his or her shares, as discussed below. If a Fund has both tax-exempt and taxable income, it will use the "average annual" method for determining the designated percentage that is taxable income and designate the use of such method within 60 days after the end of the Fund's taxable year. Under this method, one designated percentage is applied uniformly to all distributions made during the Fund's taxable year. The percentage of income designated as tax-exempt for any particular distribution may be substantially different from the percentage of the Fund's income that was tax- exempt during the period covered by the distribution. If a Fund engages in hedging transactions involving financial futures and options, these transactions will be subject to special tax rules, the effect of which may be to accelerate income to a Fund, defer a Fund's losses, cause adjustments in the holding periods of a Fund's securities, convert long-term capital gains into short-term capital gains and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. Because the taxable portion of a Fund's investment income consists primarily of interest, none of its dividends, whether or not treated as exempt-interest dividends, is expected to qualify under the Internal Revenue Code for the dividends received deductions for corporations. Prior to purchasing shares in a Fund, the impact of dividends or distributions which are expected to be or have been declared, but not paid, should be carefully considered. Any dividend or distribution declared shortly S-28 120 after a purchase of such shares prior to the record date will have the effect of reducing the per share net asset value by the per share amount of the dividend or distribution. Although dividends generally will be treated as distributed when paid, dividends declared in October, November or December, payable to shareholders of record on a specified date in one of those months and paid during the following January, will be treated as having been distributed by a Fund (and received by the shareholders) on December 31. The redemption or exchange of the shares of a Fund normally will result in capital gain or loss to the shareholders. Present law taxes both long- and short-term capital gains of corporations at the rates applicable to ordinary income. For non-corporate taxpayers, however, (i) gain on the sale of shares held for more than 18 months will generally be taxed at a maximum marginal rate of 20%, (ii) gain on the sale of shares held for more than one year but not more than 18 months will generally be taxed at a maximum marginal rate of 28%, and (iii) gain on the sale of shares held for not more than one year and other ordinary income will generally be taxed at a maximum marginal rate of 39.6%. Because of the limitations on itemized deductions and the deduction for personal exemptions applicable to higher income taxpayers, the effective tax rate on net income may be higher in certain circumstances. All or a portion of a sales charge paid in purchasing shares of a Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of a Fund or another fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. Any disregarded portion of such charge will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Moreover, losses recognized by a shareholder on the redemption or exchange of shares of a Fund held for six months or less are disallowed to the extent of any distribution of exempt-interest dividends received with respect to such shares and, if not disallowed, such losses are treated as long-term capital losses to the extent of any distributions of long-term capital gains made with respect to such shares. In addition, no loss will be allowed on the redemption or exchange of shares of a Fund if the shareholder purchases other shares of such Fund (whether through reinvestment of distributions or otherwise) or the shareholder acquires or enters into a contract or option to acquire securities that are substantially identical to shares of a Fund within a period of 61 days beginning 30 days before and ending 30 days after such redemption or exchange. If disallowed, the loss will be reflected in an adjustment to the basis of the shares acquired. It may not be advantageous from a tax perspective for shareholders to redeem or exchange shares after tax-exempt income has accrued but before the record date for the exempt-interest dividend representing the distribution of such income. Because such accrued tax-exempt income is included in the net asset value per share (which equals the redemption or exchange value), such a redemption could result in treatment of the portion of the sales or redemption proceeds equal to the accrued tax-exempt interest as taxable gain (to the extent the redemption or exchange price exceeds the shareholder's tax basis in the shares disposed of) rather than tax-exempt interest. In order to avoid a 4% federal excise tax, a Fund must distribute or be deemed to have distributed by December 31 of each calendar year at least 98% of its taxable ordinary income for such year, at least 98% of the excess of its realized capital gains over its realized capital losses (generally computed on the basis of the one-year period ending on October 31 of such year) and 100% of any taxable ordinary income and the excess of realized capital gains over realized capital losses for the prior year that was not distributed during such year and on which such Fund paid no federal income tax. For purposes of the excise tax, a regulated investment company may reduce its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year. The Funds intend to make timely distributions in compliance with these requirements and consequently it is anticipated that they generally will not be required to pay the excise tax. S-29 121 If in any year a Fund should fail to qualify under Subchapter M for tax treatment as a regulated investment company, the Fund would incur a regular corporate federal income tax upon its income for that year (other than interest income from Municipal Obligations), and distributions to its shareholders would be taxable to shareholders as ordinary dividend income for federal income tax purposes to the extent of the Fund's available earnings and profits. Because the Funds may invest in private activity bonds, the interest on which is not federally tax-exempt to persons who are "substantial users" of the facilities financed by such bonds or "related persons" of such "substantial users," the Funds may not be an appropriate investment for shareholders who are considered either a "substantial user" or a "related person" within the meaning of the Code. For additional information, investors should consult their tax advisers before investing in a Fund. Federal tax law imposes an alternative minimum tax with respect to both corporations and individuals. Interest on certain Municipal Obligations, such as bonds issued to make loans for housing purposes or to private entities (but not for certain tax-exempt organizations such as universities and non-profit hospitals), is included as an item of tax preference in determining the amount of a taxpayer's alternative minimum taxable income. To the extent that a Fund receives income from Municipal Obligations subject to the alternative minimum tax, a portion of the dividends paid by it, although otherwise exempt from federal income tax, will be taxable to shareholders to the extent that their tax liability is determined under the alternative minimum tax regime. The Funds will annually supply shareholders with a report indicating the percentage of Fund income attributable to Municipal Obligations subject to the federal alternative minimum tax. In addition, the alternative minimum taxable income for corporations is increased by 75% of the difference between an alternative measure of income ("adjusted current earnings") and the amount otherwise determined to be the alternative minimum taxable income. Interest on all Municipal Obligations, and therefore all distributions by the Funds that would otherwise be tax-exempt, is included in calculating a corporation's adjusted current earnings. Tax-exempt income, including exempt-interest dividends paid by a Fund, will be added to the taxable income of individuals receiving social security or railroad retirement benefits in determining whether a portion of that benefit will be subject to federal income tax. The Code provides that interest on indebtedness incurred or continued to purchase or carry shares of any Fund is not deductible. Under rules used by the IRS for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares of a Fund may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares. The Funds are required in certain circumstances to withhold 31% of taxable dividends and certain other payments paid to non-corporate holders of shares who have not furnished to the Funds their correct taxpayer identification number (in the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding. The foregoing is a general and abbreviated summary of the provisions of the Code and Treasury Regulations presently in effect as they directly govern the taxation of the Fund and its shareholders. For complete provisions, reference should be made to the pertinent Code sections and Treasury Regulations. The Code and Treasury Regulations are subject to change by legislative or administrative action, and any such change may be retroactive with respect to Fund transactions. Shareholders are advised to consult their own tax advisers for more detailed information concerning the federal taxation of the Funds and the income tax consequences to their shareholders. S-30 122 STATE TAX MATTERS The discussion of tax treatment is based on the assumptions that the Funds will qualify under Subchapter M of the Code as regulated investment companies and as qualified investment funds under applicable state law, that they will satisfy the conditions which will cause distributions to qualify as exempt- interest dividends to shareholders when distributed as intended, and that each Fund will distribute all interest and dividends it receives to its shareholders. Unless otherwise noted, shareholders in each Fund will not be subject to state income taxation on distributions that are attributable to interest earned on the municipal obligations issued by that state or its subdivisions, or on obligations of the United States. Shareholders generally will be required to include capital gain distributions in their income for state tax purposes. The tax discussion summarizes general state tax laws which are currently in effect and are subject to change by legislative or administrative action; any such changes may be retroactive with respect to the applicable Fund's transactions. Investors should consult a tax adviser for more detailed information about state taxes to which they may be subject. KANSAS The following is a general, abbreviated summary of certain provisions of the applicable Kansas tax law as presently in effect as it directly governs the taxation of resident individual and corporate shareholders of the Kansas Fund. The foregoing summary does not address the taxation of other shareholders nor does it discuss any local taxes that may be applicable. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive with respect to Kansas Fund transactions. The following is based on the assumptions that the Kansas Fund will qualify under Subchapter M of the Code as a regulated investment company, that it will satisfy the conditions which will cause Kansas Fund distributions to qualify as exempt-interest dividends to shareholders, and that it will distribute all interest and dividends it receives to the Kansas Fund's shareholders. The Kansas Fund will be subject to the Kansas corporate franchise tax and the Kansas corporate income tax only if it has a sufficient nexus with Kansas. If it is subject to such taxes, it does not expect to pay a material amount of either tax. Distributions by the Kansas Fund that are attributable to interest on any obligation of Kansas and its political subdivisions issued after December 31, 1987, and interest on certain such obligations issued before January 1, 1988, or to interest on obligations of the United States, its territories, possessions or instrumentalities that are exempt from state taxation under federal law will not be subject to the Kansas personal income tax or the Kansas corporate income tax. All other distributions, including distributions attributable to capital gains, will be subject to the Kansas personal and corporate income taxes. Gain on the sale, exchange, or other disposition of shares of the Kansas Fund will be subject to the Kansas personal and corporate income taxes. Shares of the Kansas Fund may be subject to the Kansas inheritance tax and the Kansas estate tax if owned by a Kansas decedent at the time of death. Shareholders are advised to consult with their own tax advisers for more detailed information concerning Kansas and local tax matters. KENTUCKY The following is a general, abbreviated summary of certain provisions of the applicable Kentucky tax law as presently in effect as it directly governs the taxation of resident individual and corporate shareholders of the Kentucky Funds. This summary does not address the taxation of other shareholders nor does it discuss any local S-31 123 taxes that may be applicable. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive with respect to Kentucky Funds transactions. The following is based on the assumptions that the Kentucky Funds will qualify under Subchapter M of the Code as regulated investment companies, that they will satisfy the conditions which will cause Kentucky Funds distributions to qualify as exempt-interest dividends to shareholders, and that they will distribute all interest and dividends they receive to the Kentucky Funds' shareholders. The Kentucky Funds will be subject to the Kentucky corporate income tax, the Kentucky intangible property tax, and the Kentucky corporation license tax only if they have a sufficient nexus with Kentucky. If they are subject to such taxes, they do not expect to pay a material amount of any such tax. Distributions from the Kentucky Funds that are attributable to interest on any obligation of Kentucky and its political subdivisions ("Kentucky Obligations") or to interest on obligations of the United States, its territories, possessions, or instrumentalities that are exempt from state taxation under federal law ("Federal Obligations") will not be subject to the Kentucky personal income tax or the Kentucky corporate income tax. All other distributions, including distributions attributable to capital gains, will be subject to the Kentucky personal and corporate income tax. Resident shareholders will not be subject to the Kentucky intangible property tax on the portion of the fair cash value of their Kentucky Fund shares that are attributable to Kentucky obligations or Federal obligations. Gain on the sale, exchange, or other disposition of shares of the Kentucky Funds will be subject to the Kentucky personal and corporate income taxes. Shares of the Kentucky Funds may be subject to the Kentucky inheritance tax and the Kentucky estate tax if owned by a Kentucky decedent at the time of death. Shareholders employed in Louisville or Jefferson County will not be subject to local occupational license fees on income earned from the Kentucky Funds. Shareholders employed elsewhere in Kentucky generally will not be subject to local occupational license fees. Shareholders that are either corporations or sole proprietors, and that do business in Louisville or Jefferson County, will not be subject to the local occupational license fee. Shareholders that are either corporations or sole proprietors, and that do business elsewhere in Kentucky may, however, be subject to local occupational license fees. Shareholders are advised to consult with their own tax advisers for more detailed information concerning Kentucky and local tax matters. MICHIGAN The following is a general, abbreviated summary of certain provisions of the applicable Michigan state tax law as presently in effect as it directly governs the taxation of resident individual and corporate shareholders of the Michigan Fund. This summary does not address the taxation of other shareholders nor does it discuss any local taxes that may be applicable. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive with respect to Michigan Fund transactions. The following is based on the assumptions that the Michigan Fund will qualify under Subchapter M of the Code as a regulated investment company, that it will satisfy the conditions which will cause Michigan Fund distributions to qualify as exempt-interest dividends to shareholders, and that it will distribute all interest and dividends it receives to the Michigan Fund's shareholders. S-32 124 The Michigan Fund will be subject to the Michigan single business tax only if it has a sufficient nexus with Michigan. If it is subject to the single business tax, it does not expect to pay a material amount of such tax. Distributions by the Michigan Fund attributable to interest on any obligation of Michigan and its political subdivisions ("Michigan Obligations") or to interest on obligations of the United States, its territories, possessions, or instrumentalities that are exempt from state taxation under federal law ("Federal Obligations") will not be subject to the Michigan personal income tax. In addition, under current administrative practice of the Michigan Department of Revenue, dividends attributable to gains realized from the sale or exchange of Federal Obligations will not be subject to the Michigan personal income tax. All other distributions, including distributions attributable to capital gains (other than capital gains realized from the sale of Federal Obligations), will be subject to the Michigan income tax. All other distributions, including distributions attributable to capital gains (other than capital gains realized from the sale of Federal Obligations), will be subject to the Michigan income tax. Residents of Michigan cities imposing local income taxes will not be subject to such taxes on the Michigan Fund's distributions of income attributable either (1) to interest earned on Federal Obligations or of state or local governments or (2) to gains on the sale of Federal Obligations. If a shareholder subject to the Michigan single business tax receives distributions derived from interest on Michigan Obligations or sells or exchanges shares of the Michigan Fund, such events may affect its single business tax base. Gain on the sale, exchange, or other disposition of shares of the Michigan Fund will be subject to the Michigan personal income tax. Shares of the Michigan Fund may be subject to the Michigan inheritance and estate taxes if owned by a Michigan decedent at the time of death. Shareholders are advised to consult with their own tax advisers for more detailed information concerning Michigan and local tax matters, particularly with regard to the Michigan single business tax. MISSOURI The following is a general, abbreviated summary of certain provisions of the applicable Missouri tax law as presently in effect as it directly governs the taxation of resident individual and corporate shareholders of the Missouri Fund. This summary does not address the taxation of other shareholders nor does it discuss any local taxes that may be applicable. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive with respect to Missouri Fund transactions. The following is based on the assumptions that the Missouri Fund will qualify under Subchapter M of the Code as a regulated investment company, that it will satisfy the conditions which will cause Missouri Fund distributions to qualify as exempt-interest dividends to shareholders, and that it will distribute all interest and dividends it receives to the Missouri Fund's shareholders. The Missouri Fund will be subject to the Missouri corporate franchise tax and the Missouri corporate income tax only if it has a sufficient nexus with Missouri. If it is subject to such taxes, it does not expect to pay a material amount with respect to either tax. Distributions by the Missouri Fund that are attributable to interest on obligations of Missouri and its political subdivisions or to interest on obligations of the United States, its territories, possessions, or instrumentalities that are exempt from state taxation under federal law will not be subject to the Missouri personal income tax or the Missouri corporate income tax. All other distributions, including distributions attributable to capital gains, will be subject to the Missouri personal and corporate income taxes. S-33 125 Gain on the sale, exchange, or other disposition of shares of the Missouri Fund will be subject to the Missouri personal income tax and the Missouri corporate income tax. Shares of the Missouri Fund may be subject to the Missouri estate tax if owned by a Missouri decedent at the time of death. Shareholders are advised to consult with their own tax advisers for more detailed information concerning Missouri and local tax matters. OHIO The following is a general, abbreviated summary of certain provisions of the applicable Ohio tax law as presently in effect as it directly governs the taxation of resident individual and corporate shareholders of the Ohio Fund. This summary does not address the taxation of other shareholders nor does it discuss any local taxes that may be applicable. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive with respect to Ohio Fund transactions. The following is based on the assumptions that the Ohio Fund will qualify under Subchapter M of the Code as a regulated investment company and under Ohio law as a qualified investment trust, that it will file any report that may be required of it under the Ohio Revised Code, that it will satisfy the conditions which will cause Ohio Fund distributions to qualify as exempt-interest dividends to shareholders, and that it will distribute all interest and dividends it receives to the Ohio Fund's shareholders. The Ohio Fund is not subject to Ohio taxes. Distributions by the Ohio Fund attributable to interest on or gain from the sale of any interest-bearing obligation of Ohio and its political subdivisions ("Ohio Obligations") or to interest on obligations of the United States, its territories, possessions, or instrumentalities that are exempt from state taxation under federal law ("Federal Obligations") will not be subject to the Ohio personal income tax, Ohio school district income taxes, and Ohio municipal income taxes. All other distributions, including distributions attributable to capital gains (other than capital gains on Ohio Obligations), will be subject to the Ohio personal income tax, Ohio school district income taxes, and Ohio municipal income taxes. In computing their Ohio corporation franchise tax on the net income basis, shareholders will not be subject to tax on the portion of distributions by the Ohio Fund that is attributable to interest on or gain from the sale of Ohio Obligations, interest on similar obligations of other states or their political subdivisions, or interest on Federal Obligations. In computing their corporate franchise tax on the net worth basis, shareholders must include in their tax base their shares of the Ohio Fund. Gain on the sale, exchange or other disposition of shares of the Ohio Fund will be subject to the Ohio personal income tax, Ohio school district income taxes, Ohio municipal income taxes and the Ohio corporation franchise tax. Shares of the Ohio Fund may be subject to the Ohio estate tax if owned by an Ohio decedent at the time of death. Shareholders are advised to consult with their own tax advisers for more detailed information concerning Ohio and local tax matters. WISCONSIN The following is a general, abbreviated summary of certain provisions of the applicable Wisconsin tax law as presently in effect as it directly governs the taxation of resident individual and corporate shareholders of the Wisconsin Fund. This summary does not address the taxation of other shareholders nor does it discuss any local taxes that may be applicable. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive with respect to Wisconsin Fund transactions. S-34 126 The following is based on the assumptions that the Wisconsin Fund will qualify under Subchapter M of the Code as a regulated investment company, that it will satisfy the conditions which will cause Wisconsin Fund distributions to qualify as exempt-interest dividends to shareholders, and that it will distribute all interest and dividends it receives to the Wisconsin Fund's shareholders. The Wisconsin Fund will be subject to the Wisconsin corporate franchise tax or the corporate income tax only if it has a sufficient nexus with Wisconsin. If it is subject to such taxes, it does not expect to pay a material amount of either tax. Distributions by the Wisconsin Fund that are attributable to interest earned on any obligations of Wisconsin and its political subdivisions that are exempt from the Wisconsin personal income tax under Wisconsin law ("Wisconsin Obligations") or to interest or dividends earned on obligations of the United States, its territories, possessions or instrumentalities that are exempt from state taxation under federal law ("Federal Obligations") will not be subject to the Wisconsin personal income tax. All other distributions, including distributions attributable to capital gains, will be subject to the Wisconsin personal income tax. A certain portion of such capital gains distributions, however, will be exempt from Wisconsin personal income tax. All Wisconsin Fund distributions to corporate shareholders, regardless of source, will be subject to the Wisconsin franchise tax. Gain on the sale, exchange, or other disposition of shares of the Wisconsin Fund will be subject to the Wisconsin personal income and corporate franchise taxes. In the case of individuals, however, a certain portion of such gain will be exempt from Wisconsin personal income tax. Shares of the Wisconsin Fund may be subject to the Wisconsin estate tax if owned by a Wisconsin decedent at the time of death. Shareholders are advised to consult with their own tax advisers for detailed information concerning Wisconsin state and local tax maters. PERFORMANCE INFORMATION The historical investment performance of the Funds may be shown in the form of "yield," "taxable equivalent yield," "average annual total return," "cumulative total return" and "taxable equivalent total return" figures, each of which will be calculated separately for each class of shares. In accordance with a standardized method prescribed by rules of the Securities and Exchange Commission ("SEC"), yield is computed by dividing the net investment income per share earned during the specified one month or 30-day period by the maximum offering price per share on the last day of the period, according to the following formula: Yield=2[(a-b +1)/6/ -1] --- cd In the above formula, a = dividends and interest earned during the period; b = expenses accrued for the period (net of reimbursements); c = the average daily number of shares outstanding during the period that were entitled to receive dividends; and d = the maximum offering price per share on the last day of the period. In the case of Class A shares, the maximum offering price includes the current maximum front-end sales charge of 4.20% (2.5% for the Kentucky Limited Term Fund). In computing yield, the Funds follow certain standardized accounting practices specified by SEC rules. These practices are not necessarily consistent with those that the Funds use to prepare their annual and interim S-35 127 financial statements in conformity with generally accepted accounting principles. Thus, yield may not equal the income paid to shareholders or the income reported in a Fund's financial statements. Taxable equivalent yield is computed by dividing that portion of the yield which is tax-exempt by the remainder of (1 minus the stated combined federal and state income tax rate, taking into account the deductibility of state taxes for federal income tax purposes) and adding the product to that portion, if any, of the yield that is not tax exempt. The taxable equivalent yields quoted below are based upon (1) the stated combined federal and state income tax rates and (2) the yields for the 30-day period quoted in the left-hand column. AS OF MAY 31, 1998 ------------------------------------------ COMBINED FEDERAL TAXABLE YIELD AND STATE TAX RATE* EQUIVALENT YIELD ----- ------------------- ---------------- Kansas Municipal Bond Fund Class A Shares.............. 4.32% 44.30% 7.76% Class B Shares.............. 3.76% 44.30% 6.75% Class C Shares.............. 3.96% 44.30% 7.11% Class R Shares.............. 4.71% 44.30% 8.46% Kentucky Municipal Bond Fund Class A Shares.............. 4.06% 43.20% 7.15% Class B Shares.............. 3.49% 43.20% 6.14% Class C Shares.............. 3.69% 43.20% 6.50% Class R Shares.............. 4.43% 43.20% 7.80% Kentucky Limited Term Municipal Bond Fund Class A Shares.............. 3.71% 43.20% 6.53% Class C Shares.............. 3.45% 43.20% 6.07% Class R Shares.............. 4.01% 43.20% 7.06% Michigan Municipal Bond Fund Class A Shares.............. 4.04% 42.30% 7.00% Class B Shares.............. 3.47% 42.30% 6.01% Class C Shares.............. 3.67% 42.30% 6.36% Class R Shares.............. 4.42% 42.30% 7.66% Missouri Municipal Bond Fund Class A Shares.............. 4.17% 43.20% 7.34% Class B Shares.............. 3.60% 43.20% 6.34% Class C Shares.............. 3.80% 43.20% 6.69% Class R Shares.............. 4.55% 43.20% 8.01% Ohio Municipal Bond Fund Class A Shares.............. 3.72% 44.10% 6.65% Class B Shares.............. 3.14% 44.10% 5.62% Class C Shares.............. 3.34% 44.10% 5.97% Class R Shares.............. 4.09% 44.10% 7.32% Wisconsin Municipal Bond Fund Class A Shares.............. 4.42% 43.70% 7.85% Class B Shares.............. 3.87% 43.70% 6.87% Class C Shares.............. 4.06% 43.70% 7.21% Class R Shares.............. 4.78% 43.70% 8.49% S-36 128 - -------- * The combined tax rates used in these tables represent the highest or one of the highest combined tax rates applicable to state taxpayers, rounded to the nearest .5%; these rates do not reflect the current federal tax limitations on itemized deductions and personal exemptions, which may raise the effective tax rate and taxable equivalent yield for taxpayers above certain income levels. For additional information concerning taxable equivalent yields, see the Taxable Equivalent Yields table in the Prospectus. The Funds may from time to time in their advertising and sales materials report a quotation of their current distribution rate. The distribution rate represents a measure of dividends distributed for a specified period. Distribution rate is computed by taking the most recent monthly tax-free income dividend per share, multiplying it by 12 to annualize it, and dividing by the appropriate price per share (e.g., net asset value for purchases to be made without a load such as reinvestments from Nuveen Defined Portfolios, or the maximum public offering price). The distribution rate differs from yield and total return and therefore is not intended to be a complete measure of performance. Distribution rate may sometimes differ from yield because a Fund may be paying out more than it is earning and because it may not include the effect of amortization of bond premiums to the extent such premiums arise after the bonds were purchased. The distribution rates as of the period quoted, based on the maximum public offering price then in effect for the Funds, and assuming the imposition of the maximum sales charge for Class A Shares of 4.20% (2.5% for the Kentucky Limited Term Municipal Bond Fund), were as follows: MAY 31, 1998 ------------------------------- DISTRIBUTION RATES ------------------------------- CLASS A CLASS B CLASS C CLASS R ------- ------- ------- ------- Kansas Municipal Bond Fund............... 4.72% 4.21% 4.40% 5.12% Kentucky Municipal Bond Fund............. 4.79% 4.27% 4.48% 5.22% Kentucky Limited Term Municipal Bond Fund.................................... 4.22% N/A 3.97% 4.57% Michigan Municipal Bond Fund ............ 4.76% 4.22% 4.43% 5.17% Missouri Municipal Bond Fund............. 4.71% 4.17% 4.38% 5.13% Ohio Municipal Bond Fund................. 4.80% 4.30% 4.50% 5.22% Wisconsin Municipal Bond Fund............ 4.59% 4.02% 4.25% 4.95% Average annual total return quotation is computed in accordance with a standardized method prescribed by SEC rules. The average annual total return for a specific period is found by taking a hypothetical, $1,000 investment ("initial investment") in Fund shares on the first day of the period, reducing the amount to reflect the maximum sales charge, and computing the "redeemable value" of that investment at the end of the period. The redeemable value is then divided by the initial investment, and this quotient is taken to the Nth root (N representing the number of years in the period) and 1 is subtracted from the result, which is then expressed as a percentage. The calculation assumes that all income and capital gains distributions have been reinvested in Fund shares at net asset value on the reinvestment dates during the period. Total returns for Class A Shares of each fund reflect actual performance for all periods. For the Kansas, Kentucky, Michigan, Missouri, Ohio and Wisconsin Funds, Classes B, C and R, total returns reflect actual performance for periods since class inception, and Class A performance for periods prior to inception, adjusted for the differences in sales charges (and for Classes B and C, fees) between the classes. For the Kentucky Limited Term, Class A total returns reflect actual performance for all periods and Class C and R total returns reflect actual performance for periods since class inception, and Class A performance for all periods prior to class inception, adjusted for the differences in sales charges between the classes. S-37 129 The inception dates for each class of the Funds' shares are as follows: INCEPTION DATES ------------------ Kansas Municipal Bond Fund Class A Shares.......................................... January 9, 1992 Class B Shares.......................................... February 1, 1997 Class C Shares.......................................... February 1, 1997 Class R Shares.......................................... February 1, 1997 Kentucky Municipal Bond Fund Class A Shares.......................................... May 4, 1987 Class B Shares.......................................... February 1, 1997 Class C Shares.......................................... October 4, 1993 Class R Shares.......................................... February 1, 1997 Kentucky Limited Term Municipal Bond Fund Class A Shares.......................................... September 14, 1995 Class C Shares.......................................... September 14, 1995 Class R Shares.......................................... February 1, 1997 Michigan Municipal Bond Fund Class A Shares.......................................... June 27, 1985 Class B Shares.......................................... February 1, 1997 Class C Shares.......................................... June 22, 1993 Class R Shares.......................................... February 1, 1997 Missouri Municipal Bond Fund Class A Shares.......................................... August 3, 1987 Class B Shares.......................................... February 1, 1997 Class C Shares.......................................... February 2, 1994 Class R Shares.......................................... February 1, 1997 Ohio Municipal Bond Fund Class A Shares.......................................... June 27, 1985 Class B Shares.......................................... February 1, 1997 Class C Shares.......................................... August 3, 1993 Class R Shares.......................................... February 1, 1997 Wisconsin Municipal Bond Fund Class A Shares.......................................... June 1, 1994 Class B Shares.......................................... February 1, 1997 Class C Shares.......................................... February 1, 1997 Class R Shares.......................................... February 1, 1997 S-38 130 The annual total return figures for the Funds, including the effect of the maximum sales charge for Class A Shares, and applicable CDSC for Class B Shares, for the one-year, five-year, and ten-year periods (as applicable) ended May 31, 1998 and for the period from inception through May 31, 1998, respectively, were: ANNUAL TOTAL RETURNS ----------------------------------------------------- ONE YEAR FIVE YEARS TEN YEARS FROM INCEPTION ENDED ENDED ENDED THROUGH MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 ------------ ------------ ------------ -------------- Kansas Municipal Bond Fund Class A Shares........ 4.70% 5.14% N/A 6.57% Class B Shares........ 4.57% 5.15% N/A 6.57% Class C Shares........ 8.85% 5.70% N/A 6.92% Class R Shares........ 9.84% 6.23% N/A 7.42% Kentucky Municipal Bond Fund Class A Shares........ 4.46% 5.50% 7.98% 7.75% Class B Shares........ 4.10% 5.61% 7.97% 7.74% Class C Shares........ 8.43% 5.81% 7.85% 7.57% Class R Shares........ 9.25% 6.43% 8.46% 8.18% Kentucky Limited Term Municipal Bond Fund Class A Shares........ 3.92% N/A N/A 5.07% Class C Shares........ 6.17% N/A N/A 5.71% Class R Shares........ 6.58% N/A N/A 6.09% Michigan Municipal Bond Fund Class A Shares........ 4.39% 5.33% 7.64% 8.08% Class B Shares........ 4.12% 5.48% 7.63% 8.08% Class C Shares........ 8.45% 5.59% 7.47% 7.82% Class R Shares........ 9.16% 6.30% 8.13% 8.46% Missouri Municipal Bond Fund Class A Shares........ 4.76% 5.39% 7.82% 7.45% Class B Shares........ 4.53% 5.52% 7.82% 7.44% Class C Shares........ 8.74% 5.73% 7.70% 7.29% Class R Shares........ 9.56% 6.36% 8.32% 7.90% Ohio Municipal Bond Fund Class A Shares........ 4.19% 5.05% 7.36% 7.85% Class B Shares........ 3.89% 5.15% 7.35% 7.84% Class C Shares........ 8.12% 5.37% 7.23% 7.61% Class R Shares........ 8.89% 5.99% 7.84% 8.22% Wisconsin Municipal Bond Fund Class A Shares........ 5.56% N/A N/A 5.90% Class B Shares........ 5.46% N/A N/A 5.84% Class C Shares........ 9.59% N/A N/A 6.66% Class R Shares........ 10.47% N/A N/A 7.18% S-39 131 Calculation of cumulative total return is not subject to a prescribed formula. Cumulative total return for a specific period is calculated by first taking a hypothetical initial investment in Fund shares on the first day of the period, deducting (in some cases) the maximum sales charge, and computing the "redeemable value" of that investment at the end of the period. The cumulative total return percentage is then determined by subtracting the initial investment from the redeemable value and dividing the remainder by the initial investment and expressing the result as a percentage. The calculation assumes that all income and capital gains distributions by the Fund have been reinvested at net asset value on the reinvestment dates during the period. Cumulative total return may also be shown as the increased dollar value of the hypothetical investment over the period. Cumulative total return calculations that do not include the effect of the sales charge would be reduced if such charge were included. The cumulative total return figures for the Funds, including the effect of the maximum sales charge for the Class A Shares, and applicable CDSC for Class B Shares, for the one-year, five-year, and ten-year periods (as applicable) ended May 31, 1998, and for the period since inception through May 31, 1998, respectively, using the performance of the oldest class for periods prior to the inception of the newer classes, as described above, were as follows: CUMULATIVE TOTAL RETURNS -------------------------------------------------------- ONE YEAR FIVE YEARS TEN YEARS FROM ENDED ENDED ENDED INCEPTION THROUGH MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 ------------ ------------ ------------ ----------------- Kansas Municipal Bond Fund Class A Shares........ 4.70% 28.50% N/A 50.21% Class B Shares........ 4.57% 28.54% N/A 50.13% Class C Shares........ 8.85% 31.96% N/A 53.38% Class R Shares........ 9.84% 35.29% N/A 58.02% Kentucky Municipal Bond Fund Class A Shares........ 4.46% 30.72% 115.55% 127.18% Class B Shares........ 4.10% 31.36% 115.35% 127.03% Class C Shares........ 8.43% 32.63% 112.87% 123.10% Class R Shares........ 9.25% 36.55% 125.23% 137.46% Kentucky Limited Term Municipal Bond Fund Class A Shares........ 3.92% N/A N/A 14.36% Class C Shares........ 6.17% N/A N/A 16.26% Class R Shares........ 6.58% N/A N/A 17.38% Michigan Municipal Bond Fund Class A Shares........ 4.39% 29.63% 108.74% 173.13% Class B Shares........ 4.12% 30.55% 108.54% 172.86% Class C Shares........ 8.45% 31.25% 105.59% 164.59% Class R Shares........ 9.16% 35.71% 118.41% 185.73% Missouri Municipal Bond Fund Class A Shares ....... 4.76% 30.04% 112.38% 117.58% Class B Shares........ 4.53% 30.79% 112.27% 117.48% Class C Shares........ 8.74% 32.12% 109.96% 114.14% Class R Shares........ 9.56% 36.14% 122.34% 127.80% S-40 132 CUMULATIVE TOTAL RETURNS -------------------------------------------------------- ONE YEAR FIVE YEARS TEN YEARS FROM ENDED ENDED ENDED INCEPTION THROUGH MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 ------------ ------------ ------------ ----------------- Ohio Municipal Bond Fund Class A Shares ....... 4.19% 27.90% 103.38% 165.62% Class B Shares........ 3.89% 28.53% 103.21% 165.36% Class C Shares........ 8.12% 29.89% 100.92% 158.11% Class R Shares........ 8.89% 33.78% 112.69% 177.74% Wisconsin Municipal Bond Fund Class A Shares ....... 5.56% N/A N/A 25.82% Class B Shares........ 5.46% N/A N/A 25.49% Class C Shares........ 9.59% N/A N/A 29.38% Class R Shares........ 10.47% N/A N/A 31.94% Calculation of taxable equivalent total return is also not subject to a prescribed formula. Taxable equivalent total return for a specific period is calculated by first taking a hypothetical initial investment in Fund shares on the first day of the period, computing the total return for each calendar year in the period in the manner described above, and increasing the total return for each such calendar year by the amount of additional income that a taxable fund would need to have generated to equal the income on an after-tax basis, at a specified income tax rate (usually the highest marginal federal tax rate), calculated as described above under the discussion of "taxable equivalent yield." The resulting amount for the calendar year is then divided by the initial investment amount to arrive at a "taxable equivalent total return factor" for the calendar year. The taxable equivalent total return factors for all the calendar years are then multiplied together and the result is then annualized by taking its Nth root (N representing the number of years in the period) and subtracting 1, which provides a taxable equivalent total return expressed as a percentage. Using the 44.3% maximum marginal federal tax rate for 1998, the annual taxable equivalent total return for the Kansas Municipal Bond Fund, Class A Shares, for the one-year period ended May 31, 1998 was 13.49%. Class A Shares of the Funds are sold at net asset value plus a current maximum sales charge of 4.20% of the offering price. This current maximum sales charge will typically be used for purposes of calculating performance figures. Yield, returns and net asset value of each class of shares of the Funds will fluctuate. Factors affecting the performance of the Funds include general market conditions, operating expenses and investment management. Any additional fees charged by a securities representative or other financial services firm would reduce returns described in this section. Shares of the Funds are redeemable at net asset value, which may be more or less than original cost. In reports or other communications to shareholders or in advertising and sales literature, the Funds may also compare their performance with that of: (1) the Consumer Price Index or various unmanaged bond indexes such as the Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade Corporate Bond Index and (2) other fixed income or municipal bond mutual funds or mutual fund indexes as reported by Lipper Analytical Services, Inc. ("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc. ("CDA") or similar independent services which monitor the performance of mutual funds, or other industry or financial publications such as Barron's, Changing Times, Forbes and Money Magazine. Performance comparisons by these indexes, services or publications may rank mutual funds over different periods of time by means of aggregate, average, year-by-year, or other types of total return and performance figures. Any given performance quotation or performance comparison should not be considered as representative of the performance of the Funds for any future period. S-41 133 Each Fund may from time to time in its advertising and sales materials compare its current yield or total return with the yield or total return on taxable investments such as corporate or U.S. Government bonds, bank certificates of deposit (CDs) or money market funds. These taxable investments have investment characteristics that differ from those of the Funds. U.S. Government bonds, for example, are long-term investments backed by the full faith and credit of the U.S. Government, and bank CDs are generally short-term, FDIC-insured investments, which pay fixed principal and interest but are subject to fluctuating rollover rates. Money market funds are short-term investments with stable net asset values, fluctuating yields and special features enhancing liquidity. There are differences and similarities between the investments which the Funds may purchase and the investments measured by the indexes and reporting services which are described herein. The Consumer Price Index is generally considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond Index is a weighted performance average of other mutual funds with a federally tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond Index is an unmanaged index that generally represents the performance of high grade long-term taxable bonds during various market conditions. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally represents the performance of high grade intermediate and long-term municipal bonds during various market conditions. Lipper calculates municipal bond fund averages based on average maturity and credit quality. Morningstar rates mutual funds by overall risk-adjusted performance, investment objectives, and assets. Lipper, Morningstar, Wiesenberger and CDA are widely recognized mutual fund reporting services whose performance calculations are based upon changes in net asset value with all dividends reinvested and which do not include the effect of any sales charges. The market prices and yields of taxable and tax-exempt bonds will fluctuate. The Funds primarily invest in investment grade Municipal Obligations in pursuing their objective of as high a level of current interest income which is exempt from federal and state income tax as is consistent, in the view of the Funds' management, with preservation of capital. The Funds may also compare their taxable equivalent total return performance to the total return performance of taxable income funds such as treasury securities funds, corporate bond funds (either investment grade or high yield), or Ginnie Mae funds. These types of funds, because of the character of their underlying securities, differ from municipal bond funds in several respects. The susceptibility of the price of treasury bonds to credit risk is far less than that of municipal bonds, but the price of treasury bonds tends to be slightly more susceptible to change resulting from changes in market interest rates. The susceptibility of the price of investment grade corporate bonds and municipal bonds to market interest rate changes and general credit changes is similar. High yield bonds are subject to a greater degree of price volatility than municipal bonds resulting from changes in market interest rates and are particularly susceptible to volatility from credit changes. Ginnie Mae bonds are generally subject to less price volatility than municipal bonds from credit concerns, due primarily to the fact that the timely payment of monthly installments of principal and interest are backed by the full faith and credit of the U.S. Government, but Ginnie Mae bonds of equivalent coupon and maturity are generally more susceptible to price volatility resulting from market interest rate changes. In addition, the volatility of Ginnie Mae bonds due to changes in market interest rates may differ from municipal bonds of comparable coupon and maturity because bonds of the sensitivity of Ginnie Mae prepayment experience to change in interest rates. S-42 134 ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES As described in the Prospectus, the Funds provide you with alternative ways of purchasing Fund shares based upon your individual investment needs and preferences. Each class of shares of a Fund represents an interest in the same portfolio of investments. Each class of shares is identical in all respects except that each class bears its own class expenses, including distribution and administration expenses, and each class has exclusive voting rights with respect to any distribution or service plan applicable to its shares. As a result of the differences in the expenses borne by each class of shares, net income per share, dividends per share and net asset value per share will vary among a Fund's classes of shares. Shareholders of each class will share expenses proportionately for services that are received equally by all shareholders. A particular class of shares will bear only those expenses that are directly attributable to that class, where the type or amount of services received by a class varies from one class to another. For example, class-specific expenses generally will include distribution and service fees. The minimum initial investment is $3,000 per fund share class, and may be lower for accounts opened through fee-based programs for which the program sponsor has established a single master account with the fund's transfer agent and performs all sub-accounting services related to that account. Class A Shares may be purchased at a public offering price equal to the applicable net asset value per share plus an up-front sales charge imposed at the time of purchase as set forth in the Prospectus. Shareholders may qualify for a reduced sales charge, or the sales charge may be waived in its entirety, as described below. Class A Shares are also subject to an annual service fee of .20%. See "Distribution and Service Plan." Set forth below is an example of the method of computing the offering price of the Class A shares of a Fund. The example assumes a purchase on May 31, 1998 of Class A shares from the Nuveen Flagship Kansas Municipal Bond Fund aggregating less than $50,000 subject to the schedule of sales charges set forth in the Prospectus at a price based upon the net asset value of the Class A shares. Net Asset Value per share......................................... $10.60 Per Share Sales Charge--4.20% of public offering price (4.34% of net asset value per share)....................................... .46 ------ Per Share Offering Price to the Public............................ $11.06 The Funds receive the entire net asset value of all Class A Shares that are sold. Nuveen retains the full applicable sales charge from which it pays the uniform reallowances shown in the Prospectus to Authorized Dealers. The following Class A sales charges and commissions apply to all Funds except Kentucky Limited Term: AUTHORIZED DEALER SALES CHARGE AS % OF SALES CHARGE AS % OF COMMISSION AS % OF AMOUNT OF PURCHASE PUBLIC OFFERING PRICE NET AMOUNT INVESTED PUBLIC OFFERING PRICE --------------------------------- --------------------- -------------------- --------------------- Less than $50,000 4.20% 4.38% 3.70% $50,000 but less than $100,000 4.00% 4.18% 3.50% $100,000 but less than $250,000 3.50% 3.63% 3.00% $250,000 but less than $500,000 2.50% 2.56% 2.00% $500,000 but less than $1,000,000 2.00% 2.04% 1.50% $1,000,000 and over --(1) -- 1.00%(1) S-43 135 The following Class A sales charge and commissions apply to the Kentucky Limited Term Fund: AUTHORIZED DEALER AMOUNT OF SALES CHARGE AS % OF SALES CHARGE AS % OF COMMISSION AS % OF PURCHASE PUBLIC OFFERING PRICE NET AMOUNT INVESTED PUBLIC OFFERING PRICE - --------- --------------------- -------------------- --------------------- Less than $50,000 2.50% 2.56% 2.00% $50,000 but less than $100,000 2.00% 2.04% 1.60% $100,000 but less than $250,000 1.50% 1.52% 1.20% $250,000 but less than $500,000 1.25% 1.27% 1.00% $500,000 but less than $1,000,000 0.75% 0.76% 0.60% $1,000,000 and over --(1) -- 0.50%(1) - -------- (1) You can buy $1 million or more of Class A shares at net asset value without an up-front sales charge. Nuveen pays authorized dealers of record on these share purchases a sales commission of 1.00% (0.50% for the Kentucky Limited Term fund) of the first $2.5 million, plus .50% of the next $2.5 million, plus .25% of the amount over $5.0 million. If you redeem your shares within 18 months of purchase, you may have to pay a CDSC of 1% (0.50% for the Kentucky Limited Term fund) of either your purchase price or your redemption proceeds, whichever is lower. You do not have to pay this CDSC if your financial adviser has made arrangements with Nuveen and agrees to waive the commission. REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES AND CLASS R SHARE PURCHASE AVAILABILITY Rights of Accumulation. You may qualify for a reduced sales charge on a purchase of Class A Shares of any Fund if the amount of your purchase, when added to the value that day of all of your prior purchases of shares of any Fund or of another Nuveen Mutual Fund, or Nuveen exchange-traded fund, or units of a Nuveen Defined Portfolio, on which an up-front sales charge or ongoing distribution fee is imposed or is normally imposed, falls within the amounts stated in the Class A Sales Charges and Commissions table in "How You Can Buy and Sell Shares" in the Prospectus. You or your financial adviser must notify Nuveen or the Fund's transfer agent of any cumulative discount whenever you plan to purchase Class A Shares of a Fund that you wish to qualify for a reduced sales charge. Letter of Intent. You may qualify for a reduced sales charge on a purchase of Class A Shares of any Fund if you plan to purchase Class A Shares of Nuveen Mutual Funds over the next 13 months and the total amount of your purchases would, if purchased at one time, qualify you for one of the reduced sales charges shown in the Class A Sales Charges and Commissions table in "How You Can Buy and Sell Shares" in the Prospectus. In order to take advantage of this option, you must complete the applicable section of the Application Form or sign and deliver either to an Authorized Dealer or to the Fund's transfer agent a written Letter of Intent in a form acceptable to Nuveen. A Letter of Intent states that you intend, but are not obligated, to purchase over the next 13 months a stated total amount of Class A Shares that would qualify you for a reduced sales charge shown above. You may count shares of a Nuveen Mutual Fund that you already own on which you paid an up-front sales charge or an ongoing distribution fee and any Class B or C Shares of a Nuveen Mutual Fund that you purchase over the next 13 months towards completion of your investment program, but you will receive a reduced sales charge only on new Class A Shares you purchase with a sales charge over the 13 months. You cannot count towards completion of your investment program Class A Shares that you purchase without a sales charge through investment of distributions from a Nuveen Mutual Fund or a Nuveen Defined Portfolio, or otherwise. S-44 136 By establishing a Letter of Intent, you agree that your first purchase of Class A Shares of a Fund following execution of the Letter of Intent will be at least 5% of the total amount of your intended purchases. You further agree that shares representing 5% of the total amount of your intended purchases will be held in escrow pending completion of these purchases. All dividends and capital gains distributions on Class A Shares held in escrow will be credited to your account. If total purchases, less redemptions, prior to the expiration of the 13 month period equal or exceed the amount specified in your Letter of Intent, the Class A Shares held in escrow will be transferred to your account. If the total purchases, less redemptions, exceed the amount specified in your Letter of Intent and thereby qualify for a lower sales charge than the sales charge specified in your Letter of Intent, you will receive this lower sales charge retroactively, and the difference between it and the higher sales charge paid will be used to purchase additional Class A Shares on your behalf. If the total purchases, less redemptions, are less than the amount specified, you must pay Nuveen an amount equal to the difference between the amounts paid for these purchases and the amounts which would have been paid if the higher sales charge had been applied. If you do not pay the additional amount within 20 days after written request by Nuveen or your financial adviser, Nuveen will redeem an appropriate number of your escrowed Class A Shares to meet the required payment. By establishing a Letter of Intent, you irrevocably appoint Nuveen as attorney to give instructions to redeem any or all of your escrowed shares, with full power of substitution in the premises. You or your financial adviser must notify Nuveen or the Fund's transfer agent whenever you make a purchase of Fund shares that you wish to be covered under the Letter of Intent option. Reinvestment of Nuveen Defined Portfolio Distributions. You may purchase Class A Shares without an up-front sales charge by reinvestment of distributions from any of the various Defined Portfolios sponsored by Nuveen. There is no initial or subsequent minimum investment requirement for such reinvestment purchases. Group Purchase Programs. If you are a member of a qualified group, you may purchase Class A Shares of any Fund or of another Nuveen Mutual Fund at the reduced sales charge applicable to the group's purchases taken as a whole. A "qualified group" is one which has previously been in existence, has a purpose other than investment, has ten or more participating members, has agreed to include Fund sales publications in mailings to members and has agreed to comply with certain administrative requirements relating to its group purchases. Under any group purchase program, the minimum initial investment in Class A shares of any particular Fund or portfolio for each participant in the program is $3,000 and the minimum monthly investment in Class A shares of any particular Fund or portfolio by each participant is $50. No certificates will be issued for any participant's account. All dividends and other distributions by a Fund will be reinvested in additional Class A Shares of the same Fund. No participant may utilize a systematic withdrawal program. To establish a group purchase program, both the group itself and each participant must fill out special application materials, which the group administrator may obtain from the group's financial adviser, by calling Nuveen toll-free (800) 257-8787. Reinvestment of Redemption Proceeds from Unaffiliated Funds. You may also purchase Class A Shares at net asset value without a sales charge if the purchase takes place through a broker-dealer and represents the reinvestment of the proceeds of the redemption of shares of one or more registered investment companies not affiliated with Nuveen. You must provide appropriate documentation that the redemption occurred not more than one year prior to the reinvestment of the proceeds in Class A Shares, and that you either paid an up- front sales charge or were subject to a contingent deferred sales charge in respect of the redemption of such shares of such other investment company. S-45 137 Special Sales Charge Waivers. Class A Shares of a Fund may be purchased at net asset value without a sales charge, and may be purchased by the following categories of investors: . investors purchasing $1,000,000 or more; . officers, trustees and former trustees of the Nuveen and Flagship Funds; . bona fide, full-time and retired employees of Nuveen, any parent company of Nuveen, and subsidiaries thereof, or their immediate family members; . any person who, for at least 90 days, has been an officer, director or bona fide employee of any Authorized Dealer, or their immediate family members; . officers and directors of bank holding companies that make Fund shares available directly or through subsidiaries or bank affiliates, or their immediate family members; . bank or broker-affiliated trust departments investing funds over which they exercise exclusive discretionary investment authority and that are held in a fiduciary, agency, advisory, custodial or similar capacity; . investors purchasing on a periodic fee, asset-based fee or no transaction fee basis through a broker-dealer sponsored mutual fund purchase program; . clients of investment advisers, financial planners or other financial intermediaries that charge periodic or asset-based fees for their services. . any eligible employer-sponsored qualified defined contribution retirement plan. Eligible plans are those with at least 25 employees and which either (a) make an initial purchase of one or more Nuveen Mutual Funds aggregating $500,000 or more or (b) execute a Letter of Intent to purchase in the aggregate $500,000 or more of fund shares. Nuveen will pay Authorized Dealers a sales commission on such purchases equal to 1% of the first $2.5 million, plus 2.5% of any amount purchased over $5.0 million. For this category of investors a contingent deferred sales charge of 1% will be assessed on redemptions within 18 months of purchase, unless waived. Municipal bond funds are not a suitable investment for individuals investing in retirement plans. Holders of Class C Shares acquired on or before January 31, 1997 can convert those shares to Class A Shares of the same fund at the shareholder's affirmative request six years after the date of purchase. Holders of Class C Shares must submit their request to the transfer agent no later than the last business day of the 71st month following the month in which they purchased their shares. Holders of Class C Shares purchased after that date will not have the option to convert those shares to Class A Shares. Class B Shares will automatically convert to Class A Shares eight years after purchase. The purpose of the conversion is to limit the distribution fees you pay over the life of your investment. All conversions will be done at net asset value without the imposition of any sales load, fee, or other charge, so that the value of each shareholder's account immediately before conversion will be the same as the value of the account immediately after conversion. Class B Shares acquired through reinvestment of distributions will convert into Class A Shares based on the date of the initial purchase to which such shares relate. For this purpose, Class B Shares acquired through reinvestment of distributions will be attributed to particular purchases of Class B Shares in accordance with such procedures as the Board of Trustees may determine from time to time. Class B Shares that are converted to Class A Shares will remain subject to an annual service fee that is identical in amount for both Class B Shares and Class A Shares. Since net asset value per share of the Class B Shares and the Class A Shares may differ at the time of conversion, a shareholder may receive more or fewer Class A Shares than the number of Class B Shares converted. Any conversion of Class B Shares into Class A Shares will be subject to the S-46 138 continuing availability of an opinion of counsel or a private letter ruling from the Internal Revenue Service to the effect that the conversion of shares would not constitute a taxable event under federal income tax law. Conversion of Class B Shares into Class A Shares might be suspended if such an opinion or ruling were no longer available. Any Class A Shares purchased pursuant to a special sales charge waiver must be acquired for investment purposes and on the condition that they will not be transferred or resold except through redemption by the Funds. You or your financial adviser must notify Nuveen or the Fund's transfer agent whenever you make a purchase of Class A Shares of any Fund that you wish to be covered under these special sales charge waivers. Class A Shares of any Fund may be issued at net asset value without a sales charge in connection with the acquisition by a Fund of another investment company. All purchases under the special sales charge waivers will be subject to minimum purchase requirements as established by the Funds. In determining the amount of your purchases of Class A Shares of any Fund that may qualify for a reduced sales charge, the following purchases may be combined: (1) all purchases by a trustee or other fiduciary for a single trust, estate or fiduciary account; (2) all purchases by individuals and their immediate family members (i.e., their spouses, parents, children, grandparents, grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a sibling's spouse, and a spouse's siblings); or (3) all purchases made through a group purchase program as described above. Class R Share Purchase Eligibility. Class R Shares are available for purchases of $2.5 million or more and for purchases using dividends and capital gains distributions on Class R Shares. Class R Shares also are available for the following categories of investors: . officers, trustees and former trustees of the Nuveen and Flagship Funds and their immediate family members or trustees/directors of any fund, sponsored by Nuveen, any parent company of Nuveen and subsidiaries thereof and their immediate family members; . bona fide, full-time and retired employees of Nuveen, any parent company of Nuveen, and subsidiaries thereof, or their immediate family members; . any person who, for at least 90 days, has been an officer, director or bona fide employee of any Authorized Dealer, or their immediate family members; . officers and directors of bank holding companies that make Fund shares available directly or through subsidiaries or bank affiliates, or their immediate family members; . bank or broker-affiliated trust departments investing funds over which they exercise exclusive discretionary investment authority and that are held in a fiduciary, agency, advisory, custodial or similar capacity; . investors purchasing on a periodic fee, asset-based fee or no transaction fee basis through a broker-dealer sponsored mutual fund purchase program; . clients of investment advisers, financial planners or other financial intermediaries that charge periodic or asset-based fees for their services. . Any shares purchased by investors falling within any of the first four categories listed above must be acquired for investment purposes and on the condition that they will not be transferred or resold except through redemption by the fund. In addition, purchasers of Nuveen Defined Portfolios may reinvest their distributions from such Defined Portfolios in Class R Shares, if, before September 6, 1994, such purchasers had elected to reinvest distributions S-47 139 in Nuveen Fund shares (before June 13, 1995 for Nuveen Municipal Bond Fund shares). Shareholders may exchange their Class R Shares of any Nuveen Fund into Class R Shares of any other Nuveen Fund. The reduced sales charge programs may be modified or discontinued by the Funds at any time upon prior written notice to shareholders of the Funds. For more information about the purchase of Class A Shares or reduced sales charge programs, or to obtain the required application forms, call Nuveen toll- free at (800) 257-8787. REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE Class A Shares are normally redeemed at net asset value, without any Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A Shares purchased at net asset value because the purchase amount exceeded $1 million, where the Authorized Dealer did not waive the sales commission, a CDSC of 1% is imposed on any redemption within 18 months of purchase. In the case of Class B Shares redeemed within six years of purchase, a CDSC is imposed, beginning at 5% for redemptions within the first year, declining to 4% for redemptions within years two and three, and declining by 1% each year thereafter until disappearing after the sixth year. Class C Shares are redeemed at net asset value, without any CDSC, except that a CDSC of 1% is imposed upon redemption of Class C Shares that are redeemed within 12 months of purchase. In determining whether a CDSC is payable, a Fund will first redeem shares not subject to any charge, or that represent an increase in the value of a Fund account due to capital appreciation, and then will redeem shares held for the longest period, unless the shareholder specifies another order. No CDSC is charged on shares purchased as a result of automatic reinvestment of dividends or capital gains paid. In addition, no CDSC will be charged on exchanges of shares into another Nuveen Mutual Fund or Nuveen Money Market fund. The holding period is calculated on a monthly basis and begins the first day of the month in which the order for investment is received. The CDSC is calculated based on the lower of the redeemed shares' cost or net asset value at the time of the redemption and is deducted from the redemption proceeds. Nuveen receives the amount of any CDSC shareholders pay. If shares subject to a CDSC are exchanged for shares of a Nuveen money market fund, the CDSC would be imposed on the subsequent redemption of those money market shares, and the period during which the shareholder holds the money market fund shares would be counted in determining the remaining duration of the CDSC. The Fund may elect not to so count the period during which the shareholder held the money market fund shares, in which event the amount of any applicable CDSC would be reduced in accordance with applicable SEC rules by the amount of any 12b-1 plan payments to which those money market funds shares may be subject. The CDSC may be waived or reduced under the following six special circumstances: 1) redemptions within one year following the death or disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, of a shareholder; 2) in whole or in part for redemptions of shares by shareholders with accounts in excess of specified breakpoints that correspond to the breakpoints under which the up-front sales charge on Class A Shares is reduced pursuant to Rule 22d-1 under the Act; 3) redemptions of shares purchased under circumstances or by a category of investors for which Class A Shares could be purchased at net asset value without a sales charge; 4) in connection with the exercise of a reinstatement privilege whereby the proceeds of a redemption of a Fund's shares subject to a sales charge are reinvested in shares of certain Funds within a specified number of days; 5) in connection with the exercise of a Fund's right to redeem all shares in an account that does not maintain a certain minimum balance or that the applicable board has determined may have material adverse consequences to the shareholders of such Fund; and 6) redemptions made pursuant to a Fund's systematic withdrawal plan, up to 12% of the current market value. If a Fund waives or reduces the CDSC, S-48 140 such waiver or reduction would be uniformly applied to all Fund shares in the particular category. In waiving or reducing a CDSC, the Funds will comply with the requirements of Rule 22d-1 of the Investment Company Act of 1940, as amended. GENERAL MATTERS The Funds may encourage registered representatives and their firms to help apportion their assets among bonds, stocks and cash, and may seek to participate in programs that recommend a portion of their assets be invested in tax-free, fixed income securities. In addition to the types of compensation to dealers to promote sales of fund shares that are described in the prospectus, Nuveen may from time to time make additional reallowances only to certain authorized dealers who sell or are expected to sell certain minimum amounts of shares of the Nuveen mutual funds during specified time periods. To help advisers and investors better understand and most efficiently use the Funds to reach their investment goals, the Funds may advertise and create specific investment programs and systems. For example, this may include information on how to use the Funds to accumulate assets for future education needs or periodic payments such as insurance premiums. The Funds may produce software, electronic information sites, or additional sales literature to promote the advantages of using the Funds to meet these and other specific investor needs. Exchanges of shares of a Fund for shares of a Nuveen Money Market fund may be made on days when both funds calculate a net asset value and make shares available for public purchase. Shares of the Nuveen money market funds may be purchased on days on which the Federal Reserve Bank of Boston is normally open for business. In addition to the holidays observed by the Fund, the Nuveen money market funds observe and will not make fund shares available for purchase on the following holidays: Martin Luther King's Birthday, Columbus Day and Veterans Day. In addition, you may exchange Class R Shares of any Fund for Class A Shares of the same Fund without a sales charge if the current net asset value of those Class R Shares is at least $3,000 or you already own Class A Shares of that Fund. Each Fund may suspend the right of redemption, or delay payment to redeeming shareholders for more than seven days, when the New York Stock Exchange is closed (not including customary weekend and holiday closings); when trading in the markets a Fund normally uses is restricted, or the SEC determines that an emergency exists so that trading of a Fund's portfolio securities or determination of a Fund's net asset value is not reasonably practical; or the SEC by order permits the suspension of the right of redemption or the delay in payment to redeeming shareholders for more than seven days. The Funds have reserved the right to redeem in kind (that is, to pay redemption requests in cash and portfolio securities, or wholly in portfolio securities), although the Funds have no present intention to redeem in kind. The Funds voluntarily have committed to pay in cash all requests for redemption by any shareholder, limited as to each shareholder during any ninety-day period to the lesser of $250,000 or 1% of the net asset value of a Fund at the beginning of the ninety-day period. Shares will be registered in the name of the investor or the investor's financial adviser. A change in registration or transfer of shares held in the name of a financial adviser may only be made by an order in good form from the financial adviser acting on the investor's behalf. Share certificates will only be issued upon written request to the Funds' transfer agent. No share certificates will be issued for fractional shares. For more information on the procedure for purchasing shares of a Fund and on the special purchase programs available thereunder, see "How to Buy Shares" in the Prospectus. S-49 141 Nuveen serves as the principal underwriter of the shares of the Funds pursuant to a "best efforts" arrangement as provided by a distribution agreement with the Nuveen Flagship Multistate Trust IV, dated February 1, 1997 and last renewed on July 31, 1998 ("Distribution Agreement"). Pursuant to the Distribution Agreement, the Trust appointed Nuveen to be its agent for the distribution of the Funds' shares on a continuous offering basis. Nuveen sells shares to or through brokers, dealers, banks or other qualified financial intermediaries (collectively referred to as "Dealers"), or others, in a manner consistent with the then effective registration statement of the Trust. Pursuant to the Distribution Agreement, Nuveen, at its own expense, finances certain activities incident to the sale and distribution of the Funds' shares, including printing and distributing of prospectuses and statements of additional information to other than existing shareholders, the printing and distributing of sales literature, advertising and payment of compensation and giving of concessions to Dealers. Nuveen receives for its services the excess, if any, of the sales price of the Funds' shares less the net asset value of those shares, and reallows a majority or all of such amounts to the Dealers who sold the shares; Nuveen may act as such a Dealer. Nuveen also receives compensation pursuant to a distribution plan adopted by the Trust pursuant to Rule 12b-1 and described herein under "Distribution and Service Plan." Nuveen receives any CDSCs imposed on redemptions of Shares. The following table sets forth the aggregate amount of underwriting commissions with respect to the sale of Fund shares and the amount thereof retained by Nuveen (or Flagship Financial Inc., which Nuveen acquired on January 1, 1997) for each of the Funds for the last three fiscal years. All figures are to the nearest thousand. YEAR ENDED YEAR ENDED YEAR ENDED MAY 31, 1998 MAY 31, 1997 MAY 31, 1996 ------------------------ ------------------------ ------------------------ AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY COMMISSIONS NUVEEN COMMISSIONS FLAGSHIP COMMISSIONS FLAGSHIP FUND ------------ ----------- ------------ ----------- ------------ ----------- Kansas Fund............. 255 35 251 35 384 51 Kentucky Fund........... 1,076 141 1,057 145 1,304 174 Kentucky Limited Fund... 25 5 23 4 -- -- Michigan Fund........... 397 55 553 76 594 81 Missouri Fund........... 490 36 632 87 892 120 Ohio Fund............... 891 113 931 124 1,066 141 Wisconsin Fund.......... 143 19 170 21 272 24 DISTRIBUTION AND SERVICE PLAN The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, which provides that Class B Shares and Class C Shares will be subject to an annual distribution fee, and that Class A Shares, Class B Shares and Class C Shares will be subject to an annual service fee. Class R Shares will not be subject to either distribution or service fees. The distribution fee applicable to Class B and Class C Shares under each Fund's Plan will be payable to reimburse Nuveen for services and expenses incurred in connection with the distribution of Class B and Class C Shares, respectively. These expenses include payments to Authorized Dealers, including Nuveen, who are brokers of record with respect to the Class B and Class C Shares, as well as, without limitation, expenses of printing and distributing prospectuses to persons other than shareholders of the Fund, expenses of preparing, printing and distributing advertising and sales literature and reports to shareholders used in connection with the sale of Class B and Class C Shares, certain other expenses associated with the distribution of Class B and Class C Shares, and any distribution-related expenses that may be authorized from time to time by the Board of Trustees. The service fee applicable to Class A Shares, Class B Shares and Class C Shares under each Fund's Plan will be payable to Authorized Dealers in connection with the provision of ongoing account services to shareholders. S-50 142 These services may include establishing and maintaining shareholder accounts, answering shareholder inquiries and providing other personal services to shareholders. Each Fund may spend up to .20 of 1% per year of the average daily net assets of Class A Shares as a service fee under the Plan applicable to Class A Shares. Each Fund may spend up to .75 of 1% per year of the average daily net assets of Class B Shares as a distribution fee and up to .20 of 1% per year of the average daily net assets of Class B Shares as a service fee under the Plan applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of the average daily net assets of Class C Shares as a distribution fee and up to .20 of 1% per year of the average daily net assets of Class C Shares as a service fee under the Plan applicable to Class C Shares. For the fiscal year ended May 31, 1998, 100% of service fees and distribution fees were paid out as compensation to Authorized Dealers. The service fee for Class A, Class B and Class C Shares was .20% and the distribution fee for Class B Shares was .75% and for Class C Shares was .55% (.35% for the Kentucky Limited Term Fund Class C Shares). COMPENSATION PAID TO AUTHORIZED DEALERS FOR END OF FISCAL 1998 ---------------------- Kansas Municipal Bond Fund Class A................................................ $195,749 Class B................................................ $ 16,985 Class C................................................ $ 5,028 Kentucky Municipal Bond Fund Class A................................................ $888,602 Class B................................................ $ 22,890 Class C................................................ $203,304 Kentucky Limited Municipal Bond Fund Class A................................................ $ 18,810 Class C................................................ $ 12,956 Michigan Bond Fund Class A................................................ $525,468 Class B................................................ $ 14,397 Class C................................................ $328,163 Missouri Municipal Bond Fund Class A................................................ $458,460 Class B................................................ $ 10,095 Class C................................................ $ 76,058 Ohio Municipal Bond Fund Class A................................................ $946,661 Class B................................................ $ 40,065 Class C................................................ $324,807 Wisconsin Municipal Bond Fund Class A................................................ $ 36,486 Class B................................................ $ 7,440 Class C................................................ $ 3,884 Under each Fund's Plan, the Fund will report quarterly to the Board of Trustees for its review all amounts expended per class of shares under the Plan. The Plan may be terminated at any time with respect to any class of shares, without the payment of any penalty, by a vote of a majority of the trustees who are not "interested persons" and who have no direct or indirect financial interest in the Plan or by vote of a majority of the S-51 143 outstanding voting securities of such class. The Plan may be renewed from year to year if approved by a vote of the Board of Trustees and a vote of the non- interested trustees who have no direct or indirect financial interest in the Plan cast in person at a meeting called for the purpose of voting on the Plan. The Plan may be continued only if the trustees who vote to approve such continuance conclude, in the exercise of reasonable business judgment and in light of their fiduciary duties under applicable law, that there is a reasonable likelihood that the Plan will benefit the Fund and its shareholders. The Plan may not be amended to increase materially the cost which a class of shares may bear under the Plan without the approval of the shareholders of the affected class, and any other material amendments of the Plan must be approved by the non-interested trustees by a vote cast in person at a meeting called for the purpose of considering such amendments. During the continuance of the Plan, the selection and nomination of the non-interested trustees of the Trust will be committed to the discretion of the non-interested trustees then in office. INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN Arthur Andersen LLP, independent public accountants, 33 West Monroe Street, Chicago, Illinois 60603 has been selected as auditors for the Trust. In addition to audit services, the auditors will provide consultation and assistance on accounting, internal control, tax and related matters. The financial statements incorporated by reference elsewhere in this Statement of Additional Information and the information for prior periods set forth under "Financial Highlights" in the Prospectus have been audited by the auditors as indicated in their reports with respect thereto, and are included in reliance upon the authority of those auditors in giving their reports. The custodian of the Funds' assets is The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004. The custodian performs custodial, fund accounting, and portfolio accounting services. The Fund's transfer, shareholder services, and dividend paying agent is Chase Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108. FINANCIAL STATEMENTS The audited financial statements for each Fund's most recent fiscal year appear in the Fund's Annual Reports and are incorporated herein by reference. S-52 144 APPENDIX A RATINGS OF INVESTMENTS The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A and Baa. Municipal Obligations rated Aaa are judged to be of the "best quality." The rating of Aa is assigned to Municipal Obligations which are of "high quality by all standards," but as to which margins of protection or other elements make long-term risks appear somewhat greater than in Aaa rated Municipal Obligations. The Aaa and Aa rated Municipal Obligations comprise what are generally known as "high grade bonds." Municipal Obligations that are rated A by Moody's possess many favorable investment attributes and are considered upper medium grade obligations. Factors giving security to principal and interest of A rated Municipal Obligations are considered adequate, but elements may be present, which suggest a susceptibility to impairment sometime in the future. Municipal Obligations rated Baa by Moody's are considered medium grade obligations (i.e., they are neither highly protected nor poorly secured). Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Moody's bond rating symbols may contain numerical modifiers of a generic rating classification. The modifier 1 indicates that the bond ranks at the high end of its category; the modifier 2 indicates a mid- range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its general rating category. The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and BBB. Municipal Obligations rated AAA have a strong capacity to pay principal and interest. The rating of AA indicates that capacity to pay principal and interest is very strong and such bonds differ from AAA issues only in small degree. The category of A describes bonds which have a strong capacity to pay principal and interest, although such bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. The BBB rating is the lowest "investment grade" security rating by S&P. Municipal Obligations rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas such bonds normally exhibit adequate protection parameters, adverse economic conditions are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category. The four highest ratings of Fitch for Municipal Obligations are AAA, AA, A and BBB. Municipal Obligations rated AAA are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. Municipal Obligations rated AA are considered to be investment grade and of very high quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA." Because Municipal Obligations rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." Municipal Obligations rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Municipal Obligations rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. The "Other Corporate Obligations" category of temporary investments are corporate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong capacity to pay principal and interest. The Moody's corporate debt rating of Aaa is comparable to that set forth above for Municipal Obligations. A-1 145 Subsequent to its purchase by a Fund, an issue may cease to be rated or its rating may be reduced below the minimum required for purchase by such Fund. Neither event requires the elimination of such obligation from a Fund's portfolio, but Nuveen Advisory will consider such an event in its determination of whether the Fund should continue to hold such obligation. A-2 146 APPENDIX B DESCRIPTION OF HEDGING TECHNIQUES Set forth below is additional information regarding the various Fund's defensive hedging techniques and use of repurchase agreements. FUTURES AND INDEX TRANSACTIONS Financial Futures. A financial future is an agreement between two parties to buy and sell a security for a set price on a future date. They have been designed by boards of trade which have been designated "contracts markets" by the Commodity Futures Trading Commission ("CFTC"). The purchase of financial futures is for the purpose of hedging a Fund's existing or anticipated holdings of long-term debt securities. When a Fund purchases a financial future, it deposits in cash or securities an "initial margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's account is either credited or debited on a daily basis in correlation with the fluctuation in price of the underlying future or other requirements imposed by the exchange in order to maintain an orderly market. The Fund must make additional payments to cover debits to its account and has the right to withdraw credits in excess of the liquidity, the Fund may close out its position at any time prior to expiration of the financial future by taking an opposite position. At closing a final determination of debits and credits is made, additional cash is paid by or to the Fund to settle the final determination and the Fund realizes a loss or gain depending on whether on a net basis it made or received such payments. The sale of financial futures is for the purpose of hedging a Fund's existing or anticipated holdings of long-term debt securities. For example, if a Fund owns long-term bonds and interest rates were expected to increase, it might sell financial futures. If interest rates did increase, the value of long-term bonds in the Fund's portfolio would decline, but the value of the Fund's financial futures would be expected to increase at approximately the same rate thereby keeping the net asset value of the Fund from declining as much as it otherwise would have. Among the risks associated with the use of financial futures by the Funds as a hedging device, perhaps the most significant is the imperfect correlation between movements in the price of the financial futures and movements in the price of the debt securities which are the subject of the hedge. Thus, if the price of the financial future moves less or more than the price of the securities which are the subject of the hedge, the hedge will not be fully effective. To compensate for this imperfect correlation, the Fund may enter into financial futures in a greater dollar amount than the dollar amount of the securities being hedged if the historical volatility of the prices of such securities has been greater than the historical volatility of the financial futures. Conversely, the Fund may enter into fewer financial futures if the historical volatility of the price of the securities being hedged is less than the historical volatility of the financial futures. The market prices of financial futures may also be affected by factors other than interest rates. One of these factors is the possibility that rapid changes in the volume of closing transactions, whether due to volatile markets or movements by speculators, would temporarily distort the normal relationship between the markets in the financial future and the chosen debt securities. In these circumstances as well as in periods of rapid and large price movements. The Fund might find it difficult or impossible to close out a particular transaction. Options on Financial Futures. The Funds may also purchase put or call options on financial futures which are traded on a U.S. Exchange or board of trade and enter into closing transactions with respect to such options to terminate an existing position. Currently, options can be purchased with respect to financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The purchase of put options on financial futures is analogous to the purchase of put options by a Fund on its portfolio securities to hedge against the risk of rising interest rates. As with options on debt securities, the holder of an option may terminate his position by selling an option of the same Fund. There is no guarantee that such closing transactions can be effected. B-1 147 INDEX CONTRACTS Index Futures. A tax-exempt bond index which assigns relative values to the tax-exempt bonds included in the index is traded on the Chicago Board of Trade. The index fluctuates with changes in the market values of all tax-exempt bonds included rather than a single bond. An index future is a bilateral agreement pursuant to which two parties agree to take or make delivery of an amount of cash--rather than any security--equal to specified dollar amount times the difference between the index value at the close of the last trading day of the contract and the price at which the index future was originally written. Thus, an index future is similar to traditional financial futures except that settlement is made in cash. Index Options. The Funds may also purchase put or call options on U.S. Government or tax-exempt bond index futures and enter into closing transactions with respect to such options to terminate an existing position. Options on index futures are similar to options on debt instruments except that an option on an index future gives the purchaser the right, in return for the premium paid, to assume a position in an index contract rather than an underlying security at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance of the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, is less than the exercise price of the option on the index future. Bond index futures and options transactions would be subject to risks similar to transactions in financial futures and options thereon as described above. No series will enter into transactions in index or financial futures or related options unless and until, in the Adviser's opinion, the market for such instruments has developed sufficiently. REPURCHASE AGREEMENTS A Fund may invest temporarily up to 5% of its assets in repurchase agreements, which are agreements pursuant to which securities are acquired by the Fund from a third party with the understanding that they will be repurchased by the seller at a fixed price on an agreed date. These agreements may be made with respect to any of the portfolio securities in which the Fund is authorized to invest. Repurchase agreements may be characterized as loans secured by the underlying securities. The Fund may enter into repurchase agreements with (i) member banks of the Federal Reserve System having total assets in excess of $500 million and (ii) securities dealers, provided that such banks or dealers meet the creditworthiness standards established by the Fund's board of trustees ("Qualified Institutions"). The Adviser will monitor the continued creditworthiness of Qualified Institutions, subject to the oversight of the Fund's board of trustees. The use of repurchase agreements involves certain risks. For example, if the seller of securities under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise, the Fund will seek to dispose of such securities, which action could involve costs or delays. If the seller becomes insolvent and subject to liquidation or reorganization under applicable bankruptcy or other laws, the Fund's ability to dispose of the underlying securities may be restricted. Finally, it is possible that the Fund may not be able to substantiate its interest in the underlying securities. To minimize this risk, the securities underlying the repurchase agreement will be held by the custodian at all times in an amount at least equal to the repurchase price, including accrued interest. If the seller fails to repurchase the securities, the Fund may suffer a loss to the extent proceeds from the sale of the underlying securities are less than the repurchase price. The resale price reflects the purchase price plus an agreed upon market rate of interest which is unrelated to the coupon rate or date of maturity of the purchased security. The collateral is marked to market daily. Such agreements permit the Fund to keep all its assets earning interest while retaining "overnight" flexibility in pursuit of investments of a longer-term nature. VAI-MS4 9-98 B-2 148 NUVEEN Municipal Bond Funds November 30, 1998 Semiannual Report Dependable, tax-free income to help you keep more of what you earn. [PHOTO APPEARS HERE] Kentucky Kentucky Limited Michigan Ohio 149 Contents 1 Dear Shareholder 4 Nuveen Flagship Kentucky Municipal Bond Fund Commentary and Overview 6 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund Commentary and Overview 8 Nuveen Flagship Michigan Municipal Bond Fund Commentary and Overview 10 Nuveen Flagship Ohio Municipal Bond Fund Commentary and Overview 12 Portfolio of Investments 40 Statement of Net Assets 41 Statement of Operations 42 Statement of Changes in Net Assets 44 Notes to Financial Statements 50 Financial Highlights 52 Building Better Portfolios 53 Fund Information Highlights As of November 30, 1998 For Class A shares at net asset value Credit Quality Performance Highlights Nuveen Flagship Kentucky Municipal Bond Fund [PIE CHART APPEARS HERE] AAA/U.S. Guaranteed 55% . One-year total return of 6.69% AA 6% . Outperformed Lipper's Peer Group average A 22% . Good credit quality, with 61% of the funds BBB/NR 17% assets invested in AAA- or AA-rated bonds Nuveen Flagship Kentucky Limited Term Municipal Bond Fund [PIE CHART APPEARS HERE] AAA/U.S. Guaranteed 44% . One-year total return of 5.36% AA 19% . Outperformed Lipper's Peer Group average A 26% . Good credit quality, with 63% of the funds BBB/NR 11% assets invested in AAA- or AA-rated bonds Nuveen Flagship Michigan Municipal Bond Fund [PIE CHART APPEARS HERE] AAA/U.S. Guaranteed 59% . One-year total return of 6.99% AA 16% . Outperformed Lipper's Peer Group average A 10% . Good credit quality, with 75% of the funds BBB/NR 15% assets invested in AAA- or AA-rated bonds Nuveen Flagship Ohio Municipal Bond Fund [PIE CHART APPEARS HERE] AAA/U.S. Guaranteed 68% . One-year total return of 7.19% AA 7% . Outperformed Lipper's Peer Group average A 11% . Good credit quality, with 75% of the funds BBB/NR 14% assets invested in AAA- or AA-rated bonds 150 [PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE] Timothy R. Schwertfeger Chairman of the Board Wealth takes a lifetime to build. Once achieved, it should be preserved. Dear Shareholder I'm pleased to report on the performance of the Nuveen Municipal Bond Funds for the 12 months ended November 30, 1998. Providing a reliable source of tax-free income and competitive after-tax total returns remains the primary investment objective for each of these funds. In each case, we achieved this objective, illustrating once again that Nuveen municipal bond funds can provide an excellent investment option for income-oriented investors. The Year in Review Over the past year, the markets endured bouts of volatility, as the Asian financial crisis spilled over into emerging markets and affected economies around the globe. This economic turmoil affected the U.S. equity market, which was very volatile over the past year. The Federal Reserve (the Fed) intervened in an attempt to soften the impact of the financial crises abroad and in the U.S. equity market by lowering short-term interest rates in September by a quarter of a point. Since that time, the Fed has twice again reduced rates, bringing the federal funds rate to 4.75%. As long term interest rates fell to historic lows, investors were reminded of the importance of a well balanced portfolio and professional management. Despite the market volatility throughout the year, your Nuveen Municipal Bond Fund continued to provide attractive current market yields and after-tax total returns. Your fund represented a bright spot among fixed-income investments. In addition, the funds have maintained good levels of call protection, which provide a strong foundation for potentially stable income streams in the foreseeable future. Looking ahead, we will continue to focus on new municipal bond issuance while leveraging our institutional buying power to buy and sell securities at the best possible prices and identifying undervalued securities through proprietary market research. 1 151 Municipal Market Review Over the past year, declining interest rates drove yields on 30-year Treasuries to their lowest levels since 1977. The story in the municipal market, however, was quite different. With yields on the long Treasury bond pushing below 5% at times, the yield on the Bond Buyer 40, an unmanaged index of long-term municipal bonds, fell just 26 basis points - from 5.36% to 5.10% - compared with the 99-point drop in Treasury yields over the past 12 months. As of November 30, 1998, the ratio of municipal yields to Treasury yields stood at 100.8%, compared with the more typical range of 86-87%. For investors, this means that municipal bonds currently offer about the same yield as Treasury bonds--before taxes are taken into account. On an after-tax basis, municipal bonds present an even more attractive investment option relative to Treasuries. One of the main factors in the steep decline in Treasury yields during the past year was the strong interest in these investments by international investors. As the financial turmoil in Asia continued to spread to economies worldwide and the dollar strengthened against foreign currencies, the demand for U.S. dollar-denominated Treasury securities increased. In the municipal market, where foreign demand was limited by an inability of foreign investors to benefit from the tax advantages of municipal bonds, low interest rates and a strong economy combined to generate high levels of new issuance and a dramatic increase in the refinancing of existing bonds. The first eleven months of 1998 saw $255.24 billion of new municipal issuance and refunding activity, up 28.4% over the same period in 1997. In terms of total issuance, this puts 1998 on pace to be the second largest year on record. 2 152 "The key to taking advantage of the exceptional values currently available in the municipal market is the expertise of a market specialist, such as Nuveen Advisory Corp." In addition, the continued strength of the U.S. economy has brought about improvements in the fundamental financial health of many municipalities and boosted the overall credit quality of municipal bonds. In the third quarter of 1998, upgraded issues by the two major rating agencies outnumbered downgrades by a margin of 7 to 2. Nuveen Expertise Is Key The key to taking advantage of the exceptional values currently available in the municipal market is the expertise of a market specialist, such as Nuveen Advisory Corp. To this end, Nuveen has assembled the Premier Advisers(SM), a growing group of experts that can provide time-tested experience and insight in a variety of investment categories. In addition to Nuveen Advisory Corp., our Premier Adviser for tax-free investing, you can rely on our other Premier Advisers to share their wisdom in the equity market, including Institutional Capital Corporation for value investing and Rittenhouse Financial Services, Inc. for growth investing. For more information about our funds, including charges and expenses, contact your financial adviser for a prospectus, or call Nuveen at (800) 621-7227. Please read the prospectus carefully before you invest or send money. We encourage you to talk with your financial adviser about the ways Nuveen's expanding selection of investments can assist you in establishing a diversified portfolio designed to help you build and sustain long-term financial security. For more than 100 years, Nuveen has been a respected name in the financial world. We are grateful for the confidence you have shown in us, and we intend to continue earning your trust in the years ahead. Sincerely, /s/ Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board January 15, 1999 3 153 Nuveen Flagship Kentucky Municipal Bond Fund Portfolio Manager's Comments Portfolio Manager Rick Huber discusses the Nuveen Flagship Kentucky Municipal Bond Fund and reviews factors that affected performance over the past 12 months. Comments cover the 12-month period ended November 30, 1998 and all performance statistics are quoted for Class A shares. What is the status of Kentucky's economy and its municipal market? Kentucky has enjoyed an improving economic base that has outperformed the nation in annual growth since 1990. That base continues to diversify and modernize into the light manufacturing and service-oriented sectors, reducing the state's traditional reliance on coal, tobacco, and heavy manufacturing. Continued low unemployment numbers and job growth concentrated in the retail, business services, and health services have complemented Kentucky's economic growth and diversification. Kentucky's economy is expected to continue in its current positive direction, although growth in jobs, wages and productivity is expected to moderate somewhat. In spite of those improving economic conditions, however, the municipal market has seen relatively little supply in 1998. In fact, Kentucky ranked just 26th among the states in year-to-date issuance as of November 30, 1998. Although the state's total issuance, $2.67 billion, is up 15.6% versus its 1997 issuance, it has been a challenge trying to identify good values. How did the Nuveen Flagship Kentucky Municipal Bond Fund's underlying portfolio perform during the past year? Over the past 12 months, the Nuveen Flagship Kentucky Municipal Bond Fund generated a total return on Class A shares at net asset value of 6.69%, equivalent to a taxable total return of 9.48% for investors in the 35.1% combined federal and state income tax bracket. That performance exceeded the 6.40% average annual total return posted by the Lipper Kentucky Municipal Debt Peer Group* of 12 municipal bond funds. What key strategies were used over the course of the year? Were there any particular sectors in which Nuveen looked for undervalued securities? The fund continued to enjoy success with its sector strategy. A sector is a particular group of bonds usually found in one industry. Currently, our two largest sector allocations are limited tax obligation bonds and healthcare securities, which accounted for 24% and 21%, respectively, of the fund's investments, as of November 30, 1998. Although we continue to see good values in the healthcare sector, we have looked for opportunities in other sectors, including utilities and the emerging general obligation sector, to add diversification to the portfolio. In all cases, our focus is on high-quality credits that we believe will continue to provide good value over the life of the fund. Aside from our sector strategy, the fund has also benefited from well-diversified call protection, which helped it maintain more predictable income streams. Staggered call exposure will help to protect the fund from reinvestment risk in the event that interest rates continue to decline. The fund also maintained its primary focus on high-quality securities, with 61% of the portfolio invested in AAA rated or AA rated bonds, as of November 30, 1998. However, Nuveen's extensive research capabilities also make it possible for us to identify lower-rated debt that we believe offers both strong quality characteristics and the opportunity for additional yield. Were there any other factors that affected the fund? There were two significant events in the state this year that impacted the fund's investment opportunities. First was the state's tight municipal bond supply, which made it a challenge to keep the portfolio fully invested. Given the recent rallies in the municipal market, keeping the fund fully invested during the year was key. Another development in Kentucky was a 1998 state court decision that overturned important restrictions on the issuance of general obligation debt. The resulting ability of Kentucky municipalities to issue general obligation debt created some small though important investment opportunities for us, especially given the year's light municipal issuance volume. What is your outlook for the Nuveen Flagship Kentucky Municipal Bond Fund? One important event in the coming year is the anticipated merger of this fund with the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund. We believe this merger will enhance economies of scale for shareholders of both funds, but should not impact the fund's future investment performance. Overall, we will continue to manage the fund by seeking out undervalued securities that provide attractive income relative to the market, consistent with the preservation of capital. The housing bond sector will be a prime candidate for addition to the portfolio as a way to increase yield. The reason for this is that single family housing bonds contain prepayment risk. This prepayment risk increases as interest rates fall, but it's rewarded in the form of higher yield. In today's market, however, 154 we view that additional risk as minute due to the low level of current interest rates. We will also look for opportunities in the general obligation sector, which will help us further diversify our sector allocation while offering some potentially attractive values. * The Lipper Peer Group return represents the average annualized returns of the funds in the Lipper Kentucky Municipal Debt category. The return assumes reinvestment of dividends and does not reflect any applicable sales charge. 4 155 Nuveen Flagship Kentucky Municipal Bond Fund Performance Overview As of November 30, 1998 Monthly Tax-Free Dividends (Class A Shares)/1/ [BAR CHART APPEARS HERE] 12/97 .0495 1/98 .0475 2/98 .0475 3/98 .0475 4/98 .0475 5/98 .0475 6/98 .0475 7/98 .0475 8/98 .0475 9/98 .0475 10/98 .0465 11/98 .0465 Top 5 Sectors Tax Obligation (Limited) 24% - --------------------------------------------- Health Care 21% - --------------------------------------------- U.S. Guaranteed 11% - --------------------------------------------- Utilities 10% - --------------------------------------------- Water and Sewer 8% - --------------------------------------------- Portfolio Statistics Share Class A B C R - -------------------------------------------------------------------------------- Inception Date 5/87 2/97 10/93 2/97 - -------------------------------------------------------------------------------- Net Asset Value $11.46 $11.46 $11.45 $11.44 - -------------------------------------------------------------------------------- Total Net Assets ($000) $505,355 - -------------------------------------------------------------------------------- Effective Maturity (Years) 19.91 - -------------------------------------------------------------------------------- Modified Duration (Years) 6.31 - -------------------------------------------------------------------------------- Annualized Total Return/2/ Share Class A(NAV) A(Offer) B C R - -------------------------------------------------------------------------------- 1-Year 6.69% 2.19% 5.82% 6.05% 6.93% - -------------------------------------------------------------------------------- 5-Year 6.12% 5.21% 5.46% 5.53% 6.16% - -------------------------------------------------------------------------------- 10-Year 8.12% 7.66% 7.65% 7.53% 8.14% - -------------------------------------------------------------------------------- Tax-Free Yields Share Class A(NAV) A(Offer) B C R - -------------------------------------------------------------------------------- Distribution Rate 4.87% 4.67% 4.14% 4.35% 5.09% - -------------------------------------------------------------------------------- SEC 30-Day Yield 3.98% 3.82% 3.24% 3.44% 4.18% - -------------------------------------------------------------------------------- Taxable Equivalent Yield/3/ 6.13% 5.89% 4.99% 5.30% 6.44% - -------------------------------------------------------------------------------- 1 The Fund also paid shareholders taxable distributions in December of $0.0508 per share. 2 Class A share returns are actual. Class B, C and R share returns are actual for the period since class inception; returns prior to class inception are Class A share returns adjusted for differences in sales charges and expenses, which are primarily differences in distribution and service fees. Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC that 156 begins at 5% for redemptions during the first year after purchase and declines periodically to 0% over the following five years, which is not reflected in the return figures. Class C shares have a 1% CDSC for redemptions within one year which is not reflected in the one-year total return. 3 Based on SEC yield and a federal income tax rate of 35.1%. Represents the yield on a taxable investment necessary to equal the yield of the Nuveen fund on an after-tax basis. 5 157 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund Portfolio Manager's Comments Portfolio Manager Paul Brennan discusses the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund and reviews factors that affected performance over the past 12 months. Comments cover the 12-month period ended November 30, 1998 and all performance statistics are quoted for Class A shares. What is the status of Kentucky's economy and its municipal market? Kentucky has enjoyed an improving economic base that has outperformed the nation in annual growth since 1990. That base continues to diversify and modernize into the light manufacturing and service-oriented sectors, reducing the state's traditional reliance on coal, tobacco, and heavy manufacturing. Continued low unemployment numbers and job growth concentrated in the retail, business services, and health services have complemented Kentucky's economic growth and diversification. Kentucky's economy is expected to continue in its current positive direction, although growth in jobs, wages and productivity is expected to moderate somewhat. In spite of those improving economic conditions, however, the municipal market has seen relatively little supply in 1998. In fact, Kentucky ranked just 26th among the states in year-to-date issuance as of November 30, 1998. Although the state's total issuance, $2.67 billion, is up 15.6% versus its 1997 issuance, it has been a challenge trying to identify good values. How did the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund's underlying portfolio perform during the past year? Over the past 12 months, the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund generated a total return on Class A shares at net asset value of 5.36%, equivalent to a taxable total return of 7.71% for investors in the 35.1% combined federal and state income tax bracket. That performance exceeded the 5.14% average annual total return posted by the Lipper Other State Short Intermediate Municipal Debt Peer Group* of 19 municipal bond funds. What key strategies were used over the course of the year? Were there any particular sectors in which Nuveen looked for undervalued securities? The fund continued to enjoy success with its sector strategy. A sector is a particular group of bonds usually found in one industry. Our two largest sector allocations were limited tax obligation bonds and health care securities, which each accounted for 24% of the fund's investments, as of November 30, 1998. Although we continue to see good values in the healthcare sector, we have looked for opportunities in other sectors, including housing and the emerging general obligation sector, to add diversification to the portfolio. In all cases, our focus is on high-quality credits that we believe will continue to provide good value over the life of the fund. Aside from our sector strategy, the fund also benefited from well-diversified call protection, which helped it maintain more predictable income streams. Staggered call exposure will help to protect the fund from reinvestment risk in the event that interest rates continue to decline. The fund also maintained its primary focus on high-quality securities, with 63% of the portfolio invested in AAA rated or AA rated bonds, as of November 30, 1998. However, Nuveen's extensive research capabilities also make it possible for us to identify lower-rated debt that we believe offers both strong quality characteristics and the opportunity for additional yield. Were there any other factors that affected the fund? Another development in Kentucky was a 1998 state court decision that overturned important restrictions on the issuance of general obligation debt. The resulting ability of Kentucky municipalities to issue general obligation debt created some small, though important, investment opportunities for us, especially given the year's light municipal issuance volume. What is your outlook for the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund? One important event in the coming year is the anticipated merger of this fund with the Nuveen Flagship Kentucky Municipal Bond Fund. We believe this merger will enhance economies of scale for shareholders of both funds, and will create opportunities for our Limited Term investors to enjoy the additional yield and potentially higher income streams of a longer term portfolio. The merged fund will continue to seek out undervalued securities that provide attractive income relative to the market, consistent with the preservation of capital. Specifically, the housing bond sector will be a prime candidate for addition to the portfolio as a way to increase yield. The reason for this is that single family housing bonds contain prepayment risk. This prepayment risk increases as interest rates fall, but it's rewarded in the form of higher yield. In today's market, however, we view that additional risk as minute due to the low level of current interest rates. We will also look for opportunities in the general obligation sector, which will help us further diversify our sector allocation 158 while offering some potentially attractive values. * The Lipper Peer Group return represents the average annualized returns of the funds in the Lipper Other State Short Intermediate Municipal Debt category. The return assumes reinvestment of dividends and does not reflect any applicable sales charge. 6 159 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund Performance Overview As of November 30, 1998 Monthly Tax-Free Dividends (Class A Shares) [BAR CHART APPEARS HERE] 12/97 .0365 1/98 .0365 2/98 .0365 3/98 .0365 4/98 .0365 5/98 .0365 6/98 .0365 7/98 .035 8/98 .035 9/98 .035 10/98 .035 11/98 .035 Top 5 Sectors Tax Obligation (Limited) 24% ........................................ Health Care 24% ........................................ Education and Civic Organizations 14% ........................................ Housing (Multifamily) 10% ........................................ Water and Sewer 9% - ---------------------------------------- Portfolio Statistics Share Class A C R - ------------------------------------------------------------------------------ Inception Date 9/95 9/95 2/97 .............................................................................. Net Asset Value $10.19 $10.18 $10.17 .............................................................................. Total Net Assets ($000) $11,153 .............................................................................. Effective Maturity (Years) 5.74 .............................................................................. Modified Duration (Years) 4.77 - ------------------------------------------------------------------------------ Annualized Total Return/1/ Share Class A(NAV) A(Offer) C R - ------------------------------------------------------------------------------ 1-Year 5.36% 2.71% 4.99% 5.62% .............................................................................. 3-Year 5.45% 4.58% 5.08% 5.53% .............................................................................. Since Inception 5.99% 5.16% 5.62% 6.07% - ------------------------------------------------------------------------------ Tax-Free Yields Share Class A(NAV) A(Offer) C R - ------------------------------------------------------------------------------ Distribution Rate 4.12% 4.02% 3.77% 4.37% .............................................................................. SEC 30-Day Yield 3.19% 3.11% 2.85% 3.39% .............................................................................. Taxable Equivalent Yield/2/ 4.92% 4.79% 4.39% 5.22% - ------------------------------------------------------------------------------ 1 Class A share returns are actual. Class C and R share returns are actual for the period since class inception; returns prior to class inception are Class A share returns adjusted for differences in sales charges and expenses, which are primarily differences in distribution and service fees. Class A shares have a 2.50% maximum sales charge. Class C shares have a 1% CDSC for redemptions within one year which is not reflected in the one-year total return. 2 Based on SEC yield and a federal income tax rate of 35.1%. Represents the yield on a taxable investment necessary to equal the yield of the Nuveen fund on an after-tax basis. 7 160 Nuveen Flagship Michigan Municipal Bond Fund Portfolio Manager's Comments Portfolio Manager Rick Huber discusses the Nuveen Flagship Michigan Municipal Bond Fund and reviews factors that affected performance over the past 12 months. Comments cover the 12-month period ended November 30, 1998 and all performance statistics are quoted for Class A shares. What is the status of Michigan's economy and its municipal market? The Michigan economy continues to expand as it diversifies away from its dependence on the inherently cyclical auto industry. Unemployment continues to be below national levels at 3.6%. While the state has diversified its employment base by increasing employment in the trade and services sectors, it is still reliant on the auto sector. The state's economy is expected to be more cyclical than the nation, but the state has positioned itself to be more stable than in previous years. The state's improved credit quality was recognized in the first quarter of 1998 by Moody's, which upgraded its rating to Aa1 from Aa2. S&P rates it AA+. Both ratings remained the same, as of November 30, 1998. In response to low interest rates, the expanding economy, and Michigan's continued population growth, the state's municipal bond issuance through November increased 57% over the same period in 1997. Supply is expected to remain heavy over the next few years due to the continuing need for infrastructure financing and increased school spending. How did the Nuveen Flagship Michigan Municipal Bond Fund's underlying portfolio perform during the past year? Over the past 12 months, the Nuveen Flagship Michigan Municipal Bond Fund generated a total return on Class A shares at net asset value of 6.99%, equivalent to a taxable total return of 9.64% for investors in the 34% combined federal and state income tax bracket. That performance exceeded the 6.81% average annual total return posted by the Lipper Michigan Municipal Debt Peer Group* of 52 municipal bond funds. What key strategies were used over the course of the year? Were there any particular sectors in which Nuveen looked for undervalued securities? In general, we spent the recent period further improving the Nuveen Flagship Michigan Municipal Bond Fund's portfolio structure by adding high-quality securities offering good call protection, higher coupons, and attractive value relative to the larger market. We sought out those securities in a number of ways. First, we looked to make new purchases in sectors offering bonds that our managers believe were not fully priced by the market. One of the fund's largest sectors, healthcare, with 20% of the fund's investments, as of November 30, 1998, not only experienced some of the state's heaviest issuance volume, it also performed well during the period. Second, we choose to hold onto the high coupon bonds purchased in earlier periods, which became pre-refunded as interest rates fell. A pre-refunding establishes an escrow of U.S. government securities designed to pay off the original debt at a designated call date. As a result, the bond price rises through the elimination of credit risk and the acceleration of maturity. We also looked to take advantage of slightly wider yield spreads between higher and lower-rated securities. Nuveen's extensive research capabilities give us the ability to identify lower-rated debt that we believe offers both strong credit characteristics and the opportunity for additional yield. In Michigan, we found attractive lower-rated bonds in a number of sectors, an example of which includes non-rated revenue bonds for Holland Homes issued by the Michigan Strategic Fund. Overall, however, the fund's portfolio continues to be very high quality, with 75% of its holdings rated AAA or AA, as of November 30, 1998. The fund also benefited from well-diversified call protection, which helped it maintain more predictable income streams. Staggered call exposure will help to protect the fund from reinvestment risk in the event that interest rates continue to decline. What is your outlook for the Nuveen Flagship Michigan Municipal Bond Fund? Overall, we will continue to manage the fund by seeking out undervalued securities that provide attractive income relative to the market, consistent with the preservation of capital. The housing bond sector will be a prime candidate for addition to the portfolio as a way to increase yield. Since single family housing bonds contain prepayment risk, they generally come to market at lower prices and higher yields in comparison to other high quality issues. In today's market, however, we view any prepayment risk as very low due to the present level of interest rates. In addition, we intend to use our market clout to work with housing bond issuers to structure call-protected maturities at good prices. We will also continue to work closely with Nuveen's research team to identify lower-rated credits that we believe are of fundamentally high quality, adding yield to the portfolio without compromising the overall quality of the portfolio. * The Lipper Peer Group return represents the average annualized returns of the funds in the Lipper Michigan Municipal Debt category. The return assumes reinvestment of dividends and does not reflect any applicable sales charge. 8 161 Nuveen Flagship Michigan Municipal Bond Fund Performance Overview As of November 30, 1998 Monthly Tax-Free Dividends (Class A Shares)/1/ [BAR CHART APPEARS HERE] 12/97 .051 1/98 .05 2/98 .05 3/98 .05 4/98 .05 5/98 .05 6/98 .05 7/98 .05 8/98 .05 9/98 .05 10/98 .05 11/98 .05 Top 5 Sectors U.S. Guaranteed 23% - --------------------------------------------- Health Care 20% - --------------------------------------------- Tax Obligation (General) 15% - --------------------------------------------- Tax Obligation (Limited) 14% - --------------------------------------------- Water and Sewer 6% - --------------------------------------------- Portfolio Statistics Share Class A B C R - -------------------------------------------------------------------------------- Inception Date 6/85 2/97 6/93 2/97 - -------------------------------------------------------------------------------- Net Asset Value $12.18 $12.20 $12.17 $12.18 - -------------------------------------------------------------------------------- Total Net Assets ($000) $351,616 - -------------------------------------------------------------------------------- Effective Maturity (Years) 16.50 - -------------------------------------------------------------------------------- Modified Duration (Years) 6.26 - -------------------------------------------------------------------------------- Annualized Total Return/2/ Share Class A(NAV) A(Offer) B C R - -------------------------------------------------------------------------------- 1-Year 6.99% 2.46% 6.28% 6.51% 7.20% - -------------------------------------------------------------------------------- 5-Year 6.04% 5.15% 5.42% 5.49% 6.12% - -------------------------------------------------------------------------------- 10-Year 7.79% 7.32% 7.32% 7.17% 7.83% - -------------------------------------------------------------------------------- Tax-Free Yields Share Class A(NAV) A(Offer) B C R - -------------------------------------------------------------------------------- Distribution Rate 4.93% 4.72% 4.18% 4.39% 5.12% - -------------------------------------------------------------------------------- SEC 30-Day Yield 3.86% 3.70% 3.11% 3.31% 4.06% - -------------------------------------------------------------------------------- Taxable Equivalent Yield/3/ 5.85% 5.61% 4.71% 5.02% 6.15% - -------------------------------------------------------------------------------- 1 The Fund also paid shareholders taxable distributions in December of $0.0281 per share. 2 Class A share returns are actual. Class B, C, and R share returns are actual for the period since class inception; returns prior to class inception are Class A share returns adjusted for differences in sales charges and expenses, which are primarily differences in distribution and service fees. Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC that 162 begins at 5% for redemptions during the first year after purchase and declines periodically to 0% over the following five years, which is not reflected in the return figures. Class C shares have a 1% CDSC for redemptions within one year which is not reflected in the one-year total return. 3 Based on SEC yield and a federal income tax rate of 34%. Represents the yield on a taxable investment necessary to equal the yield of the Nuveen fund on an after-tax basis. 9 163 Nuveen Flagship Ohio Municipal Bond Fund Portfolio Manager's Comments Portfolio Manager Rick Huber discusses the Nuveen Flagship Ohio Municipal Bond Fund and reviews factors that affected performance over the past 12 months. Comments cover the 12 month period ended November 30, 1998 and all performance statistics are quoted for Class A shares. What is the status of Ohio's economy and its municipal market? Although Ohio's economy remains more reliant on manufacturing than many other states, it has diversified, reducing the state's reliance on auto and steel industries. The state's employment growth has trailed the national rate, but its unemployment rate remains slightly below the national average. Job growth has been concentrated in construction and the service sectors, with additional jobs in the high-tech sector concentrated in the northern portion of the state. The importance of industrial exports to the Ohio economy increases the state's exposure to the global economy. That exposure has produced some negative effects in light of the economic difficulties facing Asia, as well as heightened competition. Steel exports, for example, have experienced declines in part due to lower priced imports. Ohio remains one of the country's largest issuers of municipal bonds. In 1998, the state ranked ninth in year-to-date issuance as of November 30, 1998. Total issuance, $7.68 billion, was up 8.9% versus the same period in 1997. How did the Nuveen Flagship Ohio Municipal Bond Fund's underlying portfolio perform during the past year? Over the past 12 months, the Nuveen Flagship Ohio Municipal Bond Fund performed well, generating a total return on Class A shares at net asset value of 7.19%, equivalent to a taxable total return of 10.07% for investors in the 35.8% combined federal and state income tax bracket. That performance exceeded the 6.78% average annual total return posted by the Lipper Ohio Municipal Debt Peer Group* of 52 municipal bond funds. What key strategies were used over the course of the year? Were there any particular areas in which Nuveen looked for undervalued securities? The fund continued to enjoy success with its sector strategy during the recent period. A sector is a particular group of bonds usually found in one industry. Currently, our two largest allocations are U.S. Guaranteed Bonds and general tax obligation securities, which accounted for 20% and 17%, respectively, of the fund's investments, as of November 30, 1998. These areas not only experienced some of the state's heaviest issuance volume, they performed well during the period ended November 30, 1998. Two other sectors that have performed well recently are housing and healthcare. The healthcare sector in particular has seen yield spreads widen between higher-rated and lower-rated securities because bond insurers are increasingly unwilling to insure securities rated lower than AA. Aside from our sector strategy, the fund has also benefited from well-diversified call protection, which helped it maintain more predictable income streams. Staggered call exposure will help to protect the fund from reinvestment risk in the event that interest rates continue to decline. The fund also maintained its primary focus on high-quality securities, with 75% of the portfolio invested in bonds rated AA or AAA as of November 30, 1998. However, Nuveen's extensive research capabilities also make it possible for us to identify lower-rated debt that we believe offers both strong quality characteristics and the opportunity for additional yield. The Nuveen Flagship Ohio Municipal Bond Fund is among Nuveen's largest municipal funds, which means we have to buy bonds in larger blocks to impact the portfolio's performance. We looked toward large issuers and heavy-issuance sectors for attractive investment opportunities during the year. What is your outlook for the Nuveen Flagship Ohio Municipal Bond Fund? Overall, we will continue to manage the fund by seeking out undervalued securities that provide attractive income relative to the market, consistent with the preservation of capital. Specifically, we will continue to improve the portfolio's overall structure by trying to further improve the fund's call protection as well as long-term total return prospects. The housing bond sector will be a prime candidate for addition to the portfolio as a way to increase yield. The reason for this is that single family housing bonds contain prepayment risk. This prepayment risk increases as interest rates fall, but it's rewarded in the form of higher yield. In today's market, however, we view that additional risk as very low due to the present level of interest rates. We will also continue to work closely with Nuveen's research team to identify lower rated credits that we believe are of fundamentally high quality, adding yield to the portfolio without compromising the overall quality of the portfolio. * The Lipper Peer Group return represents the average annualized returns of the 164 funds in the Lipper Ohio Municipal Debt category. The return assumes reinvestment of dividends and does not reflect any applicable sales charge. 10 165 Nuveen Flagship Ohio Municipal Bond Fund Performance Overview As of November 30, 1998 Monthly Tax-Free Dividends (Class A Shares)/1/ [BAR CHART APPEARS HERE] 12/97 .0505 1/98 .049 2/98 .049 3/98 .049 4/98 .049 5/98 .049 6/98 .049 7/98 .049 8/98 .049 9/98 .049 10/98 .048 11/98 .048 Top 5 Sectors U.S. Guaranteed 20% ................................. Tax Obligation (General) 17% ................................. Health Care 15% ................................. Utilities 11% ................................. Tax Obligation (Limited) 7% - --------------------------------- Portfolio Statistics Share Class A B C R - ------------------------------------------------------------------------------ Inception Date 6/85 2/97 8/93 2/97 .............................................................................. Net Asset Value $11.84 $11.83 $11.83 $11.84 .............................................................................. Total Net Assets ($000) $706,940 .............................................................................. Effective Maturity (Years) 18.76 .............................................................................. Modified Duration (Years) 6.37 - ------------------------------------------------------------------------------ Annualized Total Return/2/ Share Class A(NAV) A(Offer) B C R - ------------------------------------------------------------------------------ 1-Year 7.19% 2.70% 6.34% 6.56% 7.41% .............................................................................. 5-Year 5.74% 4.83% 5.08% 5.16% 5.82% .............................................................................. 10-Year 7.58% 7.12% 7.11% 6.99% 7.62% - ------------------------------------------------------------------------------ Tax-Free Yields Share Class A(NAV) A(Offer) B C R - ------------------------------------------------------------------------------ Distribution Rate 4.86% 4.66% 4.16% 4.36% 5.07% .............................................................................. SEC 30-Day Yield 3.71% 3.56% 2.97% 3.17% 3.92% .............................................................................. Taxable Equivalent Yield/3/ 5.78% 5.55% 4.63% 4.94% 6.11% - ------------------------------------------------------------------------------ 1 The Fund also paid shareholders taxable distributions in December of $0.0504 per share. 2 Class A share returns are actual. Class C and R share returns are actual for the period since class inception; returns prior to class inception are Class A share returns adjusted for differences in sales charges and expenses, which are primarily differences in distribution and service fees. Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC that begins at 5% for redemption during the first year after purchase and declines periodically to 0% over the following five years, which is not reflected in the return figures. Class C shares have a 1% CDSC for redemptions within one year which is not reflected in the one-year total return. 3 Based on SEC yield and a federal income tax rate of 35.8%. Represents the yield on a taxable investment necessary to equal the yield of the Nuveen fund on an after-tax basis. 11 166 Portfolio of Investments (Unaudited) Nuveen Flagship Kentucky Municipal Bond Fund November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Basic Materials - 0.2% $1,000,000 Jefferson County, Kentucky, Pollution Control 7/03 at 103 AA- $ 1,103,320 Revenue Bonds (E.I. du Pont de Nemours and Company Project), 1982 Series A, 6.300%, 7/01/12 - ---------------------------------------------------------------------------------------------------------- Education and Civic Organizations - 0.2% 700,000 Northern Kentucky University, 5/01 at 102 AAA 762,818 Consolidated Education Building Revenue Bonds, Series F, 7.000%. 5/01/10 - ---------------------------------------------------------------------------------------------------------- Energy - 4.0% 5,000,000 City of Ashland, Kentucky, Pollution Control 8/02 at 102 Baa1 5,388,450 Revenue Refunding Bonds (Ashland Oil Inc. Project), Series 1992, 6.650%, 8/01/09 9,000,000 City of Ashland, Kentucky, Sewage and Solid 2/05 at 102 Baa1 10,139,040 Waste Revenue Bonds, Series 1995 (Ashland Oil Inc. Project), 7.125%, 2/01/22 (Alternative Minimum Tax) 4,360,000 City of Ashland, Kentucky, Solid Waste 10/01 at 102 Baa1 4,719,874 Revenue Bonds, Series 1991 (Ashland Oil Inc. Project), 7.200%, 10/01/20 (Alternative Minimum Tax) - ---------------------------------------------------------------------------------------------------------- Forest and Paper Products - 5.7% 2,370,000 Hancock County, Kentucky, Solid Waste Disposal 5/06 at 102 A- 2,644,802 Facilities Revenue Bonds (Willamette Industries, Inc. Project), Series 1996, 6.600%, 5/01/26 9,750,000 County of Henderson, Kentucky, Solid Waste 3/05 at 102 Baa2 10,511,768 Disposal Revenue Bonds (MacMillan Bloedel Project), Series 1995, 7.000%, 3/01/25 (Alternative Minimum Tax) 1,500,000 Maysville (Kentucky) Industrial Development 2/00 at 103 N/R 1,571,925 Revenue Bonds, Crystal Tissue Project, 8.000%, 2/01/09 (Alternative Minimum Tax) 3,750,000 County of Perry, Kentucky, Solid Waste 6/04 at 102 N/R 4,121,250 Disposal Revenue Bonds (TJ International Project), Series 1994, 7.000%, 6/01/24 (Alternative Minimum Tax) County of Perry, Kentucky, Solid Waste Disposal Revenue Bonds (TJ International Project), Series 1996: 4,240,000 6.800%, 5/01/26 (Alternative Minimum Tax) 5/06 at 102 N/R 4,676,381 2,000,000 6.550%, 4/15/27 (Alternative Minimum Tax) 4/07 at 102 N/R 2,175,220 2,820,000 City of Wickliffe, Kentucky, Solid Waste 4/06 at 102 A1 3,092,891 Disposal Facility Revenue Bonds, Series 1996 (Westvaco Corporation Project), 6.375%, 4/01/26 (Alternative Minimum Tax) - ---------------------------------------------------------------------------------------------------------- Health Care - 20.7% 1,310,000 County of Christian, Kentucky, Hospital 7/06 at 102 A- 1,407,399 Revenue Bonds, Series 1996A, Jennie Stuart Medical Center, 6.000%, 7/01/17 3,500,000 County of Christian, Kentucky, Hospital 7/06 at 102 A- 3,825,990 Revenue and Refunding Bonds, Series 1997A, Jennie Stuart Medical Center, 6.000%, 7/01/13 5,270,000 County of Clark, Kentucky, Hospital Refunding 4/07 at 102 BBB- 5,600,218 and Improvement Revenue Bonds (Clark Regional Medical Center Project), Series 1997, 6.200%, 4/01/13 3,300,000 County of Daviess, Kentucky, Insured Hospital 8/02 at 102 AAA 3,603,765 Revenue Bonds, 1992 (ODCH, Inc. Project), Series A, 6.250%, 8/01/22 2,805,000 County of Floyd, Kentucky, Hospital Revenue 2/01 at 102 AAA 3,007,998 Refunding Bonds (FHA Insured Mortgage Loan 167 Highland Hospital Corporation Project), Series 1991, 7.500%, 8/01/10 4,000,000 County of Hopkins, Kentucky, Hospital 11/01 at 102 AAA 4,348,960 Revenue Bonds, Series 1991 (The Trover Clinic Foundation, Incorporated), 6.625%, 11/15/11 12 168 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------- Health Care (continued) County of Jefferson, Kentucky, Health Facilities Revenue Bonds, Series 1992 (Jewish Hospital Healthcare Services Inc. Project): $ 1,190,000 6.500%, 5/01/15 5/02 at 102 AAA $ 1,299,528 12,785,000 6.550%, 5/01/22 5/02 at 102 AAA 13,981,932 4,625,000 County of Jefferson, Kentucky, Health 7/07 at 101 AAA 4,686,651 Facilities Revenue Bonds, Series 1997, (University Medical Center, Inc. Project), 5.250%, 7/01/22 15,640,000 County of Jefferson, Kentucky, Health 10/07 at 101 AAA 15,615,445 Facilities Revenue Bonds, Series 1997 (Alliant Health System, Inc.), 5.125%, 10/01/27 7,800,000 County of Jefferson, Kentucky, Health 10/08 at 101 AAA 7,878,468 System Revenue Bonds, Series 1998 (Alliant Health System, Inc.), 5.200%, 10/01/28 7,800,000 County of Jefferson, Kentucky, Insured 10/02 at 102 AAA 8,566,974 Hospital Revenue Bonds, Series 1992 (Alliant Health System, Inc.), 6.436%, 10/01/14 1,750,000 Kentucky Development Finance Authority, 11/99 at 102 A1 1,848,718 Hospital Revenue Bonds (Sisters of Charity of Nazareth Health Corporation), Series 1989, 7.375%, 11/01/16 1,000,000 Kentucky Development Finance Authority 11/01 at 100 AAA 1,056,330 (St. Elizabeth Medical Center, Inc. Project), 6.000%, 11/01/10 5,000,000 Kentucky Economic Development Finance 12/03 at 102 AAA 5,487,100 Authority, Hospital Facilities Revenue Bonds, Series 1993A (Saint Elizabeth Medical Center, Inc. Project), 6.000%, 12/01/22 9,500,000 Kentucky Economic Development Finance 2/07 at 102 AAA 10,098,310 Authority, Hospital Revenue and Refunding Revenue Bonds, Series 1997, (Pikeville United Methodist Hospital of Kentucky, Inc. Project), 5.700%, 2/01/28 Kentucky Economic Development Finance Authority, Hospital System Refunding and Improvement Revenue Bonds, Series 1997 (Appalachian Regional Healthcare, Inc. Project): 500,000 5.600%, 10/01/08 4/08 at 102 BBB 526,225 3,500,000 5.850%, 10/01/17 4/08 at 102 BBB 3,636,465 1,500,000 5.875%, 10/01/22 4/08 at 102 BBB 1,554,540 2,050,000 McCracken County, Kentucky, Hospital 11/04 at 102 AAA 2,303,811 Facilities Revenue Refunding Bonds, Series 1994A (Mercy Health System), 6.300%, 11/01/06 1,555,000 City of Radcliff, Kentucky, Tax-Exempt 7/07 at 102 AAA 1,643,433 Mortgage Revenue Refunding Bonds, Series 1997 (GNMA Backed - Lincoln Trail Care and Treatment Facility), 5.650%, 1/20/19 2,800,000 City of Russell, Kentucky, Health System 1/08 at 102 Baa1 2,829,960 Revenue Bonds, Our Lady of Bellefonte Hospital Issue, Series 1997 (Franciscan Health Partnership, Inc.), Refunding Revenue Bonds, 5.500%, 7/01/15 - ----------------------------------------------------------------------------------------------------------- Housing/Multifamily - 1.3% 2,500,000 Greater Kentucky Housing Assistance Corporation, 7/03 at 100 AAA 2,593,525 Mortgage Revenue Refunding Bonds, Series 1993A (FHA Insured Mortgage Loans - Section 8 Assisted Projects), 6.250%, 7/01/24 County of Jefferson, Kentucky, Multifamily Housing Revenue Bonds (Kentucky Towers Project), Series 1998A: 700,000 5.000%, 8/20/18 8/08 at 102 AAA 701,799 2,900,000 5.650%, 8/20/34 8/08 at 102 AAA 3,028,499 - ----------------------------------------------------------------------------------------------------------- Housing/Single Family - 4.7% 7,000,000 Kentucky Housing Corporation, Housing 7/06 at 102 AAA 7,518,280 169 Revenue Bonds, 1996 Series E, 6.300%, 1/01/28 (Alternative Minimum Tax) 3,000,000 Kentucky Housing Corporation, Housing 7/07 at 102 AAA 3,239,850 Revenue Bonds, 1997 Series B, 6.250%, 7/01/28 (Alternative Minimum Tax) 435,000 Kentucky Housing Corporation, Housing 1/99 at 102 AAA 444,292 Revenue Bonds (FHA Insured/VA Guaranteed Mortgage Loans), 1988 Series B, 7.625%, 1/01/09 (Alternative Minimum Tax) 1,360,000 Kentucky Housing Corporation, Housing 7/00 at 102 AAA 1,427,089 Revenue Bonds (FHA Insured/VA Guaranteed Mortgage Loans), 1988 Series C, 7.900%, 1/01/21 (Alternative Minimum Tax) 635,000 Kentucky Housing Corporation, Housing 7/00 at 102 AAA 651,612 Revenue Bonds (FHA Insured/VA Guaranteed), 1990 Series B, 7.800%, 1/01/21 (Alternative Minimum Tax) 13 170 Portfolio of Investments (Unaudited) Nuveen Flagship Kentucky Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------------------------------- Housing/Single Family (continued) $1,000,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally Insured 7/02 at 102 AAA $1,071,830 or Guaranteed Mortgage Loans), Series 1992B, 6.625%, 7/01/14 450,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally Insured 1/03 at 102 AAA 479,682 or Guaranteed Mortgage Loans), Series 1991C-1, 6.600%, 1/01/11 3,560,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally Insured 1/09 at 101 AAA 3,569,470 or Guaranteed Mortgage Loans), 1998 Series F, 5.000%, 7/01/18 (Alternative Minimum Tax) 900,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally Insured 1/04 at 102 AAA 963,846 or Guaranteed Mortgage Loans), 1994 Series A, 6.500%, 7/01/17 2,095,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally Insured 7/04 at 102 AAA 2,258,515 or Guaranteed Mortgage Loans), 1994 Series C, 6.400%, 1/01/17 1,975,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally Insured 1/05 at 102 AAA 2,133,948 or Guaranteed Mortgage Loans), 1995 Series B, 6.625%, 7/01/26 (Alternative Minimum Tax) - ---------------------------------------------------------------------------------------------------------------------------------- Long Term Care -- 3.5% County of Jefferson, Kentucky, First Mortgage Revenue Bonds, Series 1994 (The First Christian Church Homes of Kentucky Project): 1,240,000 6.000%, 11/15/09 11/04 at 102 BBB 1,313,879 715,000 6.125%, 11/15/13 11/04 at 102 BBB 758,594 3,210,000 6.125%, 11/15/18 11/04 at 102 BBB 3,405,714 Kentucky Economic Development Finance Authority, Health Care Facilities Revenue Bonds, Series 1998 (The Christian Church Homes of Kentucky Inc. Obligated Group): 1,800,000 5.375%, 11/15/23 5/08 at 102 BBB 1,806,066 4,250,000 5.500%, 11/15/30 5/08 at 102 BBB 4,264,238 5,700,000 Kentucky Economic Development Finance Authority, Tax Exempt Mortgage 1/08 at 105 AAA 6,193,415 Revenue Bonds (South Central Nursing Homes, Inc. Project), Series 1997A, 6.000%, 7/01/27 - ---------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/General -- 2.0% 4,790,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1996 7/06 at 101 1/2 A 4,991,707 (General Obligation Bonds), 5.400%, 7/01/25 2,000,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997 7/07 at 101 1/2 A 2,073,640 (General Obligation Bonds), 5.375%, 7/01/25 3,000,000 Commonwealth of Puerto Rico, Public Improvement Refunding Bonds 7/08 at 101 A 2,979,870 of 1998 (General Obligation Bonds), 5.000%, 7/01/26 - ---------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/Limited -- 23.6% 615,000 Boone County (Kentucky), School District Finance Corporation, School 2/03 at 102 A1 650,596 Building Refunding and Improvement Revenue Bonds, Series 1993, 6.000%, 2/01/18 1,595,000 City of Bowling Green Municipal Projects Corporation, Kentucky, 12/04 at 102 A2 1,786,942 Lease Revenue Bonds, Series 1994, 6.500%, 12/01/14 1,005,000 Casey County School District Finance Corporation, School Building 3/05 at 102 A1 1,076,265 Revenue Bonds, Series 1995, 5.750%, 3/01/15 Daviess County (Kentucky), School District Finance Corporation, School Building Revenue Bonds, Series 1994: 505,000 5.800%, 5/01/11 5/04 at 102 A1 551,718 535,000 5.800%, 5/01/12 5/04 at 102 A1 578,790 570,000 5.800%, 5/01/13 5/04 at 102 A1 615,224 600,000 5.800%, 5/01/14 5/04 at 102 A1 646,098 1,070,000 Fleming County School District Finance Corporation, School Building 3/05 at 102 A 1,145,210 Revenue Bonds, Series 1995, 5.875%, 3/01/15 3,155,000 City of Florence, Kentucky, Public Properties Corporation, First 6/07 at 102 AAA 3,344,868 Mortgage Revenue Bonds (Administrative Office Complex Project), Series 1997, 5.500%, 6/01/27 14 171 Principal Optional Call Market Amount Description Provisions* Ratings** Value - --------------------------------------------------------------------------------------------------------- Tax Obligations/Limited (continued) Floyd County, Kentucky Public Properties Corporation, First Mortgage Revenue Bonds (Floyd County Justice Center Project) Series 1995A: $ 465,000 5.500%, 9/01/17 3/06 at 102 A $ 489,682 1,260,000 5.550%, 9/01/23 3/06 at 102 A 1,332,286 3,550,000 Floyd County, Kentucky, Public Properties 3/06 at 105 A 3,868,258 Corporation, First Mortgage Revenue Bonds (Floyd County Justice Center Project), Series 1996B, 6.200%, 9/01/26 1,200,000 Floyd County School District Finance Corporation, 5/05 at 102 A1 1,276,284 Kentucky, School Building Revenue Bonds, Series 1995, 5.500%, 5/01/15 2,280,000 Grant County School District Finance Corporation, 3/07 at 102 Aaa 2,374,688 School Building Revenue Bonds, Series 1997, 5.375%, 3/01/17 Hardin County, Kentucky, Building Commission Revenue Bonds (Detention Facility Project), Series 1994: 525,000 6.200%, 12/01/11 No Opt. Call AAA 590,326 1,775,000 6.250%, 12/01/14 12/04 at 102 AAA 2,000,532 300,000 Hardin County (Kentucky), School District 6/01 at 103 A1 328,521 Finance Corporation, School Building Revenue Bonds, Series of 1991, 6.800%, 6/01/10 3,465,000 Hopkins County (Kentucky), School District 6/04 at 102 A1 3,772,519 Finance Corporation, School Building Revenue Bonds, Series 1994, 6.200%, 6/01/19 1,250,000 Jefferson County Economic Development Corporation 7/01 at 100 A1 1,272,713 (Kentucky), Lease Revenue Bonds, Series 1986, 7.750%, 7/01/16 4,195,000 Jefferson County (Kentucky), School District 2/06 at 102 AAA 4,277,725 Finance Corporation, School Building Revenue Bonds (Series 199A), 5.125%, 2/01/16 1,167,919 County of Jefferson, Kentucky, Equipment Lease No Opt. Call N/R 1,189,760 Purchase Revenue Bonds, Series 1987 (Energy System Project), 9.000%, 6/01/03 215,122 County of Jefferson, Kentucky, Equipment Lease No Opt. Call N/R 221,721 Purchase Revenue Bonds, Series 1988 (Energy System Project), 9.500%, 6/01/03 2,500,000 Jefferson County, Kentucky, Capital Projects 2/02 at 100 Aa3 1,235,900 Corporation, Lease Revenue Bonds, Series 1987B, 0.000%, 8/15/08 1,000,000 City of Jeffersontown, Kentucky, Public Projects No Opt. Call A 1,082,860 Refunding and Improvements, Certificates of Participation, 5.750%, 11/01/15 Jessamine County (Kentucky), School District Finance Corporation, School Building Revenue Bonds, Series 1991: 510,000 6.750%, 6/01/10 6/01 at 103 A1 561,439 545,000 6.750%, 6/01/11 6/01 at 103 A1 599,969 2,500,000 Jessamine County (Kentucky), School District 6/04 at 102 A1 2,705,275 Finance Corporation, School Building Revenue Bonds, Series 1994, 6.125%, 6/01/19 5,650,000 Jessamine County (Kentucky), School District 1/06 at 102 A1 5,936,060 Finance Corporation, School Building Revenue Bonds, Series 1996, 5.500%, 1/01/21 4,500,000 Kenton County, Kentucky, Public Properties 3/09 at 101 A1 4,420,440 Corporation, First Mortgage Revenue Bonds (Courthouse Facilities Project), 1998 Series A, 5.000%, 3/01/29 400,000 Commonwealth of Kentucky, State Property and 11/01 at 102 A+ 438,188 172 Buildings Commission Revenue and Revenue Refunding Bonds, Project No. 40, 2nd Series, 6.875%, 11/01/07 250,000 Commonwealth of Kentucky, State Property and 10/01 at 102 A 273,758 Buildings Commission Revenue and Revenue Refunding Bonds, Project No. 53, 6.625%, 10/01/07 2,075,000 Commonwealth of Kentucky, State Property and 9/04 at 102 A+ 2,253,803 Buildings Commission Revenue Bonds, Project No. 56, 6.000%, 9/01/14 2,000,000 The Turnpike Authority of Kentucky Economic No Opt. Call AAA 2,135,640 Development, Revenue and Revenue Refunding Bonds (Revitalization Projects), Series 1993, 5.300%, 7/01/04 1,000,000 The Turnpike Authority of Kentucky Economic 7/05 at 102 AAA 1,072,350 Development, Revenue and Revenue Refunding Bonds (Revitalization Projects), Series 1995, 5.625%, 7/01/15 15 173 Portfolio of Investments (Unaudited) Nuveen Flagship Kentucky Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/Limited (continued) $ 250,000 Laurel County, Kentucky, School District Finance Corporation, 3/01 at 102 A $ 272,555 School Building Revenue Bonds, 7.000%, 3/01/10 1,000,000 Lawrence County, Kentucky, School District Finance Corporation, 11/04 at 102 A1 1,146,030 School Building Revenue Bonds, Series 1994, 6.750%, 11/01/14 Lexington, Kentucky, Center Corporation Mortgage Revenue Refunding and Improvement Bonds, Series 1993A: 2,600,000 0.000%, 10/01/11 No Opt. Call A 1,452,074 2,550,000 0.000%, 10/01/12 No Opt. Call A 1,342,677 435,000 Lincoln County, Kentucky, School District Finance Corporation, 5/02 at 102 A1 469,978 School Building Revenue Bonds, Series 1992, 6.200%, 5/01/12 6,165,000 Louisville, Kentucky, Airport Lease Revenue Bonds, Series 1989A, 2/99 at 103 A 6,390,084 7.875%, 2/01/19 (Alternative Minimum Tax) 1,525,000 McCracken County, Kentucky, Public Properties Corporation, Public 9/06 at 102 AAA 1,665,681 Project Revenue Bonds (Court Facilities Project), Series 1995, 5.900%, 9/01/26 2,365,000 McCreary County (Kentucky), School District Finance Corporation, 8/05 at 102 A 2,505,505 School Building Revenue Bonds, Second Series of 1995, 5.600%, 8/01/16 1,410,000 Morgan County, Kentucky, School District Finance Corporation, 9/04 at 102 A1 1,533,742 School Building Revenue Bonds, Series 1994, 6.000%, 9/01/14 13,000,000 Mount Sterling, Kentucky, Lease Revenue Bonds (Kentucky League of 3/03 at 102 Aa 13,813,410 Cities Funding Program), Series 1993A, 6.200%, 3/01/18 Pendleton County, Kentucky, County Lease Revenue Bonds, Kentucky Associated Counties Leasing Trust Program Series 1993-A: 12,960,000 6.500%, 3/01/19 3/03 at 102 A 13,866,682 500,000 6.400%, 3/01/19 No Opt. Call A 588,105 2,000,000 Puerto Rico Aqueduct and Sewer Authority, Refunding Bonds, 7/06 at 101 1/2 A 1,991,000 Series 1995, Guaranteed by the Commonwealth of Puerto Rico, 5.000%, 7/01/19 8,250,000 Puerto Rico Highway and Transportation Authority, Highway 7/16 at 100 A 8,904,720 Revenue Bonds, Series Y of 1996, 5.500%, 7/01/36 115,000 Puerto Rico Infrastructure Finance Authority, Special Tax 7/00 at 100 BBB+ 117,685 Revenue Bonds, Series 1988A, 7.750%, 7/01/08 7,000,000 Warren County, Kentucky, Justice Center Expansion Corporation, 9/07 at 102 AAA 7,206,360 First Mortgage Revenue Bonds, AOC Judicial Facility, Series 1997A, 5.250%, 9/01/24 - ----------------------------------------------------------------------------------------------------------------------------------- Transportation -- 4.1% 10,640,000 Kenton County Airport Board (Commonwealth of Kentucky), Special 2/02 at 100 BBB- 10,811,517 Facilities Revenue Bonds, 1992 Series A (Delta Air Lines, Inc. Project), 6.125%, 2/01/22 (Alternative Minimum Tax) 1,250,000 Kenton County (Kentucky), Airport Board, Cincinnati/Northern 3/06 at 102 AAA 1,346,975 Kentucky International Airport Revenue Bonds, Series 1996B, 5.750%, 3/01/13 5,000,000 Regional Airport Authority of Louisville and Jefferson County, 7/05 at 102 AAA 5,228,200 Kentucky, Airport System Revenue Bonds, 1995 Series A, 5.625%, 7/01/25 (Alternative Minimum Tax) 2,790,000 The City of Louisville Parking Authority of River City (PARC), 6/01 at 103 A 3,079,323 Inc. (Kentucky), First Mortgage Revenue Bonds, Series 1991, 6.875%, 12/01/20 - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed -- 10.8% 430,000 Bardstown Independent School District Finance Corporation, 11/02 at 102 A1*** 478,121 School Building Refunding and Improvement Revenue Bonds, Series of 1992, 6.375%, 5/01/17 (Pre-refunded to 11/01/02) 725,000 Bell County, Kentucky, School District Finance Corporation, 9/01 at 102 A*** 798,515 School Building Revenue Bonds, Series 1991, 6.875%, 9/01/11 (Pre-refunded to 9/01/01) 1,000,000 Boone County (Kentucky), School District Finance Corporation, 9/01 at 103 A1*** 1,107,350 School Building Revenue Bonds, Series C of 1991, 6.750%, 9/01/11 (Pre-refunded to 9/01/01) 16 174 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed (continued) $ 1,215,000 Boone County (Kentucky), School District Finance Corporation, 12/02 at 102 A1*** $ 1,342,028 School Building Refunding and Improvement Revenue Bonds, Series 1992, 6.125%, 12/01/17 (Pre-refunded to 12/01/02) Christian County (Kentucky), School District Finance Corporation, School Building Revenue Bonds, Series 1991: 565,000 6.750%, 6/01/10 (Pre-refunded to 6/01/01) 6/01 at 102 A*** 617,681 600,000 6.750%, 6/01/11 (Pre-refunded to 6/01/01) 6/01 at 102 A*** 655,944 1,645,000 City of Edgewood, Kentucky, Public Properties Corporation, First 12/01 at 102 A2*** 1,819,321 Mortgage Revenue Bonds (Public Facilities Project), Series 1991, 6.700%, 12/01/21 (Pre-refunded to 12/01/01) City of Florence, Kentucky, Public Properties Corporation, First Mortgage Revenue Bonds (Recreational Facilities Project): 100,000 7.000%, 3/01/10 (Pre-refunded to 3/01/01) 3/01 at 103 A3*** 109,852 320,000 7.000%, 3/01/14 (Pre-refunded to 3/01/01) 3/01 at 103 A3*** 352,336 345,000 7.000%, 3/01/15 (Pre-refunded to 3/01/01) 3/01 at 103 A3*** 379,862 360,000 7.000%, 3/01/16 (Pre-refunded to 3/01/01) 3/01 at 103 A3*** 396,378 16,750,000 Jefferson County, Kentucky, Capital Projects Corporation, Lease 2/01 at 24 11/16 AAA 3,807,443 Revenue Bonds, Series 1989B, 0.000%, 8/15/19 (Pre-refunded to 2/15/01) Kenton County, Kentucky, Public Parks Corporation, Mortgage Revenue Bonds, Series 1990: 1,290,000 7.000%, 3/01/08 (Pre-refunded to 3/01/00) 3/00 at 101 A*** 1,358,860 1,070,000 7.100%, 3/01/10 (Pre-refunded to 3/01/00) 3/00 at 101 A*** 1,128,411 815,000 Kenton County School District Finance Corporation (Kentucky), 12/01 at 102 A+*** 901,643 School Building Revenue Bonds, Series 1991, 6.800%, 12/01/11 (Pre-refunded to 12/01/01) 3,000,000 Kentucky Development Finance Authority, Hospital Revenue Bonds, 10/99 at 102 A*** 3,165,390 Series 1989A (St. Luke Hospital, Inc.), 7.500%, 10/01/12 (Pre-refunded to 10/01/99) 500,000 Kentucky Development Finance Authority, Sisters of Charity of 11/99 at 102 AAA 528,865 Nazareth Health Corporation, Hospital Revenue Bonds, Series 1989, 7.375%, 11/01/16 (Pre-refunded to 11/01/99) Kentucky Development Finance Authority, Hospital Facilities Revenue Bonds, Series 1991A (St. Luke Hospital, Inc.): 2,000,000 7.000%, 10/01/11 (Pre-refunded to 10/01/01) 10/01 at 102 AAA 2,217,220 9,070,000 7.000%, 10/01/21 (Pre-refunded to 10/01/01) 10/01 at 102 AAA 10,055,093 1,495,000 Kentucky Infrastructure Authority, Governmental Agencies 8/99 at 102 A*** 1,570,288 Program, Revenue Refunding Bonds, Series 1989A, 7.800%, 8/01/08 (Pre-refunded to 8/01/99) 4,875,000 The Turnpike Authority of Kentucky, Economic Development Road 5/00 at 101 1/2 AAA 5,210,059 Revenue Bonds (Revitalization Projects), Series 1990, 7.250%, 5/15/10 (Pre-refunded to 5/15/00) Lexington-Fayette Urban County Government (Kentucky) Governmental Project Revenue Bonds, Series 1994 (University of Kentucky Alumni Association, Inc. Commonwealth Library Project): 3,195,000 6.750%, 11/01/17 (Pre-refunded to 11/01/04) 11/04 at 102 AAA 3,725,658 4,320,000 6.750%, 11/01/24 (Pre-refunded to 11/01/04) 11/04 at 102 AAA 5,037,509 Montgomery County, Kentucky, School District Finance Corporation, School Building Revenue Bonds, Series 1991: 305,000 6.800%, 6/01/09 (Pre-refunded to 6/01/01) 6/01 at 102 A1*** 333,322 325,000 6.800%, 6/01/10 (Pre-refunded to 6/01/01) 6/01 at 102 A1*** 355,180 350,000 6.800%, 6/01/11 (Pre-refunded to 6/01/01) 6/01 at 102 A1*** 382,501 2,000,000 Northern Kentucky University, Certificates of Participation, 1/01 at 102 AAA 2,183,120 Student Housing Facilities, Series 1991, 7.250%, 1/01/12 (Pre-refunded to 1/01/01) 1,230,000 Perry County, Kentucky, School District Finance Corporation, 7/02 at 102 A1*** 1,353,554 School Building Revenue Bonds, Series 1992, 6.250%, 7/01/11 (Pre-refunded to 7/01/02) 1,990,000 Western Kentucky University, Housing and Dining System Revenue 12/00 at 102 AAA 2,179,329 Bonds, Series 1990L, 7.400%, 12/01/10 (Pre-refunded to 12/01/00) 940,000 Western Kentucky University, Consolidated Educational Building 11/00 at 102 AAA 1,026,621 Revenue Bonds, Series 1990J, 7.400%, 5/01/10 (Pre-refunded to 11/01/00) 17 175 Portfolio of Investments (Unaudited) Nuveen Flagship Kentucky Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Utilities - 9.9% $ 7,000,000 County of Boone, Kentucky, Collateralized Pollution Control Revenue 1/04 at 102 AAA $ 7,327,460 Refunding Bonds, 1994 Series A (The Cincinnati Gas and Electric Company Project), 5.500%, 1/01/24 5,030,000 County of Carroll, Kentucky, Collateralized Pollution Control 2/02 at 102 Aa2 5,312,988 Revenue Bonds (Kentucky Utilities Company Project), 1992 Series B, 6.250%, 2/01/18 5,000,000 Cities of Carrollton and Henderson, Kentucky, Public Energy No Opt. Call AAA 5,235,000 Authority of Kentucky Trust Gas Revenue Bonds, Series 1998, 5.000%, 1/01/07 1,000,000 County of Jefferson, Kentucky, Pollution Control Revenue Bonds, 6/00 at 102 Aa2 1,067,770 1990 Series A (Louisville Gas and Electric Company Project), 7.450%, 6/15/15 1,750,000 County of Jefferson, Kentucky, Pollution Control Revenue Bonds, 4/05 at 102 Aa2 1,879,203 1995 Series A (Louisville Gas and Electric Company Project), 5.900%, 4/15/23 1,250,000 Mercer County, Kentucky, Collateralized Pollution Control Revenue 2/02 at 102 Aa2 1,339,988 Bonds (Kentucky Utilities Company Project), Series 1992A, 6.250%, 2/01/18 Owensboro, Kentucky, Electric Light and Power Revenue Bonds, Series 1991B: 7,100,000 0.000%, 1/01/11 No Opt. Call AAA 4,121,976 6,475,000 0.000%, 1/01/12 No Opt. Call AAA 3,548,106 7,900,000 0.000%, 1/01/17 No Opt. Call AAA 3,251,008 13,300,000 0.000%, 1/01/18 No Opt. Call AAA 5,181,946 5,100,000 0.000%, 1/01/19 No Opt. Call AAA 1,883,940 4,725,000 0.000%, 1/01/20 No Opt. Call AAA 1,654,175 3,000,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 7/04 at 102 BBB+ 3,267,540 6.000%, 7/01/16 4,795,000 Trimble County, Kentucky, Pollution Control Revenue Bonds 11/00 at 102 Aa2 5,178,312 (Louisville Electric Company), Series 1990A, 7.625%, 11/01/20 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------------------------------- Water and Sewer - 8.0% 625,000 City of Danville, Kentucky, Multi-City Lease Revenue Bonds 12/01 at 103 AAA 687,881 (City of Radcliff Kentucky, Sewer System Revenue Project), Fixed Rate Series 1991-B, 6.875%, 3/01/19 1,750,000 City of Henderson, Kentucky, Water and Sewer Revenue and Refunding 11/04 at 103 AAA 1,965,128 Bonds, Series of 1994A, 6.100%, 11/01/14 2,040,000 Kenton County Water District No. 1, Water District Revenue Bonds, 2/05 at 102 AAA 2,186,268 Series 1995B, 5.700%, 2/01/20 500,000 Kentucky Infrastructure Authority, Infrastructure Revolving Fund 6/01 at 102 A 542,900 Program Revenue Bonds, 1991 Series E, 6.500%, 6/01/11 1,000,000 Kentucky Infrastructure Authority, Governmental Agencies Program 8/03 at 102 A 1,046,920 Revenue Refunding Bonds, 1993 Series E, 5.750%, 8/01/18 Kentucky Infrastructure Authority, Infrastructure Revolving Fund Program Revenue Bonds, 1995 Series J: 440,000 6.300%, 6/01/10 6/05 at 102 A 493,596 360,000 6.350%, 6/01/11 6/05 at 102 A 404,208 600,000 6.375%, 6/01/14 6/05 at 102 A 681,455 Kentucky Infrastructure Authority, Governmental Agencies Program Revenue Bonds, 1995 Series G: 420,000 6.300%, 8/01/10 8/05 at 102 A 472,075 445,000 6.350%, 8/01/11 8/05 at 102 A 500,620 825,000 6.375%, 8/01/14 8/05 at 102 A 932,885 405,000 Kentucky Infrastructure Authority, Governmental Agencies Program 8/99 at 102 A 424,390 Revenue Refunding Bonds, Series 1989A, 7.800%, 8/01/08 Louisville and Jefferson County Metropolitan Sewer District (Commonwealth of Kentucky), Sewer and Drainage System Revenue Bonds, Series 1994A: 2,720,000 6.750%, 5/15/19 11/04 at 102 AAA 3,174,156 2,070,000 6.500%, 5/15/24 11/04 at 102 AAA 2,388,324 2,500,000 6.750%, 5/15/25 11/04 at 102 AAA 2,917,424 18 176 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Water and Sewer (continued) $ 3,865,000 Louisville and Jefferson County Metropolitan Sewer District 2/05 at 102 Aaa $ 4,004,178 (Commonwealth of Kentucky), Sewer and Drainage System Revenue Bonds, Series 1996A, 5.400%, 5/15/22 10,500,000 Louisville and Jefferson County Metropolitan Sewer District 5/07 at 101 AAA 10,741,604 (Commonwealth of Kentucky), Sewer and Drainage System Revenue Bonds, Series 1997A, 5.250%, 5/15/27 6,000,000 Louisville and Jefferson County Metropolitan Sewer District 11/07 at 101 AAA 6,234,419 (Commonwealth of Kentucky), Sewer and Drainage System Revenue Bonds, Series 1997B, 5.350%, 5/15/22 500,000 Paducah, Kentucky, Waterworks Revenue Refunding Bonds, Series 1991, 7/01 at 102 AAA 547,113 6.700%, 7/01/09 - ----------------------------------------------------------------------------------------------------------------------------------- $510,733,041 Total Investments - (cost $458,152,347) - 98.7% 498,596,440 ============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.3% 6,758,807 -------------------------------------------------------------------------------------------------------------------- Net Assets - 100% $505,355,247 =================================================================================================================================== * Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings: Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. government or U.S. government agency securities which ensures the timely payment of principal and interest. Securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. See accompanying notes to financial statements. 19 177 Portfolio of Investments (Unaudited) Nuveen Flagship Kentucky Limited Term Municipal Bond Fund November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Consumer Staples - 2.9% $ 320,000 City of Newport, Kentucky, Industrial Building Revenue Bonds, Series 1996A No Opt. Call N/R $322,624 - (Louis Truath Dairy, Inc. Project), 4.800%, 6/01/99 - ----------------------------------------------------------------------------------------------------------------------------------- Education and Civic Organizations - 14.0% 500,000 City of Berea, Kentucky, Berea College General Obligation Bonds, No Opt. Call Aaa 511,360 Series 1998, 4.800%, 7/01/08 (Alternative Minimum Tax) 500,000 Kentucky Higher Education Student Loan Corporation, Insured Student No Opt. Call Aaa 547,255 Loan Revenue Bonds, 1991 Series B, 6.800%, 6/01/03 (Alternative Minimum Tax) 475,000 University of Kentucky, Consolidated Educational Buildings Revenue No Opt. Call AAA 497,088 Bonds, Series O, 5.000%, 5/01/03 - ----------------------------------------------------------------------------------------------------------------------------------- Energy - 3.1% 325,000 City of Ashland, Kentucky, Pollution Control Revenue Refunding Bonds 2/00 at 102 1/2 Baa1 342,904 (Ashland Oil Inc. Project), Series 1988A, 7.375%, 7/01/09 - ----------------------------------------------------------------------------------------------------------------------------------- Health Care - 23.0% 580,000 Kentucky Development Finance Authority, Sisters of Charity of Nazareth 11/01 at 102 A1 637,188 Health Corporation, Revenue Refunding Bonds, Series 1991, 6.600%, 11/01/06 270,000 Kentucky Economic Development Finance Authority, Medical Center Revenue No Opt. Call AAA 270,902 Refunding and Improvement Bonds, Series 1993A (Ashland Hospital Corporation d/b/a Kings Daughter Medical Center Project), 5.100%, 2/01/99 500,000 Kentucky Economic Development Finance Authority, Hospital System No Opt. Call BBB 523,095 Refunding and Improvement Revenue Bonds, Series 1997 (Appalachian Regional Healthcare, Inc. Project), 5.500%, 10/01/07 385,000 McCracken County, Kentucky, Hospital Facilities Revenue Refunding Bonds, 11/04 at 102 AAA 432,667 Series 1994A (Mercy Health System), 6.300%, 11/01/06 680,000 City of Radcliff, Kentucky, Tax-Exempt Mortgage Revenue Refunding Bonds, No Opt. Call AAA 710,634 Series 1997 (GNMA Backed - Lincoln Trail Care and Treatment Facility), 5.100%, 7/20/07 - ----------------------------------------------------------------------------------------------------------------------------------- Housing/Multifamily - 9.6% 705,000 City of Louisville, Kentucky, Multi-Family Housing Revenue Refunding No Opt. Call Aa2 712,952 Bonds, Series 1989 (Station House Square Associates L.P. Project), 5.125%, 7/15/19 350,000 County of Martin, Kentucky, Mortgage Revenue Refunding Bonds, Series 1995 7/01 at 100 Aa 362,016 (FHA Insured Mortgage Loan - Section 8 Assisted Project), 5.375%, 7/01/05 - ----------------------------------------------------------------------------------------------------------------------------------- Housing/Single Family - 1.9% 100,000 Kentucky Housing Corporation, Housing Revenue Bonds, 1993 Series B 1/04 at 102 AAA 104,520 (Federally Insured or Guaranteed Mortgage Loans), 5.150%, 7/01/07 100,000 Kentucky Housing Corporation, Housing Revenue Bonds, 1995 Series F No Opt. Call AAA 102,728 (Federally Insured or Guaranteed Mortgage Loans), 4.800%, 7/01/03 - ----------------------------------------------------------------------------------------------------------------------------------- Long Term Care - 1.9% 200,000 Kentucky Economic Development Finance Authority, Hospital Revenue No Opt. Call Aa3 206,350 Refunding Bonds, Series 1996 (Green River Regional Mental Health/Mental Retardation Board, Inc.), 5.200%, 11/01/01 - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/General - 2.7% 280,000 Commonwealth of Puerto Rico, Public Improvement Refunding Bonds, Series No Opt. Call A 301,165 1993 (General Obligation Bonds), 5.375%, 7/01/05 20 178 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------- Tax Obligation/Limited - 23.6% $ 265,000 Hardin County (Kentucky), School District 6/01 at 103 A1 $ 290,194 Finance Corporation, School Building Revenue Bonds, Series of 1991, 6.800%, 6/01/08 300,000 Jefferson County, Kentucky, Capital Projects No Opt. Call AAA 319,638 Corporation, Lease Revenue Bonds, Series 1996A, 5.500%, 4/01/03 City of Jeffersontown, Kentucky, Public Projects Refunding and Improvements, Certificates of Participation: 505,000 4.850%, 11/01/04 No Opt. Call A 530,806 100,000 5.000%, 11/01/05 No Opt. Call A 106,331 50,000 Kentucky Interlocal School Transportation No Opt. Call A1 52,092 Association (KISTA), Equipment Lease Revenue Bonds, Series of 1993, 5.200%, 3/01/02 360,000 The Turnpike Authority of Kentucky, Economic No Opt. Call AAA 388,591 Development Road Revenue and Revenue Refunding Bonds (Revitalization Projects), Series 1993, 5.400%, 7/01/05 125,000 The Turnpike Authority of Kentucky, Resource No Opt. Call A+ 125,263 Recovery Road Revenue Refunding Bonds, 1985 Series A, 6.000%, 7/01/09 775,000 Mount Sterling, Kentucky, Lease Revenue No Opt. Call Aa 822,260 Bonds (Kentucky League of Cities Funding Program), Series 1993A, 5.625%, 3/01/03 - ----------------------------------------------------------------------------------------------------------- Transportation - 2.8% 300,000 Kenton County (Kentucky), Airport Board, No Opt. Call AAA 310,083 Cincinnati/Northern Kentucky International Airport Revenue Bonds, Series 1996A, 5.000%, 3/01/02 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------- U.S. Guaranteed - 0.5% 250,000 Jefferson County, Kentucky, Capital 2/01 at 24 11/16 AAA 56,828 Projects Corporation, Lease Revenue Bonds, Series 1989B, 0.000%, 8/15/19 (Pre-refunded to 2/15/01) - ----------------------------------------------------------------------------------------------------------- Utilities - 2.9% 400,000 City of Owensboro, Kentucky, Electric No Opt. Call AAA 327,512 Light and Power System Revenue Bonds, Series 1993A, 0.000%, 1/01/04 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------- Water and Sewer - 8.6% 200,000 Kenton County Water District No. 1, No Opt. Call AAA 215,718 Water District Revenue Bonds, Series 1995B, 5.600%, 2/01/04 Kentucky Infrastructure Authority, Wastewater Revolving Fund Program Revenue Refunding Bonds, 1995 Series C: 150,000 5.300%, 6/01/03 No Opt. Call A 158,500 200,000 5.500%, 6/01/05 No Opt. Call A 216,016 350,000 Kentucky Infrastructure Authority, No Opt. Call A 366,190 Governmental Agencies Program Revenue and Revenue Refunding Bonds, 1995 Series H, 5.200%, 8/01/02 - ----------------------------------------------------------------------------------------------------------- $10,600,000 Total Investments - (cost $10,473,622) - 97.5% 10,871,470 - ----------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 2.5% 281,480 --------------------------------------------------------------------------------------------- Net Assets - 100% $11,152,950 --------------------------------------------------------------------------------------------- * Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings: Using the higher of Standard & Poor's or Moody's rating. N/R Investment is not rated. See accompanying notes to financial statements. 21 179 Portfolio of Investments (Unaudited) Nuveen Flagship Michigan Municipal Bond Fund November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Capital Goods - 0.3% $1,055,000 Michigan Strategic Fund, Limited Obligation 12/03 at 102 A1 $ 1,109,058 Revenue Bonds (WMX Technologies, Inc. Project), Series 1993, 6.000%, 12/01/13 (Alternative Minimum Tax) - ---------------------------------------------------------------------------------------------------------- Consumer Cyclical - 2.4% 2,500,000 Michigan Strategic Fund, Limited Obligation No Opt. Call A1 2,941,750 Refunding Revenue Bonds, Series 1991A, 7.100%, 2/01/06 5,000,000 Michigan Strategic Fund, Multi-Modal 9/05 at 102 A 5,447,600 Interchangeable Rate Pollution Control Refunding Revenue Bonds (General Motors Corporation), Series 1995, 6.200%, 9/01/20 - ---------------------------------------------------------------------------------------------------------- Education and Civic Organizations - 1.2% 210,000 Board of Control of Grand Valley State 10/00 at 100 A 214,935 University, Michigan, General Revenue Bonds, Series 1988, 7.875%, 10/01/08 750,000 Michigan Higher Education Student Loan 6/06 at 102 Aaa 803,858 Authority, Student Loan Revenue Bonds, Series XVII-A, 5.750%, 6/01/13 (Alternative Minimum Tax) 1,000,000 Michigan Higher Education Student Loan 6/08 at 101 AAA 995,820 Authority, Student Loan Revenue Bonds, Series XVII-B, 5.400%, 6/01/18 (Alternative Minimum Tax) 1,000,000 Board of Trustees of Michigan State University, 2/06 at 101 AAA 993,300 General Revenue Bonds, Series 1996, 5.000%, 2/15/26 1,000,000 Board of Trustees of Western Michigan University 11/02 at 102 AAA 1,109,790 (Michigan), General Revenue Bonds, Series 1992A, 6.250%, 11/15/12 - ---------------------------------------------------------------------------------------------------------- Forest and Paper Products - 2.2% 7,500,000 The Economic Development Corporation of 10/03 at 102 Baa1 7,790,100 Dickinson County (Michigan), Pollution Control Refunding Revenue Bonds (Champion International Corporation Project), Series 1993, 5.850%, 10/01/18 - ---------------------------------------------------------------------------------------------------------- Health Care - 21.2% 1,000,000 The Economic Development Corporation of the City 11/05 at 102 AAA 1,084,550 of Dearborn, Hospital Revenue Bonds (Oakwood Obligated Group), Series 1995A, 5.750%, 11/15/15 500,000 City of Farmington Hills Hospital Finance 2/02 at 102 AAA 550,760 Authority (Michigan), Hospital Revenue Bonds (Botsford General Hospital), Series 1992A, 6.500%, 2/15/11 City of Flint Hospital Building Authority, Revenue Rental Bonds, Series 1998B (Hurley Medical Center): 1,000,000 5.375%, 7/01/18 7/08 at 101 Baa1 996,950 1,000,000 5.375%, 7/01/28 7/08 at 101 Baa1 997,740 500,000 County of Grand Traverse (Michigan), Hospital 7/02 at 102 AAA 545,275 Finance Authority, Hospital Revenue Refunding Bonds (Munson Healthcare Obligated Group), Series 1992A, 6.250%, 7/01/22 6,000,000 City of Kalamazoo Hospital Finance Authority, 5/06 at 102 AAA 6,469,080 Hospital Revenue Refunding and Improvement Bonds (Bronson Methodist Hospital), Series 1996, 5.875%, 5/15/26 1,290,000 Kent Hospital Finance Authority (Michigan), 11/01 at 102 AAA 1,398,837 Hospital Revenue Refunding Bonds (Pine Rest Christian Hospital), Series 1992, 6.500%, 11/01/10 180 3,530,000 Lake View Community Hospital Authority 2/07 at 101 N/R 3,512,527 (Michigan), Hospital Revenue Refunding Bonds, Series 1997, 6.250%, 2/15/13 40,000 Michigan State Hospital Finance Authority, 8/00 at 100 A- 40,943 Hospital Revenue and Refunding Bonds (The Detroit Medical Center Obligated Group), Series 1988B, 8.125%, 8/15/08 3,000,000 Michigan State Hospital Finance Authority, 1/00 at 100 BBB+ 3,036,660 Revenue Refunding Bonds, Memorial Hospital- Owosso, Series 1987A, 7.375%, 1/01/03 6,500,000 Michigan State Hospital Finance Authority, 8/03 at 102 A- 7,117,500 Revenue and Refunding Bonds (The Detroit Medical Center Obligated Group), Series 1993A, 6.500%, 8/15/18 22 181 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Health Care (continued) $1,000,000 Michigan State Hospital Finance Authority, 7/99 at 102 AAA $1,042,350 Revenue Refunding, Oakland General Hospital, 7.000%, 7/01/15 1,850,000 Michigan State Hospital Finance Authority, 10/03 at 102 A1 1,681,280 Hospital Revenue Refunding Bonds (McLaren Obligated Group), Series 1993A, 4.500%, 10/15/21 1,000,000 Michigan State Hospital Finance Authority, 11/01 at 102 AAA 1,085,840 Hospital Revenue Refunding Bonds (Sparrow Obligated Group), Series 1991, 6.500%, 11/15/11 2,920,000 Michigan State Hospital Finance Authority, 8/04 at 102 A- 2,937,053 Hospital Revenue and Refunding Bonds (The Detroit Medical Center Obligated Group), Series 1993B, 5.500%, 8/15/23 1,000,000 Michigan State Hospital Finance Authority, 1/05 at 102 AA- 1,089,970 Hospital Revenue and Refunding Bonds (Otsego Memorial Hospital Gaylord, Michigan), Series 1995, 6.125%, 1/01/15 2,000,000 Michigan State Hospital Finance Authority, 7/05 at 102 AAA 2,092,460 Hospital Revenue Refunding Bonds (Port Huron Hospital Obligated Group), Series 1995, 5.500%, 7/01/15 1,000,000 Michigan State Hospital Finance Authority, No Opt. Call BBB 1,080,090 Hospital Revenue Refunding Bonds (Gratiot Community Hospital, Alma, Michigan), Series 1995, 6.100%, 10/01/07 4,500,000 Michigan State Hospital Finance Authority, 5/06 at 102 AA- 4,531,590 Hospital Revenue and Refunding Bonds (Henry Ford Health System), Series 1995A, 5.250%, 11/15/20 1,000,000 Michigan State Hospital Finance Authority, 10/06 at 102 BBB 1,063,720 Hospital Revenue Bonds (Michigan Community Hospital), Series 1996, 6.250%, 10/01/27 2,000,000 Michigan State Hospital Finance Authority, 8/07 at 101 AA- 2,087,800 Hospital Revenue Refunding Bonds (Mercy Health Services), Series 1997S, 5.500%, 8/15/20 Michigan State Hospital Finance Authority, Hospital Revenue and Refunding Bonds (Genesys Regional Medical Center Obligated Group), Series 1998A: 1,000,000 5.500%, 10/01/18 10/08 at 102 BBB 1,004,460 4,000,000 5.500%, 10/01/27 10/08 at 102 BBB 4,019,120 1,250,000 Michigan State Hospital Finance Authority, 8/08 at 101 A- 1,216,000 Hospital Revenue Bonds (The Detroit Medical Center Obligated Group), Series 1998A, 5.250%, 8/15/28 Pontiac, Michigan, Hospital Finance Authority, Hospital Revenue Refunding, Nomc Obligation Group: 3,000,000 6.000%, 8/01/18 8/03 at 102 BBB- 3,068,940 5,165,000 6.000%, 8/01/23 8/03 at 102 BBB- 5,281,058 8,345,000 Royal Oak, Michigan, Hospital Finance Authority, 1/06 at 102 AA 8,407,588 Hospital Revenue Refunding Bonds (William Beaumont Hospital), Series 1996I, 5.250%, 1/01/20 2,000,000 Saginaw Hospital Finance Authority (Michigan), 10/99 at 102 BBB+ 2,089,840 Hospital Revenue Refunding Bonds (Saginaw General Hospital), Series 1989, 7.625%, 10/01/08 500,000 City of Saginaw (Michigan), Hospital Finance 7/01 at 102 AAA 541,695 Authority (St. Lukes Hospital), Hospital Revenue Refunding Bonds, Series 1991 C, 6.750%, 7/01/17 1,000,000 Regents of the University of Michigan, Hospital 12/00 at 100 AA 1,055,700 Revenue Bonds, Series 1990, 6.375%, 12/01/24 3,500,000 Regents of the University of Michigan, Medical 12/01 at 102 Aa2 3,840,690 182 Service Plan Revenue Bonds, Series 1991, 6.500%, 12/01/21 - ---------------------------------------------------------------------------------------------------------- Housing/Multifamily - 3.3% 435,000 Grand Rapids Housing Corporation, Multifamily 1/04 at 104 AAA 486,787 Revenue Refunding Bonds, Series 1992 (FHA Insured Mortgage Loan-Section 8 Assisted Elderly Project), 7.375%, 7/15/41 750,000 Grand Rapids Housing Finance Authority, 9/04 at 100 AAA 832,973 Multifamily Housing Refunding Revenue Bonds, Series 1990A (Fannie Mae Collateralized), 7.625%, 9/01/23 1,190,000 Michigan State Housing Development Authority, 10/05 at 102 Aaa 1,292,376 Limited Obligation Multi-Family Revenue Refunding Bonds, Series 1995A (GNMA Collateralized Program-Parc Pointe Apartments), 6.500%, 10/01/15 6,000,000 Michigan State Housing Development Authority, No Opt. Call AA- 1,654,260 Section 8 Assisted Mortgage Revenue Bonds, Series 1983I, 0.000%, 4/01/14 5,000,000 Michigan State Housing Development Authority, 4/01 at 102 AA- 5,372,200 Rental Housing Revenue Bonds, 1990 Series B, 7.550%, 4/01/23 23 183 Portfolio of Investments (Unaudited) Nuveen Flagship Michigan Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - --------------------------------------------------------------------------------------------------------- Housing/Multifamily (continued) $ 290,000 Michigan State Housing Development Authority, No Opt. Call AA- $ 311,747 Rental Housing Revenue Bonds, 1991 Series B, 7.100%, 4/01/21 410,000 Michigan State Housing Development Authority, 10/02 at 102 AA- 441,291 Rental Housing Revenue Bonds, 1992 Series A, 6.650%, 4/01/23 1,000,000 Michigan State Housing Development Authority, 6/05 at 102 AAA 1,074,210 Rental Housing Revenue Bonds, 1995 Series B, 6.150%, 10/01/15 - --------------------------------------------------------------------------------------------------------- Housing/Single Family - 4.0% 905,000 Michigan State Housing Development Authority, 6/00 at 102 AA+ 943,318 Single Family Mortgage Revenue Bonds, Series 1990A, 7.500%, 6/01/15 2,325,000 Michigan State Housing Development Authority, 12/00 at 102 AA+ 2,440,553 Single Family Mortgage Revenue Bonds, Series 1990C, 7.550%, 12/01/15 2,000,000 Michigan State Housing Development Authority, 6/04 at 102 AA+ 2,139,520 Single Family Mortgage Revenue Bonds, Series 1994A, 6.450%, 12/01/14 3,930,000 Michigan State Housing Development Authority, 12/04 at 102 AA+ 4,159,001 Single Family Mortgage Revenue Refunding Bonds, Series 1994C, 6.500%, 6/01/16 1,230,000 Michigan State Housing Development Authority, 6/05 at 102 AA+ 1,328,105 Single Family Mortgage Revenue Bonds, Series 1995 A, 6.800%, 12/01/16 1,500,000 Michigan State Housing Development Authority, 12/06 at 102 AA+ 1,598,925 Single Family Mortgage Revenue Bonds, Series 1996D, 5.950%, 12/01/16 1,250,000 Michigan State Housing Development Authority, 6/07 at 102 AAA 1,332,025 Single Family Mortgage Revenue Bonds, Series 1997A, 6.050%, 12/01/27 (Alternative Minimum Tax) - --------------------------------------------------------------------------------------------------------- Long Term Care - 5.0% 2,500,000 The Economic Development Corporation of the City 5/07 at 102 BBB 2,655,725 of Kalamazoo (Kalamazoo County, Michigan), Limited Obligation Revenue and Refunding Revenue Bonds (Friendship Village of Kalamazoo), Series 1997A, 6.250%, 5/15/27 Michigan State Hospital Finance Authority, Revenue Bonds (Presbyterian Villages of Michigan Obligation Group), Series 1997: 600,000 6.375%, 1/01/15 1/07 at 102 N/R 648,396 1,200,000 6.500%, 1/01/25 7/05 at 102 N/R 1,294,728 500,000 6.375%, 1/01/25 1/07 at 102 N/R 537,905 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Porter Hills Presbyterian Village Inc. Project), Series 1998: 400,000 5.300%, 7/01/18 7/08 at 101 A 403,368 2,675,000 5.375%, 7/01/28 7/08 at 101 A 2,697,443 2,000,000 Michigan Strategic Fund, Limited Obligation 11/08 at 101 N/R 1,997,100 Revenue and Refunding Revenue Bonds, Series 1998 (Holland Home), 5.750%, 11/15/28 7,110,000 Michigan Strategic Fund, Limited Obligation 6/08 at 100 BBB+ 6,994,960 Revenue Bonds (Clark Retirement Community Inc. Project), Series 1998, 5.250%, 6/01/18 250,000 The Economic Development Corporation of the 3/02 at 101 Aaa 265,183 City of Warren, Nursing Home Revenue Refunding Bonds (GNMA Mortgage-Backed Security-Autumn Woods Project), Series 1992, 6.900%, 12/20/22 - --------------------------------------------------------------------------------------------------------- Tax Obligation/General - 14.4% 400,000 County of Bay, Michigan, Bay County West Side 5/99 at 102 A 411,808 Regional Sewage Disposal System Bonds, 184 6.400%, 5/01/02 5,000,000 Brighton Area Schools, County of Livingston, No Opt. Call AAA 1,714,450 State of Michigan, 1992 Refunding Bonds, Series II (General Obligation Unlimited Tax), 0.000%, 5/01/20 500,000 City of East Lansing Building Authority, 10/99 at 102 AA 524,340 County of Ingham, State of Michigan, Building Authority Refunding Bonds, Series 1991, 7.000%, 10/01/16 2,430,000 School District of the City of Garden City, 5/04 at 101 AAA 2,714,140 County of Wayne, State of Michigan, 1994 Refunding Bonds (General Obligation - Unlimited Tax), 6.400%, 5/01/11 1,265,000 Holton Public Schools, Counties of Muskegon, 5/08 at 100 AAA 1,258,903 Oceana and Newaygo State of Michigan, 1998 School Building and Site Bonds (General Obligation Unlimited Tax), 5.000%, 5/01/22 24 185 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Tax Obligation/General (continued) $1,000,000 Lake Orion Community School District, County 5/05 at 101 AAA $ 1,046,080 of Oakland, State of Michigan, 1995 Refunding Bonds (General Obligation - Unlimited Tax), 5.500%, 5/01/20 2,700,000 Livonia, Michigan, Public Schools School No Opt. Call AAA 1,806,840 District, Series II, 0.000%, 5/01/08 2,410,000 Mona Shores, Michigan, School District, School 5/05 at 102 AAA 2,557,661 Building and Site, 5.500%, 5/01/14 Okemos Public Schools, County of Ingham, State of Michigan, 1993 Refunding Bonds: 1,000,000 0.000%, 5/01/17 No Opt. Call AAA 403,390 1,020,000 0.000%, 5/01/18 No Opt. Call AAA 389,446 1,500,000 Portage Lake Michigan Water and Sewer Authority, Refunding, 6.200%, 10/01/20 10/05 at 102 AAA 1,686,255 Commonwealth of Puerto Rico, Public Improvement Bonds of 1994 (General Obligation Bonds): 3,125,000 6.450%, 7/01/17 7/04 at 102 AAA 3,575,281 2,370,000 6.500%, 7/01/23 7/04 at 101 1/2 AAA 2,717,418 500,000 Redford Union Schools, District No. 1, County No Opt. Call AAA 507,950 of Wayne, State of Michigan, 1997 Refunding Bonds (General Obligation - Unlimited Tax), 5.000%, 5/01/22 1,650,000 Saint Clair County Building Authority, 4/06 at 101 AAA 1,723,260 Michigan, General Obligation Bonds, 5.375%, 4/01/15 750,000 South Lyon Community Schools, Counties of 5/01 at 102 AA+ 802,418 Oakland, Washtenaw and Livingston, State of Michigan, 1991 Refunding Bonds (General Obligation - Unlimited Tax), 6.250%, 5/01/14 2,925,000 Spring Lake Public Schools, General Obligation 5/07 at 100 AAA 3,125,714 Bonds, Series 1997, 5.700%, 5/01/23 Waterford, Michigan, School District: 2,500,000 6.250%, 6/01/13 6/04 at 101 AAA 2,809,300 2,470,000 6.375%, 6/01/14 6/04 at 101 AAA 2,790,754 5,000,000 Wayland, Michigan, Unit School District, 5/05 at 101 AAA 5,677,550 6.250%, 5/01/14 1,250,000 Wayne County, Michigan, Building Authority, 6/06 at 102 AAA 1,285,313 Capital Improvement, Series A, 5.250%, 6/01/16 3,270,000 West Ottawa, Michigan, Public School District No Opt. Call AAA 1,319,085 Refunding, 0.000%, 5/01/17 2,000,000 Western Townships Utilities Authority, Sewage 1/99 at 102 BBB+ 2,047,700 Disposal System Bonds, Series 1989, 8.200%, 1/01/18 1,000,000 Western Townships Utilities Authority, Sewage 1/02 at 100 AAA 1,072,160 Disposal System Refunding Bonds, Series 1991, 6.500%, 1/01/10 5,175,000 Williamston Community School District, General No Opt. Call AAA 5,644,217 Obligation - Unlimited Tax, Series 1996 (Q-SBLF), 5.500%, 5/01/25 1,000,000 School District of Ypsilanti, County of 5/09 at 100 AAA 987,010 Washtenaw, State of Michigan, 1998 Refunding Bonds (General Obligation Unlimited Tax), 5.000%, 5/01/20 (WI) - ---------------------------------------------------------------------------------------------------------- Tax Obligation/Limited - 13.4% 2,000,000 City of Detroit Building Authority, Building 2/07 at 101 A 2,182,080 Authority Revenue Bonds (District Court Madison Center), Series A, 6.150%, 2/01/11 9,460,000 Detroit/Wayne County Stadium Authority (State 2/07 at 102 AAA 9,627,158 of Michigan), Building Authority (Stadium) Bonds, Series 1997 (Wayne County Limited Tax General Obligation), 5.250%, 2/01/27 Downtown Development Authority of the City of Grand Rapids, Michigan, Tax Increment Revenue Bonds, Series 1994: 3,985,000 0.000%, 6/01/17 No Opt. Call AAA 1,600,934 186 3,495,000 0.000%, 6/01/18 No Opt. Call AAA 1,328,939 1,650,000 6.875%, 6/01/24 6/04 at 102 AAA 1,892,418 2,000,000 Lansing, Michigan, Building Authority, 6/05 at 101 AA+ 2,107,160 Refunding, 5.600%, 6/01/19 250,000 Michigan Municipal Bond Authority, State 12/01 at 100 AAA 252,750 Revolving Fund Revenue Bonds, Series 1992A, 4.750%, 12/01/09 5,500,000 Michigan Municipal Bond Authority, Revenue No Opt. Call AAA 3,776,465 Refunding, Government Loan A, 0.000%, 12/01/07 2,800,000 Michigan Municipal Bond Authority, Local No Opt. Call AAA 1,864,044 Government Loan, Series C, 0.000%, 6/15/08 1,000,000 State Building Authority, State of Michigan, 10/01 at 102 AA 1,091,270 1991 Revenue Refunding Bonds, Series I, 6.750%, 10/01/11 25 187 Portfolio of Investments (Unaudited) Nuveen Flagship Michigan Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Tax Obligation/Limited (continued) $5,000,000 State Building Authority, State of Michigan, 10/01 at 102 AA $ 5,371,750 1991 Revenue Refunding Bonds, Series I, 6.250%, 10/01/20 7,585,000 State Building Authority, State of Michigan, 10/01 at 102 AA 8,148,945 1991 Revenue Bonds, Series II, 6.250%, 10/01/20 6,000,000 The House of Representatives of the State of No Opt. Call AAA 1,737,180 Michigan, Certificates of Participation, 0.000%, 8/15/23 2,260,000 Puerto Rico Highway and Transportation 7/02 at 101 1/2 A 2,475,740 Authority, Highway Revenue Bonds, 1992 Series V, 6.625%, 7/01/12 1,000,000 Puerto Rico Highway and Transportation 7/16 at 100 A 1,079,360 Authority, Highway Revenue Bonds, Series Y of 1996, 5.500%, 7/01/36 1,500,000 Puerto Rico Highway and Transportation 7/08 at 101 A 1,478,295 Authority, Transportation Revenue Bonds, Series A, 5.000%, 7/01/38 1,085,000 Romulus, Michigan, Tax Increment Finance 11/06 at 100 N/R 1,203,742 Authority, Limited Obligation Revenue, 6.750%, 11/01/19 - ---------------------------------------------------------------------------------------------------------- Transportation -- 1.2% 250,000 Capital Region Airport Authority (Lansing, 7/02 at 102 AAA 275,035 Michigan), Airport Revenue Bonds, Series 1992, 6.700%, 7/01/21 (Alternative Minimum Tax) 4,000,000 Charter County of Wayne, Michigan, Detroit 12/08 at 101 AAA 3,904,400 Metropolitan-Wayne County Airport, Airport Revenue Bonds, Series 1998A, 5.000%, 12/01/22 (Alternative Minimum Tax) - ---------------------------------------------------------------------------------------------------------- U.S. Guaranteed -- 21.4% 1,000,000 City of Battle Creek, County of Calhoun, 5/04 at 102 BBB+*** 1,189,130 State of Michigan, Battle Creek Downtown Development Authority, 1994 Development Bonds, 7.600%, 5/01/16 (Pre-refunded to 5/01/04) 1,800,000 City of Battle Creek, County of Calhoun, 5/04 at 102 A-*** 2,126,916 State of Michigan, Tax Increment Finance Authority, 1994 Development Bonds, 7.400%, 5/01/16 (Pre-refunded to 5/01/04) 1,000,000 City of Bay City, County of Bay, State of 1/01 at 102 AAA 1,078,820 Michigan Electric Utility System Revenue Bonds, 1991 Series, 6.600%, 1/01/12 (Pre-refunded to 1/01/01) 1,895,000 Buena Vista School District, County of Saginaw, 5/01 at 102 N/R*** 2,086,130 State of Michigan, 1991 School Building and Site Bonds (General Obligation Unlimited Tax), 7.200%, 5/01/16 (Pre-refunded to 5/01/01) 1,000,000 The Central Michigan University Board of 10/00 at 102 A+*** 1,080,890 Trustees, General Revenue Bonds, Series 1990, 7.000%, 10/01/10 (Pre-refunded to 10/01/00) 750,000 City of Detroit, Michigan, General Obligation 4/01 at 102 AAA 836,783 Bonds (Unlimited Tax), Series 1991, 8.000%, 4/01/11 (Pre-refunded to 4/01/01) 300,000 School District of the City of Detroit, Wayne 5/00 at 102 Aa1*** 323,475 County, Michigan, School Building and Site Bonds, Series XXIII, 7.750%, 5/01/10 (Pre-refunded to 5/01/00) 1,650,000 School District of the City of Detroit, Wayne 5/01 at 102 Aaa 1,814,192 County, Michigan, School Building and Site Bonds (Unlimited Tax General Obligation), Series 1991, 7.150%, 5/01/11 (Pre-refunded to 5/01/01) 3,600,000 School District of the City of Detroit, Wayne 5/06 at 102 AAA 4,029,516 County, Michigan, School Building and Site Improvement Bonds (Unlimited Tax General 188 Obligation), Series 1996A, 5.700%, 5/01/25 (Pre-refunded to 5/01/06) 10,700,000 City of Detroit (Michigan), Downtown Development 7/06 at 102 A-*** 12,324,795 Authority, Tax Increment Refunding Bonds (Development Area No. 1 Projects), Series 1996C, 6.250%, 7/01/25 (Pre-refunded to 7/01/06) 1,000,000 City of Detroit, Michigan, Sewage Disposal 7/99 at 101 1/2 AAA 1,038,220 System Revenue Bonds, Series 1989, 7.125%, 7/01/19 (Pre-refunded to 7/01/99) 2,000,000 City of Detroit, Michigan, Water Supply System 7/00 at 102 AAA 2,155,260 Revenue Bonds, Series 1990, 7.250%, 7/01/20 (Pre-refunded to 7/01/00) 500,000 City of Farmington Hills, Hospital Finance 2/02 at 102 AAA 550,760 Authority (Michigan), Hospital Revenue Bonds (Botsford General Hospital), Series 1992A, 6.500%, 2/15/22 (Pre-refunded to 2/15/02) 3,000,000 City of Grand Rapids, Michigan, Water Supply 1/00 at 102 AAA 3,183,690 System Improvement Revenue Bonds, Series 1990, 7.250%, 1/01/20 (Pre-refunded to 1/01/00) 2,500,000 Haslett Public Schools, Counties of Ingham, 5/00 at 101 AA+*** 2,663,225 Clinton and Shiawassee, State of Michigan, 1990 School Building and Site Bonds, 7.500%, 5/01/20 (Pre-refunded to 5/01/00) 26 189 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed (continued) $ 750,000 City of Hudsonville Building Authority, County of Ottawa, 10/02 at 102 AAA $ 839,678 State of Michigan, Building Authority Refunding Bonds, Series 1992, 6.600%, 10/01/17 (Pre-refunded to 10/01/02) 2,000,000 Huron Valley School District, Counties of Oakland and 5/01 at 102 N/R*** 2,191,920 Livingston, State of Michigan, 1991 School Building and Site Bonds, 7.100%, 5/01/08 (Pre-refunded to 5/01/01) 1,940,000 City of Kalamazoo (Michigan), Hospital Finance Authority, 5/03 at 102 A1*** 2,170,336 Hospital Revenue Refunding and Improvement Bonds (Bronson Methodist Hospital), Series 1992A, 6.375%, 5/15/17 (Pre-refunded to 5/15/03) 4,000,000 Lake Orion, Michigan, Community School District, Refunding, 5/05 at 101 AAA 4,708,040 7.000%, 5/01/15 (Pre-refunded to 5/01/05) 510,000 Livingston County, Michigan, Genoa-Oceola Sewer Drain No. 1, 5/99 at 102 A*** 526,284 Sanitary Drainage District (Full Faith and Credit of the County), 6.000%, 5/01/08 (Pre-refunded to 5/01/99) 930,000 City of Marquette Hospital Finance Authority, Hospital Revenue 4/99 at 102 A+*** 961,918 Refunding Bonds (Marquette General Hospital, Marquette, Michigan), 1989 Series C, 7.500%, 4/01/07 (Pre-refunded to 4/01/99) 825,000 Menominee Michigan Area Public School District, 7.400%, 5/01/20 5/00 at 102 AA+*** 886,240 (Pre-refunded to 5/01/00) 3,000,000 Michigan Higher Education Facilities Authority, Limited 5/01 at 103 A*** 3,335,070 Obligation, Aquinas College Project, 7.350%, 5/01/11 (Pre-refunded to 5/01/01) 555,000 Michigan Municipal Bond Authority, State Revolving Fund Reserve 10/02 at 102 AA+*** 620,934 Bonds, Series 1992A, 6.600%, 10/01/18 (Pre-refunded to 10/01/02) Michigan Municipal Bond Authority, State Revolving Fund Revenue Bonds, Series 1994: 950,000 7.000%, 10/01/04 No Opt. Call AA+ 1,100,452 1,000,000 6.500%, 10/01/14 (Pre-refunded to 10/01/04) 10/04 at 102 AA+*** 1,149,020 1,000,000 6.500%, 10/01/17 (Pre-refunded to 10/01/04) 10/04 at 102 AA+*** 1,149,020 500,000 Michigan State Hospital Finance Authority, Hospital Revenue Bonds 12/02 at 102 AAA 566,835 (MidMichigan Obligated Group), Series 1992, 6.900%, 12/01/24 (Pre-refunded to 12/01/02) 1,000,000 Michigan State Hospital Finance Authority, Henry Ford Health 7/00 at 102 AAA 1,073,480 System, Series A, 7.000%, 7/01/10 (Pre-refunded to 7/01/00) 6,000,000 Michigan Hospital Finance Authority (Oakwood Hospital Obligated 7/00 at 102 AAA 6,450,060 Group), 7.100%, 7/01/18 (Pre-refunded to 7/01/00) 800,000 Michigan State Hospital Finance Authority, Sisters Of Mercy 2/01 at 102 AAA 874,928 Health Corporation, Series J, 7.200%, 2/15/18 (Pre-refunded to 2/15/01) 1,000,000 Michigan State Hospital Finance Authority, Hospital Revenue Bonds 11/01 at 102 Aa2*** 1,108,810 (Daughters of Charity National Health System-Providence Hospital), Series 1991, 7.000%, 11/01/21 (Pre-refunded to 11/01/01) 2,400,000 Oakland County, Michigan, Economic Development Corporation, 1/00 at 102 N/R*** 2,602,392 Limited Obligation Revenue, Pontiac Osteopathic Hospital Project, 9.625%, 1/01/20 (Pre-refunded to 1/01/00) 1,000,000 Oakland County, Michigan, Economic Development Corporation, 11/04 at 102 Aaa 1,173,030 Limited Obligation Revenue Refunding, Cranbrook Educational Community, Series C, 6.900%, 11/01/14 (Pre-refunded to 11/01/04) 1,800,000 Puerto Rico Commonwealth Highway Authority, Highway Revenue, 7/00 at 102 AAA 1,954,980 Series Q, 7.750%, 7/01/16 (Pre-refunded to 7/01/00) 1,040,000 Rockford Public Schools, County of Kent, State of Michigan, 5/00 at 101 N/R*** 1,105,000 1990 School Building and Site and Refunding Bonds (General Obligation Bonds), 7.375%, 5/01/19 (Pre-refunded to 5/01/00) 180,000 Saginaw-Midland Municipal Water Supply Corporation, State of 9/04 at 102 A*** 209,921 Michigan, Water Supply Revenue Bonds (Limited Tax General Obligation), Series 1992, 6.875%, 9/01/16 (Pre-refunded to 9/01/04) 7,000,000 Vicksburg Community Schools, Counties of Kalamazoo and 5/06 at 37 1/4 AAA 1,922,060 St. Joseph, State of Michigan, 1991 School Building and Site Bonds, 0.000%, 5/01/20 (Pre-refunded to 5/01/06) - ----------------------------------------------------------------------------------------------------------------------------------- Utilities -- 3.3% 190 400,000 Michigan Public Power Agency, Belle River Project Refunding 1/03 at 102 AA- 404,652 Revenue Bonds, 1993 Series A, 5.250%, 1/01/18 3,000,000 Michigan State South Central Power Agency, Power Supply System 11/04 at 102 BBB+ 3,426,030 Revenue Refunding, 7.000%, 11/01/11 3,500,000 Michigan State Strategic Fund, Limited Obligation Revenue 6/04 at 102 AAA 3,934,770 Refunding, Detroit Education Company, Series B, 6.450%, 6/15/24 27 191 Portfolio of Investments (Unaudited) Nuveen Flagship Michigan Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Utilities (continued) $ 1,000,000 Monroe County, Michigan, Economic Development Corporation, No Opt. Call AAA $ 1,283,270 Limited Obligation Revenue Refunding-Collateralized, Detroit Edison Company, Series AA, 6.950%, 9/01/22 1,000,000 County of Monroe, Michigan, Pollution Control Revenue Bonds No Opt. Call AAA 1,114,210 (The Detroit Edison Company Project), Series A-1994, 6.350%, 12/01/04 (Alternative Minimum Tax) 4,000,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, No Opt. Call AAA 1,644,520 Series O, 0.000%, 7/01/17 - ----------------------------------------------------------------------------------------------------------------------------------- Water and Sewer -- 5.8% City of Detroit, Michigan, Sewage Disposal System Revenue Refunding Bonds, Series 1995-B: 1,500,000 5.250%, 7/01/15 7/05 at 101 AAA 1,548,570 10,500,000 5.250%, 7/01/21 7/05 at 101 AAA 10,684,590 2,885,000 City of Detroit, Michigan, Sewage Disposal System Revenue Bonds, 7/07 at 101 AAA 2,867,082 Series 1997-A, 5.000%, 7/01/22 1,570,000 City of Detroit, Michigan, Water Supply System Revenue Second No Opt. Call AAA 1,716,873 Lien Bonds, Series 1995-A, 5.550%, 7/01/12 2,230,000 City of Detroit, Michigan, Water Supply System Revenue Second No Opt. Call AAA 2,438,615 Lien Bonds, Series 1995-B, 5.550%, 7/01/12 1,000,000 City of Grand Rapids, Michigan, Sanitary Sewer System Improvement 1/00 at 102 AA- 1,058,358 Revenue Refunding Bonds, Series 1990, 7.000%, 1/01/16 - ----------------------------------------------------------------------------------------------------------------------------------- $ 358,345,000 Total Investments -- (cost $315,710,985) --99.1% 348,556,233 - ----------------------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities --0.9% 3,060,158 ------------------------------------------------------------------------------------------------------------------ Net Assets --100% $351,616,391 ================================================================================================================== * Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings: Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. government or U.S. government agency securities which ensures the timely payment of principal and interest. Securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. (WI) Security purchased on a when-issued basis (note 1). See accompanying notes to financial statements. 28 192 Portfolio of Investments (Unaudited) Nuveen Flagship Ohio Municipal Bond Fund November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Basic Materials - 0.3% $1,650,000 Toledo, Lucas County, Ohio, Port Authority, 3/02 at 102 AA- $1,831,434 Port Revenue Refunding Facilities, Cargill Inc. Project, 7.250%, 3/01/22 - ---------------------------------------------------------------------------------------------------------- Capital Goods - 0.2% 1,335,000 Ohio Water Development Authority, Revenue 3/02 at 102 N/R 1,440,051 Bonds, USA Waste Services, Series 1992, 7.750%, 9/01/07 (Alternative Minimum Tax) - ---------------------------------------------------------------------------------------------------------- Education and Civic Organizations - 4.2% 2,050,000 Miami University, Ohio, University Revenues 12/99 at 102 A+ 2,150,184 Bonds, 6.900%, 12/01/04 3,500,000 State of Ohio, Education Loan Revenue Bonds, 6/07 at 102 AAA 3,632,090 Series 1997A (Supplemental Student Loan Program), 1997A1, 5.850%, 12/01/19 (Alternative Minimum Tax) 1,750,000 State of Ohio (Ohio Higher Educational Facility 12/04 at 102 AAA 1,883,508 Commission), Higher Educational Facility Revenue Bonds (University of Dayton 1994 Project), 5.800%, 12/01/19 2,025,000 State of Ohio (Ohio Higher Educational 12/03 at 102 AAA 2,286,428 Facility Commission), Higher Educational Facility Mortgage Revenue Bonds (University of Dayton 1992 Project), 6.600%, 12/01/17 1,200,000 State of Ohio (Ohio Higher Educational 9/06 at 101 N/R 1,259,508 Facility Commission), Higher Educational Facility Revenue Bonds (The University of Findlay 1996 Project), 6.125%, 9/01/16 7,000,000 State of Ohio (Ohio Higher Educational 5/07 at 102 AAA 7,283,920 Facility Commission), Higher Education Facility Revenue Bonds (Xavier University 1997 Project), 5.375%, 5/15/22 State of Ohio (Ohio Higher Educational Facility Commission), Higher Education Facility Revenue Bonds (Case Western Reserve University, Ohio): 1,870,000 7.125%, 10/01/14 10/00 at 102 AA 2,025,023 750,000 6.500%, 10/01/20 No Opt. Call AA 905,408 2,250,000 State of Ohio (Ohio Higher Educational 4/07 at 102 A2 2,411,978 Facility Commission), Higher Education Facility Revenue Bonds (John Carroll University Project), 5.750%, 4/01/19 4,250,000 University of Cincinnati (Ohio), General 6/07 at 100 AAA 4,396,455 Receipts Bonds, Series AB, 5.375%, 6/01/20 1,230,000 Youngstown State University, Ohio, General 12/04 at 102 AAA 1,389,076 Receipts Bonds, 6.000%, 12/15/16 - ---------------------------------------------------------------------------------------------------------- Energy - 0.5% 2,125,000 County of Ashtabula, Ohio, Industrial 5/02 at 102 Baa2 2,284,375 Development Refunding Revenue Bonds, 1992 Series A (Ashland Oil, Inc. Project), 6.900%, 5/01/10 1,000,000 Ohio Air Quality Development Authority, State 4/01 at 102 Baa1 1,068,580 of Ohio, Air Quality Development Refunding Revenue Bonds, Series 1992 (Ashland Oil, Inc. Project), 6.850%, 4/01/10 - ---------------------------------------------------------------------------------------------------------- Health Care - 14.9% 1,250,000 County of Butler, Ohio, Hospital Facilities 1/02 at 102 BBB- 1,350,950 Revenue Refunding and Improvement Bonds, Series 1991 (Fort Hamilton-Hughes Memorial Hospital Center), 7.500%, 1/01/10 City of Cambridge, Ohio, Hospital Revenue Refunding Bonds, Series 1991 (Guernsey Memorial Hospital Project): 193 500,000 8.000%, 12/01/06 12/01 at 102 BBB 550,850 1,000,000 8.000%, 12/01/11 12/01 at 102 BBB 1,101,700 1,500,000 County of Cuyahoga, Ohio, Hospital Improvement 1/06 at 102 AAA 1,584,240 and Refunding Revenue Bonds, Series 1996A (University Hospitals Health System, Inc. Project), 5.625%, 1/15/26 1,000,000 County of Cuyahoga, Ohio, Hospital Improvement 2/07 at 102 AAA 1,063,810 and Refunding Revenue Bonds, Series 1997 (The MetroHealth System Project), 5.625%, 2/15/17 2,000,000 Cuyahoga County, Ohio, Industrial Development 8/01 at 103 AAA 2,205,060 Refunding Revenue Bonds, Series 1991 (University Health Care Center Project), 7.300%, 8/01/11 29 194 Portfolio of Investments (Unaudited) Nuveen Flagship Ohio Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Health Care (continued) $2,010,000 County of Erie, Ohio, Hospital Improvement and 1/02 at 102 A $ 2,197,694 Refunding Revenue Bonds, Series 1992 (Firelands Community Hospital Project), 6.750%, 1/01/08 County of Franklin, Ohio, Hospital Refunding and Improvement Revenue Bonds, 1996 Series A (The Childrens Hospital Project): 1,575,000 5.750%, 11/01/15 11/06 at 101 Aa 1,679,517 5,275,000 5.875%, 11/01/25 11/06 at 101 Aa 5,656,594 County of Franklin, Ohio, Hospital Revenue Bonds, Holy Cross Health Systems Corporation, Series 1996: 965,000 5.800%, 6/01/16 6/06 at 102 AA 1,032,849 2,000,000 5.875%, 6/01/21 6/06 at 102 AA 2,173,380 1,500,000 Franklin County, Ohio, Hospital Revenue 6/00 at 102 AAA 1,612,605 Refunding Bonds (Holy Cross Health System- Mt. Carmel Health), Series 1990-A, 7.625%, 6/01/09 City of Garfield Heights, Ohio, Hospital Improvement and Refunding Revenue Bonds, Series 1992B (Marymount Hospital Project): 3,000,000 6.650%, 11/15/11 11/02 at 102 A 3,292,620 3,500,000 6.700%, 11/15/15 11/02 at 102 A 3,834,285 3,000,000 County of Hamilton, Ohio, Hospital Facilities 1/03 at 102 A 3,273,870 Revenue Refunding Bonds, Series 1992A (Bethesda Hospital, Inc.), 6.250%, 1/01/12 1,720,000 Franciscan Sisters of the Poor Health System, 7/02 at 102 Baa1 1,853,696 Inc., Hamilton County, Ohio, Health System Revenue Bonds, Providence Hospital Issue, Series 1992, 6.875%, 7/01/15 7,890,000 County of Lorain, Ohio, Hospital Revenue 11/05 at 102 AAA 8,074,784 Refunding, Emh Regional Medical Center, 5.375%, 11/01/21 2,220,000 County of Lorain, Ohio, Hospital Facilities 9/07 at 102 AAA 2,329,180 Revenue Bonds, Series 1997B (Catholic Healthcare Partners), 5.500%, 9/01/27 1,000,000 County of Lucas, Ohio, Hospital Improvement 8/00 at 102 AAA 1,068,500 Revenue Bonds, Series 1990A (St. Vincent Medical Center), 6.750%, 8/15/20 3,000,000 County of Lucas, Ohio, Hospital Improvement 8/02 at 102 AAA 3,309,330 Revenue Bonds, Series 1992 (St. Vincent Medical Center), 6.500%, 8/15/12 500,000 Mansfield, Hospital Improvement Revenue 12/01 at 102 AAA 547,050 (Mansfield General Hospital), 6.700%, 12/01/09 2,000,000 County of Marion, Ohio, Hospital Refunding and 5/06 at 102 BBB+ 2,199,700 Improvement Revenue Bonds, Series 1996 (The Community Hospital), 6.375%, 5/15/11 1,250,000 Maumee Hospital Facilities Revenue (St. Lukes 12/04 at 102 AAA 1,372,175 Hospital), 5.800%, 12/01/14 4,405,000 County of Miami, Ohio, Hospital Facilities 5/06 at 102 BBB 4,711,324 Revenue Refunding and Improvement Bonds, Series 1996A (Upper Valley Medical Center), 6.250%, 5/15/16 4,205,000 County of Miami, Ohio, Hospital Facilities 5/06 at 102 BBB 4,497,416 Revenue Refunding and Improvement Bonds, Series 1996C (Upper Valley Medical Center), 6.250%, 5/15/13 4,000,000 City of Middleburg Heights, Ohio, Hospital 8/08 at 102 AAA 4,313,120 Improvement Refunding Revenue Bonds, Series 1995 (Southwest General Health Center Project), 5.625%, 8/15/15 2,000,000 City of Middleburg Heights, Ohio, Hospital 8/08 at 102 AAA 2,156,420 Improvement Refunding Revenue Bonds, Series 1995 (Southwest General Health Center Project), 5.750%, 8/15/21 195 11,000,000 County of Montgomery, Ohio, Health System 1/08 at 102 Baa1 11,126,940 Revenue Bonds, Franciscan Medical Center Dayton Campus Issue, Series 1997, 5.500%, 7/01/18 County of Montgomery, Ohio, Hospital Facilities Revenue Refunding and Improvement Bonds, Series 1996 (Kettering Medical Center): 1,500,000 5.625%, 4/01/16 4/06 at 102 AAA 1,592,715 7,000,000 6.250%, 4/01/20 No Opt. Call AAA 8,298,430 2,500,000 County of Montgomery, Ohio, Sisters of Charity 5/03 at 101 AAA 2,771,750 Health Care, Series 1992A, 6.250%, 5/15/08 2,790,000 City of Mount Vernon, Ohio, Hospital 6/99 at 101 1/2 N/R 2,851,603 Refunding Revenue Bonds, Series 1986A (Knox Community Hospital), 7.875%, 6/01/12 4,000,000 City of Parma, Ohio, Hospital Improvement and 11/08 at 101 A- 4,045,480 Refunding Revenue Bonds, Series 1998 (The Parma Community Hospital Association), 5.375%, 11/01/29 30 196 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------- Health Care (continued) $ 1,725,000 County of Shelby, Ohio, Hospital Facilities 9/02 at 102 BBB $ 1,918,580 Revenue Refunding and Improvement Bonds, Series 1992 (The Shelby County Memorial Hospital Association), 7.700%, 9/01/18 2,750,000 County of Trumbull, Ohio, Hospital Refunding 11/01 at 102 AAA 3,038,310 and Improvement Revenue Bonds, Series 1991 (Trumbell Memorial Hospital Project), Series 1991B, 6.900%, 11/15/12 750,000 County of Tuscarawas, Ohio, Hospital Facilities 10/03 at 102 Baa2 801,855 Revenue Bonds, Series 1993A (Union Hospital Project), 6.500%, 10/01/21 - ----------------------------------------------------------------------------------------------------------- Housing/Multifamily - 5.1% 1,600,000 Butler County, Ohio, Multifamily Housing 9/08 at 103 N/R 1,614,992 Revenue Bonds, Series 1998 (Anthony Wayne Apartments Project), 6.500%, 9/01/30 (Alternative Minimum Tax) 1,150,000 County of Clark, Ohio, Multifamily Housing 11/08 at 103 N/R 1,153,968 Revenue Bonds (Church of God Retirement Home), Series 1998, 6.250%, 11/01/30 (Alternative Minimum Tax) 16,160,000 County of Franklin, Ohio, Mortgage Revenue 10/07 at 103 Aaa 16,654,496 Bonds, Series 1997 (GNMA Collateralized - Columbus Properties Project), 5.600%, 4/20/39 (Alternative Minimum Tax) 6,200,000 Hamilton County, Multifamily Housing Revenue 1/07 at 102 AAA 6,464,988 Bonds (Huntington Meadows Project), Series 1997, 5.700%, 1/01/27 (Alternative Minimum Tax) 2,800,000 Ohio Capital Corporation for Housing, Mortgage 11/02 at 100 AAA 2,843,288 Revenue Refunding Bonds (FHA Section 8 Assisted Project), Series 1997C, 5.700%, 1/01/24 6,000,000 Ohio Capital Corporation for Housing, Mortgage 1/02 at 100 AAA 6,031,860 Revenue Refunding Bonds, Series 1998A (FHA Insured Mortgage Loans - Section 8 Assisted Projects), 5.300%, 1/01/24 Ohio Capital Corporation for Housing, Multifamily Housing Refunding Revenue Bonds, Series 1989A: 310,000 7.500%, 11/01/11 11/99 at 103 AAA 323,253 1,215,000 7.600%, 11/01/23 11/99 at 103 AAA 1,266,941 - ----------------------------------------------------------------------------------------------------------- Housing/Single Family - 5.4% 4,970,000 Ohio Housing Finance Agency, Residential 9/07 at 102 AAA 5,184,207 Mortgage Revenue Bonds, 1996 Series B-3 (Mortgage-Backed Securities Program), 5.750%, 9/01/28 (Alternative Minimum Tax) 5,435,000 Ohio Housing Finance Agency, Residential 9/07 at 102 AAA 5,669,249 Mortgage Revenue Bonds, Series 1997C, 5.750%, 9/01/28 (Alternative Minimum Tax) 4,005,000 Ohio Housing Finance Agency, Residential 3/08 at 101 AAA 4,140,529 Mortgage Revenue Bonds, 1997 Series D-1 (Mortgage-Backed Securities Program), 5.500%, 3/01/19 (Alternative Minimum Tax) 1,990,000 Ohio Housing Finance Agency, Residential 9/04 at 102 AAA 2,128,046 Mortgage Revenue Bonds, Series 1994-A1 (GNMA Mortgage-Backed Securities Program), 6.100%, 9/01/14 5,255,000 Ohio Housing Finance Agency, Residential 9/04 at 102 AAA 5,666,309 Mortgage Revenue Bonds, Series 1994-B1, 6.375%, 9/01/14 12,965,000 Ohio Housing Finance Agency, Residential 9/07 at 102 AAA 13,935,301 Mortgage Revenue Bonds, Series 1997A, 6.150%, 3/01/29 (Alternative Minimum Tax) 495,000 Ohio Housing Finance Agency, Single 3/00 at 102 AAA 515,364 Family Mortgage Revenue Bonds (GNMA Mortgage- Backed Securities Program), 1990 Series A, 7.400%, 9/01/15 Ohio Housing Finance Agency, Single Family Mortgage Revenue Bonds (GNMA Mortgage-Backed Securities Program), 1990 Series D: 197 520,000 7.500%, 9/01/13 9/00 at 102 AAA 549,593 260,000 7.050%, 9/01/16 9/01 at 102 AAA 275,436 - ----------------------------------------------------------------------------------------------------------- Industrial/Other - 0.4% 2,860,000 Cleveland-Cuyahoga County Port Authority 5/08 at 102 N/R 2,795,822 (Ohio), Development Revenue Bonds (Port of Cleveland Bond Fund-Jergens, Inc., Project), Series 1998A, 5.375%, 5/15/18 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------- Long Term Care - 2.9% 4,030,000 County of Cuyahoga, Ohio, Health Care 6/00 at 100 N/R 4,283,930 Facilities Revenue Bonds, Series 1990 (Altenheim Project), 9.280%, 6/01/15 2,500,000 Fairlawn, Ohio, Health Care Facilities 10/99 at 102 N/R 2,607,600 Revenue Bonds, Series 1989 (The Village at Saint Edward Project), 8.750%, 10/01/19 31 198 Portfolio of Investments (Unaudited) Nuveen Flagship Ohio Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Long Term Care (continued) $1,500,000 County of Franklin, Ohio, Health Care 7/03 at 102 N/R $1,532,370 Facilities Revenue Bonds, Series 1993 (Ohio Presbyterian Retirement Services), 6.500%, 7/01/23 3,120,000 County of Franklin, Ohio, Health Care Facilities 11/05 at 102 Aa2 3,336,809 Revenue Bonds, Series 1995 (Heinzerling Foundation), 6.200%, 11/01/20 1,350,000 County of Franklin, Ohio, Hospital Facilities 7/01 at 103 N/R 1,497,501 Mortgage Revenue Bonds, 1991 Series A (Ohio Presbyterian Retirement Services), 8.750%, 7/01/21 660,000 County of Franklin, Hospital Revenue Refunding 8/00 at 102 N/R 686,433 FHA Insured Mortgage Loan (Worthington Christian Village Nursing Home), 7.000%, 8/01/16 County of Hamilton, Ohio, Health Care Facilities Revenue Bonds, Series 1998A (Twin Towers): 1,000,000 5.125%, 10/01/18 10/08 at 101 A 993,770 1,250,000 5.125%, 10/01/23 10/08 at 101 A 1,229,050 County of Marion, Ohio, Health Care Facilities Refunding and Improvement Revenue Bonds, Series 1993 (United Church Homes, Inc. Project): 1,250,000 6.375%, 11/15/10 11/03 at 102 BBB- 1,328,863 750,000 6.300%, 11/15/15 11/03 at 102 BBB- 794,490 2,155,000 City of Napoleon, Ohio, Health Care Facilities 9/04 at 102 Aa 2,387,632 Mortgage Revenue Refunding Bonds, Series 1994 (The Lutheran Orphans and Old Folks Home Society at Napoleon, Ohio, Inc.-FHA Insured Project), 6.875%, 8/01/23 - ---------------------------------------------------------------------------------------------------------- Tax Obligation/General -- 16.9% Adams County/Ohio Valley School District, Counties of Adams and Highland, Ohio, School Improvement Unlimited Tax General Obligation Bonds Series 1995: 6,000,000 7.000%, 12/01/15 No Opt. Call AAA 7,607,520 9,500,000 5.250%, 12/01/21 12/05 at 102 AAA 9,694,655 3,955,000 City of Akron, Ohio, General Obligation Bonds, 12/04 at 102 AAA 4,554,855 Various Purpose Improvement Bonds, Series 1994 (Limited Tax), 6.750%, 12/01/14 Anthony Wayne Local School District, Lucas, Wood and Fulton Counties, Ohio, School Facilities Construction and Improvement Bonds: 600,000 0.000%, 12/01/13 No Opt. Call AAA 294,936 2,850,000 5.750%, 12/01/24 12/05 at 101 AAA 3,066,287 1,000,000 Archbold Area Local School District, General 12/06 at 102 AAA 1,112,810 Obligation Bonds (Unlimited Tax), Series 1996, 6.000%, 12/01/21 1,000,000 Aurora City School District, Ohio, General 12/05 at 102 AAA 1,085,000 Obligation (Unlimited Tax), School Improvement Bonds, Series 1995, 5.800%, 12/01/16 2,905,000 Board of Education, Batavia Local School 12/05 at 102 AAA 3,372,008 District, County of Clermont, Ohio, School Improvement Bonds, Series 1995 (Unlimited Tax), 6.300%, 12/01/22 1,000,000 Board of Education, Beavercreek Local School District, County of Greene, Ohio, School No Opt. Call AAA 1,222,760 Improvement Bonds, Series 1996 (Unlimited Tax General Obligation), 6.600%, 12/01/15 2,500,000 Buckeye Valley Local School District, Ohio, No Opt. Call AAA 3,128,250 General Obligation (Unlimited Tax) Bonds, School Improvement Bonds, Series 1995A, 6.850%, 12/01/15 Chesapeake-Union Exempt Village School District, Ohio, General Obligation Bonds Series 1986: 199 125,000 8.500%, 12/01/04 No Opt. Call N/R 152,111 125,000 8.500%, 12/01/05 No Opt. Call N/R 155,131 125,000 8.500%, 12/01/06 No Opt. Call N/R 157,763 125,000 8.500%, 12/01/07 No Opt. Call N/R 160,233 125,000 8.500%, 12/01/08 No Opt. Call N/R 162,504 130,000 8.500%, 12/01/09 No Opt. Call N/R 170,863 4,745,000 City of Cleveland, Ohio, Various Purpose 11/04 at 102 AAA 5,508,755 General Obligation Bonds, Series 1994, 6.625%, 11/15/14 550,000 County of Columbiana, Ohio, County Jail 12/04 at 102 AA 639,287 Facilities Construction Bonds (General Obligation-Unlimited Tax), 6.600%, 12/01/17 32 200 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/General (continued) $1,500,000 City of Columbus, Franklin County, Ohio, General Obligation Refunding 1/02 at 102 Aaa $ 1,643,070 Bonds, Series 1992B, 6.500%, 1/01/10 City of Columbus, Franklin County, Ohio, General Obligation Bonds: 590,000 9.375%, 4/15/06 No Opt. Call AAA 786,747 500,000 9.375%, 4/15/07 No Opt. Call AAA 683,620 1,000,000 County of Cuyahoga, Ohio, General Obligation Various Purpose No Opt. Call AA+ 1,074,300 Refunding Bonds, Series 1993B (Limited Tax Obligation), 5.250%, 10/01/13 1,345,000 County of Cuyahoga, Ohio, General Obligation Bonds No Opt. Call AA+ 1,489,413 (Limited Tax Obligation), 5.650%, 5/15/18 200,000 City of Dayton, Ohio, General Obligation Bonds (Three Issues), No Opt. Call A+ 212,002 Limited Tax, 10.500%, 10/01/99 750,000 City of Defiance, Ohio, Waterworks System Improvement Bonds, 12/04 at 102 AAA 839,063 Series 1994, 6.200%, 12/01/20 Delaware City School District, Delaware County, Ohio, School Facilities Construction and Improvement Bonds (General Obligation-Unlimited Tax): 1,000,000 0.000%, 12/01/10 No Opt. Call AAA 586,860 1,000,000 0.000%, 12/01/11 No Opt. Call AAA 554,280 2,010,000 City of Dublin, Ohio, General Obligation Bonds, Various Purpose 12/09 at 101 Aa2 2,105,837 Refunding and Improvement Bonds, Series 1998A, 5.250%, 12/01/14 250,000 East Holmes Local School District, Ohio, School Improvement 12/98 at 102 AAA 255,893 Refunding Bonds, General Obligation-Unlimited Tax, 7.700%, 12/01/08 1,110,000 City of Fairborn, Ohio, General Obligation Bonds, Utility 10/02 at 102 AAA 1,249,083 Improvement Bonds, Series 1991, 7.000%, 10/01/11 4,040,000 County of Franklin, Ohio, Refunding Bonds, Series 1993 12/08 at 102 AAA 4,259,534 (Limited Tax General Obligation Bonds), 5.375%, 12/01/20 1,575,000 Garaway Local School District, Ohio, School Improvement Bonds, 12/00 at 102 AAA 1,706,040 Series 1990 (General Obligation-Unlimited Tax Bonds), 7.200%, 12/01/14 620,000 County of Geauga, Ohio, General Obligation (Limited Tax), Sewer No Opt. Call Aa2 759,494 District Improvement Bonds (Bainbridge Water Project), 6.850%, 12/01/10 1,000,000 Grandview Heights City School District, Franklin County, Ohio, 12/05 at 101 AA 1,096,520 School Facilities Construction and Improvement Bonds (General Obligation-Unlimited Tax), 6.100%, 12/01/19 1,000,000 Highland Local School District, Morrow and Delaware Counties, 12/07 at 102 AAA 1,096,050 Ohio, School Facilities Construction and Improvement Bonds (General Obligation-Unlimited Tax), 5.875%, 12/01/19 1,000,000 Huron County, Ohio, Correctional Facility Bonds (Limited Tax 12/07 at 102 AAA 1,106,380 General Obligation), 5.850%, 12/01/16 1,000,000 Indian Valley Local School District, Ohio, General Obligation 12/05 at 102 AAA 1,080,660 (Unlimited Tax), School Improvement Bonds, Series 1995, 5.750%, 12/01/19 1,200,000 County of Jefferson, Ohio, Human Services Building Construction 12/01 at 102 AAA 1,325,352 Bonds, Series 1991 (General Obligation-Limited Tax), 6.625%, 12/01/14 1,885,000 City of Kent, Ohio, General Obligation (Limited Tax) Sewer System 12/02 at 102 Aa3 2,096,723 Improvement Refunding Bonds, Series 1992, 6.500%, 12/01/10 1,070,000 Kettering Ohio, Series 1991, Limited Tax Issue, 6.650%, 12/01/12 12/01 at 102 Aa3 1,173,116 1,000,000 Kettering City School District (Ohio), General Obligation 12/05 at 101 AAA 1,018,630 Bonds-Unlimited Tax, 5.250%, 12/01/22 500,000 Kings Local School District, General Obligation (Unlimited Tax)- 12/05 at 100 AAA 523,180 School Improvement Bonds, Series 1995, 5.500%, 12/01/21 500,000 Kirtland Local School District, Ohio, School Improvement Bonds, 12/99 at 102 N/R 528,530 Series 1989, General Obligation-Unlimited Tax Bonds, 7.500%, 12/01/09 1,000,000 Lakeview, Ohio, Local School District General Obligation Bonds, 12/04 at 102 AAA 1,178,520 6.900%, 12/01/14 1,440,000 Lakewood, Ohio, Series 1995B, 5.750%, 12/01/15 12/05 at 102 Aa3 1,546,128 33 201 Portfolio of Investments (Unaudited) Nuveen Flagship Ohio Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Tax Obligation/General (continued) $1,000,000 Lakota Local School District, County of Butler, 12/05 at 100 AAA $ 1,132,260 Ohio, School Improvement Unlimited Tax General Obligation Bonds, Series 1994, 6.125%, 12/01/17 Logan County, Ohio, General Obligation Bonds: 155,000 7.750%, 12/01/02 No Opt. Call A 177,103 155,000 7.750%, 12/01/03 No Opt. Call A 181,424 155,000 7.750%, 12/01/04 No Opt. Call A 185,290 155,000 7.750%, 12/01/05 No Opt. Call A 188,926 155,000 7.750%, 12/01/06 No Opt. Call A 192,191 1,000,000 County of Lucas, Ohio, General Obligation 12/02 at 102 A1 1,110,450 (Limited Tax), Various Purpose Improvement Bonds, Series 1992, 6.650%, 12/01/12 1,000,000 County of Lucas, Ohio, General Obligation 12/05 at 102 AAA 1,049,780 (Limited Tax), Various Purpose Improvement Bonds, Series 1995-1, 5.400%, 12/01/15 1,000,000 County of Mahoning, Ohio, General Obligation 12/99 at 102 AAA 1,058,330 Bonds, Various Purpose Improvement Bonds, Series 1989, Limited Tax, 7.200%, 12/01/09 865,000 Marysville, Ohio, Exempt Village School No Opt. Call AAA 365,687 District, General Obligation Bonds, 0.000%, 12/01/16 1,215,000 Mason City School District, Counties of Warren 12/09 at 101 Aa3 1,269,602 and Butler, Ohio, School Improvement Unlimited Tax General Obligation Bonds, Series 1998, 5.300%, 12/01/17 2,500,000 North Canton City School District, Ohio, School 12/08 at 101 Aaa 2,514,575 Improvement Refunding Bonds, Series 1998 (General Obligation Unlimited Tax), 5.000%, 12/01/19 1,000,000 City of North Olmsted, Ohio, General Obligation 12/02 at 102 AAA 1,100,810 (Limited Tax), Various Purpose Bonds, Series 1992, 6.250%, 12/15/12 North Royalton City School District, Ohio, School Improvement Bonds, Series 1994: 2,200,000 6.000%, 12/01/14 12/09 at 102 AAA 2,526,458 2,400,000 6.100%, 12/01/19 12/09 at 102 AAA 2,693,880 600,000 Oak Hills, Ohio, Local School District, General 12/07 at 101 Aa3 641,760 Obligation Bonds, Series 1997A, 5.700%, 12/01/25 1,000,000 State of Ohio, Full Faith and Credit, General No Opt. Call AA+ 1,154,140 Obligation Infrastructure Improvement Bonds, Series 1994, 6.000%, 8/01/10 Ohio State Infrastructure Improvement: 750,000 6.200%, 8/01/13 8/05 at 102 AA+ 858,413 2,000,000 6.200%, 8/01/14 8/05 at 102 AA+ 2,289,100 7,640,000 Ohio State, College Savings Bonds, No Opt. Call AAA 3,815,263 0.000%, 8/01/13 500,000 Olmsted Falls, Ohio, Local School District, 12/01 at 102 AAA 558,610 General Obligation Bonds, 7.050%, 12/15/11 1,750,000 Pickerington Local School District, Fairfield 12/01 at 102 A1 1,916,758 and Franklin Counties, Ohio, General Obligation Bonds (Pickerington Public Library Project- Unlimited Tax), 6.750%, 12/01/16 Pickerington, Ohio, Local School District General Obligation Bonds: 500,000 0.000%, 12/01/11 No Opt. Call AAA 277,140 500,000 0.000%, 12/01/13 No Opt. Call AAA 245,780 1,000,000 Revere Local School District, Ohio, School 12/03 at 102 AAA 1,102,200 Improvement Bonds, Series 1993 (General Obligation-Unlimited Tax Bonds), 6.000%, 12/01/16 2,340,000 City of Stow, Ohio, Safety Center Construction 12/05 at 102 A1 2,590,825 Bonds (General Obligation Limited Tax), 202 6.200%, 12/01/20 2,870,000 City of Strongsville, Ohio, Various Purpose 12/06 at 102 Aa3 3,127,468 Improvement Bonds, Series 1996 (General Obligation-Limited Tax), 5.950%, 12/01/21 540,000 County of Trumbull, Ohio, General Obligation 12/04 at 102 AAA 606,269 Sewer Bonds, Series 1994, 6.200%, 12/01/14 1,070,000 County of Trumbull, Ohio, Correctional No Opt. Call AAA 1,241,350 Facilities Bonds, Series 1995 (General Obligation Limited Tax), 7.000%, 12/01/04 1,320,000 Twinsburg, Ohio, City School District, General 12/01 at 102 AAA 1,447,090 Obligation Bonds, 6.700%, 12/01/11 Upper Arlington, Ohio, City School District, General Obligation Bonds: 1,830,000 0.000%, 12/01/11 No Opt. Call AAA 1,014,332 1,870,000 0.000%, 12/01/12 No Opt. Call AAA 977,056 1,910,000 Vandalia, Ohio, General Obligation Bonds, 5.850%, 12/01/21 12/06 at 101 Aa 2,057,280 34 203 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/General (continued) $ 750,000 West Geauga Local School District, Ohio, School Improvement Bonds, 11/04 at 102 AAA $ 831,315 Series 1994 (General Obligation-Unlimited Tax), 5.950%, 11/01/12 1,000,000 Woodridge, Ohio, Local School District, General Obligation Bonds, 12/04 at 102 AAA 1,108,810 6.000%, 12/01/19 1,425,000 Wooster City School District, Wayne County, Ohio, General Obligation 12/02 at 102 AAA 1,597,083 Bonds Unlimited Tax), School Building Construction and Improvement, 6.500%, 12/01/17 300,000 Youngstown, Ohio, General Obligation Bonds, Limited Tax, Series 1994, 12/04 at 102 AAA 335,631 6.125%, 12/01/14 - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/Limited - 6.7% 500,000 County of Athens, Ohio, Community Mental Health Revenue Bonds, 1991 6/01 at 102 AA- 539,565 Series I, 6.900%, 6/01/10 6,000,000 City of Cleveland, Ohio, Certificates of Participation, Series 1997, 11/07 at 102 AAA 6,143,040 Cleveland Stadium Project, 5.250%, 11/15/27 5,000,000 County of Hamilton, Ohio, Sales Tax Bonds, Series 1998B, Hamilton 6/08 at 101 AAA 4,981,000 County Football Project, 5.000%, 12/01/27 1,500,000 Ohio State Building Authority (Juvenile Correctional Building), 9/04 at 102 AAA 1,710,990 6.600%, 10/01/14 1,100,000 Ohio State Department of Transportation, Certificates of 4/02 at 102 AAA 1,200,265 Participation, Panhandle Rail Line Project, Series 1992A, 6.500%, 4/15/12 27,850,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/16 at 100 A 30,060,176 Bonds, Series Y of 1996, 5.500%, 7/01/36 2,700,000 Puerto Rico Public Buildings Authority, Revenue Refunding Bonds, No Opt. Call A 2,929,392 Series L, Guaranteed by the Commonwealth of Puerto Rico, 5.500%, 7/01/21 - ----------------------------------------------------------------------------------------------------------------------------------- Technology - 0.2% 1,000,000 County of Franklin, Ohio, Revenue Bonds, Series 1991 (OCLC Online 7/01 at 100 N/R 1,052,530 Computer Library Center, Incorporated Project), 7.200%, 7/15/06 - ----------------------------------------------------------------------------------------------------------------------------------- Transportation - 4.3% 9,840,000 City of Cleveland, Ohio, Airport System Revenue Bonds, 1/08 at 101 AAA 9,752,719 Series 1997A, 5.125%, 1/01/27 (Alternative Minimum Tax) 8,500,000 City of Dayton, Ohio, Special Facilities Revenue Refunding Bonds, 2/08 at 102 BBB 8,629,625 Series 1998A (Emery Air Freight Corporation and Emery Worldwide Airlines, Inc.-Guarantors) (Non-AMT), 5.625%, 2/01/18 11,000,000 State of Ohio, Turnpike Revenue Bonds, 1996 Series A, Issued by the No Opt. Call AAA 12,148,950 Ohio Turnpike Commission, 5.500%, 2/15/26 - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed - 19.5% 2,000,000 City of Athens (County of Athens, Ohio), Sanitary Sewer System 12/09 at 100 A*** 2,347,300 Mortgage Revenue Bonds, Series 1989, 7.300%, 12/01/14 (Pre-refunded to 12/01/09) 3,000,000 City of Barberton, Ohio, Hospital Facilities Revenue Bonds, 1/02 at 102 N/R*** 3,352,470 Series 1992 (The Barberton Citizens Hospital Company Project), 7.250%, 1/01/12 (Pre-refunded to 1/01/02) 2,790,000 City of Bedford, Ohio, Hospital Facilities Refunding Revenue Bonds, 5/00 at 102 N/R*** 3,012,363 Series 1990 (The Community Hospital of Bedford, Inc.), 8.500%, 5/15/09 (Pre-refunded to 5/15/00) 1,000,000 Canal Winchester Local School District, Franklin and Fairfield 12/01 at 102 AAA 1,117,440 Counties, Ohio, General Obligation Bonds (Unlimited Tax), For School Facilities Construction and Improvement, 7.100%, 12/01/13 (Pre-refunded to 12/01/01) County of Clermont, Ohio, Hospital Facilities Revenue Bonds, Series 1989 A (Mercy Health System, Province of Cincinnati): 1,085,000 7.500%, 9/01/19 (Pre-refunded to 9/01/01) 9/01 at 100 AAA 1,193,728 3,660,000 7.500%, 9/01/19 (Pre-refunded to 9/01/99) 9/99 at 102 AAA 3,850,320 County of Clermont, Ohio, Sewer System Revenue Bonds, Series 1990, Clermont County Sewer District: 1,000,000 7.250%, 12/01/11 (Pre-refunded to 12/01/00) 12/00 at 102 AAA 1,092,180 2,000,000 7.375%, 12/01/20 (Pre-refunded to 12/01/00) 12/00 at 102 AAA 2,188,940 35 204 Portfolio of Investments (Unaudited) Nuveen Flagship Ohio Municipal Bond Fund (continued) November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- U.S. Guaranteed (continued) $3,700,000 County of Clermont, Ohio, Sewer System Revenue 12/01 at 102 AAA $4,130,051 Bonds, Series 1991, Clermont County Sewer District, 7.100%, 12/01/21 (Pre-refunded to 12/01/01) City of Cleveland, Ohio, General Obligaton Bonds, Series 1988: 1,010,000 7.500%, 8/01/08 (Pre-refunded to 2/01/03) 2/03 at 100 AAA 1,152,562 1,010,000 7.500%, 8/01/09 (Pre-refunded to 2/01/03) 2/03 at 100 AAA 1,152,562 500,000 City of Cleveland, Ohio, Various Purpose General 7/02 at 102 AAA 553,370 Obligation Bonds, Series 1992, 6.375%, 7/01/12 (Pre-refunded to 7/01/02) 790,000 Board of Education of the Cleveland City School 12/01 at 102 Aaa 907,307 District, Ohio, School Improvement Bonds, Series 1991 (General Obligation-Unlimited Tax Bonds), 8.250%, 12/01/08 (Pre-refunded to 12/01/01) 920,000 City of Cleveland, Ohio, First Mortgage Revenue 1/02 at 102 AAA 1,011,586 Refunding Bonds, Series F, 1992-B, 6.500%, 1/01/11 (Pre-refunded to 1/01/02) City of Cleveland, Ohio, Waterworks Improvement and Refunding Revenue Bonds, 1st Mortgage Series 1996-H: 2,280,000 5.750%, 1/01/21 (Pre-refunded to 1/01/06) 1/06 at 102 AAA 2,554,672 5,795,000 5.750%, 1/01/26 (Pre-refunded to 1/01/06) 1/06 at 102 AAA 6,493,124 County of Cuyahoga, Ohio, Hospital Revenue Bonds (Meridia Health System), Series 1995: 250,000 6.250%, 8/15/14 (Pre-refunded to 8/15/05) 8/05 at 102 AAA 287,505 5,500,000 6.250%, 8/15/24 (Pre-refunded to 8/15/05) 8/05 at 102 AAA 6,325,110 1,250,000 Conversion and Remarketing of the County of 10/00 at 103 N/R*** 1,370,438 Cuyahoga, Ohio, Hospital Improvement Revenue Bonds (Deaconess Hospital of Cleveland Project), Series 1985B, 7.450%, 10/01/18 (Pre-refunded to 10/01/00) 1,000,000 County of Cuyahoga, Ohio, Hospital Revenue 1/99 at 102 AAA 1,024,560 Improvement and Refunding Bonds, Series 1989 A (University Hospitals Health System, Inc. Project), 6.875%, 1/15/19 (Pre-refunded to 1/15/99) 4,000,000 County of Cuyahoga, Ohio, Hospital Facilities 8/99 at 102 Aaa 4,191,240 Revenue Bonds, Series 1989 (Fairview General Hospital), 7.375%, 8/01/19 (Pre-refunded to 8/01/99) 5,750,000 County of Cuyahoga, Ohio, Hospital Facilities 8/00 at 102 AAA 6,221,558 Revenue Bonds, Series 1990 (Meridia Health System), 7.250%, 8/15/19 (Pre-refunded to 8/15/00) 4,990,000 County of Cuyahoga, Ohio, Distribution System 6/99 at 102 N/R*** 5,201,676 Improvement Revenue Bonds, Series 1989 (The Medical Center Company Project), 7.800%, 6/01/09 (Pre-refunded to 6/01/99) 1,000,000 City of Delphos, Ohio, Sewer System Mortgage 9/00 at 102 AAA 1,083,180 Revenue Bonds, Series 1990, 7.250%, 9/01/20 (Pre-refunded to 9/01/00) 2,600,000 County of Erie, Ohio, Franciscan Services 1/99 at 102 N/R*** 2,661,464 Corporation Revenue Bonds, Series 1989A (Providence Hospital, Inc), 7.625%, 1/01/19 (Pre-refunded to 1/01/99) 1,500,000 City of Findlay, Ohio, General Obligation Bonds, 8/99 at 102 AA-*** 1,570,035 7.200%, 8/01/11 (Pre-refunded to 8/01/99) 1,350,000 County of Franklin, Ohio, Hospital Facilities 5/00 at 102 AAA 1,448,010 Improvement Revenue Bonds, Series 1990A (Riverside United Methodist Hospital Project), 7.250%, 5/15/20 (Pre-refunded to 5/15/00) 1,000,000 County of Franklin, Ohio, Hospital Facilities 5/00 at 102 AAA 1,077,830 Refunding and Improvement Revenue Bonds, Series 1990B (Riverside United Methodist Hospital Project), 7.600%, 5/15/20 (Pre-refunded to 5/15/00) 1,000,000 Board of Education, Gahanna-Jefferson City 12/00 at 102 N/R*** 1,088,760 School District, Franklin County, Ohio, General Obligation Bonds, Series 1990A, 7.125%, 12/01/14 (Pre-refunded to 12/01/00) 1,495,000 County of Hamilton, Ohio, Judson Care Center 8/00 at 101 1/4 AA-*** 1,616,708 Nursing Home and Board and Care Project (FHA Insured Mortgage), 7.800%, 8/01/19 (Pre-refunded to 8/01/00) 1,000,000 Hudson Local School District, General 12/00 at 102 A1*** 1,090,140 Obligation-Unlimited Tax, 7.100%, 12/15/13 (Pre-refunded to 12/15/00) 1,000,000 Board of Education of the Hudson Local 12/00 at 102 A1*** 1,090,970 School District, Ohio, School Facilities Improvement Bonds, Series 1991A, 7.100%, 12/15/14 (Pre-refunded to 12/15/00) 1,000,000 Kent State University (A State University of 5/02 at 102 AAA 1,106,940 Ohio), General Receipts Bonds, Series 1992, 6.500%, 5/01/22 36 205 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- U.S. Guaranteed (continued) $1,500,000 City of Lorain, Ohio, Hospital Refunding 11/02 at 102 A1 $ 1,722,045 Revenue Bonds, Series 1992 (Lakeland Community Hospital, Inc.), 6.500%, 11/15/12 1,500,000 County of Lucas, Ohio, Hospital Facilities 12/01 at 102 N/R*** 1,712,820 Revenue Bonds, Series 1991 (Flower Memorial Hospital), 8.125%, 12/01/11 (Pre-refunded to 12/01/01) 2,000,000 County of Mahoning, Ohio, Hospital No Opt. Call A1 2,028,080 Improvement and Refunding Revenue Bonds, Series 1986 (St. Elizabeth Hospital Medical Center Project), 7.375%, 12/01/09 4,250,000 County of Mahoning, Ohio, Hospital 10/02 at 100 AAA 4,602,113 Improvement Revenue Bonds, Series 1991 (YHA, Inc. Project), Series 1991A, 7.000%, 10/15/14 (Pre-refunded to 10/15/02) 1,150,000 County of Marion, Ohio, Health Care 12/99 at 103 N/R*** 1,246,359 Facilities Revenue Bonds, Series 1990 (United Church Homes, Inc.), 8.875%, 12/01/12 (Pre-refunded to 12/01/99) 1,000,000 The Board of Education of the Marysville 12/00 at 102 AAA 1,091,220 Exempted Village School District, Union County, Ohio, School Improvement Bonds, General Obligation (Unlimited Tax), 7.200%, 12/01/10 (Pre-refunded to 12/01/00) 1,250,000 City of Marysville, Ohio, Water System 12/01 at 101 AAA 1,382,375 Mortgage Revenue Bonds, Series 1991 7.050%, 12/01/21 (Pre-refunded to 12/01/01) 1,850,000 Massillon City School District, Ohio, General 12/00 at 102 AAA 2,018,757 Obligation-Unlimited Tax Bonds, School Improvement Bonds, Series 1990, 7.200%, 12/01/11 (Pre-refunded to 12/01/00) 1,000,000 Board of Education of the Mentor Exempted 12/02 at 100 AAA 1,061,260 Village School District, Ohio, Improvement Bonds, Series 1989 (General Obligation Bonds), 7.400%, 12/01/11 (Pre-refunded to 12/01/02) 3,000,000 City of Middleburg Heights, Ohio, Hospital 8/01 at 102 AAA 3,327,690 Improvement Revenue Bonds, Series 1991 (Southwest General Hospital Project), 7.200%, 8/15/19 (Pre-refunded to 8/15/01) Ohio Housing Finance Agency Single Family Mortgage Revenue Bonds: 6,460,000 0.000%, 1/15/15 (Pre-refunded to 1/15/11) 1/11 at 67 1/32 AAA 2,501,054 5,700,000 0.000%, 1/15/15 (Pre-refunded to 7/15/11) 7/11 at 70 15/32 AAA 2,267,973 20,000 Ohio Building Authority, State Facilities 4/03 at 100 AAA 23,759 Refunding Bonds (Frank J. Lausche State Office Building), 1982 Series A, 10.125%, 10/01/06 (Pre-refunded to 4/01/03) 3,250,000 State of Ohio (Ohio Building Authority), 8/99 at 102 Aaa 3,405,090 State Correctional Facilities Bonds, 1986 Series A, 7.350%, 8/01/06 (Pre-refunded to 8/01/99) 1,000,000 State of Ohio, Ohio Higher Educational 5/00 at 100 AAA 1,054,980 Facilities Commission (Ohio Northern University Project), 7.300%, 5/15/10 (Pre-refunded to 5/15/00) 1,900,000 Ohio State Public Facilities Commission, 11/99 at 102 Aa3*** 1,970,395 Higher Education Facilities Bonds, Series 1989A, 7.250%, 5/01/04 (Pre-refunded to 11/01/99) 4,630,000 Ohio Water Development Authority, State of No Opt. Call AAA 5,217,084 Ohio, Water Development Revenue Bonds, Pure Water 1990 Series I, 6.000%, 12/01/16 1,000,000 Ottawa County, Ohio, Special Assessment 9/01 at 102 AAA 1,107,020 Portage, Catawba Isle, 7.000%, 9/01/11 (Pre-refunded to 9/01/01) 1,000,000 City of Parma, Ohio, Various Purpose General 12/00 at 102 A*** 1,099,100 Obligation Bonds, Series 1990 (Limited Tax Obligation), 7.600%, 12/01/11 (Pre-refunded to 12/01/00) 1,600,000 Pickerington, Ohio, Local School District, 12/00 at 102 AAA 1,748,800 General Obligation Bonds, Series 1990B, 7.250%, 12/01/13 (Pre-refunded to 12/01/00) 700,000 Puerto Rico Commonwealth Highway Authority, 7/00 at 102 AAA 760,270 Highway Revenue, Series Q, 7.750%, 7/01/10 (Pre-refunded to 7/01/00) 1,500,000 Puerto Rico Electric Power Authority, Power 7/01 at 102 Aaa 1,655,505 Revenue Bonds, Series P, 7.000%, 7/01/21 (Pre-refunded to 7/01/01) 3,165,000 Reynoldsburg City School District, Ohio, 12/02 at 102 AAA 3,553,029 General Obligation Bonds, School Building Construction and Improvement, 6.550%, 12/01/17 (Pre-refunded to 12/01/02) 1,200,000 Ridgemont Local School District, Ohio, 12/02 at 102 N/R*** 1,369,896 General Obligation (Unlimited Tax), School Improvement Bonds, Series 1992, 7.250%, 12/01/14 (Pre-refunded to 12/01/02) 605,000 Scioto County, Ohio, Human Services Building 8/01 at 101 N/R*** 664,611 Bonds, General Obligation Bonds 7.150%, 8/01/11 (Pre-refunded to 8/01/01) 37 206 Portfolio of Investments (Unaudited) Nuveen Flagship Ohio Municipal Bond Fund November 30, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- U.S. Guaranteed (continued) $ 750,000 Southwest Local School District, Ohio, 12/99 at 103 AAA $ 805,148 Hamilton County, General Obligation Bonds, 7.650%, 12/01/10 (Pre-refunded to 12/01/99) 1,000,000 Sylvania, Ohio, City School District, General 6/02 at 102 AAA 1,112,220 Obligation Bonds, 6.600%, 6/01/16 (Pre-refunded to 6/01/02) 1,000,000 University of Cincinnati, General Receipts 12/02 at 102 AA*** 1,112,590 Bonds, Series O, 6.300%, 6/01/12 (Pre-refunded to 12/01/02) 4,775,000 County of Warren, Ohio, Hospital Facilities 7/01 at 102 Aa2*** 5,273,606 Improvement and Refunding Revenue Bonds, Series 1991 (Otterbein Home Project), 7.200%, 7/01/11 (Pre-refunded to 7/01/01) 750,000 County of Warren, Ohio, Waterworks System 12/02 at 102 AAA 843,338 Revenue Bonds, Series 1992, Warren County Water District, 6.600%, 12/01/16 (Pre- refunded to 12/01/02) 1,500,000 City of Warren, Ohio, General Obligation 11/00 at 102 BBB+*** 1,647,480 (Limited Tax), Sewerage System Improvement Bonds, Series 1990, 7.750%, 11/01/10 (Pre- refunded to 11/01/00) 1,500,000 Washington County (Marietta Area Health Care 9/02 at 102 Baa1*** 1,708,140 Project), 7.375%, 9/01/12 (Pre-refunded to 9/01/02) 1,500,000 Westerville, Minerva Park and Blendon, Ohio, 9/01 at 102 AAA 1,663,905 Joint Township Hospital District (St. Anns Hospital Project), Series 1991A, 7.100%, 9/15/21 (Pre-refunded to 9/15/01) - ---------------------------------------------------------------------------------------------------------- Utilities - 11.0% City of Cleveland, Ohio, Public Power System First Mortgage Revenue Bonds, Series 1994A: 2,250,000 0.000%, 11/15/12 No Opt. Call AAA 1,178,033 1,535,000 0.000%, 11/15/13 No Opt. Call AAA 756,141 10,685,000 City of Cleveland, Ohio, Public Power System 11/01 at 102 AAA 11,781,388 Improvement, First Mortgage Revenue Bonds, Series 1991B, 7.000%, 11/15/17 1,900,000 Cleveland Public Power System, 7.000%, 11/15/17 11/01 at 102 AAA 2,094,959 4,900,000 City of Cleveland, Ohio, Public Power System, 11/06 at 102 AAA 4,882,213 First Mortgage Revenue Refunding Bonds, Series 1996, Sub-Series 1, 5.000%, 11/15/24 7,520,000 Ohio Municipal Electric Generation Agency 2/03 at 102 AAA 7,718,754 (American Municipal Power-Ohio, Inc.), 5.375%, 2/15/24 Ohio Air Quality Development Authority, Revenue Bonds, 1985 Series A (Columbus Southern Power Company Project): 1,750,000 6.375%, 12/01/20 12/02 at 102 AAA 1,919,558 7,000,000 6.250%, 12/01/20 6/03 at 102 Baa1 7,344,890 750,000 Ohio Air Quality Development Authority, 7/99 at 102 Baa3 776,310 Pollution Control Revenue Refunding Bonds, 1989 Series B (Ohio Edison Company Project), 7.625%, 7/01/23 5,900,000 Ohio Air Quality Development Authority, Air 8/99 at 102 Baa1 6,101,485 Quality Development Revenue Refunding Bonds (Ohio Power Company Project), Series B, 7.400%, 8/01/09 2,000,000 Ohio Air Quality Development Authority, Pollution 3/00 at 102 AAA 2,125,640 Control Revenue Refunding Bonds, 1990 Series A (Ohio Edison Company Project), 7.450%, 3/01/16 15,000,000 Ohio Air Quality Development Authority, Air 9/05 at 102 A+ 16,185,300 Quality Development Revenue Refunding Bonds, 1995 Series (The Dayton Power and Light Company Project), 6.100%, 9/01/30 6,000,000 Ohio Air Quality Development Authority, Air 4/07 at 102 AAA 6,272,280 Quality Development Revenue Bonds (JMG Funding, Limited Partnership Project) Series 1997, 5.625%, 1/01/23 (Alternative Minimum Tax) 500,000 Ohio Water Development Authority, 8/02 at 102 AA- 538,590 Collateralized Water Development Revenue Refunding Bonds, 1992 Series A (The Dayton Power and Light Company Project), 6.400%, 8/15/27 7,050,000 Ohio Water Development Authority, Pollution 7/99 at 102 Baa3 7,292,732 Control Revenue (Ohio Edison Company), 7.625%, 7/01/23 1,545,000 Puerto Rico Electric Power Authority, Power No Opt. Call BBB+ 623,763 Revenue Bonds, Series O, 0.000%, 7/01/17 38 207 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------- Water and Sewer - 5.2% City of Bellefontaine, Sewer System, First Mortgage Revenue Refunding and Improvement Bonds (Bank Qualified): $1,000,000 6.800%, 12/01/07 12/02 at 101 Baa1 $ 1,080,130 1,000,000 6.900%, 12/01/11 12/02 at 101 Baa1 1,084,490 3,000,000 County of Butler, Ohio, Sewer System Revenue 12/06 at 101 AAA 3,068,010 Bonds, Series 1996, 5.250%, 12/01/21 13,000,000 City of Cleveland, Ohio, Waterworks No Opt. Call AAA 14,183,520 Improvement, First Mortgage Refunding Revenue Bonds, Series G, 1993, 5.500%, 1/01/21 5,000,000 City of Cleveland, Ohio, Waterworks Improvement 1/08 at 101 AAA 4,995,950 and Refunding Revenue Bonds, Series I, 1998, 5.000%, 1/01/28 City of Cleveland, Ohio, Waterworks Improvement and Refunding Revenue Bonds, First Mortgage Series 1996-H: 40,000 5.750%, 1/01/21 1/06 at 102 AAA 43,174 55,000 5.750%, 1/01/26 1/06 at 102 AAA 59,216 80,000 City of Cleveland, Ohio, Waterworks Revenue 1/02 at 102 AAA 87,078 Refunding Bonds, First Mortgage Series F, 1992-B, 6.500%, 1/01/11 1,600,000 County of Greene, Ohio, Water System Revenue 12/07 at 102 AAA 1,798,830 Bonds, Series 1996, 6.125%, 12/01/21 2,200,000 City of Greenville, Ohio (Darke County), 12/02 at 102 AAA 2,432,650 Wastewater System, First Mortgage Revenue Bonds, Series 1992 (Governmental Enterprise Revenue Bonds), 6.350%, 12/01/17 1,000,000 City of Hamilton, Ohio, Water System Mortgage 10/01 at 102 AAA 1,085,610 Revenue Bonds, 1991 Series A, 6.400%, 10/15/10 795,000 City of Huber Heights, Ohio, Water System No Opt. Call AAA 279,472 Revenue Bonds, Series 1995, 0.000%, 12/01/19 1,000,000 County of Montgomery, Ohio, Water Revenue Bonds, 11/02 at 102 AAA 1,101,207 Greater Moraine Beavercreek Sewer District, Series 1992, 6.250%, 11/15/17 1,000,000 Mount Gilead, Ohio, Water System Revenue, First 12/02 at 102 N/R 1,078,868 Mortgage Bonds, 7.200%, 12/01/17 1,000,000 Ohio Water Development Authority, State of Ohio, 6/05 at 102 AAA 1,087,638 Water Development Revenue Bonds, 1995 Fresh Water Series, 5.900%, 12/01/21 2,000,000 Ohio Water Development Authority, State of Ohio, 6/08 at 101 AAA 2,008,618 Water Development Revenue Bonds, Fresh Water Series 1998, 5.125%, 12/01/23 750,000 Toledo, Ohio, Sewer System Revenue Mortgage 11/04 at 102 AAA 848,675 Bonds, 6.350%, 11/15/17 500,000 Toledo, Ohio, Waterworks Revenue Refunding 11/04 at 102 AAA 568,398 Mortgage Bonds, 6.450%, 11/15/24 - ---------------------------------------------------------------------------------------------------------- $661,410,000 Total Investments - (cost $630,502,682) - 97.7% 690,345,315 =============--------------------------------------------------------------------------------------------- Temporary Investments in Short-Term Municipal Securities - 1.0% 5,500,000 County of Cuyahoga, Ohio, Hospital Revenue Bonds (The Cleveland VMIG-1 5,500,000 Clinic Foundation), Series 1997D, Variable Rate Demand Bonds, 3.300%, 1/01/26+ 1,300,000 Ohio Air Quality Development Authority, State of Ohio, Air VMIG-1 1,300,000 Quality Development Revenue Refunding Bonds (The Cincinnati Gas and Electric Company Project), 1995 Series A, Variable Rate Demand Bonds, 3.250%, 9/01/30+ - ---------------------------------------------------------------------------------------------------------- $6,800,000 Total Temporary Investments - 1.0% 6,800,000 ============---------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.3% 9,795,026 ---------------------------------------------------------------------------------------------- Net Assets - 100% $706,940,341 ============================================================================================== * Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings: Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. government or U.S. government agency securities which ensures the timely payment of principal and interest. Securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. + The security has a maturity of more than one year, but has variable rate and demand features which qualify it as a short-term security. The rate disclosed is that currently in effect. This rate changes periodically based on market conditions or a specified marked index. See accompanying notes to financial statements. 39 208 Statement of Net Assets (Unaudited) November 30,1998 Kentucky Kentucky Limited Michigan Ohio - ------------------------------------------------------------------------------------------------------------------------------ Assets Investments in municipal securities, at market value (note 1) $498,596,440 $10,871,470 $348,556,233 $690,345,315 Temporary investments in short-term municipal securities, at amortized cost, which approximates market value (note 1) -- -- -- 6,800,000 Cash 862,106 121,498 -- -- Receivables: Interest 7,137,471 160,021 5,383,364 12,932,218 Investments sold -- -- 1,985,000 1,469,863 Shares sold 683,708 8,473 160,722 786,710 Other assets 188,893 22,544 185,500 272,986 - ------------------------------------------------------------------------------------------------------------------------------ Total assets 507,468,618 11,184,006 356,270,819 712,607,092 - ------------------------------------------------------------------------------------------------------------------------------ Liabilities Cash overdraft -- -- 2,888,315 2,857,663 Payables: Investments purchased -- -- 987,010 -- Shares redeemed 698,286 6 112,158 946,593 Accrued expenses: Management fees (note 6) 220,836 1,760 154,847 304,741 12b-1 distribution and service fees (notes 1 and 6) 100,501 2,682 78,200 115,946 Other 92,415 13,699 24,470 165,041 Dividends payable 1,001,333 12,909 409,428 1,276,767 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities 2,113,371 31,056 4,654,428 5,666,751 - ------------------------------------------------------------------------------------------------------------------------------ Net assets (note 7) $505,355,247 $11,152,950 $351,616,391 $706,940,341 ============================================================================================================================== Class A Shares (note 1) Net assets $466,860,435 $ 8,147,214 $269,790,676 $482,218,847 Shares outstanding 40,739,829 799,642 22,141,318 40,728,929 Net asset value and redemption price per share $ 11.46 $10.19 $12.18 $11.84 Offering price per share (net asset value per share plus maximum sales charge of 4.20%, 2.50%, 4.20% and 4.20%, respectively, of offering price) $ 11.96 $10.45 $12.71 $12.36 ============================================================================================================================== Class B Shares (note 1) Net assets $ 6,554,245 N/A $ 6,057,441 $ 10,654,970 Shares outstanding 571,833 N/A 496,660 900,492 Net asset value, offering and redemption price per share $ 11.46 N/A $12.20 $11.83 ============================================================================================================================== Class C Shares (note 1) Net assets $31,145,672 $2,987,159 $48,414,979 $ 48,820,003 Shares outstanding 2,720,086 293,307 3,979,336 4,126,526 Net asset value, offering and redemption price per share $ 11.45 $ 10.18 $ 12.17 $ 11.83 ============================================================================================================================== Class R Shares (note 1) Net assets $ 794,895 $ 18,577 $27,353,295 $165,246,521 Shares outstanding 69,511 1,827 2,245,528 13,958,412 Net asset value, offering and redemption price per share $ 11.44 $ 10.17 $ 12.18 $ 11.84 ============================================================================================================================== N/A -- Kentucky Limited is not authorized to issue Class B Shares. See accompanying notes to financial statements. 40 209 Statement of Operations (Unaudited) Six Months Ended November 30, 1998 Kentucky Kentucky Limited Michigan Ohio - --------------------------------------------------------------------------------------------------------------------------------- Investment Income (note 1) $14,220,259 $276,554 $10,031,519 $20,262,270 - --------------------------------------------------------------------------------------------------------------------------------- Expenses Management fees (note 6) 1,324,915 25,132 934,196 1,845,357 12b-1 service fees--Class A (notes 1 and 6) 459,785 8,411 267,346 478,714 12b-1 distribution and service fees--Class B (notes 1 and 6) 26,695 N/A 24,929 41,369 12b-1 distribution and service fees--Class C (notes 1 and 6) 111,322 7,541 176,369 179,076 Shareholders' servicing agent fees and expenses 133,793 15,898 66,925 213,262 Custodian's fees and expenses 51,341 6,365 40,548 72,146 Trustees' fees and expenses (note 6) 3,273 1,250 1,461 6,320 Professional fees 28,197 4,778 10,787 11,626 Shareholders' reports--printing and mailing expenses 40,558 3,397 39,768 62,314 Federal and state registration fees 3,024 1,670 12,464 47,218 Other expenses 15,157 224 12,877 20,820 - --------------------------------------------------------------------------------------------------------------------------------- Total expenses before expense reimbursement 2,198,060 74,666 1,587,670 2,978,222 Expense reimbursement (note 6) (946) (21,388) -- -- - --------------------------------------------------------------------------------------------------------------------------------- Net expenses 2,197,114 53,278 1,587,670 2,978,222 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income 12,023,145 223,276 8,443,849 17,284,048 - --------------------------------------------------------------------------------------------------------------------------------- Realized and Unrealized Gain from Investments Net realized gain from investment transactions (notes 1 and 4) 529,074 22 707,767 618,529 Net change in unrealized appreciation or depreciation of investments 2,498,653 76,785 2,467,106 5,560,995 - --------------------------------------------------------------------------------------------------------------------------------- Net gain from investments 3,027,727 76,807 3,174,873 6,179,524 - --------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets from operations $15,050,872 $300,083 $11,618,722 $23,463,572 ================================================================================================================================= N/A--Kentucky Limited is not authorized to issue Class B Shares. See accompanying notes to financial statements. 41 210 Statement of Changes in Net Assets (Unaudited) Kentucky Kentucky Limited ------------------------------- -------------------------------- Six Months Ended Year Ended Six Months Ended Year Ended 11/30/98 5/31/98 11/30/98 5/31/98 - ------------------------------------------------------------------------------------------------------------------------------------ Operations Net investment income $ 12,023,145 $ 24,365,910 $ 223,276 $ 503,516 Net realized gain from investment transactions (notes 1 and 4) 529,074 2,172,160 22 32,390 Net change in unrealized appreciation or depreciation of investments 2,498,653 14,097,294 76,785 204,860 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets from operations 15,050,872 40,635,364 300,083 740,766 - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to Shareholders (note 1) From undistributed net investment income: Class A (11,348,062) (22,954,811) (175,582) (409,988) Class B (116,543) (102,552) N/A N/A Class C (654,899) (1,254,173) (51,826) (94,041) Class R (18,175) (32,294) (369) (590) From accumulated net realized gains from investment transactions: Class A -- (1,984,678) -- -- Class B -- (10,705) N/A N/A Class C -- (120,396) -- -- Class R -- (2,930) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets from distributions to shareholders (12,137,679) (26,462,539) (227,777) (504,619) - ------------------------------------------------------------------------------------------------------------------------------------ Fund Share Transactions (note 2) Net proceeds from sale of shares 31,533,618 47,501,865 909,884 3,676,589 Net proceeds from shares issued to shareholders due to reinvestment of distributions 6,148,078 15,618,317 103,616 312,624 - ------------------------------------------------------------------------------------------------------------------------------------ 37,681,696 63,120,182 1,013,500 3,989,213 - ------------------------------------------------------------------------------------------------------------------------------------ Cost of shares redeemed (20,156,681) (48,645,223) (1,353,493) (3,818,637) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets from Fund share transactions 17,525,015 14,474,959 (339,993) 170,576 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets 20,438,208 28,647,784 (267,687) 406,723 Net assets at the beginning of period 484,917,039 456,269,255 11,420,637 11,013,914 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at the end of period $505,355,247 $484,917,039 $11,152,950 $11,420,637 ==================================================================================================================================== Balance of undistributed (over-distributed) net investment income at end of period $ (89,519) $ 25,015 $ (3,515) $ 986 ==================================================================================================================================== N/A--Kentucky Limited is not authorized to issue Class B Shares. See accompanying notes to financial statements. 42 211 Statement of Changes in Net Assets (Unaudited) (continued) Michigan Ohio ------------------------------------ ----------------------------------- Six Months Ended Year Ended Six Months Ended Year Ended 11/30/98 5/31/98 11/30/98 5/31/98 - ----------------------------------------------------------------------------------------------------------------------------------- Operations Net investment income $ 8,443,849 $ 16,864,427 $ 17,284,048 $ 35,243,212 Net realized gain from investment transactions (notes 1 and 4) 707,767 1,595,690 618,529 4,967,956 Net change in unrealized appreciation or depreciation of investments 2,467,106 10,225,980 5,560,995 16,619,119 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets from operations 11,618,722 28,686,097 23,463,572 56,830,287 - ----------------------------------------------------------------------------------------------------------------------------------- Distributions to Shareholders (note 1) From undistributed net investment income: Class A (6,590,187) (13,344,536) (11,831,218) (24,388,584) Class B (108,941) (63,731) (181,379) (182,260) Class C (1,033,844) (1,982,594) (1,059,467) (2,008,254) Class R (700,582) (1,409,716) (4,206,068) (8,687,614) From accumulated net realized gains from investment transactions: Class A -- (597,076) -- (1,996,392) Class B -- (3,361) -- (16,956) Class C -- (101,904) -- (178,327) Class R -- (61,084) -- (681,846) - ----------------------------------------------------------------------------------------------------------------------------------- Decrease in net assets from distributions to shareholders (8,433,554) (17,564,002) (17,278,132) (38,140,233) - ----------------------------------------------------------------------------------------------------------------------------------- Fund Share Transactions (note 2) Net proceeds from sale of shares 23,229,066 28,641,868 38,977,895 63,755,865 Net proceeds from shares issued to shareholders due to reinvestment of distributions 2,988,780 10,647,679 8,155,791 24,926,989 - ----------------------------------------------------------------------------------------------------------------------------------- 26,217,846 39,289,547 47,133,686 88,682,854 - ----------------------------------------------------------------------------------------------------------------------------------- Cost of shares redeemed (17,851,213) (37,642,403) (35,876,914) (83,801,938) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets from Fund share transactions 8,366,633 1,647,144 11,256,772 4,880,916 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets 11,551,801 12,769,239 17,442,212 23,570,970 Net assets at the beginning of period 340,064,590 327,295,351 689,498,129 665,927,159 - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at the end of period $351,616,391 $340,064,590 $706,940,341 $689,498,129 =================================================================================================================================== Balance of undistributed net investment income at end of period $ 106,940 $ 96,645 $ 42,229 $ 36,313 =================================================================================================================================== See accompanying notes to financial statements. 43 212 Notes to Financial Statements (Unaudited) 1. General Information and Significant Accounting Policies The Nuveen Flagship Multistate Trust IV (the "Trust") is an open-end investment company registered under the Investment Company Act of 1940, as amended. The Trust comprises the Nuveen Flagship Kentucky Municipal Bond Fund ("Kentucky"), the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund ("Kentucky Limited"), the Nuveen Flagship Michigan Municipal Bond Fund ("Michigan") and the Nuveen Flagship Ohio Municipal Bond Fund ("Ohio") (collectively the "Funds"), among others. The Trust was organized as a Massachusetts business trust on July 1, 1996. The Board of Trustees has determined that it is in the best interests of Kentucky Limited to be reorganized and combined with Kentucky. The reorganization is subject to the approval of the shareholders of Kentucky Limited at the shareholder meeting scheduled for April, 1999. The Funds seek to provide high tax-free income and preservation of capital through investments in diversified portfolios of quality municipal bonds. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with generally accepted accounting principles. Securities Valuation The prices of municipal bonds in each Fund's investment portfolio are provided by a pricing service approved by the Fund's Board of Trustees. When price quotes are not readily available (which is usually the case for municipal securities), the pricing service establishes fair market value based on yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, indications of value from securities dealers and general market conditions. Temporary investments in securities that have variable rate and demand features qualifying them as short-term securities are valued at amortized cost, which approximates market value. Securities Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from such transactions are determined on the specific identification method. Securities purchased or sold on a when-issued or delayed delivery basis may have extended settlement periods. Any securities so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets in a separate account with a current value at least equal to the amount of the when-issued and delayed delivery purchase commitments. At November 30, 1998, Michigan had an outstanding when-issued purchase commitment of $987,010. There were no such outstanding purchase commitments in any of the other funds. Investment Income Interest income is determined on the basis of interest accrued, adjusted for amortization of premiums and accretion of discounts on long-term debt securities when required for federal income tax purposes. Dividends and Distributions to Shareholders Tax-exempt net investment income is declared as a dividend monthly and payment is made or reinvestment is credited to shareholder accounts on the first business day after month-end. Net realized capital gains and/or market discount from investment transactions, if any, are distributed to shareholders not less frequently than annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. 44 213 Distributions to shareholders of tax-exempt net investment income, net realized capital gains and/or market discount are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. Accordingly, temporary over-distributions as a result of these differences may occur and will be classified as either distributions in excess of net investment income, distributions in excess of net realized gains and/or distributions in excess of net ordinary taxable income from investment transactions, where applicable. Income Taxes Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its tax-exempt net investment income, in addition to any significant amounts of net realized capital gains and/or market discount from investment transactions. The Funds currently consider significant net realized capital gains and/or market discount as amounts in excess of $.001 per share. Furthermore, the Funds intend to satisfy conditions which will enable interest from municipal securities, which is exempt from regular federal and designated state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Funds. Net realized capital gain and market discount distributions are subject to federal taxation. Flexible Sales Charge Program Each Fund offers Class A, C and R Shares. Kentucky, Michigan and Ohio also offer Class B Shares. Class A Shares are sold with a sales charge and incur an annual 12b-1 service fee. Class A Share purchases of $1 million or more are sold at net asset value without an up-front sales charge but may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed within 18 months of purchase. Class B Shares are sold without a sales charge but incur annual 12b-1 distribution and service fees. An investor purchasing Class B Shares agrees to pay a CDSC of up to 5% depending upon the length of time the shares are held by the investor (CDSC is reduced to 0% at the end of six years). Class B Shares convert to Class A Shares eight years after purchase. Class C Shares are sold without a sales charge but incur annual 12b-1 distribution and service fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1% if Class C Shares are redeemed within one year of purchase. Class R Shares are not subject to any sales charge or 12b-1 distribution or service fees. Class R Shares are available for purchases of over $1 million and in other limited circumstances. Derivative Financial Instruments The Funds may invest in certain derivative financial instruments including futures, forward, swap, option contracts, and other financial instruments with similar characteristics. Although the Funds are authorized to invest in such financial instruments, and may do so in the future, they did not make any such investments during the six months ended November 30, 1998. Expense Allocation Expenses of the Funds that are not directly attributable to a specific class of shares are prorated among the classes based on the relative net assets of each class. Expenses directly attributable to a class of shares, which presently only includes 12b-1 distribution and service fees, are recorded to the specific class. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. 45 214 Notes to Financial Statements (Unaudited) (continued) 2. Fund Shares Transactions in Fund shares were as follows: Kentucky Kentucky Limited -------------------------------------------------- --------------------------------------------------- Six Months Ended 11/30/98 Year Ended 5/31/98 Six Months Ended 11/30/98 Year Ended 5/31/98 -------------------------------------------------- --------------------------------------------------- Shares Amount Shares Amount Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------------------------ Shares sold: Class A 2,154,111 $ 24,621,064 3,217,301 $ 36,434,351 26,491 $ 269,099 286,922 $ 2,892,341 Class B 196,943 2,248,423 323,485 3,657,888 N/A N/A N/A N/A Class C 398,498 4,552,006 639,620 7,226,085 62,847 638,286 76,327 769,248 Class R 9,832 112,125 16,255 183,541 245 2,499 1,495 15,000 Shares issued to shareholders due to reinvestment of distributions: Class A 498,292 5,701,045 1,281,834 14,485,026 5,521 56,064 23,560 236,867 Class B 4,675 53,531 4,212 47,833 N/A N/A N/A N/A Class C 34,149 390,252 94,246 1,063,652 4,654 47,200 7,475 75,229 Class R 283 3,250 1,937 21,806 35 352 52 528 - ------------------------------------------------------------------------------------------------------------------------------------ 3,296,783 37,681,696 5,578,890 63,120,182 99,793 1,013,500 395,831 3,989,213 - ------------------------------------------------------------------------------------------------------------------------------------ Shares redeemed: Class A (1,532,417) (17,504,249) (3,866,440) (43,715,326) (120,551) (1,221,426) (316,310) (3,201,570) Class B (4,842) (55,420) (1,809) (20,440) N/A N/A N/A N/A Class C (227,522) (2,596,906) (434,290) (4,909,457) (13,035) (131,963) (61,079) (617,067) Class R (9) (106) -- -- (10) (104) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ (1,764,790) (20,156,681) (4,302,539) (48,645,223) (133,596) (1,353,493) (377,389) (3,818,637) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) 1,531,993 $ 17,525,015 1,276,351 $ 14,474,959 (33,803) $ (339,993) 18,442 $ 170,576 ==================================================================================================================================== N/A - Kentucky Limited is not authorized to issue Class B Shares. Michigan Ohio -------------------------------------------------- -------------------------------------------------- Six Months Ended 11/30/98 Year Ended 5/31/98 Six Months Ended 11/30/98 Year Ended 5/31/98 -------------------------------------------------- -------------------------------------------------- Shares Amount Shares Amount Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Shares sold: Class A 1,243,068 $ 15,074,575 1,390,245 $ 16,660,336 2,260,899 $ 26,641,983 3,219,388 $ 37,568,749 Class B 190,340 2,312,184 287,386 3,449,240 267,834 3,158,285 516,543 6,021,505 Class C 410,801 4,972,911 589,706 7,052,332 396,096 4,669,443 995,368 11,636,371 Class R 72,508 869,396 123,751 1,479,960 383,014 4,508,184 730,018 8,529,240 Shares issued to shareholders due to reinvestment of distributions: Class A 176,834 2,144,540 678,487 8,087,898 407,200 4,800,687 1,424,465 16,558,328 Class B 3,578 43,483 2,834 34,056 7,108 83,807 9,946 116,135 Class C 27,717 335,737 127,033 1,512,300 32,878 387,188 139,502 1,619,985 Class R 38,302 465,020 84,732 1,013,425 244,539 2,884,109 569,608 6,632,541 - ----------------------------------------------------------------------------------------------------------------------------------- 2,163,148 26,217,846 3,284,174 39,289,547 3,999,568 47,133,686 7,604,838 88,682,854 - ----------------------------------------------------------------------------------------------------------------------------------- Shares redeemed: Class A (1,115,170) (13,520,672) (2,418,756) (28,925,631) (2,229,600) (26,304,956) (4,938,984) (57,591,525) Class B (14,881) (180,734) (5,100) (61,520) (7,132) (83,809) (38,316) (446,171) Class C (249,090) (3,006,501) (498,829) (5,971,586) (312,607) (3,679,831) (692,246) (8,051,008) Class R (93,795) (1,143,306) (224,782) (2,683,666) (493,630) (5,808,318) (1,520,403) (17,713,234) - ----------------------------------------------------------------------------------------------------------------------------------- (1,472,936) (17,851,213) (3,147,467) (37,642,403) (3,042,969) (35,876,914) (7,189,949) (83,801,938) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase 690,212 $ 8,366,633 136,707 $ 1,647,144 956,599 $ 11,256,772 414,889 $ 4,880,916 =================================================================================================================================== 46 215 3. Distributions to Shareholders The Funds declared dividend distributions from their tax-exempt net investment income which were paid on December 21, 1998, to shareholders of record on December 9, 1998, as follows: Kentucky Kentucky Limited Michigan Ohio - -------------------------------------------------------------------------------- Dividend per share: Class A $.0465 $.0350 $.0500 $.0480 Class B .0395 N/A .0425 .0410 Class C .0415 .0320 .0445 .0430 Class R .0485 .0370 .0520 .0500 ================================================================================ N/A - Kentucky Limited is not authorized to issue Class B Shares. The following Funds also declared taxable distributions, which includes capital gains and/or market discount, which were paid on December 7, 1998, to shareholders of record on December 2, 1998, as follows: Kentucky Michigan Ohio - ------------------------------------------------- Taxable distributions per share: $.0237 $.0565 $.0447 ================================================= 4. Securities Transactions Purchases and sales (including maturities) of investments in municipal securities and temporary municipal investments for the six months ended November 30, 1998, were as follows: Kentucky Kentucky Limited Michigan Ohio - -------------------------------------------------------------------------------- Purchases: Investments in municipal securities $40,399,667 $ -- $27,054,181 $32,900,914 Temporary municipal investments 22,550,000 650,000 12,300,000 32,400,000 Sales: Investments in municipal securities 22,892,065 265,000 22,457,448 30,815,013 Temporary municipal investments 24,550,000 650,000 12,300,000 25,600,000 ================================================================================ At November 30, 1998, the identified cost of investments owned for federal income tax purposes was the same as the cost for financial reporting purposes for each Fund. At May 31, 1998, the Funds' last fiscal year end, Kentucky Limited had unused capital loss carryforwards of $70,735 available for federal income tax purposes to be applied against future capital gains, if any. If not applied, $135 of the carryforward will expire in the year 2004 and $70,600 of the carryforward will expire in the year 2005. 5. Unrealized Appreciation (Depreciation) Gross unrealized appreciation and gross unrealized depreciation of investments at November 30, 1998, were as follows: Kentucky Kentucky Limited Michigan Ohio - -------------------------------------------------------------------------------- Gross unrealized: appreciation $40,444,093 $402,845 $32,877,510 $59,849,151 depreciation -- (4,997) (32,262) (6,518) - -------------------------------------------------------------------------------- Net unrealized appreciation $40,444,093 $397,848 $32,845,248 $59,842,633 ================================================================================ 47 216 Notes to Financial Statements (Unaudited) (continued) 6. Management Fee and Other Transactions with Affiliates Under the Trust's investment management agreement with the Adviser, each Fund pays an annual management fee, payable monthly, at the rates set forth below which are based upon the average daily net asset value of each Fund: Kentucky, Michigan & Ohio Average Daily Net Asset Value Management Fee - ------------------------------------------------------------------------------- For the first $125 million .5500 of 1% For the next $125 million .5375 of 1 For the next $250 million .5250 of 1 For the next $500 million .5125 of 1 For the next $1 billion .5000 of 1 For net assets over $2 billion .4750 of 1 =============================================================================== Kentucky Limited Average Daily Net Asset Value Management Fee - ------------------------------------------------------------------------------- For the first $125 million .4500 of 1% For the next $125 million .4375 of 1 For the next $250 million .4250 of 1 For the next $500 million .4125 of 1 For the next $1 billion .4000 of 1 For net assets over $2 billion .3750 of 1 =============================================================================== The management fee compensates the Adviser for overall investment advisory and administrative services, and general office facilities. The Trust pays no compensation directly to those of its Trustees who are affiliated with the Adviser or to its officers, all of whom receive remuneration for their services to the Trust from the Adviser or its affiliates. The Adviser may voluntarily reimburse expenses from time to time, which may be terminated at any time at its discretion. During the six months ended November 30, 1998, the Distributor collected sales charges on purchases of Class A Shares, the majority of which were paid out as concessions to authorized dealers. The Distributor also received 12b-1 service fees on Class A Shares, substantially all of which were paid to compensate authorized dealers for providing services to shareholders relating to their investments. During the six months ended November 30, 1998, the Distributor compensated authorized dealers directly with commission advances at the time of purchase as follows: Kentucky Kentucky Limited Michigan Ohio - ----------------------------------------------------------------------- Commission advances $207,531 $5,975 $179,242 $233,334 ======================================================================= 48 217 To compensate for commissions advanced to authorized dealers, all 12b-1 service fees collected on Class B Shares, except for Kentucky Limited, during the first year following a purchase, all 12b-1 distribution fees on Class B Shares, except for Kentucky Limited, and all 12b-1 service and distribution fees on Class C Shares during the first year following a purchase are retained by the Distributor. Kentucky Limited is not authorized to issue Class B Shares. During the six months ended November 30, 1998, the Distributor retained such 12b-1 fees as follows: Kentucky Kentucky Limited Michigan Ohio - ------------------------------------------------------------------------------------------------------------------------------------ 12b-1 fees retained $ 59,709 $ 1,849 $ 64,040 $ 91,526 ==================================================================================================================================== The remaining 12b-1 fees charged to the Funds were paid to compensate authorized dealers for providing services to shareholders relating to their investments. The Distributor also collected and retained CDSC on share redemptions during the six months ended November 30, 1998, as follows: Kentucky Kentucky Limited Michigan Ohio - ------------------------------------------------------------------------------------------------------------------------------------ CDSC retained $ 5,374 $ 178 $ 6,630 $ 12,085 ==================================================================================================================================== 7. Composition of Net Assets At November 30, 1998, the Funds had an unlimited number of $.01 par value shares authorized. Net assets consisted of: Kentucky Kentucky Limited Michigan Ohio - ------------------------------------------------------------------------------------------------------------------------------------ Capital paid-in $ 463,802,902 $ 10,829,422 $ 317,462,479 $ 644,429,855 Balance of undistributed (over-distributed) net investment income (89,519) (3,515) 106,940 42,229 Accumulated net realized gain (loss) from investment transactions 1,197,771 (70,805) 1,201,724 2,625,624 Net unrealized appreciation of investments 40,444,093 397,848 32,845,248 59,842,633 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets $ 505,355,247 $ 11,152,950 $ 351,616,391 $ 706,940,341 ==================================================================================================================================== 49 218 EXHIBIT A --------- Financial Highlights (Unaudited) Selected data for a share outstanding throughout each period is as follows: Class (Inception Date) Investment Operations Less Distributions --------------------------------- --------------------------- Net Realized/ Net Ending Beginning Net Unrealized Invest- Net Year Ended Net Asset Investment Investment ment Capital Asset Total May 31, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b) - --------------------------------------------------------------------------------------------------------------------- KENTUCKY** Class A (5/87) 1999 (d) $11.39 $.28 $ .07 $ .35 $(.28) $ -- $(.28) $11.46 3.13% 1998 11.05 .59 .38 .97 (.58) (.05) (.63) 11.39 9.00 1997 10.82 .60 .24 .84 (.60) (.01) (.61) 11.05 7.87 1996 10.99 .61 (.17) .44 (.61) -- (.61) 10.82 4.04 1995 10.65 .61 .35 .96 (.62) -- (.62) 10.99 9.42 1994 11.06 .62 (.40) .22 (.63) -- (.63) 10.65 1.90 Class B (2/97) 1999 (d) 11.39 .24 .07 .31 (.24) -- (.24) 11.46 2.75 1998 11.06 .50 .38 .88 (.50) (.05) (.55) 11.39 8.10 1997 (c) 11.07 .17 (.01) .16 (.17) -- (.17) 11.06 1.47 Class C (10/93) 1999 (d) 11.38 .25 .07 .32 (.25) -- (.25) 11.45 2.86 1998 11.04 .52 .39 .91 (.52) (.05) (.57) 11.38 8.43 1997 10.81 .54 .24 .78 (.54) (.01) (.55) 11.04 7.29 1996 10.99 .54 (.17) .37 (.55) -- (.55) 10.81 3.38 1995 10.65 .55 .35 .90 (.56) -- (.56) 10.99 8.82 1994 (c) 11.46 .36 (.81) (.45) (.36) -- (.36) 10.65 (5.88)* Class R (2/97) 1999 (d) 11.37 .29 .08 .37 (.30) -- (.30) 11.44 3.24 1998 11.03 .61 .39 1.00 (.61) (.05) (.66) 11.37 9.25 1997 (c) 11.08 .20 (.04) .16 (.21) -- (.21) 11.03 1.42 - --------------------------------------------------------------------------------------------------------------------- KENTUCKY LIMITED*** Class A (9/95) 1999 (d) $10.12 $.21 $ .07 $ .28 $(.21) $ -- $(.21) $10.19 2.80% 1998 9.92 .44 .20 .64 (.44) -- (.44) 10.12 6.53 1997 9.79 .45 .12 .57 (.44) -- (.44) 9.92 5.96 1996 (c) 9.75 .31 .04 .35 (.31) -- (.31) 9.79 5.45* Class C (9/95) 1999 (d) 10.12 .19 .06 .25 (.19) -- (.19) 10.18 2.52 1998 9.92 .40 .20 .60 (.40) -- (.40) 10.12 6.17 1997 9.79 .41 .13 .54 (.41) -- (.41) 9.92 5.64 1996 (c) 9.75 .29 .04 .33 (.29) -- (.29) 9.79 5.12* Class R (2/97) 1999 (d) 10.10 .22 .07 .29 (.22) -- (.22) 10.17 2.93 1998 9.92 .46 .18 .64 (.46) -- (.46) 10.10 6.58 1997 (c) 9.98 .15 (.10) .05 (.11) -- (.11) 9.92 .56 ===================================================================================================================== Ratios/Supplemental Data ------------------------------------------------------------------------------------------------ Ratio of Net Ratio of Investment Ratio of Ratio of Net Expenses to Income to Expenses Investment Average Net Average Net to Average Income to Average Portfolio Year Ended Ending Net Assets Before Assets Before Net Assets After Net Assets After Turnover May 31, Assets (000) Reimbursement Reimbursement Reimbursement (a) Reimbursement (a) Rate - ---------------------------------------------------------------------------------------------------------------------- KENTUCKY** Class A (5/87) 1999 (d) $466,860 .85%* 4.89%* .85%* 4.89%* 5% 1998 451,338 .84 5.12 .77 5.19 12 1997 430,803 .99 5.20 .75 5.44 13 1996 410,808 1.02 5.19 .71 5.50 17 1995 394,457 1.04 5.49 .68 5.85 28 1994 369,495 1.03 5.15 .58 5.60 12 Class B (2/97) 1999 (d) 6,554 1.59* 4.13* 1.59* 4.13* 5 1998 4,273 1.59 4.33 1.54 4.38 12 1997 (c) 544 1.59* 4.56* 1.39* 4.76* 13 Class C (10/93) 1999 (d) 31,146 1.40* 4.34* 1.40* 4.34* 5 1998 28,630 1.39 4.57 1.33 4.63 12 1997 24,468 1.54 4.64 1.29 4.89 13 1996 20,647 1.57 4.63 1.27 4.93 17 1995 15,831 1.58 4.92 1.23 5.27 28 1994 (c) 11,172 1.65* 4.39* 1.08* 4.96* 12 Class R (2/97) 1999 (d) 795 .65* 5.09* .65* 5.09* 5 1998 675 .64 5.31 .58 5.37 12 1997 (c) 455 .64* 5.62* .49* 5.77* 13 - ---------------------------------------------------------------------------------------------------------------------- KENTUCKY LIMITED*** Class A (9/95) 1999 (d) $ 8,147 1.25%* 3.70%* .87%* 4.08%* --% 1998 8,989 1.34 3.67 .66 4.35 36 1997 8,870 1.68 3.37 .53 4.52 56 1996 (c) 8,389 1.67* 3.07* .37* 4.37* 48 Class C (9/95) 1999 (d) 2,987 1.60* 3.35* 1.22* 3.73* -- 1998 2,416 1.69 3.32 1.01 4.00 36 1997 2,144 2.00 3.03 .84 4.19 56 1996 (c) 1,767 1.98* 2.78* .64* 4.12* 48 Class R (2/97) 1999 (d) 19 1.05* 3.90* .67* 4.28* -- 1998 16 1.13 3.87 .46 4.54 36 1997 (c) -- .86* 4.87* -- 5.73* 56 ====================================================================================================================== * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Kentucky. *** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Kentucky Limited. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. (d) For the six months ended November 30, 1998. 50 219 Financial Highlights (Unaudited) (continued) Selected data for a share outstanding throughout each period is as follows: Class (Inception Date) Investment Operations Less Distributions --------------------------------- --------------------------- Net Realized/ Net Ending Net Unrealized Invest- Net Year Ended Beginning Net Investment Investment ment Capital Asset Total May 31, Asset Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b) - ----------------------------------------------------------------------------------------------------------------------- MICHIGAN** CLASS A (6/85) 1999(d) $ 12.07 $ .30 $ .11 $ .41 $ (.30) $ -- $ (.30) $ 12.18 3.43% 1998 11.68 .61 .42 1.03 (.61) (.03) (.64) 12.07 8.95 1997 11.37 .62 .31 .93 (.61) (.01) (.62) 11.68 8.42 1996 11.59 .63 (.22) .41 (.63) -- (.63) 11.37 3.61 1995 11.31 .65 .28 .93 (.65) -- (.65) 11.59 8.57 1994 11.77 .66 (.43) .23 (.66) (.03)+ (.69) 11.31 1.87 CLASS B (2/97) 1999(d) 12.09 .26 .11 .37 (.26) -- (.26) 12.20 3.04 1998 11.70 .52 .42 .94 (.52) (.03) (.55) 12.09 8.12 1997(c) 11.66 .17 .04 .21 (.17) -- (.17) 11.70 1.86 CLASS C (6/93) 1999(d) 12.06 .27 .11 .38 (.27) -- (.27) 12.17 3.15 1998 11.66 .54 .43 .97 (.54) (.03) (.57) 12.06 8.45 1997 11.35 .55 .32 .87 (.55) (.01) (.56) 11.66 7.84 1996 11.58 .56 (.22) .34 (.57) -- (.57) 11.35 2.96 1995 11.30 .58 .28 .86 (.58) -- (.58) 11.58 7.98 1994(c) 11.86 .54 (.52) .02 (.55) (.03)+ (.58) 11.30 .19* CLASS R (2/97) 1999(d) 12.07 .31 .11 .42 (.31) -- (.31) 12.18 3.53 1998 11.68 .63 .42 1.05 (.63) (.03) (.66) 12.07 9.16 1997(c) 11.66 .21 .02 .23 (.21) -- (.21) 11.68 2.01 - --------------------------------------------------------------------------------------------------------------------- OHIO*** CLASS A (6/85) 1999(d) $ 11.74 $ .29 $ .10 $ .39 $ (.29) $ -- $ (.29) $ 11.84 3.37% 1998 11.41 .60 .38 .98 (.60) (.05) (.65) 11.74 8.76 1997 11.21 .61 .20 .81 (.61) -- (.61) 11.41 7.38 1996 11.43 .62 (.21) .41 (.63) -- (.63) 11.21 3.59 1995 11.21 .64 .22 .86 (.64) -- (.64) 11.43 7.99 1994 11.59 .64 (.38) .26 (.64) -- (.64) 11.21 2.24 CLASS B (2/97) 1999(d) 11.73 .25 .10 .35 (.25) -- (.25) 11.83 3.01 1998 11.41 .51 .38 .89 (.52) (.05) (.57) 11.73 7.89 1997(c) 11.42 .17 (.01) .16 (.17) -- (.17) 11.41 1.45 CLASS C (8/93) 1999(d) 11.73 .26 .10 .36 (.26) -- (.26) 11.83 3.11 1998 11.41 .54 .37 .91 (.54) (.05) (.59) 11.73 8.12 1997 11.21 .55 .20 .75 (.55) -- (.55) 11.41 6.80 1996 11.43 .55 (.21) .34 (.56) -- (.56) 11.21 3.03 1995 11.20 .57 .23 .80 (.57) -- (.57) 11.43 7.50 1994(c) 11.69 .46 (.49) (.03) (.46) -- (.46) 11.20 (.17)* CLASS R (2/97) 1999(d) 11.73 .30 .11 .41 (.30) -- (.30) 11.84 3.56 1998 11.41 .62 .37 .99 (.62) (.05) (.67) 11.73 8.89 1997(c) 11.42 .21 (.01) .20 (.21) -- (.21) 11.41 1.77 ===================================================================================================================== Ratios/Supplemental Data ------------------------------------------------------------------------------------------------ Ratio of Net Ratio of Investment Ratio of Ratio of Net Expenses to Income to Expenses Investment Average Net Average Net to Average Income to Average Portfolio Year Ended Ending Net Assets Before Assets Before Net Assets After Net Assets After Turnover May 31, Assets (000) Reimbursement Reimbursement Reimbursement (a) Reimbursement (a) Rate - --------------------------------------------------------------------------------------------------------------------- MICHIGAN** CLASS A (6/85) 1999(d) $ 269,791 .85%* 4.94%* .85%* 4.94%* 7% 1998 263,632 .84 5.11 .84 5.11 13 1997 259,055 .97 5.21 .85 5.33 34 1996 248,422 1.01 5.23 .82 5.42 54 1995 250,380 1.03 5.59 .80 5.82 37 1994 242,993 1.02 5.29 .75 5.56 28 CLASS B (2/97) 1999(d) 6,057 1.60* 4.19* 1.60* 4.19* 7 1998 3,839 1.59 4.32 1.59 4.32 13 1997(c) 380 1.59* 4.52* 1.59* 4.52* 34 CLASS C (6/93) 1999(d) 48,415 1.40* 4.39* 1.40* 4.39* 7 1998 45,690 1.39 4.56 1.39 4.56 13 1997 41,649 1.52 4.65 1.40 4.77 34 1996 41,365 1.56 4.67 1.37 4.86 54 1995 37,122 1.58 5.02 1.35 5.25 37 1994(c) 30,042 1.61* 4.53* 1.25* 4.89* 28 CLASS R (2/97) 1999(d) 27,353 .65* 5.14* .65* 5.14* 7 1998 26,904 .64 5.31 .64 5.31 13 1997(c) 26,211 .65* 5.57* .65* 5.57* 34 - ----------------------------------------------------------------------------------------------------------------------------- OHIO*** CLASS A (6/85) 1999(d) $ 482,219 .85%* 4.95%* .85%* 4.95%* 4% 1998 472,821 .85 5.15 .85 5.15 15 1997 463,253 .96 5.32 .89 5.39 17 1996 443,077 1.02 5.31 .92 5.41 31 1995 445,566 1.03 5.70 .95 5.78 31 1994 445,272 1.02 5.39 .93 5.48 9 CLASS B (2/97) 1999(d) 10,655 1.61* 4.20* 1.61* 4.20* 4 1998 7,422 1.61 4.39 1.61 4.39 15 1997(c) 1,649 1.60* 4.63* 1.60* 4.63* 17 CLASS C (8/93) 1999(d) 48,820 1.40* 4.40* 1.40* 4.40* 4 1998 47,036 1.40 4.60 1.40 4.60 15 1997 40,713 1.51 4.77 1.44 4.84 17 1996 34,939 1.56 4.75 1.47 4.84 31 1995 28,461 1.58 5.13 1.50 5.21 31 1994(c) 25,674 1.60* 4.65* 1.46* 4.79* 9 CLASS R (2/97) 1999(d) 165,247 .65* 5.15* .65* 5.15* 4 1998 162,220 .65 5.35 .65 5.35 15 1997(c) 160,312 .65* 5.65* .65* 5.65* 17 ===================================================================================================================== * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Michigan. *** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Ohio. + The amount shown includes a distribution in excess of capital gains of $.02 per share. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. (d) For the six months ended November 30, 1998. 51 220 Nuveen Family of Mutual Funds Nuveen offers a variety of funds designed to help you reach your financial goals. Growth Nuveen Rittenhouse Growth Fund Growth and Income European Value Fund Growth and Income Stock Fund Balanced Stock and Bond Fund Balanced Municipal and Stock Fund Tax-Free Income National Funds Long-Term Insured Intermediate-Term Limited-Term State Funds Arizona California Colorado Connecticut Florida Georgia Kansas Kentucky Louisiana Maryland Massachusetts Michigan Missouri New Jersey New Mexico New York North Carolina Ohio Pennsylvania Tennessee Virginia Wisconsin Building a Better Portfolio Can Make You a Successful Investor Successful investors know that a well-diversified portfolio - one that balances different types of investments, levels of risk and tax management - can be the foundation for building and sustaining wealth. That's why Nuveen offers you and your financial adviser a wide range of quality investments that can help you build a better portfolio in the pursuit of your financial goals. Mutual Funds Nuveen offers a family of equity, balanced and municipal bond funds featuring Premier Advisers(SM) including Institutional Capital Corporation, Rittenhouse Financial Services, and Nuveen Advisory Corp. Each brings a specialized expertise in a particular investment style or asset class, time-tested investment strategies and a focus on consistent, long-term performance. With Nuveen's Premier Adviser funds, you have all the advantages of a family of funds plus the benefits of specialized investment expertise. Private Asset Management Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive, customized investment management solutions to investors with assets of $250,000 or more to invest. A range of actively managed growth, balanced and municipal income-oriented portfolios are available, all based upon a disciplined investment philosophy. Defined Portfolios Nuveen Defined Portfolios are fixed portfolios of quality securities that are a convenient, attractive alternative to purchasing individual securities. They provide low-cost diversification to reduce risk, while also offering experienced, professional security selection and surveillance. In addition, Nuveen Defined Portfolios provide daily liquidity at that day's net asset value for quick access to your assets. Exchange-Traded Funds Nuveen Exchange-Traded Funds offer investors actively managed portfolios of investment-grade quality municipal bonds. The fund shares are listed and traded on the New York and American stock exchanges. Exchange-traded funds provide the investment convenience, price visibility and liquidity of common stocks. MuniPreferred(R) Nuveen MuniPreferred offers investors a AAA rated investment with an attractive tax-free yield for the cash reserves portion of an investment portfolio. MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen dual-class exchange-traded funds and are available for national as well as a wide variety of state-specific portfolios. 52 221 Fund Information Board of Trustees Robert P. Bremner Lawrence H. Brown Anthony T. Dean Anne E. Impellizzeri Peter R. Sawers William J. Schneider Timothy R. Schwertfeger Judith M. Stockdale Fund Manager Nuveen Advisory Corp. 333 West Wacker Drive Chicago, IL 60606 Transfer Agent and Shareholder Services The Chase Manhattan Bank 4 New York Plaza New York, NY 10004-2413 (800) 257-8787 Legal Counsel Morgan, Lewis & Bockius LLP Washington, D.C. Independent Public Accountants Arthur Andersen LLP Chicago, IL 53 222 Serving Investors for Generations [PHOTO OF JOHN NUVEEN, SR., APPEARS HERE] John Nuveen, Sr. Since our founding in 1898, John Nuveen & Co. has been synonymous with investments that withstand the test of time. Today we offer a broad range of quality investments designed for individuals seeking to build and sustain wealth. In fact, more than 1.3 million investors have trusted Nuveen to help them pursue their financial goals. The cornerstone of Nuveen's investment philosophy is a commitment to disciplined long-term investment strategies focused on providing consistent, attractive performance over time. We emphasize quality securities carefully chosen through in-depth research, and we follow those securities closely over time to ensure that they continue to meet our exacting standards. Whether your focus is long-term growth, dependable current income or sustaining accumulated wealth, Nuveen offers a wide variety of investments and services to help meet your unique circumstances and financial planning needs. Our equity, balanced, and tax-free income funds, along with our defined portfolios and private asset management, can help you build a better, well-diversified portfolio. Talk with your financial adviser to learn more about how Nuveen investment products and services can help you. Or call us at (800) 257-8787 for more information, including a prospectus where applicable. Please read that information carefully before investing. 1898 NUVEEN 1998 OUR SECOND CENTURY helping investors sustain the wealth of a lifetime.(SM) John Nuveen & Co. Incorporated 333 West Wacker Drive Chicago, IL 60606-1286 www.nuveen.com VSA-5-11-98 223 NUVEEN Municipal Bond Funds May 31, 1998 Annual Report Dependable, tax-free income to help you keep more of what you earn. [PHOTO APPEARS HERE] Kentucky Kentucky Limited Michigan Ohio 224 Highlights As of May 31, 1998 For Class A shares on net asset value Credit Quality Performance Highlights Nuveen Flagship Kentucky Municipal Bond Fund [PIE CHART APPEARS HERE] AAA/Pre-refunded 52% . Taxable equivalent yield of 6.61%* AA 6% . Outperformed Lipper peer group average for the one-year period A 24% . One-year total return of 9.00% BBB/NR 18% Nuveen Flagship Kentucky Limited Term Municipal Bond Fund [PIE CHART APPEARS HERE] AAA/Pre-refunded 45% . Steady dividend for 12 consecutive months AA 19% . Outperformed Lipper peer group average for the one-year period A 25% . One-year total return of 6.53% BBB/NR 11% Nuveen Flagship Michigan Municipal Bond Fund [PIE CHART APPEARS HERE] AAA/Pre-refunded 54% . Taxable equivalent yield of 6.48%* AA 19% . Outperformed Lipper peer group average for the one-year period A 14% . One-year total return of 8.95% BBB/NR 13% Nuveen Flagship Ohio Municipal Bond Fund [PIE CHART APPEARS HERE] AAA/Pre-refunded 68% . Taxable equivalent yield of 6.14%* AA 7% . Outperformed Lipper peer group average for the one-year period A 12% . One-year total return of 8.76% BBB/NR 13% Contents 1 Dear Shareholder 4 Kentucky Commentary and Overview 6 Kentucky Limited Term Commentary and Overview 8 Michigan Commentary and Overview 10 Ohio Commentary and Overview 12 Report of Independent Public Accountants 13 Portfolio of Investments 40 Statement of Net Assets 41 Statement of Operations 42 Statement of Changes in Net Assets 44 Notes to Financial Statements 51 Financial Highlights 56 Building Better Portfolios 57 Fund Information * For investors in the 31% federal and applicable state income tax bracket. See your fund's performance overview in this report for more information. 225 Dear Shareholder [PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE] Timothy R. Schwertfeger Chairman of the Board Wealth takes a lifetime to build. Once achieved, it should be preserved. I'm pleased to share with you this performance report for your Nuveen municipal bond fund. Over the past 12 months, each of the funds in this report continued to perform well and meet their objectives of providing you with attractive tax- free income and strong after-tax total returns. For many of our shareholders, this annual report represents the first time you have received a consolidated report covering performance data for other Nuveen funds in addition to your own. These consolidated reports are part of our continuing efforts to control fund expenses; we achieve greater economies of scale for our shareholders through reducing paper, printing and mailing costs. By consolidating reports by region and incorporating several funds into one booklet, we have lowered these administrative expenses and made owning shares in a Nuveen fund more cost-efficient for you. The Economy in Review Fixed-income investments enjoyed bullish performance over the past year, as declining interest rates and low inflation spurred a bond market rally. The equity markets also exhibited continued strength despite recent volatility sparked by Asia's financial problems and their possible effects on U.S. corporate earnings. Although interest rates have trended slightly upward in recent months, a year-to-date comparison shows that today's rates are significantly lower than they were one year ago. As shown in the accompanying chart, between the end of May 1997 and May 1998, the yield on the Bond Buyer 40, an unmanaged index of long-term municipal bonds, fell from 5.74% to 5.22%. Much of the decline in interest rates resulted from expectations that the financial problems of Asia would restrain the prices of imported goods and reduce foreign demand for U.S. products and services, thereby keeping inflation at moderate levels. These inflation expectations were largely fulfilled, as the Consumer Price Index rose only 1.5% for the 12 months ended May 1998, remaining at one of 1 226 "Another major factor in bond performance over the last 12 months was the continued strength of the U.S. economy, which helped boost the credit quality of many municipal bonds." its lowest levels in years. The Asian situation also provided additional strength to the bond market rally, as many investors made a "flight to quality" by moving assets into high-quality U.S. bonds in the face of the uncertainty in that region. In coming months, we will continue to watch closely several key factors that are likely to affect the future of the economy, including the demand for goods and services, the availability of qualified employees, the strength of the dollar, and indications from the Federal Reserve. With many investors still waiting for the full impact of Asia's difficulties to show up in U.S. economic statistics, the potential long-term effect of this crisis on American markets continues to cause concern. We expect that the development of these factors will continue to influence the tone of the fixed-income markets during the remainder of the year. Municipal Market Review As interest rates continued to decline over the past year, bond prices rose. This price appreciation for the bonds in our portfolios contributed to strong total returns for the year. Another major factor in bond performance over the last 12 months was the continued strength of the U.S. economy, which helped boost the credit quality of many municipal bonds. With the improvements in the fundamental financial health of many municipalities and revenue projects financed by bonds, major credit rating agencies upgraded the credit quality of thousands of issuers over the past year, while downgrading relatively few. These boosts in credit quality also contributed to the funds' performance as upgraded bonds increased in value. The combination of low interest rates and a strong economy set new issuance on a record pace and stimulated a dramatic increase in the refinancing of existing bonds as issuers sought to lower their interest costs. The first quarter of 1998 saw $68 billion of new municipal issuance, up 70% from the same period in 1997. The flood of new issues continued with May's long-awaited sale of the first segment of Long Island (New York) Power Authority's $7 billion offering, the largest issuance in municipal bond history. Although the nationwide supply of municipal bonds remained heavy, the supply of bonds in each state varied according to local economic conditions. This level of issuance highlights the value of Nuveen's expertise in the municipal market, as our portfolio management teams worked diligently to sift through the available issues to select those undervalued securities that would help the funds achieve their investment objectives. 2 227 "Today, more than ever, you can count on Nuveen for a wide range of investments that can help you build a well-balanced portfolio designed to achieve your financial goals." Diversification: The Key to a Better Portfolio In view of current market conditions, we believe that investors will find diversification to be an increasingly important investment strategy in the months ahead. An appropriately diversified portfolio - one that balances different types of investments, levels of risk and tax management - can help cushion your portfolio against volatility and enhance your return potential. Many investors select Nuveen's municipal bond funds because their emphasis on dependable tax-free income and attractive after-tax returns makes them ideal for building and sustaining long-term financial security. These funds also work well with other Nuveen investments to create the foundation of a diversified, well- balanced portfolio. In fact, recent studies by Nuveen Research have found that portfolios combining municipal bonds and stocks generated higher after-tax returns with lower levels of risk than similar portfolios combining stocks and Treasury or corporate bonds. We encourage you to talk to your financial adviser about Nuveen's range of equity and balanced funds, including the Nuveen European Value Fund. This new equity mutual fund offers a portfolio of quality European company stocks for investors seeking long-term growth potential and international diversification. The fund is just one of an ever-expanding range of Nuveen products and services designed to help investors achieve diversification while building a tax- efficient, risk-sensitive investment portfolio. If you'd like to learn more about the Nuveen European Value Fund or any of our other investments, contact your financial adviser or call Nuveen Investor Services at (800) 257-8787 for a prospectus. Please read the information carefully before you invest. When seeking quality investment solutions that withstand the test of time, we hope that you continue to think of Nuveen. Today, more than ever, you can count on Nuveen for a wide range of investments that can help you build a well- balanced portfolio designed to achieve your financial goals. We thank you for your continued confidence in us and our family of investments. Sincerely, /s/ Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board July 15, 1998 3 228 Nuveen Flagship Kentucky Municipal Bond Fund Portfolio Manager's Comments Portfolio Manager Rick Huber discusses fund performance, the municipal market, and key investment strategies for the Kentucky fund. Comments cover the one-year period ended May 31, 1998 and all performance statistics are quoted for Class A shares on net asset value. State Economic and Market Review Kentucky's stable financial and economic conditions continued through the first half of 1998, as recognized by the state's AA credit rating from Standard & Poor's. Although Kentucky has not issued general obligation debt since 1965, the state actively issues appropriation-secured debt from several different agencies--all of which totaled $3 billion in issuance at fiscal year-end. The commonwealth's new issue volume was up almost 15% during the first quarter of 1998. Municipal bond investors anticipate a number of statewide projects authorized for the 1996-1998 biennium, including $103 million of new debt to fund new juvenile detention centers, state parks, and university projects. In spite of this increased supply, good values were hard to find, as yield spreads remained narrow between lower- and higher-rated securities. Fund Performance For the year ended May 31, 1998, the total return on net asset value for the Kentucky Municipal Bond Fund was 9.00%, which is equivalent to a taxable return of 11.93% for investors in the 35.1% combined federal and state income tax bracket. The fund slightly underperformed the annual return of 9.38% posted by the Lehman Brothers Municipal Bond Index, but surpassed its Lipper peer group average of 8.55%. The discrepancy between the national Lehman Index and the Lipper peer group average of Kentucky municipal bond funds highlights the effects of the tight supply of long-term bonds in the Kentucky market. The limited supply and high demand keep bond prices high and yields low compared with other states that have better bond supplies to meet investor demand. The fund maintained a portfolio duration similar to its benchmark (a 6.41 duration), which helped keep its performance in line with its peers despite the difficulty in finding value in the market. Duration is a measure of the fund's price volatility in relation to changes in interest rates. Key Strategies We worked during the year to improve the fund's diversification among different sectors of the market and investment-grade credit quality levels. To that end, we focused on reducing the fund's holdings in the health care sector, and at the same time found attractive opportunities in some bonds issued by U.S. territories (which are exempt from both federal and Kentucky state income taxes). We also moved to improve the portfolio's protection against bond calls, which decreases the likelihood that higher-paying bonds will be called away if interest rate conditions change. In addition, we felt that bonds in the 20-30 year maturity range seldom offered enough incremental yield for taking on the additional interest rate risk associated with these longer-maturity bonds. Instead, we sought attractive opportunities among bonds with maturities of 15-20 years, which offered the best values given their historical levels of volatility. As of May 31, 1998, the fund's key sectors were limited tax obligation and health care bonds, each of which comprised 23% of the portfolio. Other important areas included utility bonds at 10% and U.S. guaranteed bonds at 9%. Outlook for the Future On July 1, 1998, Nuveen made several changes in the management of its mutual funds to make more efficient use of staff resources and portfolio manager expertise. As a result, Tom O'Shaughnessy assumed management responsibilities for this fund. Tom is a 15-year veteran of Nuveen and an experienced investment professional who has managed a range of other municipal bond funds. Tom and his team anticipate a continued healthy state economy, which might translate into strong bond supply in late 1998 or 1999. Until lower-rated bonds offer more competitive yields, they will continue to seek value from small, higher-rated bond issues. At the same time, they will continue to reduce the fund's holdings in the health care sector and, in the event that bond supplies and yield spreads improve, will attempt to extend portfolio duration somewhat. 4 229 Nuveen Flagship Kentucky Municipal Bond Fund Performance Overview As of May 31, 1998 Monthly Tax-Free Dividends (Class A Shares)/1/ 0.0495 6/97 0.0495 7/97 0.0495 8/97 0.0495 9/97 0.0495 10/97 0.0495 11/97 0.0495 12/97 0.0475 1/98 0.0475 2/98 0.0475 3/98 0.0475 4/98 0.0475 5/98 Top 5 Sectors Tax Obligation (Limited) 23% Health Care 23% Utilities 10% U.S. Guaranteed 9% Water and Sewer 6% - -------------------------------------------------------------------------------- Portfolio Statistics Share Class A B C R - -------------------------------------------------------------------------------- Inception Date 5/87 2/97 10/93 2/97 Net Asset Value $11.39 $11.39 $11.38 $ 11.37 Fund Net Assets ($000) $484,917 Average Weighted Maturity (Years) 20.33 Average Weighted Duration (Years) 6.41 - -------------------------------------------------------------------------------- Annualized Total Return/2/ Share Class A(NAV) A(Offer) B C R - -------------------------------------------------------------------------------- 1-Year 9.00% 4.46% 8.10% 8.43% 9.25% 5-Year 6.40% 5.50% 5.77% 5.81% 6.43% 10-Year 8.45% 7.98% 7.97% 7.85% 8.46% - -------------------------------------------------------------------------------- Tax-Free Yields Share Class A(NAV) A(Offer) B C R - -------------------------------------------------------------------------------- Distribution Rate 5.00% 4.79% 4.27% 4.48% 5.22% SEC 30-Day Yield 4.29% 4.11% 3.55% 3.75% 4.49% Taxable Equivalent Yield/3/ 6.61% 6.33% 5.47% 5.78% 6.92% - -------------------------------------------------------------------------------- Index Comparison/4/ NUVEEN FLAGSHIP KENTUCKY NUVEEN FLAGSHIP KENTUCKY LEHMAN BROTHERS MUNICIPAL BOND FUND (NAV) MUNICIPAL BOND OFFER (OFFER) MUNICIPAL BOND INDEX 5/88 10,000 9,580 10,000 5/89 11,415 10,936 11,149 5/90 12,143 11,633 11,965 5/91 13,403 12,840 13,171 5/92 14,677 14,060 14,466 5/93 16,497 15,804 16,195 5/94 16,813 16,107 16,595 5/95 18,397 17,625 18,107 5/96 19,141 18,337 18,934 5/97 20,645 19,778 20,505 5/98 22,501 21,556 22,430 Lehman Brothers Municipal Bond Index $22,430 Nuveen Flagship Kentucky Municipal Bond Fund (NAV) $22,501 Nuveen Flagship Kentucky Municipal Bond Fund (Offer) $21,556 Past performance is not predictive of future results. 1 The fund also paid shareholders taxable distributions in December of $0.0508 per share. 2 Class A share returns are actual. Class B, C and R share returns are actual for the period since class inception; returns prior to class inception are Class A share returns adjusted for differences in sales charges and expenses, which are primarily differences in distribution and service fees. Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC that begins at 5% for redemptions during the first year after purchase and declines periodically to 0% over the following five years, which is not reflected in the return figures. Class C shares have a 1% CDSC for redemptions within one year which is not reflected in the one-year total return. 3 Based on SEC yield and a combined federal and state income tax rate of 35.1%. Represents the yield on a taxable investment necessary to equal the yield of the Nuveen fund on an after-tax basis. 4 The Index Comparison shows the change in value of a $10,000 investment in the Class A shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond Index. The Lehman Index is comprised of a broad range of investment-grade municipal bonds, and does not reflect any initial or ongoing expenses. The Nuveen fund return depicted in the chart reflects the initial maximum sales charge applicable to A shares (4.20%) and all ongoing fund expenses. 5 230 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund Portfolio Manager's Comments Portfolio Manager Rick Huber discusses fund performance, the municipal market, and key investment strategies for the Kentucky Limited fund. Comments cover the one-year period ended May 31, 1998 and all performance statistics are quoted for Class A shares on net asset value. State Economic and Market Review Kentucky's stable financial and economic conditions continued through the first half of 1998, as recognized by the state's AA credit rating from Standard & Poor's. Although Kentucky has not issued general obligation debt since 1965, the state actively issues appropriation-secured debt from several different agencies--all of which totaled $3 billion in issuance at fiscal year-end. The commonwealth's new issue volume was up almost 15% during the first quarter of 1998. Kentucky municipal bond investors anticipate a number of statewide projects authorized for the 1996-1998 biennium, including $103 million of new debt to fund new juvenile detention centers, state parks, and university projects. In spite of this increased supply, good values were hard to find, as yield spreads remained narrow between lower- and higher-rated securities. Fund Performance For the year ended May 31, 1998, the total return on net asset value for the Kentucky Limited Term Municipal Bond Fund was 6.53%, which is equivalent to a taxable return of 8.97% for investors in the 35.1% combined federal and state income tax bracket. The total return was in line with the annual return of 6.69% posted by the unmanaged Lehman Brothers Five-Year Municipal Bond Index, and surpassed the Lipper peer group average return of 5.71% for the short- intermediate term municipal bond funds in the "other states" category. In addition, the fund provided a competitive taxable equivalent yield of 6.01% for investors in the 35.1% combined federal and state income tax bracket, and maintained a steady dividend throughout the period. Key Strategies We worked this year to extend the fund's duration, a strategy that helped the fund outperform its peers. Duration is a measure of the fund's price volatility in relation to changes in interest rates. The fund's duration of 5.0 years was longer than the Lehman Five-Year Municipal Bond Index's average duration of 4.05 years. The longer duration allowed the fund to better participate in this year's market rally, although it would have been more adversely affected had there been a market downturn. At the same time, we worked to improve the fund's diversification among different sectors of the market and investment-grade credit quality levels. To that end, we reduced the fund's holdings in the health care sector, and at the same time found unique opportunities in the housing sector. In addition, we felt that high demand for bonds in the middle of the limited- term maturity range reduced the selection of good values among those issues. Instead, we sought attractive opportunities in longer-maturity bonds when possible. As of May 31, 1998, the fund was focused on two primary sectors: health care (23%) and limited tax obligation bonds (22%). Other key holdings included education and civic organization bonds at 14% and multifamily housing bonds at 10%. Outlook for the Future On July 1, 1998, Nuveen made several changes in the management of its mutual funds to make more efficient use of staff resources and portfolio manager expertise. As a result, Tom O'Shaughnessy assumed management responsibilities for this fund. Tom is a 15-year veteran of Nuveen and an experienced investment professional who has managed a range of other state and national municipal bond funds. Tom and his team anticipate a continued healthy state economy, which might translate into strong bond supply in late 1998 or 1999. Until lower-rated bonds offer more competitive yields, they will continue to seek value from small, higher-rated bond issues. They believe the fund is well-positioned for the coming year, although they will work toward reducing the fund's duration slightly. At the same time, they expect the fund's steady cash flow to continue, which will allow them to take advantage of good values and uncommon opportunities that arise in the market. 6 231 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund Performance Overview As of May 31, 1998 Monthly Tax-Free Dividends (Class A Shares) [BAR CHART APPEARS HERE] 0.0365 6/97 0.0365 7/97 0.0365 8/97 0.0365 9/97 0.0365 10/97 0.0365 11/97 0.0365 12/97 0.0365 1/98 0.0365 2/98 0.0365 3/98 0.0365 4/98 0.0365 5/98 Top 5 Sectors Health Care 23% Tax Obligation (Limited) 22% Education and Civic Organizations 14% Housing (Multifamily) 10% Transportation 9% - -------------------------------------- Portfolio Statistics Share Class A C R - ---------------------------------------------------------------------- Inception Date 9/95 9/95 2/97 Net Asset Value $10.12 $10.12 $ 10.10 Fund Net Assets ($000) $11,421 Average Weighted Maturity (Years) 6.11 Average Weighted Duration (Years) 5.00 - --------------------------------------------------------------------- Annualized Total Return/1/ Share Class A(NAV) A(Offer) C R - ---------------------------------------------------------------------- 1-Year 6.53% 3.92% 6.17% 6.58% Since Inception 6.05% 5.07% 5.71% 6.09% - ---------------------------------------------------------------------- Tax-Free Yields Share Class A(NAV) A(Offer) C R - ---------------------------------------------------------------------- Distribution Rate 4.33% 4.22% 3.97% 4.57% SEC 30-Day Yield 3.90% 3.80% 3.55% 4.10% Taxable Equivalent Yield/2/ 6.01% 5.86% 5.47% 6.32% - ---------------------------------------------------------------------- Index Comparison/3/ [GRAPH APPEARS HERE] Lehman Brothers Nuveen Flagship Kentucky Nuveen Flagship Kentucky Five-Year Limited Term Municipal Bond Limited Term Municipal Bond Municipal Bond Fund (NAV) Fund (Offer) Index 9/95 10000 9750 10000 5/96 10308 10050 10201 5/97 10921 10648 10812 5/98 11634 11343 11537 Lehman Brothers Five-Year Municipal Bond Index $11,537 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund (NAV) $11,634 Nuveen Flagship Kentucky Limited Term Municipal Bond Fund (Offer) $11,343 Past performance is not predictive of future results. 1 Class A share returns are actual. Class C and R share returns are actual for the period since class inception; returns prior to class inception are Class A share returns adjusted for differences in sales charges and expenses, which are primarily differences in distribution and service fees. Class A shares have a 2.5% maximum sales charge. Class C shares have a 1% CDSC for redemptions within one year which is not reflected in the one-year total return. 2 Based on SEC yield and a combined federal and state income tax rate of 35.1%. Represents the yield on a taxable investment necessary to equal the yield of the Nuveen fund on an after-tax basis. 3 The Index Comparison shows the change in value of a $10,000 investment in the Class A shares of the Nuveen fund compared with the Lehman Brothers Municipal Five-Year Bond Index. The Lehman Index is comprised of a broad range of investment-grade municipal bonds, and does not reflect any initial or ongoing expenses. The Nuveen fund return depicted in the chart reflects the initial maximum sales charge applicable to A shares (2.5%) and all ongoing fund expenses. 7 232 Nuveen Flagship Michigan Municipal Bond Fund Portfolio Manager's Comments Portfolio Manager Mike Davern discusses fund performance, the municipal market, and key investment strategies for the Michigan fund. Comments cover the one-year period ended May 31, 1998 and all performance statistics are quoted for Class A shares on net asset value. State Economic and Market Review Michigan's economy has remained healthy throughout 1997 and thus far in 1998, resulting in credit upgrades for the state's general obligation debt by all three major debt rating agencies. The upgrades were due in part to Michigan's accumulated Budget Stabilization Fund reserves, which exceeded $1.2 billion in 1997. These reserves should provide a cushion against future economic downturns, which are possible because of Michigan's continuing dependence on the cyclical automobile manufacturing industry. Due in part to the strong national economy, the state's unemployment rate has been lower than the national average for four consecutive years, and per capita income has surpassed national averages for the past two years. Education spending remains Michigan's priority, with total state and local funding for schools projected to grow to approximately $12 billion by 1999 - a 50% increase since 1990. Michigan's overall debt burden is manageable, despite a doubling of new issuance volume during the first quarter of 1998. Investors can expect additional debt issuance to fund the Michigan Department of Transportation's Build Michigan II program, which is designed to finance the rebuilding of the state's roads and bridges. Fund Performance For the year ended May 31, 1998, the total return on net asset value for the Michigan Municipal Bond Fund was 8.95%, which is equivalent to a taxable return of 11.69% for investors in the 34% combined federal and state income tax bracket. The total return was in line with the annual return of 9.38% posted by the Lehman Brothers Municipal Bond Index, and surpassed the average return of 8.72% for the peer group of Michigan municipal bond funds tracked by Lipper Analytical Service, a nationally recognized performance measurement service. In addition, the fund provided a competitive yield of 4.28%, which is Equivalent to a taxable yield of 6.48% for investors in the 34% combined federal and state income tax bracket. Key Strategies There were several elements contributing to the fund's performance during the past year. First was the Michigan fund's conservative structure and shorter portfolio duration going into the year, which kept the fund largely in line with its peer group. Duration is a measure of the fund's price volatility in relation to changes in interest rates. To offset its shorter duration, we focused on maintaining longer call protection, avoiding issues that would hinder portfolio performance by being called away because of a near-term change in interest rates. Education bonds were plentiful this past year, while hospital bonds were comparatively scarce. Nonetheless, we found good value in both areas in the past year. In addition, we felt that bonds in the 20-30 year maturity range seldom offered enough incremental yield for taking on the additional interest rate risk associated with these longer-maturity bonds. Instead, we sought attractive opportunities among bonds with maturities of 15-20 years, which offered the best values given their historical levels of volatility. As of May 31, 1998, the fund's sector holdings were weighted toward health care issues, which represented 24% of the portfolio. Other key sectors included U.S. guaranteed bonds representing 17% of the portfolio, 16% in limited tax obligation issues, and another 16% in general tax obligation issues. Outlook for the Future Going forward, we expect conditions in which we can lengthen the duration of the portfolio and enhance its already favorable call protection. Higher-quality issues will continue to dominate the portfolio, because lower-rated securities currently provide little reward for assuming the additional credit risk. Overall, we will continue to maintain the fund's current healthy diversification, which should be aided by continuing strong supply. 8 233 Nuveen Flagship Michigan Municipal Bond Fund Performance Overview As of May 31, 1998 Monthly Tax-Free Dividends (Class A Shares)/1/ [BAR CHART APPEARS HERE] 0.051 6/97 0.051 7/97 0.051 8/97 0.051 9/97 0.051 10/97 0.051 11/97 0.051 12/97 0.05 1/98 0.05 2/98 0.05 3/98 0.05 4/98 0.05 5/98 Top 5 Sectors Health Care 24% U.S. Guaranteed 17% Tax Obligation (General) 16% Tax Obligation (Limited) 16% Water and Sewer 6% Portfolio Statistics Share Class A B C R - ------------------------------------------------------------------------------------------------ Inception Date 6/85 2/97 6/93 2/97 Net Asset Value $12.07 $12.09 $12.06 $ 12.07 Fund Net Assets ($000) $340,065 Average Weighted Maturity (Years) 18.05 Average Weighted Duration (Years) 6.45 Annualized Total Return/2/ Share Class A(NAV) A(Offer) B C R - ------------------------------------------------------------------------------------------------ 1-Year 8.95% 4.39% 8.12% 8.45% 9.16% 5-Year 6.24% 5.33% 5.64% 5.59% 6.30% 10-Year 8.10% 7.64% 7.63% 7.47% 8.13% Tax-Free Yields Share Class A(NAV) A(Offer) B C R - ------------------------------------------------------------------------------------------------ Distribution Rate 4.97% 4.76% 4.22% 4.43% 5.17% SEC 30-Day Yield 4.28% 4.10% 3.54% 3.74% 4.49% Taxable Equivalent Yield/3/ 6.48% 6.21% 5.36% 5.67% 6.80% Index Comparison/4/ [GRAPH APPEARS HERE] Nuveen Flagship Michigan Nuveen Flagship Michigan Lehman Brothers Municipal Bond Fund(NAV) Municipal Bond Fund(Offer) Municipal Bond Index 5/88 10,000 9,580 10,000 5/89 11,313 10,837 11,149 5/90 12,014 11,510 11,965 5/91 13,065 12,516 13,171 5/92 14,338 13,735 14,466 5/93 16,095 15,419 16,195 5/94 16,393 15,704 16,595 5/95 17,795 17,047 18,107 5/96 18,440 17,666 18,934 5/97 19,998 19,158 20,505 5/98 21,790 20,875 22,430 Lehman Brothers Municipal Bond Index $22,430 Nuveen Flagship Michigan Municipal Bond Fund(NAV) $21,790 Nuveen Flagship Michigan Municipal Bond Fund(Offer) $20,875 Past performance is not predictive of future results. /1/ The fund also paid shareholders taxable distributions in December of $0.0281 per share. /2/ Class A share returns are actual. Class B, C and R share returns are actual for the period since class inception; returns prior to class inception are Class A share returns adjusted for differences in sales charges and expenses, which are primarily differences in distribution and service fees. Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC that begins at 5% for redemptions during the first year after purchase and declines periodically to 0% over the following five years, which is not reflected in the return figures. Class C shares have a 1% CDSC for redemptions within one year which is not reflected in the one-year total return. /3/ Based on SEC yield and a combined federal and state income tax rate of 34%. Represents the yield on a taxable investment necessary to equal the yield of the Nuveen fund on an after-tax basis. /4/ The Index Comparison shows the change in value of a $10,000 investment in the Class A shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond Index. The Lehman Index is comprised of a broad range of investment-grade municipal bonds, and does not reflect any initial or ongoing expenses. The Nuveen fund return depicted in the chart reflects the initial maximum sales charge applicable to A shares (4.20%) and all ongoing fund expenses. 9 234 Nuveen Flagship Ohio Municipal Bond Fund Portfolio Manager's Comments Portfolio Manager Walt Parker discusses fund performance, the municipal market, and key investment strategies for the Ohio fund. Comments cover the one-year period ended May 31, 1998 and all performance statistics are quoted for Class A shares on net asset value. State Economic and Market Review Ohio's municipal market remained solid through the first half of 1998 with $3.6 billion of new issuance, a 54.4% increase over 1997 levels. General purpose, health care and education offerings continue to dominate new issue volume, representing approximately 66% of issuance. Ohio school district financing continues to occupy the attention of municipal market participants, as voters rejected a one percent sales tax increase proposal intended to provide additional school funding last May. Also rejected was a proposal that would have allowed the legislature to issue general obligation bonds for school projects. As a consequence, bonds enhanced by the Ohio School District Credit Enhancement Program continue to carry relatively diverse ratings in comparison to bonds from other states with similar programs. Fund Performance The fund performed well, generating a total return on net asset value of 8.76%, which is equivalent to a taxable return of 11.76% for investors in the 35.8% combined federal and state income tax bracket. The fund outperformed the average return of 8.57% for the peer group of Ohio municipal bond funds tracked by Lipper Analytical Service, a nationally recognized performance measurement service. However, it slightly underperformed the return of 9.38% posted by the Lehman Brothers Municipal Bond Index, primarily due to its shorter duration of 6.44 years, compared with the Lehman Index duration of 7.11 years. Duration is a measure of price volatility in reaction to changes in interest rates. Although the shorter duration hindered the fund's ability to participate in this year's market rally, it helped protect the fund from volatility and would help it to outperform in a market downturn. Key Strategies Since the Ohio Municipal Bond Fund is among Nuveen's largest municipal funds, we must buy bonds in larger blocks to affect the portfolio's performance. Therefore, we looked to large issuers and heavy-issuance sectors to implement many of our strategies during the year. Through our in-depth research, we continued to uncover value investing opportunities, as several portfolio holdings received credit upgrades or were pre-refunded during the year. In a pre-refunding, bonds are essentially paid off by their issuer and backed by U.S. Treasury securities, which typically leads to price appreciation. Nuveen's diligent research team helped us find those securities with the potential for credit upgrades and pre-refundings. That strategy paid off this year, as evidenced by the fund's 68% holding in AAA rated bonds and attractive total returns. In addition, we felt that bonds in the 20-30 year maturity range seldom offered enough incremental yield for taking on the additional interest rate risk associated with these longer-maturity bonds. Instead, we sought attractive opportunities among bonds with maturities of 15-20 years, which offered the best values given their historical levels of volatility. As of May 31, 1998, the fund's sector holdings were well-diversified, with 20% of the portfolio invested in U.S. guaranteed issues (which are mostly pre- refunded bonds), 18% in general tax obligation bonds, 15% in health care issues and 11% in utility bonds. Outlook for the Future On July 1, 1998, Nuveen made several changes in the management of its mutual funds to make more efficient use of staff resources and portfolio manager expertise. As a result, Tom Futrell assumed management responsibilities for this fund. Tom is a 15-year veteran of Nuveen and an experienced investment professional who has managed a range of other municipal bond funds. Tom and his team anticipate a continued strong state economy in the near future. In addition, they expect the yield spread between lower- and higher-quality bonds to remain tight. With that in mind, they will continue to seek value from overlooked sectors and issues offering higher yields or strong appreciation potential. Particular areas they will be monitoring include housing bonds and issues subject to the alternative minimum tax (AMT), which offer better opportunities in the current market environment. 10 235 Nuveen Flagship Ohio Municipal Bond Fund Performance Overview As of May 31, 1998 Monthly Tax-Free Dividends (Class A Shares)/1/ 0.0505 6/97 0.0505 7/97 0.0505 8/97 0.0505 9/97 0.0505 10/97 0.0505 11/97 0.0505 12/97 0.049 1/98 0.049 2/98 0.049 3/98 0.049 4/98 0.049 5/98 Top 5 Sectors U.S. Guaranteed 20% - --------------------------------------------------- Tax Obligation (General) 18% - --------------------------------------------------- Health Care 15% - --------------------------------------------------- Utilities 11% - --------------------------------------------------- Water and Sewer 7% - --------------------------------------------------- Portfolio Statistics Share Class A B C R - ------------------------------------------------------------------------------- Inception Date 6/85 2/97 8/93 2/97 - ------------------------------------------------------------------------------- Net Asset Value $11.74 $11.73 $11.73 $ 11.73 - ------------------------------------------------------------------------------- Fund Net Assets ($000) $689,498 - ------------------------------------------------------------------------------- Average Weighted Maturity (Years) 18.86 - ------------------------------------------------------------------------------- Average Weighted Duration (Years) 6.44 - ------------------------------------------------------------------------------- Annualized Total Return/2/ Share Class A(NAV) A(Offer) B C R - ------------------------------------------------------------------------------- 1-Year 8.76% 4.19% 7.89% 8.12% 8.89% - ------------------------------------------------------------------------------- 5-Year 5.95% 5.05% 5.31% 5.37% 5.99% - ------------------------------------------------------------------------------- 10-Year 7.82% 7.36% 7.35% 7.23% 7.84% - ------------------------------------------------------------------------------- Tax-Free Yields Share Class A(NAV) A(Offer) B C R - ------------------------------------------------------------------------------- Distribution Rate 5.01% 4.80% 4.30% 4.50% 5.22% - ------------------------------------------------------------------------------- SEC 30-Day Yield 3.94% 3.78% 3.20% 3.40% 4.14% - ------------------------------------------------------------------------------- Taxable Equivalent Yield/3/ 6.14% 5.89% 4.98% 5.30% 6.45% - ------------------------------------------------------------------------------- Index Comparison/4/ Nuveen Flagship Ohio Nuveen Flagship Ohio Lehman Brothers Municipal Bond Fund (NAV) Municipal Bond Fund (Offer) Municipal Bond Index 5/88 10000 9580 10000 5/89 11236 10764 11149 5/90 11893 11394 11965 5/91 13023 12476 13171 5/92 14295 13695 14466 5/93 15897 15229 16195 5/94 16249 15567 16595 5/95 17549 16812 18107 5/96 18180 17417 18934 5/97 19522 18702 20505 5/98 21229 20337 22430 [_] Lehman Brothers Municipal Bond Fund (Index) $22,430 [_] Nuveen Flagship Ohio Municipal Bond Fund (NAV) $21,229 [_] Nuveen Flagship Ohio Municipal Bond Fund (Offer) $20,337 Past performance is not predictive of future results. /1/ The fund also paid shareholders taxable distributions in December of $0.0504 per share. /2/ Class A share returns are actual. Class B, C and R share returns are actual for the period since class inception; returns prior to class inception are Class A share returns adjusted for differences in sales charges and expenses, which are primarily differences in distribution and service fees. Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC that begins at 5% for redemptions during the first year after purchase and declines periodically to 0% over the following five years, which is not reflected in the return figures. Class C shares have a 1% CDSC for redemptions within one year which is not reflected in the one-year total return. /3/ Based on SEC yield and a combined federal and state income tax rate of 35.8%. Represents the yield on a taxable investment necessary to equal the yield of the Nuveen fund on an after-tax basis. /4/ The Index Comparison shows the change in value of a $10,000 investment in the Class A shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond Index. The Lehman Index is comprised of a broad range of investment-grade municipal bonds, and does not reflect any initial or ongoing expenses. The Nuveen fund return depicted in the chart reflects the initial maximum sales charge applicable to A shares (4.20%) and all ongoing fund expenses. 11 236 Report of Independent Public Accountants To the Board of Trustees and Shareholders of Nuveen Flagship Multistate Trust IV: We have audited the accompanying statements of net assets, including the portfolios of investments, of Nuveen Flagship Kentucky Municipal Bond Fund, Nuveen Flagship Kentucky Limited Term Municipal Bond Fund, Nuveen Flagship Michigan Municipal Bond Fund and Nuveen Flagship Ohio Municipal Bond Fund (collectively, the "Funds") (four of the portfolios constituting the Nuveen Flagship Multistate Trust IV (a Massachusetts business trust)), as of May 31, 1998, and the related statements of operations, statements of changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial statements and financial highlights for the Funds for the years ended May 31, 1997 and prior were audited by other auditors whose report dated July 11, 1997, expressed an unqualified opinion on those financial statements and financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 1998, by correspondence with the custodian and brokers. As to securities purchased but not received, we requested confirmation from brokers and, when replies were not received, we carried out alternative auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the net assets of the Nuveen Flagship Kentucky Municipal Bond Fund, Nuveen Flagship Kentucky Limited Term Municipal Bond Fund, Nuveen Flagship Michigan Municipal Bond Fund and Nuveen Flagship Ohio Municipal Bond Fund of the Nuveen Flagship Multistate Trust IV as of May 31, 1998, and the results of their operations, the changes in their net assets, and the financial highlights for the year then ended, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois July 17, 1998 12 237 Portfolio of Investments Nuveen Flagship Kentucky Municipal Bond Fund May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Basic Materials - 0.2% $ 1,000,000 Jefferson County, Kentucky, Pollution Control Revenue Bonds (E.I. du 7/03 at 103 AA- $ 1,092,910 Pont de Nemours and Company Project), 1982 Series A, 6.300%, 7/01/12 - ----------------------------------------------------------------------------------------------------------------------------------- Education and Civic Organizations - 2.4% Lexington-Fayette Urban County Government (Kentucky), Governmental Project Bonds (University of Kentucky Alumni Association, Inc./Commonwealth Library Project), Series 1994: 3,195,000 6.750%, 11/01/17 11/04 at 102 AAA 3,639,968 4,320,000 6.750%, 11/01/24 11/04 at 102 AAA 4,921,646 2,000,000 Northern Kentucky University, Certificates of Participation, Student 1/01 at 102 AAA 2,194,620 Housing Facilities, 7.250%,1/01/12 700,000 Northern Kentucky University (Formerly Northern Kentucky State 5/01 at 102 AAA 765,338 College), Educational Buildings, Series F, 7.000%, 5/01/10 - ----------------------------------------------------------------------------------------------------------------------------------- Energy - 4.2% 5,000,000 City of Ashland, Kentucky, Pollution Control Refunding Bonds (Ashland 8/02 at 102 Baa1 5,422,250 Oil, Inc. Project), Series 1992, 6.650%, 8/01/09 9,000,000 City of Ashland, Kentucky, Sewage and Solid Waste Bonds (Ashland Oil, 2/05 at 102 Baa1 10,235,340 Inc. Project), Series 1995, 7.125%, 2/01/22 (Alternative Minimum Tax) 4,360,000 City of Ashland, Kentucky, Solid Waste Revenue Bonds (Ashland Oil, 10/01 at 102 Baa1 4,763,256 Inc. Project), Series 1991, 7.200%, 10/01/20 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------------------------------- Forest and Paper Products - 6.0% 2,370,000 Hancock County, Kentucky, Solid Waste Disposal Facilities Revenue 5/06 at 102 A- 2,648,309 Bonds (Willamette Industries, Inc. Project), Series 1996, 6.600%, 5/01/26 9,750,000 County of Henderson, Kentucky, Solid Waste Disposal Revenue Bonds 3/05 at 102 Baa2 10,684,343 (MacMillan Bloedel Project), Series 1995, 7.000%, 3/01/25 (Alternative Minimum Tax) 1,500,000 Maysville, Kentucky, Industrial Development Revenue, Crystal Tissue 2/00 at 103 N/R 1,581,420 Project, 8.000%, 2/01/09 (Alternative Minimum Tax) Perry County, Kentucky, Solid Waste Disposal Revenue, TJ International: 3,750,000 7.000%, 6/01/24 (Alternative Minimum Tax) 6/04 at 102 N/R 4,153,575 4,240,000 6.800%, 5/01/26 (Alternative Minimum Tax) 5/06 at 102 N/R 4,738,030 2,000,000 6.550%, 4/15/27 (Alternative Minimum Tax) 4/07 at 102 N/R 2,204,720 2,820,000 Wickliffe, Kentucky, Solid Waste Disposal Facility, Westvaco 4/06 at 102 A1 3,094,442 Corporation Project, 6.375%, 4/01/26 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------------------------------- Health Care - 22.1% 1,310,000 County of Christian, Kentucky, Hospital Revenue Bonds, Jennie Stuart 7/06 at 102 A- 1,393,722 Medical Center, Series 1996A, 6.000%, 7/01/17 3,500,000 County of Christian, Kentucky, Hospital Revenue and Refunding Bonds, 7/06 at 102 A- 3,764,425 Jennie Stuart Medical Center, Series 1997A, 6.000%, 7/01/13 5,270,000 County of Clark, Kentucky, Hospital Refunding and Improvement Revenue 4/07 at 102 BBB- 5,559,376 Bonds (Clark Regional Medical Center Project), Series 1997, 6.200%, 4/01/13 3,300,000 County of Daviess, Kentucky, Insured Hospital Revenue Bonds, 1992 8/02 at 102 AAA 3,578,586 (ODCH, Inc. Project), Series A, 6.250%, 8/01/22 2,905,000 County of Floyd, Kentucky, Hospital Revenue Refunding Bonds (FHA 2/01 at 102 AAA 3,126,100 Insured Mortgage Loan Highland Hospital Corporation Project), Series 1991, 7.500%, 8/01/10 4,000,000 County of Hopkins, Kentucky, Hospital Revenue Bonds (The Trover 11/01 at 102 AAA 4,338,120 Clinic Foundation, Incorporated), Series 1991, 6.625%, 11/15/11 13 238 Portfolio of Investments Nuveen Flagship Kentucky Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Health Care (continued) County of Jefferson, Kentucky, Health Facilities Revenue Bonds (Jewish Hospital Healthcare Services Inc. Project), Series 1992: $ 1,190,000 6.500%, 5/01/15 5/02 at 102 AAA $ 1,292,400 12,785,000 6.550%, 5/01/22 5/02 at 102 AAA 13,907,779 4,625,000 County of Jefferson, Kentucky, Health Facilities Revenue Bonds 7/07 at 101 AAA 4,632,493 (University Medical Center, Inc. Project), Series 1997, 5.250%, 7/01/22 15,640,000 County of Jefferson, Kentucky, Health Facilities Revenue Bonds 10/07 at 101 AAA 15,370,836 (Alliant Health System, Inc. Project), Series 1997, 5.125%, 10/01/27 7,800,000 County of Jefferson, Kentucky, Insured Hospital Revenue Bonds (Alliant 10/02 at 102 AAA 8,528,754 Health System, Inc. Project), Series 1992, 6.436%, 10/23/14 Kentucky Development Finance Authority, Medical Center Revenue Refunding and Improvement Bonds (Ashland Hospital Corporation/Kings Daughters Hospital): 860,000 9.750%, 8/01/05 8/98 at 102 A 884,759 610,000 9.750%, 8/01/11 8/98 at 102 A 627,751 3,000,000 Kentucky Development Finance Authority (Saint Luke Hospital, Inc.), 10/99 at 102 A 3,199,380 Series 1989A, 7.500%, 10/01/12 1,750,000 Kentucky Development Finance Authority, Hospital Revenue Bonds 11/99 at 102 A1 1,858,833 (Sisters of Charity of Nazareth Health Corporation), Series 1989, 7.375%, 11/01/16 2,000,000 Kentucky Development Finance Authority, Hospital Facilities Revenue 10/01 at 102 AAA 2,219,700 Bonds (Saint Lukes Hospital, Inc. Project), Series 1991A, 7.000%, 10/1/11 1,000,000 Kentucky Development Finance Authority (Saint Elizabeth Medical 11/01 at 100 AAA 1,054,180 Center, Inc. Project), 6.000%, 11/01/10 5,000,000 Kentucky Economic Development Finance Authority, Hospital Facilities 12/03 at 102 AAA 5,392,050 Revenue Bonds (Saint Elizabeth Medical Center, Inc. Project), Series 1993A, 6.000%, 12/01/22 4,000,000 Kentucky Economic Development Finance Authority, Hospital Revenue 8/04 at 102 AAA 3,874,760 Bonds (Baptist Healthcare System), Series 1994, 5.000%, 8/15/24 9,500,000 Kentucky Economic Development Finance Authority, Hospital Revenue and 2/07 at 102 AAA 10,003,880 Refunding Revenue Bonds (Pikeville United Methodist Hospital of Kentucky, Inc. Project), Series 1997, 5.700%, 2/01/28 Kentucky Economic Development Finance Authority, Hospital System Refunding and Improvement Revenue Bonds (Appalachian Regional Healthcare, Inc. Project), Series 1997: 500,000 5.600%, 10/01/08 4/08 at 102 BBB 520,265 3,500,000 5.850%, 10/01/17 4/08 at 102 BBB 3,586,870 1,500,000 5.875%, 10/01/22 4/08 at 102 BBB 1,540,455 2,050,000 McCracken County, Kentucky, Hospital Revenue Refunding, Mercy Health 11/04 at 102 AAA 2,288,210 System, Series A, 6.300%, 11/01/06 1,555,000 Radcliff, Kentucky, Mortgage Revenue Refunding, Lincoln Trail Care, 7/07 at 102 AAA 1,625,550 5.650%, 1/20/19 2,800,000 City of Russell, Kentucky, Health System Revenue Bonds, Our Lady of 1/08 at 102 Baa1 2,815,344 Bellefonte Hospital Issue, Series 1997 (Franciscan Health Partnership, Inc. Refunding Revenue Bonds), 5.500%, 7/01/15 - ----------------------------------------------------------------------------------------------------------------------------------- Housing/Multifamily - 0.5% 2,500,000 Greater Kentucky Housing Assistance Corporation, Mortgage Revenue 7/03 at 100 AAA 2,583,150 Refunding Bonds, Series 1993A (FHA Insured Mortgage Loans-Section 8 Assisted Projects), 6.250%, 7/01/24 - ----------------------------------------------------------------------------------------------------------------------------------- Housing/Single Family - 4.4% 7,000,000 Kentucky Housing Corporation, Housing Revenue Bonds, 1996 Series E, 7/06 at 102 AAA 7,524,160 6.300%, 1/01/28 (Alternative Minimum Tax) 3,000,000 Kentucky Housing Corporation, Housing Revenue Bonds, 1997 Series B, 7/07 at 102 AAA 3,199,230 6.250%, 7/01/28 (Alternative Minimum Tax) 435,000 Kentucky Housing Corporation, Housing Revenue Bonds (FHA Insured/VA 1/99 at 102 AAA 447,537 Guaranteed Mortgage Loans), 1988 Series A, 7.625%, 1/01/09 (Alternative Minimum Tax) 1,630,000 Kentucky Housing Corporation, Housing Revenue Bonds (FHA Insured/VA 7/00 at 102 AAA 1,720,938 Guaranteed Mortgage Loans), 1988 Series C, 7.900%, 1/01/21 (Alternative Minimum Tax) 1,125,000 Kentucky Housing Corporation, Housing Revenue Bonds (FHA Insured/VA 7/00 at 102 AAA 1,184,063 Guaranteed Mortgage Loans), 1990 Series B, 7.800%, 1/01/21 (Alternative Minimum Tax) 14 239 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ------------------------------------------------------------------------------------------------------------------------------------ Housing/Single Family(continued) $1,000,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally 7/02 at 102 AAA $1,071,100 Insured or Guaranteed Mortgage Loans), Series 1992B, 6.625%, 7/01/14 Kentucky Housing Corporation, Housing Revenue Bonds (Federally Insured or Guaranteed Mortgage Loans), Series 1991C-1: 465,000 6.600%, 1/01/11 1/03 at 102 AAA 494,276 130,000 6.650%, 1/01/17 1/03 at 102 AAA 135,078 920,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally 1/04 at 102 AAA 980,490 Insured or Guaranteed Mortgage Loans), 1994 Series A, 6.500%, 7/01/17 2,230,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally 7/04 at 102 AAA 2,389,757 Insured or Guaranteed Mortgage Loans), 1994 Series C, 6.400%, 1/01/17 1,985,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally 1/05 at 102 AAA 2,131,255 Insured or Guaranteed Mortgage Loans), 1995 Series B, 6.625%, 7/01/26 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ Long Term Care - 3.6% County of Jefferson, Kentucky, First Mortgage Revenue Bonds, Series 1994 (The First Christian Church Homes of Kentucky Project): 1,240,000 6.000%, 11/15/09 11/04 at 102 BBB 1,308,051 715,000 6.125%, 11/15/13 11/04 at 102 BBB 757,786 3,210,000 6.125%, 11/15/18 11/04 at 102 BBB 3,402,086 Kentucky Economic Development Finance Authority, Health Care Facilities Revenue Bonds, Series 1998 (The Christian Church Homes of Kentucky, Inc. Obligated Group): 1,800,000 5.375%, 11/15/23 5/08 at 102 BBB 1,776,600 4,250,000 5.500%, 11/15/30 5/08 at 102 BBB 4,211,750 5,700,000 Kentucky Economic Development Finance Authority, Tax Exempt Mortgage 1/08 at 105 AAA 6,084,240 Revenue Bonds (South Central Nursing Homes, Inc. Project), Series 1997A, 6.000%, 7/01/27 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Obligation/General - 1.4% 4,790,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1996 7/06 at 101 1/2 A 4,860,461 (General Obligation Bonds), 5.400%, 7/01/25 2,000,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997, 7/07 at 101 1/2 A 2,023,560 5.375%, 7/01/25 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Obligation/Limited - 22.8% 430,000 Bardstown Independent School District Finance Corporation, School 11/02 at 102 A1 467,965 Building Refunding and Improvement Revenue Bonds, Series of 1992, 6.375%, 5/01/17 725,000 Bell County, Kentucky, School District Finance Corporation, School 9/01 at 102 A 799,197 Building Revenue Bonds, Series 1991, 6.875%, 9/01/11 1,000,000 Boone County, Kentucky, School District Finance Corporation, School 9/01 at 103 A1 1,107,660 Building Revenue Bonds, 1991 Series C, 6.750%, 9/01/11 1,215,000 Boone County, Kentucky, School District Finance Corporation, School 12/02 at 102 A1 1,306,332 Building Refunding and Improvement Revenue Bonds, Series 1992, 6.125%, 12/01/17 615,000 Boone County, Kentucky, School District Finance Corporation, School 2/03 at 102 A1 648,474 Building Refunding and Improvement Revenue Bonds, Series 1993, 6.000%, 2/01/18 1,595,000 City of Bowling Green Municipal Projects Corporation, Kentucky, 12/04 at 102 A2 1,780,754 Lease Revenue Bonds, Series 1994, 6.500%, 12/01/14 1,005,000 Casey County School District Finance Corporation, School Building 3/05 at 102 A1 1,069,230 Revenue Bonds, Series 1995, 5.750%, 3/01/15 Christian County, Kentucky, School District Finance Corporation, School Building Revenue Bonds, Series 1991: 565,000 6.750%, 6/01/10 6/01 at 102 A 618,709 600,000 6.750%, 6/01/11 6/01 at 102 A 657,036 15 240 Portfolio of Investments Nuveen Flagship Kentucky Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ------------------------------------------------------------------------------------------------------------------------------------ Tax Obligation/Limited (continued) Daviess County, Kentucky, School District Finance Corporation, School Building Revenue Bonds, Series 1994: $ 505,000 5.800%, 5/01/11 5/04 at 102 A1 $ 543,799 535,000 5.800%, 5/01/12 5/04 at 102 A1 576,104 570,000 5.800%, 5/01/13 5/04 at 102 A1 612,254 600,000 5.800%, 5/01/14 5/04 at 102 A1 642,864 1,070,000 Fleming County School District Finance Corporation, School Building 3/05 at 102 A 1,137,720 Revenue Bonds, Series 1995, 5.875%, 3/01/15 3,155,000 City of Florence, Kentucky, Public Properties Corporation, First 6/07 at 102 AAA 3,273,754 Mortgage Revenue Bonds (Administrative Office Complex Project), Series 1997, 5.500%, 6/01/27 Floyd County, Kentucky, Public Properties Corporation, First Mortgage Revenue Bonds (Floyd County Justice Center Project), Series 1995A: 465,000 5.500%, 9/01/17 3/06 at 102 A 484,567 1,260,000 5.550%, 9/01/23 3/06 at 102 A 1,321,173 3,550,000 Floyd County, Kentucky, Public Properties Corporation, First Mortgage 3/06 at 105 A 3,840,497 Revenue Bonds (Floyd County Justice Center Project), Series 1996B, 6.200%, 9/01/26 1,200,000 Floyd County, Kentucky, School District Finance Corporation, School 5/05 at 102 A1 1,244,232 Building Revenue Bonds, Series 1995, 5.500%, 5/01/15 2,280,000 Grant County School District Finance Corporation, School Building 3/07 at 102 Aaa 2,338,824 Revenue Bonds, Series 1997, 5.375%, 3/01/17 Hardin County, Kentucky, Building Commission Revenue Bonds (Detention Facility Project), Series 1994: 525,000 6.200%, 12/01/11 No Opt. Call AAA 584,288 1,775,000 6.250%, 12/01/14 12/04 at 102 AAA 1,980,421 300,000 Hardin County, Kentucky, School District Finance Corporation, School 6/01 at 103 A1 328,674 Building Revenue Bonds, Series of 1991, 6.800%, 6/01/10 3,465,000 Hopkins County, Kentucky, School District Finance Corporation, School 6/04 at 102 A1 3,758,174 Building Revenue Bonds, Series 1994, 6.200%, 6/01/19 1,250,000 Jefferson County, Kentucky, Economic Development Corporation, Lease 7/01 at 100 A1 1,272,938 Revenue Bonds, Series 1986, 7.750%, 7/01/16 4,195,000 Jefferson County, Kentucky, School District Finance Corporation, School 2/06 at 102 AAA 4,218,534 Building Revenue Bonds (Series 199A), 5.125%, 2/01/16 1,258,871 Jefferson County, Kentucky, Equipment Lease Purchase Revenue Bonds, No Opt. Call N/R 1,289,310 Series 1987 (Energy System Project), 9.000%, 6/01/03 231,641 Jefferson County, Kentucky, Equipment Lease Purchase Revenue Bonds, No Opt. Call N/R 240,452 Series 1988 (Energy System Project), 9.500%, 6/01/03 2,500,000 Jefferson County, Kentucky, Capital Projects Corporation Lease Revenue 2/02 at 100 A1 1,203,775 Bonds, Series 1987B, 0.000%, 8/15/08 1,000,000 City of Jeffersontown, Kentucky, Public Projects Refunding and No Opt. Call A 1,071,220 Improvements, Certificates of Participation, 5.750%, 11/01/15 Jessamine County, Kentucky, School District Finance Corporation, School Building Revenue Bonds, Series 1991, 510,000 6.750%, 6/01/10 6/01 at 103 A1 562,086 545,000 6.750%, 6/01/11 6/01 at 103 A1 600,661 2,500,000 Jessamine County, Kentucky, School District Finance Corporation, School 6/04 at 102 A1 2,693,700 Building Revenue Bonds, Series 1994, 6.125%, 6/01/19 5,650,000 Jessamine County, Kentucky, School District Finance Corporation, School 1/06 at 102 A1 5,882,102 Building Revenue Bonds, Series 1996, 5.500%, 1/01/21 400,000 Kentucky State Property and Buildings Commission Revenue Refunding, 11/01 at 102 A+ 441,240 Project No. 40, 2nd Series, 6.875%, 11/01/07 250,000 Kentucky State Property and Buildings Commission, Revenue Refunding, 10/01 at 102 A 274,108 Project No. 53, 6.625%, 10/01/07 16 241 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/Limited (continued) $ 2,075,000 Kentucky State Property and Buildings Commission, Project No. 56, 6.000%, 9/04 at 102 A+ $ 2,234,173 9/01/14 250,000 Laurel County, Kentucky, School District Finance Corporation, School 3/01 at 102 A 273,380 Building Revenue, 7.000%, 3/01/10 1,000,000 Lawrence County, Kentucky, School District Finance Corporation, School 11/04 at 102 A1 1,144,100 Building Revenue, 6.750%, 11/01/14 Lexington, Kentucky, Center Corporation Mortgage Revenue Refunding and Improvement, Series A: 2,600,000 0.000%, 10/01/11 No Opt. Call A 1,368,458 2,550,000 0.000%, 10/01/12 No Opt. Call A 1,261,332 435,000 Lincoln County, Kentucky, School District Finance Corporation, School 5/02 at 102 A1 467,629 Building Revenue, 6.200%, 5/01/12 1,525,000 McCracken County, Kentucky, Public Properties Corporation Revenue, Public 9/06 at 102 AAA 1,639,207 Project, Court Facilities Project, 5.900%, 9/01/26 2,365,000 McCreary County, Kentucky, School District Finance Corporation, School 8/05 at 102 A 2,485,591 Building Revenue, Second Series, 5.600%, 8/01/16 1,410,000 Morgan County, Kentucky, School District Finance Corporation, School 9/04 at 102 A1 1,526,128 Building Revenue, 6.000%, 9/01/14 13,000,000 Mount Sterling, Kentucky, Lease Revenue Bonds (Kentucky League of Cities 3/03 at 102 Aa 13,769,210 Funding Program), Series 1993A, 6.200%, 3/01/18 Pendleton County, Kentucky, County Lease Revenue Bonds, Kentucky Associated Counties Leasing Trust Program, Series 1993A: 12,960,000 6.500%, 3/01/19 3/03 at 102 A 13,835,189 500,000 6.400%, 3/01/19 No Opt. Call A 582,590 1,230,000 Perry County, Kentucky, School District Finance Corporation, School 7/02 at 102 A1 1,335,325 Building Revenue, 6.250%, 7/01/11 2,000,000 Puerto Rico Aqueduct and Sewer Authority, Refunding Bonds, Series 1995, 7/06 at 101 1/2 A 1,954,040 Guaranteed by the Commonwealth of Puerto Rico, 5.000%, 7/01/19 8,250,000 Puerto Rico Highway and Transportation Authority, Highway Revenue Bonds, 7/16 at 100 A 8,646,413 Series Y of 1996, 5.500%, 7/01/36 115,000 Puerto Rico Infrastructure Finance Authority, Series 1988A, 7/98 at 102 BBB+ 117,637 7.750%, 7/01/08 7,000,000 Warren County, Kentucky, Justice Center Expansion Corporation Revenue, 9/07 at 102 AAA 7,035,980 First Mortgage, AOC Judicial Facility, Series A, 5.250%, 9/01/24 - ----------------------------------------------------------------------------------------------------------------------------------- Transportation -- 5.8% 10,640,000 Kenton County Airport Board (Delta Airlines), 6.125%, 2/01/22 2/02 at 100 BBB- 10,901,744 (Alternative Minimum Tax) 1,250,000 Kenton County, Kentucky, Airport Board, Cincinnati/Northern Kentucky 3/06 at 102 AAA 1,323,063 International Airport Revenue Bonds, Series 1996B, 5.750%, 3/01/13 1,000,000 Kentucky State Turnpike Authority, Economic Development Road Revenue 7/05 at 102 AAA 1,053,370 Refunding, Revitalization Projects, 5.625%, 7/01/15 5,000,000 Regional Airport Authority of Louisville and Jefferson County, Kentucky, 7/05 at 102 AAA 5,166,750 Airport System Revenue Bonds, 1995 Series A, 5.625%, 7/01/25 (Alternative Minimum Tax) 6,165,000 Louisville, Kentucky, Airport Lease Revenue, Series A, 7.875%, 2/01/19 2/99 at 103 A 6,506,171 (Alternative Minimum Tax) 2,790,000 Louisville, Kentucky, Parking Authority, River City, First Mortgage 6/01 at 103 A 3,083,871 Revenue, 6.875%, 12/01/20 - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed -- 8.8% 500,000 City of Covington, Kentucky, Municipal Properties Corporation, First 8/98 at 103 N/R*** 518,660 Mortgage, City Hall Parking and Park Revenue Bonds, Series 1988A, 8.250%, 8/01/10 (Pre-refunded to 8/01/98) 1,645,000 City of Edgewood, Kentucky, Public Properties Corporation, First 12/01 at 102 A2*** 1,818,992 Mortgage Revenue Bonds (Public Facilities Project), Series 1991, 6.700%, 12/01/21 (Pre-refunded to 12/01/01) 17 242 Portfolio of Investments Nuveen Flagship Kentucky Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed (continued) City of Florence, Kentucky, Public Properties Corporation, First Mortgage Revenue Bonds (Recreational Facilities Project): $ 100,000 7.000%, 3/01/10 (Pre-refunded to 3/01/01) 3/01 at 103 A3*** $ 110,163 320,000 7.000%, 3/01/14 (Pre-refunded to 3/01/01) 3/01 at 103 A3*** 353,411 345,000 7.000%, 3/01/15 (Pre-refunded to 3/01/01) 3/01 at 103 A3*** 381,021 360,000 7.000%, 3/01/16 (Pre-refunded to 3/01/01) 3/01 at 103 A3*** 397,588 2,750,000 County of Hardin, Kentucky, Hospital Refunding Revenue Bonds, 10/98 at 103 AAA 2,869,983 Series 1988 (Hardin Memorial Hospital Project), 7.875%, 10/01/14 (Pre-refunded to 10/01/98) 16,750,000 Jefferson County, Kentucky, Capital Projects Corporation, 2/01 at 24 11/16 AAA 3,698,903 Lease Revenue Bonds, Series 1989B, 0.000%, 8/15/19 (Pre-refunded to 2/15/01) Kenton County, Kentucky, Public Parks Corporation, Mortgage Revenue Bonds, Series 1990: 1,290,000 7.000%, 3/01/08 (Pre-refunded to 3/01/00) 3/00 at 101 A*** 1,367,542 1,070,000 7.100%, 3/01/10 (Pre-refunded to 3/01/00) 3/00 at 101 A*** 1,136,115 815,000 Kenton County, Kentucky, School District Finance Corporation, 12/01 at 102 A+*** 901,472 School Building Revenue Bonds, Series 1991, 6.800%, 12/01/11 (Pre-refunded to 12/01/01) 500,000 Kentucky Development Finance Authority, Sisters of Charity of 11/99 at 102 AAA 530,855 Nazareth Health Corporation, Hospital Revenue Bonds, Series 1989, 7.375%, 11/01/16 9,070,000 Kentucky Development Finance Authority, Hospital Facilities 10/01 at 102 AAA 10,066,340 Revenue Bonds, Series 1991A (St. Luke Hospital, Inc.), 7.000%, 10/01/21 (Pre-refunded to 10/01/01) 2,795,000 Kentucky Infrastructure Authority, Revenue Bonds (Community 9/98 at 102 AAA 2,879,465 Loan Program), Series 1988, 7.850%, 9/01/18 (Pre-refunded to 9/01/98) 1,495,000 Kentucky Infrastructure Authority, Governmental Agencies 8/99 at 102 A*** 1,591,323 Revenue Refunding Program, Series A, 7.800%, 8/01/08 (Pre-refunded to 8/01/99) 1,800,000 Kentucky State Property and Buildings Commission, Project No. 48, 8/98 at 102 A+*** 1,848,564 8.000%, 8/01/08 (Pre-refunded to 8/01/98) 4,875,000 The Turnpike Authority of Kentucky, Economic Development Road 5/00 at 101 1/2 AAA 5,246,719 Revenue Bonds (Revitalization Projects), Series 1990, 7.250%, 5/15/10 (Pre-refunded to 5/15/00) Lexington, Kentucky, Fayette Urban County Government, Sewer System Revenue: 830,000 7.600%, 7/01/07 (Pre-refunded 7/01/98) 7/98 at 102 AAA 849,273 900,000 7.600%, 7/01/08 (Pre-refunded 7/01/98) 7/98 at 102 AAA 920,898 Montgomery County, Kentucky, School District Finance Corporation, School Building Revenue: 305,000 6.800%, 6/01/09 (Pre-refunded to 6/01/01) 6/01 at 102 A1*** 333,838 325,000 6.800%, 6/01/10 (Pre-refunded to 6/01/01) 6/01 at 102 A1*** 355,729 350,000 6.800%, 6/01/11 (Pre-refunded to 6/01/01) 6/01 at 102 A1*** 383,093 385,000 Puerto Rico Infrastructure Finance Authority, Series 1988A, 7/98 at 102 BBB+*** 393,974 7.750%, 7/01/08 (Pre-refunded to 7/01/98) 500,000 Richmond, Kentucky, Water Gas and Sewer, Revenue Refunding 7/98 at 102 AAA 511,525 Bond, Series B, 7.400%, 7/01/15 (Pre-refunded to 7/01/98) 1,990,000 Western, Kentucky, University Revenues, Formerly Western 12/00 at 102 AAA 2,189,239 Kentucky State College, Housing and Dining System, Series L, 7.400%, 12/01/10 (Pre-refunded to 12/01/00) 940,000 Western, Kentucky, University Revenues, Formerly Western 11/00 at 102 AAA 1,031,782 Kentucky State College, Educational Buildings, Series J, 7.400%, 5/01/10 (Pre-refunded to 11/01/00) - ----------------------------------------------------------------------------------------------------------------------------------- Utilities - 10.2% 10,000,000 County of Boone, Kentucky, Collateralized Pollution Control 1/04 at 102 AAA 10,261,300 Revenue Refunding Bonds, 1994 Series A (The Cincinnati Gas and Electric Company Project), 5.500%, 1/01/24 5,030,000 County of Carroll, Kentucky, Collateralized Pollution Control 2/02 at 102 AA 5,321,187 Revenue Bonds (Kentucky Utilities Company Project), 1992 Series B, 6.250%, 2/01/18 1,000,000 County of Jefferson, Kentucky, Pollution Control Revenue 6/00 at 102 Aa2 1,081,580 Bonds, 1990 Series A (Louisville Gas and Electric Company Project), 7.450%, 6/15/15 1,750,000 County of Jefferson, Kentucky, Pollution Control Revenue 4/05 at 102 Aa2 1,854,230 Bonds, 1995 Series A (Louisville Gas and Electric Company Project), 5.900%, 4/15/23 1,250,000 Mercer County, Kentucky, Collateralized Pollution Control 2/02 at 102 AA 1,331,263 Revenue, Kentucky Utilities Company Project, Series A, 6.250%, 2/01/18 18 243 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Utilities (continued) Owensboro, Kentucky, Electric Light and Power Revenue, Series B: $ 7,100,000 0.000%, 1/01/11 No Opt. Call AAA $ 3,898,184 6,475,000 0.000%, 1/01/12 No Opt. Call AAA 3,344,985 7,900,000 0.000%, 1/01/17 No Opt. Call AAA 3,092,297 13,300,000 0.000%, 1/01/18 No Opt. Call AAA 4,940,285 5,100,000 0.000%, 1/01/19 No Opt. Call AAA 1,793,823 4,725,000 0.000%, 1/01/20 No Opt. Call AAA 1,579,662 2,500,000 Puerto Rico Electric Power Authority, Power 7/08 at 101 BBB+ 2,424,250 Revenue Bonds, Series DD, 5.000%, 7/01/28 3,000,000 Puerto Rico Electric Power Authority, Power 7/04 at 102 BBB+ 3,211,530 Revenue Bonds, Series T, 6.000%, 7/01/16 4,795,000 Trimble County, Kentucky, Pollution Control 11/00 at 102 Aa2 5,237,674 Revenue, Louisville Gas and Electric Company, Series A, 7.625%, 11/01/20 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------------------------------- Water and Sewer - 6.0% 625,000 City of Danville, Kentucky, Multi-City Lease 12/01 at 103 AAA 681,625 Revenue Bonds (City of Radcliff Kentucky), Sewer System Revenue Project, Series 1991 B, 6.875%, 3/01/19 1,750,000 City of Henderson, Kentucky, Water and Sewer Revenue 11/04 at 103 AAA 1,947,173 and Refunding Bonds, Series of 1994 A, 6.100%, 11/01/14 2,040,000 Kenton County Water District No. 1, Water District 2/05 at 102 AAA 2,156,198 Revenue Bonds, Series 1995 B, 5.700%, 2/01/20 500,000 Kentucky Infrastructure Authority, Revolving Fund Program, 6/01 at 102 A 543,130 Series E, 6.500%, 6/01/11 1,000,000 Kentucky Infrastructure Authority, Refunding, Governmental 8/03 at 102 A 1,037,340 Agencies Program, Series E, 5.750%, 8/01/18 Kentucky Infrastructure Authority, Revolving Fund, Series J: 440,000 6.300%, 6/01/10 6/05 at 102 A 488,800 360,000 6.350%, 6/01/11 6/05 at 102 A 399,395 600,000 6.375%, 6/01/14 6/05 at 102 A 677,292 1,690,000 Kentucky Infrastructure Authority, Governmental Agencies 8/05 at 102 A 1,891,540 Program, Series G, 6.375%, 8/01/14 405,000 Kentucky Infrastructure Authority, Revenue Refunding, 8/99 at 102 A 428,606 Governmental Agencies Program, Series, A, 7.800%, 8/01/08 Louisville and Jefferson County, Metropolitan Sewer District (Commonwealth of Kentucky), Sewer and Drainage System Revenue Bonds, Series 1994A: 2,720,000 6.750%, 5/15/19 11/04 at 102 AAA 3,154,655 2,070,000 6.500%, 5/15/24 11/04 at 102 AAA 2,371,743 2,500,000 6.750%, 5/15/25 11/04 at 102 AAA 2,899,499 3,865,000 Louisville and Jefferson County, Kentucky, Metropolitan 2/05 at 102 Aaa 3,930,781 Sewer District, Sewer and Drain System Revenue, Series A, 5.400%, 5/15/22 6,000,000 Louisville and Jefferson County, Kentucky, Metropolitan 11/07 at 101 AAA 6,102,779 Sewer District, Sewer and Drain System Refunding Revenue, Series B, 5.350%, 5/15/22 500,000 Paducah, Kentucky, Waterworks Revenue Refunding, 6.700%, 7/01/09 7/01 at 102 AAA 547,764 - ----------------------------------------------------------------------------------------------------------------------------------- $493,480,512 Total Investments - (cost $439,366,089) - 98.4% 477,311,529 ============----------------------------------------------------------------------------------------------------------------------- Temporary Investments in Short-Term Municipal Securities -0.4% $ 2,000,000 Puerto Rico Highway, Variable Rate Demand Bonds, 3.750%, 7/01/28 A-1+ 2,000,000 ============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.2% 5,605,510 --------------------------------------------------------------------------------------------------------------------- Net Assets - 100% $484,917,039 ===================================================================================================================== * Optional Call Provisions (not covered by the report of independent public accountants): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent public accountants): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. government or U.S. government agency securities which ensures the timely payment of principal and interest. Securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. + The security has a maturity of more than one year, but has variable rate and demand features which qualify it as a short- term security. The rate disclosed is that currently in effect. This rate changes periodically based on market conditions or a specified market index. See accompanying notes to financial statements. 19 244 Portfolio of Investments Nuveen Flagship Kentucky Limited Term Municipal Bond Fund May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ------------------------------------------------------------------------------------------------------------------------------ Consumer Staples - 0.2% $ 20,000 Newport, Kentucky, Industrial Building, Revenue Refunding, Louis No Opt. Call N/R $ 20,178 Trauth Dairy, Series A, 4.800%, 6/01/99 - ------------------------------------------------------------------------------------------------------------------------------ Education and Civic Organizations - 13.5% 500,000 City of Berea, Kentucky, Berea College, General Obligation Bonds, No Opt. Call Aaa 504,160 Series 1998, 4.800%, 7/01/08 (Alternative Minimum Tax) (WI) 500,000 Kentucky Higher Education Student Loan Corporation, Insured Student No Opt. Call Aaa 548,120 Loan Revenue Bonds, 1991 Series B, 6.800%, 6/01/03 (Alternative Minimum Tax) 475,000 University of Kentucky, University Revenues, Consolidated Educational No Opt. Call AAA 492,580 Buildings, Series O, 5.000%, 5/01/03 - ------------------------------------------------------------------------------------------------------------------------------ Energy - 3.0% 325,000 City of Ashland, Kentucky, Pollution Control Revenue Refunding Bonds 2/00 at 102 1/2 Baa1 347,240 (Ashland Oil Inc. Project), Series 1988A, 7.375%, 7/01/09 - ------------------------------------------------------------------------------------------------------------------------------ Health Care - 22.7% 580,000 Kentucky Development Finance Authority, Sisters of Charity of 11/01 at 102 A1 630,680 Nazareth Health Corporation, Revenue Refunding Bonds, Series 1991, 6.600%, 11/01/06 270,000 Kentucky Economic Development Finance Authority, Medical Center No Opt. Call AAA 272,444 Revenue Refunding and Improvement Bonds, Series 1993A (Ashland Hospital Corporation/Kings Daughter Medical Center Project), 5.100%, 2/01/99 500,000 Kentucky Economic Development Finance Authority, Hospital System No Opt. Call BBB 516,930 Refunding and Improvement Revenue Bonds, Series 1997 (Appalachian Regional Healthcare, Inc. Project), 5.500%, 10/01/07 385,000 Mc Cracken County, Kentucky, Hospital Revenue Refunding, Mercy Health 11/04 at 102 AAA 429,737 System, Series A, 6.300%, 11/01/06 710,000 Radcliff, Kentucky, Mortgage Revenue Refunding, Lincoln Trail Care, No Opt. Call AAA 741,055 5.100%, 7/20/07 - ------------------------------------------------------------------------------------------------------------------------------ Housing/Multifamily - 9.5% 705,000 Louisville, Kentucky, Multifamily Revenue Refunding, Station House No Opt. Call Aa2 713,862 Square Association, LP Project, 5.125%, 7/15/19 360,000 Martin County, Kentucky, Mortgage Revenue Refunding, Assisted 7/01 at 100 Aa 371,225 Project, 5.375%, 7/01/05 - ------------------------------------------------------------------------------------------------------------------------------ Housing/Single Family - 1.8% 100,000 Kentucky Housing Corporation, Housing Revenue Bonds, 1993 Series B 1/04 at 102 AAA 103,550 (Federally Insured or Guaranteed Mortgage Loans), 5.150%, 7/01/07 100,000 Kentucky Housing Corporation, Housing Revenue Bonds (Federally No Opt. Call AAA 102,398 Insured or Guaranteed Mortgage Loans), 1995 Series F, 4.800%, 7/01/03 - ------------------------------------------------------------------------------------------------------------------------------ Long Term Care - 1.8% 200,000 Kentucky Economic Development Finance Authority, Hospital Revenue No Opt. Call Aa3 205,056 Refunding Bonds,Series 1996 (Green River Regional Mental Health/Mental Retardation Board, Inc.), 5.200%, 11/01/01 - ------------------------------------------------------------------------------------------------------------------------------ Tax Obligation/General - 2.6% 280,000 Commonwealth of Puerto Rico, Public Improvement Refunding Bonds, No Opt. Call A 295,848 Series 1993 (General Obligation Bonds), 5.375%, 7/01/05 20 245 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/Limited - 21.2% $ 265,000 Hardin County (Kentucky), School District Finance Corporation, 6/01 at 103 A1 $ 291,519 School Building Revenue Bonds, Series of 1991, 6.800%, 6/01/08 300,000 Jefferson County, Kentucky, Capital Projects Corporation, Lease No Opt. Call AAA 317,439 Revenue Bonds, Series 1996A, 5.500%, 4/01/03 City of Jeffersontown, Kentucky, Public Projects Refunding and Improvements, Certificates of Participation: 505,000 4.850%, 11/01/04 No Opt. Call A 523,008 100,000 5.000%, 11/01/05 No Opt. Call A 104,340 50,000 Kentucky Interlocal School Transportation Association, Equipment No Opt. Call A1 51,788 Lease Revenue, 5.200%, 3/01/02 775,000 Mount Sterling, Kentucky, Lease Revenue Bonds (Kentucky League of No Opt. Call Aa 816,811 Cities Funding Program), Series 1993A, 5.625%, 3/01/03 325,000 Puerto Rico Commonwealth, Urban Renewal and Housing Corporation, No Opt. Call BBB 320,697 Commonwealth Appropriation Refunding, 0.000%, 10/01/98 - ----------------------------------------------------------------------------------------------------------------------------------- Transportation - 8.9% 300,000 Kenton County (Kentucky), Airport Board, Cincinnati/Northern No Opt. Call AAA 308,658 Kentucky International Airport Revenue Bonds, Series 1996A, 5.000%, 3/01/02 (Alternative Minimum Tax) 360,000 Kentucky State Turnpike Authority, Economic Development Road No Opt. Call AAA 384,188 Revenue Refunding, Revitalization Projects, 5.400%, 7/01/05 125,000 The Turnpike Authority of Kentucky, Resource Recovery, Road No Opt. Call A+ 125,224 Revenue Refunding Bonds, 1985 Series A, 6.000%, 7/01/09 200,000 Regional Airport Authority of Louisville and Jefferson County, No Opt. Call AAA 200,318 Kentucky, Airport System Revenue Bonds, 1997 Series A, 5.750%, 7/01/98 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed - 0.5% 250,000 Jefferson County, Kentucky, Capital Projects Corporation, Lease 2/01 at 24 11/16 AAA 55,208 Revenue Bonds, Series 1989B, 0.000%, 8/15/19 (Pre-refunded to 2/15/01) - ----------------------------------------------------------------------------------------------------------------------------------- Utilities - 2.8% 400,000 City of Owensboro, Kentucky, Electric Light and Power System No Opt. Call AAA 315,872 Revenue Bonds, Series 1993A, 0.000%, 1/01/04 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------------------------------- Water and Sewer - 8.3% 200,000 Kenton County, Water District No. 1, Water District Revenue No Opt. Call AAA 214,302 Bonds, Series 1995B, 5.600%, 2/01/04 Kentucky Infrastructure Authority, Revenue Refunding Wastewater Revolving Fund Program,Series C: 150,000 5.300%, 6/01/03 No Opt. Call A 157,310 200,000 5.500%, 6/01/05 No Opt. Call A 213,263 350,000 Kentucky Infrastructure Authority, Governmental Agencies Program, No Opt. Call A 363,789 Revenue and Refunding Bonds, 1995 Series H, 5.200%, 8/01/02 - ----------------------------------------------------------------------------------------------------------------------------------- $10,865,000 Total Investments - (cost $10,737,735) - 96.8% 11,058,797 ===========------------------------------------------------------------------------------------------------------------------------ Other Assets Less Liabilities - 3.2% 361,840 -------------------------------------------------------------------------------------------------------------------- Net Assets - 100% $11,420,637 ==================================================================================================================== * Optional Call Provision (not covered by the report of independent public accountants): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent public accountants): Using the higher of Standard & Poor's or Moody's rating. N/R Investment is not rated. (WI) Security purchased on a when-issued basis (note 1). See accompanying notes to financial statements. 21 246 Portfolio of Investments Nuveen Flagship Michigan Municipal Bond Fund May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Capital Goods - 0.3% $ 1,055,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (WMX 12/03 at 102 A1 $1,108,562 Technologies, Inc. Project), Series 1993, 6.000%, 12/01/13 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------------------------------- Consumer Cyclical - 2.5% 2,500,000 Michigan State Strategic Fund, Limited Obligation Refunding Revenue No Opt. Call A1 2,933,150 Bonds, Series 1991A, 7.100%, 2/01/06 5,000,000 Michigan State Strategic Fund, Pollution Control Revenue Refunding, 9/05 at 102 A 5,441,950 General Motors Corporation, 6.200%, 9/01/20 - ----------------------------------------------------------------------------------------------------------------------------------- Education and Civic Organizations - 1.5% 1,000,000 Board of Control of Grand Valley State University, Michigan, General 10/98 at 102 A 1,034,510 Revenue Bonds, Series 1988, 7.875%, 10/01/08 750,000 Michigan Higher Education Student Loan Authority, Student Loan, 6/06 at 102 Aaa 793,253 Series A, 5.750%, 6/01/13 (Alternative Minimum Tax) 1,000,000 Board of Trustees of Michigan State University, General Revenue Bonds, 2/06 at 101 AAA 977,910 Series 1996, 5.000%, 2/15/26 1,000,000 Oakland County Michigan Economic Development Corporation, Limited 11/04 at 102 Aa2 1,140,930 Obligation Revenue Refunding, Cranbrook Educational Community, Series C, 6.900%, 11/01/14 1,000,000 Board of Trustees of Western Michigan University (Michigan), General 11/02 at 102 AAA 1,104,160 Revenue Bonds, Series 1992A, 6.250%, 11/15/12 - ----------------------------------------------------------------------------------------------------------------------------------- Forest and Paper Products - 2.3% 7,500,000 The Economic Development Corporation of Dickinson County (Michigan), 10/03 at 102 Baa1 7,831,050 Pollution Control Refunding Revenue Bonds (Champion International Corporation Project), Series 1993, 5.850%, 10/01/18 - ----------------------------------------------------------------------------------------------------------------------------------- Health Care - 23.8% 1,000,000 The Economic Development Corporation of the City of Dearborn, 11/05 at 102 AAA 1,068,400 Hospital Revenue Bonds (Oakwood Obligated Group), Series 1995A, 5.750%, 11/15/15 500,000 City of Farmington Hills, Hospital Finance Authority (Michigan), 2/02 at 102 AAA 549,940 Hospital Revenue Bonds (Botsford General Hospital), Series 1992A, 6.500%, 2/15/11 City of Flint Hospital Building Authority, Revenue Rental Bonds, Series 1998B (Hurley Medical Center): 1,000,000 5.375%, 7/01/18 7/08 at 101 Baa 980,100 1,000,000 5.375%, 7/01/28 7/08 at 101 Baa 974,490 500,000 County of Grand Traverse (Michigan), Hospital Finance Authority, 7/02 at 102 AAA 541,635 Hospital Revenue Refunding Bonds (Munson Healthcare Obligated Group), Series 1992A, 6.250%, 7/01/22 1,940,000 City of Kalamazoo (Michigan), Hospital Finance Authority, Hospital 5/03 at 102 A1 2,159,181 Revenue Refunding and Improvement Bonds (Bronson Methodist Hospital), Series 1992A, 6.375%, 5/15/17 6,000,000 City of Kalamazoo (Michigan), Hospital Finance Authority, Hospital 5/06 at 102 AAA 6,369,120 Revenue Refunding and Improvement Bonds (Bronson Methodist Hospital), Series 1996, 5.875%, 5/15/26 1,290,000 Kent Hospital Finance Authority (Michigan), Hospital Revenue 11/01 at 102 AAA 1,396,077 Refunding Bonds (Pine Rest Christian Hospital), Series 1992, 6.500%, 11/01/10 3,530,000 Lake View Community Hospital Authority, Michigan Hospital Revenue 2/07 at 101 N/R 3,472,320 Refunding, 6.250%, 2/15/13 3,000,000 Michigan State Hospital Finance Authority, Revenue Refunding, 1/00 at 100 BBB+ 3,036,360 Memorial Hospital, Owosso, Michigan, Series A, 7.375%, 1/01/03 22 247 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Health Care (continued) $ 40,000 Michigan State Hospital Finance Authority, Revenue and 8/98 at 102 A $ 41,129 Refunding Bonds (The Detroit Medical Center Obligated Group), Series 1988B, 8.125%, 8/15/08 6,500,000 Michigan State Hospital Finance Authority, Revenue and Refunding 8/03 at 102 A 7,089,355 Bonds (The Detroit Medical Center Obligated Group), Series 1993A, 6.500%, 8/15/18 2,920,000 Michigan State Hospital Finance Authority, Revenue and Refunding 8/04 at 102 A 2,952,412 Bonds (The Detroit Medical Center Obligated Group), Series 1993B, 5.500%, 8/15/23 1,000,000 Michigan State Hospital Finance Authority, Revenue Refunding, 7/99 at 102 AAA 1,049,110 Oakland General Hospital, 7.000%, 7/01/15 1,000,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds 11/01 at 102 AAA 1,082,240 (Sparrow Obligated Group), Series 1991, 6.500%, 11/15/11 1,000,000 Michigan State Hospital Finance Authority, Revenue and Refunding 1/05 at 102 AA- 1,086,300 Bonds (Otsego Memorial Hospital, Gaylord, Michigan), Series 1995, 6.125%, 1/01/15 2,000,000 Michigan State Hospital Finance Authority, Revenue Refunding, Port 7/05 at 102 AAA 2,064,860 Huron Hospital Obligation, 5.500%, 7/01/15 1,000,000 Michigan State Hospital Finance Authority, Hospital Revenue No Opt. Call BBB 1,074,410 Refunding Bonds (Gratiot Community Hospital, Alma, Michigan), Series 1995, 6.100%, 10/01/07 4,500,000 Michigan State Hospital Finance Authority, Hospital Revenue and 5/06 at 102 AA 4,470,570 Refunding Bonds (Henry Ford Health System), Series 1995A, 5.250%, 11/15/20 1,000,000 Michigan State Hospital Finance Authority, Central Michigan 10/06 at 102 BBB 1,056,430 Community Hospital, 6.250%, 10/01/27 5,250,000 Michigan State Hospital Finance Authority (Mercy Health Services 8/06 at 101 AAA 5,305,073 Obligated Group), 1996 Series Q, 5.375%, 8/15/26 2,000,000 Michigan State Hospital Finance Authority, Revenue Refunding 8/07 at 101 AA- 2,057,180 (Mercy Health Services), Series S, 5.500%, 8/05/20 Michigan State Hospital Finance Authority, Revenue and Refunding Bonds (Genesys Regional Medical Center Obligated Group), Series 1998A: 1,000,000 5.500%, 10/01/18 10/08 at 102 BBB 989,660 4,000,000 5.500%, 10/01/27 10/08 at 102 BBB 3,948,040 2,000,000 Michigan State Hospital Finance Authority, Revenue and Refunding No Opt. Call A3 1,910,060 Bonds (Hackley Hospital Obligated Group), Series 1998A, 5.000%, 5/01/18 (WI) Pontiac, Michigan, Hospital Finance Authority, Revenue Refunding, NOMC Obligation Group: 3,000,000 6.000%, 8/01/18 8/03 at 102 BBB- 3,051,930 5,165,000 6.000%, 8/01/23 8/03 at 102 BBB- 5,251,669 8,345,000 Royal Oak, Michigan, Hospital Finance Authority, Revenue Refunding, 1/06 at 102 AA 8,301,940 William Beaumont Hospital, 5.250%, 1/01/20 2,000,000 City of Saginaw, Hospital Finance Authority (Saginaw General 10/99 at 102 BBB+ 2,115,820 Hospital), 7.625%, 10/01/08 500,000 City of Saginaw (Michigan), Hospital Finance Authority (St. Lukes 7/01 at 102 AAA 541,550 Hospital), Revenue Refunding Bonds, Series 1991 C, 6.750%, 7/01/17 1,000,000 Regents of the University of Michigan, Hospital Revenue Bonds, 12/00 at 100 AA 1,056,530 Series 1990, 6.375%, 12/01/24 3,500,000 Regents of the University of Michigan, Medical Service Plan 12/01 at 102 Aa2 3,795,260 Revenue Bonds, Series 1991, 6.500%, 12/01/21 - ----------------------------------------------------------------------------------------------------------------------------------- Housing/Multifamily - 3.4% 435,000 Grand Rapids Housing Corporation, Multifamily Revenue Refunding 1/04 at 104 AAA 487,187 Bonds, Series 1992 (FHA Insured Mortgage Loan--Section 8 Assisted, Elderly Project), 7.375%, 7/15/41 750,000 Grand Rapids Housing Finance Authority, Multifamily Housing 9/04 at 100 AAA 824,978 Refunding Revenue Bonds, Series 1990A (Fannie Mae Collateralized), 7.625%, 9/01/23 1,190,000 Michigan State Housing Development Authority, Limited Obligation 10/05 at 102 Aaa 1,276,620 Multi-Family Revenue Refunding Bonds, Series 1995A (GNMA Collateralized Program--Parc Pointe Apartments), 6.500%, 10/01/15 6,000,000 Michigan State Housing Development Authority, Series I, 0.000%, No Opt. Call AA- 1,595,520 4/01/14 5,000,000 Michigan State Housing Development Authority, Rental Housing 4/01 at 102 AA- 5,362,150 Revenue Bonds, 1990 Series B, 7.550%, 4/01/23 23 248 Portfolio of Investments Nuveen Flagship Michigan Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Housing/Multifamily (continued) $290,000 Michigan State Housing Development Authority, Rental Housing Revenue No Opt. Call AA- $ 311,448 Bonds, 1991 Series B, 7.100%, 4/01/21 460,000 Michigan State Housing Development Authority, Rental Housing Revenue 10/02 at 102 AA- 494,422 Bonds, 1992 Series A, 6.650%, 4/01/23 1,000,000 Michigan State Housing Development Authority, Rental Housing Revenue 6/05 at 102 AAA 1,060,980 Bonds, 1995 Series B, 6.150%, 10/01/15 - ----------------------------------------------------------------------------------------------------------------------------------- Housing/Single Family - 4.7% Michigan State Housing Development Authority, Single Family Mortgage Revenue, Series A: 2,000,000 6.450%, 12/01/14 6/04 at 102 AA+ 2,124,360 1,280,000 7.500%, 6/01/15 6/00 at 102 AA+ 1,338,509 415,000 7.700%, 12/01/16 6/99 at 102 AA+ 426,126 1,250,000 6.050%, 12/01/27 (Alternative Minimum Tax) 6/07 at 102 AAA 1,314,638 3,250,000 Michigan State Housing Development Authority, Single Family Mortgage 12/00 at 102 AA+ 3,419,293 Revenue, Series C, 7.550%, 12/01/15 3,930,000 Michigan State Housing Development Authority, Single Family Mortgage 12/04 at 102 AA+ 4,124,181 Revenue Refunding, Series C, 6.500%, 6/01/16 1,500,000 Michigan State Housing Development Authority, Single Family Mortgage 6/05 at 102 AA+ 1,612,635 Revenue Bonds, 1995 Series A, 6.800%, 12/01/16 1,500,000 Michigan State Housing Development Authority, Single Family Mortgage 12/06 at 102 AA+ 1,579,005 Revenue, Series D, 5.950%, 12/01/16 - ----------------------------------------------------------------------------------------------------------------------------------- Long Term Care - 2.5% 2,500,000 The Economic Development Corporation of the City of Kalamazoo (Kalamazoo 5/07 at 102 BBB 2,647,475 County, Michigan), Limited Obligation Revenue and Refunding Bonds (Friendship Village of Kalamazoo), Series 1997A, 6.250%, 5/15/27 1,200,000 Michigan State Hospital Finance Authority, Revenue Bonds (Presbyterian 7/05 at 102 N/R 1,288,428 Villages of Michigan Obligation Group), 6.500%, 1/01/25 Michigan State Hospital Finance Authority, Revenue Bonds (Presbyterian Villages of Michigan Obligation Group), Series 1997: 600,000 6.375%, 1/01/15 1/07 at 102 N/R 644,172 500,000 6.375%, 1/01/25 1/07 at 102 N/R 534,320 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Porter Hills Presbyterian Village Inc. Project), Series 1998: 400,000 5.300%, 7/01/18 7/08 at 101 A 400,644 2,675,000 5.375%, 7/01/28 7/08 at 101 A 2,654,750 250,000 The Economic Development Corporation of the City of Warren, Nursing Home 3/02 at 101 Aaa 265,868 Revenue Refunding Bonds (GNMA Mortgage-Backed Security-Autumn Woods Project), Series 1992, 6.900%, 12/20/22 - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/General - 16.3% 400,000 County of Bay, Michigan, Bay County West Side Regional Sewage Disposal 11/98 at 102 A 411,252 System Bonds, 6.400%, 5/01/02 5,000,000 Brighton Area Schools, County of Livingston, State of Michigan, 1992 No Opt. Call AAA 1,626,100 Refunding Bonds, Series II (General Obligation Unlimited Tax), 0.000%, 5/01/20 3,600,000 School District of the City of Detroit, Wayne County, Michigan, School 5/06 at 102 AAA 3,792,204 Building and Site Improvement Bonds (Unlimited Tax General Obligation), Series 1996A, 5.700%, 5/01/25 500,000 City of East Lansing Building Authority, County of Ingham, State of 10/99 at 102 AA 529,420 Michigan, Building Authority Refunding Bonds, Series 1991, 7.000%, 10/01/16 2,430,000 School District of the City of Garden City, County of Wayne, State of 5/04 at 101 AAA 2,692,926 Michigan, 1994 Refunding Bonds (General Obligation - Unlimited Tax), 6.400%, 5/01/11 1,000,000 Lake Orion Community School District, County of Oakland, State of 5/05 at 101 AAA 1,027,070 Michigan, 1995 Refunding Bonds (General Obligation-Unlimited Tax), 5.500%, 5/01/20 24 249 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/General (continued) $ 1,000,000 School District of the City of Lincoln Park, County of Wayne, State of 5/08 at 100 AAA $ 972,100 Michigan, 1998 Refunding Bonds (Unlimited Tax), 5.000%, 5/01/26 (WI) 510,000 Livingston County, Michigan, Genoa, Oceola Sanitation Sewer No. 1, 5/99 at 102 A 530,247 6.000%, 5/01/08 2,700,000 Livonia, Michigan Public Schools School District, Series II, No Opt. Call AAA 1,719,441 0.000%, 5/01/08 2,410,000 Mona Shores, Michigan, School District, School District 5/05 at 102 AAA 2,529,849 Building and Site, 5.500%, 5/01/14 Okemos Public Schools, County of Ingham, State of Michigan, 1993 Refunding Bonds: 1,000,000 0.000%, 5/01/17 No Opt. Call AAA 381,360 1,020,000 0.000%, 5/01/18 No Opt. Call AAA 368,954 1,500,000 Portage Lake, Michigan, Water and Sewer Authority, Refunding, 10/05 at 102 AAA 1,665,450 6.200%, 10/01/20 Commonwealth of Puerto Rico, Public Improvement Bonds of 1994 (General Obligation Bonds): 3,125,000 6.450%, 7/01/17 7/04 at 102 AAA 3,545,500 2,370,000 6.500%, 7/01/23 7/04 at 101 1/2 AAA 2,695,211 500,000 Redford Union Schools, District No. 1, County of Wayne, State No Opt. Call AAA 499,285 of Michigan, 1997 Refunding Bonds (General Obligation - Unlimited Tax), 5.000%, 5/01/22 2,420,000 Rockford Public Schools, Kent County, 1997 School Building 5/07 at 100 AAA 2,426,728 and Site Bonds, General Obligation Unlimited Tax, 5.250%, 5/01/27 1,650,000 Saint Clair County Building Authority, Michigan, General 4/06 at 101 AAA 1,698,807 Obligation Bonds, 5.375%, 4/01/15 750,000 South Lyon Community Schools, Counties of Oakland, Washtenaw 5/01 at 102 AA+ 802,763 and Livingston, State of Michigan, 1991 Refunding Bonds (General Obligation-Unlimited Tax), 6.250%, 5/01/14 2,925,000 Spring Lake Public Schools, General Obligation Bonds, Series 5/07 at 100 AAA 3,068,647 1997, 5.700%, 5/01/23 Waterford, Michigan, School District: 2,470,000 6.370%, 6/01/14 6/04 at 101 AAA 2,773,884 2,500,000 6.250%, 6/01/23 6/04 at 101 AAA 2,791,150 5,000,000 Wayland, Michigan, Unit School District, 6.250%, 5/01/14 5/05 at 101 AAA 5,636,250 1,250,000 Wayne County, Michigan, Building Authority, Capital Improvement, 6/06 at 102 AAA 1,266,500 Series A, 5.250%, 6/01/16 3,270,000 West Ottawa, Michigan, Public School District Refunding, 0.000%, 5/01/17 No Opt. Call AAA 1,247,047 2,000,000 Western Townships Utilities Authority, Sewage Disposal System 1/99 at 102 BBB+ 2,086,040 Bonds, Series 1989, 8.200%, 1/01/18 1,000,000 Western Townships Utilities Authority, Sewage Disposal System Refunding 1/02 at 100 AAA 1,071,370 Bonds, Series 1991, 6.500%, 1/01/10 5,175,000 Williamston Community School District, General Obligation-Unlimited Tax, No Opt. Call AAA 5,547,341 Series 1996, 5.500%, 5/01/25 - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/Limited -- 16.3% 2,000,000 City of Detroit Building Authority, Building Authority Revenue Bonds 2/07 at 101 A 2,150,700 (District Court Madison Center), Series A, 6.150%, 2/01/11 10,700,000 City of Detroit (Michigan), Downtown Development Authority, 7/06 at 102 A- 11,555,358 Tax Increment Refunding Bonds (Development Area No. 1 Projects), Series 1996C, 6.250%, 7/01/25 9,460,000 Detroit/Wayne County Stadium Authority (State of Michigan), Building 2/07 at 102 AAA 9,489,988 Authority, Series 1997 (Wayne County Limited Tax General Obligation), 5.250%, 2/01/27 Downtown Development Authority of the City of Grand Rapids, Michigan, Tax Increment Revenue Bonds, Series 1994: 3,985,000 0.000%, 6/01/17 No Opt. Call AAA 1,513,304 3,495,000 0.000%, 6/01/18 No Opt. Call AAA 1,258,829 1,650,000 6.875%, 6/01/24 6/04 at 102 AAA 1,879,482 2,000,000 Lansing, Michigan, Building Authority, Refunding, 5.600%, 6/01/19 6/05 at 101 AA+ 2,086,740 250,000 Michigan Municipal Bond Authority, State Revolving Fund Revenue Bonds, 12/01 at 100 AAA 251,443 Series 1992A, 4.750%, 12/01/09 5,500,000 Michigan Municipal Bond Authority, Revenue Refunding, Government Loan, No Opt. Call AAA 3,576,210 Series A, 0.000%, 12/01/07 2,800,000 Michigan Municipal Bond Authority, Local Government Loan, Series No Opt. Call AAA 1,773,240 C, 0.000%, 6/15/08 25 250 Portfolio of Investments Nuveen Flagship Michigan Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/Limited (continued) State Building Authority, State of Michigan, 1991 Revenue Refunding Bonds, Series I: $1,000,000 6.750%, 10/01/11 10/01 at 102 AA $1,089,450 5,000,000 6.250%, 10/01/20 10/01 at 102 AA 5,344,600 7,585,000 State Building Authority, State of Michigan, 1991 Revenue Bonds, 10/01 at 102 AA 8,107,758 Series II, 6.250%, 10/01/20 2,260,000 Puerto Rico Highway and Transportation Authority, 6.625%, 7/01/12 7/02 at 101 1/2 A 2,482,587 1,500,000 Puerto Rico Highway and Transportation Authority, Transportation 7/08 at 101 A 1,449,600 Revenue Bonds, Series A, 5.000%, 7/01/38 1,085,000 Romulus, Michigan, Tax Increment Finance Authority, Limited 11/06 at 100 N/R 1,153,594 Obligation Revenue, 6.750%, 11/01/19 250,000 Capital Region Airport Authority (Lansing, Michigan), Airport 7/02 at 102 AAA 273,408 Revenue Bonds, Series 1992, 6.700%, 7/01/21 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed - 16.7% 1,000,000 City of Battle Creek, County of Calhoun, State of Michigan, 5/04 at 102 BBB+*** 1,186,130 Battle Creek Downtown Development Authority, 1994 Development Bonds, 7.600%, 5/01/16 (Pre-refunded to 5/01/04) 1,800,000 City of Battle Creek, County of Calhoun, State of Michigan, Tax 5/04 at 102 A-*** 2,120,544 Increment Finance Authority, 1994 Development Bonds, 7.400%, 5/01/16 (Pre-refunded to 5/01/04) 1,000,000 City of Bay City, County of Bay, State of Michigan, Electric 1/01 at 102 AAA 1,081,730 Utility System Revenue Bonds, 1991 Series, 6.600%, 1/01/12 (Pre-refunded to 1/01/01) 1,895,000 Buena Vista School District, County of Saginaw, State of 5/01 at 102 N/R*** 2,093,520 Michigan, 1991 School Building and Site Bonds (General Obligation Unlimited Tax), 7.200%, 5/01/16 (Pre-refunded to 5/01/01) 1,000,000 The Central Michigan University Board of Trustees, General 10/00 at 102 A+*** 1,084,630 Revenue Bonds, Series 1990, 7.000%, 10/01/10 (Pre-refunded to 10/01/00) 750,000 City of Detroit, Michigan, General Obligation Bonds (Unlimited 4/01 at 102 AAA 842,558 Tax), Series 1991, 8.000%, 4/01/11 (Pre-refunded to 4/01/01) 300,000 School District of the City of Detroit, Wayne County, Michigan, 5/00 at 102 N/R*** 326,073 School Building and Site Bonds, Series XXIII, 7.750%, 5/01/10 (Pre-refunded to 5/01/00) 1,650,000 School District of the City of Detroit, Wayne County, Michigan, 5/01 at 102 AA+*** 1,818,663 School Building and Site Bonds (Unlimited Tax General Obligation), Series 1991, 7.150%, 5/01/11 (Pre-refunded to 5/01/01) 1,000,000 City of Detroit, Michigan, Sewage Disposal System Revenue Bonds, 7/99 at 101 1/2 AAA 1,050,090 Series 1989, 7.125%, 7/01/19 (Pre-refunded to 7/01/99) 2,000,000 City of Detroit, Michigan, Water Supply System Revenue Bonds, 7/00 at 102 AAA 2,168,900 Series 1990, 7.250%, 7/01/20 (Pre-refunded to 7/01/00) 500,000 City of Farmington Hills Hospital Finance Authority (Michigan), 2/02 at 102 AAA 549,940 Hospital Revenue Bonds (Botsford General Hospital), Series 1992A, 6.500%, 2/15/22 (Pre-refunded to 2/15/02) 3,000,000 City of Grand Rapids, Michigan, Water Supply System Improvement 1/00 at 102 AAA 3,208,950 Revenue Bonds, Series 1990, 7.250%, 1/01/20 (Pre-refunded to 1/01/00) 2,500,000 Haslett Public Schools, Counties of Ingham, Clinton and 5/00 at 101 AA+*** 2,685,575 Shiawassee, State of Michigan, 1990 School Building and Site Bonds, 7.500%, 5/01/20 (Pre-refunded to 5/01/00) 750,000 City of Hudsonville Building Authority, County of Ottawa, State 10/02 at 102 AAA 836,843 of Michigan, Building Authority Refunding Bonds, Series 1992, 6.600%, 10/01/17 (Pre-refunded to 10/01/02) 2,000,000 Huron Valley School District, Counties of Oakland and 5/01 at 102 N/R*** 2,198,220 Livingston, State of Michigan, 1991 School Building and Site Bonds, 7.100%, 5/01/08 (Pre-refunded to 5/01/01) 4,000,000 Lake Orion, Michigan, Community School District, Refunding, 5/05 at 101 AAA 4,682,080 7.000%, 5/01/15 (Pre-refunded to 5/01/05) City of Marquette, Hospital Finance Authority, Hospital Revenue Refunding Bonds (Marquette General Hospital, Marquette, Michigan), 1989 Series C: 930,000 7.500%, 4/01/07 (Pre-refunded to 4/01/99) 4/99 at 102 A+*** 976,537 2,240,000 7.500%, 4/01/19 (Pre-refunded to 4/01/99) 4/99 at 102 A+*** 2,352,090 825,000 Menominee, Michigan, Area Public School District, 7.400%, 5/01/20 5/00 at 102 AA+*** 893,343 (Pre-refunded to 5/01/00) 3,000,000 Michigan Higher Education Facilities Authority, Limited 5/01 at 103 A*** 3,347,070 Obligation, Aquinas College Project, 7.350%, 5/01/11 (Pre-refunded to 5/01/01) 26 251 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed (continued) $ 555,000 Michigan Municipal Bond Authority, State Revolving Fund Reserve 10/02 at 102 AA+*** $ 618,553 Bonds, Series 1992A, 6.600%, 10/01/18 (Pre-refunded to 10/01/02) Michigan Municipal Bond Authority, State Revolving Fund Revenue Bonds, Series 1994: 950,000 7.000%, 10/01/04 No Opt. Call AA+ 1,094,619 1,000,000 6.500%, 10/01/14 (Pre-refunded to 10/01/04) 10/04 at 102 AA+*** 1,141,230 1,000,000 6.500%, 10/01/17 (Pre-refunded to 10/01/04) 10/04 at 102 AA+*** 1,141,230 500,000 Michigan State Hospital Finance Authority, Hospital Revenue Bonds 12/02 at 102 AAA 564,795 (MidMichigan Obligated Group), Series 1992, 6.900%, 12/01/24 (Pre-refunded to 12/01/02) 1,000,000 Michigan State Hospital Finance Authority, Henry Ford Health 7/00 at 102 AAA 1,078,860 System, Series A, 7.000%, 7/01/10 (Pre-refunded to 7/01/00) 6,000,000 Michigan Hospital Finance Authority (Oakwood Hospital Obligated 7/00 at 102 AAA 6,485,040 Group), 7.100%, 7/01/18 (Pre-refunded to 7/01/00) 800,000 Michigan State Hospital Finance Authority, Sisters of Mercy 2/01 at 102 AAA 878,480 Health Corporation, 7.200%, 2/15/18 (Pre-refunded to 2/15/01) 1,000,000 Michigan State Hospital Finance Authority, Hospital Revenue Bonds 11/01 at 102 Aa2*** 1,109,590 (Daughters of Charity National Health System-Providence Hospital), Series 1991, 7.000%, 11/01/21 (Pre-refunded to 11/01/01) 2,400,000 Oakland County, Michigan, Economic Development Corporation, 1/00 at 102 N/R*** 2,648,232 Limited Obligation Revenue, Pontiac Osteopathic Hospital Project, 9.625%, 1/01/20 (Pre-refunded to 1/01/00) 1,800,000 Puerto Rico Commonwealth Highway Authority, Highway Revenue, 7/00 at 102 AAA 1,971,414 Series Q, 7.750%, 7/01/16 (Pre-refunded to 7/01/00) 1,040,000 Rockford Public Schools, County of Kent, State of Michigan, 1990 5/00 at 101 N/R*** 1,113,611 School Building and Site Refunding Bonds (General Obligation Bonds), 7.375%, 5/01/19 (Pre-refunded to 5/01/00) 180,000 Saginaw-Midland Municipal Water Supply Corporation, State of 9/04 at 102 A*** 208,737 Michigan, Water Supply Revenue Bonds (Limited Tax General Obligation), Series 1992, 6.875%, 9/01/16 (Pre-refunded to 9/01/04) 7,000,000 Vicksburg Community Schools, Counties of Kalamazoo and St. 5/06 at 37 1/4 AAA 1,837,360 Joseph, State of Michigan, 1991 School Building and Site Bonds, 0.000%, 5/01/20 (Pre-refunded to 5/01/06) - ----------------------------------------------------------------------------------------------------------------------------------- Utilities - 3.4% 400,000 Michigan Public Power Agency, Belle River Project Refunding 1/03 at 102 AA- 400,644 Revenue Bonds, 1993 Series A, 5.250%, 1/01/18 3,000,000 Michigan State South Central Power Agency, Power Supply System 11/04 at 102 BBB+ 3,415,890 Revenue Refunding, 7.000%, 11/01/11 3,500,000 Michigan State Strategic Fund, Limited Obligation Revenue 6/04 at 102 AAA 3,901,240 Refunding, Detroit Education Company, Series B, 6.450%, 6/15/24 1,000,000 Monroe County, Michigan, Economic Development Corporation, No Opt. Call AAA 1,269,020 Limited Obligation Revenue Refunding Collateralized, Detroit Edison Company, Series Aa, 6.950%, 9/01/22 1,000,000 County of Monroe, Michigan, Pollution Control Revenue Bonds (The No Opt. Call AAA 1,106,360 Detroit Edison Company Project), Series A-1994, 6.350%, 12/01/04 (Alternative Minimum Tax) 4,000,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly No Opt. Call AAA 1,569,920 Puerto Rico Commonwealth Water Resource Authority Power, Capital Appreciation Refunding, Series N, MBIA, IBC, 0.000%, 7/01/17 - ----------------------------------------------------------------------------------------------------------------------------------- Water and Sewer - 6.3% City of Detroit, Michigan, Sewage Disposal System, Revenue Refunding Bonds, Series 1995-B: 1,500,000 5.250%, 7/01/15 7/05 at 101 AAA 1,525,950 10,500,000 5.250%, 7/01/21 7/05 at 101 AAA 10,529,610 2,885,000 City of Detroit, Michigan, Sewage Disposal System Revenue Bonds, 7/07 at 101 AAA 2,813,856 Series 1997-A, 5.000%, 7/01/22 1,570,000 City of Detroit, Michigan, Water Supply System Revenue, Second No Opt. Call AAA 1,701,235 Lien Bonds, Series 1995-A, 5.550%, 7/01/12 2,230,000 City of Detroit, Michigan, Water Supply System Revenue, Second No Opt. Call AAA 2,416,405 Lien Bonds, Series 1995-B, 5.550%, 7/01/12 27 252 Portfolio of Investments Nuveen Flagship Michigan Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ------------------------------------------------------------------------------------------------------------------------------------ Water and Sewer (continued) $ 1,000,000 City of Grand Rapids, Michigan, Sanitary Sewer System Improvement 1/00 at 102 AA-- $ 1,063,349 Revenue Refunding Bonds, Series 1990, 7.000%, 1/01/16 1,250,000 Michigan Municipal Bond Authority, State Revolving Fund, 5.125%, 10/07 at 101 AA+ 1,247,437 10/01/20 - ------------------------------------------------------------------------------------------------------------------------------------ $348,855,000 Total Investments -- (cost $309,809,533) -- 100.0% 340,187,675 ============------------------------------------------------------------------------------------------------------------------------ Other Assets Less Liabilities -- 0.0% (123,085) --------------------------------------------------------------------------------------------------------------------- Net Assets -- 100% $340,064,590 ===================================================================================================================== * Optional Call Provisions (not covered by the report of independent public accountants): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent public accountants): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. government or U.S. government agency securities which ensures the timely payment of principal and interest. Securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. (WI) Security purchased on a when-issued basis (note 1). See accompanying notes to financial statements. 28 253 Portfolio of Investments Nuveen Flagship Ohio Municipal Bond Fund May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ---------------------------------------------------------------------------------------------------------------------------------- Basic Materials -- 0.3% $1,650,000 Toledo, Lucas County, Ohio, Port Authority, Port Revenue 3/02 at 102 AA-- $1,846,218 Refunding Facilities, Cargill Inc. Project, 7.250%, 3/01/22 - ---------------------------------------------------------------------------------------------------------------------------------- Capital Goods -- 0.2% 1,425,000 Ohio Water Development Authority, Revenue Bonds, USA Waste 3/02 at 102 N/R 1,545,498 Services, Series 1992, 7.750%, 9/01/07 (Alternative Minimum Tax) - ---------------------------------------------------------------------------------------------------------------------------------- Consumer Staples -- 0.1% 1,000,000 Summit County, Ohio, Industrial Development Revenue, Century 11/99 at 100 Aa1 1,022,880 Products Inc. Project, 7.750%, 11/01/05 - ---------------------------------------------------------------------------------------------------------------------------------- Education and Civic Organizations -- 4.4% 1,000,000 Kent State University (A State University of Ohio), General 5/02 at 102 AAA 1,091,710 Receipts Bonds, Series 1992, 6.500%, 5/01/22 2,050,000 Miami University, Ohio, University Revenues, 6.900%, 12/01/04 12/99 at 102 A+ 2,175,583 3,500,000 State of Ohio, Education Loan Revenue Bonds, Series 1997 (Supplemental Student Loan Program), 1997A1, 5.850%, 12/01/19 6/07 at 102 AAA 3,635,275 (Alternative Minimum Tax) 1,750,000 State of Ohio (Ohio Higher Educational Facility Commission), 12/04 at 102 AAA 1,852,235 Higher Educational Facility Revenue Bonds (University of Dayton, 1994 Project), 5.800%, 12/01/19 2,025,000 State of Ohio (Ohio Higher Educational Facility Commission), 12/03 at 102 AAA 2,267,312 Higher Educational Facility Mortgage Revenue Bonds (University of Dayton, 1992 Project), 6.600%, 12/01/17 1,200,000 State of Ohio (Ohio Higher Educational Facility Commission), 9/06 at 101 N/R 1,256,364 Higher Educational Facility Revenue Bonds (The University of Findlay, 1996 Project), 6.125%, 9/01/16 7,000,000 State of Ohio, Higher Educational Facility Revenue Bonds (Xavier 5/07 at 102 AAA 7,136,360 University 1997 Project), 5.375%, 5/15/22 Ohio Higher Educational Facility Commission, Case Western Reserve University, Ohio: 1,870,000 7.125%, 10/01/14 10/00 at 102 AA 2,037,608 750,000 6.500%, 10/01/20 No Opt. Call AA 902,565 2,250,000 Ohio State Higher Educational Facility, John Carroll University 4/07 at 102 A2 2,387,790 Project Revenue, 5.750%, 4/01/19 4,250,000 University of Cincinnati (Ohio), General Receipts Bonds, Series 6/07 at 100 AAA 4,321,273 AB, 5.375%, 6/01/20 1,230,000 Youngstown State University, Ohio, General Receipts, 6.000%, 12/04 at 102 AAA 1,375,386 12/15/16 - ---------------------------------------------------------------------------------------------------------------------------------- Energy -- 0.5% 2,125,000 County of Ashtabula, Ohio, Industrial Development Refunding 5/02 at 102 Baa1 2,299,165 Revenue Bonds, 1992 Series A (Ashland Oil, Inc. Project), 6.900%, 5/01/10 1,000,000 Ohio Air Quality Development Authority, State of Ohio, Air 4/01 at 102 Baa1 1,062,490 Quality Development Refunding Revenue Bonds, Series 1992 (Ashland Oil, Inc. Project), 6.850%, 4/01/10 - ---------------------------------------------------------------------------------------------------------------------------------- Health Care -- 14.9% 1,250,000 County of Butler, Ohio, Hospital Facilities Revenue Refunding and 1/02 at 102 BBB-- 1,357,088 Improvement Bonds, Series 1991 (Fort Hamilton-Hughes Memorial Hospital Center), 7.500%, 1/01/10 City of Cambridge, Ohio, Hospital Revenue Refunding Bonds, Series 1991 (Guernsey Memorial Hospital Project): 500,000 8.000%, 12/01/06 12/01 at 102 BBB 556,610 1,000,000 8.000%, 12/01/11 12/01 at 102 BBB 1,112,190 29 254 Portfolio of Investments Nuveen Flagship Ohio Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Health Care (continued) $ 1,500,000 County of Cuyahoga, Ohio, Hospital Improvement and Refunding Revenue 1/06 at 102 AAA $ 1,560,390 Bonds, Series 1996A (University Hospitals Health System, Inc. Project), 5.625%, 1/15/26 1,000,000 County of Cuyahoga, Ohio, Hospital Improvement and Refunding Revenue 2/07 at 102 AAA 1,046,190 Bonds, Series 1997 (The MetroHealth System Project), 5.625%, 2/15/17 2,000,000 Cuyahoga County, Ohio, Industrial Development Refunding Revenue Bonds, 8/01 at 103 AAA 2,206,320 Series 1991 (University Health Care Center Project), 7.300%, 8/01/11 2,010,000 County of Erie, Ohio, Hospital Improvement and Refunding Revenue Bonds, 1/02 at 102 A 2,195,302 Series 1992 (Firelands Community Hospital Project), 6.750%, 1/01/08 County of Franklin, Ohio, Hospital Refunding and Improvement Revenue Bonds, 1996 Series A (The Childrens Hospital Project): 1,575,000 5.750%, 11/01/15 11/06 at 101 Aa 1,667,689 5,275,000 5.875%, 11/01/25 11/06 at 101 Aa 5,614,130 County of Franklin, Ohio, Hospital Revenue Bonds, Holy Cross Health Systems Corporation, Series 1996: 965,000 5.800%, 6/01/16 6/06 at 102 AA 1,019,822 2,000,000 5.875%, 6/01/21 6/06 at 102 AA 2,142,960 1,500,000 Franklin County, Ohio, Hospital Revenue Refunding Bonds (Holy Cross 6/00 at 102 AAA 1,624,515 Health System--Mt. Carmel Health), Series 1990-A, 7.625%, 6/01/09 City of Garfield Heights, Ohio, Hospital Improvement and Refunding Revenue Bonds, Series 1992B (Marymount Hospital Project): 3,000,000 6.650%, 11/15/11 11/02 at 102 A 3,272,790 3,500,000 6.700%, 11/15/15 11/02 at 102 A 3,822,245 3,000,000 County of Hamilton, Ohio, Hospital Facilities Revenue Refunding Bonds, 1/03 at 102 A 3,246,030 Series 1992A (Bethesda Hospital, Inc.), 6.250%, 1/01/12 1,720,000 Franciscan Sisters of the Poor Health System, Inc., Hamilton County, 7/02 at 102 Baa1 1,858,305 Ohio, Health System Revenue Bonds, Providence Hospital Issue, Series 1992, 6.875%, 7/01/15 7,890,000 Lorain County, Ohio, Hospital Revenue Refunding, EMH Regional Medical 11/05 at 102 AAA 7,979,788 Center, 5.375%, 11/01/21 2,250,000 County of Lorain, Ohio, Hospital Facilities Revenue Bonds, Series 1997 B 9/07 at 102 AAA 2,326,163 (Catholic Healthcare Partners), 5.500%, 9/01/27 1,000,000 County of Lucas, Ohio, Hospital Improvement Revenue Bonds, Series 1990A 8/00 at 102 AAA 1,071,800 (St. Vincent Medical Center), 6.750%, 8/15/20 3,000,000 County of Lucas, Ohio, Hospital Improvement Revenue Bonds, Series 1992 8/02 at 102 AAA 3,289,470 (St. Vincent Medical Center), 6.500%, 8/15/12 500,000 Mansfield, Hospital Improvement Revenue (Mansfield General Hospital), 12/01 at 102 AAA 546,765 6.700%, 12/01/09 2,000,000 County of Marion, Ohio, Hospital Refunding and Improvement Revenue Bonds, 5/06 at 102 BBB+ 2,191,880 Series 1996 (The Community Hospital), 6.375%, 5/15/11 1,250,000 Maumee Hospital Facilities Revenue (St. Lukes Hospital), 5.800%, 12/01/14 12/04 at 102 AAA 1,338,788 4,405,000 County of Miami, Ohio, Hospital Facilities Revenue Refunding and 5/06 at 102 BBB 4,681,722 Improvement Bonds, Series 1996A (Upper Valley Medical Center), 6.250%, 5/15/16 4,205,000 Miami County, Ohio, Hospital Facilities Revenue Refunding & Improvement, 5/06 at 102 BBB 4,469,158 Upper Valley Medical Center, Series C, 6.250%, 5/15/13 City of Middleburg Heights, Ohio, Hospital Improvement Refunding Revenue Bonds, Series 1995 (Southwest General Health Center Project): 4,000,000 5.625%, 8/15/15 8/08 at 102 AAA 4,233,600 2,000,000 5.750%, 8/15/21 8/08 at 102 AAA 2,130,020 11,000,000 Montgomery County, Ohio, Health System Revenue Bonds, Franciscan Medical 1/08 at 102 Baa1 11,018,040 Center Dayton Campus Issue, Series 1997, 5.500%, 7/01/18 County of Montgomery, Ohio, Hospital Facilities Revenue Refunding and Improvement Bonds, Series 1996 (Kettering Medical Center): 1,500,000 5.625%, 4/01/16 4/06 at 102 AAA 1,568,490 7,000,000 6.250%, 4/01/20 No Opt. Call AAA 8,183,070 30 255 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Health Care (continued) $ 2,500,000 Montgomery County, Ohio, Sisters Charity Health Care, Series A, 5/03 at 101 AAA $ 2,755,325 6.250%, 5/15/08 2,790,000 City of Mount Vernon, Ohio, Hospital Refunding Revenue Bonds, Series 6/02 at 100 N/R 2,852,663 1986A (Knox Community Hospital), 7.875%, 6/01/12 1,725,000 County of Shelby, Ohio, Hospital Facilities Revenue Refunding and 9/02 at 102 BBB 1,929,326 Improvement Bonds, Series 1992 (The Shelby County Memorial Hospital Association), 7.700%, 9/01/18 2,750,000 County of Trumbull, Ohio, Hospital Refunding and Improvement Revenue 11/01 at 102 AAA 3,112,230 Bonds, Series 1991 (Trumbull Memorial Hospital Project), Series 1991 B, 6.900%, 11/15/12 750,000 County of Tuscarawas, Ohio, Hospital Facilities Revenue Bonds, Series 10/03 at 102 Baa2 800,843 1993A (Union Hospital Project), 6.500%, 10/01/21 1,500,000 Washington County (Marietta Area Health Care Project), 7.375%, 9/01/12 9/02 at 102 Baa1 1,649,175 - ----------------------------------------------------------------------------------------------------------------------------------- Housing/Multifamily -- 3.9% 16,160,000 County of Franklin, Ohio, Mortgage Revenue Bonds, Series 1997 (GNMA 10/07 at 103 Aaa 16,389,795 Collateralized -- Columbus Properties Project), 5.600%, 4/20/39 (Alternative Minimum Tax) 6,200,000 Hamilton County, Multi-Family Housing Revenue Bonds (Huntington 1/07 at 102 AAA 6,374,158 Meadows Project), Series 1997, 5.700%, 1/01/27 (Alternative Minimum Tax) 2,800,000 Ohio Capital Corporation for Housing, Mortgage Revenue Refunding, FHA, 11/02 at 100 AAA 2,827,832 Section 8 Assisted Project, Series C, 5.700%, 1/01/24 Ohio Capital Corporation for Housing, Multifamily Housing Refunding Revenue Bonds, Series 1989A: 310,000 7.500%, 11/01/11 11/02 at 100 AAA 326,291 1,215,000 7.600%, 11/01/23 11/02 at 100 AAA 1,278,836 - ----------------------------------------------------------------------------------------------------------------------------------- Housing/Single Family -- 5.7% 5,000,000 Ohio Housing Finance Agency, Residential Mortgage Revenue Bonds, 1996 9/07 at 102 AAA 5,141,450 Series B-3 (Mortgage-Backed Securities Program), 5.750%, 9/01/28 (Alternative Minimum Tax) 5,500,000 Ohio Housing Finance Agency, Residential Mortgage Revenue, Series C, 9/07 at 102 AAA 5,655,595 5.750%, 9/01/28 (Alternative Minimum Tax) 5,045,000 Ohio Housing Finance Agency, Residential Mortgage Revenue Bonds, 1997 3/08 at 101 AAA 5,136,415 Series D-1 (Mortgage-Backed Securities Program), 5.500%, 3/01/19 (Alternative Minimum Tax) 1,990,000 Ohio Housing Finance Agency, Residential Mortgage Revenue Bonds, 9/04 at 102 AAA 2,110,156 Series 1994-A1 (GNMA Mortage-Backed Securities Program), 6.100%, 9/01/14 5,255,000 Ohio Housing Finance Agency, Residential Mortgage Revenue, Series B-1, 9/04 at 102 AAA 5,633,518 6.375%, 9/01/14 12,995,000 Ohio Housing Finance Agency, Residential Mortgage Revenue, Series A-1, 9/07 at 102 AAA 13,785,226 6.150%, 3/01/29 (Alternative Minimum Tax) 590,000 Ohio Housing Finance Agency, Single Family Mortgage Revenue Bonds (GNMA 3/00 at 102 AAA 617,146 Mortgage-Backed Securities Program), 1990 Series A, 7.400%, 9/01/15 600,000 Ohio Housing Finance Agency, Single Family Mortgage Revenue Bonds 9/00 at 102 AAA 632,526 (GNMA Mortgage-Backed Securities Program), 1990 Series D, 7.500%, 9/01/13 265,000 Ohio Housing Finance Agency, Single Family Mortgage Revenue Bonds (GNMA 9/01 at 102 AAA 280,932 Mortgage-Backed Securities Program), 1991 Series D, 7.050%, 9/01/16 - ----------------------------------------------------------------------------------------------------------------------------------- Industrial/Other -- 0.4% 2,860,000 Cleveland-Cuyahoga County Port Authority (Ohio), Development Revenue 5/08 at 102 N/R 2,773,142 Bonds (Port of Cleveland Bond Fund -- Jergens, Inc., Project), Series 1998A, 5.375%, 5/15/18 (Alternative Minimum Tax) - ----------------------------------------------------------------------------------------------------------------------------------- Long Term Care -- 3.5% 4,030,000 County of Cuyahoga, Ohio, Health Care Facilities Revenue Bonds, Series 6/00 at 100 N/R 4,355,261 1990 (Altenheim Project), 9.280%, 6/01/15 2,500,000 Fairlawn, Ohio, Health Care Facilities Revenue Bonds, Series 1989 (The 10/99 at 102 N/R 2,637,150 Village at Saint Edward Project), 8.750%, 10/01/19 1,500,000 County of Franklin, Ohio, Health Care Facilities Revenue Bonds, Series 7/03 at 102 N/R 1,524,015 1993 (Ohio Presbyterian Retirement Services), 6.500%, 7/01/23 31 256 Portfolio of Investments Nuveen Flagship Ohio Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Long Term Care (continued) $ 3,120,000 County of Franklin, Ohio, Health Care Facilities Revenue Bonds, Series 11/05 at 102 Aa2 $ 3,309,384 1995 (Heinzerling Foundation), 6.200%, 11/01/20 1,350,000 County of Franklin, Ohio, Hospital Facilities Mortgage Revenue Bonds, 7/01 at 103 N/R 1,511,744 1991 Series A (Ohio Presbyterian Retirement Services), 8.750%, 7/01/21 670,000 Franklin County, Hospital Revenue Refunding, FHA Insured Mortgage Loan 8/00 at 102 N/R 698,984 (Worthington Christian Village Nursing Home), 7.000%, 8/01/16 County of Marion, Ohio, Health Care Facilities Refunding and Improvement Revenue Bonds, Series 1993 (United Church Homes, Inc. Project): 1,250,000 6.375%, 11/15/10 11/03 at 102 BBB 1,324,788 750,000 6.300%, 11/15/15 11/03 at 102 BBB 791,453 2,175,000 City of Napoleon, Ohio, Health Care Facilities Mortgage Revenue 9/04 at 102 Aa 2,404,898 Refunding Bonds, Series 1994 (The Lutheran Orphans and Old Folks Home Society at Napoleon, Ohio, Inc., FHA Insured Project), 6.875%, 8/01/23 4,775,000 County of Warren, Ohio, Hospital Facilities Improvement and Refunding 7/01 at 102 Aa2 5,286,594 Revenue Bonds, Series 1991 (Otterbein Home Project), 7.200%, 7/01/11 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Obligation/General--17.7% Adams County/Ohio Valley School District, Counties of Adams and Highland, Ohio, School Improvement Unlimited Tax General Obligation Bonds, Series 1995: 6,000,000 7.000%, 12/01/15 No Opt. Call AAA 7,485,780 9,500,000 5.250%, 12/01/21 12/05 at 102 AAA 9,528,215 3,955,000 City of Akron, Ohio, General Obligation Bonds, Various Purpose 12/04 at 102 AAA 4,511,271 Improvement Bonds, Series 1994 (Limited Tax), 6.750%, 12/01/14 Anthony Wayne Local School District, Lucas, Wood and Fulton Counties, Ohio, School Facilities Construction and Improvement Bonds: 600,000 0.000%, 12/01/13 No Opt. Call AAA 278,994 2,850,000 5.750%, 12/01/24 12/05 at 101 AAA 3,000,651 1,000,000 Archbold Area Local School District, General Obligation Bonds 12/06 at 102 AAA 1,089,740 (Unlimited Tax), Series 1996, 6.000%, 12/01/21 1,000,000 Aurora City School District, Ohio, General Obligation (Unlimited Tax), 12/05 at 102 AAA 1,071,350 School Improvement Bonds, Series 1995, 5.800%, 12/01/16 2,905,000 Board of Education, Batavia Local School District, County of Clermont, 12/05 at 102 AAA 3,337,787 Ohio, School Improvement Bonds, Series 1995 (Unlimited Tax), Bank Qualified, 6.300%, 12/01/22 1,000,000 Board of Education, Beavercreek Local School District, County of No Opt. Call AAA 1,203,020 Greene, Ohio, School Improvement Bonds, Series 1996 (Unlimited Tax General Obligation), 6.600%, 12/01/15 2,500,000 Buckeye Valley Local School District, Ohio, General Obligation No Opt. Call AAA 3,077,275 (Unlimited Tax), School Improvement Bonds, Series 1995A, 6.850%, 12/01/15 Chesapeake-Union Exempt Village School District, Ohio, General Obligation Bonds, Series 1986: 125,000 8.500%, 12/01/04 No Opt. Call N/R 152,495 125,000 8.500%, 12/01/05 No Opt. Call N/R 155,153 125,000 8.500%, 12/01/06 No Opt. Call N/R 157,436 125,000 8.500%, 12/01/07 No Opt. Call N/R 159,914 125,000 8.500%, 12/01/08 No Opt. Call N/R 162,150 130,000 8.500%, 12/01/09 No Opt. Call N/R 170,654 4,745,000 City of Cleveland, Ohio, Various Purpose General Obligation Bonds, 11/04 at 102 AAA 5,467,047 Series 1994, 6.625%, 11/15/14 550,000 County of Columbiana, Ohio, County Jail Facilities Construction Bonds 12/04 at 102 AA 634,387 (General Obligation--Unlimited Tax), 6.600%, 12/01/17 1,500,000 City of Columbus, Ohio, General Obligation Refunding Bonds, Series 1/02 at 102 Aaa 1,634,340 1992B, 6.500%, 1/01/10 City of Columbus, Franklin County, Ohio, General Obligation Bonds: 590,000 9.375%, 4/15/06 No Opt. Call AAA 784,741 500,000 9.375%, 4/15/07 No Opt. Call AAA 680,035 32 257 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/General (continued) $ 1,000,000 County of Cuyahoga, Ohio, General Obligation Various Purpose No Opt. Call AA+ $1,057,320 Refunding Bonds, Series 1993B (Limited Tax Obligation), 5.250%, 10/01/13 1,345,000 County of Cuyahoga, Ohio, General Obligation Bonds (Limited Tax No Opt. Call AA+ 1,468,888 Obligation), 5.650%, 5/15/18 200,000 City of Dayton, Ohio, General Obligation Bonds, Limited Tax, No Opt. Call A+ 217,036 10.500%, 10/01/99 750,000 City of Defiance, Ohio, Waterworks System Improvement Bonds, Series 12/04 at 102 AAA 830,205 1994, 6.200%, 12/01/20 Delaware City School District, Delaware County, Ohio, School Facilities Construction and Improvement Bonds (General Obligation - Unlimited Tax): 1,000,000 0.000%, 12/01/10 No Opt. Call AAA 554,600 1,000,000 0.000%, 12/01/11 No Opt. Call AAA 522,130 250,000 East Holmes Local School District, Ohio, School Improvement 12/98 at 102 AAA 259,728 Refunding Bonds, General Obligation - Unlimited Tax, 7.700%, 12/01/08 1,110,000 City of Fairborn, Ohio, General Obligation Bonds, Utility 10/02 at 102 AAA 1,241,158 Improvement Bonds, Series 1991, 7.000%, 10/01/11 4,040,000 County of Franklin, Ohio, Refunding Bonds, Series 1993 (Limited Tax 12/08 at 102 AAA 4,130,536 General Obligation Bonds), 5.375%, 12/01/20 1,575,000 Garaway Local School District, Ohio, School Improvement Bonds, 12/00 at 102 AAA 1,714,640 Series 1990 (General Obligation - Unlimited Tax Bonds), 7.200%, 12/01/14 620,000 County of Geauga, Ohio, General Obligation (Limited Tax), Sewer No Opt. Call Aa 751,607 District Improvement Bonds (Bainbridge Water Project), 6.850%, 12/01/10 1,000,000 Grandview Heights City School District, Franklin County, Ohio, 12/05 at 101 AA 1,078,940 School Facilities Construction and Improvement Bonds (General Obligation - Unlimited Tax), 6.100%, 12/01/19 1,000,000 Highland Local School District, Morrow and Delaware Counties, Ohio, 12/07 at 102 AAA 1,077,670 School Facilities Construction and Improvement Bonds (General Obligation - Unlimited Tax), 5.875%, 12/01/19 1,000,000 Huron County, Ohio, Correctional Facility Bonds (Limited Tax General 12/07 at 102 AAA 1,091,440 Obligation), 5.850%, 12/01/16 1,000,000 Indian Valley Local School District, Ohio, General Obligation 12/05 at 102 AAA 1,060,070 (Unlimited Tax), School Improvement Bonds, Series 1995, 5.750%, 12/01/19 1,200,000 County of Jefferson, Ohio, Human Services Building Construction 12/01 at 102 AAA 1,324,428 Bonds, Series 1991 (General Obligation - Limited Tax), 6.625%, 12/01/14 1,885,000 City of Kent, Ohio, General Obligation (Limited Tax), Sewer System 12/02 at 102 Aa3 2,076,177 Improvement Refunding Bonds, Series 1992, 6.500%, 12/01/10 1,070,000 Kettering, Ohio, 6.650%, 12/01/12 12/01 at 102 Aa3 1,167,616 1,000,000 Kettering City School District, General Obligation Unlimited Tax, 12/05 at 101 AAA 1,002,720 5.250%, 12/01/22 500,000 Kings Local School District, General Obligation (Unlimited Tax), 12/05 at 100 AAA 513,910 School Improvement Bonds, Series 1995, 5.500%, 12/01/21 500,000 Kirtland Local School District, Ohio, School Improvement Bonds, 12/99 at 102 N/R 532,465 Series 1989, General Obligation Unlimited Tax Bonds, 7.500%, 12/01/09 1,000,000 Lakeview, Ohio, Local School District, 6.900%, 12/01/14 12/04 at 102 AAA 1,170,260 1,440,000 Lakewood, Ohio, Series B, 5.750%, 12/01/15 12/05 at 102 Aa3 1,530,994 1,000,000 Lakota Local School District, County of Butler, Ohio, School 12/05 at 100 AAA 1,120,440 Improvement Unlimited Tax General Obligation Bonds, Series 1994, 6.125%, 12/01/17 Logan County, Ohio, Series 1986: 155,000 7.750%, 12/01/02 No Opt. Call A 177,340 155,000 7.750%, 12/01/03 No Opt. Call A 181,341 155,000 7.750%, 12/01/04 No Opt. Call A 185,017 155,000 7.750%, 12/01/05 No Opt. Call A 187,941 155,000 7.750%, 12/01/06 No Opt. Call A 190,954 1,000,000 County of Lucas, Ohio, General Obligation (Limited Tax), Various 12/02 at 102 A 1,073,450 Purpose Improvement Bonds, Series 1992, 6.650%, 12/01/12 1,000,000 County of Lucas, Ohio, General Obligation (Limited Tax), Various 12/05 at 102 AAA 1,035,320 Purpose Improvement Bonds, Series 1995-1, 5.400%, 12/01/15 33 258 Portfolio of Investments Nuveen Flagship Ohio Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/General (continued) $ 1,000,000 County of Mahoning, Ohio, General Obligation Bonds, Various Purpose 12/99 at 102 AAA $ 1,067,130 Improvement Bonds, Series 1989, Limited Tax, 7.200%, 12/01/09 865,000 Marysville, Ohio, Exempt Village School District, Improvement, No Opt. Call AAA 344,331 0.000%, 12/01/16 1,215,000 Mason City School District, Counties of Warren and Butler, Ohio, School 12/09 at 101 Aa3 1,249,044 Improvement Unlimited Tax General Obligation Bonds, Series 1998, 5.300%, 2/01/17 3,000,000 North Canton City School District, Ohio, School Improvement Refunding Bonds, 12/08 at 101 Aaa 2,972,670 Series 1998 (General Obligation Unlimited Tax), 5.000%, 12/01/19 1,000,000 City of North Olmsted, Ohio, General Obligation (Limited Tax), Various 12/02 at 102 AAA 1,091,840 Purpose Bonds, Series 1992, 6.250%, 12/15/12 North Royalton City School District, Ohio, School Improvement Bonds, Series 1994: 2,200,000 6.000%, 12/01/14 12/09 at 102 AAA 2,473,526 2,400,000 6.100%, 12/01/19 12/09 at 102 AAA 2,658,288 600,000 Oak Hills, Ohio, Local School District, Series A, 5.700%, 12/01/25 12/07 at 101 Aa3 633,996 1,250,000 Oak Hills Local School District, Hamilton County, Ohio, School Facilities 12/07 at 101 AAA 1,243,600 Construction and Improvement Bonds, Series B, 5.125%, 12/01/25 1,000,000 State of Ohio, Full Faith and Credit, General Obligation Infrastructure No Opt. Call AA+ 1,138,830 Improvement Bonds, Series 1994, 6.000%, 8/01/10 Ohio State Infrastructure Improvement: 750,000 6.200%, 8/01/13 8/05 at 102 AA+ 849,893 2,000,000 6.200%, 8/01/14 8/05 at 102 AA+ 2,266,380 7,640,000 Ohio State, MBIA, 0.000%, 8/01/13 No Opt. Call AAA 3,611,504 500,000 Olmsted Falls, Ohio, Local School District, 7.050%, 12/15/11 12/01 at 102 AAA 558,875 1,750,000 Pickerington Local School District, Fairfield and Franklin Counties, Ohio, 12/01 at 102 A 1,886,780 General Obligation Bonds (Pickerington Public Library Project), Unlimited Tax, 6.750%, 12/01/16 Pickerington, Ohio, Local School District Refunding: 500,000 0.000%, 12/01/11 No Opt. Call AAA 261,065 500,000 0.000%, 12/01/13 No Opt. Call AAA 232,495 220,000 Puerto Rico Commonwealth Refunding, 8.000%, 7/01/07 7/98 at 102 A 225,124 2,500,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1998, 7/08 at 101 A 2,421,675 5.000%, 7/01/27 1,000,000 Revere Local School District, Ohio, School Improvement Bonds, Series 1993 12/03 at 102 AAA 1,087,570 (General Obligation Unlimited Tax Bonds), 6.000%, 12/01/16 1,200,000 Ridgemont Local School District, Ohio, General Obligation (Unlimited Tax), 12/02 at 102 N/R 1,319,772 School Improvement Bonds, Series 1992, 7.250%, 12/01/14 2,340,000 City of Stow, Ohio, Safety Center Construction Bonds (General Obligation 12/05 at 102 A1 2,538,572 Limited Tax), 6.200%, 12/01/20 2,870,000 City of Strongsville, Ohio, Various Purpose Improvement Bonds, Series 1996 12/06 at 102 Aa3 3,095,582 (General Obligation-Limited Tax), 5.950%, 12/01/21 540,000 Trumbull County, Ohio, 6.200%, 12/01/14 12/04 at 102 AAA 599,362 1,070,000 County of Trumbull, Ohio, Correctional Facilities Bonds, Series 1995 No Opt. Call AAA 1,238,343 (General Obligation Limited Tax), 7.000%, 12/01/04 1,320,000 Twinsburg, Ohio, City School District, Certificates Eligible, 12/01 at 102 AAA 1,444,819 6.700%, 12/01/11 Upper Arlington, Ohio, City School District: 1,830,000 0.000%, 12/01/11 No Opt. Call AAA 955,498 1,870,000 0.000%, 12/01/12 No Opt. Call AAA 917,441 1,000,000 Upper Arlington, Ohio, City School District, General Obligation Bonds, 12/06 at 101 AAA 995,480 Series 1996, Improvement Bonds, 5.125%, 12/01/19 1,910,000 Vandalia, Ohio, Various Purpose Improvement, 5.850%, 12/01/21 12/06 at 101 Aa 2,038,295 750,000 West Geauga Local School District, Ohio, School Improvement Bonds, 11/04 at 102 AAA 820,215 Series 1994 (General Obligation Unlimited Tax), 5.950%, 11/01/12 1,000,000 Woodridge, Ohio, Local School District, 6.000%, 12/01/19 12/04 at 102 AAA 1,091,050 34 259 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Tax Obligation/General (continued) $ 1,425,000 Wooster City School District, Wayne County, Ohio, General 12/02 at 102 AAA $ 1,589,075 Obligation Bonds (Unlimited Tax), School Building Construction and Improvement, 6.500%, 12/01/17 300,000 Youngstown, Ohio, 6.125%, 12/01/14 12/04 at 102 AAA 331,722 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Obligation/Limited--6.2% 500,000 County of Athens, Ohio, Community Mental Health Revenue Bonds, 1991 6/01 at 102 AA 539,050 Series I, 6.900%, 6/01/10 6,000,000 City of Cleveland, Ohio, Certificates of Participation, Series 11/07 at 102 AAA 6,015,240 1997, Cleveland Stadium Project, 5.250%, 11/15/27 1,500,000 Ohio State Building Authority (Juvenile Correctional Building), 9/04 at 102 AAA 1,694,565 6.600%, 10/01/14 1,100,000 Ohio State Department of Transportation, Certificates of 4/02 at 102 AAA 1,193,874 Participation, Panhandle Rail Line Project, Series A, 6.500%, 4/15/12 1,000,000 Ottawa County, Ohio, Special Assessment, Portage, Catawba Isle, 9/01 at 102 AAA 1,098,530 7.000%, 9/01/11 27,850,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/16 at 100 A 29,188,193 Bonds, Series Y of 1996, 5.500%, 7/01/36 2,700,000 Puerto Rico Public Buildings Authority, Revenue Guaranteed No Opt. Call A 2,868,210 Refunding, Series L, 5.500%, 7/01/21 - ------------------------------------------------------------------------------------------------------------------------------------ Technology--0.2% 1,000,000 County of Franklin, Ohio, Revenue Bonds, Series 1991 (OCLC - Online 7/01 at 100 N/R 1,059,920 Computer Library Center, Incorporated Project), 7.200%, 7/15/06 - ------------------------------------------------------------------------------------------------------------------------------------ Transportation--3.6% 9,840,000 City of Cleveland, Ohio, Airport System Revenue Bonds, Series 1/08 at 101 AAA 9,644,184 1997A, 5.125%, 1/01/27 (Alternative Minimum Tax) 4,000,000 City of Dayton, Ohio, Special Facilities Revenue Refunding Bonds, 2/08 at 102 BBB 4,026,640 Series 1998A (Emery Air Freight Corporation and Emery Worldwide Airlines, Inc.--Guarantors) (Non-AMT), 5.625%, 2/01/18 11,000,000 State of Ohio, Turnpike Revenue Bonds, 1996 Series A, Issued by No Opt. Call AAA 11,375,320 the Ohio Turnpike Commission, 5.500%, 2/15/26 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Guaranteed--19.6% 2,000,000 City of Athens (County of Athens, Ohio), Sanitary Sewer System 12/09 at 100 A*** 2,332,680 Mortgage Revenue Bonds, Series 1989, 7.300%, 12/01/14 (Pre-refunded to 12/01/09) 3,000,000 City of Barberton, Ohio, Hospital Facilities Revenue Bonds, Series 1/02 at 102 N/R*** 3,356,100 1992 (The Barberton Citizens Hospital Company Project), 7.250%, 1/01/12 (Pre-refunded to 1/01/02) 2,790,000 City of Bedford, Ohio, Hospital Facilities Refunding Revenue Bonds, 5/00 at 102 N/R*** 3,050,558 Series 1990 (The Community Hospital of Bedford, Inc.), 8.500%, 5/15/09 (Pre-refunded to 5/15/00) 1,000,000 Canal Winchester Local School District, Franklin and Fairfield 12/01 at 102 AAA 1,118,390 Counties, Ohio, General Obligation Bonds (Unlimited Tax), School Facilities Construction and Improvement, 7.100%, 12/01/13 (Pre-refunded to 12/01/01) 1,400,000 City of Canton, Ohio, General Obligation Bonds, Limited Tax, 12/98 at 103 A+*** 1,470,210 7.875%, 12/01/08 (Pre-refunded to 12/01/98) County of Clermont, Ohio, Hospital Facilities Revenue Bonds, Series 1989A (Mercy Health System, Province of Cincinnati): 3,660,000 7.500%, 9/01/19 (Pre-refunded to 9/01/99) 9/99 at 102 AAA 3,894,240 1,085,000 7.500%, 9/01/19 (Pre-refunded to 9/01/01) 9/01 at 100 AAA 1,197,829 County of Clermont, Ohio, Sewer System Revenue Bonds, Series 1990, Clermont County Sewer District: 1,000,000 7.250%, 12/01/11 (Pre-refunded to 12/01/00) 12/00 at 102 AAA 1,096,320 2,000,000 7.375%, 12/01/20 (Pre-refunded to 12/01/00) 12/00 at 102 AAA 2,198,560 3,700,000 County of Clermont, Ohio, Sewer System Revenue Bonds, Series 1991, 12/01 at 102 AAA 4,132,863 Clermont County Sewer District, 7.100%, 12/01/21 (Pre-refunded to 12/01/01) City of Cleveland, Ohio, General Obligation Bonds, Series 1988: 1,010,000 7.500%, 8/01/08 (Pre-refunded to 2/01/03) 2/03 at 100 AAA 1,152,046 1,010,000 7.500%, 8/01/09 (Pre-refunded to 2/01/03) 2/03 at 100 AAA 1,152,046 35 260 Portfolio of Investments Nuveen Flagship Ohio Municipal Bond Fund (continued) May 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed (continued) $ 500,000 City of Cleveland, Ohio, Various Purpose General Obligation Bonds, 7/02 at 102 AAA $ 551,170 Series 1992, 6.375%, 7/01/12 (Pre-refunded to 7/01/02) 790,000 Board of Education of the Cleveland City School District, Ohio, School 12/01 at 102 Aaa 911,858 Improvement Bonds, Series 1991 (General Obligation Unlimited Tax Bonds), 8.250%, 12/01/08 (Pre-refunded to 12/01/01) 10,000 City of Cleveland, Ohio, First Mortgage Revenue Refunding Bonds, Series F 1/02 at 102 AAA 10,978 1992-B, 6.500%, 1/01/11 (Pre-refunded to 1/01/02) 5,750,000 County of Cuyahoga, Ohio, Hospital Revenue Bonds (Meridia Health System), 8/05 at 102 AAA 6,548,100 Series 1995, 6.250%, 8/15/14 (Pre-refunded to 8/15/05) 1,250,000 Conversion and Remarketing of the County of Cuyahoga, Ohio, Hospital 10/00 at 103 N/R*** 1,377,538 Improvement Revenue Bonds (Deaconess Hospital of Cleveland Project), Series 1995B, 7.450%, 10/01/18 (Pre-refunded to 10/01/00) 1,000,000 County of Cuyahoga, Ohio, Hospital Revenue Improvement and Refunding 1/99 at 102 AAA 1,038,900 Bonds, Series 1989 A (University Hospitals Health System, Inc. Project), 6.875%, 1/15/19 (Pre-refunded to 1/15/99) 4,000,000 County of Cuyahoga, Ohio, Hospital Facilities Revenue Bonds, Series 1989 8/99 at 102 Aaa 4,239,400 (Fairview General Hospital), 7.375%, 8/01/19 (Pre-refunded to 8/01/99) 5,750,000 County of Cuyahoga, Ohio, Hospital Revenue Bonds, Series 1990 (Meridia 8/00 at 102 AAA 6,255,540 Health System), 7.250%, 8/15/19 (Pre-refunded to 8/15/00) 4,990,000 County of Cuyahoga, Ohio, Distribution System Improvement Revenue Bonds, 6/99 at 102 N/R*** 5,278,672 Series 1989 (The Medical Center Company Project), 7.800%, 6/01/09 (Pre-refunded to 6/01/99) 1,000,000 City of Delphos, Ohio, Sewer System Mortgage Revenue Bonds, Series 1990, 9/00 at 102 AAA 1,088,500 7.250%, 9/01/20 (Pre-refunded to 9/01/00) 2,600,000 County of Erie, Ohio, Franciscan Services Corporation, Revenue Bonds, 1/99 at 102 N/R*** 2,708,498 Series 1989A (Providence Hospital, Inc), 7.625%, 1/01/19 (Pre-refunded to 1/01/99) 1,500,000 City of Findlay, Ohio, General Obligation Bonds, 7.200%, 8/01/11 (Pre- 8/99 at 102 AA-*** 1,586,790 refunded to 8/01/99) 1,350,000 County of Franklin, Ohio, Hospital Facilities Improvement Revenue Bonds, 5/00 at 102 AAA 1,458,122 Series 1990A (Riverside United Methodist Hospital Project), 7.250%, 5/15/20 (Pre-refunded to 5/15/00) 1,000,000 County of Franklin, Ohio, Hospital Facilities Refunding and Improvement 5/00 at 102 AAA 1,086,630 Revenue Bonds, Series 1990B (Riverside United Methodist Hospital Project), 7.600%, 5/15/20 (Pre-refunded to 5/15/00) 1,000,000 Board of Education, Gahanna-Jefferson City School District, Franklin 12/00 at 102 N/R*** 1,091,860 County, Ohio, General Obligation Bonds, Series 1990 A, 7.125%, 12/01/14 (Pre-refunded to 12/01/00) 6,750,000 City of Hamilton, Ohio, Electric System Mortgage Revenue Bonds, 1988 10/98 at 102 AAA 6,991,988 Series B, 8.000%, 10/15/22 (Pre-refunded to 10/15/98) 1,495,000 County of Hamilton, Ohio, Judson Care Center Nursing Home and Board 8/00 at 101 1/4 AA-*** 1,629,490 and Care Project (FHA Insured Mortgage), 7.800%, 8/01/19 (Pre- refunded to 8/01/00) 2,325,000 Hancock County, Ohio, Hospital Facilities Revenue Bonds, Series 1989 11/98 at 103 A+*** 2,434,926 (Blanchard Valley Hospital), 7.625%, 11/15/14 (Pre-refunded to 11/15/98) 1,000,000 Hudson Local School District, General Obligation Unlimited Tax, 7.100%, 12/00 at 102 A1*** 1,093,040 12/15/13 (Pre-refunded to 12/15/00) 1,000,000 Board of Education of the Hudson Local School District, Ohio, School 12/00 at 102 A1*** 1,094,310 Facilities Improvement Bonds, Series 1991A, 7.100%, 12/15/14 (Pre- refunded to 12/15/00) 1,500,000 City of Lorain, Ohio, Hospital Refunding Revenue Bonds, Series 1992 11/02 at 102 A1 1,698,330 (Lakeland Community Hospital, Inc.), 6.500%, 11/15/12 1,500,000 County of Lucas, Ohio, Hospital Facilities Revenue Bonds, Series 1991 12/01 at 102 N/R*** 1,720,500 (Flower Memorial Hospital), 8.125%, 12/01/11 (Pre-refunded to 12/01/01) 2,000,000 County of Mahoning, Ohio, Hospital Improvement and Refunding Revenue No Opt. Call A1 2,127,000 Bonds, Series 1986 (St. Elizabeth Hospital Medical Center Project), 7.375%, 12/01/09 4,250,000 County of Mahoning, Ohio, Hospital Improvement Revenue Bonds, Series 1991 10/02 at 100 AAA 4,732,758 (YHA, Inc. Project), Series 1991A, 7.000%, 10/15/14 (Pre-refunded to 10/15/02) 1,150,000 County of Marion, Ohio, Health Care Facilities Revenue Bonds, Series 1990 12/99 at 103 N/R*** 1,264,977 (United Church Homes, Inc.), 8.875%, 12/01/12 (Pre-refunded to 12/01/99) 36 261 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Guaranteed (continued) $ 1,000,000 The Board of Education of the Marysville Exempted Village 12/00 at 102 AAA $ 1,095,140 School District, Union County, Ohio, School Improvement Bonds, General Obligation (Unlimited Taxes), 7.200%, 12/01/10 (Pre-refunded to 12/01/00) 1,250,000 City of Marysville, Ohio, Water System Mortgage Revenue Bonds, 12/01 at 101 AAA 1,383,350 Series 1991, 7.050%, 12/01/21 (Pre-refunded to 12/01/01) 1,850,000 Massillon City School District, Ohio, General Obligation 12/00 at 102 AAA 2,026,009 Unlimited Tax Bonds, School Improvement Bonds, Series 1990, 7.200%, 12/01/11 (Pre-refunded to 12/01/00) 1,000,000 Board of Education of the Mentor Exempted Village School 12/02 at 100 AAA 1,071,170 District, Ohio, Improvement Bonds, Series 1989 (General Obligation Bonds), 7.400%, 12/01/11 (Pre-refunded to 12/01/02) 3,000,000 City of Middleburg Heights, Ohio, Hospital Improvement Revenue 8/01 at 102 AAA 3,333,900 Bonds, Series 1991 (Southwest General Hospital Project), 7.200%, 8/15/19 (Pre-refunded to 8/15/01) Ohio Housing Finance Agency, Single Family Mortgage Revenue (Mandatory redemption at 7/15/11): 6,460,000 0.000%, 1/15/15 (Pre-refunded to 1/15/11) 1/11 at 67 1/32 AAA 2,360,290 5,700,000 0.000%, 1/15/15 (Pre-refunded to 7/15/11) 7/11 at 70 15/32 AAA 2,137,329 20,000 Ohio Building Authority, State Facilities Refunding Bonds 4/03 at 100 AAA 24,000 (Frank J. Lausche State Office Building), 1982 Series A, 10.125%, 10/01/06 (Pre-refunded to 4/01/03) 3,250,000 State of Ohio (Ohio Building Authority), State Correctional 8/99 at 102 Aaa 3,444,740 Facilities Bonds, 1986 Series A, 7.350%, 8/01/06 (Pre-refunded to 8/01/99) 1,000,000 State of Ohio, Ohio Higher Educational Facilities Commission 5/00 at 100 AAA 1,063,090 (Ohio Northern University Project), 7.300%, 5/15/10 (Pre-refunded to 5/15/00) 1,900,000 Ohio State Public Facilities Commission, Higher Education 11/99 at 102 AA-*** 1,996,406 Facilities, Series A, 7.250%, 5/01/04 (Pre-refunded to 11/01/99) 4,630,000 Ohio Water Development Authority, State of Ohio, Water Development No Opt. Call AAA 5,131,707 Revenue Bonds, Pure Water 1990 Series I, 6.000%, 12/01/16 1,000,000 City of Parma, Ohio, Various Purpose General Obligation Bonds, 12/00 at 102 A*** 1,105,100 Series 1990 (Limited Tax Obligation), 7.600%, 12/01/11 (Pre-refunded to 12/01/00) 1,600,000 Pickerington, Ohio, Local School District, Series B, 7.250%, 12/00 at 102 AAA 1,755,728 12/01/13 (Pre-refunded to 12/01/00) Puerto Rico Aqueduct and Sewer Authority, Revenue Bonds, Series 1988A: 1,000,000 7.900%, 7/01/07 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 1,023,480 3,600,000 7.875%, 7/01/17 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 3,684,456 700,000 Puerto Rico Commonwealth Highway Authority, Highway Revenue, 7/00 at 102 AAA 766,661 Series Q, 7.750%, 7/01/10 (Pre-refunded to 7/01/00) 1,500,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/01 at 102 Aaa 1,656,705 Series P, 7.000%, 7/01/21 (Pre-refunded to 7/01/01) 3,165,000 Reynoldsburg City School District, Ohio, General Obligation 12/02 at 102 AAA 3,535,843 Bonds, School Building Construction and Improvement, 6.550%, 12/01/17 (Pre-refunded to 12/01/02) 605,000 Scioto County, Ohio, Human Services Building Bonds, General 8/01 at 101 N/R*** 666,250 Obligation, 7.150%, 8/01/11 (Pre-refunded to 8/01/01) 750,000 Southwest Local School District, Ohio, Hamilton County, 12/99 at 103 AAA 813,645 7.650%, 12/01/10 (Pre-refunded to 12/01/99) 1,500,000 County of Stark, Ohio, Sanitary Sewerage System Revenue Bonds, 11/98 at 102 AAA 1,557,240 Series 1988, 7.750%, 11/15/18 (Pre-refunded to 11/15/98) 1,000,000 Sylvania, Ohio, City School District, 6.600%, 6/01/16 6/02 at 102 AAA 1,109,070 1,000,000 University of Cincinnati, General Receipts Bonds, Series O, 12/02 at 102 AA*** 1,105,670 6.300%, 6/01/12 (Pre-refunded to 12/01/02) 1,250,000 City of Warren, Ohio, General Obligation Limited Tax, Various 11/98 at 102 BBB+*** 1,302,650 Purpose Improvement Bonds, 8.625%, 11/15/13 (Pre-refunded to 11/15/98) 1,500,000 City of Warren, Ohio, General Obligation (Limited Tax), 11/00 at 102 BBB+*** 1,658,100 Sewerage System Improvement Bonds, Series 1990, 7.750%, 11/01/10 (Pre-refunded to 11/01/00) 1,500,000 Westerville, Minerva Park and Blendon, Ohio, Joint Township Hospital 9/01 at 102 AAA 1,665,690 District (St. Anns Hospital Project), Series 1991A, 7.100%, 9/15/21 (Pre-refunded to 9/15/01) 37 262 PORTFOLIO OF INVESTMENTS NUVEEN FLAGSHIP OHIO MUNICIPAL BOND FUND (Continued) MAY 31, 1998 Principal Optional Call Market Amount Description Provisions* Ratings** Value - ----------------------------------------------------------------------------------------------------------------------------------- Utilities - 11.2% City of Cleveland, Ohio, Public Power System, First Mortgage Revenue Bonds, Series 1994A: $ 2,250,000 0.000%, 11/15/12 No Opt. Call AAA $ 1,106,280 1,535,000 0.000%, 11/15/13 No Opt. Call AAA 715,325 10,685,000 City of Cleveland, Ohio, Public Power System Improvement, First 11/01 at 102 AAA 11,769,634 Mortgage Revenue Bonds, Series 1991B, 7.000%, 11/15/17 1,900,000 Cleveland Public Power System, 7.000%, 11/15/17 11/01 at 102 AAA 2,092,869 4,900,000 City of Cleveland, Ohio, Public Power System, First Mortgage Revenue 11/06 at 102 AAA 4,829,146 Refunding Bonds, Series 1996, Sub-Series 1, 5.000%, 11/15/24 7,520,000 Ohio Municipal Electric Generation Agency (American Municipal Power - 2/03 at 102 AAA 7,605,878 Ohio, Inc.), 5.375%, 2/15/24 Ohio Air Quality Development Authority, Revenue Bonds, 1985 Series A (Columbus Southern Power Company Project): 1,750,000 6.375%,12/01/20 12/02 at 102 AAA 1,903,615 7,000,000 6.250%,12/01/20 6/03 at 102 Baa1 7,362,810 750,000 State of Ohio, Pollution Control Revenue Refunding Bonds, Ohio Air 7/99 at 102 Baa3 785,715 Quality Development Authority, 1989 Series B (Ohio Edison Company Project), 7.625%, 7/01/23 5,900,000 Ohio Air Quality Development Authority, State of Ohio, Air Quality 8/99 at 102 Baa1 6,162,137 Development Revenue Refunding Bonds (Ohio Power Company Project), Series B, 7.400%, 8/01/09 2,000,000 Ohio Air Quality Development Authority, State of Ohio, Pollution 3/00 at 102 AAA 2,142,360 Control Revenue Refunding Bonds, 1990 Series A (Ohio Edison Company Project), 7.450%, 3/01/16 15,000,000 State of Ohio, Ohio Air Quality Development Authority, Revenue 9/05 at 102 A+ 16,187,700 Refunding Bonds, 1995 Series (The Dayton Power and Light Company Project), 6.100%, 9/01/30 6,000,000 State of Ohio, Ohio Air Quality Development Authority, Air Quality 4/07 at 102 AAA 6,239,040 Development Revenue Bonds (JMG Funding, Limited Partnership Project), Series 1997, 5.625%, 1/01/23 (Alternative Minimum Tax) 500,000 Ohio Water Development Authority, State of Ohio, Collateralized Water 8/02 at 102 AA- 540,015 Development Revenue Refunding Bonds, 1992 Series A (The Dayton Power and Light Company Project), 6.400%, 8/15/27 7,050,000 Ohio Water Development Authority, Pollution Control Revenue (Ohio 7/99 at 102 Baa3 7,377,261 Edison Company), 7.625%, 7/01/23 1,545,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly Puerto No Opt. Call BBB+ 595,196 Rico Commonwealth Water Resource Authority Power, Series O, 0.000%, 7/01/17 - ----------------------------------------------------------------------------------------------------------------------------------- Water and Sewer - 6.5% City of Bellefontaine, Ohio, Sewer System, First Mortgage Revenue Refunding and Improvement Bonds (Bank Qualified): 1,000,000 6.800%, 12/01/07 12/02 at 101 Baa1 1,084,870 1,000,000 6.900%, 12/01/11 12/02 at 101 Baa1 1,088,020 3,000,000 County of Butler, Ohio, Sewer System Revenue Bonds, Series 1996, 12/06 at 101 AAA 3,008,910 5.250%, 12/01/21 13,000,000 City of Cleveland, Ohio, Waterworks Improvement, First Mortgage No Opt. Call AAA 14,039,220 Refunding Revenue Bonds, Series 1993-G, 5.500%, 1/01/21 City of Cleveland, Ohio, Waterworks Improvement, First Mortgage Revenue Refunding Bonds, Series 1996-H: 2,320,000 5.750%, 1/01/21 1/06 at 102 AAA 2,452,959 5,850,000 5.750%, 1/01/26 1/06 at 102 AAA 6,185,264 990,000 City of Cleveland, Ohio, Waterworks Improvement, First Mortgage 1/02 at 102 AAA 1,075,209 Revenue Refunding Bonds, Series 1992-B, 6.500%, 1/01/11 1,600,000 County of Greene, Ohio, Water System Revenue Bonds, Series 1996, 12/07 at 102 AAA 1,762,559 6.125%, 12/01/21 2,200,000 City of Greenville, Ohio (Dark County), Wastewater System, First 12/02 at 102 AAA 2,414,521 Mortgage Revenue Bonds, Series 1992 (Governmental Enterprise Revenue Bonds), 6.350%, 12/01/17 1,000,000 City of Hamilton, Ohio, Water System Mortgage Revenue Bonds, 1991 10/01 at 102 AAA 1,085,269 Series A, 6.400%, 10/15/10 795,000 City of Huber Heights, Ohio, Water System Revenue Bonds, Series 1995, No Opt. Call AAA 264,130 0.000%, 12/01/19 1,000,000 County of Montgomery, Ohio, Water Revenue Bonds, Greater 11/02 at 102 AAA 1,092,779 Moraine-Beavercreek Sewer District, Series 1992, 6.250%, 11/15/17 38 263 Principal Optional Call Market Amount Description Provisions* Ratings** Value - -------------------------------------------------------------------------------------------------------------------------------- Water and Sewer (continued) $ 1,000,000 Mount Gilead, Ohio, Water System, First Mortgage Revenue, 7.200%, 12/02 at 102 N/R $ 1,082,689 12/01/17 1,000,000 Ohio Water Development Authority, State of Ohio Water Development 6/05 at 102 AAA 1,068,359 Revenue Bonds, Fresh Water, Series 1995, 5.900%, 12/01/21 5,000,000 Ohio Water Development Authority, State of Ohio Water Development 6/08 at 101 AAA 4,975,299 Revenue Bonds, Fresh Water, Series 1998, 5.125%, 12/01/23 750,000 Toledo, Ohio, Sewer System Mortgage Revenue, 6.350%, 11/15/17 11/04 at 102 AAA 840,524 500,000 Toledo, Ohio, Waterworks Revenue Refunding Mortgage, 6.450%, 11/04 at 102 AAA 563,129 11/15/24 750,000 County of Warren, Ohio, Waterworks System Revenue Bonds, Series 12/02 at 102 AAA 829,102 1992, Warren County Water District, 6.600%, 12/01/16 - -------------------------------------------------------------------------------------------------------------------------------- $658,690,000 Total Investments -- (cost $627,367,527) -- 98.9% 681,649,166 ============-------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities -- 1.1% 7,848,963 ----------------------------------------------------------------------------------------------------------------- Net Assets -- 100% $689,498,129 ================================================================================================================= * Optional Call Provisions (not covered by the report of independent public accountants): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent public accountants): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. government or U.S. government agency securities which ensures the timely payment of principal and interest. Securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. See accompanying notes to financial statements. 39 264 Statement of Net Assets May 31,1998 Kentucky Kentucky Limited Term Michigan Ohio - ---------------------------------------------------------------------------------------------------------------------------------- Assets Investments in municipal securities, at market value (note 1) $477,311,529 $11,058,797 $340,187,675 $681,649,166 Temporary investments in short-term municipal securities, at amoritized cost, which approximates market value (note 1) 2,000,000 - - - Cash 324,141 142,320 997,437 2,061,114 Receivables: Fund manager (note 6) - 1,031 - - Interest 7,336,323 144,653 5,269,075 12,649,721 Investments sold - 627,300 315,000 390,000 Shares sold 648,011 - 1,175,888 598,019 Other assets 165,937 33,104 165,975 320,708 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets 487,785,941 12,007,205 348,111,050 697,668,728 - ---------------------------------------------------------------------------------------------------------------------------------- Liabilities Payables: Investments purchased - 500,000 5,554,721 4,000,000 Shares redeemed 476,076 - 855,552 675,205 Accrued expenses: Management fees (note 6) 216,069 - 154,381 307,873 12b-1 distribution and service fees (notes 1 and 6) 97,524 2,654 75,351 114,631 Other 74,388 42,978 18,381 186,054 Dividends payable 2,004,845 40,936 1,388,074 2,886,836 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 2,868,902 586,568 8,046,460 8,170,599 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets (note 7) $484,917,039 $11,420,637 $340,064,590 $689,498,129 ================================================================================================================================== Class A Shares (note 1) Net assets $451,337,877 $ 8,988,770 $263,632,098 $472,820,542 Shares outstanding 39,619,843 888,181 21,836,586 40,290,430 Net asset value and redemption price per share $ 11.39 $ 10.12 $ 12.07 $ 11.74 Offering price per share (net asset value per share plus maximum sales charge of 4.20%, 2.50%, 4.20% and 4.20%, respectively of offering price) $ 11.89 $ 10.38 $ 12.60 $ 12.25 ================================================================================================================================== Class B Shares (note 1) Net assets $ 4,273,347 N/A $ 3,838,585 $ 7,421,912 Shares outstanding 375,057 N/A 317,623 632,682 Net asset value, offering and redemption price per share $ 11.39 N/A $ 12.09 $ 11.73 ================================================================================================================================== Class C Shares (note 1) Net assets $ 28,630,427 $ 2,416,140 $ 45,689,614 $ 47,035,721 Shares outstanding 2,514,961 238,841 3,789,908 4,010,159 Net asset value, offering and redemption price per share $ 11.38 $ 10.12 $ 12.06 $ 11.73 ================================================================================================================================== Class R Shares (note 1) Net assets $ 675,388 $ 15,727 $ 26,904,293 $162,219,954 Shares outstanding 59,405 1,557 2,228,513 13,824,489 Net asset value, offering and redemption price per share $ 11.37 $ 10.10 $ 12.07 $ 11.73 ================================================================================================================================== N/A - Kentucky Limited Term is not authorized to issue Class B Shares. See accompanying notes to financial statements. 40 265 Statement of Operations Year Ended May 31, 1998 Kentucky Limited Kentucky Term Michigan Ohio - --------------------------------------------------------------------------------------------------------------------------------- Investment Income (note 1) $28,198,412 $589,327 $19,875,897 $40,990,841 - --------------------------------------------------------------------------------------------------------------------------------- Expenses Management fees (note 6) 2,537,577 52,982 1,804,027 3,609,901 12b-1 service fees -- Class A (notes 1 and 6) 888,602 18,810 525,468 946,661 12b-1 distribution and service fees -- Class B (notes 1 and 6) 22,890 N/A 14,397 40,065 12b-1 distribution and service fees -- Class C (notes 1 and 6) 203,304 12,956 328,163 324,807 Shareholders' servicing agent fees and expenses 238,250 3,712 167,041 515,446 Custodian's fees and expenses 82,943 43,066 77,583 119,003 Trustees' fees and expenses (note 6) 8,672 172 6,733 12,743 Professional fees 24,075 9,475 13,720 18,392 Shareholders' reports - printing and mailing expenses 99,639 1,536 63,857 142,305 Federal and state registration fees 17,381 12,821 5,742 2,611 Organizational expenses (note 1) -- 9,800 -- -- Other expenses 19,458 453 4,739 15,695 - --------------------------------------------------------------------------------------------------------------------------------- Total expenses before expense reimbursement 4,142,791 165,783 3,011,470 5,747,629 Expense reimbursement (note 6) (310,289) (79,972) -- -- - --------------------------------------------------------------------------------------------------------------------------------- Net expenses 3,832,502 85,811 3,011,470 5,747,629 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income 24,365,910 503,516 16,864,427 35,243,212 - --------------------------------------------------------------------------------------------------------------------------------- Realized and Unrealized Gain from Investments Net realized gain from investment transactions (notes 1 and 4) 2,172,160 32,390 1,595,690 4,967,956 Net change in unrealized appreciation or depreciation of investments 14,097,294 204,860 10,225,980 16,619,119 - --------------------------------------------------------------------------------------------------------------------------------- Net gain from investments 16,269,454 237,250 11,821,670 21,587,075 - --------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets from operations $40,635,364 $740,766 $28,686,097 $56,830,287 ================================================================================================================================= N/A -- Kentucky Limited Term is not authorized to issue Class B Shares. See accompanying notes to financial statements. 41 266 Statement of Changes in Net Assets Kentucky Kentucky Limited Term ---------------------------- --------------------------- Year Ended Year Ended Year Ended Year Ended 5/31/98 5/31/97* 5/31/98 5/31/97** - ----------------------------------------------------------------------------------------------------------------------------------- Operations Net investment income $ 24,365,910 $ 24,225,117 $ 503,516 $ 418,298 Net realized gain (loss) from investment transactions (notes 1 and 4) 2,172,160 1,216,787 32,390 (70,626) Net change in unrealized appreciation or depreciation of investments 14,097,294 8,326,260 204,860 204,943 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets from operations 40,635,364 33,768,164 740,766 552,615 - ----------------------------------------------------------------------------------------------------------------------------------- Distributions to Shareholders (note 1) From undistributed net investment income: Class A (22,954,811) (23,056,260) (409,988) (345,290) Class B (102,552) (3,383) N/A N/A Class C (1,254,173) (1,154,172) (94,041) (70,918) Class R (32,294) (8,367) (590) (1) From accumulated net realized gains from investment transactions: Class A (1,984,678) (227,076) -- -- Class B (10,705) -- N/A N/A Class C (120,396) (12,818) -- -- Class R (2,930) -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Decrease in net assets from distributions to shareholders (26,462,539) (24,462,076) (504,619) (416,209) - ----------------------------------------------------------------------------------------------------------------------------------- Fund Share Transactions (note 2) Net proceeds from sale of shares 47,501,865 45,888,380 3,676,589 5,492,681 Net proceeds from shares issued to shareholders due to reinvestment of distributions 15,618,317 13,715,085 312,624 263,078 - ----------------------------------------------------------------------------------------------------------------------------------- 63,120,182 59,603,465 3,989,213 5,755,759 - ----------------------------------------------------------------------------------------------------------------------------------- Cost of shares redeemed (48,645,223) (44,095,674) (3,818,637) (5,035,029) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets from Fund share transactions 14,474,959 15,507,791 170,576 720,730 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets 28,647,784 24,813,879 406,723 857,136 Net assets at the beginning of year 456,269,255 431,455,376 11,013,914 10,156,778 - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at the end of year $484,917,039 $456,269,255 $11,420,637 $11,013,914 =================================================================================================================================== Balance of undistributed net investment income at end of year $ 25,015 $ 2,935 $ 986 $ 2,089 =================================================================================================================================== * Information represents eight months of Flagship Kentucky and four months of Kentucky (note 1). ** Information represents eight months of Flagship Kentucky Limited Term and four months of Kentucky Limited Term (note 1). N/A -- Kentucky Limited Term is not authorized to issue Class B Shares. See accompanying notes to financial statements. 42 267 Statement of Changes in Net Assets Michigan Ohio --------------------------- --------------------------- Year Ended Year Ended Year Ended Year Ended 5/31/98 5/31/97* 5/31/98 5/31/97** - ------------------------------------------------------------------------------------------------------------------------------ Operations Net investment income $ 16,864,427 $ 16,075,312 $ 35,243,212 $ 29,268,587 Net realized gain from investment transactions (notes 1 and 4) 1,595,690 762,060 4,967,956 4,460,158 Net change in unrealized appreciation or depreciation of investments 10,225,980 7,545,758 16,619,119 4,107,165 - ------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets from operations 28,686,097 24,383,130 56,830,287 37,835,910 - ------------------------------------------------------------------------------------------------------------------------------ Distributions to Shareholders (note 1) From undistributed net investment income: Class A (13,344,536) (13,549,214) (24,388,584) (24,358,638) Class B (63,731) (2,097) (182,260) (10,649) Class C (1,982,594) (2,012,105) (2,008,254) (1,876,872) Class R (1,409,716) (479,101) (8,687,614) (2,962,615) From accumulated net realized gains from investment transactions: Class A (597,076) (280,388) (1,996,392) -- Class B (3,361) -- (16,956) -- Class C (101,904) (46,664) (178,327) -- Class R (61,084) -- (681,846) -- - ------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets from distributions to shareholders (17,564,002) (16,369,569) (38,140,233) (29,208,774) - ------------------------------------------------------------------------------------------------------------------------------ Fund Share Transactions (note 2) Net proceeds from shares issued in the reorganization of Nuveen Michigan/Ohio (note 1) -- 32,952,082 -- 183,170,717 Net proceeds from shares issued as a capital contribution -- 50,000 -- 50,000 Net proceeds from sale of shares 28,641,868 29,696,576 63,755,865 53,603,783 Net proceeds from shares issued to shareholders due to reinvestment of distributions 10,647,679 7,300,800 24,926,989 14,753,008 - ------------------------------------------------------------------------------------------------------------------------------ 39,289,547 69,999,458 88,682,854 251,577,508 - ------------------------------------------------------------------------------------------------------------------------------ Cost of shares redeemed (37,642,403) (40,504,903) (83,801,938) (72,294,456) - ------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets from Fund share transactions 1,647,144 29,494,555 4,880,916 179,283,052 - ------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets 12,769,239 37,508,116 23,570,970 187,910,188 Net assets at the beginning of year 327,295,351 289,787,235 665,927,159 478,016,971 - ------------------------------------------------------------------------------------------------------------------------------ Net assets at the end of year $340,064,590 $327,295,351 $689,498,129 $665,927,159 ============================================================================================================================== Balance of undistributed net investment income at end of year $ 96,645 $ 32,795 $ 36,313 $ 59,813 ============================================================================================================================== * Information represents eight months of Flagship Michigan and four months of Michigan (note 1). ** Information represents eight months of Flagship Ohio and four months of Ohio (note 1). 43 See accompanying notes to financial statements. 268 Notes to Financial Statements 1. General Information and Significant Accounting Policies The Nuveen Flagship Multistate Trust IV (the "Trust") is an open-end investment company registered under the Investment Company Act of 1940, as amended. The Trust comprises the Nuveen Flagship Kentucky Municipal Bond Fund, the Nuveen Flagship Kentucky Limited Term Municipal Bond Fund, the Nuveen Flagship Michigan Municipal Bond Fund and the Nuveen Flagship Ohio Municipal Bond Fund (the "Funds"), among others. The Trust was organized as a business trust on July 1, 1996. The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co. Incorporated and Nuveen Advisory Corp., respectively, the distributor ("Distributor") and investment advisor ("Adviser") of the Funds, entered into an agreement under which Nuveen acquired Flagship Resources Inc. and after the close of business on January 31, 1997, consolidated their respective mutual fund businesses. This agreement was approved at a meeting by the shareholders of the Flagship Funds in December 1996. After the close of business on January 31, 1997, Flagship Kentucky Triple Tax Exempt Fund ("Flagship Kentucky") and Flagship Kentucky Limited Term Municipal Bond Fund ("Flagship Kentucky Limited Term") were reorganized into the Trust and renamed Nuveen Flagship Kentucky Municipal Bond Fund ("Kentucky") and Nuveen Flagship Kentucky Limited Term Municipal Bond Fund ("Kentucky Limited Term"), respectively. Prior to these reorganizations, each Fund was a sub-trust of the Flagship Tax Exempt Funds Trust. After the close of business on January 31, 1997, Flagship Michigan Triple Tax Exempt Fund ("Flagship Michigan") and Nuveen Michigan Tax-Free Value Fund ("Nuveen Michigan") reorganized into Nuveen Flagship Michigan Municipal Bond Fund ("Michigan"). Prior to the reorganization, Flagship Michigan was a sub-trust of the Flagship Tax Exempt Funds Trust while Nuveen Michigan was a series of the Nuveen Multistate Tax-Free Trust. Nuveen Michigan had a fiscal year end of January 31 prior to being reorganized into Nuveen Flagship Michigan which has retained the fiscal year end of Flagship Michigan. After the close of business on January 31, 1997, Flagship Ohio Double Tax Exempt Fund ("Flagship Ohio") and Nuveen Ohio Tax-Free Value Fund ("Nuveen Ohio") reorganized into Nuveen Flagship Ohio Municipal Bond Fund ("Ohio"). Prior to the reorganization, Flagship Ohio was a sub-trust of the Flagship Tax Exempt Funds Trust while Nuveen Ohio was a series of the Nuveen Tax-Free Bond Fund, Inc. Nuveen Ohio had a fiscal year end of February 28 prior to being reorganized into Nuveen Flagship Ohio which has retained the fiscal year end of Flagship Ohio. The Funds seek to provide high tax-free income and preservation of capital through investments in diversified portfolios of quality municipal bonds. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with generally accepted accounting principles. Securities Valuation The prices of municipal bonds in each Fund's investment portfolio are provided by a pricing service approved by the Fund's Board of Trustees. When price quotes are not readily available (which is usually the case for municipal securities), the pricing service establishes fair market value based on yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, indications of value from securities dealers and general market conditions. Temporary investments in securities that have variable rate and demand features qualifying them as short-term securities are valued at amortized cost, which approximates market value. Securities Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from such transactions are determined on the specific identification method. Securities purchased or sold on a when-issued or delayed delivery basis may have extended settlement periods. Any securities so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets in a separate account with a current value at least equal to the amount of the when-issued and delayed delivery purchase commitments. At May 31, 1998, Kentucky Limited Term and Michigan had outstanding when-issued purchase commitments of $500,000 and $2,861,460, respectively. There were no such outstanding purchase commitments in Kentucky and Ohio. Investment Income Interest income is determined on the basis of interest accrued, adjusted for amortization of premiums and accretion of discounts on long-term debt securities when required for federal income tax purposes. 44 269 Dividends and Distributions to Shareholders Tax-exempt net investment income is declared as a dividend monthly and payment is made or reinvestment is credited to shareholder accounts on the first business day after month-end. Net realized capital gains and/or market discount from investment transactions, if any, are distributed to shareholders not less frequently than annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. Distributions to shareholders of tax-exempt net investment income, net realized capital gains and/or market discount are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. Accordingly, temporary over-distributions as a result of these differences may occur and will be classified as either distributions in excess of net investment income, distributions in excess of net realized gains and/or distributions in excess of net ordinary taxable income from investment transactions, where applicable. Income Taxes Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its tax-exempt net investment income, in addition to any significant amounts of net realized capital gains and/or market discount from investment transactions. The Funds currently consider significant net realized capital gains and/or market discount as amounts in excess of $.001 per share. Furthermore, the Funds intend to satisfy conditions which will enable interest from municipal securities, which is exempt from regular federal and designated state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Funds. All monthly tax-exempt income dividends paid during the fiscal year ended May 31, 1998, have been designated Exempt Interest Dividends. Net realized capital gain and market discount distributions are subject to federal taxation. Flexible Sales Charge Program Each Fund offers Class A, C and R Shares. Kentucky, Michigan and Ohio also offer Class B Shares. Class A Shares are sold with a sales charge and incur an annual 12b-1 service fee. Class A Share purchases of $1 million or more are sold at net asset value without an up-front sales charge but may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed within 18 months of purchase. Class B Shares are sold without a sales charge but incur annual 12b-1 distribution and service fees. An investor purchasing Class B Shares agrees to pay a CDSC of up to 5% depending upon the length of time the shares are held by the investor (CDSC is reduced to 0% at the end of six years). Class B Shares convert to Class A Shares eight years after purchase. Class C Shares are sold without a sales charge but incur annual 12b-1 distribution and service fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1% if Class C Shares are redeemed within one year of purchase. Class R Shares are not subject to any sales charge or 12b-1 distribution or service fees. Class R Shares are available for purchases of over $1 million and in other limited circumstances. Derivative Financial Instruments The Funds may invest in certain derivative financial instruments including futures, forward, swap, option contracts, and other financial instruments with similar characteristics. Although the Funds are authorized to invest in such financial instruments, and may do so in the future, they did not make any such investments during the fiscal year ended May 31, 1998. Expense Allocation Expenses of the Funds that are not directly attributable to a specific class of shares are prorated among the classes based on the relative net assets of each class. Expenses directly attributable to a class of shares, which presently only includes 12b-1 distribution and service fees, are recorded to the specific class. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Organizational Expenses The organizational expenses incurred on behalf of Kentucky Limited Term (approximately $29,400) are being reimbursed to the Adviser on a straight-line basis over a period of three years. As of May 31, 1998, $19,595 has been reimbursed. 45 270 Notes to Financial Statements (continued) 2. Fund Shares Transactions in Fund shares were as follows: Kentucky Kentucky Limited Term --------------------------------------------------- ------------------------------------------------ Year Ended 5/31/98 Year Ended 5/31/97* Year Ended 5/31/98 Year Ended 5/31/97** -------------------------------------------------------------------------------------------------------- Shares Amount Shares Amount Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------------------------ Shares sold: Class A 3,217,301 $ 36,434,351 3,460,838 $ 37,993,876 286,922 $ 2,892,341 410,367 $ 4,052,500 Class B 323,485 3,657,888 49,144 540,802 N/A N/A N/A N/A Class C 639,620 7,226,085 630,496 6,904,170 76,327 769,248 145,916 1,440,077 Class R 16,255 183,541 40,643 449,532 1,495 15,000 10 104 Shares issued to shareholders due to reinvestment of distributions: Class A 1,281,834 14,485,026 1,178,853 12,941,813 23,560 236,867 22,414 221,045 Class B 4,212 47,833 25 269 N/A N/A N/A N/A Class C 94,246 1,063,652 69,875 766,751 7,475 75,229 4,292 42,033 Class R 1,937 21,806 570 6,252 52 528 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ 5,578,890 63,120,182 5,430,444 59,603,465 395,831 3,989,213 582,999 5,755,759 - ------------------------------------------------------------------------------------------------------------------------------------ Shares redeemed: Class A (3,866,440) (43,715,326) (3,622,758) (39,765,461) (316,310) (3,201,570) (395,384) (3,906,315) Class B (1,809) (20,440) -- -- N/A N/A N/A N/A Class C (434,290) (4,909,457) (394,142) (4,330,213) (61,079) (617,067) (114,591) (1,128,714) Class R -- -- -- -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ (4,302,539) (48,645,223) (4,016,900) (44,095,674) (377,389) (3,818,637) (509,975) (5,035,029) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase 1,276,351 $ 14,474,959 1,413,544 $ 15,507,791 18,442 $ 170,576 73,024 $ 720,730 ==================================================================================================================================== * Information represents eight months of Flagship Kentucky and four months of Kentucky (note 1). ** Information represents eight months of Flagship Kentucky Limited Term and four months of Kentucky Limited Term (note 1). N/A-Kentucky Limited Term is not authorized to issue Class B Shares. 46 271 Michigan ----------------------------------------------------- Year Ended 5/31/98 Year Ended 5/31/97* ----------------------------------------------------- Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------- Shares issued in the reorganization of Nuveen Michigan/Ohio: Class A -- $ -- 473,278 $ 5,517,761 Class B -- -- -- -- Class C -- -- 29,683 345,582 Class R -- -- 2,323,498 27,088,739 Shares issued as a capital contribution: Class A -- -- 1,072 12,500 Class B -- -- 1,072 12,500 Class C -- -- 1,074 12,500 Class R -- -- 1,072 12,500 Shares sold: Class A 1,390,245 16,660,336 2,027,123 23,392,705 Class B 287,386 3,449,240 31,393 364,727 Class C 589,706 7,052,332 474,635 5,492,503 Class R 123,751 1,479,960 38,458 446,641 Shares issued to shareholders due to reinvestment of distributions: Class A 678,487 8,087,898 520,958 6,027,568 Class B 2,834 34,056 38 446 Class C 127,033 1,512,300 89,370 1,032,725 Class R 84,732 1,013,425 20,714 240,061 - ----------------------------------------------------------------------------------------------- 3,284,174 39,289,547 6,033,438 69,999,458 - ----------------------------------------------------------------------------------------------- Shares redeemed: Class A (2,418,756) (28,925,631) (2,692,127) (31,154,360) Class B (5,100) (61,520) -- -- Class C (498,829) (5,971,586) (667,098) (7,733,727) Class R (224,782) (2,683,666) (138,930) (1,616,816) - ----------------------------------------------------------------------------------------------- (3,147,467) (37,642,403) (3,498,155) (40,504,903) - ----------------------------------------------------------------------------------------------- Net increase 136,707 $ 1,647,144 2,535,283 $ 29,494,555 =============================================================================================== Ohio ------------------------------------------------------ Year Ended 5/31/98 Year Ended 5/31/97** ------------------------------------------------------ Shares Amount Shares Amount - --------------------------------------------------------------------------------------------------- Shares issued in the reorganization of Nuveen Michigan/Ohio: Class A -- $ -- 1,658,349 $ 18,937,973 Class B -- -- -- -- Class C -- -- 257,097 2,935,519 Class R -- -- 14,124,377 161,297,225 Shares issued as a capital contribution: Class A -- -- 1,095 12,500 Class B -- -- 1,095 12,500 Class C -- -- 1,095 12,500 Class R -- -- 1,095 12,500 Shares sold: Class A 3,219,388 37,568,749 3,479,121 39,481,904 Class B 516,543 6,021,505 143,044 1,632,067 Class C 995,368 11,636,371 777,074 8,826,593 Class R 730,018 8,529,240 320,322 3,663,219 Shares issued to shareholders due to reinvestment of distributions: Class A 1,424,465 16,558,328 1,078,011 12,246,653 Class B 9,946 116,135 370 4,189 Class C 139,502 1,619,985 83,238 991,709 Class R 569,608 6,632,541 133,093 1,510,457 - --------------------------------------------------------------------------------------------------- 7,604,838 88,682,854 22,058,476 251,577,508 - --------------------------------------------------------------------------------------------------- Shares redeemed: Class A (4,938,984) (57,591,525) (5,159,717) (58,567,125) Class B (38,316) (446,171) -- -- Class C (692,246) (8,051,008) (668,440) (7,657,334) Class R (1,520,403) (17,713,234) (533,621) (6,069,997) - --------------------------------------------------------------------------------------------------- (7,189,949) (83,801,938) (6,361,778) (72,294,456) - --------------------------------------------------------------------------------------------------- Net increase 414,889 $ 4,880,916 15,696,698 $179,283,052 ==================================================================================================== * Information represents eight months of Flagship Michigan and four months of Michigan (note 1). ** Information represents eight months of Flagship Ohio and four months of Ohio (note 1). 47 272 Notes to Financial Statements (continued) 3. Distributions to Shareholders The Funds declared dividend distributions from their tax-exempt net investment income which were paid on July 1, 1998, to shareholders of record on June 9, 1998, as follows: Kentucky Limited Kentucky Term Michigan Ohio - ---------------------------------------------------------------------------------------------------- Dividend per share: Class A $.0475 $.0365 $.0500 $.0490 Class B .0405 N/A .0425 .0420 Class C .0425 .0335 .0445 .0440 Class R .0495 .0385 .0520 .0510 ==================================================================================================== N/A - Kentucky Limited Term is not authorized to issue Class B Shares. 4. Securities Transactions Purchases and sales (including maturities) of investments in municipal securities and temporary municipal investments for the fiscal year ended May 31, 1998, were as follows: Kentucky Limited Kentucky Term Michigan Ohio - ---------------------------------------------------------------------------------------------------- Purchases: Investments in municipal securities $65,088,861 $4,076,566 $47,201,267 $109,670,698 Temporary municipal investments 12,200,000 2,400,000 12,490,000 36,800,000 Sales: Investments in municipal securities 55,577,312 4,280,183 41,593,563 101,944,564 Temporary municipal investments 10,200,000 2,400,000 12,490,000 46,800,000 ==================================================================================================== At May 31, 1998, the identified cost of investments owned for federal income tax purposes was the same as the cost for financial reporting purposes for each Fund. At May 31, 1998, Kentucky Limited Term had unused capital loss carryforwards of $70,735 available for federal income tax purposes to be applied against future capital gains, if any. If not applied, $135 of the carryforward will expire in the year 2004 and $70,600 of the carryforward will expire in the year 2005. 5. Unrealized Appreciation (Depreciation) Gross unrealized appreciation and gross unrealized depreciation of investments at May 31, 1998, were as follows: Kentucky Limited Kentucky Term Michigan Ohio - ---------------------------------------------------------------------------------------------------- Gross unrealized: appreciation $37,982,636 $324,750 $30,388,047 $54,281,639 depreciation (37,196) (3,688) (9,905) -- - ---------------------------------------------------------------------------------------------------- Net unrealized appreciation $37,945,440 $321,062 $30,378,142 $54,281,639 ==================================================================================================== 48 273 6. Management Fee and Other Transactions with Affiliates Under the Trust's investment management agreement with the Adviser, each Fund pays an annual management fee, payable monthly, at the rates set forth below which are based upon the average daily net asset value of each Fund: Kentucky, Michigan & Ohio Average Daily Net Asset Value Management Fee - ----------------------------------------------------------- For the first $125 million .5500 of 1% For the next $125 million .5375 of 1 For the next $250 million .5250 of 1 For the next $500 million .5125 of 1 For the next $1 billion .5000 of 1 For net assets over $2 billion .4750 of 1 =========================================================== Kentucky Limited Term Average Daily Net Asset Value Management Fee - ----------------------------------------------------------- For the first $125 million .4500 of 1% For the next $125 million .4375 of 1 For the next $250 million .4250 of 1 For the next $500 million .4125 of 1 For the next $1 billion .4000 of 1 For net assets over $2 billion .3750 of 1 =========================================================== The management fee compensates the Adviser for overall investment advisory and administrative services, and general office facilities. The Trust pays no compensation directly to those of its Trustees who are affiliated with the Adviser or to its officers, all of whom receive remuneration for their services to the Trust from the Adviser or its affiliates. The Adviser may voluntarily reimburse expenses from time to time, which may be terminated at any time at its discretion. During the fiscal year ended May 31, 1998, the Distributor collected sales charges on purchases of Class A Shares, the majority of which were paid out as concessions to authorized dealers as follows: Kentucky Limited Kentucky Term Michigan Ohio - ------------------------------------------------------------------------ Sales charges collected $1,076,392 $25,344 $396,900 $890,567 Paid to authorized dealers 935,851 20,109 341,800 777,704 ======================================================================== The Distributor also received 12b-1 service fees on Class A Shares, substantially all of which were paid to compensate authorized dealers for providing services to shareholders relating to their investments. During the fiscal year ended May 31, 1998, the Distributor compensated authorized dealers directly with commission advances at the time of purchase as follows: Kentucky Limited Kentucky Term Michigan Ohio - -------------------------------------------------------------------- Commission advances $232,216 $ 14,811 $ 224,418 $ 379,147 ==================================================================== 49 274 Notes to Financial Statements (continued) To compensate for commissions advanced to authorized dealers, all 12b-1 service fees collected on Class B Shares, except for Kentucky Limited Term, during the first year following a purchase, all 12b-1 distribution fees on Class B Shares, except for Kentucky Limited Term, and all 12b-1 service and distribution fees on Class C Shares during the first year following a purchase are retained by the Distributor. Kentucky Limited Term is not authorized to issue Class B Shares. During the fiscal year ended May 31, 1998, the Distributor retained such 12b-1 fees as follows: Kentucky Limited Kentucky Term Michigan Ohio - ------------------------------------------------------------------------------------------------------------------------------------ 12b-1 fees retained $ 88,309 $ 7,484 $ 68,801 $ 123,577 ==================================================================================================================================== The remaining 12b-1 fees charged to the Funds were paid to compensate authorized dealers for providing services to shareholders relating to their investments. The Distributor also collected and retained CDSC on share redemptions during the fiscal year ended May 31, 1998, as follows: Kentucky Limited Kentucky Term Michigan Ohio - ------------------------------------------------------------------------------------------------------------------------------------ CDSC retained $ 4,580 $ 2,558 $ 7,977 $ 31,894 ==================================================================================================================================== 7. Composition of Net Assets At May 31, 1998, the Funds had an unlimited number of $.01 par value shares authorized. Net assets consisted of: Kentucky Limited Kentucky Term Michigan Ohio - ------------------------------------------------------------------------------------------------------------------------------------ Capital paid-in $446,277,887 $11,169,517 $309,095,846 $633,173,082 Balance of undistributed net investment income 25,015 986 96,645 36,313 Accumulated net realized gain (loss) from investment transactions 668,697 (70,925) 493,957 2,007,095 Net unrealized appreciation of investments 37,945,440 321,062 30,378,142 54,281,639 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets $484,917,039 $11,420,637 $340,064,590 $689,498,129 ==================================================================================================================================== 50 275 Financial Highlights 51 276 Financial Highlights Selected data for a share outstanding throughout each period is as follows: Class (Inception Date) Investment Operations Less Distributions ----------------------------------- -------------------------------- Net Beginning Realized/ Ending Net Net Unrealized Net Net Year Ended Asset Investment Investment Investment Capital Asset Total May 31, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b) - ----------------------------------------------------------------------------------------------------------------------------------- KENTUCKY** CLASS A (5/87) 1998 $11.05 $.59 $ .38 $ .97 $(.58) $(.05) $(.63) $11.39 9.00% 1997 10.82 .60 .24 .84 (.60) (.01) (.61) 11.05 7.87 1996 10.99 .61 (.17) .44 (.61) -- (.61) 10.82 4.04 1995 10.65 .61 .35 .96 (.62) -- (.62) 10.99 9.42 1994 11.06 .62 (.40) .22 (.63) -- (.63) 10.65 1.90 CLASS B (2/97) 1998 11.06 .50 .38 .88 (.50) (.05) (.55) 11.39 8.10 1997(c) 11.07 .17 (.01) .16 (.17) -- (.17) 11.06 1.47 CLASS C (10/93) 1998 11.04 .52 .39 .91 (.52) (.05) (.57) 11.38 8.43 1997 10.81 .54 .24 .78 (.54) (.01) (.55) 11.04 7.29 1996 10.99 .54 (.17) .37 (.55) -- (.55) 10.81 3.38 1995 10.65 .55 .35 .90 (.56) -- (.56) 10.99 8.82 1994(c) 11.46 .36 (.81) (.45) (.36) -- (.36) 10.65 (5.88)* CLASS R (2/97) 1998 11.03 .61 .39 1.00 (.61) (.05) (.66) 11.37 9.25 1997(c) 11.08 .20 (.04) .16 (.21) -- (.21) 11.03 1.42 - ----------------------------------------------------------------------------------------------------------------------------------- KENTUCKY LIMITED TERM*** CLASS A (9/95) 1998 $ 9.92 $.44 $ .20 $ .64 $(.44) $ -- $(.44) $10.12 6.53% 1997 9.79 .45 .12 .57 (.44) -- (.44) 9.92 5.96 1996(c) 9.75 .31 .04 .35 (.31) -- (.31) 9.79 5.45* CLASS C (9/95) 1998 9.92 .40 .20 .60 (.40) -- (.40) 10.12 6.17 1997 9.79 .41 .13 .54 (.41) -- (.41) 9.92 5.64 1996(c) 9.75 .29 .04 .33 (.29) -- (.29) 9.79 5.12* CLASS R (2/97) 1998 9.92 .46 .18 .64 (.46) -- (.46) 10.10 6.58 1997(c) 9.98 .15 (.10) .05 (.11) -- (.11) 9.92 .56 - ----------------------------------------------------------------------------------------------------------------------------------- 52 277 Ratios/Supplemental Data - ----------------------------------------------------------------------------- Ratio Ratio of Net of Net Ratio of Investment Ratio of Investment Expenses Income to Expenses Income to to Average Average to Average Average Net Assets Net Assets Net Assets Net Assets Before Before After After Portfolio Ending Net Reimburse- Reimburse- Reimburse- Reimburse- Turnover Assets (000) ment ment ment(a) ment(a) Rate - ----------------------------------------------------------------------------- $451,338 .84% 5.12% .77% 5.19% 12% 430,803 .99 5.20 .75 5.44 13 410,808 1.02 5.19 .71 5.50 17 394,457 1.04 5.49 .68 5.85 28 369,495 1.03 5.15 .58 5.60 12 4,273 1.59 4.33 1.54 4.38 12 544 1.59* 4.56* 1.39* 4.76* 13 28,630 1.39 4.57 1.33 4.63 12 24,468 1.54 4.64 1.29 4.89 13 20,647 1.57 4.63 1.27 4.93 17 15,831 1.58 4.92 1.23 5.27 28 11,172 1.65* 4.39* 1.08* 4.96* 12 675 .64 5.31 .58 5.37 12 455 .64* 5.62* .49* 5.77* 13 ============================================================================ $ 8,989 1.34% 3.67% .66% 4.35% 36% 8,870 1.68 3.37 .53 4.52 56 8,389 1.67* 3.07* .37* 4.37* 48 2,416 1.69 3.32 1.01 4.00 36 2,144 2.00 3.03 .84 4.19 56 1,767 1.98* 2.78* .64* 4.12* 48 16 1.13 3.87 .46 4.54 36 - .86* 4.87* - 5.73* 56 ============================================================================ * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Kentucky. *** Information included prior to the fiscal year ended May 31, 1997 reflects the financial highlights of Flagship Kentucky Limited Term. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. 53 278 Financial Highlights Selected data for a share outstanding throughout each period is as follows: Class (Inception Date) Investment Operations Less Distributions -------------------------------- ----------------------------- Net Realized/ Ending Beginning Net Unrealized Net Net Year Ended Net Asset Investment Investment Investment Capital Asset Total May 31, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b) - -------------------------------------------------------------------------------------------------------------------------- MICHIGAN** CLASS A (6/85) 1998 $11.68 $.61 $ .42 $1.03 $(.61) $(.03) $(.64) $12.07 8.95% 1997 11.37 .62 .31 .93 (.61) (.01) (.62) 11.68 8.42 1996 11.59 .63 (.22) .41 (.63) -- (.63) 11.37 3.61 1995 11.31 .65 .28 .93 (.65) -- (.65) 11.59 8.57 1994 11.77 .66 (.43) .23 (.66) (.03)+ (.69) 11.31 1.87 CLASS B (2/97) 1998 11.70 .52 .42 .94 (.52) (.03) (.55) 12.09 8.12 1997(c) 11.66 .17 .04 .21 (.17) -- (.17) 11.70 1.86 CLASS C (6/93) 1998 11.66 .54 .43 .97 (.54) (.03) (.57) 12.06 8.45 1997 11.35 .55 .32 .87 (.55) (.01) (.56) 11.66 7.84 1996 11.58 .56 (.22) .34 (.57) -- (.57) 11.35 2.96 1995 11.30 .58 .28 .86 (.58) -- (.58) 11.58 7.98 1994(c) 11.86 .54 (.52) .02 (.55) (.03)+ (.58) 11.30 .19* CLASS R (2/97) 1998 11.68 .63 .42 1.05 (.63) (.03) (.66) 12.07 9.16 1997(c) 11.66 .21 .02 .23 (.21) -- (.21) 11.68 2.01 ========================================================================================================================== OHIO*** CLASS A (6/85) 1998 $11.41 $.60 $ .38 $ .98 $(.60) $(.05) $(.65) $11.74 8.76% 1997 11.21 .61 .20 .81 (.61) -- (.61) 11.41 7.38 1996 11.43 .62 (.21) .41 (.63) -- (.63) 11.21 3.59 1995 11.21 .64 .22 .86 (.64) -- (.64) 11.43 7.99 1994 11.59 .64 (.38) .26 (.64) -- (.64) 11.21 2.24 CLASS B (2/97) 1998 11.41 .51 .38 .89 (.52) (.05) (.57) 11.73 7.89 1997(c) 11.42 .17 (.01) .16 (.17) -- (.17) 11.41 1.45 CLASS C (8/93) 1998 11.41 .54 .37 .91 (.54) (.05) (.59) 11.73 8.12 1997 11.21 .55 .20 .75 (.55) -- (.55) 11.41 6.80 1996 11.43 .55 (.21) .34 (.56) -- (.56) 11.21 3.03 1995 11.20 .57 .23 .80 (.57) -- (.57) 11.43 7.50 1994(c) 11.69 .46 (.49) (.03) (.46) -- (.46) 11.20 (.17)* CLASS R (2/97) 1998 11.41 .62 .37 .99 (.62) (.05) (.67) 11.73 8.89 1997(c) 11.42 .21 (.01) .20 (.21) -- (.21) 11.41 1.77 ========================================================================================================================== 54 279 Ratios/Supplemental Data - ------------------------------------------------------------------------------------ Ratio Ratio of Net of Net Ratio of Investment Ratio of Investment Expenses Income to Expenses Income to to Average Average to Average Average Net Assets Net Assets Net Assets Net Assets Before Before After After Portfolio Ending Net Reimburse- Reimburse- Reimburse- Reimburse- Turnover Assets (000) ment ment ment (a) ment (a) Rate - ------------------------------------------------------------------------------------ $263,632 .84% 5.11% .84% 5.11% 13% 259,055 .97 5.21 .85 5.33 34 248,422 1.01 5.23 .82 5.42 54 250,380 1.03 5.59 .80 5.82 37 242,993 1.02 5.29 .75 5.56 28 3,839 1.59 4.32 1.59 4.32 13 380 1.59* 4.52* 1.59* 4.52* 34 45,690 1.39 4.56 1.39 4.56 13 41,649 1.52 4.65 1.40 4.77 34 41,365 1.56 4.67 1.37 4.86 54 37,122 1.58 5.02 1.35 5.25 37 30,042 1.61* 4.53* 1.25* 4.89* 28 26,904 .64 5.31 .64 5.31 13 26,211 .65* 5.57* .65* 5.57* 34 - ------------------------------------------------------------------------------------ $472,821 .85% 5.15% .85% 5.15% 15% 463,253 .96 5.32 .89 5.39 17 443,077 1.02 5.31 .92 5.41 31 445,566 1.03 5.70 .95 5.78 31 445,272 1.02 5.39 .93 5.48 9 7,422 1.61 4.39 1.61 4.39 15 1,649 1.60* 4.63* 1.60* 4.63* 17 47,036 1.40 4.60 1.40 4.60 15 40,713 1.51 4.77 1.44 4.84 17 34,939 1.56 4.75 1.47 4.84 31 28,461 1.58 5.13 1.50 5.21 31 25,674 1.60* 4.65* 1.46* 4.79* 9 162,220 .65 5.35 .65 5.35 15 160,312 .65* 5.65* .65* 5.65* 17 - ------------------------------------------------------------------------------------ * Annualized. ** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Michigan. *** Information included prior to the fiscal year ended May 31, 1997, reflects the financial highlights of Flagship Ohio. + The amount shown includes a distribution in excess of capital gains of $.02 per share. (a) After waiver of certain management fees or reimbursement of expenses, if applicable, by Nuveen Advisory or its predecessor Flagship Financial. (b) Total returns are calculated on net asset value without any sales charge and are not annualized except where noted. (c) From commencement of class operations as noted. 55 280 Building a Better Portfolio Can Make You a Successful Investor Nuveen Family of Mutual Funds Nuveen offers a variety of funds designed to help you reach your financial goals. Growth Nuveen Rittenhouse Growth Fund Growth and Income European Value Fund Growth and Income Stock Fund Balanced Stock and Bond Fund Balanced Municipal and Stock Fund Tax-Free Income National Funds Long-Term Insured Intermediate-Term Limited-Term State Funds Alabama Arizona California Colorado Connecticut Florida Georgia Kansas Kentucky Louisiana Maryland Massachusetts Michigan Missouri New Jersey New Mexico New York North Carolina Ohio Pennsylvania South Carolina Tennessee Virginia Wisconsin Successful investors know that a well-diversified portfolio -- one that balances different types of investments, levels of risk and tax management -- can be the foundation for building and sustaining wealth. That's why Nuveen offers you and your financial adviser a wide range of quality investments that can help you build a better portfolio in the pursuit of your financial goals. Mutual Funds Nuveen offers a family of equity, balanced and municipal bond funds featuring Premier Advisers/SM/ including Institutional Capital Corporation, Rittenhouse Financial Services, and Nuveen Advisory Corp. Each brings a specialized expertise in a particular investment style or asset class, time-tested investment strategies and a focus on consistent, long-term performance. With Nuveen's Premier Adviser funds, you have all the advantages of a family of funds plus the benefits of specialized investment expertise. Private Asset Management Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive, customized investment management solutions to investors with assets of $250,000 or more to invest. A range of actively managed growth, balanced and municipal income-oriented portfolios are available, all based upon a disciplined investment philosophy. Defined Portfolios Nuveen Defined Portfolios are fixed portfolios of quality securities that are a convenient, attractive alternative to purchasing individual securities. They provide low-cost diversification to reduce risk, experienced, professional security selection and surveillance and daily liquidity at that day's net asset value for quick access to your assets. Exchange-Traded Funds Nuveen Exchange-Traded Funds offer investors actively managed portfolios of investment-grade quality municipal bonds. The fund shares are listed and traded on the New York and American stock exchanges. Exchange-traded funds provide the investment convenience, price visibility and liquidity of common stocks. MuniPreferred/(R)/ Nuveen MuniPreferred offers investors a AAA rated investment with an attractive tax-free yield for the cash reserves portion of an investment portfolio. MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen dual-class exchange-traded funds and are available for national as well as a wide variety of state-specific portfolios. 56 281 Fund Information Board of Trustees Robert P. Bremner Lawrence H. Brown Anthony T. Dean Anne E. Impellizzeri Peter R. Sawers William J. Schneider Timothy R. Schwertfeger Judith M. Stockdale Fund Manager Nuveen Advisory Corp. 333 West Wacker Drive Chicago, IL 60606 Transfer Agent and Shareholder Services As of August 8, 1998 The Chase Manhattan Bank 4 New York Plaza New York, NY 10004-2413 (800) 257-8787 Legal Counsel Morgan, Lewis & Bockius LLP Washington, D.C. Independent Public Accountants Arthur Andersen LLP Chicago, IL 57 282 Serving Investors for Generations [PHOTO OF JOHN NUVEEN, SR. APPEARS HERE] Since our founding in 1898, John Nuveen & Co. has been synonymous with investments that withstand the test of time. Today we offer a broad range of quality investments designed for individuals seeking to build and sustain wealth. In fact, more than 1.3 million investors have trusted Nuveen to help them pursue their financial goals. The cornerstone of Nuveen's investment philosophy is a commitment to disciplined long-term investment strategies focused on providing consistent, attractive performance over time - with moderated risk. We emphasize quality securities carefully chosen through in-depth research, and we follow those securities closely over time to ensure that they continue to meet our exacting standards. Whether your focus is long-term growth, dependable current income or sustaining accumulated wealth, Nuveen offers a wide variety of investments and services to help meet your unique circumstances and financial planning needs. Our equity, balanced, and tax-free income funds, along with our defined portfolios and private asset management, can help you build a better, well-diversified portfolio. Talk with your financial adviser to learn more about how Nuveen investment products and services can help you. Or call us at (800) 257-8787 for more information, including a prospectus where applicable. Please read that information carefully before investing. NUVEEN 1898 OUR SECOND CENTURY 1998 helping investors sustain the wealth of a lifetime./TM/ John Nuveen & Co. Incorporated 333 West Wacker Drive Chicago, IL 60606-1286 www.nuveen.com VAN-5-5.98 283 PART C: OTHER INFORMATION ITEM 15. INDEMNIFICATION Section 4 of Article XII of Registrant's Amended and Restated Declaration of Trust provides as follows: Subject to the exceptions and limitations contained in this Section 4, every person who is, or has been, a Trustee, officer, employee or agent of the Trust, including persons who serve at the request of the Trust as directors, trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been such a Trustee, director, officer, employee or agent and against amounts paid or incurred by him in settlement thereof. No indemnification shall be provided hereunder to a Covered Person: (a) against any liability to the Trust or its Shareholders by reason of a final adjudication by the court or other body before which the proceeding was brought that he engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; (b) with respect to any matter as to which he shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interests of the Trust; or (c) in the event of a settlement or other disposition not involving a final adjudication (as provided in paragraph (a) or (b)) and resulting in payment by a Covered Person, unless there has been either a determination that such Covered Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office by the court or other body approving the settlement or other disposition or a reasonable determination, based on a review of readily available facts (as opposed to a full trial-type inquiry), that he did not engage in such conduct: (i) by a vote of a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter); or (ii) by written opinion of independent legal counsel. The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be such a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel other than Covered Persons may be entitled by contract or otherwise under law. Expenses of preparation and presentation of a defense to any claim, action, suit or proceeding subject to a claim for indemnification under this Section 4 shall be advanced by the Trust prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Section 4, provided that either: (a) such undertaking is secured by a surety bond or some other appropriate security or the Trust shall be insured against losses arising out of any such advances; or C-1 284 (b) a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) or independent legal counsel in a written opinion shall determine, based upon a review of the readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification. As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an Interested Person of the Trust (including, as such Disinterested Trustee, anyone who has been exempted from being an Interested Person by any rule, regulation or order of the Commission), and (y) against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending. As used in this Section 4, the words "claim," "action," "suit" or "proceeding" shall apply to all claims, actions, suits, proceedings (civil, criminal, administrative or other, including appeals), actual or threatened; and the word "liability" and "expenses" shall include without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. The trustees and officers of the Registrant are covered by an Investment Trust Errors and Omission policy in the aggregate amount of $20,000,000 (with a maximum deductible of $500,000) against liability and expenses of claims of wrongful acts arising out of their position with the Registrant, except for matters which involved willful acts, bad faith, gross negligence and willful disregard of duty (i.e., where the insured did not act in good faith for a purpose he or she reasonably believed to be in the best interest of Registrant or where he or she shall have had reasonable cause to believe this conduct was unlawful). Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to the officers, trustees or controlling persons of the Registrant pursuant to the Declaration of Trust of the Registrant or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by an officer or trustee or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such officer, trustee or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 16. EXHIBITS 1(a). Declaration of Trust of the Registrant.(1) 1(b). Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest dated October 11, 1996.(1) 1(c). Certificate for the Establishment and Designation of Classes dated July 10, 1996.(1) 1(d). Incumbency Certificate.(3) 2. Bylaws of Registrant.(1) 3. Not applicable. 4. Form of Agreement and Plan of Reorganization for Nuveen Flagship Kentucky Limited Term Municipal Bond Fund into Nuveen Flagship Kentucky Municipal Bond Fund.+ 5. Specimen certificates of Shares.(1) C-2 285 6(a). Investment Management Agreement between Registrant and Nuveen Advisory Corp.(3) 6(b). Renewal of Investment Management Agreement dated May 5, 1998.(4) 7(a). Distribution Agreement between Registrant and John Nuveen & Co. Incorporated.(3) 7(b). Renewal of Distribution Agreement dated July 31, 1998.(4) 8. Not applicable. 9(a). Custodian Agreement between Registrant and Chase Manhattan Bank.(3) 9(b). Transfer Agency and Service Agreement between Registrant and Chase Global Funds Services Company.(4) 10(a). Plan of Distribution and Service Pursuant to Rule 12b-1 for Class A Shares, Class B Shares and Class C Shares of each Fund.(2) 10(b). Multi-Class Plan Adopted Pursuant to Rule 18f-3.(2) 11(a). Opinion of Vedder, Price, Kaufman & Kammholz.++ 11(b). Opinion of Bingham Dana LLP. ++ 12. Form of Tax Opinion of Vedder, Price, Kaufman & Kammholz relating to the Reorganization.+ 13. Not Applicable. 14. Consent of Arthur Andersen LLP, Independent Public Accountants.++ 15. Not applicable. 16. Powers of Attorney.++ 17. Form of proxy cards.++ - -------------------- + Filed herewith as Appendix A to the Reorganization Statement of Additional Information contained herein. ++ Filed herewith. (1) Incorporated herein by reference to the initial Registrant's Registration Statement on Form N-1A, File Number 333-16615, filed on November 22, 1996. (2) Incorporated herein by reference to Pre-Effective Amendment No. 2 to Registrant's Registration Statement on Form N-1A, File Number 333-16615, filed on January 10, 1997. (3) Incorporated herein by reference to Post-Effective Amendment No.1 to Registrant's Registration Statement on Form N-1A, File Number 333-16615, filed on September 23, 1997. (4) Incorporated herein by reference to Post-Effective Amendment No. 2 to Registrant's Registration Statement on Form N-1A, File Number 333-16615, filed on September 30, 1998. C-3 286 ITEM 17. UNDERTAKINGS. (1) The undersigned registrant agrees that prior to any public re-offering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the re-offering prospectus will contain the information called for by the applicable registration form for re-offerings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable (2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. C-4 287 SIGNATURES As required by the Securities act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in this city of Chicago and state of Illinois, on the 11th day of January 1999. NUVEEN FLAGSHIP MULTISTATE TRUST IV By: /s/ Gifford R. Zimmerman -------------------------------------- Gifford R. Zimmerman, Vice President Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated, on January 11, 1999. SIGNATURE TITLE - --------- ----- Principal Executive Officer: /s/ Timothy R. Schwertfeger Chairman and Trustee - ----------------------------------------- Timothy R. Schwertfeger Principal Financial Accounting Officer: /s/ Stephen D. Foy - ----------------------------------------- Stephen D. Foy Vice President and Controller Trustees: /s/ Anthony T. Dean President and Trustee - ----------------------------------------- Anthony T. Dean /s/ Robert P. Bremner Trustee - ----------------------------------------- Robert P. Bremner /s/ Lawrence H. Brown Trustee - ----------------------------------------- Lawrence H. Brown /s/ Anne E. Impellizzeri Trustee - ----------------------------------------- Anne E. Impellizzeri /s/ Peter R. Sawers Trustee - ----------------------------------------- Peter R. Sawers /s/ William J. Schneider Trustee - ----------------------------------------- William J. Schneider /s/ Judith M. Stockdale Trustee - ----------------------------------------- Judith M. Stockdale By: /s/ Gifford R. Zimmerman -------------------------------- Gifford R. Zimmerman Attorney-in-Fact An original power of attorney authorizing among others, Gifford R. Zimmerman and Larry W. Martin to execute this registration statement, and amendments thereto, for each of the officers and trustees of registrant on whose behalf this registration statement is filed herewith. 288 EXHIBIT INDEX 1(a). Declaration of Trust of the Registrant.(1) 1(b). Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest dated October 11, 1996.(1) 1(c). Certificate for the Establishment and Designation of Classes dated July 10, 1996.(1) 1(d). Incumbency Certificate.(3) 2. Bylaws of Registrant.(1) 3. Not applicable. 4. Form of Agreement and Plan of Reorganization for Nuveen Flagship Kentucky Limited Term Municipal Bond Fund into Nuveen Flagship Kentucky Municipal Bond Fund.+ 5. Specimen certificates of Shares.(1) 6(a). Investment Management Agreement between Registrant and Nuveen Advisory Corp.(3) 6(b). Renewal of Investment Management Agreement dated May 5, 1998.(4) 7(a). Distribution Agreement between Registrant and John Nuveen & Co. Incorporated.(3) 7(b). Renewal of Distribution Agreement dated July 31, 1998.(4) 8. Not applicable. 9(a). Custodian Agreement between Registrant and Chase Manhattan Bank.(3) 9(b). Transfer Agency and Service Agreement between Registrant and Chase Global Funds Services Company.(4) 10(a). Plan of Distribution and Service Pursuant to Rule 12b-1 for Class A Shares, Class B Shares and Class C Shares of each Fund.(2) 10(b). Multi-Class Plan Adopted Pursuant to Rule 18f-3.(2) 11(a). Opinion of Vedder, Price, Kaufman & Kammholz.++ 11(b). Opinion of Bingham Dana LLP. ++ 12. Form of Tax Opinion of Vedder, Price, Kaufman & Kammholz relating to the Reorganization.+ 13. Not Applicable. 14. Consent of Arthur Andersen LLP, Independent Public Accountants.++ 15. Not applicable. 16. Powers of Attorney.++ 17. Form of proxy cards.++ - -------------------- + Filed herewith as Appendix A to the Reorganization Statement of Additional Information contained herein. ++ Filed herewith. (1) Incorporated herein by reference to the initial Registrant's Registration Statement on Form N-1A, File Number 333-16615, filed on November 22, 1996. 289 (2) Incorporated herein by reference to Pre-Effective Amendment No. 2 to Registrant's Registration Statement on Form N-1A, File Number 333-16615, filed on January 10, 1997. (3) Incorporated herein by reference to Post-Effective Amendment No.1 to Registrant's Registration Statement on Form N-1A, File Number 333-16615, filed on September 23, 1997. (4) Incorporated herein by reference to Post-Effective Amendment No. 2 to Registrant's Registration Statement on Form N-1A, File Number 333-16615, filed on September 30, 1998.