<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1997.
REGISTRATION NOS. 2-84470
811-3770
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
[_]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 24
AND/OR [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
[_]
AMENDMENT NO. 25 [X]
FLAGSHIP ADMIRAL FUNDS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
333 West Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 917-7700
Gifford R. Zimmerman, Esq.--Vice With a copy to:
Presidentand Assistant Secretary Thomas S. Harman
333 West Wacker Drive Fried, Frank, Harris, Shriver &
Chicago, Illinois 60606 Jacobson
(Name and Address of Agent for Service) 1001 Pennsylvania Ave., NW
Suite 800
Washington, D.C. 20004
[X] Immediately upon filing pursuant to [_] on (date) pursuant to para-
paragraph (b) graph (a)(1)
[_] on October , 1997 pursuant to par- [_] 75 days after filing pursuant
agraph (b) to paragraph (a)(2)
[_] 60 days after filing pursuant to [_] on (date) pursuant to para-
paragraph (a)(1) graph (a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a previ-
ously filed post-effective amendment.
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
PART A OF THE GOLDEN RAINBOW FUND(TM)
<C> <S> <C>
Item 1. Cover Page.............. Cover Page
Item 2. Synopsis................ Fees and Expenses
Item 3. Condensed Financial Financial Highlights
Information............
Item 4. General Description of Cover Page; Who Should Invest in the Fund?;
Registrant............. The Fund and Its Objective; Description of
Shares
Item 5. Management of the Fund.. Management of the Fund; Distributor;
Financial Highlights
Item 5A. Management's Discussion
of Fund Performance.... Not Applicable
Item 6. Capital Stock and Other Description of Shares; How to Buy Shares;
Securities............. How to Redeem Shares; How Fund Shares are
Priced; Cover Page; Distributions; Taxes
Item 7. Purchase of Securities How to Buy Shares; How Fund Shares are
Being Offered.......... Priced; Distributor
Item 8. Redemption or How to Redeem Shares; Free Repurchase;
Repurchase............. Systematic Withdrawal Plan; Direct
Deposits
Item 9. Pending Legal Not Applicable
Proceedings............
PART B OF THE GOLDEN RAINBOW FUND(TM)
Item 10. Cover Page.............. Cover Page
Item 11. Table of Contents....... Table of Contents
Item 12. General Information and Not Applicable
History................
Item 13. Investment Objectives Investment Objectives and Policies
and Policies...........
Item 14. Management of the Fund.. Officers, Directors and Stockholders
Item 15. Control Persons and
Principal Holders of
Securities............. Officers, Directors and Stockholders
Item 16. Investment Advisory and Investment Advisory Services; Distributor;
Other Services......... Officers, Directors and Stockholders;
Custodian and Transfer Agent
Item 17. Brokerage Allocation and Portfolio Transactions
Other Practices........
Item 18. Capital Stock and Other Distributions
Securities.............
Item 19. Purchase, Redemption and
Pricing of Securities Purchase, Redemption and Pricing of Shares;
Being Offered.......... see also Part A--How to Invest in the
Fund; How to Redeem; Net Asset Value
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<C> <S> <C>
Item 20. Tax Status............... Taxes
Item 21. Underwriters............. Distributor
Item 22. Calculation of Yield and Total Return Calculation
Performance Data........
Item 23. Financial Statements..... Financial Statements
PART A OF THE FLAGSHIP UTILITY
INCOME FUND(TM)
Item 1. Cover Page............... Cover Page
Item 2. Synopsis................. Fees and Expenses
Item 3. Condensed Financial Financial Highlights
Information.............
Item 4. General Description of Cover Page; The Fund and Its Objective;
Registrant.............. Investment Considerations and Risk
Factors; How To Buy Shares; General
Information
Item 5. Management of the Fund... About the Investment Manager; About the
Distributor; Financial Highlights;
Custodian and Transfer Agent; Counsel and
Auditors
Item 5A. Management's Discussion
of Fund Performance..... Not Applicable
Item 6. Capital Stock and Other How To Buy Shares; How To Redeem Shares;
Securities.............. Exchange and Reinvestment Privilege;
Additional Information; Cover Page; How
Fund Shares Are Priced; Distributions and
Yield; Taxes
Item 7. Purchase of Securities How To Buy Shares; About the Distributor;
Being Offered........... How Fund Shares Are Priced
Item 8. Redemption or Repurchase. How to Redeem Shares; Exchange and
Reinvestment Privilege; Systematic
Withdrawal Plan; Direct Deposits
Item 9. Pending Legal Not Applicable
Proceedings.............
PART B OF THE FLAGSHIP UTILITY
INCOME FUND(TM)
Item 10. Cover Page............... Cover Page
Item 11. Table of Contents........ Table of Contents
Item 12. General Information and Not Applicable
History.................
Item 13. Investment Objectives and Investment Objectives and Policies;
Policies................ Portfolio Transactions
Item 14. Management of the Fund... Officers, Directors and Stockholders
Item 15. Control Persons and
Principal Holders of
Securities.............. Officers, Directors and Stockholders
Item 16. Investment Advisory and Investment Advisory Services; Distributor;
Other Services.......... Officers, Directors and Stockholders;
Custodian and Transfer Agent; Auditors
Item 17. Brokerage Allocation and Portfolio Transactions
Other Practices.........
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<C> <S> <C>
Item 18. Capital Stock and Other Distributions; Shares of the Funds
Securities.............
Item 19. Purchase, Redemption and
Pricing of Securities Purchase, Redemption and Pricing of Shares;
Being Offered.......... see also Part A--How To Buy Shares; How To
Redeem Shares; Distributions and Yield
Item 20. Tax Status.............. Taxes
Item 21. Underwriters............ Distributor
Item 22. Calculation of Yield and Total Return Calculation
Performance Data.......
Item 23. Financial Statements.... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Fees and Expenses............. 2
Financial Highlights.......... 2
Who Should Invest in the
Fund?........................ 3
The Fund and Its Objective.... 3
How to Buy Shares............. 6
How to Redeem Shares.......... 9
Free Repurchase............... 9
Systematic Withdrawal Plan.... 9
Direct Deposits............... 9
How Fund Shares are Priced.... 10
Taxes......................... 10
Yield......................... 11
Management of the Fund........ 11
Distributor................... 12
Multiple Class Distribution... 13
Description of Shares......... 13
Custodian and Transfer Agent.. 14
Counsel and Auditors.......... 14
Additional Information........ 14
</TABLE>
LOGO OF THE GOLDEN RAINBOW MUTUAL FUND /SM/
THE GOLDEN RAINBOW A JAMES ADVISED MUTUAL FUNDSM (THE "FUND") IS A SERIES OF
FLAGSHIP ADMIRAL FUNDS INC.SM (THE "CORPORATION") A SERIES, OPEN-END,
DIVERSIFIED MUTUAL FUND. THE FUND SEEKS TO PROVIDE TOTAL RETURN THROUGH A
COMBINATION OF GROWTH AND INCOME FROM INVESTING IN EQUITY AND/OR DEBT
SECURITIES AND PRESERVATION OF CAPITAL IN DECLINING MARKETS. THE FUND WILL
ATTEMPT TO PROVIDE TOTAL RETURN IN EXCESS OF THE RATE OF INFLATION OVER THE
LONG TERM (THREE TO FIVE YEARS). NO ASSURANCE CAN BE GIVEN THAT THE FUND WILL
ACHIEVE ITS OBJECTIVE. THE FUND MAY INVEST IN EQUITY SECURITIES TRADED ON ANY
NATIONAL STOCK EXCHANGE OR NASDAQ OR IN DEBT SECURITIES THAT ARE RATED "A" OR
BETTER BY MOODY'S OR S&P, OR IF UNRATED, OF EQUIVALENT QUALITY, AS WELL AS
EQUITY AND DEBT SECURITIES OF NON-UNITED STATES ISSUERS AND AMERICAN
DEPOSITARY RECEIPTS. THE FUND MAY INVEST ITS ASSETS IN ANY COMBINATION OF
SECURITIES AND IS NOT LIMITED WITH RESPECT TO THE PROPORTION INVESTED IN ANY
CATEGORY.
Account Information:
toll free at 1-800-225-8530
------------------
This Prospectus sets forth concisely the information about the Fund that you
should know before investing in shares of the Fund. A Statement of Additional
Information dated October 29, 1997, containing additional information about
the Fund has been filed with the Securities and Exchange Commission, and is
hereby incorporated by reference into this Prospectus. A copy of the Statement
of Additional Information can be obtained without charge by telephoning or
writing to the Fund. Please read and retain this Prospectus for future
reference.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE. SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK SELLING THE SHARES, NOR ARE THEY FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER U.S. GOVERNMENT AGENCY. INVESTMENT RISKS INCLUDE POSSIBLE
LOSS OF PRINCIPAL. THE VALUE OF THE INVESTMENT AND ITS RETURN WILL FLUCTUATE
AND ARE NOT GUARANTEED. WHEN SOLD, THE VALUE OF THE INVESTMENT MAY BE HIGHER
OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
October 24, 1996
------------------
<PAGE>
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FEES AND EXPENSES
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES AFTER
SHAREHOLDER TRANSACTION FEE WAIVERS & REIMBURSEMENT
EXPENSE ARRANGEMENTS*
---------------------------------------------------------------
Total Fund
Operating
Maximum Expenses
Front End Maximum Without
Sales Charge CDSC Total Fund Waiver Or
Imposed On Imposed on Management 12b-1 Other Operating Reimburse-
Purchases Purchases Fee Fee Expenses Expenses ment
------------- --------------------- ----- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 4.20% N/A .74% .25% .10% 1.09% 1.09%
Class B Shares(a) N/A 5.0 .74 .85(c) .10 1.69 1.69
Class C Shares N/A 1.0(b) .74 .85(c) .10 1.69 1.69
Class R Shares N/A N/A .74 .00 .10 .84 .84
<CAPTION>
EXAMPLE OF EXPENSES
-------------------------------------------------
An Investor in the Fund
Would Pay the Following Dollar Amount of
Expenses on a $1,000 Investment Assuming
(1) 5% Annual Return and (2) Redemption
at the End of Each Period
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Class A Shares $ 53 $75 $100 $169
Class B Shares(a) 57 85 103 184
Class C Shares 17 53 92 200
Class R Shares 9 27 47 104
</TABLE>
* Percentage based on actual fees incurred from the previous fiscal year
restated to reflect current fees and operating expenses. Persons who
indirectly purchase Fund shares through intermediaries may pay fees charged
by such intermediaries in addition to the expenses and fees of the Fund shown
above. Class B, C and R are based on estimates.
- --------
(a) No initial sales charge; contingent deferred sales charge of 5% declining
to 1% in the 6th year if redeemed. Class B expenses in years 9 through 10
are based on Class A expenses, because the shares automatically convert to
Class A after 8 years. If you did not redeem, the example of expenses would
be $40, $32, and $11 less in years 1, 3 and 5 respectively.
(b) No initial sales load; 1% contingent deferred sales charge if redeemed
within 1 year of purchase.
(c) Of this amount, 0.75% is an asset based sales charge and 0.10% is a service
fee.
The preceding table is meant to assist an investor in understanding the various
costs and expenses that may directly or indirectly be incurred as a result of
an investment in the Fund. As indicated in the expense table, the Fund utilizes
a declining sales charge for Class A Shares, a contingent deferred sales charge
("CDSC") for Class B and Class C Shares and a no-fee, no-charge structure for
institutional investors for Class R Shares. Class R Shares are subject to a
minimum purchase requirement of $1,000,000. Long-term Class B and Class C
stockholders could pay more than the economic equivalent of the maximum front-
end sales charge for Class A Shares. Class B Shares automatically convert to
Class A Shares after eight years. The Fund's 12b-1 plan and management fee are
more fully described herein. These expenses should not be considered a
representation of past or future expenses as actual expenses may be greater or
less than those shown.
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FINANCIAL HIGHLIGHTS
The following data have been derived from financial highlights audited by
Deloitte & Touche LLP, independent auditors, whose report appears in the
Statement of Additional Information.
The following table provides per share income and capital changes for a share
of capital stock of the Fund outstanding from July 1, 1991 (commencement of
operations), to June 30, 1997. Class B, Class C, and Class R Shares were not
offered to the public during the fiscal year.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
---------------------------------- ----------------------------------
NET ASSET Distri- NET
VALUE Net Net Realized & Dividends butions ASSET
YEAR BEGINNING Invest- Unrealized TOTAL FROM (From Net (From Returns TOTAL VALUE
ENDED OF ment Gain (Loss) INVESTMENT Investment Capital of DISTRI- END OF Total
JUNE 30, PERIOD Income on Securities OPERATIONS Income) Gains) Capital BUTIONS PERIOD Return(a)
- -------- --------- ------- --------------- ---------- ---------- ------- ------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $15.00 $.87 $ .90 $1.77 $.87 $.02 $-- $ .89 $15.88 11.91%
1993 15.88 .76 2.05 2.81 .75 .13 -- .88 17.81 18.09
1994 17.81 .66 (.89) (.23) .66 .25 -- .91 16.67 (1.49)
1995 16.67 .69 1.94 2.63 .68 .35 -- 1.03 18.27 16.55
1996 18.27 .73 .61 1.34 .74 1.31 -- 2.05 17.56 7.76
1997 17.56 .66 2.16 2.82 .68 .39 -- 1.07 19.31 16.53
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------
Ratio of
Ratio of Net
Expenses Investment
Net to Income Average
YEAR Assets Average to Average Portfolio Commission
ENDED End of Net Net Turnover Rate
JUNE 30, Period Assets(b) Assets(b) Rate Paid(c)
- --------- -------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
1992 $124,563 1.09% 5.51% 10.48% $.0846
1993 179,209 1.02 4.44 38.42 .0832
1994 188,747 .96 3.70 30.64 --
1995 191,473 1.04 4.05 48.46 --
1996 184,307 1.06 4.01 83.17 --
1997 157,183 1.09 3.63 56.37 --
</TABLE>
- --------
(a) Prior to June, 1991, the Fund was organized as a Master Trust, with its
common and collective trust funds (the "Predecessor Funds") held at
Citizens Federal Bank, F.S.B. These Predecessor Funds were advised by the
Fund's investment adviser, James Investment Research, Inc., using
investment objectives, policies and strategies substantially similar to
those used in managing the Fund. The Predecessor Funds' returns for the
years ended June 30, 1985 through June 30, 1991 were 20.35%, 33.73%,
17.73%, 16.53%, 10.37%, 6.49% and 8.24% respectively. This performance
represents a compounded annual return of 15.7%. The prior returns of the
Predecessor Funds should not be interpreted as the historical performance
of the Fund.
The total returns for either the Predecessor Funds or the Fund should not be
interpreted as indicative of the Fund's future performance.
Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses by
John Nuveen & Co. Incorporated or its predecessor Flagship Funds Inc.
(c) Average commission rate paid on equity portfolio transactions. Commissions
paid are included in the cost of the securities. Disclosure was not
required prior to June 30, 1996.
The Fund's annual report for the most recent fiscal year includes a discussion
of fund performance. It is available upon request and without charge.
2
<PAGE>
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WHO SHOULD INVEST IN THE FUND?
The Fund is specially designed for investors who seek total return from
investments in equity and debt securities and who also seek capital
preservation in declining markets. The Fund's investment adviser expects to
invest in securities that make the Fund a suitable investment for individuals
wishing to make long-term investments, Individual Retirement Accounts, Keogh
Plans and other retirement or pension oriented plans, trusts or accounts. The
Fund's shares are offered to individuals or entities which are customers of a
securities dealer affiliated with Citizens Federal Bank, F.S.B., ("Citizens
Federal") or trust customers of Citizens Federal.
The minimum initial investment in the Fund is $5,000, except for qualified
individual retirement plans which have a $2,000 minimum initial investment. Its
shares are sold at a public offering price that is equal to the net asset value
per share plus a sales charge through affiliated securities dealers of Citizens
Federal. Shares are sold at net asset value to investors through trust accounts
at Citizens Federal. Shares are redeemable without any redemption charge. In
addition, the Fund has adopted a plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act") that permits the Fund to spend
up to .40% annually of its average daily net assets for certain expenses
related to the distribution of its shares (see "The Distributor"). The Fund
expects to pay dividends quarterly.
- --------------------------------------------------------------------------------
THE FUND AND ITS OBJECTIVE
The Fund's investment objective is to provide total return through a
combination of growth and income primarily in equity and/or debt securities and
preservation of capital in declining markets. The Fund's investment objective
is a fundamental policy that cannot be changed without authorization by a vote
of a majority of the outstanding shares of the Fund. The Fund will seek to
provide total return in excess of the rate of inflation over the long term
(three to five years). The Manager of the Fund is Nuveen Advisory Corp. (the
"Manager"), and the Investment Adviser is James Investment Research, Inc. (the
"Adviser").
To accomplish the foregoing investment objective, the Fund intends to invest
its assets in a portfolio consisting of equity securities traded on a national
securities exchange or NASDAQ; high grade debt securities rated "A" or better
by Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Ratings
Group ("S&P"), or unrated securities determined by the Adviser to be of
equivalent quality; securities issued or guaranteed by the United States
government or its agencies or instrumentalities; equity and dollar denominated
debt securities of non-United States issuers; United States domiciled closed-
end mutual funds which invest in the securities of non-United States issuers;
preferred stock rated "A" or better; and convertible securities including
convertible bonds, which shall be treated as equity and not debt securities for
purposes of determining investment quality.
INVESTMENT STRATEGY
The Adviser does its own research using quantitative databases and statistical
expertise. It utilizes a number of elements to help predict future stock and
bond price movements. When selecting equity securities, the Adviser focuses on
value, neglect or limited following by Wall Street analysts and on management
commitment and assesses a number of fundamental factors such as earnings,
earnings trend, price earnings multiples, return on assets, and balance sheet
data as well as other proprietary calculations to identify stocks which it
considers undervalued.
The Adviser expects that the fixed income portion of the Fund portfolio will
consist primarily of U.S. Treasury securities or high grade corporate bonds. In
addition, when the Adviser believes that interest rates will fall, it expects
that it may extend maturities in anticipation of capital appreciation in the
bonds. If the Adviser believes that interest rates may rise, it expects to seek
capital preservation through the purchase of shorter term bonds.
Under normal market conditions, the Adviser expects that the Fund will hold
both debt and equity securities, the proportions of which are not fixed and may
invest up to 90% of its assets in either debt or equity securities and, for
temporary defensive purposes, may invest up to 100% of its assets in short term
U.S. Government or high quality money market instruments or repurchase
agreements collateralized by such securities or any other security of
equivalent quality deemed appropriate. The Adviser expects that the bulk of the
portion of the Fund's assets invested in equities will be invested in New York
Stock Exchange listed equity securities, but the bulk of the Fund's assets
could consist of American Stock Exchange and over-the-counter traded equity
securities in appropriate circumstances, such as when they are determined to be
undervalued by the Adviser. The Fund may also invest in closed-end funds which
invest in the securities of non-United States issuers, foreign equity
securities, or American
3
<PAGE>
Depositary Receipts of such securities. See "Non-United States Securities." The
Fund may invest in the following types of securities in any proportion:
convertible preferred and common stocks, long and short term debt securities,
money market instruments, repurchase agreements, and "when issued" securities
of any of the above, as well as new types of securities that may be created in
the future, but will do so only to the extent such investment is compatible
with its investment objective. The Fund may invest in debt obligations of any
maturity and will select such investments consistent with its anticipated needs
for liquidity to meet redemptions.
The Fund will limit its holdings of debt securities to issues rated, at the
time of purchase, "A" or better by either Moody's, or S&P, respectively or
other issues believed by the Adviser to be of at least comparable quality.
Securities rated A are judged by Moody's to be upper medium grade obligations,
security for principal and interest of which are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime
in the future. S&P believes debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
The Fund may invest up to 10% of its assets in money market funds or closed-end
funds (which invest in the securities of non-United States issuers) which are
registered investment companies, subject to the requirements of applicable law.
Such investments could result in stockholders paying duplicate or multiple
fees, as such money market or closed-end funds incur expenses similar to those
of the Fund. The Adviser will only invest in money market funds or closed-end
funds when it believes the yields on such funds are beneficial even including
multiple fees. Risks associated with investment in the securities of non-United
States issuers and closed-end funds which invest in the securities of non-
United States issuers are discussed below under "Non-United States Securities."
AMERICAN DEPOSITARY RECEIPTS
American Depositary Receipts (ADR's) represent interests in underlying equity
securities of non-United States issuers which do not trade directly in the
United States. ADR programs may be sponsored by the issuers or unsponsored,
that is, organized without the issuer's assistance. Generally, the underlying
equity securities are deposited with a bank or other financial institution and
the ADR is traded, representing an interest in the shares on deposit and
entitling the owner of the ADR to interest and dividend income from the shares
pursuant to the contractual arrangements relating to the ADR program. ADR's
often trade at a lower price than the underlying security and may be less
liquid, but at the same time provide a potential for greater yields.
NON-UNITED STATES SECURITIES
The Fund may invest up to 30% of its assets in securities issued by non-United
States issuers and up to 10% of its assets in investment companies including
closed-end funds which invest in the securities of non-United States issuers.
Investments in securities of non-United States issuers involve certain risks
not ordinarily associated with investments in securities of domestic issuers.
Such risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. Securities denominated or
quoted in currencies other than the U.S. dollar will have their value affected
by changes in foreign currency exchange rates and such changes may affect
unrealized appreciation or depreciation, although the Fund will attempt to
hedge such risks. See "Hedging." With respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a non-United States
company than about a United States company, and such a company may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to or as uniform as those applicable to United States
companies. Non-United States securities markets (other than Japan), while
growing in volume, have, for the most part, substantially less volume than
United States markets, and securities of many non-United States companies are
less liquid and their prices more volatile than securities of comparable United
States companies. Transaction costs in non-United States securities markets are
generally higher than in the United States and settlement procedures are often
not as regulated as in the United States. There is generally less government
supervision and regulation of exchanges, brokers and issuers than there is in
the United States. The Fund may have greater difficulty taking appropriate
legal action with respect to foreign investments in non-United States courts
than with respect to domestic issuers in United States courts.
Dividend and interest income from non-United States securities will generally
be subject to withholding taxes by the country in which the issuer is located
and the Fund will not be able to pass through to its stockholders foreign tax
credits or deductions with respect to these taxes.
4
<PAGE>
OTHER POLICIES
Among other things, the Fund may not make loans (other than repurchase
agreements), except to the extent the purchase of debt obligations of any type
are considered loans, and except that the Fund may lend portfolio securities
pursuant to Securities and Exchange Commission ("SEC") requirements and the
exchanges on which such securities are traded; invest more than 25% of the
value of its assets in one industry; or issue securities senior to its stock.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements and may invest up to 5% of its
assets in repurchase agreements longer than seven days in order to realize
additional income. Repurchase agreements are generally agreements under which
the Fund obtains securities subject to resale to the seller at an agreed upon
price and date. The repurchase agreement must be fully collateralized at all
times by securities with a value at least equal to 100% of the current market
value of the loaned securities. There are certain risks associated with such
transactions which are described in the Statement of Additional Information. As
with any extension of credit, there are risks of delay in recovery and loss of
rights in collateral should the borrower of the securities fail financially.
LOANS OF SECURITIES
The Fund may make loans of its portfolio securities in order to realize
additional income. All such loans shall be fully collateralized. There are
certain risks associated with such transactions which are discussed in the
Statement of Additional Information. As with any extension of credit, there are
risks of delay in recovery and loss of rights in collateral should the borrower
of the securities fail financially.
HEDGING
The Fund may purchase and sell exchange-listed and over-the-counter put and
call options on securities, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various interest rate transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "hedging
transactions"). Hedging transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. No more than 5% of the Fund's
assets will be committed to hedging transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any hedging transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
hedging transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Hedging transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes
and not for speculative purposes.
RISKS
Hedging transactions have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such hedging transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times
or for prices higher than (in the case of put options) or lower than (in the
case of call options) current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances
5
<PAGE>
and certain over-the-counter options may have no markets. As a result, in
certain markets, the Fund might not be able to close out a transaction without
incurring substantial losses, if at all. Although the use of futures and
options transactions for hedging should tend to minimize the risk of loss due
to a decline in the value of the hedged position, at the same time they tend to
limit any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of hedging transactions would reduce net
asset value, and possibly income, and such losses can be greater than if the
hedging transactions had not been utilized.
BORROWING
The Fund may borrow from time to time on a temporary basis in amounts up to 33
1/3% of its net assets. Such borrowings are called leverage, and while they
provide opportunity for greater returns than if borrowing had not occurred, to
the extent the interest on the borrowings exceeds the interest on dividends
received, there is a risk that the income to the Fund will be less than if the
borrowing had not been made. To the extent the Fund invests the proceeds from
borrowings in equity or fixed income securities, the net asset value of the
Fund may appreciate or depreciate more rapidly than a fund that does not
utilize leverage. The Adviser will only cause the Fund to borrow when there is
an expectation it will benefit the Funds.
FUNDAMENTAL RESTRICTIONS
The Fund as a whole has adopted a number of fundamental investment
restrictions, which may not be changed without the approval of its
stockholders. These restrictions are set forth in the Statement of Additional
Information. Other than such restrictions and the fundamental objective above,
the Fund has no investment policies which it considers fundamental.
RESTRICTED SECURITIES
The Fund may invest up to 10% of its assets (valued at the purchase date) in
illiquid securities, including securities that are subject to restrictions on
disposition under the Securities Act of 1933 or for which market quotations are
not readily available, including repurchase agreements in excess of seven days.
Due to the illiquid nature of restricted securities, if the Funds were forced
to sell such securities, it might have to do so at a disadvantageous price.
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
Shares of the Fund are offered continuously at a public offering price that is
equal to net asset value per share next determined after a purchase order is
received by the Fund plus any applicable sales charge. The sales charge, at the
election of the purchaser, may be imposed (i) at the time of purchase (Class A
Shares) or (ii) on a contingent deferred basis (Class B and Class C Shares).
The Class R Shares are designed for institutional investors and are sold at net
asset value with no front-end sales charge, no contingent deferred sales charge
and no Rule 12b-1 charge. When placing purchase orders, investors should
specify whether the order is for Class A, Class B, Class C or Class R Shares.
All purchase orders that fail to specify a Class will automatically be invested
in Class A Shares.
Four classes of shares, Class A Shares, Class B Shares, Class C Shares and
Class R Shares are authorized for the Fund. They are described fully in the
SAI. The following table shows the total sales charges or underwriting
discounts and dealer concessions for each amount.
CLASS A SHARES
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
------------------------------ DEALER CONCESSION OR AGENCY
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF COMMISSION AS PERCENTAGE
AT PUBLIC OFFERING PRICE OFFERING PRICE NET ASSET VALUE OF OFFERING PRICE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 50,000 4.20% 4.38% 3.70%
$ 50,000 to $ 100,000 4.00 4.18 3.50
$ 100,000 to $ 250,000 3.50 3.65 3.00
$ 250,000 to $ 500,000 2.50 2.61 2.00
$ 500,000 to $1,000,000 2.00 2.09 1.50
$1,000,000 to $2,000,000 .50 .52 .30
</TABLE>
6
<PAGE>
CLASS B SHARES
Class B Shares are offered at net asset value, without an initial sales charge,
subject to a continuing 0.95% annual distribution fee. Class B Shares are
subject to a declining contingent deferred sales charge ("CDSC") if you redeem
your shares within six years from the purchase date. This CDSC charge is 5%,
4%, 4%, 3%, 2% and 1% for years one through six. Class B Shares automatically
convert to Class A Shares at the end of eight years. The conversion is based on
the relative net asset value of the two classes, and no sales charge or other
charge is imposed.
The Distributor pays a 0.20% service fee to dealers in advance for the first
year upon the sale of Class B Shares. After the shares have been held for a
year, the Distributor pays the fee monthly. In addition, the Distributor pays
sales commission of 3.80% of the purchase price to dealers from its own
resources at the time of sale.
CLASS C SHARES
Class C Shares are offered at net asset value, without an initial sales charge,
subject to a continuing 0.95% annual distribution fee (of which .75% is an
asset based sales charge and .20% is a service fee) and a CDSC of 1% if
redeemed within one year of the purchase date. The first year of the annual
distribution fee is paid to the Distributor, and in subsequent years 0.75% is
paid to the dealer and 0.20% is paid to the Distributor.
CLASS R SHARES
You may purchase Class R Shares with monies representing dividends and capital
gain distributions on Class R Shares of the Fund. Also, you may purchase Class
R Shares if you are within the following specified categories of investors who
are also eligible to purchase Class A Shares at net asset value without an up-
front sales charge: officers, current and former directors of the Fund; bona
fide, full-time and retired employees of John Nuveen & Co. Incorporated and
James Investment Research, Inc. 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; and bank
or broker-affiliated trust departments; persons investing $1 million or more in
Class R Shares; and clients of investment advisers, financial planners or other
financial intermediaries that charge periodic or asset-based "wrap" fees for
their services.
If you are eligible to purchase either Class R Shares or Class A Shares without
a sales charge at net asset value, you should be aware of the differences
between these two classes of shares. Class A Shares are subject to an annual
distribution fee to compensate John Nuveen & Co. Incorporated (the
"Distributor") for distribution costs associated with the Fund and to an annual
service fee to compensate Authorized Dealers for providing you with ongoing
account services. Class R Shares are not subject to a distribution or service
fee and, consequently, holders of Class R Shares may not receive the same types
or levels of services from Authorized Dealers. In choosing between Class A
Shares and Class R Shares, you should weigh the benefits of the services to be
provided by Authorized Dealers against the annual service fee imposed upon the
Class A Shares.
The minimum initial investment in the Fund is $5,000, except for qualified
individual retirement plans which have a $2,000 minimum and investments in
Class R Shares which have a $1,000,000 minimum. Additional purchases of $100 or
more may be made at any time. Any order in an amount of $1,000,000 or more must
be for Class A or Class R Shares.
Shares of the Fund are sold to individuals or entities who hold their shares in
individual or master trust accounts at Citizens Federal, including Individual
Retirement Accounts, Keogh Plans, pension plans, bank and/or savings and loan
trust departments, trusts or accounts, including individuals who have signed
trust agreements. Such shares are sold in a continuous offering at the public
offering price, which is equal to the net asset value per share next determined
after a purchase order is received by the Fund (see "How Fund Shares are
Priced"). Purchases may also be made as described below under "Purchase For
Trust Accounts Through Dealers." In addition, shares of the Fund may be
purchased, in amounts less than the minimum purchase amount, by officers,
directors and employees of the Fund, the Adviser, the Manager, or the
Distributor, and any such person's spouse, children, and trustees or custodians
of any qualified pension or profit sharing plan or IRA established for the
benefit of such person. Such person should request instructions on how to
invest or redeem from the Distributor. The Fund reserves the right to reject
any order for shares.
7
<PAGE>
PURCHASE FOR TRUST ACCOUNTS THROUGH DEALERS
To purchase shares through a dealer, you should direct your dealer to contact
the Distributor to request information on the Fund and on Citizens Federal's
process for establishing the necessary trust accounts. The Distributor can be
reached toll free at 1-800-621-7227. After establishing an account, an investor
may, either directly or through a broker, purchase shares of the Fund. For
purchases made through a dealer, that dealer will be designated as the broker
of record for those account assets. The public offering price is the Funds's
net asset value. Because the Fund determines net asset value daily as of the
close of trading (normally 4:00 p.m. New York time) on the New York Stock
Exchange on each day that the Exchange is open for trading, the dealer must
transmit your request to Citizens Federal prior to such time in order for your
order to be executed at the net asset value to be determined that day. Any
change in price due to the failure of the Fund to receive an order prior to the
close of the Exchange must be settled between the investor and the dealer
placing the order.
AUTOMATIC INVESTMENT PLAN
The Fund offers current stockholders who receive a quarterly statement from
Flagship the convenience of automatic monthly investing. On any regular
business day between the fifth and twenty-eighth of each month, the amount you
specify ($100 minimum) will be transferred from your bank to the Fund. To
initiate the automatic investment plan, complete the application form and
attach a voided check.
The Fund pays the cost associated with these transfers, but reserves the right,
upon ninety (90) days written notice, to make reasonable charges for this
service. Your bank may charge for debiting your account. Stockholders can
change the amount or discontinue their participation in the plan by written
notice to Boston Financial ("Stockholders Services Agent") thirty (30) days
prior to fund transfer date. Because a sales charge is applied on new shares
purchased, it would be disadvantageous to purchase shares while also making
systematic withdrawals.
LETTER OF INTENT (RETAIL SHARES ONLY)
A stockholder may qualify for reduced sales charges by sending to the Fund
(within 90 days after the first purchase desired to be included in the purchase
program) the signed, non-binding Letter of Intent section on the application
form. All investments in retail shares of the Fund count toward the indicated
goal. Please see the Statement of Additional Information for further details.
Escrow provision: It is understood that 5% of the dollar amount checked on the
application will be held in a special escrow account. These shares will be held
by the escrow agent subject to the terms of the escrow. All dividends and
capital gains distributions on the escrowed shares will be credited to the
stockholder's account in shares. If the total purchases, less redemptions by
the stockholder, his spouse, children and parents, equal the amount specified
under this Letter, the shares held in escrow will be deposited to the
stockholder's open account or delivered to the stockholder or to his order. If
the total purchases, less redemptions, exceed the amount specified under this
Letter and an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by the Distributor and the dealer
through whom purchases were made pursuant to this Letter of Intent (to reflect
such further quantity discount). The resulting difference in offering price
will be applied to the purchase of additional shares at the offering price
applicable to a single purchase of the dollar amount of the total purchases. If
the total purchases less redemptions are less than the amount specified under
this Letter, the stockholder will remit to the Distributor an amount equal to
the difference in the dollar amount of sales charge actually paid and the
amount of sales charge which would have applied to the aggregate purchases if
the total of such purchases had been made at a single time. Upon such
remittance the shares held for the stockholder's account will be deposited to
his Account or delivered to him or to his order. If within 20 days after
written request by the Distributor such difference in sales charge is not paid,
the Distributor is hereby authorized to redeem an appropriate number of shares
to realize such difference. The Distributor is hereby irrevocably constituted
under this Letter of Intent to effect such redemption as agent of the
stockholder. The stockholder or his dealer will inform the Stockholder Services
Agent that this Letter is in effect each time a purchase is made.
GENERAL
All funds will be fully invested in full and fractional shares. All dividends
declared will be paid in the form of additional full and fractional shares at
net asset value unless the Fund has received an election in writing from the
stockholder to receive such dividends in cash. Such dividends can be deposited
electronically into a stockholder's Citizens Federal or other bank account
using the Automated Clearing House ("ACH") system. See "Direct Deposits."
8
<PAGE>
The issuance of shares is recorded on the books of the Fund, and, to avoid
additional operating costs and for investor convenience, share certificates
will not be issued, except by special arrangement.
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Stockholders should advise their financial consultant of their desire to redeem
shares. Upon receipt by the Fund of a proper redemption request, the Fund will
redeem shares at their next determined net asset value. See "How Fund Shares
are Priced." Neither the Distributor nor the Fund charges a fee or a commission
for redemption, except that the Fund may charge a fee for wiring redemption
proceeds.
SIGNATURE GUARANTEE
The Stockholder Services Agent may require a signature guarantee on certain
written transaction requests. A signature guarantee may be executed by any
eligible guarantor. Eligible guarantors include member firms of a domestic
stock exchange, commercial banks, trust companies, savings associations and
credit unions as defined by the Federal Deposit Insurance Act. You should
verify with the institution that they are an eligible guarantor prior to
signing.
- --------------------------------------------------------------------------------
FREE REPURCHASE
A stockholder who has redeemed shares may repurchase shares at net asset value
without incurring the applicable sales charge. Such a purchase must be in an
amount between the stated minimum investment of such fund and the amount of the
proceeds of redemption within one year of the redemption. This feature may be
exercised by a stockholder only twice per calendar year. Exercising the
reinvestment privilege will not affect the character of any gain or loss
realized on the redemption for federal income tax purposes, except that if the
redemptions resulted in a loss, the reinvestment may result in the loss being
disallowed under the "wash sale" rules.
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN
Accounts with a value greater than $10,000 may establish a Systematic
Withdrawal Plan ("SWP") and receive monthly or quarterly checks for $100 or
more as specified by the stockholder. To establish a SWP all distributions must
be in the form of shares. Such payments are drawn from the proceeds of the
redemption shares held in the stockholder's account. To the extent that SWP
redemptions exceed dividend income reinvested in the account, such redemptions
will reduce and may ultimately exhaust the number of shares in the account. To
initiate this service, shares having an aggregate value of at least $10,000
must be held by the Stockholder Services Agent. Maintaining a SWP concurrently
with an investment program would be disadvantageous because of the sales
charges included in share purchases. Therefore, a stockholder should not have a
SWP in effect at the same time he is making recurring purchases of shares of
the Fund. The stockholder by written instructions to the Stockholder Services
Agent may withdraw from the program, change the payee or change the dollar
amount of each payment. The Stockholder Services Agent may charge the account
for services rendered and expenses incurred beyond those normally assumed by
the Fund with respect to the liquidation of shares. No charge is currently
assessed against the account, but could be instituted by the Stockholder
Services Agent on 60 days' notice in writing to the stockholder in the event
that the
Fund ceases to assume the cost of these services. The Fund reserves the right
to amend or terminate the SWP on thirty days' notice.
- --------------------------------------------------------------------------------
DIRECT DEPOSITS
Stockholders can have dividends or SWP redemption proceeds deposited
electronically into their Citizens Federal or other bank accounts. Under normal
circumstances, direct deposits are credited to the account on the second
business day of the month following normal payment. In order to utilize this
option, the stockholder's bank must be a member of Automated Clearing House. In
addition, the stockholder must (1) fill out the appropriate section of the
application attached to this Prospectus and (2) include with the completed
application a voided check from the bank account into which funds are to be
deposited. Once the Stockholder Services Agent has received the application and
the voided check, such stockholder's designated bank account, following any
dividend or redemption, will be credited with the proceeds. Once enrolled in
direct deposit, a stockholder may terminate participation at any time by
written notice to the Stockholder Services Agent.
9
<PAGE>
- --------------------------------------------------------------------------------
HOW FUND SHARES ARE PRICED
For purposes of pricing purchases and redemptions, the net asset value of the
Fund is separately determined by Boston Financial as of the close of trading on
the New York Stock Exchange on each day that the Exchange is open for business,
except for Ohio bank holidays (and will also be computed as of 4:00 p.m. New
York time on any other day on which purchase or redemption orders are received
and there is a sufficient degree of trading in the portfolio securities of the
Fund such that the Fund's net asset value per share might be affected). Net
asset value per share of the Fund is calculated (to the nearest cent) by adding
the value of all securities and other assets, subtracting all of the
liabilities and dividing the remainder by the number of shares outstanding at
the time the determination is made.
Assets of the Fund for which market quotations are readily available are valued
at market value. Equity securities are valued at the last sale price on the
exchange on which they are traded. If equity securities are not traded that
day, they are valued at the mean of the bid and asked prices. Over-the-counter
securities are valued at the mean of the bid and asked prices as are listed
debt securities. Securities with remaining maturities of 60 days or less are
valued at their amortized cost under rules adopted by the SEC unless conditions
indicate otherwise. Other assets and securities are valued at their fair value
as determined in good faith under procedures established by the Fund's Board of
Directors.
- --------------------------------------------------------------------------------
TAXES
The following discussion is a general summary of certain of the current federal
income tax laws regarding the Fund and its investors. The discussion does not
purport to deal with all of the federal income tax consequences applicable to
the Fund, or to all categories of investors who may be subject to special rules
(for example, foreign investors). Investors should consult their own tax
consultant for more detailed information regarding the above and for
information regarding any state, local or foreign taxes that may be applicable
to them.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify for taxation as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended (the "Code") and
satisfy certain other requirements, so that the Fund will not be subject to
federal income tax to the extent it distributes all of its net investment
income and capital gain to its stockholders at least annually. Stockholders
generally will be required to pay federal income taxes on the dividends and
distributions they receive from the Fund, whether received in cash or in
additional shares of the Fund, and on gains realized upon redemption of their
shares.
Following each calendar year, each stockholder will receive information for tax
purposes on the dividends and capital gains distributions received during the
previous year. The Fund may make distributions from net investment income or
capital gain and may also make distributions in kind. Dividends from net
investment income and any net short-term capital gain will be taxable as
ordinary income. Any distribution designated as realized net capital gain (the
excess of net long-term capital gain over net short-term capital loss) will be
taxable as long-term capital gain, regardless of the stockholder's holding
period. The Internal Revenue Service requires backup withholding of federal
income tax of 31% of the gross amount of ordinary dividends, capital gain
dividends, and redemption proceeds paid or credited to stockholders who do not
furnish a valid social security or taxpayer identification number.
REDEMPTIONS
Redemptions of shares will be taxable transactions for federal income tax
purposes. Generally, gain or loss will be recognized in an amount equal to the
difference between the stockholder's basis in its shares and the amount
received. Assuming that such shares are held as a capital asset, such gain or
loss will be a capital gain or loss and will generally be a long-term capital
gain or loss if the stockholder has held its shares for a period of one year or
more. Gain on the sale of shares held for more than 18 months will generally be
taxed at a maximum marginal rate of 20%. If a stockholder redeems shares of the
Fund at a loss and makes an additional investment in the Fund 30 days before or
after such redemption, the loss may be disallowed under the wash sale rules.
STATE AND LOCAL TAXES
The Fund is organized as a Maryland corporation and, except for some small
amounts of taxes based on share capital, the Fund will not be subject to
Maryland income taxes to the extent that it is not subject to federal income
taxes. Stockholders may be subject to state and local taxes on distributions
received from the Fund, which taxes may be determined differently from federal
income taxes thereon.
10
<PAGE>
- --------------------------------------------------------------------------------
YIELD
YIELD AND CURRENT RETURN
In accordance with SEC regulations, the Fund may include its current yield
and/or average annual total return in advertisements or information furnished
to stockholders or potential investors.
YIELD AND TOTAL RETURN CALCULATION
The Fund's yield is calculated in accordance with the SEC's standardized yield
formula. In it, dividend and interest income over the 30 day measurement period
is reduced by period expenses and divided by the number of days within the
measurement period to arrive at a daily income rate. This daily income rate is
then expressed as a semi-annually compounded yield based on the net asset value
of a share assuming a standardized 360 day year.
The Fund's average annual total return for any time period is calculated by
assuming an investment at the beginning of the measurement period at the net
asset value. Dividends from the net investable amount are then reinvested in
additional shares each month at the net asset value. At the end of the
measurement period, the total number of shares owned are redeemed at net asset
value (less any applicable contingent deferred sales load). The change in the
total value during the investment period is then expressed as an average annual
total rate of return.
The Fund may also advertise total return which is calculated differently from
"average annual total return" (a "non-standardized quotation"). A
nonstandardized quotation of total return measures the percentage change in the
value of an account between the beginning and end of a period, assuming no
activity in the account other than reinvestment of dividends and capital gains
distributions. A nonstandardized quotation of total return will always be
accompanied by the Fund's "average annual total return" as described above.
Yield and current return will vary from time to time depending on market
conditions, the composition of the portfolio, operating expenses and other
factors. These factors and possible differences in method of calculating
performance figures should be considered when comparing the performance figures
of the Fund with those of other investment vehicles. Yield and return
information is based on historical performance and is not intended to indicate
future performance. See the Statement of Additional Information "Yield and
Total Return Calculation."
The Fund's dividends vary with fluctuations in the income earned on its
portfolio securities and in its expenses while its net asset value varies with
realized and unrealized gains and losses on its portfolio securities to the
extent not reflected in dividends. Consequently, any given current distribution
yield quotation should not be considered representative of what the
distribution yield may be for any specified period in the future. Distribution
yield quotations may not necessarily be useful in comparing an investment in
the Fund with investment alternatives that provide a fixed rate of interest,
that are insured or guaranteed or that compute yield or return on a different
basis.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
DIRECTORS
The business and affairs of the Fund are managed under the direction of its
Board of Directors.
MANAGER
The manager to the Fund is Nuveen Advisory Corp. (the "Manager"), whose
principal business address is 333 West Wacker Drive, Chicago, Illinois 60606.
The Manager serves as investment adviser to investment portfolios with more
than $35 billion in municipal assets under management. The Fund's Board of
Directors oversees the activities of the Manager, which also include managing
the Fund's business affairs and providing certain clerical, bookkeeping and
other administrative services. Established in 1976, the Manager is a wholly-
owned subsidiary of John Nuveen & Co. Incorporated, which itself is
approximately 78% owned by the St. Paul Companies, Inc. 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 Admiral
Funds, was merged with the Manager.
Pursuant to the terms of an Assumption and Assignment Agreement, dated January
1, 1997 (the "Agreement"), the Manager, subject to the general supervision of
the Fund's Board of Directors and in conformity with the stated policies of the
Fund, manages the Fund including general supervision of the purchase and sale
of securities, and provides supervisory and corporate administrative services
to the Fund. In this regard, it is the responsibility of the Manager to assure
compliance with applicable law and the Fund's policies and to perform, or
supervise the
11
<PAGE>
performance of, administrative services in connection with the Fund including:
(i) assisting in supervising all aspects of the Fund's operations; (ii)
providing the Fund, at the Manager's expense, with the services of persons
competent to perform such administrative and clerical functions as are
necessary in order to provide effective corporate administration of the Fund;
and (iii) providing the Fund, at the Manager's expense, with adequate office
space and related services. The Fund's accounting records are maintained, at
the Fund's expense, by its Custodian, State Street Bank and Trust Company.
As compensation for the services rendered by the Manager under the Management
Agreement, the Fund will pay the Manager a fee, computed daily and payable
monthly, at an annual rate of .74% of the Fund's average daily net assets. Of
this amount, the Manager will pay the Investment Adviser, pursuant to an
Investment Advisory Agreement, .55% of the Fund's average daily net assets (see
below). For the fiscal year ended June 30, 1997, the total expenses of the Fund
and the fee paid to the Manager, expressed as a percentage of average net
assets on an annualized basis, were 1.09% and .74%, respectively.
The Fund has adopted a Code of Ethics regarding restrictions on the investment
activity of specified "Investment Personnel." These include restrictions on
personal investing, pre-clearance of trades, sanctions and disgorgement of
certain profits, as well as prohibitions on short swing profits, investments in
initial public offerings and holding public directorships.
INVESTMENT ADVISER
The investment adviser to the Fund is James Investment Research, Inc. (the
"Adviser"), whose principal business address is P.O. Box 8, Alpha, Ohio 45301.
The Adviser is owned by Frank James, Ph.D., who established it in 1972. The
Adviser provides advice to institutional as well as individual clients,
including NYSE listed corporations, colleges, banks, hospitals, foundations,
trusts, endowment funds and individuals.
Pursuant to an Investment Advisory Agreement among the Adviser, Flagship
Financial Inc. and the Fund dated May 30, 1991, and pursuant to an agreement
dated January 1, 1997 in which the Manager assumed the rights and obligations
of Flagship Financial Inc. and Flagship Financial Inc. assigned its rights and
obligations to the Manager, the Adviser has complete investment discretion with
respect to making the Fund investments subject to the general supervision of
the Board of Directors and the authority of the Manager to assure compliance by
the Adviser with applicable law and the Fund's investment objectives and
policies. Investment decisions are made by a team of portfolio managers, each
of whom has been employed by the Adviser for more than five years.
As compensation for the services rendered by the Adviser under the Advisory
Agreement, the Manager will pay the Adviser a fee, computed daily and payable
monthly, at an annual rate of .55% of the Fund's average daily net assets. For
the fiscal year ended June 30, 1997, the fee paid to the Investment Adviser was
.55% of average net assets on an annualized basis. The Advisory Agreement may
be terminated on 60 days notice without penalty by either the Fund, the Manager
or the Adviser provided that the Manager may only terminate the Advisory
Agreement with the concurrence of a majority of the Board of Directors,
including a majority of the independent Directors.
The Adviser may allocate brokerage in a manner that takes account of the sale
of Fund shares.
- --------------------------------------------------------------------------------
DISTRIBUTOR
The Fund has entered into a Distribution Agreement (the "Distribution
Agreement") with John Nuveen & Co. Incorporated (the "Distributor"), pursuant
to which the Distributor serves as the exclusive selling agent and Distributor
of the Fund's shares, and in that capacity will make a continuous offering of
the shares and will be responsible for all sales and promotion efforts.
The Fund has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act which permits the Fund to pay for certain distribution and promotion
expenses related to marketing its shares. Such expenses may include certain
fees to broker-dealers of record for customers of Citizens Federal, who are
stockholders of the Fund, but such fees shall not, when aggregated with other
expenses reimbursed to the Distributor in accordance with the Plan, exceed the
maximum 12b-1 fee set forth in the table on page 2 of this Prospectus. The
Fund's 12b-1 plan conforms to the requirements of the rules of the National
Association of Securities Dealers with regard to Rule 12b-1 plans.
The Plan authorizes the Fund to expend its monies in an amount equal to the
aggregate for all such expenditures to such percentage of the Fund's daily net
asset value as may be determined from time to time by vote cast in person at
12
<PAGE>
a meeting called for such purpose, by a majority of the Fund's disinterested
directors. The scope of the foregoing shall be interpreted by the directors,
whose decision shall be conclusive except to the extent it contravenes
established legal authority. Without in any way limiting the discretion of the
directors, the following activities are hereby declared to be primarily
intended to result in the sale of shares of the Fund: advertising the Fund or
the Fund's Manager's mutual fund activities; compensating underwriters,
dealers, brokers, banks and other selling entities and sales and marketing
personnel of any of them for sales of shares of the Fund, whether in a lump sum
or on a continuous, periodic, contingent, deferred or other basis; compensating
underwriters, dealers, brokers, banks and other servicing entities and
servicing personnel (including the Fund's Manager and its personnel of any of
them for providing services to shareholders of the Fund relating to their
investment in the Fund, including assistance in connection with inquiries
relating to shareholder accounts; the production and dissemination of
prospectuses including statements of additional information) of the Fund and
the preparation, production and dissemination of sales, marketing and
stockholder servicing materials; and the ordinary or capital expenses, such as
equipment, rent, fixtures, salaries, bonuses, reporting and recordkeeping and
third party consultancy or similar expenses relating to any activity for which
payment is authorized by the directors and the financing of any activity for
which payment is authorized by the directors. Pursuant to the Plan the Fund
through authorized officers may make similar payments for marketing services to
non-broker-dealers who enter into service agreements with the Fund. The
Distributor has voluntarily waived any portion of its normally retained 12b-1
fee with regard to its service agreement with Citizens Federal and limited its
payments to $500 per month plus reimbursement of expenses and 12b-1 fees with
regard to selling agreements with broker-dealers affiliated with Citizens
Federal until notice to and approval by the Fund's Board of Directors is
obtained for increased payments.
The maximum amount payable by the Fund under the Plan and related agreements on
an annual basis is .40% of average daily net assets for the year. In the case
of broker-dealers and others, such as banks, who have selling or service
agreements with the Distributor or the Fund, the maximum amount payable to any
recipient is .0005479% per day (.20% on an annualized basis) of the proportion
of daily net assets represented by such person's customers. The Board of
Directors may reduce these amounts at any time. Expenditures pursuant to the
Plan and related agreements may reduce current yield after expenses. For the
fiscal year ended June 30, 1997, the Fund paid $423,778 under the Plan and
related agreements (the Distributor permanently waived $252,756 for the same
period).
Various federal and state laws prohibit national banks and some state-chartered
commercial banks from underwriting or dealing in the Fund's shares. In the
unlikely event that a court were to find that these laws also prohibit such
banks from providing services of the type contemplated by the Fund's service
agreement, the Fund would seek alternative providers of such services and
expects that stockholders would not experience any disadvantage. In addition,
under the securities laws in some states, banks and financial institutions may
be required to register as dealers pursuant to state law.
- --------------------------------------------------------------------------------
MULTIPLE CLASS DISTRIBUTION
The SEC has adopted rules which permit funds to issue multiple classes of
shares and impose deferred sales charges. The Corporation has adopted a plan
pursuant to such rules permitting each of the Corporation's series to offer
multiple classes of shares consistent with such rules.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
The Corporation was organized on April 18, 1983, as a Maryland corporation. On
October 15, 1987, the Corporation's stockholders approved amendments to the
Corporation's Articles of Incorporation converting it into a series fund.
The authorized capital stock of the Corporation consists of 600,000,000 shares
of stock, par value $.001 per share, which are divided into five (5) portfolio
classes; namely, the Flagship Utility Income Fund Portfolio Stock, The Golden
Rainbow--A James Advised Mutual Fund Portfolio Stock, the Flagship Short Term
U.S. Government Fund Portfolio Stock, the Flagship Limited Term U.S. Government
Fund Portfolio Stock and the Flagship Intermediate U.S. Government Fund
Portfolio Stock.
The Flagship Utility Income Fund Portfolio Stock consists of 200,000,000
shares, which are divided into five (5) subclasses, designated respectively as
the Flagship Utility Income Fund Portfolio Stock, consisting of 3,500,000
shares, and the Flagship Utility Income Fund Portfolio Stock--Class A, Class B,
Class C and Class R, each
13
<PAGE>
consisting of 49,125,000 shares. The Golden Rainbow - A James Advised Mutual
Fund Portfolio Stock consists of 100,000,00 shares which are divided into five
(5) subclasses, designated respectively as The Golden Rainbow--A James Advised
Mutual Fund Portfolio Stock, consisting of 15,000,000 shares, and The Golden
Rainbow--A James Advised Mutual Fund Portfolio Stock--Class A, Class B, Class C
and Class R, each consisting of 21,250,000 shares. The Flagship Short Term U.S.
Government Fund Portfolio Stock consists of 100,000,000 shares which are
designated as the Flagship Short Term U.S. Government Fund Portfolio Stock. The
Flagship Limited Term U.S. Government Fund Portfolio Stock consists of
100,000,000 shares which are divided into five (5) subclasses, designated
respectively as the Flagship Limited Term U.S. Government Fund Portfolio Stock,
consisting of 2,000,000 shares and the Flagship Limited Term U.S. Government
Fund Portfolio Stock--Class A, Class B, Class C and Class R, each consisting of
24,500,000 shares. The Flagship Intermediate U.S. Government Fund Portfolio
Stock consists of 100,000,000 shares which are divided into five (5)
subclasses, designated respectively as the Flagship Intermediate Term U.S.
Government Fund Portfolio Stock consisting of 2,000,000 shares and the Flagship
Intermediate Term U.S. Government Fund Portfolio Stock--Class A, Class B, Class
C and Class R, each consisting of 24,500,000 shares.
The Flagship Utility Income Fund is offered through a separate prospectus.
Pursuant to Maryland law and the Corporation's charter, the Board of Directors
may increase the authorized capital and reclassify unissued shares of any class
to create additional classes of stock with specified rights, preferences, and
limitations. Each share is entitled to one vote per share on all matters
subject to stockholders' vote. Shares of all classes vote together as a single
class except that where a matter affects a particular class differently from
other classes, that class will vote separately on such matter. The Corporation
is not required to hold meetings of stockholders for the purpose of electing
directors unless less than a majority of the directors elected by stockholders
remain in office. If the Corporation does not hold annual meetings of
stockholders, it will abide by section 16 (c) of the 1940 Act which provides
certain rights to stockholders. Directors may be removed by vote of a majority
of the outstanding shares of the Corporation.
Each share is entitled to participate equally in dividends and distributions
declared by the Directors with respect to shares of the same class, and in the
net distributable assets allocated to such class on liquidation. Stockholders
are entitled to redeem their shares, as set forth under "How to Redeem." There
are no conversion, preemptive or exchange rights in connection with any shares
of the Fund, nor are there cumulative voting rights. All shares of the Fund
when issued will be fully paid and nonassessable by the Fund.
Almost all of the Fund's shares are owned by Citizens Federal Bank, F.S.B.,
Dayton, Ohio acting as either trustee, investment agent, or custodian for its
clients. While Citizens Federal has the legal right in certain situations to
vote on behalf of its clients, it is anticipated that Citizens Federal will
contact its clients and vote in accordance with their preferences.
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004 is the
custodian of the Fund's assets. The custodian performs custodial, fund
accounting, portfolio accounting, shareholder, and transfer agency services.
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02106, is the transfer agent and dividend disbursing agent for the Fund. It
also maintains the accounting records, determines the net asset value, and
performs other stockholder services for the Fund.
- --------------------------------------------------------------------------------
COUNSEL AND AUDITORS
Fried, Frank, Harris, Shriver & Jacobson, counsel to the Corporation, passes
upon legal matters for the Corporation. Arthur Andersen LLP, independent
auditors, are auditors of the Corporation effective July 1, 1997.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
The Fund issues to its stockholders semiannual reports containing unaudited
financial statements for the Fund and annual reports containing audited
financial statements approved annually by the Board of Directors. The words
14
<PAGE>
"A James Advised Mutual Fund' are used under revocable license from James
Investment Research, Inc. The Fund's license to use the James language will
terminate if the Adviser ceases to be Adviser to the Fund.
This Prospectus does not contain all the information included in the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 and the 1940 Act with respect to the securities
offered hereby, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and
Exchange Commission. The Registration Statement including the exhibits filed
therewith may be examined at the office of the Securities and Exchange
Commission in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY THE FUND OR BY THE
DISTRIBUTOR IN ANY STATE IN WHICH SUCH OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY MAY NOT LAWFULLY BE MADE.
The symbol sm indicates a service mark of the Manager.
15
<PAGE>
GOLDEN RAINBOW FUND APPLICATION FORM
PLEASE PRINT OR TYPE ALL INFORMATION PLEASE MAIL THIS APPLICATION AND
YOUR CHECK TO:
NOTE: YOU MUST COMPLETE SECTIONS 1, Boston Financial
2, 3, 4, 5 AND SIGN THE SIGNATURE Attn.: Golden Rainbow Fund
LINE. YOUR SIGNATURE IS REQUIRED FOR P.O. Box 8509
PROCESSING. COMPLETE SECTIONS 7, 8, Boston, MA 02266-8509
9, 10 AND 11 FOR OPTIONAL SERVICES.
1. YOUR ACCOUNT REGISTRATION
Please check only ONE registration type:
OWNER NAME(S) (FIRST, MIDDLE INITIAL (IF USED), LAST)
[_] INDIVIDUAL OR JOINT ACCOUNT*
------------------------------------------------------------------------------
------------------------------------------------------------------------------
*Joint tenants with rights of survivorship unless tenancy in common is
indicated
[_] OTHER ENTITY
------------------------------------------------------------------------------
------------------------------------------------------------------------------
[_] UNIFORM GIFT TO MINORS Minor's state of residence
------------------------------------------------------------------------------
Minor's Name (One name only)
------------------------------------------------------------------------------
Custodian Name (One name only)
2. YOUR MAILING ADDRESS
------------------------------------------------------------------------------
Street or P.O. Box Suite or Apt. Number
------------------------------------------------------------------------------
City
--- -------- ------
State Zip Code
( ) - ( ) -
------------------------------------------------------------------------------
Daytime Phone Evening Phone
[_] U.S. CITIZEN OR [_] OTHER (specify) ______________________________________
3. YOUR SOCIAL SECURITY/TAX ID NUMBER
For Individual or Joint accounts use Social Security number of owner. For
custodial accounts use minor's Social Security number.
--- -- ----
Social Security number
--- ---------------
Tax ID Number
4. YOUR INITIAL INVESTMENT
I want to invest this amount*:
$ ___________
*Minimum of $5,000.
Attach check payable to THE GOLDEN RAINBOW
5. DIVIDEND/DISTRIBUTION OPTIONS
If no option is selected, all distributions will be reinvested.
[_] Reinvest dividends and capital gains.
[_] Pay dividends in cash, reinvest capital gains.
[_] Pay dividends and capital gains in cash.
[_] Deposit dividends directly into the bank account indicated on the
attached VOIDED check (subject to terms and conditions in the prospectus).
[_] Send my distributions to the address listed below.
------------------------------------------------------------------------------
Name of Individual
------------------------------------------------------------------------------
Street Address
------------------------------------------------------------------------------
City
--- -------- ------
State Zip Code
6. DEALER AUTHORIZATION
We are a duly registered and licensed dealer and have a sales agreement with
Flagship Funds Inc. We are authorized to purchase shares from the Fund for
the investor. The investor is authorized to send any future payments directly
to the Fund for investment. Confirm each transaction to the investor and to
us. We guarantee the genuineness of the investor's signature.
------------------------------------------------------------------------------
Investment Firm
------------------------------------------------------------------------------
Investment Professional's Name Rep #
------------------------------------------------------------------------------
Branch Address Branch #
------------------------------------------------------------------------------
City
--- -------- ------
State Zip Code
( ) -
------------------------------------------------------------------------------
Investment Professional's Phone Number
X
------------------------------------------------------------------------------
Signature of Investment Professional
7. LETTER OF INTENT (Retail Shares only)
I/we agree to the escrow provision described in the prospectus and intend to
purchase, although I'm not obligated to do so, shares of the Fund designated
on this application within a 13-month period which, together with the total
asset value of shares owned, will aggregate at least:
[_] $50,000
[_] $100,000
[_] $250,000
[_] $500,000
[_] $1,000,000
<PAGE>
8. AUTOMATIC INVESTMENT PLAN
Pursuant to the terms of the plan described in the prospectus, I/we authorize
the automatic monthly transfer of funds from my/our bank account for
investment in the above Flagship Fund. Attached is a VOIDED check from that
account.
Date for Investment (Between 5th and 28th only)
---
$
----------------- Month to Begin Plan ______________________________________
Amount ($100 Minimum)
------------------------------------------------------------------------------
Name of Bank
------------------------------------------------------------------------------
Bank Account #
------------------------------------------------------------------------------
Bank's Street Address
------------------------------------------------------------------------------
City
--- -------- ------
State Zip Code
X
------------------------------------------------------------------------------
Signature of Depositor Date
X
------------------------------------------------------------------------------
Signature of Joint Depositor Date
9. SYSTEMATIC WITHDRAWAL PLAN
A minimum $10,000 balance is required.
BANK ACCOUNT CREDIT
Please redeem $_________ from my account and credit my bank account as indi-
cated in the banking information section below.
Month first credit is to be made: ____________________________________________
Day of the month that I wish the credit to be made:____
(Between the 5th and 28th only.)
Please credit my account for each month I have selected.
<TABLE>
<CAPTION>
JAN FEB MAR APR MAY JUN
<S> <C> <C> <C> <C> <C>
[_] [_] [_] [_] [_] [_]
JUL AUG SEP OCT NOV DEC
[_] [_] [_] [_] [_] [_]
</TABLE>
CHECK
Please redeem $___________ from my account on or about the 31st of each month
as selected above.
Month first credit is to be sent: ____________________________________________
Send checks to: [_] Address on account
[_] Special address (complete below)
------------------------------------------------------------------------------
Payee
------------------------------------------------------------------------------
Street
------------------------------------------------------------------------------
City
--- -------- ------
State Zip Code
10. TELEPHONE REDEMPTION
I/we hereby authorize the Fund to implement the following telephone
redemption requests (under $50,000 only) without signature verification to the
registered fund account name and address. Redemption proceeds may be wired to
the U.S. commercial bank designated, provided you complete the information
below and enclose a VOIDED check for that account.
------------------------------------------------------------------------------
Name of Bank
------------------------------------------------------------------------------
Bank Account #
------------------------------------------------------------------------------
Bank's Street Address
------------------------------------------------------------------------------
City
--- ------- ------
State Zip Code
[_] I do not authorize redemption by telephone.
11. INTERESTED PARTY MAIL
[_] Send duplicate confirmation statements to the interested party listed
below.
------------------------------------------------------------------------------
Name of Individual
------------------------------------------------------------------------------
Street Address
------------------------------------------------------------------------------
City
--- -------- ------
State Zip Code
SIGNATURE(S)
Under the penalties of perjury, I/we certify that the information provided on
this form is true, correct, and complete. The undersigned certify that I/we
have full authority and legal capacity to purchase, exchange or redeem shares
of the above named Fund(s) and affirm that I/we have received and read a
current Prospectus of the named Fund(s) and agree to be bound by its terms.
I/we agree to indemnify and hold harmless State Street Bank and Trust Company,
Boston Financial, and any Flagship fund(s) which may be involved in transactions
authorized by telephone against any claim, loss, expense or damage, including
reasonable fees of investigation and counsel, in connection with any telephone
withdrawal effected on my account pursuant to procedures described in the
Prospectus.
X X
- -------------------------------------- --------------------------------------
Signature Date Signature (Joint Tenant) Date
1. As required by the IRS I/we certify (a) that the number shown on this form
is my correct Taxpayer Identification number. I/we understand that if I/we
do not provide a Taxpayer Identification Number to the Fund within 60 days,
the Fund is required to withhold 31 percent of all reportable payments
thereafter made to me until I/we provide a number certified under penalties
of perjury, and that I/we may be subject to a $50 penalty by the IRS.
2. As required by the IRS I/we certify under penalties of perjury that I/we
are not subject to backup withholding by the IRS.
NOTE: Strike out Item (2) if you have been notified that you are subject to
backup withholding by the IRS and you have not received a notice from the IRS
advising you that backup withholding has been terminated.
X X
- -------------------------------------- --------------------------------------
Signature Date Signature (Joint Tenant) Date
THANK YOU FOR YOUR INVESTMENT IN THE FUND. YOU WILL RECEIVE A CONFIRMATION
STATEMENT SHORTLY.
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 29, 1997
333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606
THE GOLDEN RAINBOW A JAMES ADVISED MUTUAL FUND SERIES
This Statement of Additional Information provides certain detailed
information concerning the Fund. It is not a Prospectus and should be read in
conjunction with the Fund's current Prospectus for The Golden Rainbow A James
Advised Mutual Fund, a copy of which may be obtained without charge by written
request to: Funds, c/o John Nuveen & Co. Incorporated, 333 West Wacker Drive,
Chicago, Illinois 60606 or by telephone (toll free) at: (800) 225-8530.
This Statement of Additional Information relates to The Golden Rainbow A
James Advised Mutual Fund Prospectus dated October 29, 1997.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies......................................... 2
Shares of the Fund......................................................... 9
Officers, Directors and Stockholders....................................... 11
Investment Advisory Services............................................... 14
Taxes...................................................................... 15
Yield and Total Return Calculation......................................... 16
Distributions.............................................................. 17
Distributor................................................................ 17
Custodian and Transfer Agent............................................... 18
Auditors................................................................... 19
Portfolio Transactions..................................................... 19
Purchase, Redemption and Pricing of Shares................................. 20
Other Information.......................................................... 20
Financial Statements....................................................... F-1
Appendix I--Description of Securities Ratings.............................. I-1
Appendix II--Description of Hedging Techniques............................. II-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Flagship Admiral Funds Inc. (the "Fund") has no fundamental objectives as a
whole. Each Portfolio of the Fund has its own objectives. The Golden Rainbow A
James Advised Mutual Fund ("GR Fund") has adopted the following investment
restrictions (which supplement the matters described under "The Fund and Its
Objective" in the GR Fund Prospectus), none of which may be changed without
the approval of the holders of a majority (as defined in the Investment
Company Act of 1940 (the "1940 Act")) of its outstanding shares. The GR Fund
may not:
(1) Purchase the securities of any one issuer, other than the U.S.
Government or any of its instrumentalities, if immediately after such purchase
more than 5% of the value of its total assets would be invested in such
issuer, or the Portfolio would own more than 10% of the outstanding voting
securities of such issuer, except that up to 25% of the value of the
Portfolio's total assets may be invested without regard to such 5% and 10%
limitations;
(2) Make loans, except to the extent the purchase of debt obligations
(including repurchase agreements and convertible securities) in accordance
with the Portfolio's investment objective and policies are considered loans
and except that the Portfolio may loan portfolio securities to qualified
institutional investors in compliance with requirements established from time
to time by the Securities and Exchange Commission ("SEC") and the securities
exchanges in which such securities are traded;
(3) Issue securities senior to its stock or borrow money, except that the
Portfolio has reserved the right to borrow money from banks on a temporary
basis from time to time to provide greater liquidity for redemptions or to
make additional portfolio investments. Such borrowings will not exceed 33 1/3%
of the Portfolio's total net assets including all outstanding borrowings
immediately after the time the latest such borrowing is made, plus amounts not
exceeding 5% borrowed to settle securities trades;
(4) Purchase or retain the securities of any issuer any of whose officers,
directors, or security holders is a director or officer of the Fund or of its
investment adviser if or so long as the directors and officers of the Fund and
of its investment adviser together own beneficially more than 5% of any class
of securities of such issuer;
(5) Mortgage, pledge or hypothecate any assets except in an amount up to 33
1/3% of the value of the Portfolio's total assets, taken at cost, and only to
secure borrowings permitted by clause (3) above.
(6) Purchase or sell real estate, real estate whole mortgage loans or real
estate investment trust securities (excluding securities secured by real
estate or interests therein or issued by entities that invest in real estate
or interests therein), oil and gas interests or, except for bona fide hedging
purposes, commodities or commodity contracts.
(7) Acquire securities of other investment companies (other than in
connection with the acquisitions of such companies) other than as permitted by
applicable law.
(8) Act as an underwriter of securities or invest more than 10% of the
Portfolio's assets, as determined at the time of investment, in securities
that are subject to restrictions on disposition under the Securities Act of
1933 or for which market quotations are not readily available, including
repurchase agreements having more than seven days to maturity.
(9) Purchase securities on margin, make short sales of securities or
maintain a net short position.
In order to permit the sale of shares in certain states, the Fund may make
commitments more restrictive than the operating restrictions described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the stockholders, it will revoke the commitment by terminating
sales of its shares in the state involved. Also, as a matter of policy that is
not fundamental, the GR Fund has determined that it will not invest in
warrants, own more than 5% of the outstanding voting securities of any issuer
and will only write call options which are fully covered.
The Fund places no restrictions on portfolio turnover except as may be
necessary to maintain its status as a regulated investment company under the
Internal Revenue Code.
Repurchase Agreements. The GR Fund may enter into repurchase agreements with
selected commercial banks and broker-dealers, under which it may acquire
securities and agree to resell the securities to the other party at an agreed
upon time and at an agreed upon price. The GR Fund would accrue as interest
the difference between the amount it pays for the securities and the amount it
receives upon resale. At the time the GR Fund enters into a repurchase
agreement, the value of the underlying security including accrued interest
will be equal to or exceed the value of the repurchase agreement and, for
repurchase agreements that mature in more than
2
<PAGE>
one day, the seller will agree that the value of the underlying security
including accrued interest will continue to be at least equal to the value of
the repurchase agreement. The GR Fund will enter into repurchase agreements
only with creditworthy parties and will monitor such creditworthiness on an
ongoing basis. Generally, repurchase agreement activities will be restricted
to well-capitalized commercial banks with assets in excess of $1 billion,
primary dealers in U.S. Government securities or broker-dealers registered
with the SEC. The underlying securities will only consist of U.S. Government
or Government Agency securities, certificates of deposit, bankers' acceptances
or commercial paper. In the event of default by such party, the delays and
expenses potentially involved in establishing the Fund's rights to, and in
liquidating the security may result in a loss.
Leverage. The GR Fund has reserved the right to borrow money from time to
time to provide greater liquidity for redemptions or to make additional
portfolio investments. If the GR Fund were to borrow money, income earned from
additional investments in excess of interest costs would improve performance
over what otherwise would be the case. Conversely, if the investment
performance of such additional investments failed to cover their cost
(including interest cost (including interest costs on such borrowings) the
performance would be poorer than would otherwise be the case. This speculative
factor is known as "leverage."
The 1940 Act limits the amount of money a fund may borrow to 33 1/3% of the
value of such fund's net assets plus all outstanding borrowings immediately
after the time the latest such borrowing is made. If the GR Fund were to
borrow money and the value of its assets were to fall below the statutory
coverage requirement for any reason, the GR Fund would have to take corrective
action to achieve compliance within three business days and accordingly might
be required to sell a portion of its securities at a time when such sale might
be disadvantageous.
"When Issued" Transactions. The Fund may purchase and sell securities on a
"when issued" and "delayed delivery" basis. These transactions are subject to
market fluctuation; the value at delivery may be more or less than the
purchase price. Since the Fund relies on the buyer or seller, as the case may
be, to consummate the transaction, failure by the other party to complete the
transaction may result in it missing the opportunity of obtaining a price or
yield considered to be advantageous. When the Fund is the buyer in such a
transaction, however, it will maintain with its custodian cash or high-grade
portfolio securities having an aggregate value equal to the amount of such
purchase commitments until payment is made. To the extent the Fund engages in
"when issued" and "delayed delivery" transactions, it will do so for the
purpose of acquiring securities for its portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage.
Diversification. As a diversified fund, the GR Fund may not purchase the
securities of any one issuer, other than the U.S. Government or any of its
instrumentalities, if immediately after such purchase more than 5% of the
value of its total assets would be invested in such issuer, or if it would own
more than 10% of the outstanding voting securities of such issuer, except that
up to 25% of the value of the GR Fund's total assets may be invested without
regard to such 5% and 10% limitations.
Hedging Transactions. The GR Fund may utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity market
movements), or to manage the effective maturity or duration of fixed-income
securities. Such strategies are generally accepted by modern portfolio
managers and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as
new instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase
and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or
currency futures (collectively, all the above are called "Hedging
Transactions"). Hedging Transactions may be used to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the GR Fund's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the GR Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities
for investment purposes, to manage the effective maturity or duration of the
GR Fund's portfolio, or to establish a position in the derivatives markets as
a temporary substitute for purchasing or selling particular securities. No
more than 5% of the GR Fund's assets will be committed to Hedging Transactions
entered into for non-hedging purposes. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Hedging
Transaction is a function of
3
<PAGE>
numerous variables including market conditions. The ability of the GR Fund to
utilize these Hedging Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The GR
Fund will comply with applicable regulatory requirements when implementing
these strategies, techniques and instruments. Hedging Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes
and not for speculative purposes.
Hedging Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Hedging Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to
the GR Fund, force the sale or purchase of portfolio securities at inopportune
times or for prices higher than (in the case of put options) or lower than (in
the case of call options) current market values, limit the amount the
appreciation of the GR Fund can realize on its investments or cause the GR
Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the GR Fund incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
GR Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the GR Fund's position. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the counter options may have no markets. As a result, in certain markets,
the GR Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to
limit any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Hedging Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if
the Hedging Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics regardless
of the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of
options discussed in greater detail below. In addition, many Hedging
Transactions involving options require segregation of GR Fund assets in
special accounts, as described below under "Use of Segregated and Other
Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise
price. For instance, the GR Fund's purchase of a put option on a security
might be designed to protect its holdings in the underlying instrument (or, in
some cases, a similar instrument) against a substantial decline in the market
value by giving the GR Fund the right to sell such instrument at the option
exercise price. A call option, upon payment of a premium, gives the purchaser
of the option the right to buy, and the seller the obligation to sell, the
underlying instrument at the exercise price. The GR Fund's purchase of a call
option on a security, financial future, index, currency or other instrument
might be intended to protect the GR Fund against an increase in the price of
the underlying instrument that it intends to purchase in the future by fixing
the price at which it may purchase such instrument. An American style put or
call option may be exercised at any time during the option period while a
European style put or call option may be exercised only upon expiration or
during a fixed period prior thereto. The Fund is authorized to purchase and
sell exchange-listed options and over-the-counter options ("OTC options").
Exchange-listed options are issued by a regulated intermediary such as the
Options Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options. The discussion below uses the OCC
as a paradigm, but is also applicable to other financial intermediaries.
With certain exceptions, OCC-issued and exchange-listed options generally
settle by physical delivery of the underlying security or currency, although
in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which
the option is "in-the-money" (i.e., where the value of the underlying
instrument exceeds, in the case of a call option, or is less than, in the case
of a put option, the exercise price of the option) at the time the option is
exercised. Frequently, rather than taking or making delivery of the underlying
instrument through the process of exercising the option, listed options are
closed by entering into offsetting purchase or sale transactions that do not
result in ownership of the new option.
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The GR Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange-listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of
a liquid option market on an exchange are: (i) insufficient trading interest
in certain options; (ii) restrictions on transactions imposed by an exchange;
(iii) trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of
options), in which event the relevant market for that option on that exchange
would cease to exist, although outstanding options on that exchange would
generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent
that the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of
an OTC option, including such terms as method of settlement, term, exercise
price, premium, guarantees and security, are set by negotiation of the
parties. The GR Fund will only sell OTC options (other than OTC currency
options) that are subject to a buy-back provision permitting the GR Fund to
require the Counterparty to sell the option back to the GR Fund at a formula
price within seven days. The GR Fund expects generally to enter into OTC
options that have cash settlement provisions, although it is not required to
do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the GR Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the GR Fund will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The GR Fund will engage in OTC option transactions only with United
States government securities dealers recognized by the Federal Reserve Bank of
New York as "primary dealers" or broker dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligations of which have received) a short-term credit rating of "A-1" from
Standard & Poor's Ratings Group(R) ("S&P") or "P-1" from Moody's Investor
Service, Inc. ("Moody's") or an equivalent rating from any nationally
recognized statistical rating organization ("NRSRO"). The staff of the SEC
currently takes the position that OTC options purchased by the GR Fund, and
portfolios securities "covering" the amount of the GR Fund's obligation
pursuant to an OTC option sold by it (the cost of the sell-back plus the in-
the-money amount, if any) are illiquid, and are subject to the GR Fund's
limitation on investing no more than 10% of its assets in illiquid securities.
If the GR Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the GR Fund's income. The sale of put options can also provide
income.
The GR Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and
Eurodollar instruments that are traded on U.S. and foreign securities
exchanges and in the over-the-counter markets and on securities indices,
currencies and futures contracts. All calls sold by the GR Fund must be
"covered" (i.e., the Fund must own the securities or futures contract subject
to the call) or must meet the asset segregation requirements described below
as long as the call is outstanding. Even though the GR Fund will receive the
option premium to help protect it against loss, a call sold by the GR Fund
exposes the GR Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the GR Fund to hold a security or
instrument which it might otherwise have sold.
The GR Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and
Eurodollar instruments (whether or not it holds the above securities in its
portfolio) and on
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securities indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The GR Fund will
not sell put options if, as a result, more than 50% of the GR Fund's assets
would be required to be segregated to cover its potential obligations under
such put options other than those with respect to futures and options thereon.
In selling put options, there is a risk that the GR Fund may be required to
buy the underlying security at a disadvantageous price above the market price.
General Characteristics of Futures. The GR Fund may enter into financial
futures contracts or purchase or sell put and call options on such futures as
a hedge against anticipated interest rate, currency or equity market changes,
for duration management and for risk management purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the GR Fund, as seller, to
deliver to the buyer the specific type of financial instrument called for in
the contract at a specific future time for a specified price (or, with respect
to index futures and Eurodollar instruments, the net cash amount). Options on
futures contracts are similar to options on securities except that an option
on a futures contract gives the purchaser the right in return for the premium
paid to assume a position in a futures contract and obligates the seller to
deliver such option.
The GR Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the GR Fund to deposit
with a financial intermediary as security for its obligations an amount of
cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required
to be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the GR Fund. If the GR Fund exercises an option on a futures contract, it
will be obligated to post initial margin (and potential subsequent variation
margin) for the resulting futures position just as it would for any position.
Futures contracts and options thereon are generally settled by entering into
an offsetting transaction, but there can be no assurance that the position can
be offset prior to settlement at an advantageous price nor that delivery will
occur.
The GR Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the GR Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The GR Fund also
may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial
indices are similar to options on a security or other instrument except that,
rather than settling by physical delivery of the underlying instrument, they
settle by cash settlement, i.e., an option on an index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the
closing level of the index upon which the option is based exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the excess of the closing price of
the index over the exercise price of the option, which also may be multiplied
by a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss on an
option on an index depends on price movements in the instruments making up the
market, market segment, industry or other composite on which the underlying
index is based, rather than price movements in individual securities, as is
the case with respect to options on securities.
Currency Transactions. The GR Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated
in particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange-listed currency
futures, exchange-listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to
purchase or sell (with delivery generally required) a specific currency at a
future date, which may
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be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. A currency swap is an
agreement to exchange cash flows based on the notional difference among two or
more currencies and operates similarly to an interest rate swap, which is
described below. The GR Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations of
such Counterparties have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from an NRSRO or
(except for OTC currency options) are determined to be of equivalent credit
quality by the Adviser.
The GR Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the GR Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or
the receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The GR Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended to wholly or
partially offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currency convertible into such
currently other than with respect to proxy hedging as described below.
The GR Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the GR Fund has or in which the GR Fund
expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the GR Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the GR
Fund's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which some or all of the GR Fund's portfolio
securities are or are expected to be denominated, and to buy U.S. dollars. The
amount of the contract would not exceed the value of the GR Fund's securities
denominated in linked currencies. For example, if the Adviser considers the
Austrian schilling is linked to the German deutschemark (the "D-mark"), the GR
Fund holds securities denominated in schillings and the Adviser believes that
the value of schillings will decline against the U.S. dollar, the Adviser may
enter into a contract to sell D-marks and buy dollars. Currency hedging
involves some of the same risks and considerations as other transactions with
similar instruments. Currency transactions can result in losses to the GR Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the GR Fund is engaging in proxy hedging. If the GR Fund
enters into a currency hedging transaction, the GR Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments
can be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can
result in losses to the GR Fund if it is unable to deliver or receive currency
or funds in settlement of obligations and could also cause hedges it has
entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs. Buyers and sellers of currency futures
are subject to the same risks that apply to the use of futures generally.
Further, settlement of a currency futures contract for the purchase of most
currencies must occur at a bank based in the issuing nation. Trading options
on currency futures is relatively new, and the ability to establish and close
out positions on such options is subject to the maintenance of a liquid market
which may not always be available. Currency exchange rates may fluctuate based
on factors extrinsic to that country's economy.
Combined Transactions. The GR Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions,
multiple currency transactions (including forward currency contracts) and any
combination of futures, options and currency transactions ("component"
transactions), instead of a single Hedging Transaction, as part of a single or
combined strategy when, in the opinion of the Adviser, it is
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in the best interests of the GR Fund to do so. A combined transaction will
usually contain elements of risk that are present in each of its component
transactions. Although combined transactions are normally entered into based
on the Adviser's judgment that the combined strategies will reduce risk or
otherwise more effectively achieve the desired portfolio management goal, it
is possible that the combination will instead increase such risks or hinder
achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Hedging Transactions into which
the GR Fund may enter are interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The GR Fund expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the GR Fund anticipates purchasing at a
later date. The GR Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where
it does not own securities or other instruments providing the income stream
the GR Fund may be obligated to pay. Interest rate swaps involve the exchange
by the GR Fund with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount of two or more
currencies based on the relative value differential among them and an index
swap is an agreement to swap cash flows on a notional amount based on changes
in the values of the reference indices. The purchase of a cap entitles the
purchaser to receive payments on a notional principal amount from the party
selling such cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party selling such
floor to the extent that a specified index falls below a predetermined
interest rate or amount. A collar is a combination of a cap and a floor that
preserves a certain return within a predetermined range of interest rates or
values.
The GR Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the GR Fund receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as these
swaps, caps, floors, and collars are entered into for good faith hedging
purposes, the Adviser and the GR Fund believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to its borrowing restrictions. The GR Fund will
not enter into any swap, cap, floor or collar transaction unless, at the time
of entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least "A" by
S&P or Moody's or has an equivalent rating from an NRSRO or is determined to
be of equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the GR Fund may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid.
Caps, floors, and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
Eurodollar Instruments. The GR Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed
rate for borrowings. The GR Fund might use Eurodollar futures contracts and
options thereon to hedge against changes in LIBOR, to which many interest rate
swaps and fixed income instruments are linked.
Risks of Hedging Transactions Outside the United States. When conducted
outside the United States, Hedging Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and
other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the GR Fund's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) lower
trading volume and liquidity.
Use of Segregated and Other Special Accounts. Many Hedging Transactions, in
addition to other requirements, require that the GR Fund segregate liquid high
grade assets with its custodian to the extent GR Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument
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or currency. In general, either the full amount of any obligation by the GR
Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject
to any regulatory restrictions, an amount of cash or liquid high grade
securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is
no longer necessary to segregate them. For example, a call option written by
the GR Fund will require the Fund to hold the securities subject to the call
(or securities convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option
sold by the GR Fund on an index will require the GR Fund to own portfolio
securities which correlate with the index or to segregate liquid high grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the GR Fund requires the GR Fund to
segregate liquid, high grade assets equal to the exercise price.
Except when the GR Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the GR Fund to buy or sell
currency will generally require the GR Fund to hold an amount of that currency
or liquid securities denominated in that currency equal to the GR Fund's
obligations or to segregate liquid high grade assets equal to the amount of
the GR Fund's obligation.
OTC options entered into by the GR Fund, including those on securities,
currency, financial instruments or indices and OCC-issued and exchange-listed
index options will generally provide for cash settlement. As a result, when
the GR Fund sells these instruments it will only segregate an amount of assets
equal to its accrued net obligations, as there is no requirement for payment
or delivery of amounts in excess of the net amount. These amounts will equal
100% of the exercise price in the case of a noncash settled put, the same as
an OCC guaranteed listed option sold by the GR Fund, or the in-the-money
amount plus any sell-back formula amount in the case of a cash-settled put or
call. In addition, when the GR Fund sells a call option on an index at a time
when the in-the-money amount exceeds the exercise price, the GR Fund will
segregate, until the option expires or is closed out, cash or cash equivalents
equal in value to such excess. OCC-issued and exchange-listed options sold by
the GR Fund other than those above generally settle with physical delivery, or
with an election of either physical delivery or cash settlement and the GR
Fund will segregate an amount of assets equal to the full value of the option.
OTC options settling with physical delivery, or with an election of either
physical delivery or cash settlement, will be treated the same as other
options settling with physical delivery.
In the case of a futures contract or an option thereon, the GR Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the GR Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on
a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and
collars require segregation of assets with a value equal to the GR Fund's net
obligation, if any.
Hedging Transactions may be covered by other means when consistent with
applicable regulatory policies. The GR Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and Hedging
Transactions. For example, the GR Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a
put option sold by the GR Fund. Moreover, instead of segregating assets if the
GR Fund held a futures or forward contract, it could purchase a put option on
the same futures or forward contract with a strike price as high or higher
than the price of the contract held. Other Hedging Transactions may also be
offset in combinations. If the offsetting transaction terminates at the time
of or after the primary transaction no segregation is required, but if it
terminates prior to such time, assets equal to any remaining obligation would
need to be segregated.
SHARES OF THE FUND
Four classes of shares, Class A Shares, Class B Shares, Class C Shares, and
Class R Shares are authorized for the Fund. Currently, the Fund is offering
Class A Shares. Other classes of shares are not presently available,
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but may be offered in the future. The Fund is authorized to offer up to four
classes of shares which may be purchased at a price equal to their net asset
value per share, plus (for certain classes) a sales charge (discussed below)
which, at the election of the purchaser, may be imposed either (i) at the time
of purchase (the "Class A Shares") or (ii) on a contingent deferred basis (the
"Class B Shares" or the "Class C Shares"). The four classes of shares each
represent an interest in the same portfolio of investments of the Fund and
have the same rights, except (i) Class B and Class C Shares bear the expenses
of the deferred sales arrangement and any expenses (including a higher
distribution services fee) resulting from such sales arrangement, (ii) each
class that is subject to a distribution fee has exclusive voting rights with
respect to those provisions of the Fund's Rule 12b-1 distribution plan which
relate only to such class and (iii) the classes have different exchange
privileges. Additionally, Class B Shares will automatically convert into Class
A Shares after a specified period of years (as described below). The net
income attributable to Class B and Class C Shares and the dividends payable on
Class B and Class C Shares will be reduced by the amount of the higher
distribution services fee and certain other incremental expenses associated
with the deferred sales charge arrangement. The net asset value per share of
Class A Shares, Class B Shares, Class C Shares and Class R Shares is expected
to be substantially the same, but it may differ from time to time.
1. Class A Shares. The public offering price of Class A Shares is equal to
net asset value plus an initial sales charge that is a variable percentage of
the offering price depending on the amount of the sale. Net asset value will
be determined as described in the Prospectus under "How Fund Shares are
Priced". The net assets attributable to Class A Shares are subject to an
ongoing distribution fee of 0.40% (see "Distributor" in the Prospectus).
Purchasers of Class A Shares may be entitled to a reduced sales charge through
a Letter of Intent (see "Letter of Intent" in the Prospectus) even if their
current investment would not normally qualify for a quantity discount (see
"Reduced Sales Charges" in the Prospectus). The investor or the investor's
broker or dealer is responsible for promptly forwarding payment to the Fund
for shares purchased.
2. Class B Shares. Class B Shares are sold at net asset value without a
sales charge at the time of purchase. Instead, the sales charge is imposed on
a contingent deferred basis. The net assets attributable to Class B Shares are
subject to an ongoing distribution and services fee of 0.95% (see
"Distributor" below). The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of payment of
the purchase of Class B Shares until the time such shares are redeemed. Solely
for purposes of determining the number of years from the time of any payment
of the purchase of Class B Shares, all payments during any month will be
aggregated and deemed to have been made on the last day of the month.
Class B Shares automatically convert into Class A Shares after 8 years after
the end of the month in which a stockholder's order to purchase Class B Shares
was accepted. As a result, the shares that converted will no longer be subject
to a sales charge upon redemption and will enjoy the lower Class A
distribution services fee.
For purposes of conversion of Class A Shares, Class B Shares purchased
through the reinvestment of dividends and distributions paid in respect of
Class B Shares in a stockholder's account will be considered to be held in a
separate sub-account. Each time any Class B Shares in the stockholder's
account (other than those in the sub-account) convert to Class A Shares, an
equal pro rata portion of the Class B Shares in the sub-account also will
convert to Class A Shares. The conversion of Class B Shares to Class A Shares
is subject to the continuing determination that (i) the assessment of the
higher distribution services fee and transfer agency cost with respect to
Class B Shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Code, and (ii) that the
conversion of Class B Shares does not constitute a taxable event under federal
income tax law. The conversion of Class B Shares to Class A Shares may be
suspended if such an opinion is no longer available. In that event, no further
conversions of Class B Shares would occur, and Class B Shares might continue
to be subject to the higher distribution services fee for an indefinite
period, which period may extend beyond the conversion period after the end of
the month in which the shares were issued.
The Class B Shares are otherwise the same as Class C Shares and are subject
to the same conditions, except that they can only be exchanged for other Class
B Shares without imposition of sales charges.
3. Class C Shares. Class C Shares are sold at net asset value (see "How Fund
Shares are Priced" in the Prospectus) without a sales charge at the time of
purchase. Instead, the Class C Shares are subject to a 1% CDSC if they are
redeemed within one year after purchase. The net assets attributable to Class
C Shares are subject to an ongoing distribution and services fee of 0.95% (see
"Distributor" in the Prospectus). The Class C Shares have no conversion
rights.
10
<PAGE>
The CDSC will not be imposed on amounts representing increases in net asset
value above the initial purchase price. Additionally, no charge will be
assessed on Class B or Class C Shares derived from reinvestment of dividends
or capital gains distributions. The CDSC will be waived (i) on redemption of
shares following the disability (as determined in writing by the Social
Security Administration) or death of a stockholder, (ii) on certain
redemptions in connection with IRAs and other qualified retirement plans, and
(iii) when Class B or Class C Shares are exchanged for Class B or Class C
Shares of other Flagship funds distributed by the Distributor (see "Exchange
And Reinvestment Privilege" in the Prospectus). In the case of an exchange,
the length of time that the investor held the original Class B or Class C
Shares is counted towards satisfaction of the period during which a deferred
sales charge is imposed on the Class B or Class C for which the exchange was
made.
4. Class R Shares. You may purchase Class R Shares with monies representing
dividends and capital gain distributions on Class R Shares of the Fund. Also,
you may purchase Class R Shares if you are within the following specified
categories of investors who are also eligible to purchase Class A Shares at
net asset value without an up-front sales charge: officers, current and former
directors of the Fund, bona fide, full-time and retired employees of Nuveen
and James Investment Research, Inc. 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; and bank or broker-affiliated trust departments; persons investing
$1 million or more in Class R Shares; and clients of investment advisers,
financial planners or other financial intermediaries that charge periodic or
asset-based "wrap" fees for their services.
If you are eligible to purchase either Class R Shares or Class A Shares
without a sales charge at net asset value, you should be aware of the
differences between these two classes of shares. Class A Shares are subject to
an annual distribution fee to compensate John Nuveen & Co. Incorporated (the
"Distributor") for distribution costs associated with the Fund and to an
annual service fee to compensate Authorized Dealers for providing you with
ongoing account services. Class R Shares are not subject to a distribution or
service fee and, consequently, holders of Class R Shares may not receive the
same types or levels of services from Authorized Dealers. In choosing between
Class A Shares and Class R Shares, you should weigh the benefits of the
services to be provided by Authorized Dealers against the annual service fee
imposed upon the Class A Shares.
OFFICERS, DIRECTORS AND STOCKHOLDERS
The management of the Corporation, including general supervision of the
duties performed for the Funds under the Investment Management Agreement, is
the responsibility of its Board of Directors. The Corporation currently has
eight directors, 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 directors and
officers of the Corporation and their principal occupations and other
affiliations during the past five years are set forth below, with those
directors who are "interested persons" of the Corporation indicated by an
asterisk.
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Timothy R. 48 Chairman and Chairman since July 1, 1996 of The John
Schwertfeger* Director Nuveen Company, John Nuveen & Co.
333 West Wacker Drive Incorporated, Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.; prior
thereto Executive Vice President and
Director of The John Nuveen Company, John
Nuveen & Co. Incorporated, Nuveen Advisory
Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October
1992).
Anthony T. Dean* 52 President and President since July 1, 1996 of The John
333 West Wacker Drive Director 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. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October
1992).
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Robert P. Bremner 56 Director Private Investor and Management Consultant.
3725 Huntington
Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown 63 Director Retired (August 1989) as Senior Vice
201 Michigan Avenue President of The Northern Trust Company.
Highwood, IL 60040
Anne E. Impellizzeri 64 Director President and Chief Executive Officer of
3 West 29th Street Blanton-Peale Institute of Religion and
New York, NY 10001 Health.
Peter R. Sawers 64 Director Adjunct Professor of Business and Economics,
22 The Landmark University of Dubuque, Iowa; Adjunct
Northfield, IL 60093 Professor, Lake Forest Graduate School of
Management, Lake Forest, Illinois;
Chartered Financial Analyst; Certified
Management Consultant.
William J. Schneider 53 Director Senior Partner, Miller-Valentine Partners,
4000 Miller-Valentine Vice President, Miller-Valentine Group.
Ct.
P.O. Box 744
Dayton, OH 45401
Judith M. Stockdale 49 Director Executive Director, Gaylord and Dorothy
35 E. Wacker Drive Donnelley Foundation (since 1994); prior
Suite 2600 thereto, Executive Director, Great Lakes
Chicago, IL 60601 Protection Fund (from 1990 to 1994).
Bruce P. Bedford 57 Executive Vice Executive Vice President of John Nuveen &
333 West Wacker Drive President Co. Incorporated, Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp. (since
January 1997); prior thereto, Chairman and
CEO of Flagship Resources Inc. and Flagship
Financial Inc. and the Flagship funds.
Michael S. Davern 40 Vice President Vice President of Nuveen Advisory Corp.
One South Main Street (since January 1997); prior thereto, Vice
Dayton, OH 45402 President and Portfolio Manager of Flagship
Financial.
William M. Fitzgerald 33 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive (since December 1995); Assistant Vice
Chicago, IL 60606 President of Nuveen Advisory Corp. (from
September 1992 to December 1995), prior
thereto, Assistant Portfolio Manager of
Nuveen Advisory Corp.
Kathleen M. Flanagan 50 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated, Vice President (since June
Chicago, IL 60606 1996) of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.
J. Thomas Futrell 42 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Richard A. Huber 34 Vice President Vice President of Nuveen Advisory Corp.
One South Main Street (since January 1997); prior thereto, Vice
Dayton, OH 45402 President and Portfolio Manager of Flagship
Financial.
Steven J. Krupa 39 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis 51 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated.
Chicago, IL 60606
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Larry W. Martin 46 Vice President Vice President, Assistant Secretary and
333 West Assistant General Counsel of John Nuveen &
Wacker Drive Co. Incorporated; Vice President (since May
Chicago, IL 1993) and Assistant Secretary of Nuveen
60606 Advisory Corp.; Vice President (since May
1993) and Assistant Secretary of Nuveen
Institutional Advisory Corp.; Assistant
Secretary of The John Nuveen Company (since
February 1993).
Edward F. 32 Vice President Vice President (since September 1996),
Neild, IV previously Assistant Vice President (since
One South Main December 1993) of Nuveen Advisory Corp.,
Street Dayton, portfolio manager prior thereto; Vice
OH 45402 President (since September 1996),
previously Assistant Vice President (since
May 1995) of Nuveen Institutional Advisory
Corp., portfolio manager prior thereto.
Walter K. 48 Vice President Vice President of Nuveen Advisory Corp.
Parker (since January 1997); prior thereto, Vice
One South Main President and Portfolio Manager (since July
Street 1994) of Flagship Financial; Portfolio
Dayton, OH Manager and CIO Trust Investor (between
45402 1983 and June 1994) for PNC Bank.
O. Walter 58 Vice President Vice President and Controller of The John
Renfftlen Nuveen Company, John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and
Wacker Drive Nuveen Institutional Advisory Corp.
Chicago, IL
60606
Thomas C. 46 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 63 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
Jan E. 41 Vice President Vice President of Nuveen Advisory Corp.
Terbrueggen (since January 1997); prior thereto, Vice
One South Main President and Portfolio Manager of Flagship
Street Financial.
Dayton, OH
45402
Gifford R. 41 Vice President Vice President, Assistant Secretary and
Zimmerman and Assistant Associate General Counsel formerly
333 West Secretary Assistant General Counsel of John Nuveen &
Wacker Drive Co. Incorporated; Vice President (since May
Chicago, IL 1993) and Assistant Secretary of Nuveen
60606 Advisory Corp.; Vice President (since May
1993) and Assistant Secretary of Nuveen
Institutional Advisory Corp; Assistant
Secretary of The John Nuveen Company (since
May 1994).
</TABLE>
Anthony Dean, Peter Sawers and Timothy Schwertfeger serve as members of the
Executive Committee of the Board of Directors. The Executive Committee, which
meets between regular meetings of the Board of Directors, is authorized to
exercise all of the powers of the Board of Directors.
The directors of the Corporation are directors or trustees, as the case may
be, of 42 Nuveen open-end funds and 52 Nuveen closed-end funds advised by
Nuveen Advisory Corp.
13
<PAGE>
The following table sets forth compensation paid by the Corporation to each
of the directors of the Corporation and the total compensation paid to each
director during the fiscal year ended June 30, 1997. The Corporation has no
retirement or pension plans. The officers and directors affiliated with Nuveen
serve without any compensation from the Corporation. Directors Brown,
Impellizzeri, Rosenheim and Sawers became directors of this Corporation on
January 30, 1997.
<TABLE>
<CAPTION>
AGGREGATE TOTAL
COMPENSATION COMPENSATION
FROM THE TWO FROM CORPORATION
SERIES OF THIS AND FUND COMPLEX
NAME OF DIRECTOR CORPORATION PAID TO DIRECTORS
---------------- -------------- -----------------
<S> <C> <C>
Robert P. Bremner........................ $3,936(1) $25,333(1)
Lawrence H. Brown........................ $ 192 $59,500
Joseph F. Castellano..................... $3,750 $17,000(1)
Anne E. Impellizzeri..................... $ 192 $59,500
Paul F. Nezi............................. $3,750 $17,000(1)
Margaret K. Rosenheim.................... $ 209 $67,582(2)
Peter R. Sawers.......................... $ 192 $59,500
William J. Schneider..................... $3,936(1) $26,333(1)
Judith M. Stockdale...................... $ 0(3) $ 0(3)
</TABLE>
- --------
(1) Includes compensation received as a trustee of the Flagship Funds, for the
period July 1, 1996 to January 31, 1997.
(2) Includes $1,582 in interest accrued on deferred compensation from prior
years; former director, retired July 1997
(3) Elected to the Board in July 1997.
Each director who is not affiliated with Nuveen or Nuveen Advisory receives
a fee. The Corporation requires no employees other than its officers, all of
whom are compensated by Nuveen.
As of October 2, 1997, to the knowledge of management, the following
stockholder held of record more than 5% of the GR Fund: Citizens Federal Bank,
F.S.B. ("Citizens Federal"), One Citizens Federal Centre, Dayton, Ohio, 45402,
89%. All Directors and officers as a group own less than 1% of the outstanding
shares as of the above date.
The GR Fund has no knowledge of any other person owning more than 5% of the
outstanding shares as of such date.
INVESTMENT ADVISORY SERVICES
As stated in the GR Fund Prospectus, Nuveen Advisory Corp. acts as the
manager (the "Manager") to the GR Fund pursuant to a Management Agreement (the
"Management Agreement"), and James Investment Research, Inc. acts as
investment adviser (the "Adviser") pursuant to an Investment Advisory
Agreement. The Investment Advisory Agreement provides for indemnification of
the Manager by the Fund unless the Manager acted with gross negligence,
willful misfeasance, reckless disregard of the duties of its position or with
bad faith.
See "MANAGEMENT OF THE FUND--Manager and Investment Adviser" in the
Prospectus for a description of the Manager's and Adviser's duties. The
Manager's administrative obligations include: (i) assisting in supervising all
aspects of the Fund's operations; (ii) providing the Fund, at the Manager's
expense, with the services of persons competent to perform such administrative
and clerical functions as are necessary in order to provide effective
corporate administration of the Fund; and (iii) providing the Fund, at the
Manager's expense, with adequate office space and related services. The
Manager also has authority to require compliance with applicable law by the
Adviser and assure itself of such compliance. The Adviser has discretion to
make all GR Fund investments. For the three fiscal years ended June 30, 1995,
June 30, 1996 and June 30, 1997, respectively, the GR Fund paid $1,396,526,
$1,434,522, and $1,252,243 to the Manager pursuant to its Management Agreement
of which $1,037,959, $1,066,199, and $930,721, respectively, were paid to the
Adviser pursuant to its Investment Advisory Agreement. The GR Fund's
accounting records are maintained, at the Fund's expense, by its Custodian,
The Chase Manhattan Bank.
14
<PAGE>
The Management Agreement and the Investment Advisory Agreement will each
terminate automatically upon assignment and continuance must be approved
annually by the Fund's Board of Directors of a majority of the Fund's
outstanding voting shares and in either case, by a majority of the Fund's
independent directors. The Management Agreement is terminable at any time
without penalty by the Board of Directors or by a vote of a majority of the
voting shares on 60 days' written notice to the Manager, or by the Manager on
60 days' written notice to the Fund, and the Advisory Agreement is terminable
by either the Board of Directors (including a majority of the disinterested
Directors), the stockholders, or the Manager (with the concurrence of a
majority of the Board of Directors including a majority of the disinterested
Directors) on the one hand and the Adviser on the other, each by 60 days'
notice to the other.
The Manager and Adviser have agreed that in the event the operating expenses
of the GR Fund (including fees paid to the Manager and the Adviser and
payments to the Distributor but excluding taxes, interest, brokerage and
extraordinary expenses) for any fiscal year ending on a date on which the
Advisory Agreement is in effect, exceed the expense limitations imposed by
applicable state securities laws or any regulations thereunder, or the amount
provided in the Fees and Expenses in the Prospectus, the Adviser will, up to
the amount of its fee, reduce its fee or reimburse the Fund in the amount of
such excess. As of the date of this Prospectus, under the most restrictive
state regulations applicable, the Adviser would be required to reimburse the
Fund such operating expenses exceeding 2 1/2% of the first $30 million of the
average net assets, 2% of the next $70 million of the average net assets, and
1 1/2% of the remaining average net assets. The Manager and the Adviser
believe that such operating expenses will be less than such amounts. Pursuant
to an arrangement among the Adviser, the Manager and Citizens Federal, to the
extent that the Adviser reduces its fee or reimburses the Fund pursuant to the
Investment Advisory Agreement, the Adviser will be partially reimbursed by the
Manager and Citizens Federal.
Under their agreements with the Fund, the Manager and the Adviser will be
indemnified by the Fund for any actions taken unless such person acted with
gross negligence, willful misfeasance, reckless disregard of the duties of its
position or with bad faith. In addition, under the Investment Advisory
Agreement, the Manager and Adviser cross-indemnify each other.
Securities held by the Fund may also be held by, or be appropriate
investments for, other investment advisory clients of the Manager, the Adviser
and their affiliates. Because of different objectives or other factors, a
particular security may be bought for one or more clients when one or more
clients are selling the same security. If purchases or sales of securities for
the Fund or other advisory clients arise for consideration at or about the
same time, transactions in such securities will be made, insofar as feasible,
for the Fund and such other clients in a manner deemed equitable to all. To
the extent that transactions on behalf of more than one client of the Manager
or Adviser during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse
effect on the price of such securities.
TAXES
References are made to the sections in the Prospectus entitled "Taxes" for a
discussion of relevant tax matters and to which the discussion below is
supplementary.
TAXATION OF THE FUND
Each Portfolio of the Fund intends to qualify as a regulated investment
company ("RIC") for federal income tax purposes. In order to so qualify, each
Portfolio must, among other things: (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of securities
and gains from the sale or other disposition of securities or certain other
related income; (b) generally derive less than 30% of its gross income from
gains from the sale or other disposition of securities and certain other
investments held for less than three months (this requirement applies only to
taxable years beginning on or before August 5, 1997); and (c) diversify its
holdings so that at the end of each fiscal quarter, (i) at least 50% of the
value of such Portfolio's assets is represented by cash, United States
government securities, securities of other regulated investment companies, and
other securities which, with respect to any one issuer, do not represent more
than 5% of the value of such Portfolio's assets nor more than 10% of the
voting securities of such issuer, and (ii) not more than 25% of the value of
such Portfolio's assets is invested in the securities of any one issuer (other
than United States government securities or the securities of other RICs).
15
<PAGE>
If each Portfolio of the Fund qualifies as a RIC and distributes to its
stockholders at least 90% of the investment company taxable income (not
including net capital gain, which is the excess of net long-term capital gain
over net short-term capital loss), then each Portfolio will not be subject to
federal income tax on the income so distributed. However, each Portfolio would
be subject to corporate income tax (currently at a 35% rate) on any
undistributed income. In addition, each Portfolio will be subject to a
nondeductible 4% excise tax on the amount by which the income it distributes
in any calendar year is less than a required distribution amount. The required
distribution amount for a calendar year equals the sum of (a) 98% of each
Portfolio's ordinary income for such calendar year; (b) 98% of the excess of
capital gains over capital losses for the one-year period ending on October 31
of such calendar year; and (c) 100% of the undistributed income and gains from
prior years. Each Portfolio intends to distribute sufficient income so as to
avoid both corporate income tax and the excise tax. However, a Portfolio may
in the future decide to retain all or a portion of its net capital gain. In
such case, the Portfolio would be subject to corporate income tax on such
retained net capital gain, and would designate to stockholders the
undistributed capital gain. Stockholders would include as long-term capital
gain income such undistributed net capital gain, and stockholders would be
eligible for a credit with respect to such tax paid by the Portfolio.
The maximum amount payable by the Fund under the Plan and related agreements
on an annual basis is .40% of the GR Fund's average daily net assets for the
year. In the case of broker-dealers and others, such as banks, who have Selling
or Service Agreements with the Distributor or the GR Fund, the maximum amount
payable to any recipient is .0005479% per day (.20% on an annualized basis) of
the proportion of daily net assets of the Fund represented by such person's
customers. As described in the Prospectus, the Board of Directors may reduce
these amounts at any time and has reduced them for the GR Fund. All
distribution expenses incurred by the Distributor and others, such as broker-
dealers or banks, in excess of the amount paid by the GR Fund will be borne by
such persons without any reimbursement from the GR Fund. As detailed in the
charter below, under its Plan and related agreements, the GR Fund paid the
amounts shown. Amounts permanently waived for the same periods are also shown.
Any dividends or distributions paid shortly after the purchase of shares of
the GR Fund by an investor may have the effect of reducing the per share value
of the shares owned by the investor by the per share amount of the dividends
or distributions. Furthermore, such dividends and distributions, although in
effect a return of capital, are subject to income taxes.
In the event that total distributions (including distributed or designated
net capital gain) for a taxable year exceed its investment company taxable
income and net capital gain, a portion of each distribution generally will be
treated as a return of capital. Distributions treated as a return of capital
reduce a stockholder's basis in its shares and could result in a capital gain
tax either when a distribution is in excess of basis or, more likely, when a
stockholder redeems its shares.
Stockholders of the GR Fund will be notified annually by the Fund as to the
federal tax status of dividends and distributions paid during the calendar
year. Dividends and distributions may also be subject to state and local
taxes. State and local tax treatment may vary according to applicable laws.
Stockholders can elect to receive distributions in cash or in additional
shares of the GR Fund. The price of the additional shares is determined as of
the record date for the dividend payment.
The Fund may in the future engage in various defensive hedging transactions.
Under various Code provisions, such transactions might change in the character
of recognized gains and losses, accelerate the recognition of certain gains
and losses, and defer the recognition of certain losses.
Dividend and interest income from non-U.S. equity and debt securities may be
subject to a withholding tax imposed by the country in which the issuer is
located. Since the GR Fund anticipates that no more than 30% of the value of
its total assets will consist of non-U.S. equity and debt securities,
stockholders are not expected to be eligible for a pass-through of the foreign
taxes paid by the GR Fund.
YIELD AND TOTAL RETURN CALCULATION
In accordance with SEC regulations, the GR Fund may include current yield
and average annual total return in advertisements or information furnished to
stockholders or potential investors. Yields are calculated in accordance with
the SEC's standardized yield formula. In it, dividend and interest income over
the 30 day measurement period is reduced by period expenses and divided by the
number of days within the measurement period to arrive at a daily income rate.
This daily income rate is then expressed as a semiannually compounded yield
based on the maximum offering price of a share assuming a standardized 360 day
year.
16
<PAGE>
The GR Fund may also advertise total return which is calculated differently
from "average annual total return" (a "non-standardized quotation"). A non-
standardized quotation of total return measures the percentage change in the
value of an account between the beginning and end of a period, assuming no
activity in the account other than reinvestment of dividends and capital gains
distributions. A non-standardized quotation of total return will always be
accompanied by the "average annual total return." Average annual total return
for any time period is calculated by assuming an investment at the beginning
of the measurement period at the maximum offering price. Dividends from the
net investable amount are then reinvested in additional shares each month at
the net asset value. At the end of the measurement period, the total number of
shares owned are redeemed at net asset value (less any applicable contingent
deferred sales load). The change in the total value during the investment
period is then expressed as an average annual total rate of return. The GR
Fund may also quote rankings, yields or returns as published by recognized
statistical services or publishers wherein its performance is categorized or
compared with other funds with similar investment objectives, such as Lipper
Analytical Service's "Growth and Income," or this same data as quoted by
Barron's, Business Week, Forbes, Fortune, Micropal, Money, Mutual Fund,
Personal Investing, Worth, Value Line Mutual Fund Survey, or others;
Weisenberger Investment Companies Service's annual Investment Companies under
"Equity" or "Equity-Asset Allocation"; or Morningstar, Inc.'s Mutual Fund
Values.
Current yield and total return will vary from time to time depending on
market conditions, the composition of the portfolio, operating expenses and
other factors. These factors and possible differences in method of calculating
performance figures should be considered when comparing the performance
figures of the GR Fund with those of other investment vehicles.
Yield and Total Return Calculation as of June 30, 1997:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------------------
CURRENT SINCE
30- DAY YIELD 1 YEAR 5 YEAR INCEPTION INCEPTION DATE
- ------------- ------ ------ --------- --------------
<S> <C> <C> <C> <C>
3.52% 11.63% 10.25% 10.53% July 1, 1991
</TABLE>
DISTRIBUTIONS
The GR Fund normally will distribute substantially all of its net investment
income to stockholders in the form of dividends to be paid quarterly as
determined by the Board of Directors. Such dividends are taxable whether paid
in cash or additional shares of the GR Fund. The Board presently intends to
declare distributions from net realized capital gain, if any, at least
annually at the end of each year.
DISTRIBUTOR
As stated in the Prospectus, John Nuveen & Co. Incorporated acts as the
distributor (the "Distributor") of shares of the Fund in accordance with the
terms of the Distribution Agreement dated January 1, 1997, for the GR Fund.
The Distributor will make a continuous offering of the shares and will be
responsible for all sales and promotion efforts. There is no redemption
charge. The Distribution Agreement must be approved in the same manner as the
Advisory Agreement discussed under "Investment Advisory Services" above and
will terminate automatically if assigned by either party thereto and is
terminable at any time without penalty by the Board of Directors of the Fund
or by vote of a majority of a Portfolio's outstanding shares on 60 days'
written notice to the Distributor and by the Distributor on 60 days' written
notice to the Fund.
Pursuant to Rule 12b-1 under the 1940 Act, the GR Fund has adopted a plan
(the "Plan") which permits the GR Fund to pay for certain distribution and
promotion expenses related to marketing the shares of each Portfolio. The Plan
authorizes the GR Fund to expend its monies in an amount equal to the
aggregate for all such expenditures to such percentage of the GR Fund's daily
net asset value as may be determined from time to time by vote cast in person
at a meeting called for such purpose, by a majority of the GR Fund's
disinterested directors. The scope of the foregoing shall be interpreted by
the directors, whose decisions shall be conclusive except to the extent it
contravenes established legal authority. Without in any way limiting the
discretion of the directors, the following activities are hereby declared to
be primarily intended to result in the sale of shares of the GR Fund:
advertising the GR Fund or the GR Fund's Manager's mutual fund activities;
compensating
17
<PAGE>
underwriters, dealers, brokers, banks and other selling entities and sales and
marketing personnel of any of them for sales of shares of the GR Fund, whether
in a lump sum or on a continuous, periodic, contingent, deferred or other
basis; compensating underwriters, dealers, brokers, banks and other servicing
entities and servicing personnel (including the GR Fund's Manager and its
personnel or any of them for providing services to stockholders of the GR Fund
relating to their investment in the GR Fund, including assistance in
connection with inquiries relating to stockholders accounts; the production
and dissemination of prospectuses including statements of additional
information) of the GR Fund and the preparation, production and dissemination
of sales, marketing and stockholders servicing materials; and the ordinary or
capital expenses, such as equipment, rent fixtures, salaries, bonuses,
reporting and recordkeeping and third party consultancy or similar expenses
relating to any activity for which payment is authorized by the directors.
Pursuant to the Plan, the GR Fund through authorized officers may make similar
payments for marketing services to non-broker-dealers who enter into service
agreements with the GR Fund. Citizens Federal Trust Department is such a non-
broker-dealer who has entered into a service agreement with the GR Fund.
The maximum amount payable by the Fund under the Plan and related agreements
on an annual basis is .40% of the GR Fund's average daily net assets for the
year. In the case of broker-dealers and others, such as banks, who have
Selling or Service Agreements with the Distributor or the GR Fund, the maximum
amount payable to any recipient is .0005479% per day (.20% on an annualized
basis) of the proportion of daily net assets of the Fund represented by such
person's customers. As described in the Prospectus, the Board of Directors may
reduce these amounts at any time and has reduced them for the GR Fund. All
distribution expenses incurred by the Distributor and others, such as broker-
dealers or banks, in excess of the amount paid by the GR Fund will be borne by
such persons without any reimbursement from the GR Fund. As detailed in the
charter below, under its Plan and related agreements, the GR Fund paid the
amounts shown. Amounts permanently waived for the same periods are also shown.
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT PAID AMOUNT PERMANENTLY
ENDED JUNE 30 TO DISTRIBUTOR WAIVED BY DISTRIBUTOR
- ------------- -------------- ---------------------
<S> <C> <C> <C> <C>
1993 $218,962 $371,378
1994 224,637 551,045
1995 321,321 433,700
1996 385,785 388,483
1997 423,778 252,756
These amounts are summarized below as to purpose:
<CAPTION>
FISCAL YEAR COMPENSATION ADVERTISING &
ENDED JUNE 30 TO BROKERS PROMOTIONS OVERHEAD TOTAL
- ------------- -------------- --------------------- -------- --------
<S> <C> <C> <C> <C>
1993 $139,804 $ 73,158 $ 6,000 $218,962
1994 170,065 54,572 -0- 224,637
1995 157,167 148,784 15,370 321,321
1996 326,228 59,557 -0- 385,785
1997* 174,088 42,284 3,000 219,372
</TABLE>
- --------
*Amounts represent the period from July 1, 1996 through December 31, 1996.
The Plan, the Distribution Agreement, the Selling Agreements and the Service
Agreements of the Fund have been approved by the Fund's Board of Directors,
including a majority of the directors who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the Plan or any
related agreement, by vote cast in person at meetings called for the purpose
of voting on the Plan and such agreements and by the stockholders on June 4,
1992. Continuation of the Plan and the related agreements must be approved
annually in the same manner, and the Plan or any related agreement may be
terminated at any time without penalty by a majority of such independent
directors or by a majority of a Portfolio's outstanding shares. Any amendment
increasing the maximum percentage payable under the Plan or other material
change must be approved by a majority of the respective Portfolio's
outstanding shares, and all other material amendments to the Plan or any
related agreement must be approved by a majority of the independent directors.
In order for the Plan to remain effective, the selection and nomination of
directors who are not "interested persons" of the Fund must be done by the
directors who are not "interested persons" and the persons authorized to make
payments under the Plans must provide written reports at least quarterly to
the Board of Directors for their review.
CUSTODIAN AND TRANSFER AGENT
The custodian for the GR Fund is The Chase Manhattan Bank, 4 New York Plaza,
New York, New York 10004.
18
<PAGE>
The transfer agent and dividend disbursing agent for the GR Fund is State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02106.
AUDITORS
Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603, are the
independent auditors for the GR Fund effective July 1, 1997.
PORTFOLIO TRANSACTIONS
Subject to policy established by the Fund's Board of Directors, the Adviser
is primarily responsible for making investment decisions for the GR Fund. In
placing orders, it is the policy of the Fund that the Adviser obtain the best
net results taking into account such factors as price (including the dealer
spread, where applicable); the size, type and difficulty of the transaction
involved; the size and breadth of the market; the firm's general execution and
operational facilities; and the firm's risk in positioning the securities
involved. While the Adviser seeks reasonably competitive prices or
commissions, the Fund will not necessarily always be paying the lowest price
or commission available. The Adviser does not expect to use any one particular
broker or dealer, but, subject to obtaining best execution, brokers or dealers
who provide supplemental investment research to the Fund or the Adviser may
receive orders for transactions by the Fund. In addition, the Adviser may
direct brokerage to brokers or dealers because of research services provided.
Such information may be used by other clients of the Adviser and not just the
Fund. Conversely, the Fund may benefit from research services provided in
respect to other clients. All research shall be paid for in compliance with
Section 28 (e) of the Securities Exchange Act of 1934 or consistent with the
fiduciary duties of the Board and the Adviser. Information so received will be
in addition to and not in lieu of the services required to be performed by the
Adviser under its Agreement and the expenses of the Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information. For the fiscal year ended June 30, 1997, the GR Fund paid
$137,461 in brokerage commissions and made no payments to brokers in respect
to sales of GR Fund shares. The GR Fund expects to purchase equity securities
traded on the New York Stock Exchange and elsewhere. Money market securities,
bonds and debentures, in which the Adviser may invest a portion of the Fund's
assets, are usually traded over-the-counter, but may be traded on an exchange.
For listed securities, the Adviser, on behalf of the Fund, will deal directly
with the brokers and dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. The Adviser
may also deal with foreign dealers.
The Adviser is able to fulfill its obligations to furnish a continuous
investment program to the Fund without receiving research from brokers;
however, it considers access to such information to be an important element of
financial management. Although such information is considered useful, its
value is not determinable, as it must be reviewed and assimilated by them, and
does not reduce its normal research activities in rendering investment advice
under its Advisory Agreements. It is possible that the Adviser's expenses
could be materially increased if it attempted to purchase this type of
information or generate it through its own staff. While it is possible that
the Adviser might be influenced to direct brokerage to brokers providing
research to the Fund, the Fund believes that the requirement to obtain best
execution substantially mitigates this risk, and that the benefits are
appropriate. During the period from July 1, 1996, to June 30, 1997, the
Adviser did not direct any brokerage to brokers providing research and related
brokerage services.
One or more of the other accounts which the Manager or the Adviser manages
may own from time to time the same investments as the Fund. Investment
decisions are made independently from those of such other accounts; however,
from time to time, the same investment decision may be made for more than one
company or account. When two or more companies or accounts seek to purchase or
sell the same securities, the securities actually purchased or sold will be
allocated among the companies and accounts on a good faith equitable basis by
the Manager or the Adviser, as the case may be, in its discretion in
accordance with the accounts' various investment objectives. In some cases,
this system may adversely affect the price or size of the position obtainable
for the Fund. In other cases, however, the ability of the Fund to participate
in volume transactions may produce better execution. It is the opinion of the
Fund's Board of Directors that this advantage, when combined with the other
benefits available due to the Adviser's organizations, outweighs any
disadvantages that may be said to exist from exposure to simultaneous
transactions.
19
<PAGE>
PURCHASE, REDEMPTION AND PRICING OF SHARES
The various manners in which the shares of the GR Fund are offered to the
public or may be redeemed, and the method of calculation by the GR Fund of net
asset value per share (which is the offering price of the shares) are
described in the GR Fund's Prospectus.
LETTER OF INTENT (RETAIL SHARES ONLY). A stockholder may also qualify for
reduced sales charges by sending to the Fund (within 90 days after the first
purchase desired to be included in the purchase program) a signed, non-binding
letter of intent to purchase, during a 13-month period, an amount sufficient
to qualify for a reduced sales charge. A single letter may be used for
spouses, their children and parents or any single trust estate or other
fiduciary account. All investments in Class A Shares of the Fund or in Class A
Shares of any other open-end mutual fund subject to a front-end sales charge
distributed by the Distributor count toward the indicated goal. Once the
Distributor receives the required letter of intent, it will apply to
qualifying purchases within the 13-month period the sales charge that would be
applicable to a single purchase of the total amount indicated in the letter.
During the period covered by the letter of intent, 5% of the shares purchased
will be restricted until the stated goal is reached. If the intended purchase
program is not completed within the 13-month period, the sales charge will be
adjusted upward as appropriate and a sufficient number of restricted shares
will be redeemed by the Fund if the stockholder does not pay the increased
sales charge.
OTHER INFORMATION
The Prospectus and the Statement of Additional Information do not contain
all the information included in the Registration Statement filed with the SEC
under the Securities Act of 1933 and the 1940 Act with respect to the Fund and
the securities offered by it pursuant to the Prospectus, certain portions of
which have been omitted pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in the Statement of Additional
Information as to the contents of any contract or other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contact or other document filed as an exhibit to the Registration
Statement of which the Prospectus and the Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
20
<PAGE>
APPENDIX I
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S RATINGS GROUP(R)--A brief description of the applicable
Standard & Poor's Ratings Group rating symbols and their meanings (as
published by Standard & Poor's Corporation) follows:
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific debt obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under
the laws of bankruptcy and other laws affecting creditors' rights.
l. Long-term bonds
<TABLE>
<C> <S>
AAA Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small
degree.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
BB-D Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree
of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions. The "CI" is reserved for
income bonds on which no interest is being paid. Debt rated "D" is in
default, and payment of interest and/or repayment of principal is in
arrears.
</TABLE>
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by the
addition of a plus or a minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "P" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
The investor should exercise his own judgment with respect to such likelihood
and risk.
I-1
<PAGE>
2. Preferred stock rating criteria
Preferred stock ratings reflect the merits of each issue relative to the
universe of preferreds, and not in relation to debt obligations. Since
preferred stock is by definition a junior ranking security, preferred stock
ratings do not factor in the security's junior position--in a bankruptcy
reorganization or liquidation--to a company's debt obligations. However,
preferred stock cannot be rated higher than a company's highest-ranking debt
obligations because the same basic methodology and ratio norms are used to
rate both types of securities.
The financial analysis performed in conjunction with preferred stock ratings
is virtually the same as that used to rate debt. Fixed-charge coverage and
capitalization ratios are calculated treating preferred stock obligations as
though they were debt. Accordingly, if there is a substantial amount of
preferred, the rating on preferred stock could differ greatly from the debt
rating; the company has less capacity to pay dividends and debt service than
it has to meet debt service alone. The size of the differential is a function
of how much preferred is outstanding. (While the gap can be a full rating
category or more, a large amount of preferred will drag down the debt rating
as well. Even though a company under duress can stop paying the preferred
dividends to avoid default, the burden of the preferred increases the risk
that the company will face such a financial crisis. The company will pay
dividends as long as possible; this can sap its financial strength or siphon
off funds that otherwise could be used to protect the firm's competitive
position.)
Preferred stock ratings also consider the vulnerability of the dividend to
the firm's discretionary passing on a payment. It is often appropriate to rate
preferred stock lower than indicated by pure financial analysis--and well
below the debt rating--in the case of speculative grade credits. Such issuers
may be expected to eliminate preferred dividends to help avoid financial
constraints. Similarly, covenants in debt instruments can endanger payment of
preferred dividends even if financial measures indicate a capacity to pay.
MOODY'S INVESTORS SERVICE INC.--A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
l. Long-term bonds
Aaa--Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are more unlikely to
impair the fundamentally strong position of such issues. With the occasional
exception of oversupply in a few specific instances, the safety of obligations
of this class is so absolute that their market value is affected solely by
money market fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
Securities. These Aa bonds are high grade, their market value virtually immune
to all but money market influences, with the occasional exception of
oversupply in a few specific instances.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as higher medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to A-rated bonds may be influenced
to some degree by credit circumstances during a sustained period of depressed
business conditions. During periods of normalcy, bonds of this quality
frequently move in parallel with Aaa and Aa obligations, with the occasional
exception of oversupply in a few specific instances.
Baa--Bonds which are rated Baa are considered as lower medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. The
market value of Baa-rated bonds is more sensitive to change in economic
circumstances, and aside from occasional speculative factors applying to some
bonds of this class, Baa market valuations move in parallel with Aaa, Aa, and
A obligations during periods of economic normalcy, except in instances of
oversupply.
I-2
<PAGE>
Ba-C--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often, the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. Bonds which are rated C
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier l indicates that the bond ranks at the
high end of its category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Con.--Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit status upon
completion of construction or elimination of basis of condition.
2. Preferred Stock
<TABLE>
<C> <S>
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of
everattaining any real investment standing.
</TABLE>
- --------
*Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
I-3
<PAGE>
FITCH INVESTORS SERVICE, INC.--A brief description of the applicable Fitch
Investors Service, Inc. rating symbols and their meanings follows:
l. Long-term bonds
<TABLE>
<C> <S>
AAA Bonds 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.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as
strong as bonds rated "AAA'. Because bonds rated in the
"AAA' and "AA' categories are not significantly vulnerable
to foreseeable future developments, short-term debt of
these issuers is generally rated "F-l+'.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse
changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the
rating category. Plus and minus signs, however, are not
used in the "AAA' category. NR Indicates that Fitch does
not rate the specific issue.
Conditional A conditional rating is premised on the successful
completion of a project or the occurrence of a specific
event.
Suspended A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for
rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is
called or refinanced, and, at Fitch's discretion, when an
issuer fails to furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and
the likely direction of such change. These are designated
as "Positive," indicating a potential upgrade, "Negative,"
for potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term,
and should be resolved within 12 months.
Credit Trend Credit trend indicators show whether credit fundamentals
are improving, stable, declining, or uncertain, as follows:
Improving (UP)
Stable (EVEN)
Declining (UP)
Uncertain (EVEN)
Credit trend indicators are not predictions that any rating
change will occur, and have a longer-term time frame than
issues placed on FitchAlert.
</TABLE>
I-4
<PAGE>
DUFF & PHELPS CREDIT RATING SCALE--A brief description of the applicable Duff
& Phelps rating symbols and their meanings follows:
<TABLE>
<C> <S>
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but
AA may vary slightly from time to time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are
A more variable and greater in periods of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for
BBB prudent investment. Considerable variability in risk during economic
BBB- cycles.
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according
BB- to industry conditions or company fortunes. Overall quality may move up
or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be
B met when due. Financial protection factors will fluctuate widely
B- according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within this
category or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD Defaulted debt obligations, issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
I-5
<PAGE>
APPENDIX II
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the 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 a fund as a
hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the series may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the
financial futures. Conversely, the series may enter into fewer financial
futures if the historical volatility of the price of the securities being
hedged is less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid
changes in the volume of closing transactions, whether due to volatile markets
or movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements,
the fund might find it difficult or impossible to close out a particular
transaction.
Options on Financial Futures. A fund 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 series.
There is no guarantee that such closing transactions can be effected.
INDEX CONTRACTS
Index Futures. An index which assigns relative values to the securities
included in the index is traded on the Chicago Board of Trade. The index
fluctuates with changes in the market values of all such securities included
rather than a single security. An index future is a bilateral agreement
pursuant to which two parties
II-1
<PAGE>
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 Fund may also purchase put or call options on U.S.
Government or equity 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.
Index futures and options transactions would be subject to risks similar to
transactions in financial futures and options thereon as described above. No
fund will enter into transactions in index or financial futures or related
options unless and until, in the Manager's opinion, the market for such
instruments has developed sufficiently.
REPURCHASE AGREEMENTS
A fund may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
such 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 such fund
is authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. A 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 Directors ("Qualified Institutions"). The Manager will monitor
the continued creditworthiness of Qualified Institutions, subject to the
oversight of the series Board of Directors.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation
to repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the series will seek to dispose of such securities, which action
could involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
series' ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the series may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the series may
suffer a loss to the extent proceeds from the sale of the underlying
securities are less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the fund to keep all its assets earning interest while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
II-2
<PAGE>
NUVEEN
Growth and Income
Mutual Funds
October 29, 1997
Prospectus
Designed to provide superior
equity market performance
with less risk
[PHOTO APPEARS HERE]
Utility
Income Fund
<PAGE>
Prospectus dated October 29, 1997
FLAGSHIP UTILITY INCOME FUND(R)
LOGO
Flagship Utility Income Fund(R) (the "Fund") is a diversified series of Flag-
ship Admiral Funds Inc. (the "Corporation"), a series, open-end mutual fund.
The Fund seeks to provide current income and long-term growth of income and
capital for individual and corporate investors by investing primarily in the
preferred and common stocks of companies in the public utilities industry. The
Fund will seek capital appreciation as a secondary objective. No assurance can
be given that the Fund will achieve its objective. The investment adviser for
the Fund is Nuveen Advisory Corp. (the "Manager"), a registered investment ad-
viser since 1976.
TABLE OF CONTENTS PAGE
<TABLE>
<S> <C>
Fees and Expenses........................ 2
Financial Highlights..................... 3
The Fund and Its Objective............... 4
Investment Considerations and Risk
Factors................................. 4
How to Buy Shares........................ 6
How To Redeem Shares..................... 9
Exchange and Reinvestment Privilege...... 10
Systematic Withdrawal Plan............... 11
Direct Deposits.......................... 11
How Fund Shares Are Priced............... 11
Taxes.................................... 11
Distributions and Yield.................. 13
About the Investment Manager............. 14
About the Distributor.................... 14
General Information...................... 15
Custodian and Transfer Agent............. 16
Counsel and Auditors..................... 16
Additional Information................... 16
Application.............................. 17
</TABLE>
This Prospectus sets forth concisely the information about the Fund that you
should know before investing. Please read and retain it for future reference.
A Statement of Additional Information dated October 29, 1997 containing addi-
tional information about the Fund has been filed with the Securities and Ex-
change Commission, and is hereby incorporated by reference into this Prospec-
tus. A copy of the Statement of Additional Information can be obtained without
charge by telephoning the Fund toll free at: 1-800-225-8530.
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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK SELLING THE SHARES, NOR ARE THEY FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER U.S. GOVERNMENT AGENCY. INVESTMENT RISKS INCLUDE POSSIBLE
LOSS OF PRINCIPAL. THE VALUE OF THE INVESTMENT AND ITS RETURN WILL FLUCTUATE
AND ARE NOT GUARANTEED. WHEN SOLD, THE VALUE OF THE INVESTMENT MAY BE HIGHER
OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
SHARES SHARES(A) SHARES SHARES(A)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Front End Sales Charge
Imposed on Purchase 4.20% None None None
Maximum CDSC Imposed on Redemptions None 5.0%(b) 1.00%(c) None
Maximum Sales Charge Imposed on
Reinvested Dividend None None None None
Redemption Fee None None None None
Exchange Fee None None None None
Annual Fund Operating Expenses As a
Percentage of Average Net Assets After
Fee Waiver & Reimbursement Arrangements
Management Fee
(See "About the Investment Manager") .50% .50% .50% .50%
12b-1 Fee (See "About the Distribu-
tor") .20% .95%(d) .75%(e) None
Other Expenses .67% .67% .67% .67%
Total Fund Operating Expenses 1.37% 2.12% 1.92% 1.17%
Total Fund Operating Expenses Without
Waiver or Reimbursement 1.37% 2.12% 1.92% 1.17%
</TABLE>
Percentage based on actual fees incurred from the previous fiscal year
restated to reflect current fees and operating expenses. Class B and Class C
Shares are sold without a front-end sales charge but their 12b-1 fees may
cause long-term stockholders to pay more than the economic equivalent of the
maximum permitted front-end sales charge.
(a) These amounts are based on estimates.
(b) No initial sales load; contingent deferred sales charge of 5% declining
to 1% in the 6th year if redeemed. Class B expenses in years 9 through 10
are based on Class A expenses, because the shares automatically convert
to Class A after 8 years. If you did not redeem, the example of expenses
would be $39, $31 and $11 less in years 1, 3 and 5 respectively.
(c) No initial sales charge; 1% contingent deferred sales charge if redeemed
within 1 year of purchase.
(d) Of this amount, 0.75% is an asset based sales charge and 0.20% is a
service fee.
(e) Of this amount, 0.55% is an asset based sales charge and 0.20% is a
service fee.
EXAMPLE OF EXPENSES
An investor in the Fund would pay the following dollar amount of expenses on a
$1,000 investment assuming: (1) 5% annual return and (2) Redemption at the end
of each period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $55 $84 $114 $200
Class B Shares $61 $98 $125 $226
Class C Shares $19 $60 $104 $224
Class R Shares $12 $37 $ 64 $142
</TABLE>
The preceding fee tables are provided to assist investors in understanding the
various costs and expenses which may directly or indirectly be incurred as a
result of an investment in the Fund. The rules of the Securities and Exchange
Commission ("SEC") require that the Fund's maximum sales charge be reflected
in the fee table. As indicated in the expense table, the Fund utilizes a de-
clining sales charge for Class A Shares, a contingent deferred sales load
("CDSC") for Class B and Class C Shares and a no-fee, no-charge struc -
ture for institutional investors for Class R Shares. Class R Shares are sub-
ject to a minimum purchase requirement of $1,000,000. Long-term Class B and
Class C stockholders could pay more than the economic equivalent of the maxi-
mum front-end sales charges for Class A Shares. Class B Shares automatically
convert to Class A Shares after eight years. The Fund's 12b-1 plan and manage-
ment fee are more fully described herein. These expenses should not be consid-
ered a representation of actual past or future expenses, as actual expenses
may be greater or less than those shown.
-- 2 --
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for years 1988 and subsequent was derived from fi-
nancial highlights audited by Deloitte & Touche LLP, independent auditors.
Their report on the financial statements appears in the Statement of Addi-
tional Information.
PER SHARE INCOME AND CAPITAL CHANGES
The following table provides per share income and capital changes for a share
of capital stock of the Flagship Basic Value Fund outstanding from August 26,
1983 (commencement of operations) to June 30, 1991, and of Class A Shares of
the Flagship Utility Income Fund ("Utility Fund") from July 1, 1991 to June
30, 1997, and of Class C Shares of the Utility Fund from July 6, 1993 to June
30, 1997. Class B and Class R Shares were not offered to the public during the
fiscal year. On June 4, 1992 the stockholders of the Flagship Basic Value Fund
approved a change in the fundamental investment objective and policies of the
Fund described in this Prospectus. As a result of the fundamental change in
the Fund, the financial information below is primarily of historical value and
has only limited relevance to the Fund's current operations and performance as
a utility fund. The Fund does not expect portfolio turnover to exceed 100%.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------------------------------
-----------------------------------------
TOTAL
FROM DISTRI-
NET ASSET NET NET REALIZED INVEST- DIVIDENDS BUTIONS
VALUE INVEST- & UNREALIZED MENT FROM NET FROM RETURNS TOTAL NET ASSET
YEAR ENDED BEGINNING MENT GAINS (LOSS) OPERA- INVESTMENT CAPITAL OF DISTRI- VALUE END TOTAL
JUNE 30, OF PERIOD INCOME ON SECURITIES TIONS INCOME GAINS CAPITAL BUTIONS OF PERIOD RETURN(D)
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------
-----------------------------------------
RATIO OF
RATIO OF NET
EXPENSES INVESTMENT AVERAGE
NET ASSETS TO INCOME TO COM-
END OF AVERAGE AVERAGE PORTFOLIO MISSION
YEAR ENDED PERIOD NET NET TURNOVER RATE
JUNE 30, (000'S) ASSETS(B) ASSETS(B) RATE(C) PAID(E)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
8/26/83(a)-
12/31/83 $16.67(a) $.71 ($.44) $ .27 $.71 $.71 $16.23 2.72%
01/01/84-
06/30/84 16.23 .88 (.97) (.09) .88 $.02 $.03 .93 15.21 (1.06)
1985 15.21 1.67 .81 2.48 1.66 1.66 16.03 17.23
1986 16.03 1.40 (.66) .74 1.37 1.37 15.40 4.64
1987 15.40 1.08 .11 1.19 1.09 1.09 15.50 7.95
1988 15.50 1.15 (3.12) (1.97) 1.18 1.18 12.35 (13.60)
1989 12.35 1.06 (1.27) (.21) .97 .97 11.17 (1.70)
1990 11.17 .80 (.50) .30 1.02 1.02 10.45 2.56
1991 10.45 .76 (.88) (.12) .82 .82 9.51 (1.14)
1992 9.51 .67 .69 1.36 .69 .69 10.18 14.69
1993 10.18 .67 .86 1.53 .67 .67 11.04 15.86
1994 11.04 .63 (1.34) (.71) .64 .64 9.69 (6.83)
1995 9.69 .64 .55 1.19 .64 .64 10.24 12.73
1996 10.24 .64 .85 1.49 .64 .64 11.09 14.82
1997 11.09 .66 .40 1.06 .64 .64 11.51 9.89
Class C
1994(a) 11.05 .59 (1.39) (.80) .56 .56 9.69 (7.52)
1995 9.69 .59 .55 1.14 .59 .59 10.24 12.14
1996 10.24 .58 .84 1.42 .58 .58 11.08 14.15
1997 11.08 .61 .38 .99 .58 .58 11.49 9.25
<S> <C> <C> <C> <C> <C>
Class A
8/26/83(a)-
12/31/83 $64,665 1.03% 12.51% 28.78% --
01/01/84-
06/30/84 193,602 1.03 10.96 83.25 --
1985 241,121 1.02 10.68 128.80 --
1986 307,604 .96 8.76 182.89 --
1987 236,607 .99 7.00 315.96 --
1988 84,749 1.00 7.88 186.30 --
1989 32,692 1.23 9.03 120.45 --
1990 16,934 1.21 7.29 148.46 --
1991 12,830 1.48 7.79 116.16 --
1992 6,050 1.42 6.72 58.50 --
1993 32,819 1.03 6.31 154.12 --
1994 26,921 .94 5.92 193.14 --
1995 25,000 1.00 6.52 158.55 --
1996 25,010 .98 5.82 115.30 $.0640
1997 20,157 .98 5.97 127.89 .0633
Class C
1994(a) 5,129 1.46 5.69 193.14 --
1995 5,501 1.54 6.01 158.55 --
1996 6,302 1.52 5.27 115.30 .0640
1997 5,555 1.53 5.47 127.89 .0633
</TABLE>
(a) Commencement of investment operations.
(b) Annualized.
(c) Annualization is not appropriate.
(d) The total returns shown do not include the effects of front-end or
contingent deferred sales loads and are annualized in first year after
commencement of investment operations.
(e) Average commission rate paid on equity portfolio transactions. Commissions
paid are included in the cost of the securities. Disclosure was not
required prior to June 30, 1996.
Note: All amounts have been adjusted for a 3-for-1 stock split which occurred
on July 1, 1992.
The Fund's annual report for the most recent fiscal year includes a discussion
of fund performance. It is available upon request and without charge.
-- 3 --
<PAGE>
THE FUND AND ITS OBJECTIVE
The Fund is a professionally managed, diversified series of an open-end in-
vestment company. The Fund's objective is to seek "current income and long-
term growth of income and capital." To the extent consistent with the primary
investment objective, the Fund will seek capital appreciation as a secondary
objective. The Fund will also seek to maximize the amount of its qualifying
dividend income under Federal income tax laws. Under current Federal income
tax laws, qualifying dividends paid by the Fund will qualify for the 70% divi-
dends-received deduction for corporations. The Fund's investment objectives
are fundamental and cannot be changed without authorization by a vote of a ma-
jority of the outstanding shares of the Fund.
To accomplish its objective, the Fund intends to invest at least 65% of its
total assets in the securities, including preferred and common stock, of com-
panies in the public utilities industry, including companies principally en-
gaged in the production, transmission or distribution of electric energy, gas,
water or communications services such as telephone or telecommunications serv-
ices, or in solid waste disposal. The Fund also may seek to enhance its return
by selling options on portfolio securities. However, the income generated from
such options would not qualify for the 70% dividends-received deduction.
The Manager will continuously monitor the issuers of securities in which the
Fund is likely to invest and will diversify the Fund's portfolio among issues
that the Manager believes will best accomplish the Fund's objective. As to
preferred and debt securities, the Fund will limit its holdings to issues rat-
ed, at the time of purchase, as investment grade by either Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group(R) ("S&P"), Duff
and Phelp ("D&P"), or Fitch Investors Service ("Fitch") respectively or other
issues believed by the Manager to be of at least comparable quality.
THE UTILITIES INDUSTRY
As a fundamental policy, the Fund will concentrate its investments with at
least 65% of its total assets invested in companies in the public utilities
industry. As a result of this concentration policy, the Fund's performance
will depend in part on conditions in the public utilities industry. Utility
stocks have traditionally been popular among more conservative investors, be-
cause they have generally paid above-average dividends. However, utility
stocks can still be affected by the risks of the stock market, as well as by
special factors specific to public utility companies.
Rates of return of utility companies generally are subject to review and limi-
tation by state public utilities commissions and tend to fluctuate with mar-
ginal financing costs. Rate changes, however, ordinarily lag behind the
changes in financing costs, and thus can favorably or unfavorably affect the
earnings or dividend pay-outs on utilities stocks depending upon whether such
rates and costs are declining or rising.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
INVESTMENT RISKS
Utility companies in the United States are generally subject to substantial
regulation intended to ensure appropriate standards of review and adequate ca-
pacity to meet public demand. The nature of regulation in the utility indus-
tries continues to evolve in the United States. Although certain companies may
develop more profitable opportunities, others may be forced to defend their
core business and may be less profitable. Electric utility companies have his-
torically been subject to the risks associated with increases in fuel and
other operating costs, high interest costs on borrowings, costs associated
with compliance with environmental, nuclear facility and other safety regula-
tions and changes in the regulatory climate. Increased scrutiny of electric
utilities might result in higher costs and higher capital expenditures, with
the risk that regulators might disallow inclusion of these costs in rate au-
thorizations. Increasing competition due to past regulatory changes in the
telephone communications industry continue, and whereas certain companies have
benefited, many companies may be adversely affected in the future. Gas trans-
mission companies and gas distribution companies continue to undergo signifi-
cant changes as well. Many companies have diversified into oil and gas explo-
ration and development, making returns more sensitive to energy prices. In ad-
dition, several large suppliers have recently suffered financial difficulties,
partly as a result of being locked into long-term fixed-price contracts. Water
supply utilities are in an industry that is highly fragmented due to local
ownership and generally the companies are more mature and are experiencing
little or no per capita volume growth. There can also be no assurance that
regulatory policies or accounting standards changes will not negatively affect
utility companies' earnings or dividends. The telephone and telecommunications
industry, while undergoing rapid growth in some segments, is also subject to
regulatory changes and numerous competitive pressures as technologies are de-
veloped. It also requires substantial capital for new technology. Under market
conditions that are unfavorable to the public utilities industry, the Fund may
temporarily significantly reduce its investment in that industry. Some public
utility companies are facing increased competition, which may reduce their
profits. All of these factors are subject to rapid changes, which may affect
utility companies independently from the stock market as a whole.
BORROWING
The Fund may borrow from time to time on a temporary basis in amounts up to
25% of its net assets. Such borrowings are called leverage, and while they
provide opportunity for greater returns than if borrowing had not occurred, to
the extent the interest on the borrowings exceeds the interest on dividends
received, there is a risk that the income to the Fund will be less than if the
borrowing had not been made. To the extent the Fund invests the proceeds from
borrowings in equity or fixed income securities, the net
-- 4 --
<PAGE>
asset value of the Fund may appreciate or depreciate more rapidly than a fund
that does not utilize leverage. The Manager will only cause the Fund to borrow
when there is an expectation it will benefit the Fund. Borrowing by the Fund
would cause a pro rata portion of the dividends-received deduction with re-
spect to the Fund's dividends to be disallowed. Accordingly, the Fund does not
intend to borrow to any significant extent.
RESTRICTED SECURITIES
The Fund may invest up to 10% of its assets (valued at the purchase date) in
illiquid securities, including securities that are subject to restrictions on
disposition under the Securities Act of 1933 or for which market quotations
are not readily available, including repurchase agreements in excess of seven
days. Under guidelines adopted by the SEC, the Manager is permitted to deter-
mine whether certain securities are liquid pursuant to procedures approved by
the Fund's Board of Directors. Due to the less liquid nature of restricted se-
curities, if the Fund were forced to sell such securities, it might have to do
so at a disadvantageous price.
HEDGING
In order to hedge the risks of equity market and interest rate changes, the
Fund may utilize various publicly or privately traded instruments including
options, futures contracts or options on futures contracts or stock or finan-
cial index options or futures thereon. The range of permissible hedging activ-
ities may well change over time as new instruments are created or regulatory
changes occur. In addition, the Fund may utilize such contracts or options as
a means of increasing the yield and/or total return of the Fund's portfolio.
Such trading strategies are a generally accepted part of portfolio management
engaged in by many mutual funds. The Fund's use of futures and options on
futures would in all cases be consistent with applicable regulatory require-
ments and in particular, the rules and regulations of the Commodity Futures
Trading Commission with which the Fund must comply in order not to be deemed a
commodity pool operator within the meaning and intent of the Commodity Ex-
change Act and any applicable state laws. Hedging instruments have risks asso-
ciated with them including possible failure of delivery, illiquidity and mar-
ket risks.
RISKS
In addition to the risks described above, the use of options and futures
transactions for hedging purposes entails certain other risks. In particular,
the variable degree of correlation between price movement of futures contracts
and price movements in the position being hedged creates the possibility that
losses on the hedge may be greater than gains in the Fund's position. In addi-
tion, futures transactions markets may not be liquid in all circumstances. As
a result, in volatile markets, the Fund might not be able to close out a
transaction without incurring losses substantially greater than the initial
deposit. Although the contemplated use of these contracts should tend to mini-
mize the risk of loss due to the decline in the value of the hedged portion,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. The ability of the Fund to hedge suc-
cessfully would depend on the Manager's ability to forecast pertinent market
movements, which cannot be assured. Furthermore, the Fund's holding period in
its portfolio assets could be suspended during the period in which risks were
hedged. As described below in "Taxes--Dividends", the Fund must satisfy cer-
tain holding period requirements to be eligible for the dividends-received de-
duction. Finally, the daily deposit requirements in futures contracts would
create an ongoing greater potential financial risk than would purchases of op-
tions, where the exposure is limited to the cost of the initial premium.
Losses due to hedging transactions would reduce net asset value.
QUALITY
The Fund will invest in preferred stocks and debt obligations which are rated
at the date of purchase as investment grade, which means that such securities
will be rated no lower than Baa by Moody's or BBB by S&P or BBB by D&P, or BBB
by Fitch. Securities rated Baa by Moody's, BBB by S&P or Fitch or D&P gener-
ally are regarded as having an adequate capacity to pay interest and repay
principal. However, such securities lack outstanding investment characteris-
tics and in fact have speculative characteristics as well. Generally, the Fund
will not invest in securities rated lower than Baa by Moody's or BBB by S&P,
or Fitch, or D&P, respectively, but may do so if the Manager believes the fi-
nancial condition of the issuer or other available protections reduce the risk
to the Fund. For example, the Fund may invest in such a security if the Man-
ager believes the issuer's assets are sufficient to insure that the issuer can
repay its outstanding obligations. The Fund will not invest more than 5% of
its assets in securities rated below investment grade. The Fund may also in-
vest in unrated securities if the Manager determines that such securities
present attractive investment opportunities and are of comparable quality to
the other securities in which the Fund may invest.
OTHER POLICIES
Among other things, the Fund may not make loans (other than repurchase agree-
ments), except to the extent the purchase of debt obligations of any type are
considered loans, and except that the Fund may lend portfolio securities, not
exceeding 5% of the value of its assets, pursuant to SEC requirements and the
exchanges on which such securities are traded; issue securities senior to its
stock; or invest more than 5% of the value of its assets in repurchase agree-
ments or when-issued or delayed delivery transactions.
-- 5 --
<PAGE>
HOW TO BUY SHARES
CONTINUOUS OFFERING
Shares of the Fund are sold in a continuous offering at the public offering
price, which is equal to the net asset value per share next determined after a
purchase order is received by the Fund (see "How Fund Shares are Priced") plus
a sales charge which, at the election of the purchaser, may be imposed (i) at
the time of purchase (Class A Shares) or (ii) on a contingent deferred basis
(Class B and Class C Shares). The Class R Shares are designed for institu-
tional investors, with a minimum initial investment of $1,000,000. The Class R
Shares are sold at net asset value with no front-end sales load, no contingent
deferred sales charge and no Rule 12b-1 charge. When placing purchase orders,
investors should specify whether the order is for Class A, Class B, Class C,
or Class R Shares. All purchase orders that fail to specify a Class will auto-
matically be invested in Class A Shares. Purchases may be made as described
below under "Purchase Through Dealers" and "Purchase by Check." The Fund re-
serves the right to reject any order for shares.
CLASSES OF SHARES
Four classes of shares, Class A Shares, Class B Shares, Class C Shares, and
Class R Shares, are authorized for the Fund. They are described fully in the
SAI. The following table shows the total sales charges or underwriting dis-
counts and dealer concessions for each amount.
CLASS A SHARES
<TABLE>
<CAPTION>
TOTAL SALES
CHARGE
-------------------------------------------------
DEALER CONCESSION OR AGENCY
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF COMMISSION AS PERCENTAGE
AT PUBLIC OFFERING PRICE OFFERING PRICE NET ASSET VALUE OF OFFERING PRICE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than
$50,000 4.20% 4.38% 3.70%
$50,000 to
$100,000 4.00 4.18 3.50
$100,000 to
$250,000 3.50 3.65 3.00
$250,000 to
$500,000 2.50 2.61 2.00
$500,000 to
$1,000,000 2.00 2.09 1.50
$1,000,000
and over -- -- --*
</TABLE>
*A CDSC may be imposed as described below.
No sales charge will be assessed on purchases by stockholders who owned
shares of the Fund on June 4, 1992.
Class A Contingent Deferred Sales Charge. There is no initial sales charge on
purchases of Class A Shares of the Fund for purchases aggregating $1 million
or more. The Distributor pays dealers of record commissions on those purchases
in an amount equal to the sum of 1.0% of the first $2.5 million, plus 0.50% of
the next $2.5 million, plus 0.25% of purchases over $5 million. If you redeem
any of those shares within 18 months of the end of the calendar month of their
purchase, a Class A contingent deferred sales charge ("CDSC") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of ei-
ther (1) the aggregate net asset value of the redeemed shares (not including
shares purchased by reinvestment of dividends or capital gain distributions)
or (2) the original cost of the shares, whichever is less.
CLASS B SHARES
Class B Shares are offered at net asset value, without an initial sales
charge, subject to a continuing 0.95% annual distribution fee. Class B Shares
are subject to a declining contingent deferred sales charge ("CDSC") if you
redeem your shares within six years from the purchase date. This CDSC charge
is 5%, 4%, 4%, 3%, 2% and 1% for years one through six. Class B Shares auto-
matically convert to Class A Shares at the end of eight years. The conversion
is based on the relative net asset value of the two classes, and no sales
charge or other charge is imposed.
The Distributor pays a 0.20% service fee to dealers in advance for the first
year upon the sale of Class B Shares. After the shares have been held for a
year, the Distributor pays the fee monthly. In addition, the Distributor pays
sales commission of 3.80% of the purchase price to dealers from its own re-
sources at the time of sale.
CLASS C SHARES
Class C Shares are offered at net asset value, without initial sales charge,
subject to a continuing 0.75% annual distribution fee (of which .55% is an as-
set based sales charge and .20% is a service fee) and a CDSC of 1% if redeemed
within one year of the purchase date. The first year of the annual distribu-
tion fee is paid to the Distributor, and in subsequent years 0.55% is paid to
the dealer and 0.20% is paid to the Distributor.
CLASS R SHARES
You may purchase Class R Shares with monies representing dividends and capital
gain distributions on Class R Shares of the Fund. Also, you may purchase Class
R Shares if you are within the following specified categories of investors who
are also eligible to purchase Class A Shares at net asset value without an up-
front sales charge: officers, current and former directors of the Fund; bona
fide, full-time and retired employees of John Nuveen & Co. Incorporated, and
subsidiar -
-- 6 --
<PAGE>
ies 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 subsidi-
aries or bank affiliates; and bank or broker-affiliated trust departments;
persons investing $1 million or more in Class R Shares; and clients of invest-
ment advisers, financial planners or other financial intermediaries that
charge periodic or asset-based "wrap" fees for their services.
If you are eligible to purchase either Class R Shares or Class A Shares with-
out a sales charge at net asset value, you should be aware of the differences
between these two classes of shares. Class A Shares are subject to an annual
distribution fee to compensate John Nuveen & Co. Incorporated (the "Distribu-
tor") for distribution costs associated with the Fund and to an annual service
fee to compensate Authorized Dealers for providing you with ongoing account
services. Class R Shares are not subject to a distribution or service fee and,
consequently, holders of Class R Shares may not receive the same types or lev-
els of services from Authorized Dealers. In choosing between Class A Shares
and Class R Shares, you should weigh the benefit of the services to be pro-
vided by Authorized Dealers against the annual service fee imposed upon the
Class A Shares.
The minimum purchase required to open an account in the Fund is $3,000. For
investments by Individual Retirement Accounts or Keogh accounts, the minimum
initial purchase is $1,000. Additional purchases of $50 or more may be made at
any time. Any order in an amount of $1,000,000 or more must be for Class A or
Class R Shares. The Fund executes purchase orders immediately prior to decla-
ration of the daily dividend as of the close of business on the day the order
is received. Payments by wire will begin to earn dividends on the business day
that the Fund's custodian bank receives payment for your shares. All other
forms of payment will begin to earn dividends on the subsequent business day.
When you redeem shares, you will continue to receive dividends up to, but not
including, payment date. See "How to Redeem Shares" and "Distributions and
Yield." Because dividends do not begin until payment is received, you should
request your dealer to forward payment promptly. To the extent your securities
account or bank account is charged for your purchase before the Fund receives
funds, your dealer or bank may be earning interest on your funds.
At various times the Distributor may implement programs whereby a dealer's
sales force may be eligible for nominal awards or whereby the Distributor will
reallow to any dealer that sponsors sales programs conforming to criteria es-
tablished by the Distributor up to an additional 0.50% of the sales generated
by the dealer (but never, together with the commission, more than the total
sales charge) at the public offering price during such program (see "About the
Distributor" below). These programs will not affect the price investors pay
for shares or the amount that the Fund will receive from such sale. A sales-
person and any other person entitled to receive compensation for selling Fund
shares may receive different compensation for selling one particular class of
shares over another. Quantity discounts may be modified or terminated at any
time. For more information about quantity discounts, contact your dealer or
the Distributor. Where a dealer receives the total sales charge, such dealer
may be deemed to be an underwriter.
PURCHASE THROUGH DEALERS
To purchase shares through a dealer, you should request your dealer to trans-
mit an order to Boston Financial for the appropriate number of shares and make
arrangements with your dealer to transmit funds for the purchase. Your dealer
may require you to fill out an Application Form or similar application.
The public offering price is based on net asset value and includes the appli-
cable sales charge. Because the Fund determines net asset value for each se-
ries daily as of the close of the regular trading session (normally 4:00 p.m.
New York time) on the New York Stock Exchange on each day that the Exchange is
open for trading, your dealer must transmit your order to the Fund prior to
such time in order for your order to be executed at the public offering price
based on the net asset value to be determined that day. Any change in price
due to the failure of the Fund to receive an order prior to the close of the
Exchange must be settled between you and your dealer. Similarly, if your
dealer fails to provide timely payment (normally three business days after the
order is received), the Distributor may sell the shares to other investors at
the then current offering price. If the Distributor does so, the dealer will
be responsible to the Distributor for any loss which the Distributor incurs in
connection with the transaction, and you must settle with your dealer your
rights to shares at the price on the day you ordered them.
PURCHASE BY CHECK
To purchase shares by check, please mail the amount you wish to invest and, in
the case of a new account, a completed Application Form to: Boston Financial,
Attention: Flagship Utility Income Fund, P.O. Box 8509, Boston, MA 02266-8509.
Checks should be made payable to Flagship Utility Income Fund. Orders will be
priced at the public offering price based on the net asset value (including
the applicable sales charge) next determined after the order is received and
will be executed on the day the check is received. All purchases made by check
should be in U.S. dollars. Third-party checks will not be accepted.
FUND-DIRECT--ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account appli-
cation. If you need additional copies of the form, or would like assistance in
completing it, contact your financial adviser or call Nuveen at (800) 225-
8530. You may request Fund Direct transfers to quickly and conveniently pur-
chase or sell shares by tele -
-- 7 --
<PAGE>
phone, systematically invest or withdraw funds, or send dividend payments di-
rectly to your bank account.
If you have established electronic funds transfer privileges on your account,
you may request that redemption proceeds of $1,000 or more be wired directly
to your bank account. While you will generally receive your redemption pro-
ceeds more quickly than a regular telephone redemption, the fund may charge
you a fee for this expedited service.
SYSTEMATIC INVESTMENT PLAN
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account (see Fund Di-
rect above), or directly from your paycheck. To invest regularly from your
bank account, simply complete the appropriate section of the account applica-
tion. To invest regularly from your paycheck, call Nuveen for a Payroll Direct
Deposit Enrollment form. If you need additional copies of these forms, or
would like assistance completing them, contact your financial adviser or call
Nuveen at (800) 225-8530.
GENERAL
All funds will be fully invested in full and fractional shares. The issuance
of shares is recorded on the books of the Fund, and, to avoid additional oper-
ating costs and for investor convenience, share certificates will not be is-
sued, except by special arrangement. The Fund's transfer agent will send to
each stockholder of record a confirmation of each purchase and redemption
transaction (including the aggregate number of shares owned after such trans-
action) by such stockholder and a quarterly statement summarizing purchases,
redemptions and dividend accruals and distributions in the account during the
prior months.
REDUCED SALES CHARGES
During the continuous offering, the Distributor will offer several reduced
sales charge programs as described below.
1. CUMULATIVE PURCHASE DISCOUNT (CLASS A SHARES ONLY)
You may qualify for a reduced sales charge on a purchase of Class A Shares of
the Fund, if the amount of your purchase, when added to the value that day of
all of your prior purchases of shares of any Nuveen Mutual Fund, or units of a
Nuveen unit trust, on which an up front sales charge or ongoing distribution
fee is imposed, falls within the amounts stated in the Class A Sales Charges
and Commissions table 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.
2. LETTER OF INTENT (CLASS A SHARES ONLY)
A stockholder may also qualify for reduced sales charges by sending to the
Fund (within 90 days after the first purchase desired to be included in the
purchase program) a signed, non-binding letter of intent to invest, during a
13-month period, an amount sufficient to qualify for a reduced sales charge. A
single letter may be used for spouses, their children and parents or any sin-
gle trust estate or other fiduciary account. All investments in the Fund or
any other mutual fund distributed by the Distributor which is sold with a
sales charge count toward the indicated goal. Once the Distributor receives
the required letter of intent, it will apply to qualifying purchases within
the 13-month period the sales charge that would be applicable to a single pur-
chase of the total amount indicated in the letter. During the period covered
by the letter of intent, 5% of the shares purchased will be restricted until
the stated goal is reached. If the intended purchase program is not completed
within the 13-month period, the sales charge will be adjusted upward as appro-
priate and a sufficient number of restricted shares will be redeemed by the
Fund if the stockholder does not pay the increased sales charge.
3. BROKER/DEALER AND NUVEEN EMPLOYEES
In view of the reduction of distribution expenses associated with sales of the
Fund's shares to registered representatives and full-time employees of
broker/dealers who have signed Selling Agreements with the Distributor, such
individuals are permitted to purchase shares of the Fund at net asset value
for their personal accounts. The purchaser must certify to the Fund that cer-
tain qualifications have been met and agree to certain restrictions (such as
an investment letter) in order to take advantage of this program. For similar
reasons, shares of the Fund may be purchased at net asset value and in amounts
less than the minimum purchase price by officers, directors and full-time em-
ployees of the Fund, the Distributor and the Manager. For this purpose, the
terms "registered representatives of broker/dealers who have signed Dealer
Agreements with the Distributor", "officers", "directors" and "employees" in-
clude such persons' spouses, children and parents, as well as the trustee or
custodian of any qualified pension or profit sharing plan or IRA established
for the benefit of such officer, director, employee, spouse, child or parent.
4. GROUP PURCHASES (CLASS A SHARES ONLY)
Members of a qualified group may purchase shares of the Fund at a reduced
sales charge applicable to the group as a whole, if such purchases are made in
an amount and manner acceptable to the Fund. The sales charge, if any, is
based on the aggregate dollar value of shares purchased and still owned by the
group, plus the current purchase amount. Members of a qualified group may pur-
chase shares at net asset value (without sales charge) where the amount in-
vested is documented to the Fund to be proceeds from distributions of a unit
investment trust. Shares of the Fund may be purchased at net asset value
(without sales charge) by tax-qualified employee benefit plans and by trust
companies and bank trust departments for funds over which they exercise exclu-
sive discretionary investment authority for which they charge customary fees
and which are held in a fiduciary, agency, advisory, custodial or similar ca-
pacity.
A "qualified group" is one which (i) has previously been in existence, (ii)
has a primary purpose other than acquiring
-- 8 --
<PAGE>
Fund shares at a discount and (iii) satisfies investment criteria described in
the Prospectus which enables the Distributor to realize economies of scale in
its costs of distributing shares. A qualified group must have more than 10
members and must agree to comply with certain administrative requirements re-
lating to its group purchases.
Under such purchase plans, subsequent investments will continue until such
time as the investor notifies his group to discontinue further investments.
There may be a delay between the time a member's funds are received by the
group and the time the money reaches the Fund because of a qualified group's
remittance procedures. Unless otherwise noted above, the investment in the
Fund will be made at the public offering price based on net asset value deter-
mined on the day that the funds are received in proper form by the Fund.
5. REDEMPTIONS FROM UNRELATED FUNDS
Shares of the Fund may be purchased at net asset value where the amount in-
vested is documented in the Fund to be proceeds from the redemption (within
sixty days of the purchase of Fund shares) of shares of unrelated investment
companies on which the investor has paid initial or contingent deferred sales
charges, or is no longer subject to a CDSC.
6. WRAP FEE ACCOUNTS (CLASS A OR CLASS R SHARES ONLY)
Shares of the Fund may be purchased at net asset value by broker/dealers on
behalf of wrap fee client accounts for which the broker/dealer charges a fee
and performs advisory, custodial, recordkeeping or other services.
7. WAIVER OF CDSC
For purchases of Class A Shares in amounts over $1,000,000, the contingent de-
ferred sales charge may be waived for purchases through a broker/dealer that
waives its commission.
8. REINVESTMENT FROM NUVEEN UITS
Class A Shares may be purchased at net asset value by reinvestment of distri-
butions from any of the various unit trusts sponsored by Nuveen. There is no
initial or subsequent minimum investment requirement for such reinvestment
purchases.
LETTER OF INTENT ESCROW PROVISION (CLASS A SHARES ONLY)
It is understood that 5% of the dollar amount checked on the application will
be held in a special escrow account. These shares will be held by the escrow
agent subject to the terms of the escrow. All dividends and capital gains dis-
tributions on the escrowed shares will be credited to the stockholder's ac-
count in shares. If the total purchases, less redemptions by the stockholder,
his spouse, children and parents, equal the amount specified under this Let-
ter, the shares held in escrow will be deposited to the stockholder's open ac-
count or delivered to the stockholder or to his order. If the total purchases,
less redemptions, exceed the amount specified under this Letter and an amount
which would qualify for a further quantity discount, a retroactive price ad-
justment will be made by the Distributor and the dealer through whom purchases
were made pursuant to this Letter of Intent (to reflect such further quantity
discount). The resulting difference in offering price will be applied to the
purchase of additional shares at the offering price applicable to a single
purchase of the dollar amount of the total purchases. If the total purchases
less redemptions are less than the amount specified under this Letter, the
stockholder will remit to the Distributor an amount equal to the difference in
the dollar amount of sales charge actually paid and the amount of sales charge
which would have applied to the aggregate purchases if the total of such pur-
chases had been made at a single time. Upon such remittance the shares held
for the stockholder's account will be deposited to his account or delivered to
him or to his order. If within 20 days after written request by the Distribu-
tor such difference in sales charge is not paid, the Distributor is hereby au-
thorized to redeem an appropriate number of shares to realize such difference.
The Distributor is hereby irrevocably constituted under this Letter of Intent
to effect such redemption as agent of the stockholder. The stockholder or his
dealer will inform Boston Financial that this Letter is in effect each time a
purchase is made.
HOW TO REDEEM SHARES
Upon receipt by Boston Financial through one of the methods discussed below of
a proper redemption request (indicating your name and account number and the
dollar or share amount to be redeemed from the particular series), the Fund
will redeem shares at their next determined net asset value. See "How Fund
Shares are Priced." Proceeds of redemptions of recently purchased shares may
be delayed for 15 days or more, pending collection of funds for the initial
purchase. Neither the Distributor nor the Fund charges a fee or a commission
for redemption. For further information on redemptions or exchanges, please
contact your dealer or call Boston Financial toll free at: 1-800-225-8530, or
for TDD, 1-800-360-4521.
REDEMPTION THROUGH DEALERS
You may redeem shares through any dealer which has a Selling Agreement with
the Distributor. Your dealer is responsible for transmitting the redemption
request to Boston Financial by the close of trading on the New York Stock Ex-
change on a particular day in order for you to receive the redemption price
based upon the net asset value per share determined that day. If the dealer
fails to do so, you will receive the redemption price next calculated after
your request and any other materials are received and your entitlement to any
prior day's redemption price must be settled between you and your dealer. Your
dealer may charge a service fee for handling your redemption request.
OTHER REDEMPTION METHODS
You may redeem shares by telephone (provided that you did not reject the tele-
phone redemption service on your application) toll free at: 1-800-225-8530, or
for TDD,
-- 9 --
<PAGE>
1-800-360-4521. You may also have redemption proceeds sent electronically to
your pre-designated bank account. See "Fund Direct--Electronic Funds Transfer"
above for details. For all other redemptions your redemption request must be
submitted in writing to Boston Financial at the address below. The Fund's pur-
chase application relieves the Fund and the Transfer Agent (Boston Financial)
of any liability for loss, costs, or expenses arising out of telephone redemp-
tions that are reasonably believed to be genuine. The Fund will employ reason-
able procedures to confirm that instructions communicated by telephone are
genuine, and if it does not, it may be liable for any losses due to fraudulent
or unauthorized instructions. The procedures include requiring a form of per-
sonal identification prior to acting on telephone instructions, recording such
instructions, and providing written confirmation of such transactions.
Payment will be made by sending a check to you at the address on your most re-
cent Application Form. Checks will normally be sent out within one business
day, but in no event more than the required settlement period as set by regu-
lations following receipt of the redemption request in proper form. For re-
demption requests over $50,000, or if the registration on your account has
been changed within the past 60 days, or if the redemption proceeds are to go
to an address other than the address of record, the Fund must receive a letter
of instruction signed by all persons authorized to sign for the account ex-
actly as it is registered. All signatures must be guaranteed (see below). The
letter must be mailed to: Boston Financial, Attention: Flagship Utility Income
Fund, P.O. Box 8509, Boston, MA 02266-8509.
SIGNATURE GUARANTEE
Boston Financial may require a signature guarantee on certain written transac-
tions. Signature guarantees can be obtained from a bank or brokerage, or other
financial intermediary that is a member of an Approved Medallion Guarantee
Program, or that is otherwise approved by the fund. You should verify with the
institution that they are an acceptable guarantor prior to signing.
FURTHER INFORMATION
If you redeem all shares owned, the dividends declared during the month
through the time of redemption will be included in the remittance. Due to the
relatively high cost of handling small investments, the Fund reserves the
right to involuntarily redeem, at net asset value, the shares of any stock-
holder whose redemptions cause the value of its holdings to have a value of
less than $1,000. Before the Fund redeems such shares and sends the proceeds
to the stockholder, the stockholder will be given written notice that the
value of the shares in the account is less than the minimum amount and will be
allowed 30 days to make an additional investment in an amount which will in-
crease the value of his holdings to at least $1,000. Accounts with balances of
less than $25 will be redeemed without written notice. No CDSC will be imposed
on involuntary redemptions.
Shares purchased other than by Federal Funds wire or bank wire may not be re-
deemed by telephone until 15 calendar days after the purchase of such shares,
but may be redeemed pursuant to the ordinary redemption procedure during such
period. For further details on redemption, contact your dealer or call Boston
Financial toll free at: 1-800-225-8530, or for TDD, 1-800-360-4521.
EXCHANGE AND REINVESTMENT PRIVILEGE
Any Class A Shares which have been registered in a stockholder's name for at
least 15 calendar days, except shares of money market funds, may be exchanged
on the basis of relative net asset value per share for Class A Shares of any
other tax exempt, or taxable fixed-income fund or series thereof distributed
by the Distributor in any state where such exchange may legally be made. Simi-
larly, Class C Shares may be exchanged for Class C Shares of any other fund or
series thereof distributed by the Distributor which are sold pursuant to a
similar CDSC arrangement on the basis of relative net asset value per share
without the payment of any CDSC otherwise due upon redemption of Class C
Shares. For purposes of computing the CDSC payable upon the redemption of
shares acquired through such an exchange, the period of time for which the in-
vestor held the Class C Shares will be counted toward the holding period ap-
plicable to the Class C Shares which the investor acquired through the ex-
change. In order to qualify for the exchange privilege, it is required that
the shares being exchanged have a net asset value of at least the minimum
amount required to make an initial investment in the fund for which the ex-
change is being made. Shares must be on deposit at Boston Financial before the
exchange can be made. Stockholders of the Fund should obtain and read a cur-
rent prospectus of the fund into which the exchange is to be made before ef-
fecting an exchange.
Stockholders with the desire to automatically exchange shares of a predeter-
mined amount on a monthly, quarterly, or annual basis may take advantage of
the systematic exchange plan. Please refer to the account application to es-
tablish this plan.
The exchange privilege may be modified or terminated at any time. The Fund re-
serves the right to limit the number of times an investor may exercise the ex-
change privilege. To exercise the exchange privilege, you must either contact
your dealer or broker, who will advise the Fund of the exchange, or complete
the Exchange Application available from Boston Financial or the Distributor
and submit it to Boston Financial. If you have certificates for any shares be-
ing exchanged, you must surrender such certificates at the time of exchange.
A stockholder who has redeemed shares may repurchase at net asset value, with-
out a sales charge, shares of the Fund or shares of other funds with a sales
charge distributed by the Distributor in any amount between the stated minimum
investment amount of such fund and the proceeds of redemption. The reinvest-
ment request must be received by Boston
-- 10 --
<PAGE>
Financial within 1 year of the redemption and this feature may be exercised by
a stockholder only twice per calendar year.
An exchange between funds pursuant to the exchange privilege is treated as a
sale for federal income tax purposes and, depending upon the circumstances, a
capital gain or loss may be realized. However, stockholders who exchange be-
tween funds within 90 days of the initial purchase date may not take as a loss
the amount of the sales charge paid. Exercising the reinvestment privilege
will not affect the character of any gain or loss realized on the redemption
for federal income tax purposes, except that if the redemption resulted in a
loss, the reinvestment may result in the loss being disallowed under the "wash
sale" rules. For further details on exchanges or reinvestment, please contact
your dealer or call Boston Financial toll free at: 1-800-225-8530, or for TDD,
1-800-360-4521.
SYSTEMATIC WITHDRAWAL PLAN
Accounts with a value of greater than $10,000 may establish a Systematic With-
drawal Plan ("SWP") and receive monthly, quarterly, semiannual, or annual
checks for $50 or more as specified by the shareholder. To establish a SWP all
distributions must be in the form of shares. Such payments are drawn from the
proceeds of the redemption shares held in the stockholder's account. To the
extent that redemptions for a SWP exceed dividend income reinvested in the ac-
count, such redemptions will reduce and may ultimately exhaust the number of
shares in the account. To initiate this service, shares having an aggregate
value of at least $10,000 must be held by Boston Financial. Maintaining a SWP
concurrently with an investment program would be disadvantageous because of
the sales charges included in share purchases. Therefore, a stockholder should
not have a SWP in effect at the same time he is making recurring purchases of
shares of the Fund. The stockholder by written instructions to Boston Finan-
cial may withdraw from the program, change the payee or change the dollar
amount of each payment. Boston Financial may charge the account for services
rendered and expenses incurred beyond those normally assumed by the Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but could be instituted by Boston Financial on 60 days' notice in
writing to the stockholder in the event that the Fund ceases to assume the
cost of these services. The Fund reserves the right to amend or terminate the
SWP on thirty days' notice.
DIRECT DEPOSITS
Stockholders can have dividends or SWP redemption proceeds deposited electron-
ically into their bank accounts. Under normal circumstances, direct deposits
are credited to the account on the second business day of the month following
normal payment. In order to utilize this option, the stockholder's bank must
be a member of Automated Clearing House. In addition, the stockholder must (1)
fill out the appropriate section of the application attached to this Prospec-
tus and (2) include with the completed application a voided check from the
bank account into which redemptions are to be deposited. Once Boston Financial
has received the application and the voided check, such stockholder's desig-
nated bank account, following any dividend or redemption, will be credited
with the proceeds. Once enrolled in direct deposit, a stockholder may termi-
nate participation at any time by written notice to Boston Financial.
HOW FUND SHARES ARE PRICED
For purposes of pricing purchases and redemptions, the net asset value of each
class of shares of the Fund is separately determined by Boston Financial as of
the close of the regular trading session on the New York Stock Exchange on
each day that the Exchange is open for business (and will also be computed as
of 4:00 p.m., New York time, on any other day on which purchase or redemption
orders are received and there is a sufficient degree of trading in the portfo-
lio securities of the Fund such that net asset value per share might be af-
fected). Net asset value per share of the Fund is calculated (to the nearest
cent) by adding the value of all securities and other assets, subtracting all
of the liabilities and dividing the remainder by the number of shares out-
standing at the time the determination is made.
Assets of the Fund for which market quotations are readily available are val-
ued at market value. Securities with remaining maturities of 60 days or less
are valued at their amortized cost under rules adopted by the SEC. Other as-
sets and securities are valued at their fair value as determined in good faith
under procedures established by the Directors of the Fund.
TAXES
The following discussion is a general summary of certain of the current fed-
eral income tax laws regarding the Fund and its investors. The discussion does
not purport to deal with all of the federal income tax consequences applicable
to the Fund, or to all categories of investors who may be subject to special
rules (for example, foreign investors). Investors should consult their own tax
consultant for more detailed information regarding the above and for informa-
tion regarding any state, local or foreign taxes that may be applicable to
them.
The Fund intends to qualify for taxation as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"), so
that the Fund will not be subject to federal income tax to the extent it dis-
tributes its income to its stockholders. In order to so qualify, certain gross
income and other requirements must be satisfied.
DIVIDENDS
Dividends other than capital gain dividends paid by the Fund to individuals
will be taxable as ordinary income. If the
-- 11 --
<PAGE>
Fund qualifies for taxation as a RIC and satisfies certain requirements dis-
cussed below, dividends paid by the Fund (other than capital gain distribu-
tions, which are discussed separately below) will be eligible, whether paid in
cash or in additional shares, for the 70% dividends-received deduction that is
available to corporate taxpayers to the extent attributable to dividends re-
ceived by the Fund from domestic corporations. After giving effect to such 70%
deduction, such dividends are subject to a maximum effective rate of federal
corporate income tax of approximately 10.5%, in contrast to the maximum fed-
eral corporate income tax rate of approximately 35%.
Dividends distributed by the Fund to stockholders will only be eligible for
the dividends-received deduction to the extent of the Fund's gross income that
consists of dividends received on equity securities of domestic corporations
with respect to which the Fund meets the same holding period, risk of loss and
borrowing limitations applicable to the Fund's stockholders, as described be-
low under "Holding Period and Other Requirements". If the expenses and losses
of the Fund equal or exceed non-qualifying income (if any), all dividends dis-
tributed by the Fund may qualify for the dividends-received deduction.
In the event that the Fund's total distributions (including distributed or
designated net capital gain) for a taxable year exceed, generally, its invest-
ment company taxable income and net capital gain, a portion of each distribu-
tion will be treated as a return of capital, which will not qualify for the
dividends-received deduction. Distributions treated as a return of capital re-
duce a stockholder's basis in its shares and could result in recognition of
capital gain either when a distribution is in excess of basis, or more likely,
when a stockholder redeems its shares.
For purposes of the alternative minimum tax imposed on corporations, alterna-
tive minimum taxable income will be increased by 75% of the amount by which an
alternative measure of income (adjusted current earnings) that includes the
full amount of dividends received (without regard to the dividends-received
deduction) exceeds the amount otherwise determined to be the alternative mini-
mum taxable income. Accordingly, an investment in the Fund may cause a corpo-
rate stockholder to be subject to (or result in an increased liability under)
the alternative minimum tax.
HOLDING PERIOD AND OTHER REQUIREMENTS
In order to qualify for the benefits of the dividends-received deduction, a
corporate stockholder must satisfy certain holding period requirements with
respect to the Fund's shares. Section 246 of the Code permits the dividends-
received deduction to corporate stockholders only if the shares with respect
to which the dividends were paid have been held for more than 45 days. The
holding period requirements are separately applicable to each block of shares
acquired, including each block of shares received in payment of the Fund's
daily dividends. The Fund has received a ruling under Section 246 with respect
to this issue from the Internal Revenue Service (the "IRS") confirming the
Fund's interpretation. For purposes of determining whether this holding period
requirement has been met, the day of acquisition and any day after the first
45 days after the date on which such shares become ex-dividend must be disre-
garded. The Fund and the Manager believe that once a stockholder has satisfied
this 46-day holding period with respect to any block of shares, such stock-
holder will similarly satisfy the 46-day holding period on reinvested divi-
dends declared with respect to such shares to the extent that such stockhold-
er's total redemptions during any period are properly identified, as described
below, as relating to shares that have been held for more than 45 days.
In addition, the holding period is reduced for periods during which the stock
is subject to diminished risk of loss including, for example, because the
holder has acquired a put option or sold a call option (other than certain
covered call options where the exercise price is not substantially below the
selling price) or otherwise hedged his position. If the holding period is not
satisfied, the dividends-received deduction is disallowed, regardless of
whether the shares with respect to which the dividends were paid have been
sold or otherwise disposed of.
The dividends-received deduction will also be reduced, for stockholders who
incur indebtedness in order to purchase shares of the Fund, by the percentage
of the cost of the shares that is debt-financed. Generally, this limitation
applies only if the debt is directly attributable to the purchase of shares.
Whether debt is directly attributable to the purchase of shares depends on the
particular facts and circumstances of each situation and accordingly stock-
holders are urged to consult their tax advisers.
CAPITAL GAIN DISTRIBUTIONS
The Fund will be subject to federal income taxation (at the capital gain rate)
on its net capital gain (i.e., the excess of net long-term capital gain over
net short-term capital loss) unless such amounts are distributed to the stock-
holders and designated as capital gain distributions. If the Fund distributes
such capital gain distributions, the stockholders will treat such amounts as a
long-term capital gain for purposes of computing their own federal income tax
liability. Alternatively, the Fund may pay the tax with respect to the net
capital gain and then designate, but not distribute, all or a portion of such
gain. Stockholders will treat such designated amounts as a capital gain on
their federal income tax returns, but they will receive a credit or refund
equal to the federal income taxes paid by the Fund with respect to such capi-
tal gains. Any actual or designated distributions attributable to net capital
gains will not be eligible for the dividends-received deduction. If a capital
gain distribution is paid with respect to any shares which are sold at a loss
after being held for six months or less, then any loss realized upon the sale
of such shares will be treated as a long-term capital loss to the extent of
such capital gain distribution.
-- 12 --
<PAGE>
REDEMPTIONS
Redemptions of shares will be taxable transactions for federal income tax pur-
poses. Generally, gain or loss will be recognized in an amount equal to the
difference between the stockholder's basis in its shares and the amount re-
ceived. Assuming that such shares are held as a capital asset, such gain or
loss will be a capital gain or loss and will generally be a long-term capital
gain or loss if the stockholder has held its shares for a period of one year
or more. Gain on the sale of shares held for more than 18 months will gener-
ally be taxed at a maximum marginal rate of 20%. If a stockholder redeems
shares of the Fund at a loss and makes an additional investment in the Fund 30
days before or after such redemption, the loss may be disallowed under the
wash sale rules.
STATE AND LOCAL TAXES
Stockholders may be subject to state and local taxes on distributions received
from the Fund, which taxes may be determined differently than federal income
taxes thereon. Stockholders should consult their own tax advisors as to the
state and local tax consequences of investing in the Fund.
DISTRIBUTIONS AND YIELD
DISTRIBUTIONS
The Fund will seek to distribute all of its income each year. The Fund de-
clares dividends daily immediately prior to the close of business, from its
net investment income. Each such dividend will be payable with respect to
fully paid shares to stockholders of record at the time of declaration. All
daily dividends declared during a given month will be paid as of the last cal-
endar day of the month. Distributions of realized net capital gains, if any,
will generally be declared and paid at the end of the year in which they have
been earned. In accordance with SEC regulations, the Fund may include its cur-
rent yield and/or return in advertisements or information furnished to stock-
holders or potential investors.
DIVIDEND PAYMENT OPTIONS
The funds automatically reinvest your dividends each month 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 rein-
vested in shares of another Nuveen mutual fund. If you wish to do so, complete
the appropriate section of the account application, contact your financial ad-
viser, or call Nuveen at (800) 225-8530.
TAX OBJECTIVES OF DIVIDEND POLICY FOR CORPORATE INVESTORS
The Fund's dividend procedures are designed to maximize the Federal income tax
advantage of the 70% dividends-received deduction to domestic corporate stock-
holders. Although the Fund and the Manager believe that the Fund will be able
to achieve its tax objectives, there can be no assurances on this matter. For
further information regarding the dividends-received deduction, see the State-
ment of Additional Information, "Taxes."
CAPITAL GAIN DISTRIBUTIONS
Normally the Fund will make a distribution of realized net capital gain for a
taxable year within 75 days after the end of such year (June 30) and may make
an additional distribution in order to avoid an excise tax which is imposed on
any undistributed income if substantially all of such income has not been de-
clared and distributed within certain time periods. The Fund retains the dis-
cretion, however, not to distribute all or a portion of such gain if, in its
judgment, nondistribution of such gain would help achieve the tax objectives
of the Fund.
YIELD AND TOTAL RETURN CALCULATION
The yield for each class of the Fund's shares is calculated in accordance with
the SEC's standardized yield formula. Under this formula, dividend and inter-
est income over the 30 day measurement period is reduced by period expenses
and divided by the number of days within the measurement period to arrive at a
daily income rate. This daily income rate is then expressed as a semiannually
compounded yield based on the maximum offering price of a share assuming a
standardized 360 day year.
The average annual total return for each class of the Fund's shares for any
time period is calculated by assuming an investment at the beginning of the
measurement period at the maximum offering price. Dividends from the net
investable amount are then reinvested in additional shares each month at the
net asset value. At the end of the measurement period, the total number of
shares owned are redeemed at net asset value (less any applicable contingent
deferred sales load). The change in the total value during the investment pe-
riod is then expressed as an average annual total rate of return.
The Fund may also advertise total return for each class of shares which is
calculated differently from "average annual total return" (a "nonstandardized
quotation"). A nonstandardized quotation of total return measures the percent-
age change in the value of an account between the beginning and end of a peri-
od, assuming no activity in the account other than reinvestment of dividends
and capital gains distributions. The Fund may also quote a tax equivalent cur-
rent yield for corporate investors assuming the availability of the 70% divi-
dends-received deduction for all of the Fund's daily dividends and an appro-
priate specified corporate tax rate. These computations may or may not include
the effect of applicable sales charges which, if included, would reduce total
return. A nonstandardized quotation of total return for a particular class of
shares will always be accompanied by the "average annual total return" for
such class as described above.
Current yield and total return of each class will vary from time to time de-
pending on market conditions, the composi-
-- 13 --
<PAGE>
tion of the portfolio, operating expenses and other factors. These factors and
possible differences in method of calculating performance figures should be
considered when comparing the performance figures of the Fund with those of
other investment vehicles. Yield and return information is based on historical
performance and is not intended to indicate future performance. See "Yield and
Total Return Calculation" in the Statement of Additional Information.
ABOUT THE INVESTMENT MANAGER
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the Fund and in this capacity is responsible for the selection and on-going
monitoring of the securities in the Fund's investment portfolio. Nuveen Advi-
sory serves as investment adviser to investment portfolios with more than $35
billion in municipal assets under management. The funds' Board of Directors
oversees the activities of Nuveen Advisory, which also include managing the
Fund's business affairs and providing certain clerical, bookkeeping and other
administrative services. Established in 1976, Nuveen Advisory is a wholly-
owned subsidiary of John Nuveen & Co. Incorporated, which itself is approxi-
mately 78% owned by the St. Paul Companies, Inc. 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 Admiral Funds,
was merged with Nuveen Advisory.
For providing these services, Nuveen Advisory is paid an annual management
fee. The following schedule applies to the Fund:
MANAGEMENT FEES
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- ------------------------------------------------------------------------------
<S> <C>
For the first $125 million 0.5000%
For the next $125 million 0.4875%
For the next $250 million 0.4750%
For the next $500 million 0.4625%
For the next $1 billion 0.4500%
For assets over $2 billion 0.4250%
</TABLE>
For more information about fees and expenses, see the expense tables on page
2.
ABOUT THE DISTRIBUTOR
The Fund has entered into a Distribution Agreement (the "Distribution Agree-
ment") with John Nuveen & Co. Incorporated (the "Distributor"), pursuant to
which the Distributor serves as the exclusive selling agent and distributor of
the Fund's shares, and in that capacity will make a continuous offering of the
shares and will be responsible for all sales and promotion efforts.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan (the
"Plan") with respect to the Class A, Class B, and Class C Shares which permits
the Fund to pay for certain distribution and promotion expenses related to
marketing its shares. The Fund's Rule 12b-1 Plan conforms to the requirements
of the rules of the National Association of Securities Dealers with regard to
Rule 12b-1 plans.
The Plan authorizes the Fund to expend its monies in an amount equal to the
aggregate for all such expenditures to such percentage of the Fund's daily net
asset value as may be determined from time to time by vote cast in person at a
meeting called for such purpose, by a majority of the Fund's disinterested di-
rectors. The scope of the foregoing shall be interpreted by the directors,
whose decision shall be conclusive except to the extent it contravenes estab-
lished legal authority. Without in any way limiting the discretion of the di-
rectors, the following activities are hereby declared to be primarily intended
to result in the sale of shares of the Fund: advertising the Fund or the
Fund's Manager's mutual fund activities; compensating underwriters, dealers,
brokers, banks and other selling entities and sales and marketing personnel of
any of them for sales of shares of the Fund, whether in a lump sum or on a
continuous, periodic, contingent, deferred or other basis: compensating under-
writers, dealers, brokers, banks and other servicing entities and servicing
personnel (including the Fund's Manager and its personnel of any of them for
providing services to stockholders of the Fund relating to their investment in
the Fund, including assistance in connection with inquiries relating to stock-
holder accounts; the production and dissemination of prospectuses including
statements of additional information) of the Fund and the preparation, produc-
tion and dissemination of sales, marketing and stockholder servicing materi-
als; and the ordinary or capital expenses, such as equipment, rent, fixtures,
salaries, bonuses, reporting and recordkeeping and third party consultancy or
similar expenses relating to any activity for which payment is authorized by
the directors; and the financing of any activity for which payment is autho-
rized by the directors. Pursuant to the Plan, the Fund through authorized of-
ficers may make similar payments for marketing services to non-broker-dealers
who enter into service agreements with the Fund.
Class A Shares are subject to a .20% service fee. The maximum amount payable
by the Fund under the Plan and related agreements on an annual basis for Class
B Shares is .95% of average daily net assets for the year and for Class C
Shares is .75% of average daily net assets for the year. Of this amount, for
Class B Shares 0.75% is an asset based sales charge and .20% is a service fee
and for Class C shares 0.55% is an asset based sales charge and 0.20% is a
service fee. In the case of broker-dealers and others, such as banks, who have
selling or service agreements with the Distributor or the Fund, the maximum
amount payable for Class B Shares to any recipient is .00260% per day (.95% on
an annualized basis) and for Class C Shares is .00205% per day
-- 14 --
<PAGE>
(.75% on an annualized basis) of the proportion of average daily net assets
represented by such person's customers. A salesperson and any other person en-
titled to receive compensation for selling Fund shares may receive different
compensation for selling one particular class of shares over another. The
Board of Directors may reduce these amounts at any time. Amounts payable by a
class of shares may be lower than the maximum and have been described previ-
ously. Expenditures pursuant to the Plan and related agreements may reduce
current yield after expenses. Under the Plan and related agreements, in the
fiscal year ended June 30, 1997 the Fund's Class A Shares paid $73,137 and
Class C Shares paid $50,127.
The Distributor periodically undertakes sales promotion programs with
broker/dealers with whom it has Distribution Agreements, in which it will
grant a partial or full reallowance of its retained underwriting commission
for fund sales as permitted by applicable rules. In addition, it will support
those firms' efforts in sales training seminars, management meetings, and bro-
ker roundtables where it has the opportunity to present the Distributor's
products and services. In addition, the distributor provides recognition
through the awarding of imprinted nominal promotional items; client leads; as
well as "thank you" dinners and entertainment. Its agents also typically pro-
vide food for office meetings. Under appropriate terms it will share with
broker/dealers a portion of the cost of prospecting seminars and shareholder
gatherings. In those situations where there is no retained underwriting com-
mission, i.e., on the sale of Class B, Class C or Class R Shares, the Distrib-
utor will periodically pay for similar activities at its own expense.
Various federal and state laws prohibit national banks and some state-chart-
ered commercial banks from underwriting or dealing in the Fund's shares. In
the unlikely event that a court were to find that these laws also prohibit
such banks from providing services of the type contemplated by the Fund's
service agreement, the Fund would seek alternative providers of such services
and expects that stockholders would not experience any disadvantage. In addi-
tion, under the securities laws in some states, banks and financial institu-
tions may be required to register as dealers pursuant to state law.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Corporation was organized on April 18, 1983, as a Maryland corporation. On
October 15, 1987, the Corporation's stockholders approved amendments to the
Corporation's Articles of Incorporation converting it into a series fund. On
June 4, 1992 the stockholders approved a change in the name of the Corporation
to Flagship Admiral Funds Inc. and a change in the name of the Fund Stock to
Flagship Utility Income Fund Portfolio Stock. The authorized capital stock of
the Corporation consists of 600,000,000 shares of stock, par value $.001 per
share, which are divided into five (5) portfolio classes; namely, the Flagship
Utility Income Fund Portfolio Stock, The Golden Rainbow--A James Advised Mu-
tual Fund Portfolio Stock, the Flagship Short Term U.S. Government Fund Port-
folio Stock, the Flagship Limited Term U.S. Government Fund Portfolio Stock
and the Flagship Intermediate U.S. Government Fund Portfolio Stock.
The Flagship Utility Income Fund Portfolio Stock consists of 200,000,000
shares, which are divided into five (5) subclasses, designated respectively as
the Flagship Utility Income Fund Portfolio Stock, consisting of 3,500,000
shares, and the Flagship Utility Income Fund Portfolio Stock-- Class A, Class
B, Class C and Class R, each consisting of 49,125,000 shares. The Golden Rain-
bow--A James Advised Mutual Fund Portfolio Stock consists of 100,000,000
shares which are divided into five (5) subclasses, designated respectively as
The Golden Rainbow--A James Advised Mutual Fund Portfolio Stock, consisting of
15,000,000 shares, and The Golden Rainbow--A James Advised Mutual Fund Portfo-
lio Stock--Class A, Class B, Class C and Class R, each consisting of
21,250,000 shares. The Flagship Short Term U.S. Government Fund Portfolio
Stock consists of 100,000,000 shares which are designated as the Flagship
Short Term U.S. Government Fund Portfolio Stock. The Flagship Limited Term
U.S. Government Fund Portfolio Stock consists of 100,000,000 shares which are
divided into five (5) subclasses, designated respectively as the Flagship Lim-
ited Term U.S. Government Fund Portfolio Stock, consisting of 2,000,000 shares
and the Flagship Limited Term U.S. Government Fund Portfolio Stock--Class A,
Class B, Class C and Class R, each consisting of 24,500,000 shares. The Flag-
ship Intermediate U.S. Government Fund Portfolio Stock consists of 100,000,000
shares which are divided into five (5) subclasses, designated respectively as
the Flagship Intermediate Term U.S. Government Fund Portfolio Stock consisting
of 2,000,000 shares and the Flagship Intermediate Term U.S. Government Fund
Portfolio Stock--Class A, Class B, Class C and Class R, each consisting of
24,500,000 shares. Pursuant to Maryland law and the Corporation's charter, the
Board of Directors may increase the authorized capital and reclassify unissued
shares of any class to create additional classes of stock with specified
rights, preferences, and limitations. Each share is entitled to one vote per
share on all matters subject to stockholders' vote. Shares of all classes vote
together as a single class except that where a matter affects a particular
class differently from other classes, that class will vote separately on such
matter. The Corporation is not required to hold meetings of stockholders for
the purpose of electing directors unless less than a majority of the directors
elected by stockholders remain in office. If the Corporation does not hold an-
nual meetings of stockholders, it will abide by Section 16 (c) of the 1940 Act
which provides that the Directors will call a meeting of stockholders for the
purpose of voting on the question of the removal of a Director if so requested
in writing by the holders of 10% or more of the Fund's outstanding shares and
will assist such stockholders in communicating with the other stockholders.
-- 15 --
<PAGE>
Directors may be removed by vote of a majority of the outstanding shares of
the Corporation.
Each share is entitled to participate equally in dividends and distributions
declared by the Directors with respect to shares of the same class, and in the
net distributable assets allocated to such class on liquidation. Stockholders
are entitled to redeem their shares, and such shares are subject to redemption
by the Fund, as set forth under "How to Redeem or Exchange." There are no con-
version, preemptive or exchange rights in connection with any shares of the
Fund, nor are there cumulative voting rights. All shares of the Fund when is-
sued will be fully paid and nonassessable by the Fund.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004 is the
custodian of the Fund's assets. The custodian performs custodial, fund ac-
counting, portfolio accounting, shareholder, and transfer agency services.
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachu-
setts 02106, is the Fund's transfer agent and dividend disbursing agent. It
also maintains the Fund's accounting records, determines the net asset value,
and performs other stockholder services for the Corporation and each series.
COUNSEL AND AUDITORS
Fried, Frank, Harris, Shriver & Jacobson, counsel to the Fund, passes upon
certain legal matters for the Corporation and the Fund. Arthur Andersen LLP,
independent auditors, are auditors for the Fund (effective July 1, 1997) and
advise the Fund as to certain tax matters.
ADDITIONAL INFORMATION
Please direct your inquiries to a Nuveen Representative at 1-800-225-8530 or
for TDD, 1-800-360-4521. The Fund issues to its stockholders semiannual re-
ports containing unaudited financial statements for the Fund and annual re-
ports containing audited financial statements approved annually by the Board
of Directors.
This Prospectus does not contain all the information included in the Registra-
tion Statement filed with the SEC under the Securities Act of 1933 and the
1940 Act with respect to the securities offered hereby, certain portions of
which have been omitted pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and, in each in-
stance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part, each such statement being qualified in all respects by such reference.
No person has been authorized to give any information or to make any represen-
tations, other than those contained in this Prospectus, in connection with the
offer made by this Prospectus, and, if given or made, such other information
or representations must not be relied upon as having been authorized by the
Fund or its Distributor. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy by the Fund or by the Distributor in any
State in which such offer to sell or solicitation of an offer to buy may not
lawfully be made.
-- 16 --
<PAGE>
Flagship Utility Income Fund Application Form
PLEASE PRINT OR TYPE ALL INFORMATION PLEASE MAIL THIS APPLICATION AND YOUR
NOTE: You must complete Sections 1, CHECK TO:
2, 3, 4, 5 and sign the signature Boston Financial
line. Your signature is required Attn.: Flagship Utility Income Fund
for processing. Complete sections P.O. Box 8509
7, 8, 9, 10, 11, 12 and 13 for op- Boston, MA 02266-8509
tional services.
1. YOUR ACCOUNT REGISTRATION
Please check only ONE registration type:
Owner Name(s) (First, Middle Initial (if used), Last)
[_] Individual or Joint Account*
------------------------------------------------------------------------------
------------------------------------------------------------------------------
*Joint tenants with rights of survivorship unless tenancy in common is
indicated
[_] Other Entity
------------------------------------------------------------------------------
------------------------------------------------------------------------------
[_] Uniform Gift to Minors
------------------------------------------------------------------------------
Custodian Name (One name only)
------------------------------------------------------------------------------
Minor's Name (One name only)
Minor's state of residence ______
2. YOUR MAILING ADDRESS
------------------------------------------------------------------------------
Street or P.O. Box Suite or Apt. Number
------------------------------------------------------------------------------
City
-------------------------------------------------------------------------------
State Zip Code
()- ()-
------------------------------------------------------------------------------
Daytime Phone Evening Phone
[_] U.S. Citizen or
[_] Other (specify) __________________________________________________________
3. YOUR SOCIAL SECURITY/TAX ID NUMBER
For individual or joint accounts use Social Security number of owner. For
custodial accounts use minor's Social Security number.
------------------------------------
Social Security Number
------------------------------------
Tax ID Number
4. YOUR INITIAL INVESTMENT
I want to invest in this Flagship Utility Income Fund.
Please indicate class of shares
$______________________ [_] A Shares**
$______________________ [_] C Shares***
*Minimum of $3,000. **Front end sales charge. ***Level load. If no share
class is marked, investment will automatically be made in A Shares.
Attach check payable to NAME OF FUND
[_] Purchase or check through Dealer Account
[_] Exchange of bonds. (See application and transmittal letter)
5. DIVIDEND/DISTRIBUTION OPTIONS
If no option is selected, all distributions will be reinvested.
[_] Reinvest dividends and capital gains.
[_] Pay dividends in cash, reinvest capital gains.
[_] Pay dividends and capital gains in cash.
[_] Direct dividends to an existing account with identical registration.
Designate the Fund name and account number below.
------------------------------------------------------------------------------
Name of Fund
------------------------------------------------------------------------------
Existing Fund Account Number
[_] Deposit dividends directly into the bank account indicated on the
attached VOIDED check (subject to terms and conditions in the prospectus).
6. DEALER AUTHORIZATION
We are a duly registered and licensed dealer and have a sales agreement with
John Nuveen & Co. Incorporated. We are authorized to purchase shares from the
Fund for the investor. The investor is authorized to send any future payments
directly to the Fund for investment. Confirm each transaction to the investor
and to us. We guarantee the genuineness of the investor's signature.
------------------------------------------------------------------------------
Investment Firm
------------------------------------------------------------------------------
Investment Professional's Name Rep #
------------------------------------------------------------------------------
Branch Address Branch #
------------------------------------------------------------------------------
City
----------------------------------------------
State Zip Code
( ) -
------------------------------------------------------------------------------
Investment Professional's Phone Number
X
------------------------------------------------------------------------------
Signature of Investment Professional
7. LETTER OF INTENT
(Class A Shares only)
I/we agree to the escrow provision described in the prospectus and intend to
purchase, although I'm not obligated to do so, shares of the Fund designated
on this application within a 13-month period which, together with the total
asset value of shares owned, will aggregate at least:
[_] $50,000 [_] $100,000 [_] $250,000
[_] $500,000 [_] $1,000,000
8. CUMULATIVE PURCHASE DISCOUNT
I/we qualify for cumulative discount with the accounts listed below.
------------------------------------------------------------------------------
Fund Name
------------------------------------------------------------------------------
Account Number
------------------------------------------------------------------------------
Fund Name
------------------------------------------------------------------------------
Account Number
------------------------------------------------------------------------------
Fund Name
------------------------------------------------------------------------------
Account Number
------------------------------------------------------------------------------
-- 17 --
<PAGE>
9. SYSTEMATIC INVESTMENT PLAN
Pursuant to the terms of the plan described in the prospectus, I/we authorize
the automatic monthly transfer of funds from my/our bank account for
investment in the above Fund. Attached is a VOIDED check from that account.
Date for Investment (Between 5th and 28th Only)
---
$
----------------- Month to Begin Plan_______________________________________
Amount ($50 Minimum)
------------------------------------------------------------------------------
Name of Bank
------------------------------------------------------------------------------
Bank Account#
------------------------------------------------------------------------------
Bank's Street Address
------------------------------------------------------------------------------
City
----- -------- -------
State Zip Code
X
------------------------------------------------------------------------------
Signature of Depositor Date
X
------------------------------------------------------------------------------
Signature of Joint Depositor Date
10. SYSTEMATIC WITHDRAWAL PLAN
A minimum $10,000 balance is required.
BANK ACCOUNT CREDIT
Please redeem $ from my account and credit my bank account as indi-
cated in the banking information section below.
Month first credit is to be made: ____________________________________________
Day of the month that I wish the credit to be made:
---
(Between the 5th and 28th only.)
Please credit my account for each month I have selected.
<TABLE>
<CAPTION>
JAN FEB MAR APR MAY JUN
<S> <C> <C> <C> <C> <C>
[_] [_] [_] [_] [_] [_]
JUL AUG SEP OCT NOV DEC
[_] [_] [_] [_] [_] [_]
</TABLE>
CHECK
Please redeem $ from my account on or about the 31st of each month
as selected above.
Month first credit is to be sent: ____________________________________________
Send checks to: [_] Address on account
[_] Special address (complete below)
------------------------------------------------------------------------------
Payee
------------------------------------------------------------------------------
Street
------------------------------------------------------------------------------
City
----- -------- -------
State Zip Code
11. SYSTEMATIC EXCHANGES
IMPORTANT: The account registrations for the originating and receiving funds
must be identical. I hereby authorize automatic exchanges of;
Amount $ ($50 minimum)
From fund name _______________________________________________________________
Account no. (if known) _______________________________________________________
Into fund name _______________________________________________________________
Account no. (if known) _______________________________________________________
Exchanges will be made on or about the 16th of these months:
<TABLE>
<CAPTION>
JAN FEB MAR APR MAY JUN
<S> <C> <C> <C> <C> <C>
[_] [_] [_] [_] [_] [_]
JUL AUG SEP OCT NOV DEC
[_] [_] [_] [_] [_] [_]
</TABLE>
12. TELEPHONE REDEMPTION
I/we hereby authorize the Fund to implement the following telephone redemp-
tion requests (under $50,000 only) without signature verification to the reg-
istered fund account name and address. Redemption proceeds may be wired to
the U.S. commercial bank designated, provided you complete the information
below and enclose a VOIDED check for that account.
------------------------------------------------------------------------------
Name of Bank
------------------------------------------------------------------------------
Bank Account#
------------------------------------------------------------------------------
Bank's Street Address
------------------------------------------------------------------------------
City
----- -------- -------
State Zip Code
[_] I do not authorize redemption by telephone.
13. INTERESTED PARTY MAIL/DIVIDEND MAIL
[_] Send duplicate confirmation statements to the interested party listed be-
low.
[_] Send my distributions to the address listed below.
------------------------------------------------------------------------------
Name of Individual
------------------------------------------------------------------------------
Street Address
------------------------------------------------------------------------------
City
----- -------- -------
State Zip Code
SIGNATURE(S)
Under the penalties of perjury, I/we certify that the information provided on
this form is true, correct, and complete. The undersigned certify that I/we
have full authority and legal capacity to purchase, exchange or redeem shares
of the above named Fund(s) and affirm that I/we have received and read a cur-
rent Prospectus of the named Fund(s) and agree to be bound by its terms.
I/we agree to indemnify and hold harmless State Street Bank and Trust Company,
Boston Financial, and any Flagship fund(s) which may be involved in transac-
tions authorized by telephone against any claim, loss, expense or damage, in-
cluding reasonable fees of investigation and counsel, in connection with any
telephone withdrawal effected on my account pursuant to procedures described
in the Prospectus.
X X
- -------------------------------------- --------------------------------------
Signature Date Signature (Joint Tenant) Date
1. As required by the IRS I/we certify (a) that the number shown on this form
is my correct Taxpayer Identification number. I/we understand that if I/we
do not provide a Taxpayer Identification Number to the Fund within 60 days,
the Fund is required to withhold 31 percent of all reportable payments
thereafter made to me until I/we provide a number certified under penalties
of perjury, and that I/we may be subject to a $50 penalty by the IRS.
2. As required by the IRS I/we certify under penalties of perjury that I/we
are not subject to backup withholding by the IRS.
NOTE: Strike out Item (2) if you have been notified that you are subject to
backup withholding by the IRS and you have not received a notice from the IRS
advising you that backup withholding has been terminated.
X X
- -------------------------------------- --------------------------------------
Signature Date Signature (Joint Tenant) Date
THANK YOU FOR YOUR INVESTMENT IN THE FUND. YOU WILL RECEIVE A CONFIRMATION
STATEMENT SHORTLY.
-- 18 --
<PAGE>
Serving Investors for Generations
[PHOTO 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
investments designed for individuals who plan to rely on their investments as a
principal source of their ongoing financial security. In fact, more than 1.3
million investors have entrusted Nuveen to help them maintain the lifestyle they
currently enjoy.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies whose aim is to provide consistent, attractive
performance over time -- with moderated risk. We emphasize high-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
preservation of capital, Nuveen offers a wide variety of products and services
to help you meet your unique circumstances and financial planning needs. You can
choose among equity and fixed-income mutual funds, unit trusts, customized asset
management services and cash management products.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you preserve your long-term financial security.
Or call us at (800) 621-7227 for more information, including a prospectus where
applicable. Please read that information carefully before investing.
[NUVEEN LOGO]
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
[C]1997 by John Nuveen & Co. Incorporated. All rights reserved.
EPR-UI-10.97
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 29, 1997
333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606
FLAGSHIP UTILITY INCOME FUND SERIES
This Statement of Additional Information provides certain detailed informa-
tion concerning the Fund. It is not a Prospectus and should be read in con-
junction with the Fund's current Prospectus for the Flagship Utility Income
Fund, a copy of which may be obtained without charge by written request to:
Funds, c/o John Nuveen & Co. Incorporated; by telephone at: (800) 225-8530.
This Statement of Additional Information relates to the Flagship Utility In-
come Fund Prospectus dated October 29, 1997.
TABLE OF CONTENTS
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PAGE
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<S> <C>
Investment Objectives and Policies........................................ 2
Shares of the Fund........................................................ 5
Officers, Directors and Stockholders...................................... 6
Investment Advisory Services.............................................. 9
Taxes..................................................................... 10
Yield and Total Return Calculation........................................ 13
Distributions............................................................. 14
Distributor............................................................... 15
Custodian and Transfer Agent.............................................. 17
Auditors.................................................................. 17
Portfolio Transactions.................................................... 17
Purchase, Redemption and Pricing of Shares................................ 18
Servicemark and Trademark................................................. 18
Other Information......................................................... 18
Financial Statements...................................................... F-1
Appendix I--Description of Securities Ratings............................. I-1
Appendix II--Description of Hedging Techniques............................ II-1
Appendix III--Corporate Tax Equivalent Chart.............................. III-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Flagship Admiral Funds Inc. (the "Fund") has no fundamental objectives as a
whole. Each Portfolio of the Fund has its own objectives. The Flagship Utility
Income Fund ("Utility Income Fund") has adopted the following investment re-
strictions (which supplement the matters described under "The Fund and Its Ob-
jective" in the Utility Income Fund Prospectus), none of which may be changed
without the approval of the holders of a majority (as defined in the Invest-
ment Company Act of 1940 (the "1940 Act")) of its outstanding shares. The
Utility Income Fund may not:
(1) Purchase the securities of any one issuer, other than the U.S. Govern-
ment or any of its instrumentalities, if immediately after such purchase more
than 5% of the value of its total assets would be invested in such issuer, or
the Portfolio would own more than 10% of the outstanding voting securities of
such issuer, except that up to 25% of the value of the Portfolio's total as-
sets may be invested without regard to such 5% and 10% limitations;
(2) Make loans, except to the extent the purchase of debt obligations (in-
cluding repurchase agreements) in accordance with the Portfolio's investment
objective and policies are considered loans and except that the Portfolio may
loan portfolio securities to qualified institutional investors in compliance
with requirements established from time to time by the Securities and Exchange
Commission ("SEC") and the securities exchanges in which such securities are
traded;
(3) Issue securities senior to its stock or borrow money, except that the
Portfolio has reserved the right to borrow money from banks on a temporary ba-
sis from time to time to provide greater liquidity for redemptions or to make
additional portfolio investments. Such borrowings will not exceed 25% of the
Portfolio's net assets plus all outstanding borrowings immediately after the
time the latest such borrowing is made;
(4) Purchase or retain the securities of any issuer any of whose officers,
directors, or security holders is a director or officer of the Fund or of its
investment adviser if or so long as the directors and officers of the Fund and
of its investment adviser together own beneficially more than 5% of any class
of securities of such issuer;
(5) Mortgage, pledge or hypothecate any assets except in an amount up to 50%
of the value of the Portfolio's net assets, taken at cost, and only to secure
borrowings permitted by clause (3) above.
(6) Purchase or sell real estate, real estate mortgage loans, real estate
investment trust securities, commodities, commodity contracts (except for bona
fide hedging purposes) or oil and gas interests.
(7) Acquire securities of other investment companies (other than in connec-
tion with the acquisitions of such companies).
(8) Act as an underwriter of securities or invest more than 10% of the Port-
folio's assets, as determined at the time of investment, in securities that
are subject to restrictions on disposition under the Securities Act of 1933 or
for which market quotations are not readily available, including repurchase
agreements having more than seven days to maturity.
(9) Purchase securities on margin, make short sales of securities or main-
tain a net short position.
In order to permit the sale of shares in certain states, the Fund may make
commitments more restrictive than the operating restrictions described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the stockholders, it will revoke the commitment by terminating
sales of its shares in the state involved. Also, as a matter of policy that is
not fundamental, the Utility Income Fund has determined that it will not in-
vest in warrants, own more than 5% of the outstanding voting securities of any
issuer and will only write call options which are fully covered.
The Fund places no restrictions on portfolio turnover except as may be nec-
essary to maintain its status as a regulated investment company under the In-
ternal Revenue Code of 1986, as amended (the "Code").
Repurchase Agreements. The Utility Income Fund may enter into repurchase
agreements with selected commercial banks and broker-dealers, in an amount up
to 5% of its total assets, under which such Fund acquires securities and
agrees to resell the securities to the other party at an agreed upon time and
at an agreed upon price. The Fund would accrue as interest the difference be-
tween the amount it pays for the securities and the
2
<PAGE>
amount it receives upon resale. At the time it enters into a repurchase agree-
ment, the value of the underlying security including accrued interest will be
equal to or exceed the value of the repurchase agreement and, for repurchase
agreements that mature in more than one day, the seller will agree that the
value of the underlying security including accrued interest will continue to
be at least equal to the value of the repurchase agreement. The Utility Income
Fund will enter into repurchase agreements only with creditworthy parties and
will monitor such creditworthiness on an ongoing basis. Generally, repurchase
agreement activities will be restricted to well-capitalized commercial banks
with assets in excess of $1 billion, primary dealers in U.S. Government secu-
rities or broker-dealers registered with the Securities and Exchange Commis-
sion. The underlying securities will only consist of U.S. Government or Gov-
ernment Agency securities, certificates of deposit, bankers' acceptances or
commercial paper. In the event of default by such party, the delays and ex-
penses potentially involved in establishing the Fund's rights to, and in liq-
uidating the security may result in a loss.
Leverage. The Utility Income Fund has reserved the right to borrow money
from time to time to provide greater liquidity for redemptions or to make ad-
ditional portfolio investments. If a Portfolio were to borrow money, income
earned from additional investments in excess of interest costs would improve
performance over what otherwise would be the case. Conversely, if the invest-
ment performance of such additional investments failed to cover their cost
(including interest costs on such borrowings) the performance would be poorer
than would otherwise be the case. This speculative factor is known as "lever-
age."
The 1940 Act limits the amount of money a fund may borrow to 33 1/3% of the
value of such fund's net assets plus all outstanding borrowings immediately
after the time the latest such borrowing is made; the Utility Income Fund has
elected to restrict its borrowings to a maximum amount of 25%. If a Portfolio
were to borrow money and the value of its assets were to fall below the statu-
tory coverage requirement for any reason, the Portfolio would have to take
corrective action to achieve compliance within three business days and accord-
ingly might be required to sell a portion of its securities at a time when
such sale might be disadvantageous.
"When Issued" Transactions. The Utility Income Fund may purchase and sell
securities on a "when issued" and "delayed delivery" basis. These transactions
are subject to market fluctuation; the value at delivery may be more or less
than the purchase price. Since the Fund relies on the buyer or seller, as the
case may be, to consummate the transaction, failure by the other party to com-
plete the transaction may result in it missing the opportunity of obtaining a
price or yield considered to be advantageous. When the Fund is the buyer in
such a transaction, however, it will maintain with its custodian cash or high-
grade portfolio securities having an aggregate value equal to the amount of
such purchase commitments until payment is made. To the extent the Fund en-
gages in "when issued" and "delayed delivery" transactions, it will do so for
the purpose of acquiring securities for its portfolio consistent with its in-
vestment objective and policies and not for the purpose of investment lever-
age.
Diversification. As a diversified fund, the Utility Income Fund may not pur-
chase the securities of any one issuer, other than the U.S. Government or any
of its instrumentalities, if immediately after such purchase more than 5% of
the value of its total assets would be invested in such issuer, or if it would
own more than 10% of the outstanding voting securities of such issuer, except
that up to 25% of the value of the Utility Income Fund's total assets may be
invested without regard to such 5% and 10% limitations.
GENERAL CHARACTERISTICS AND RISKS OF OPTIONS AND FUTURES
Put Options. A put option gives the purchaser of the option the right to
sell and the writer of the option the obligation to buy the underlying secu-
rity at the exercise price during the option period. The purchase of a put op-
tion on a security would be designed to protect the Fund's holdings in a secu-
rity against a substantial decline in the market value. The Fund is authorized
to purchase exchange-listed options and over-the-counter options ("OTC Op-
tions"). Listed options are issued by the Options Clearing Corporation ("OCC")
which guarantees the performance of the obligations of the parties to such op-
tions. OTC options shall be treated as illiquid.
The Fund's ability to close out its position as a purchaser of an exchange-
listed put option is dependent upon the existence of a liquid secondary market
on option exchanges. Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in cer-
tain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to par-
ticular classes or series of options or underlying securities; (iv) interrup-
tion of the normal operations on an exchange; (v) inadequacy of the facilities
of an exchange or OCC to handle current trading
3
<PAGE>
volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been listed by the OCC as a result of trades on that exchange would generally
continue to be exercisable in accordance with their terms. OTC Options are
purchased from or sold to dealers or financial institutions which have entered
into direct agreement with the Fund. With OTC Options, such variables as expi-
ration date, exercise price and premium will be agreed upon between the Fund
and the transacting dealer, without the intermediation of a third party such
as the OCC. If the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms
of that option as written, the Fund would lose the premium paid for the option
as well as any anticipated benefit of the transaction. The Fund will engage in
OTC Option transactions only with primary United States Government securities
dealers recognized by the Federal Reserve Bank of New York.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the op-
tion markets close before the markets for the underlying securities, signifi-
cant price and rate movements can take place in the underlying markets that
cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS
Characteristics. The Fund may sell financial futures contracts or purchase
put options on such futures as a hedge against anticipated interest rate
changes and may purchase stock index options or futures thereon to hedge
against changes in the equity markets. It may also utilize such investments to
hedge currency risk. A futures contract sale creates an obligation by the
Fund, as seller, to deliver the specific type of financial instrument called
for in the contract at a specified future time for a specified price. Options
on futures contracts are similar to options on securities except that an op-
tion on a futures contract gives the purchaser the right in return for the
premium paid to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put). Stock index
options may also be listed on a stock exchange.
Limitations on Use of Options and Futures. The Fund's use of futures and op-
tions on futures will in all cases be consistent with applicable regulatory
requirements and in particular the rules and regulations of the Commodity
Futures Trading Commission with which the Fund must comply in order not to be
deemed a commodity pool operator within the meaning and intent of the Commod-
ity Exchange Act.
Risks. Typically, investment in futures contracts requires the Fund to de-
posit with the applicable exchange or other specified financial intermediary
as security for its obligations an amount of cash or other specified securi-
ties which initially is 1% to 5% of the face amount of the contract and which
thereafter fluctuates on a periodic basis as the value of the contract fluctu-
ates. Investment in options involves payment of a premium for the option with-
out any further obligation on the part of the Fund.
The Fund will not engage in transactions in futures contracts or related op-
tions for speculative purposes but only as a hedge against changes resulting
from market conditions in the values of securities in its portfolio. In addi-
tion, the Fund will not enter into a futures contract or related option (ex-
cept for closing transactions) if, immediately thereafter, the sum of the
amount of its initial deposits and premiums on open contracts and options
would exceed 5% of its total assets (taken at current value). Also, when re-
quired, a segregated account of cash or cash equivalents will be maintained
and marked to market in an amount equal to the market value of the contract.
Hedging transactions present certain risks. In particular, the variable de-
gree of correlation between price movements of futures contracts and price
movements in the position being hedged creates the possibility that losses on
the hedge may be greater than gains in the value of the Fund's position. In
addition, futures and futures option markets may not be liquid in all circum-
stances. As a result, in volatile markets, the Fund may not be able to close
out a transaction without incurring losses substantially greater than the ini-
tial deposit. Although the contemplated use of these contracts should tend to
minimize the risk of loss due to a decline in the value of the hedged posi-
tion, at the same time they tend to limit any potential gain which might re-
sult from an increase in the value of such position. The ability of the Fund
to hedge successfully will depend on the Adviser's ability to predict perti-
nent market movements, which cannot be assured. Finally, the daily deposit re-
quirements 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 net as-
set value. Income earned by the Fund from its hedging activities generally
will be treated as capital gains.
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SHARES OF THE FUND
Four classes of shares, Class A Shares, Class B Shares, Class C Shares, and
Class R Shares are authorized for the Fund. Currently, the Fund is offering
Class A and C Shares. Other classes of shares are not presently available, but
may be offered in the future. The Fund is authorized to offer up to four clas-
ses of shares which may be purchased at a price equal to their net asset value
per share, plus (for certain classes) a sales charge (discussed below) which,
at the election of the purchaser, may be imposed either (i) at the time of
purchase (the "Class A Shares") or (ii) on a contingent deferred basis (the
"Class B Shares" or the "Class C Shares"). The four classes of shares each
represent an interest in the same portfolio of investments of the Fund and
have the same rights, except (i) Class B and Class C Shares bear the expenses
of the deferred sales arrangement and any expenses (including a higher distri-
bution services fee) resulting from such sales arrangement, (ii) each class
that is subject to a distribution fee has exclusive voting rights with respect
to those provisions of the Fund's Rule 12b-1 distribution plan which relate
only to such class and (iii) the classes have different exchange privileges.
Additionally, Class B Shares will automatically convert into Class A Shares
after a specified period of years (as described below). The net income attrib-
utable to Class B and Class C Shares and the dividends payable on Class B and
Class C Shares will be reduced by the amount of the higher distribution serv-
ices fee and certain other incremental expenses associated with the deferred
sales charge arrangement. The net asset value per share of Class A Shares,
Class B Shares, Class C Shares and Class R Shares is expected to be substan-
tially the same, but it may differ from time to time.
1. Class A Shares. The public offering price of Class A Shares is equal to
net asset value plus an initial sales charge that is a variable percentage of
the offering price depending on the amount of the sale. Net asset value will
be determined as described in the Prospectus under "How Fund Shares are
Priced". The net assets attributable to Class A Shares are subject to an ongo-
ing services fee (see "About the Distributor" in the Prospectus). Purchasers
of Class A Shares may be entitled to reduced sales charges through a combina-
tion of investments, rights of accumulation or a Letter of Intent even if
their current investment would not normally qualify for a quantity discount
(see "Reduced Sales Charges" in the Prospectus). Class A Shares also qualify
for certain exchange and reinvestment privileges as described in "Exchange And
Reinvestment Privilege" in the Prospectus. The investor or the investor's bro-
ker or dealer is responsible for promptly forwarding payment to the Fund for
shares purchased. Class A Shares may be subject to a CDSC as explained in the
Prospectus under "Class A Contingent Deferred Sales Charge".
2. Class B Shares. Class B Shares are sold at net asset value (see "Net As-
set Value") without a sales charge at the time of purchase. Instead, the sales
charge is imposed on a contingent deferred basis. The net assets attributable
to Class B Shares are subject to an ongoing distribution fee (see "Distribu-
tor" below). The amount of the contingent deferred sales charge, if any, will
vary depending on the number of years from the time of payment of the purchase
of Class B Shares until the time such shares are redeemed. Solely for purposes
of determining the number of years from the time of any payment of the pur-
chase of Class B Shares, all payments during any month will be aggregated and
deemed to have been made on the last day of the month.
Class B Shares automatically convert into Class A Shares after 8 years after
the end of the month in which a stockholder's order to purchase Class B Shares
was accepted. As a result, the shares that converted will no longer be subject
to a sales charge upon redemption and will enjoy the lower Class A distribu-
tion services fee.
For purposes of conversion of Class A Shares, Class B Shares purchased
through the reinvestment of dividends and distributions paid in respect of
Class B Shares in a stockholder's account will be considered to be held in a
separate sub-account. Each time any Class B Shares in the stockholder's ac-
count (other than those in the sub-account) convert to Class A Shares, an
equal pro rata portion of the Class B Shares in the sub-account also will con-
vert to Class A Shares. The conversion of Class B Shares to Class A Shares is
subject to the continuing determination that (i) the assessment of the higher
distribution services fee and transfer agency cost with respect to Class B
Shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Code, and (ii) that the conversion of Class
B Shares does not constitute a taxable event under federal income tax law. The
conversion of Class B Shares to Class A Shares may be suspended if such an
opinion is no longer available. In that event, no further conversions of Class
B Shares would occur, and Class B Shares might continue to be subject to the
higher distribution services fee for an indefinite period, which period may
extend beyond the conversion period after the end of the month in which the
shares were issued.
The Class B Shares are otherwise the same as Class C Shares and are subject
to the same conditions, except that they can only be exchanged for other Class
B Shares without imposition of sales charges.
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3. Class C Shares. Class C Shares are sold at net asset value (see "How Fund
Shares are Priced" in the Prospectus) without a sales charge at the time of
purchase. Instead, the Class C Shares are subject to a 1% CDSC if they are re-
deemed within one year after purchase. The net assets attributable to Class C
Shares are subject to an ongoing distribution and services fee of 0.75% (see
"About the Distributor" in the Prospectus). The Class C Shares have no conver-
sion rights.
The CDSC will not be imposed on amounts representing increases in net asset
value above the initial purchase price. Additionally, no charge will be as-
sessed on Class B or Class C Shares derived from reinvestment of dividends or
capital gains distributions. The CDSC will be waived (i) on redemption of
shares following the disability (as determined in writing by the Social Secu-
rity Administration) or death of a stockholder, (ii) on certain redemptions in
connection with IRAs and other qualified retirement plans, and (iii) when
Class B or Class C Shares are exchanged for Class B or Class C Shares of other
Flagship funds distributed by the Distributor (see "Exchange And Reinvestment
Privilege" in the Prospectus). In the case of an exchange, the length of time
that the investor held the original Class B or Class C Shares is counted to-
wards satisfaction of the period during which a deferred sales charge is im-
posed on the Class B or Class C for which the exchange was made.
4. Class R Shares. You may purchase Class R Shares with monies representing
dividends and capital gain distributions on Class R Shares of the Fund. Also,
you may purchase Class R Shares if you are within the following specified cat-
egories of investors who are also eligible to purchase Class A Shares at net
asset value without an up-front sales charge: officers, current and former di-
rectors of the Fund; bona fide, full-time and retired employees 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; and bank or broker-affiliated trust depart-
ments; persons investing $1 million or more in Class R Shares; and clients of
investment advisers, financial planners or other financial intermediaries that
charge periodic or asset-based "wrap" fees for their services.
If you are eligible to purchase either Class R Shares or Class A Shares
without a sales charge at net asset value, you should be aware of the differ-
ences between these two classes of shares. Class A Shares are subject to an
annual distribution fee to compensate John Nuveen & Co. Incorporated (the
"Distributor") for distribution costs associated with the Fund and to an an-
nual service fee to compensate Authorized Dealers for providing you with ongo-
ing account services. Class R Shares are not subject to a distribution or
service fee and, consequently, holders of Class R Shares may not receive the
same types or levels of services from Authorized Dealers. In choosing between
Class A Shares and Class R Shares, you should weigh the benefits of the serv-
ices to be provided by Authorized Dealers against the annual service fee im-
posed upon the Class A Shares.
OFFICERS, DIRECTORS AND STOCKHOLDERS
The management of the Corporation, including general supervision of the du-
ties performed for the Funds under the Investment Management Agreement, is the
responsibility of its Board of Directors. The Corporation currently has eight
directors, two of whom are "interested persons" (as the term "interested per-
sons" is defined in the Investment Company Act of 1940) and six of whom are
"disinterested persons." The names and business addresses of the directors and
officers of the Corporation and their principal occupations and other affilia-
tions during the past five years are set forth below, with those directors who
are "interested persons" of the Corporation indicated by an asterisk.
<TABLE>
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POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Timothy R. 48 Chairman and Chairman since July 1, 1996 of The John
Schwertfeger* Director Nuveen Company, John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and
Wacker Drive Nuveen Institutional Advisory Corp.; prior
Chicago, IL thereto Executive Vice President and
60606 Director of The John Nuveen Company, John
Nuveen & Co. Incorporated, Nuveen Advisory
Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October
1992).
</TABLE>
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<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Anthony T. Dean* 52 President and President since July 1, 1996 of The John
333 West Wacker Drive Director 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. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October
1992).
Robert P. Bremner 56 Director Private Investor and Management Consultant.
3725 Huntington
Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown 63 Director Retired (August 1989) as Senior Vice
201 Michigan Avenue President of The Northern Trust Company.
Highwood, IL 60040
Anne E. Impellizzeri 64 Director President and Chief Executive Officer of
3 West 29th Street Blanton-Peale Institute of Religion and
New York, NY 10001 Health.
Peter R. Sawers 64 Director Adjunct Professor of Business and Economics,
22 The Landmark University of Dubuque, Iowa; Adjunct
Northfield, IL 60093 Professor, Lake Forest Graduate School of
Management, Lake Forest, Illinois;
Chartered Financial Analyst; Certified
Management Consultant.
William J. Schneider 53 Director Senior Partner, Miller-Valentine Partners,
4000 Miller-Valentine Vice President, Miller-Valentine Group.
Ct.
P.O. Box 744
Dayton, OH 45401
Judith M. Stockdale 49 Director Executive Director, Gaylord and Dorothy
35 E. Wacker Drive Donnelley Foundation (since 1994); prior
Suite 2600 thereto, Executive Director, Great Lakes
Chicago, IL 60601 Protection Fund (from 1990 to 1994).
Bruce P. Bedford 57 Executive Vice Executive Vice President of John Nuveen &
333 West Wacker Drive President Co. Incorporated, Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp. (since
January 1997); prior thereto, Chairman and
CEO of Flagship Resources Inc. and Flagship
Financial Inc. and the Flagship funds.
Michael S. Davern 40 Vice President Vice President of Nuveen Advisory Corp.
One South Main Street (since January 1997); prior thereto, Vice
Dayton, OH 45402 President and Portfolio Manager of Flagship
Financial.
William M. Fitzgerald 33 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive (since December 1995); Assistant Vice
Chicago, IL 60606 President of Nuveen Advisory Corp. (from
September 1992 to December 1995), prior
thereto, Assistant Portfolio Manager of
Nuveen Advisory Corp.
Kathleen M. Flanagan 50 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated, Vice President (since June
Chicago, IL 60606 1996) of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.
J. Thomas Futrell 42 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
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<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Richard A. 34 Vice President Vice President of Nuveen Advisory Corp.
Huber (since January 1997); prior thereto, Vice
One South Main President and Portfolio Manager of Flagship
Street Financial.
Dayton, OH
45402
Steven J. Krupa 39 Vice President Vice President of Nuveen Advisory Corp.
333 West
Wacker Drive
Chicago, IL
60606
Anna R. 51 Vice President Vice President of John Nuveen & Co.
Kucinskis Incorporated.
333 West
Wacker Drive
Chicago, IL
60606
Larry W. Martin 46 Vice President Vice President, Assistant Secretary and
333 West Assistant General Counsel of John Nuveen &
Wacker Drive Co. Incorporated; Vice President (since May
Chicago, IL 1993) and Assistant Secretary of Nuveen
60606 Advisory Corp.; Vice President (since May
1993) and Assistant Secretary of Nuveen
Institutional Advisory Corp.; Assistant
Secretary of The John Nuveen Company (since
February 1993).
Edward F. 32 Vice President Vice President (since September 1996),
Neild, IV previously Assistant Vice President (since
One South Main December 1993) of Nuveen Advisory Corp.,
Street Dayton, portfolio manager prior thereto; Vice
OH 45402 President (since September 1996),
previously Assistant Vice President (since
May 1995) of Nuveen Institutional Advisory
Corp., portfolio manager prior thereto.
Walter K. 48 Vice President Vice President of Nuveen Advisory Corp.
Parker (since January 1997); prior thereto, Vice
One South Main President and Portfolio Manager (since July
Street 1994) of Flagship Financial; Portfolio
Dayton, OH Manager and CIO Trust Investor (between
45402 1983 and June 1994) for PNC Bank.
O. Walter 58 Vice President Vice President and Controller of The John
Renfftlen Nuveen Company, John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and
Wacker Drive Nuveen Institutional Advisory Corp.
Chicago, IL
60606
Thomas C. 46 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 63 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
Jan E. 41 Vice President Vice President of Nuveen Advisory Corp.
Terbrueggen (since January 1997); prior thereto, Vice
One South Main President and Portfolio Manager of Flagship
Street Financial.
Dayton, OH
45402
Gifford R. 41 Vice President Vice President, Assistant Secretary and
Zimmerman and Assistant Associate General Counsel formerly
333 West Secretary Assistant General Counsel of John Nuveen &
Wacker Drive Co. Incorporated; Vice President (since May
Chicago, IL 1993) and Assistant Secretary of Nuveen
60606 Advisory Corp.; Vice President (since May
1993) and Assistant Secretary of Nuveen
Institutional Advisory Corp.; Assistant
Secretary of The John Nuveen Company (since
May 1994).
</TABLE>
Anthony Dean, Peter Sawers and Timothy Schwertfeger serve as members of the
Executive Committee of the Board of Directors. The Executive Committee, which
meets between regular meetings of the Board of Directors, is authorized to ex-
ercise all of the powers of the Board of Directors.
8
<PAGE>
The directors of the Corporation are directors or trustees, as the case may
be, of 42 Nuveen open-end funds and 52 Nuveen closed-end funds advised by
Nuveen Advisory Corp.
The following table sets forth compensation paid by the Corporation to each
of the directors of the Corporation and the total compensation paid to each
director during the fiscal year ended June 30, 1997. The Corporation has no
retirement or pension plans. The officers and directors affiliated with Nuveen
serve without any compensation from the Corporation. Directors Brown,
Impellizzeri, Rosenheim and Sawers became directors of this Corporation on
January 30, 1997.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM CORPORATION AND
FROM THE TWO SERIES FUND COMPLEX
NAME OF DIRECTOR OF THIS CORPORATION PAID TO DIRECTORS
---------------- ------------------- --------------------
<S> <C> <C>
Robert P. Bremner................ $3,936(1) $25,333(1)
Lawrence H. Brown................ $ 192 $59,500
Joseph F. Castellano............. $3,750 $17,000(1)
Anne E. Impellizzeri............. $ 192 $59,500
Paul F. Nezi..................... $3,750 $17,000(1)
Margaret K. Rosenheim............ $ 209 $67,582(2)
Peter R. Sawers.................. $ 192 $59,500
William J. Schneider............. $3,936(1) $26,333(1)
Judith M. Stockdale.............. $ 0(3) $ 0(3)
</TABLE>
- --------
(1) Includes compensation received as a trustee of the Flagship Funds, for the
period July 1, 1996 to January 31, 1997.
(2) Includes $1,582 in interest accrued on deferred compensation from prior
years; former director, retired July 1997
(3) Elected to the Board in July 1997.
Each director who is not affiliated with Nuveen or Nuveen Advisory receives
a fee. The Corporation requires no employees other than its officers, all of
whom are compensated by Nuveen.
As of October 2, 1997, to the knowledge of management, the following stock-
holder held of record more than 5% of the Class A Shares of the Utility Income
Fund: Merrill Lynch, Pierce, Fenner & Smith FSBC, Attn: Fund Administration,
4800 Deer Lake Dr. E. Fl. 3, Jacksonville, FL 32246-6484, 26.23%; and the fol-
lowing stockholder held of record more than 5% of the Class C Shares of the
Utility Fund: Merrill Lynch, Pierce, Fenner & Smith FSBC, Attn: Fund Adminis-
tration, 4800 Deer Lake Dr. E. Fl. 3, Jacksonville, FL 32246-6484, 35.39%. All
directors and officers as a group own less than 1% of the outstanding shares
as of the above date. The Fund has no knowledge of any other person owning
more than 5% of the outstanding shares as of such date.
INVESTMENT ADVISORY SERVICES
As stated in the Utility Income Fund Prospectus, Nuveen Advisory Corp. acts
as investment adviser (the "Manager") to the Utility Income Fund pursuant to
an Investment Advisory Agreement (the "Advisory Agreement").
See "About the Investment Manager" in the Prospectus for a description of
the Manager's duties as investment adviser. The Manager's administrative obli-
gations include: (i) assisting in supervising all aspects of the Utility In-
come Fund's operations; (ii) providing the Utility Income Fund, at the Manag-
er's expense, with the services of persons competent to perform such adminis-
trative and clerical functions as are necessary in order to provide effective
corporate administration of the Utility Income Fund; and (iii) providing the
Utility Income Fund, at the Manager's expense, with adequate office space and
related services. The Utility Income Fund paid $6,194; $0; and $0 to the Man-
ager pursuant to its Advisory Agreement for the three fiscal years ended June
30, 1995, June 30, 1996 and June 30, 1997, respectively. The amounts paid for
the fiscal years ended June 30, 1995, June 30, 1996 and June 30, 1997 do not
include $145,717; $157,329; and $144,058 respectively, of the Manager's fee
which was permanently waived by the Manager for that period. The Utility In-
come Fund's accounting records are maintained, at the Utility Income Fund's
expense, by its Custodian, The Chase Manhattan Bank.
9
<PAGE>
The Advisory Agreement will terminate automatically upon assignment and its
continuance must be approved annually by the Fund's Board of Directors or a
majority of the Fund's outstanding voting shares and in either case, by a ma-
jority of the Fund's independent directors. The Advisory Agreement is termina-
ble at any time without penalty by the Board of Directors or by a vote of a
majority of the voting shares on 60 days' written notice to the Manager, or by
the Manager on 60 days' written notice to the Utility Income Fund.
The Manager of the Utility Income Fund has agreed that in the event the op-
erating expenses of the Utility Income Fund (including fees paid by the Util-
ity Income Fund to the Manager and payments by the Utility Income Fund to the
Distributor but excluding taxes, interest, brokerage and extraordinary ex-
penses) for any fiscal year ending on a date on which the Advisory Agreement
with the Utility Income Fund is in effect, exceed the expense limitations im-
posed by applicable state securities laws or any regulations thereunder, it
will, up to the amount of its fee, reduce its fee or reimburse the Utility In-
come Fund in the amount of such excess. As of the date of this Prospectus, un-
der the most restrictive state regulations applicable, the Manager would be
required to reimburse the Utility Income Fund such operating expenses exceed-
ing 2 1/2% of the first $30 million of the average net assets, 2% of the next
$70 million of the average net assets, and 1 1/2% of the remaining average net
assets. The Manager believes that such operating expenses will be less than
such amounts.
Securities held by the Utility Income Fund may also be held by, or be appro-
priate investments for, other investment advisory clients of the Manager and
its affiliates. Because of different objectives or other factors, a particular
security may be bought for one or more clients when one or more clients are
selling the same security. If purchases or sales of securities for the Utility
Income Fund or other advisory clients arise for consideration at or about the
same time, transactions in such securities will be made, insofar as feasible,
for the Utility Income Fund and such other clients in a manner deemed equita-
ble to all. To the extent that transactions on behalf of more than one client
of the Manager during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an ad-
verse effect on the price of such securities.
TAXES
References are made to the sections in the Prospectus entitled "Taxes" for a
discussion of relevant tax matters and to which the discussion below is sup-
plementary.
TAXATION OF THE FUND
Each Portfolio of the Fund intends to qualify as a regulated investment com-
pany ("RIC") for federal income tax purposes. In order to so qualify, each
Portfolio must, among other things: (a) derive at least 90% of its gross in-
come from dividends, interest, payments with respect to loans of securities
and gains from the sale or other disposition of securities or certain other
related income; (b) generally derive less than 30% of its gross income from
gains from the sale or other disposition of securities and certain other in-
vestments held for less than three months (this requirement applies only to
taxable years beginning on or before August 5, 1997); and (c) diversify its
holdings so that at the end of each fiscal quarter, (i) at least 50% of the
value of such Portfolio's assets is represented by cash, United States govern-
ment securities, securities of other regulated investment companies, and other
securities which, with respect to any one issuer, do not represent more than
5% of the value of such Portfolio's assets nor more than 10% of the voting se-
curities of such issuer, and (ii) not more than 25% of the value of such Port-
folio's assets is invested in the securities of any one issuer (other than
United States government securities or the securities of other RICs).
If each Portfolio of the Fund qualifies as a RIC and distributes to its
stockholders at least 90% of its investment company taxable income (not in-
cluding net capital gain, which is the excess of net long-term capital gain
over net short-term capital loss), then each Portfolio will not be subject to
Federal income tax on the income so distributed. However, each Portfolio would
be subject to corporate income tax on any undistributed income. In addition,
each Portfolio will be subject to a nondeductible 4% excise tax on the amount
by which the income it distributes in any calendar year is less than a re-
quired distribution amount. The required distribution amount for a calendar
year equals the sum of (a) 98% of each Portfolio's ordinary income for such
calendar year; (b) 98% of the excess of capital gains over capital losses for
the one-year period ending on October 31 of such calendar year; and (c) 100%
of the undistributed income and gains from prior years. Each Portfolio intends
to distribute sufficient income so as to avoid both corporate income tax and
the excise tax. However, a Portfolio may in the future decide to retain all or
a portion of its net capital gain. In such case, the Portfolio would be sub-
ject to corporate income tax on such retained net capital gain; would desig-
nate to stockholders the undistributed capital gain; stockholders would in-
clude as long-term capital gain income such undistributed net capital gain;
and stockholders would be eligible for a credit with respect to such tax paid
by the Portfolio.
10
<PAGE>
TAX OBJECTIVE OF DIVIDEND POLICY FOR CORPORATE INVESTORS
The Utility Income Fund's dividend procedures are designed to maximize the
federal income tax advantage of the 70% dividends-received deduction to domes-
tic corporate stockholders. If the Utility Income Fund did not declare divi-
dends on a frequent basis, the net asset value would tend to rise during the
period between dividends, due to income received on the investment portfolio
and the gradual increase in market value shown by many preferred stocks or
other securities as periodic dividend payment dates approach. Under this meth-
od, any increase in net asset value would result in short- or long-term capi-
tal gains rather than dividend income for stockholders who redeemed shares be-
tween dividend payment dates. By averaging the anticipated income on a daily
basis and declaring each day's anticipated income as a dividend, the Utility
Income Fund seeks to maximize the portion of the Utility Income Fund's income
and temporary unrealized appreciation that will qualify as dividend income.
Although the Utility Income Fund and the Manager believe that the Utility In-
come Fund will be able to achieve its tax objectives, there can be no assur-
ances on this matter.
Dividends distributed by the Fund to stockholders will only be eligible for
the dividends-received deduction to the extent of the Fund's gross income that
consists of dividends received on equity securities of domestic corporations
with respect to which the Fund meets the same holding period, risk of loss and
borrowing limitations applicable to the Fund's stockholders, as described be-
low under "Holding Period and Other Requirements". If the expenses and losses
of the Fund equal or exceed non-qualifying income (if any), all dividends dis-
tributed by the Fund may qualify for the dividends-received deduction.
In the event that the Fund's total distributions (including distributed or
designated net capital gain) for a taxable year exceed, generally, its invest-
ment company taxable income and net capital gain, a portion of each distribu-
tion will be treated as a return of capital, which will not qualify for the
dividends-received deduction. Distributions treated as a return of capital re-
duce a stockholder's basis in its shares and could result in recognition of
capital gain either when a distribution is in excess of basis, or more likely,
when a stockholder redeems its shares.
For purposes of the alternative minimum tax imposed on corporations, alter-
native minimum taxable income will be increased by 75% of the amount by which
an alternative measure of income (adjusted current earnings) that includes the
full amount of dividends received (without regard to the dividends-received
deduction) exceeds the amount otherwise determined to be the alternative mini-
mum taxable income. Accordingly, an investment in the Fund may cause a corpo-
rate stockholder to be subject to (or result in an increased liability under)
the alternative minimum tax.
HOLDING PERIOD AND OTHER REQUIREMENTS
In order to qualify for the benefits of the dividends-received deduction, a
corporate stockholder must satisfy certain holding period requirements with
respect to the Fund's shares. Section 246 of the Code permits the dividends-
received deduction to corporate stockholders only if the shares with respect
to which the dividends were paid have been held for more than 45 days during
the 90-day period beginning on the date which is 45 days before the date on
which such shares become ex-dividend with respect to such dividend. The hold-
ing period requirements are separately applicable to each block of shares ac-
quired, including each block of shares received in payment of the Fund's daily
dividends. The Fund has received a ruling under Section 246 with respect to
this issue from the Internal Revenue Service (the "IRS") confirming the Fund's
interpretation. For purposes of determining whether this holding period re-
quirement has been met, the day of acquisition and any day after the first 45
days after the date on which such shares become ex-dividend must be disregard-
ed. The Fund and the Manager believe that once a stockholder has satisfied
this 46-day holding period with respect to any block of shares, such stock-
holder will similarly satisfy the 46-day holding period on reinvested divi-
dends declared with respect to such shares to the extent that such stockhold-
er's total redemptions during any period are properly identified, as described
below, as relating to shares with respect to which the stockholder has satis-
fied the 45-day period.
In addition, the holding period is reduced for periods during which the
stock is subject to diminished risk of loss including, for example, because
the holder has acquired a put option or sold a call option (other than certain
covered call options where the exercise price is not substantially below the
selling price) or otherwise hedged his position. If the holding period is not
satisfied, the dividends-received deduction is disallowed, regardless of
whether the shares with respect to which the dividends were paid have been
sold or otherwise disposed of.
11
<PAGE>
The dividends-received deduction will also be reduced, for stockholders who
incur indebtedness in order to purchase shares of the Fund, by the percentage
of the cost of the shares that is debt-financed. Generally, this limitation
applies only if the debt is directly attributable to the purchase of shares.
Whether debt is directly attributable to the purchase of shares depends on the
particular facts and circumstances of each situation and accordingly stock-
holders are urged to consult their tax advisers.
A stockholder and the Fund may also be subject to the extraordinary dividend
provision of the Code under which a stockholder's basis in stock can be re-
duced if certain extraordinary dividends are received.
Identification of Utility Income Fund Shares. The IRS has specific regula-
tions governing the identification of shares to be redeemed by a stockholder
that wishes to redeem some, but not all, of its shares. In effect, provided
that any shares redeemed are properly identified, as described below, as
shares which have been held for more than 45 days, these regulations permit a
stockholder to make redemptions on a weekly or even daily basis without ad-
versely affecting the availability of the dividends-received deduction.
The IRS's regulations permit a stockholder to identify specifically the
shares to be redeemed, thereby enabling such stockholder to select for redemp-
tion those shares having a tax basis and holding period considered to be most
favorable by such stockholder. Alternatively, the regulations also permit a
stockholder to elect to differentiate shares on the basis of long- and short-
term holding periods and to designate from which category the redeemed shares
are to be drawn. For tax basis purposes, the basis of all shares in a category
will be averaged. In the absence of adequate identification under the rules,
any shares redeemed, including classes of shares subject to a contingent de-
ferred sales load, will be charged against the earliest lot(s) acquired for
both holding period and tax basis purposes.
Basis Adjustment for Extraordinary Dividends of Utility Income Fund. Under
section 1059 of the Code, a corporation which receives an "extraordinary divi-
dend" and disposes of the stock with respect to which such dividend was paid,
provided generally that such stock has not been held for at least two years
prior to the date of declaration, announcement or agreement about the extraor-
dinary dividend, is required to reduce its basis in such stock (but not below
zero) by the amount of the dividend which was not taxed because of the divi-
dends-received deduction with such basis reduction generally being treated as
having occurred immediately before the sale or disposition of such stock. To
the extent that such untaxed amount exceeds the shareholder's basis, such ex-
cess will be taxed as gain upon a sale or disposition of such stock. An ex-
traordinary dividend generally is any dividend that equals or exceeds 10% of
the shareholder's basis in the stock (5% in the case of preferred stocks).
For this purpose, generally, all dividends received within any 85-day peri-
od, and, if such dividends total more than 20% of the shareholder's basis in
its stock, all dividends received within one year, must be aggregated for pur-
poses of determining whether such dividends constitute extraordinary divi-
dends. The holder may elect to determine the status of extraordinary dividends
by reference to the fair market value of the stock as of the date before the
ex-dividend date, rather than by reference to the adjusted basis of such stock
(provided the holder established the fair market value to the satisfaction of
the IRS). If the Fund receives any extraordinary dividends (as so defined)
with respect to any stock and does not maintain the two-year holding period
described above, its basis in such stock will be reduced, and it may recognize
additional gain upon disposition of such stock. Similarly, if the dividends
received by an investor constitute extraordinary dividends, the investor may
be required to recognize additional gain upon redemption. See "Taxes--Capital
Gain Dividends" and "Taxes-- Redemptions" in the Utility Income Fund Prospec-
tus.
Section 1059(f) of the Code generally provides that dividends on certain
self-liquidating stock are treated as extraordinary dividends without regard
to the period that the taxpayer has held such stock. In general, the stock
that is subject to this provision is preferred stock which (i) when issued,
has a dividend rate which declines (or can reasonably be expected to decline)
in the future, (ii) has an issue price in excess of its liquidation rights or
stated redemption price, or (iii) is otherwise structured to enable corporate
stockholders to reduce tax through a combination of dividend received deduc-
tion and loss on the disposition of the stock. Although it is arguable that
the dividend rate on adjustable rate preferred stock can reasonably be ex-
pected to decline in the future, the Fund does not believe that this provision
was intended to cover stock which is not designed to produce both an increased
dividends received deduction and a capital loss. The Fund does not intend to
invest in stock paying dividends which are treated as extraordinary under this
provision.
In determining whether the two-year holding period has been met, the same
rules apply as are applicable to the 45-day holding period requirement for the
dividends-received deductions.
12
<PAGE>
In the event that total distributions (including distributed or designated
net capital gain) for a taxable year exceed its investment company taxable in-
come and net capital gain, a portion of each distribution generally will be
treated as a return of capital. Distributions treated as a return of capital
reduce a stockholder's basis in its shares and could result in a capital gain
tax either when a distribution is in excess of basis or, more likely, when a
stockholder redeems its shares.
Stockholders of a Portfolio will be notified annually by the Fund as to the
federal tax status of dividends and distributions paid during the calendar
year. Dividends and distributions may also be subject to state and local tax-
es. State and local tax treatment may vary according to applicable laws.
Stockholders can elect to receive distributions in cash or in additional
shares of such Portfolio. The price of the additional shares is determined as
of the record date for the dividend payment.
The Fund may in the future engage in various defensive hedging transactions.
Under various Code provisions such transactions might change the character of
recognized gains and losses, accelerate the recognition of certain gains and
losses, and defer the recognition of certain losses.
YIELD AND TOTAL RETURN CALCULATION
In accordance with SEC regulations, the Fund may include current yield and
average annual total return in advertisements or information furnished to
stockholders or potential investors. Yields are calculated (separately for
each class of shares) in accordance with the SEC's standardized yield formula.
Under this formula, dividend and interest income over the 30 day measurement
period, is reduced by period expenses and divided by the number of days within
the measurement period to arrive at a daily income rate. This daily income
rate is then expressed as a semiannually compounded yield based on the maximum
offering price of a share assuming a standardized 360 day year. The Utility
Income Fund may quote a tax equivalent yield which reflects the rate a corpo-
rate investor (assuming the availability of the 70% dividends-received deduc-
tion for all daily dividends and a then appropriate and specified corporate
tax rate) would have to earn on a taxable security in order to equal the same
after-tax return.
The Fund may also advertise total return for each class of shares which is
calculated differently from "average annual total return" (a "non-standardized
quotation"). A non-standardized quotation of total return measures the per-
centage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of divi-
dends and capital gains distributions. A non-standardized quotation of total
return for a particular class of shares will always be accompanied by the "av-
erage annual total return" for such class. Average annual total return for any
time period is calculated (separately for each class) by assuming an invest-
ment at the beginning of the measurement period at the maximum offering price.
Dividends from the net investable amount are then reinvested in additional
shares each month at the net asset value. At the end of the measurement peri-
od, the total number of shares owned are redeemed at net asset value (less any
applicable contingent deferred sales load). The change in the total value dur-
ing the investment period is then expressed as an average annual total rate of
return. The Utility Income Fund may also quote its current yield and total re-
turn of each class on a tax equivalent basis assuming the availability of the
70% dividends-received deduction for all of its daily dividends and a then ap-
propriate and specified corporate tax rate. The Utility Income Fund may also
quote rankings, yields or returns as published by recognized statistical serv-
ices or publishers wherein its performance is categorized or compared with
other funds with similar investment objectives, such as Lipper Analytical
Service's "Utility Funds" under "Equity Funds," or this same data as quoted by
Barron's, Business Week, Forbes, Fortune, Micropal, Money, Mutual Fund, Per-
sonal Investing, Worth, Value Line Mutual Fund Survey, or others; Weisenberger
Investment Companies Service's annual Investment Companies under "Growth and
Current Income"; or Morningstar, Inc.'s Mutual Fund Values under "Specialty--
Utilities."
Current yield and total return of each class will vary from time to time de-
pending on market conditions, the composition of the portfolio, operating ex-
penses and other factors. These factors and possible differences in method of
calculating performance figures should be considered when comparing the per-
formance figures of the Utility Income Fund with those of other investment ve-
hicles.
13
<PAGE>
Yield and Total Return Calculation as of June 30, 1997, for the Utility In-
come Fund (there is no historical data for Class B or R Shares):
<TABLE>
<CAPTION>
CURRENT AVERAGE ANNUAL TOTAL RETURN
30 DAY -------------------------------------- INCEPTION
YIELD 1 YEAR SINCE INCEPTION* DATE
------- ------ ---------------- -------------
<S> <C> <C> <C> <C>
Class A 4.04% 5.28% 8.02% Aug. 26, 1983
Class C 3.67% 9.25% 8.35% July 6, 1993
</TABLE>
- --------
*Since inception returns are reflected since the change in investment
objectives as of 7/1/92.
DISTRIBUTIONS
The Utility Income Fund anticipates making daily distributions. The antici-
pated daily distributable income of the Utility Income Fund for a particular
day will be equal to the "anticipated daily dividend and interest income" for
the day, less the "anticipated daily expenses" for that day plus or minus any
special adjustment for that day.
As with all declarations of distributions by investment companies, the net
asset value will be reduced by the amount of each daily dividend at the time
of declaration.
ANTICIPATED DAILY DIVIDEND AND INTEREST INCOME
In order to determine this component of anticipated daily distributable in-
come, the Manager will first project the amount of the next anticipated divi-
dend or interest payment (or accretion of discount in the case of discounted
instruments) on each security and the date upon which such dividend or inter-
est is scheduled to be paid and will then divide such amount by the number of
days from the most recent dividend or interest payment date to the next antic-
ipated payment date.
The Manager will continually monitor each portfolio instrument held by the
Utility Income Fund and will revise, as often as appropriate, its projections
of the amount and timing of dividend and interest payments. In making any re-
vision, the Manager will recalculate the anticipated daily dividend or inter-
est income for the instrument and calculate the difference between the origi-
nal and revised anticipated daily income figures. The Manager will then use
the revised figure after temporarily adjusting it to account for the cumula-
tive effect of such revision on the period prior to such revision. In making
this temporary adjustment, the Manager will generally add or subtract such
difference to or from the revised daily income figure for the particular in-
strument for the same number of days as have already elapsed prior to such re-
vision during the anticipated payment period. However, if the revised figure
is less than 50% of the original figure, the Manager will make such adjustment
over a longer period of time or, in extreme cases, will apply such adjustment
to other portfolio securities in order to minimize the effect of any such re-
vision.
Special dividends, if any, will not be included in anticipated daily income
until declared and will then be included ratably over the number of days re-
maining from the time the Manager learns of such declaration to the end of the
month following the month during which such dividend is paid (but in no event
later than the end of the Utility Income Fund's taxable year).
There is, of course, no assurance that dividends will be declared by the di-
rectors of the companies in which the Utility Income Fund invests or that in-
terest will be paid on the debt obligations held by the Utility Income Fund.
ANTICIPATED DAILY EXPENSES
In order to determine this component of the anticipated daily distributable
income, the Manager will first project the total amount of anticipated ex-
penses in a proportionate amount for each class and will then divide such
amount by the number of days during the year. The Manager will continually
monitor the Utility Income Fund's expenses and will revise, as often as appro-
priate, its projections of such expenses. In making any revision, the Manager
will, in the same manner as described above under "Anticipated Daily Dividend
and Interest Income," recalculate the anticipated daily expenses figure and
the cumulative difference and will then spread the amount of such difference
over the number of days remaining during the year.
14
<PAGE>
SPECIAL ADJUSTMENTS
Gains and losses on portfolio securities (both realized and unrealized) do
not enter into the determination of anticipated daily distributable income
even though such gains and losses affect the Utility Income Fund's net asset
value and even though realized gains and losses affect the Utility Income
Fund's book and taxable income. The Utility Income Fund does not include these
gains and losses in the determination of anticipated daily distributable in-
come because (i) it is the belief of the Utility Income Fund and the Manager
that any component of gains and losses on the sale of securities that is at-
tributable to the timing of dividend or interest payments on portfolio securi-
ties is likely to be reflected in the anticipated dividend and interest income
component of the daily dividend formula and (ii) the Utility Income Fund and
the Manager do not expect that a significant portion of the Utility Income
Fund's income will be short- or long-term capital gain or loss.
The Manager will, however, continually monitor the Utility Income Fund's ag-
gregate short- and long-term capital gain or loss and ordinary income after
taking into account dividends declared with respect to anticipated dividend
and interest income on portfolio securities sold prior to the Utility Income
Fund being entitled to receive such income. If the Manager concludes that the
Utility Income Fund is accumulating short-term capital gain or loss ordinary
income in an amount which may be material, the Utility Income Fund reserves
the right to adjust the daily dividend so as to more nearly accomplish the
Utility Income Fund's objective of distributing as much as practicable of its
investment company taxable income in the form of dividends. Any such adjust-
ments will be made over the course of such period of not less than 60 days as
the Utility Income Fund shall determine (but in no event ending later than the
last day of the Utility Income Fund's taxable year).
DISTRIBUTOR
As stated in the Prospectus, John Nuveen & Co., Incorporated acts as the
distributor (the "Distributor") of shares of the Fund in accordance with the
terms of the Distribution Agreement originally dated January 1, 1997. The Dis-
tributor will make a continuous offering of the shares and will be responsible
for all sales and promotion efforts. There is no redemption charge. Each Dis-
tribution Agreement must be approved in the same manner as the Advisory Agree-
ment discussed under "Investment Advisory Services" above and will terminate
automatically if assigned by either party thereto and is terminable at any
time without penalty by the Board of Directors of the Fund or by vote of a ma-
jority of the Utility Income Fund's outstanding shares on 60 days' written no-
tice to the Distributor and by the Distributor on 60 days' written notice to
the Utility Income Fund.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a plan (the
"Plan") with respect to Class A Shares, Class B Shares and Class C Shares
which permits the Fund to pay for certain distribution and promotion expenses
related to marketing the shares of each Portfolio. The Plan authorizes the
Fund to expend its monies in an amount equal to the aggregate for all such ex-
penditures to such percentage of the Fund's daily net asset value as may be
determined from time to time by vote cast in person at a meeting called for
such purpose, by a majority of the Fund's disinterested directors. The scope
of the foregoing shall be interpreted by the directors, whose decision shall
be conclusive except to the extent it contravenes established legal authority.
Without in any way limiting the discretion of the directors, the following ac-
tivities are hereby declared to be primarily intended to result in the sale of
shares of the Fund: advertising the Fund or the Fund's investment manager's
mutual fund activities; compensating underwriters, dealers, brokers, banks and
other selling entities and sales and marketing personnel of any of them for
sales of shares of the Fund, whether in a lump sum or on a continuous, period-
ic, contingent, deferred or other basis; compensating underwriters, dealers,
brokers, banks and other servicing entities and servicing personnel (including
the Fund's investment manager and its personnel of any of them for providing
services to stockholders of the Fund relating to their investment in the Fund,
including assistance in connection with inquiries relating to stockholder ac-
counts; the production and dissemination of prospectuses including statements
of additional information) of the Fund and the preparation, production and
dissemination of sales, marketing and stockholder servicing materials; and the
ordinary or capital expenses, such as equipment, rent, fixtures, salaries, bo-
nuses, reporting and recordkeeping and third party consultancy or similar ex-
penses relating to any activity for which payment is authorized by the direc-
tors; and the financing of any activity for which payment is authorized by the
directors. Pursuant to the Plan, the Fund through authorized officers may make
similar payments for marketing services to non-broker-dealers who enter into
service agreements with the Fund.
15
<PAGE>
The maximum amount payable by the Fund under the Plan and related agreements
with respect to Class A Shares is .20% of each Portfolio's average daily net
assets for the year attributable to such Class A Shares. For Class B Shares,
the maximum amount payable annually is .95% of such Portfolio's average daily
net assets attributable to such Class B Shares. For Class C Shares, the maxi-
mum amount payable annually is .75% of such Portfolio's average daily net as-
sets attributable to such Class C Shares. In the case of broker-dealers and
others, such as banks, who have Selling or Service Agreements with the Dis-
tributor or the Fund, the maximum amount payable to any recipient is .000548%
per day (.20% on an annualized basis) of the proportion of daily net assets of
the Portfolio attributable to Class A Shares represented by such person's cus-
tomers. The maximum amount payable to any such recipient with respect to Class
B Shares is .00260% per day (.95% on an annualized basis) of the proportion of
average daily net assets of such Portfolio's attributable to Class B Shares
represented by such person's customers. The maximum amount payable to any such
recipient with respect to Class C Shares is .00205% per day (.75% on an
annualized basis) of the proportion of average daily net assets of such Port-
folio's attributable to Class C Shares represented by such person's customers.
As described in the Prospectus, the Board of Directors may reduce these
amounts at any time. All distribution expenses incurred by the Distributor and
others, such as broker-dealers or banks, in excess of the amount paid by a
Portfolio will be borne by such persons without any reimbursement from such
Portfolio.
As detailed in the chart below, under its Plan and related agreements, the
Flagship Utility Income Fund paid the amounts shown. Amounts permanently
waived by the Distributor for the same periods are also shown. There is no
historical data for Class B Shares.
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT PAID AMOUNT PERMANENTLY
ENDED JUNE 30 TO DISTRIBUTOR WAIVED BY DISTRIBUTOR
- ------------- -------------- ---------------------
<S> <C> <C>
Class A
1993 $ 53,599 $10,139
1994 128,548 --
1995 101,226 --
1996 92,234 9,861
1997 73,137 --
Class C
1994 32,610 3,378
1995 48,312 --
1996 53,871 2,578
1997 50,127 --
</TABLE>
These amounts are summarized below as to purpose:
<TABLE>
<CAPTION>
FISCAL YEAR COMPENSATION SALARIES & ADVERTISING &
ENDED JUNE 30 TO BROKERS BENEFITS PROMOTIONS OVERHEAD TOTAL
- ------------- ------------ ---------- ------------- -------- -------
<S> <C> <C> <C> <C> <C>
Class A
1993 36,042 17,557 -- -- 53,599
1994 75,919 -- 52,629 -- 128,548
1995 60,804 -- 40,422 -- 101,226
1996 60,116 23,120 8,998 -- 92,234
1997* 31,512 8,092 2,321 6,796 48,721
Class C
1994 32,610 -- -- -- 32,610
1995 37,018 5,929 4,566 799 48,312
1996 50,580 3,291 -- -- 53,871
1997* 22,239 2,138 2,638 1,696 28,711
</TABLE>
* Amounts represent the period from July 1, 1996 through December 31, 1996.
The Plan, the Distribution Agreement, the Selling Agreements and the Service
Agreements of the Fund have been renewed with respect to the Utility Income
Fund, by the Fund's Board of Directors, including a majority of the directors
who are not "interested persons" of the Fund and who have no direct or indi-
rect financial interest in the Plan or any related agreement, by vote cast in
person at meetings called for the purpose of voting on the Plan and such
agreements. Continuation of the Plan and the related agreements must be ap-
proved annually in the same manner, and the Plan or any related agreement may
be terminated at any time without penalty by a majority of such independent
directors or by a majority of a Portfolio's outstanding shares. Any amendment
increasing the maximum percentage payable under the Plan or other material
change must be approved by a majority of the respective Portfolio's outstand-
ing shares, and all other material amendments to the Plan or any related
agreement must be approved by a majority of the independent directors.
16
<PAGE>
In order for the Plan to remain effective, the selection and nomination of
directors who are not "interested persons" of the Fund must be done by the di-
rectors who are not "interested persons" and the persons authorized to make
payments under the Plans must provide written reports at least quarterly to
the Board of Directors for their review.
Also in its capacity as national wholesale underwriter for shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A and
Class C Shares offered on a continuous basis for the years ended June 30,
1993, 1994, 1995, 1996 and 1997, as follows (no commissions were received in
prior years; there is no historical data for Class B or R Shares):
<TABLE>
<CAPTION>
FISCAL YEAR AGGREGATE RETAINED BY
ENDED JUNE 30 AMOUNT DISTRIBUTOR
------------- ------------------- -----------
<S> <C> <C>
Class A
1993 $1,009,000 $46,000
1994 297,500 37,300
1995 84,100 10,200
1996 100,800 12,600
1997 18,900 2,400
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-------------------
<S> <C> <C>
Class C
1994 $ 2,600
1995 4,100
1996 1,200
1997 10,900
</TABLE>
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004 is the
custodian for the Utility Income Fund.
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachu-
setts 02106, is the transfer agent and dividend disbursing agent for the Util-
ity Income Fund. It also maintains the accounting records, determines the net
asset value and performs other stockholder services for the Utility Income
Fund.
AUDITORS
Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603, are the
independent auditors for the Fund effective July 1, 1997.
PORTFOLIO TRANSACTIONS
Subject to policy established by the Fund's Board of Directors, the Manager
is primarily responsible for the Utility Income Fund's investment decisions
and the placing of securities orders. In placing orders, it is the policy of
the Fund that the Manager obtain the best net results taking into account such
factors as price (including the dealer spread, where applicable); the size,
type and difficulty of the transaction involved; the size and breadth of the
market; the firm's general execution and operational facilities; and the
firm's risk in positioning the securities involved. While the Manager seeks
reasonably competitive prices or commissions, the Portfolio will not necessar-
ily always be paying the lowest price or commission available. The Manager
does not expect to use any one particular broker or dealer, but, subject to
obtaining best execution, brokers or dealers who provide supplemental invest-
ment research to the Fund or the Manager may receive orders for transactions
by the Fund. In addition, the Manager may direct brokerage to brokers or deal-
ers because of research services provided. Such information may be used by
other clients of the Manager and not just the Fund. Conversely, the Fund may
benefit from research services provided in respect to other clients. All re-
search shall be paid for in compliance with Section 28 (e) of the Securities
Exchange Act of 1934 or consistent with the fiduciary duties of the Board and
the Manager. Information so received will be in addition to and not in lieu of
the services required to be performed by the Manager under its Agreement and
the expenses of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information. For the fiscal year ended June 30,
1997, the Utility
17
<PAGE>
Income Fund paid $81,938 in brokerage commissions. The preferred stock and
other equity securities in which the Utility Income Fund may invest are traded
primarily on the national securities exchanges and in the over-the-counter
market. Money market securities, bonds and debentures, in which the Manager
may invest a portion of the Portfolio's assets, are usually traded over-the-
counter, but may be traded on an exchange. For listed securities, the Manager
will deal directly with the brokers and dealers who make a market in the secu-
rities involved except in those circumstances where better prices and execu-
tion are available elsewhere. Such dealers usually are acting as principal for
their own account. On occasion, securities may be purchased directly from the
issuer.
The Manager is able to fulfill its obligations to furnish a continuous in-
vestment program to the Portfolio without receiving research from brokers;
however, it considers access to such information to be an important element of
financial management. Although such information is considered useful, its
value is not determinable, as it must be reviewed and assimilated, and does
not reduce normal research activities in rendering investment advice under the
Advisory Agreement. It is possible that the Manager's expenses could be mate-
rially increased if it attempted to purchase this type of information or gen-
erate it through its own staff.
One or more of the other accounts which the Manager manages may own from
time to time the same investments as the Portfolio. Investment decisions for
the Portfolio are made independently from those of such other accounts; howev-
er, from time to time, the same investment decision may be made for more than
one company or account. When two or more companies or accounts seek to pur-
chase or sell the same securities, the securities actually purchased or sold
will be allocated among the companies and accounts on a good faith equitable
basis by the Manager in its discretion in accordance with the accounts' vari-
ous investment objectives. In some cases, this system may adversely affect the
price or size of the position obtainable for the Portfolio. In other cases,
however, the ability of the Portfolio to participate in volume transactions
may produce better execution for the Portfolio. It is the opinion of the
Fund's Board of Directors that this advantage, when combined with the other
benefits available due to the Manager's organization, outweighs any disadvan-
tages that may be said to exist from exposure to simultaneous transactions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The various manners in which the shares of the Utility Income Fund are of-
fered to the public or may be redeemed, and the method of calculation by the
Utility Income Fund of net asset value per share (which is the offering price
of the shares plus a sales charge that varies with the amount purchased) are
described in the Utility Income Fund's Prospectus.
Under "Group Purchases," shares of the Fund may be purchased at net asset
value (without sales charge) by tax-qualified employee benefit plans and by
trust companies and bank trust departments for funds over which they exercise
exclusive discretionary investment authority for which they charge customary
fees and which are held in a fiduciary, agency, advisory, custodial or similar
capacity.
SERVICEMARK AND TRADEMARK
Flagship Financial has obtained federal registration of the Fund's
servicemark. In addition, Flagship Financial was granted a federal registered
trademark for its use of "Plain Vanilla"(R) in the investment and mutual fund
area.
OTHER INFORMATION
The Prospectus and the Statement of Additional Information do not contain
all the information included in the Registration Statement filed with the SEC
under the Securities Act of 1933 and the 1940 Act with respect to the Fund and
the securities offered by it pursuant to the Prospectus, certain portions of
which have been omitted pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in the Statement of Additional In-
formation as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and the Statement of Additional Information
form a part, each such statement being qualified in all respects by such ref-
erence.
18
<PAGE>
APPENDIX I
DESCRIPTION OF SECURITIES RATINGS
STANDARD & POOR'S RATINGS GROUP(R)--A brief description of the applicable
Standard & Poor's Ratings Group rating symbols and their meanings (as pub-
lished by Standard & Poor's Corporation) follows:
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific debt obligation.
This assessment may take into consideration obligors such as guarantors, in-
surers, or lessees.
The rating is not a recommendation to purchase, sell or hold a security, in-
asmuch as it does not comment as to market price or suitability for a particu-
lar investor.
The ratings are based on current information furnished by the issuer and ob-
tained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under
the laws of bankruptcy and other laws affecting creditors' rights.
l. Long-term bonds
<TABLE>
<C> <S>
AAA Bonds rated AAA have the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB-D Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. The "CI" is reserved for income
bonds on which no interest is being paid. Debt rated "D" is in default,
and payment of interest and/or repayment of principal is in arrears.
</TABLE>
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by the
addition of a plus or a minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "P" indicates that the rating is provision-
al. A provisional rating assumes the successful completion of the project be-
ing financed by the bonds being rated and indicates that payment of debt serv-
ice requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
The investor should exercise his own judgment with respect to such likelihood
and risk.
I-1
<PAGE>
2. Preferred stock rating criteria
Preferred stock ratings reflect the merits of each issue relative to the
universe of preferreds, and not in relation to debt obligations. Since pre-
ferred stock is by definition a junior ranking security, preferred stock rat-
ings do not factor in the security's junior position--in a bankruptcy reorga-
nization or liquidation--to a company's debt obligations. However, preferred
stock cannot be rated higher than a company's highest-ranking debt obligations
because the same basic methodology and ratio norms are used to rate both types
of securities.
The financial analysis performed in conjunction with preferred stock ratings
is virtually the same as that used to rate debt. Fixed-charge coverage and
capitalization ratios are calculated treating preferred stock obligations as
though they were debt. Accordingly, if there is a substantial amount of pre-
ferred, the rating on preferred stock could differ greatly from the debt rat-
ing; the company has less capacity to pay dividends and debt service than it
has to meet debt service alone. The size of the differential is a function of
how much preferred is outstanding. (While the gap can be a full rating cate-
gory or more, a large amount of preferred will drag down the debt rating as
well. Even though a company under duress can stop paying the preferred divi-
dends to avoid default, the burden of the preferred increases the risk that
the company will face such a financial crisis. The company will pay dividends
as long as possible; this can sap its financial strength or siphon off funds
that otherwise could be used to protect the firm's competitive position.)
Preferred stock ratings also consider the vulnerability of the dividend to
the firm's discretionary passing on a payment. It is often appropriate to rate
preferred stock lower than indicated by pure financial analysis -- and well
below the debt rating--in the case of speculative grade credits. Such issuers
may be expected to eliminate preferred dividends to help avoid financial
constraints. Similarly, covenants in debt instruments can endanger payment of
preferred dividends even if financial measures indicate a capacity to pay.
MOODY'S INVESTORS SERVICE INC.--A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
l. Long-term bonds
Aaa--Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally sta-
ble, margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are more unlikely to im-
pair the fundamentally strong position of such issues. With the occasional ex-
ception of oversupply in a few specific instances, the safety of obligations
of this class is so absolute that their market value is affected solely by
money market fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all stan-
dards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of protec-
tive elements may be of greater amplitude or there may be other elements pres-
ent which make the long-term risks appear somewhat larger than the Aaa Securi-
ties. These Aa bonds are high grade, their market value virtually immune to
all but money market influences, with the occasional exception of oversupply
in a few specific instances.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as higher medium grade obligations. Factors giving secu-
rity to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to A-rated bonds may be influenced to
some degree by credit circumstances during a sustained period of depressed
business conditions. During periods of normalcy, bonds of this quality fre-
quently move in parallel with Aaa and Aa obligations, with the occasional ex-
ception of oversupply in a few specific instances.
Baa--Bonds which are rated Baa are considered as lower medium grade obliga-
tions, i.e., they are neither highly protected nor poorly secured. Interest
payments may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. The market value of Baa-rated
bonds is more sensitive to change in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa mar-
ket valuations move in parallel with Aaa, Aa, and A obligations during periods
of economic normalcy, except in instances of oversupply.
I-2
<PAGE>
Ba-C--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often, the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of po-
sition characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor stand-
ing. Such issues may be in default or there may be present elements of danger
with respect to principal or interest. Bonds which are rated Ca represent ob-
ligations which are speculative in a high degree. Such issues are often in de-
fault or have other marked shortcomings. Bonds which are rated C are the low-
est rated class of bonds, and issues so rated can be regarded as having ex-
tremely poor prospects of ever attaining any real investment standing.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier l indicates that the bond ranks at the
high end of its category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Con.--Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of pro-
jects unseasoned in operating experience, (c) rentals which begin when facili-
ties are completed, or (d) payments to which some other limiting condition at-
taches. Parenthetical rating denotes probable credit status upon completion of
construction or elimination of basis of condition.
2. Preferred Stock
<TABLE>
<C> <S>
aaa An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
ba An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payments.
c This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of everattaining
any real investment standing.
</TABLE>
- --------
*Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
I-3
<PAGE>
FITCH INVESTORS SERVICE, INC.--A brief description of the applicable Fitch
Investors Service, Inc. rating symbols and their meanings follows:
l. Long-term bonds
<TABLE>
<C> <S>
AAA Bonds considered to be investment grade and the of highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as
strong as bonds rated "AAA'. Because bonds rated in the
"AAA' and "AA' categories are not significantly vulnerable
to foreseeable future developments, short-term debt of
these issuers is generally rated "F-l+'.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse
changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the
rating category. Plus and minus signs, however, are not
used in the "AAA' category. NR Indicates that Fitch does
not rate the specific issue.
Conditional A conditional rating is premised on the successful
completion of a project or the occurrence of a specific
event.
Suspended A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for
rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is
called or refinanced, and, at Fitch's discretion, when an
issuer fails to furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and
the likely direction of such change. These are designated
as "Positive," indicating a potential upgrade, "Negative,"
for potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term,
and should be resolved within 12 months.
Credit Trend Credit trend indicators show whether credit fundamentals
are improving, stable, declining, or uncertain, as follows:
Improving
Stable
Declining
Uncertain
Credit trend indicators are not predictions that any rating
change will occur, and have a longer-term time frame than
issues placed on FitchAlert.
</TABLE>
I-4
<PAGE>
DUFF & PHELPS CREDIT RATING SCALE--A brief description of the applicable Duff
& Phelps rating symbols and their meanings follows:
<TABLE>
<C> <S>
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but
AA may vary slightly from time to time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are
A more variable and greater in periods of economic stress.
A-
BBB+ Below average protection factors but still considered sufficient for
BBB prudent investment. Considerable variability in risk during economic
BBB- cycles.
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according
BB- to industry conditions or company fortunes. Overall quality may move up
or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be
B met when due. Financial protection factors will fluctuate widely
B- according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within this
category or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD Defaulted debt obligations, issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
I-5
<PAGE>
APPENDIX II
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the 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 de-
signed 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 ex-
isting or anticipated holdings of long-term debt securities. When a fund pur-
chases a financial future, it deposits in cash or securities an "initial mar-
gin" of between 1% and 5% of the contract amount. Thereafter, the fund's ac-
count 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 addi-
tional 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 posi-
tion. At closing a final determination of debits and credits is made, addi-
tional 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 exist-
ing 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 a fund as a
hedging device, perhaps the most significant is the imperfect correlation be-
tween movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the series may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the finan-
cial futures. Conversely, the series may enter into fewer financial futures if
the historical volatility of the price of the securities being hedged is less
than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid
changes in the volume of closing transactions, whether due to volatile markets
or movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements,
the fund might find it difficult or impossible to close out a particular
transaction.
Options on Financial Futures. A fund 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 finan-
cial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The pur-
chase 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 series.
There is no guarantee that such closing transactions can be effected.
INDEX CONTRACTS
Index Futures. An index which assigns relative values to the securities in-
cluded in the index is traded on the Chicago Board of Trade. The index fluctu-
ates with changes in the market values of all such securities included rather
than a single security. An index future is a bilateral agreement pursuant to
which two parties
II-1
<PAGE>
agree to take or make delivery of an amount of cash--rather than any securi-
ty--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 simi-
lar to traditional financial futures except that settlement is made in cash.
Index Options. The Fund may also purchase put or call options on U.S. Gov-
ernment or equity index futures and enter into closing transactions with re-
spect 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 ex-
ercise 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 exer-
cise, is less than the exercise price of the option on the index future.
Index futures and options transactions would be subject to risks similar to
transactions in financial futures and options thereon as described above. No
fund will enter into transactions in index or financial futures or related op-
tions unless and until, in the Manager's opinion, the market for such instru-
ments has developed sufficiently.
REPURCHASE AGREEMENTS
A fund may invest temporarily up to 5% of its assets in repurchase agree-
ments, which are agreements pursuant to which securities are acquired by such
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 such fund is autho-
rized to invest. Repurchase agreements may be characterized as loans secured
by the underlying securities. A 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 deal-
ers meet the creditworthiness standards established by the Fund's Board of Di-
rectors ("Qualified Institutions"). The Manager will monitor the continued
creditworthiness of Qualified Institutions, subject to the oversight of the
series Board of Directors.
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 oth-
erwise, the series will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to liqui-
dation or reorganization under applicable bankruptcy or other laws, the se-
ries' ability to dispose of the underlying securities may be restricted. Fi-
nally, it is possible that the series may not be able to substantiate its in-
terest in the underlying securities. To minimize this risk, the securities un-
derlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued inter-
est. If the seller fails to repurchase the securities, the series may suffer a
loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the fund to keep all its assets earning interest while retaining "over-
night" flexibility in pursuit of investments of a longer-term nature.
II-2
<PAGE>
APPENDIX III
TAX EQUIVALENT YIELD
This chart shows the taxable yield that a corporate investor would have to
earn in order to equal the amount of after tax income generated by the given
Fund yield.
<TABLE>
<CAPTION>
FUND YIELD CORPORATE TAXABLE FUND YIELD
(BEFORE FUND YIELD (BEFORE
TAX) (AFTER TAX) TAX)
- ---------- ----------------- ----------
<S> <C> <C>
6.00% 5.37% 8.26%
7.00 6.27 9.64
8.00 7.16 11.02
9.00 8.06 12.39
10.00 8.95 13.77
11.00 9.85 15.15
12.00 10.74 16.52
13.00 11.64 17.90
14.00 12.53 19.28
15.00 13.43 20.65
16.00 14.32 22.03
</TABLE>
- --------
*Assuming that all the Fund's income qualifies for the 70% corporate dividend-
received deduction and that the corporate investor is at a maximum Federal
tax rate (35% tax rate).
III-1
<PAGE>
NUVEEN
Growth and Income
Mutual Funds
June 30, 1997
Annual Report
Seeking income for today and
growth for tomorrow.
[PHOTO APPEARS HERE]
Utility
Income Fund
<PAGE>
Contents
1 Dear Shareholder
4 Portfolio Manager's
Comments
6 Utility Income
Fund Overview
9 Financial Section
23 Shareholder Meeting Report
24 Fund Information
<PAGE>
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.
It is my pleasure to report to you on the performance of the Flagship Utility
Income Fund for the fiscal year ended June 30, 1997, and to welcome new
shareholders to the Nuveen family of investments. The fund performed well over
the past year, rewarding investors in the fund's Class A shares with a total
return on net asset value of 9.89% with income and dividends reinvested,
outpacing the 5.18% return achieved by the Standard & Poor's Utility Index.
This strong performance was achieved during an unusually volatile period within
the utility industry, as talk of deregulation took center stage in the
telecommunications and electric utility sectors.
Finding Value in Today's Market
Despite the varying market conditions among some sectors of the utility
industry, the Flagship Utility Income Fund produced consistent dividend returns
of $.635 per Class A share, resulting in a 5.52% current yield for the year. The
fund achieved its goals of providing attractive monthly income
- ------
1
<PAGE>
"The fund achieved its goals of providing attractive monthly income and
preservation of capital."
and preservation of capital. In addition, the fund continues to strive for the
long-term growth of both dividends and capital, providing a hedge against
inflation. By investing in utility stocks that have a history of increasing
dividends, the portfolio team works to ensure the long-term growth of the fund's
dividends, as well as to take advantage of the capital appreciation
opportunities in the stock market.
Expanded Investment Solutions for You
Since our last report, Flagship Resources Inc. has joined the Nuveen family of
investments. To those investors who have joined Nuveen from Flagship, we offer a
special welcome. The merging of the two investment companies has allowed us to
expand the array of products and services available to our investors. In
addition to the 35 municipal mutual funds now available, Nuveen offers a variety
of other products and services designed for the distinct needs of investors who
rely on their investment portfolios as their principal source
- ------
2
<PAGE>
of income and financial security. We are celebrating the successful first year
of our highly rated Growth and Income Fund, as well as our two new balanced
stock and bond funds. Nuveen is also now directly involved in helping individual
investors manage their investments through our private asset management service.
On behalf of everyone at Nuveen, I thank you for your confidence in us and our
family of investments. We will continue to strive to provide you with high-
quality investments that withstand the test of time. We look forward to
reporting to you again in six months.
Sincerely,
/s/ Timothy R. Schwertfeger
- -----------------------------
Timothy R. Schwertfeger
Chairman of the Board
August 15, 1997
- ------
3
<PAGE>
Portfolio Manager's Comments
Portfolio Manager Rick Huber talks about the utilities market and offers
insights into factors that affected fund performance over the past year.
Investment Goals and Objectives
The goal of the fund is to provide an attractive rate of return with long-term
growth of capital. The Utility Income Fund provides an opportunity for
conservative investors to receive the consistent level of income found in fixed-
income investments, while gaining the capital appreciation found only in equity
securities. We work to ensure that the principal grows faster than inflation
and that there is potential growth in the dividend as well.
The Market Over the Past Year
Over the past few years, utility companies across the country have been
preparing for and reacting to deregulation. The natural gas industry appears to
have recovered from the effects of the deregulation it experienced in the early
1990s. Most companies in this sector have realigned themselves to the new
market environment and are performing well. However, the effects of deregulation
in the electric utility and telecommunications sectors remain to be seen. In the
past year, five states have passed such legislation, and many others are
expected to vote on the matter in the coming year. Since talk of deregulating
electric utilities began in 1992, the prices of stocks in these companies have
become significantly more volatile. However, the Utility Income Fund has taken a
conservative approach to investing in these stocks, carefully selecting those
companies that we believe are well-positioned for the impending competitive
environment.
- ------
4
<PAGE>
"Our successful value-oriented stock selection approach has allowed us to
achieve solid performance with less risk."
Fund Performance
Our successful value-oriented stock selection approach has allowed us to achieve
solid performance with less risk. In the uncertain deregulatory environment, we
strive to preserve capital and generate consistent dividends, reducing risk and
exposure to the more volatile segments of the utility industry. With its
conservative positioning, the fund has outperformed the Standard & Poor's
Utility Index in down markets, but has lagged the index somewhat in stronger
markets.
Expectations for the Future
As the results of proposed deregulatory legislation take shape in the coming
year, prices of utility stocks are likely to become even more volatile. However,
once the fall-out occurs, the industry will begin to settle into the new
competitive environment. In the meantime, utility companies will continue to
prepare for competition, and a number of strong companies are expected to take
advantage of the domestic and international opportunities that will arise. At
Nuveen, we will continue to seek value in the marketplace, particularly in the
electric utility, natural gas and telecommunications sectors. In addition, we
will continue to moderate the volatility of the fund and support the strong
dividend with high-quality securities.
- ------
5
<PAGE>
Utility Income Fund
Overview
- -------------------------------------------------------------------------
Top Ten Stock Holdings
- -------------------------------------------------------------------------
MCN Corporation 5.7%
.........................................................................
MidAmerican Energy Holdings 4.4%
.........................................................................
Philips Gas Company 3.6%
.........................................................................
Consolidated Edison Company 3.3%
.........................................................................
Piedmont Natural Gas Company 3.1%
.........................................................................
Med-Ed Capital 3.0%
.........................................................................
Alabama Power Company 2.9%
.........................................................................
GPU, Inc. 2.9%
.........................................................................
FPL Group, Inc. 2.7%
.........................................................................
Texas Utilities Company 2.7%
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Stock Diversification
- -------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Electric 64%
Telecommunications 14%
Finance 3%
Natural Gas/Pipeline 16%
Waste Disposal 3%
- -------------------------------------------------------------------------
Fund Highlights
=========================================================================
Share Class A C
Inception Date 8/83 7/93
.........................................................................
Net Asset Value (NAV) $11.51 $11.49
.........................................................................
Last Monthly Dividend .0529 .0481
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Total Net Assets ($000) $25,711
.........................................................................
Number of Stocks 43
.........................................................................
Turnover Rate 128%
.........................................................................
Expense Ratio (after reimbursement) 0.98% 1.53%
.........................................................................
Portfolio Allocation Common Stocks Preferred Stocks
63% 37%
- -------------------------------------------------------------------------
Annualized Total Return/1/
=========================================================================
Share Class A(NAV) A(Offer) C
1-Year 9.89% 5.28% 9.25%
.........................................................................
Since Inception/2/ 8.96% 8.02% 8.35%
- -------------------------------------------------------------------------
Dividend Yields
=========================================================================
Share Class A(NAV) A(Offer) C
Distribution Rate 5.52% 5.29% 5.02%
.........................................................................
SEC 30-Day Yield 4.22% 4.04% 3.67%
=========================================================================
-----
6
<PAGE>
Flagship Utility Income Fund
June 30, 1997 Annual Report
1 Returns for Class A are actual. Returns for Class C are actual for the period
since inception and prior to class inception are the returns for Class A,
adjusted for the difference in sales charge and expenses. Class A shares have
a 4.20% maximum sales charge. Class C shares have a 1% CDSC for redemptions
within one year, which is not reflected in the 1-year total return.
2 Since inception returns are reflected since the change in investment
objectives as of 7/01/92.
3 The Index Comparison shows the change in value of a $10,000 investment in the
A shares of the fund compared with the Standard & Poor's 500 Index and the
Standard & Poor's Utility Index. The S&P Indexes do not reflect any initial
or ongoing expenses. The Utility Income Fund return depicted in the chart
reflects the initial maximum sales charge applicable to A shares (4.20%) and
all ongoing fund expenses.
[LINE GRAPH APPEARS HERE]
Flagship Utility Flagship Utility
Income Fund (Offer) Income Fund (NAV) S&P Utility Index S&P 500
- ------------------- ----------------- ----------------- -------
9580 10000 10000 10000
9796.03 10225.5 10741 10403
9842.94 10274.5 10613.2 10192.9
9907.09 10341.5 10787.2 10310.1
9849.24 10281.1 10637.3 10347.2
9885.44 10318.9 10572.4 10695.9
10088.3 10530.6 11056.6 10836
10263.1 10713.1 11180.5 10915.1
10629.1 11095.2 11936.3 11062.5
10776.3 11248.7 12244.2 11300.3
10773.9 11246.3 11936.9 11023.5
10743.6 11214.7 11878.4 11321.1
11095.9 11582.4 12529.3 11358.5
11250.6 11743.9 12761.1 11305.1
11598 12106.4 13326.4 11735.8
11590.1 12098.1 13403.7 11648.9
11512.5 12017.2 13323.3 11885.4
11115.3 11602.6 12595.9 11773.7
11212 11703.6 12642.5 11918.5
11185.1 11675.5 12680.4 12317.8
10799.1 11272.5 11908.1 11985.2
10469 10928 11603.3 11463.8
10691.9 11160.5 11833 11612.9
10506 10966.5 11460.3 11802.2
10338.6 10791.7 11601.3 11510.6
10577.5 11041.1 11935.4 11891.6
10635.4 11101.5 11845.9 12375.6
10400.4 10856.3 11658.7 12077.4
10458.9 10917.3 11701.8 12354
10319.5 10771.8 11473.7 11900.6
10400.6 10856.4 11645.8 12074.3
10835.1 11310 12494.7 12388.2
11044.4 11528.5 12418.5 12868.9
11004.2 11486.6 12449.6 13249.8
11219.6 11711.4 12845.5 13635.4
11640.8 12151 13193.6 14174
11654.7 12165.5 13373 14507.1
11693.3 12205.7 13653.8 14990.2
11823.6 12341.8 13869.6 15030.6
12332.2 12872.8 14864 15660.4
12614.2 13167 15156.8 15605.6
12802.6 13363.8 15302.4 16292.3
13192.3 13770.5 16517.3 16593.7
13360.9 13946.5 16667.7 17164.5
13196.4 13774.7 15946 17329.3
13106.1 13680.5 15737.1 17495.6
12906.4 13472 15847.2 17752.8
12922.9 13489.2 15744.2 18210.8
13381.7 13968.2 16525.1 18285.5
13000.2 13570 15416.3 17471.8
13174.5 13752 15775.5 17842.2
13201.4 13780 15926.9 18844.9
13585.7 14181.2 16718.5 19361.3
14031.2 14646.2 17093 20830.8
14048.2 14663.9 16988.7 20422.5
14189.9 14811.7 17072 21698.4
14330.7 14958.8 16928.6 21868.5
13933.1 14543.8 16415.6 20971.7
13886.4 14495 16691.8 22221.7
14358.4 14987.6 17435.7 23572.7
14705.5 15349.9 17974.3 24628.8
. S&P 500 $24,629
. S&P Utility Index $17,974
. Flagship Utility Income Fund (NAV) $15,350
. Flagship Utility Income Fund (Offer) $14,705
Past performance is not predictive of future performance.
-----
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
12 Statement of Net Assets
13 Statement of Operations
14 Statement of Changes
in Net Assets
15 Notes to Financial Statements
19 Financial Highlights
22 Independent Auditors' Report
- -----
9
<PAGE>
Portfolio of Investments
Flagship Utility Income Fund
Shares Description Market Value
- ------------------------------------------------------------------------------
COMMON STOCK--61.1%
Electric Utility--39.3%
19,500 CMS Energy Corporation $ 687,375
20,000 DTE Energy Company 552,500
10,000 Duke Energy Corp. 479,375
22,250 DQE, Inc. 628,563
23,000 Edison International 572,125
24,700 Entergy Corporation 676,163
15,000 Florida Progress Corporation 469,687
15,000 FPL Group, Inc. 690,938
20,000 GPU, Inc. 717,500
14,900 NIPSCO Industries, Inc. 615,556
25,000 Ohio Edison Company 545,312
20,000 Public Service Enterprise Group, Inc. 500,000
28,600 Rochester Gas & Electric Corporation 602,387
15,000 SCANA Corporation 372,187
20,000 Southern Company 437,500
20,000 Texas Utilities Company 688,750
18,600 United Illuminating Company 574,275
10,000 UtiliCorp United, Inc. 291,250
- --------------------------------------------------------------------------------
Natural Gas/Pipeline--8.9%
10,000 Consolidated Natural Gas Company 538,125
21,400 MCN Corporation 655,375
15,000 NUI Corporation 336,562
30,000 Piedmont Natural Gas Company, Inc. 770,625
- --------------------------------------------------------------------------------
Telecommunications--9.7%
10,000 Ameritech Corporation 679,375
10,000 BellSouth Corporation 463,750
10,000 GTE Corporation 438,750
10,000 MCI Communications Corporation 382,813
10,000 Sprint Corporation 526,250
- --------------------------------------------------------------------------------
-----
10
<PAGE>
Flagship Utility Income Fund
June 30, 1997 Annual Report
<TABLE>
<CAPTION>
Shares Description Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C>
Common Stock--continued
Waste Disposal--3.2%
15,000 Browning-Ferris Industries, Inc. $ 498,750
10,000 Waste Management, Inc. 321,250
- -------------------------------------------------------------------------------------
Total Common Stock (cost $14,316,812) 15,713,068
- -------------------------------------------------------------------------------------
Preferred Stock--36.6%
Electric Utility--23.5%
30,000 Alabama Power Company (7.600%) 735,000
20,000 Atlantic Energy, Inc. (8.250%) 495,000
33,400 Consolidated Edison Company (7.750%) Series A 826,650
17,969 Houston Industries, Incorporated (8.125%) 445,856
20,000 Illinois Power Company (9.450%) Series A 523,750
30,000 Med-Ed Capital (9.000%) Series A 761,250
44,000 MidAmerican Energy Holdings Company (7.980%) Series A 1,100,000
20,000 Mission Energy Company (9.875%) Series A 537,500
25,000 Western Resources, Inc. (7.875%) Series A 612,500
- -------------------------------------------------------------------------------------
Finance--2.5%
26,875 Pacific Telesis Group (7.560%) 651,719
- -------------------------------------------------------------------------------------
Natural Gas/Pipeline--6.6%
30,000 MCN Corporation (9.375%) Series A 787,500
35,000 Phillips Gas Company (9.320%) Series A 910,000
- -------------------------------------------------------------------------------------
Telecommunications--4.0%
20,000 GTE Corporation (9.250%) Series Z 532,500
20,000 MCI Communications Corporation (8.000%) Series A 500,000
- -------------------------------------------------------------------------------------
Total Preferred Stock (cost $9,378,490) 9,419,225
----------------------------------------------------------------------
Total Investments (cost $23,695,302) 97.7% 25,132,293
----------------------------------------------------------------------
Other Assets Less Liabilities--2.3% 578,958
----------------------------------------------------------------------
Net Assets--100% $ 25,711,251
======================================================================
</TABLE>
- ----- See accompanying notes to financial statements.
11
<PAGE>
Statement of Net Assets
June 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
Assets
Investment securities, at market value (cost $23,695,302)
(note 1) $ 25,132,293
Cash 736,704
Receivables:
Dividends and interest 98,621
Shares sold 4,882
Other assets 2,633
- -------------------------------------------------------------------------------
Total assets 25,975,133
- -------------------------------------------------------------------------------
Liabilities
Payable for Shares redeemed 63,637
Accrued expenses:
Management fees (note 6) 6,513
12b-1 distribution and service fees (notes 1 and 6) 10,958
Other 65,576
Dividends payable 117,198
- -------------------------------------------------------------------------------
Total liabilities 263,882
- -------------------------------------------------------------------------------
Net assets (note 7) $ 25,711,251
===============================================================================
Class A Shares (note 1)
Net assets $ 20,156,732
Shares outstanding 1,751,260
Net asset value and redemption price per share $ 11.51
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 12.01
===============================================================================
Class C Shares (note 1)
Net assets $ 5,554,519
Shares outstanding 483,391
Net asset value, offering and redemption price per share $ 11.49
===============================================================================
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
Statement of Operations Flagship Utility Income Fund
Year ended June 30, 1997 June 30, 1997 Annual Report
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
Investment Income (note 1)
Dividends $ 1,960,325
Interest 5,302
- -------------------------------------------------------------------------------
Total investment income 1,965,627
- -------------------------------------------------------------------------------
Expenses
Management fees (note 6) 141,226
12b-1 distribution and service fees -- Class A (notes 1 and 6) 73,137
12b-1 distribution and service fees -- Class C (notes 1 and 6) 50,127
Shareholders' servicing agent fees and expenses 57,986
Custodian's fees and expenses 53,761
Directors' fees and expenses (note 6) 6,338
Professional fees 26,371
Shareholders' reports -- printing and mailing expenses 21,620
Federal and state registration fees 33,758
Other expenses 1,922
- -------------------------------------------------------------------------------
Total expenses before reimbursement 466,246
Expense reimbursement (note 6) (158,085)
- -------------------------------------------------------------------------------
Net expenses 308,161
- -------------------------------------------------------------------------------
Net investment income 1,657,466
- -------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) From Investments
Net realized gain from investment transactions (notes 1 and 4) 2,155,531
Net change in unrealized appreciation or depreciation
of investments (1,227,092)
- -------------------------------------------------------------------------------
Net gain from investments 928,439
- -------------------------------------------------------------------------------
Net increase in net assets from operations $ 2,585,905
===============================================================================
</TABLE>
13 See accompanying notes to financial statements.
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
6/30/97 6/30/96
=================================================================================
<S> <C> <C>
Operations
Net investment income $ 1,657,466 $ 1,814,538
Net realized gain from investment transactions
(notes 1 and 4) 2,155,531 777,426
Net change in unrealized appreciation
or depreciation of investments (1,227,092) 1,636,281
---------------------------------------------------------------------------------
Net increase in net assets from operations 2,585,905 4,228,245
---------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (1,294,422) (1,498,943)
Class C (301,321) (318,359)
---------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (1,595,743) (1,817,302)
---------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 2,079,070 5,651,810
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 814,896 1,008,036
---------------------------------------------------------------------------------
2,893,966 6,659,846
---------------------------------------------------------------------------------
Cost of shares redeemed (9,484,267) (8,260,723)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions (6,590,301) (1,600,877)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets (5,600,139) 810,066
Net assets at the beginning of year 31,311,390 30,501,324
---------------------------------------------------------------------------------
Net assets at the end of year $25,711,251 $31,311,390
=================================================================================
Balance of undistributed net
investment income at end of year $ 61,723 $ --
=================================================================================
</TABLE>
===== See accompanying notes to financial statements.
14
<PAGE>
Notes to Financial Statements Flagship Utility Income Fund
June 30, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Flagship Utility Income Fund (the "Fund") is a series of Flagship Admiral
Funds Inc. (the "Corporation"), a Maryland corporation registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund seeks to provide current income and
long-term growth of income and capital by investing primarily in the preferred
and common stocks of companies in the public utilities industry. The Fund will
seek capital appreciation as a secondary objective.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co. Incorporated,
the distributor (the "Distributor") of the Fund, 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.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
Common stocks and other equity-type securities are valued at the last sales
price on the national securities exchange on which such securities are primarily
traded; however, securities traded on a national securities exchange for which
there are no transactions on a given day or securities not listed on a national
securities exchange are valued at the mean between the last reported bid and
asked prices. Any securities or other assets for which market quotations are not
readily available are valued at fair value as determined in good faith by the
Board of Directors. Short-term investments 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 Fund has instructed the custodian
to segregate assets in a separate account with a current value at least equal
to the amount of its when-issued and delayed delivery purchase commitments. At
June 30, 1997, the Fund had no such outstanding purchase commitments.
Investment Income
Dividend income is recorded on the ex-dividend date. Interest income is
determined on the basis of interest accrued, adjusted for amortization of
premiums and accretion of discounts.
Dividends and Distributions to Shareholders
Net investment income is declared and distributed to shareholders monthly. Prior
to February 1997, net investment income was declared daily and distributed to
shareholders monthly. Net realized capital gains from investment transactions,
if any, are declared and distributed to shareholders not less frequently than
annually.
=====
15
<PAGE>
Notes to Financial Statements--continued
Furthermore, capital gains are distributed only to the extent they exceed
available capital loss carryovers.
Distributions to shareholders of net investment income and net realized capital
gains, if any, 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 and/or
distributions in excess of net realized gains from investment transactions,
where applicable.
Federal Income Taxes
The Fund intends to distribute all taxable income and capital gains to
shareholders and to otherwise comply with the requirements of Subchapter M of
the Internal Revenue Code applicable to regulated investment companies.
Therefore, no federal tax provision is required.
Flexible Sales Charge Program
The Fund is authorized to issue Class A, B, C and R Shares but to date has not
issued Class B or Class R Shares. Class A Shares are sold with a sales charge
and incur an annual 12b-1 distribution and service fees. 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 on 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 at the end of eight
years. 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 Fund may invest in options and futures transactions, which are sometimes
referred to as derivative transactions as well as restricted securities.
Although the Fund is authorized to invest in such financial instruments, and may
do so in the future, it did not make any such investments during the fiscal
year ended June 30, 1997.
Expense Allocation
Expenses of the Fund 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 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.
=====
16
<PAGE>
Flagship Utility Income Fund
June 30, 1997 Annual Report
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
6/30/97 6/30/96
- ------------------------------------------------------------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------
Shares sold:
<S> <C> <C> <C> <C>
Class A 139,470 $ 1,528,638 376,821 $ 4,133,502
Class C 49,660 550,432 140,200 1,518,308
Shares issued to shareholders due to
reinvestment of distributions:
Class A 58,233 645,196 73,749 794,949
Class C 15,336 169,700 19,781 213,087
- ------------------------------------------------------------------------------------
262,699 2,893,966 610,551 6,659,846
- ------------------------------------------------------------------------------------
Shares redeemed:
Class A (700,730) (7,812,755) (637,030) (6,879,696)
Class C (150,184) (1,671,512) (128,817) (1,381,027)
- ------------------------------------------------------------------------------------
(850,914) (9,484,267) (765,847) (8,260,723)
- ------------------------------------------------------------------------------------
Net increase (decrease) (588,215) $(6,590,301) (155,296) $(1,600,877)
- ------------------------------------------------------------------------------------
</TABLE>
3. Distributions to Shareholders
On July 9, 1997, the Fund declared a dividend distribution from its net
investment income which was paid on August 1, 1997, to shareholders of record
on July 9, 1997, as follows:
- ----------------------------------------------------------------------------
Dividend per share:
Class A $.0529
Class C .0481
- ----------------------------------------------------------------------------
4. Securities Transactions
Purchases and sales (including maturities) of investments in common and
preferred stocks for the fiscal year ended June 30, 1997, equaled $35,892,430
and $42,989,894, respectively. Purchases and sales (including maturities) of
temporary investments for the fiscal year ended June 30, 1997 equaled
$1,000,000 and $1,000,000, respectively.
At June 30, 1997, the identified cost of investments owned for federal income
tax purposes may differ from the cost used for financial reporting purposes.
At June 30, 1997, the Fund has unused capital loss carryforwards of $5,923,494
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied $1,285,220 of the carryover will expire in the
year 1998, $1,876,786 will expire in the year 1999, $1,241,875 will expire in
the year 2002 and $1,519,613 will expire in the year 2003.
5. Unrealized Appreciation (Depreciation)
At June 30, 1997, net unrealized appreciation aggregated $1,436,991 of which
$1,800,907 related to appreciated securities and $363,916 related to
depreciated securities.
17
<PAGE>
Notes to Financial Statements--continued
6. Management Fee and Other Transactions with Affiliates
Under the Fund's investment management agreement with Nuveen Advisory Corp. (the
"Adviser"), a wholly owned subsidiary of The John Nuveen Company, the Fund pays
an annual management fee, payable monthly, which is based upon the average daily
net asset value of the Fund as follows:
Average daily net asset value Management fee
- --------------------------------------------------------------------------------
For the first $100 million .5000 of 1%
For the next $100 million .4500 of 1
For the next $100 million .4000 of 1
For the next $200 million .3500 of 1
For net assets over $500 million .3000 of 1
- --------------------------------------------------------------------------------
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Fund pays no
compensation directly to its Directors who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Fund
from the Adviser.
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 June 30, 1997, the Distributor and its predecessor
(Flagship Funds Inc., a wholly owned subsidiary of Flagship Resources Inc.)
collected gross sales charges on Class A Shares of approximately $18,900 of
which approximately $16,500 were paid out as concessions to authorized dealers.
The Distributor and its predecessor also received 12b-1 distribution and service
fees on Class A Shares, approximately one-half of which was paid to compensate
authorized dealers for providing services to shareholders relating to their
investments.
During the fiscal year ended June 30, 1997, the Distributor and its predecessor
compensated authorized dealers directly with approximately $2,400 in commission
advances. To compensate for commissions advanced to authorized dealers, all
12b-1 distribution and service fees collected on Class C Shares during the first
year following a purchase were retained by the Distributor. The remaining 12b-1
fees charged to the Fund were paid to compensate authorized dealers for
providing services to shareholders relating to their investments. The
Distributor and its predecessor also collected and retained $10,900 of CDSC on
share redemptions for the fiscal year ended June 30, 1997.
7. Composition of Net Assets
At June 30, 1997, the Fund had 200,000,000 shares of $.001 par value common
stock authorized. Net assets consisted of:
- --------------------------------------------------------------------------------
Capital paid-in $30,222,448
Balance of undistributed net investment income 61,723
Accumulated net realized gain (loss) from investment transactions (6,009,911)
Net unrealized appreciation of investments 1,436,991
- --------------------------------------------------------------------------------
Net assets $25,711,251
================================================================================
18
<PAGE>
Financial Highlights
19
<PAGE>
Financial Highlights
Selected data for a common share outstanding is as follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
--------------------- -------------------------
Net
FLAGSHIP UTILITY INCOME FUND*** Net realized and Net Total
asset unrealized Dividends asset return
value Net gain (loss) from net Distributions value on net
Year ending beginning investment from investment from capital end of asset
June 30, of period income(b) investments income gains period value(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (8/83)
1997 $11.09 $ .66 $ .40 $ (.64) $ -- $ 11.51 9.89%
1996 10.24 .64 .85 (.64) -- 11.09 14.82
1995 9.69 .64 .55 (.64) -- 10.24 12.73
1994 11.04 .63 (1.34) (.64) -- 9.69 (6.83)
1993** 10.18 .67 .86 (.67) -- 11.04 15.86
1992 9.51 .67 .69 (.69) -- 10.18 14.69
1991 10.45 .76 (.88) (.82) -- 9.51 (1.14)
1990 11.17 .80 (.50) (1.02) -- 10.45 2.56
1989 12.35 1.06 (1.27) (.97) -- 11.17 (1.70)
1988 15.50 1.15 (3.12) (1.18) -- 12.35 (13.60)
Class C (7/93)
1997 11.08 .61 .38 (.58) -- 11.49 9.25
1996 10.24 .58 .84 (.58) -- 11.08 14.15
1995 9.69 .59 .55 (.59) -- 10.24 12.14
1994(d) 11.05 .59 (1.39) (.56) -- 9.69 (7.52)*
====================================================================================================================================
</TABLE>
* Annualized.
** All amounts have been adjusted for a 3-for-1 stock split which occurred on
July 1, 1992.
*** Information included prior to the year ending June 30, 1991, reflects
the financial highlights of Flagship Basic Value Fund.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses by
Nuveen Advisory or its predecessor Flagship Financial.
(c) Average commission rate paid on equity portfolio transactions.
Commissions paid are included in the cost of the securities. Disclosure
was not required prior to June 30, 1996.
(d) From commencement of class operations as noted.
20
<PAGE>
Flagship Utility Income Fund
June 30, 1997 Annual Report
<TABLE>
<CAPTION>
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
Net assets before before after after Portfolio Average
end of period reimburse- reimburse- reimburse- reimburse- turnover commission
(in thousands) ment ment ment(b) ment(b) rate rate paid(c)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$20,157 1.54% 5.41% .98% 5.97% 128% $.0633
25,010 1.45 5.35 .98 5.82 115 .0640
25,000 1.52 6.00 1.00 6.52 159 --
26,921 1.38 5.48 .94 5.92 193 --
32,819 1.62 5.72 1.03 6.31 154 --
6,050 1.62 6.52 1.42 6.72 59 --
12,830 1.62 7.65 1.48 7.79 116 --
16,934 1.23 7.27 1.21 7.29 148 --
32,692 1.23 9.03 1.23 9.03 120 --
84,749 1.00 7.88 1.00 7.88 186 --
5,555 2.09 4.91 1.53 5.47 128 .0633
6,302 2.00 4.79 1.52 5.27 115 .0640
5,501 2.06 5.49 1.54 6.01 159 --
5,129 2.04* 5.11* 1.46* 5.69* 193 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------
21
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Flagship Utility Income Fund:
We have audited the accompanying statement of net assets of Flagship Utility
Income Fund ("Fund"), including the portfolio of investments, as of June 30,
1997, the related statement of operations for the year then ended and the
statement of changes in net assets, and the financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the Fund's custodian. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Flagship Utility
Income Fund at June 30, 1997, the results of its operations, the changes in its
net assets and the financial highlights for the respective stated periods, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
August 20, 1997
- ------
22
<PAGE>
Shareholder Meeting Report
Flagship Utility
<TABLE>
<CAPTION>
Directors A Shares C Shares
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Bremner For 1,643,619 463,468
Withhold 35,257 --
Abstain 31,008 --
------------------------------------------------------
Total 1,709,884 463,468
- -------------------------------------------------------------------------------
Brown For 1,643,619 463,468
Withhold 35,257 --
Abstain 31,008 --
------------------------------------------------------
Total 1,709,884 463,468
- -------------------------------------------------------------------------------
Dean For 1,643,619 463,468
Withhold 35,257 --
Abstain 31,008 --
------------------------------------------------------
Total 1,709,884 463,468
- -------------------------------------------------------------------------------
Impellizzeri For 1,643,619 463,468
Withhold 35,257 --
Abstain 31,008 --
------------------------------------------------------
Total 1,709,884 463,468
- -------------------------------------------------------------------------------
Rosenheim For 1,643,619 463,468
Withhold 35,257 --
Abstain 31,008 --
------------------------------------------------------
Total 1,709,884 463,468
- -------------------------------------------------------------------------------
Sawers For 1,643,619 463,468
Withhold 35,257 --
Abstain 31,008 --
------------------------------------------------------
Total 1,709,884 463,468
- -------------------------------------------------------------------------------
Schneider For 1,643,619 463,468
Withhold 35,257 --
Abstain 31,008 --
------------------------------------------------------
Total 1,709,884 463,468
- -------------------------------------------------------------------------------
Schwertfeger For 1,643,619 463,468
Withhold 35,257 --
Abstain 31,008 --
------------------------------------------------------
Total 1,709,884 463,468
- -------------------------------------------------------------------------------
Advisory Agreement For 1,384,645 367,336
Against 46,254 9,642
Abstain 37,621 11,370
------------------------------------------------------
Total 1,468,520 388,348
- -------------------------------------------------------------------------------
Broker Non Votes 241,364 75,120
- -------------------------------------------------------------------------------
12b-1 Plan For 1,404,956 371,378
Against 62,956 12,245
Abstain 608 4,725
------------------------------------------------------
Total 1,468,520 388,348
- -------------------------------------------------------------------------------
Broker Non Votes 241,364 75,120
------------------------------------------------------
</TABLE>
- ------
23
<PAGE>
Fund Information
Board of Directors
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
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and Dividend Disbursing Agent
Boston Financial Data Service
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
24
<PAGE>
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
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach--purchasing securities of strong companies and
communities that represent good long-term value--is the cornerstone of Nuveen's
investment philosophy. It is a careful, long-term strategy that offers the
potential for attractive returns with moderated risk. Successful value investing
begins with in-depth research and a discerning eye for marketplace opportunity.
Nuveen's team of investment professionals is backed by the discipline, resources
and expertise of almost a century of investment experience, including one of the
most recognized research departments in the industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com EAN-UI-6.97
<PAGE>
NUVEEN
Growth and Income
Mutual Funds
June 30, 1997
Annual Report
Seeking income for today and
growth for tomorrow.
[PHOTO APPEARS HERE]
The Golden
Rainbow
A James Advised
Mutual Fund
<PAGE>
Contents
1 Dear Shareholder
3 Portfolio Adviser's Comments
6 Golden Rainbow
Fund Overview
9 Financial Section
23 Shareholder Meeting Report
24 Fund Information
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
It is my pleasure to report to you on the performance of The Golden Rainbow Fund
and to welcome new shareholders to the Nuveen family of investments. The fund
performed well over the past year, providing investors with a total return of
16.53% with income and dividends reinvested. This performance was achieved
through a balanced portfolio strategy that combined equity growth with the
capital preservation and income available from bonds. The Golden Rainbow Fund
also produced dividends of $.677 per share, resulting in a 3.68% current yield
for the year.
The fund achieved its goal of providing capital appreciation during rising
markets, while providing a measure of downside protection. The portfolio's
allocation of 44% in stocks allowed investors to take advantage of the rising
stock market, while the 56% in bonds and cash provided consistent income and
capital preservation. Balanced funds like The Golden Rainbow Fund can provide
the reduced risk that gives investors peace of mind in a volatile market.
Since our last report, Flagship Resources Inc. has joined the Nuveen family of
investments. To those investors who have joined Nuveen from Flagship, we offer a
special welcome. The merging of the two investment companies has allowed us to
expand the products and services available to our investors. In addition to the
35 municipal mutual funds now available, Nuveen offers a variety of
Wealth takes a lifetime to build. Once achieved, it should be preserved.
- -------
1
<PAGE>
"The fund achieved its goal of providing capital appreciation during rising
markets, while providing a measure of downside protection."
other products and services designed to help prudent investors achieve their
financial objectives. We are celebrating the successful first year of our highly
rated Growth and Income Stock Fund, as well as two new balanced stock and bond
funds.
Nuveen prides itself on helping more than 1.3 million investors maintain the
lifestyle they currently enjoy by providing quality investment solutions with
moderated risk. We thank you for your confidence in Nuveen and our family of
investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
August 15, 1997
- ------
2
<PAGE>
Portfolio Adviser's Comments
Portfolio Adviser Barry James talks about the stock and bond markets over the
past year and offers insights into the market factors affecting the performance
of the fund.
Investment Goals and Objectives
One focus of The Golden Rainbow Fund is on capital preservation. We take a
prudent approach to investing in stocks, and we strive to moderate the risks
inherent in the stock market with a balance of corporate and government bonds
that changes with market conditions. Our goal is to take advantage of the
opportunities for appreciation in rising markets, while moderating risks during
down markets.
Investment Philosophy
We follow a conservative approach to money management, using a value-oriented
investment approach to select stocks and bonds for the fund's portfolio. Our
investment philosophy is to seek appreciation while remaining committed to
capital preservation. To this end, we utilize a top-down approach to investing.
This means that we continuously analyze general economic trends, including the
direction of interest rates and the outlook for inflation. We filter this
information to identify promising markets, industry sectors and specific equity
issues.
Strategy for Meeting Fund Objectives
With the stock market at the high levels we have experienced over the past year,
we are currently maintaining a solid position in equities; however, as the
market conditions change, we will make appropriate adjustments in our asset
allocation. Our portfolio team analyzes nearly 100 market indicators each week
to determine our investment strategies and asset allocation for the future.
- ------
3
<PAGE>
"The fund performed well this year, rewarding investors with a total return of
16.53% with dividends and income reinvested."
The Market Over the Past Year
With the Dow Jones Industrial Average climbing to new heights throughout the
past fiscal year, we found a number of strong investment opportunities in the
stock market. We anticipated an overall decline in the market in the summer of
1996, and were able to take advantage of some temporary price declines to
purchase top-quality large-capitalization stocks. Our analysis indicated that
these stocks would quickly bounce back from the decline, which presented an
excellent value-buying opportunity. The bond market remained relatively stable,
experiencing a slight decline early in 1997, when the Federal Reserve elected to
raise interest rates 25 basis points in a preemptive strike against inflation.
Fund Performance
The fund performed well this year, rewarding investors with a total return of
16.53% with dividends and income reinvested. The returns for this fiscal year
are more than twice those of the previous year, reflecting the strength of the
stock market's performance and the heavier weighting we placed in stocks this
year. The opportunity to purchase strong, large-capitalization stocks such as
Procter & Gamble and Intel at a good value paid off for the fund. In addition,
we found good value with a number of foreign issues such as Coca-Cola FEMSA (the
Mexico soft drink company).
- ------
4
<PAGE>
Of course, our returns were moderated by our prudent approach to investing. We
maintained a conservative position in equities and also diversified our holdings
with securities such as Real Estate Investment Trusts, precious metals and
utility stocks.
Although the fund underperformed the Lipper Balanced Fund Index return of
20.62%, this is to be expected given the fund's more conservative positioning
and heavier weighting in bonds.
Expectations for the Future
The upcoming year will be a time for caution in the stock market. Our market
indicators suggest that growth in equity returns will be lower for the remainder
of 1997, so we are focusing on finding solid values with limited volatility,
particularly issues with lower price-to-earnings ratios. The portfolio team
will also maintain a careful watch on signs of inflation. And, as we continue to
seek value in the stock market, we will look to smaller company stocks and will
seek value in the foreign markets as well.
- ------
5
<PAGE>
Golden Rainbow
Overview
Top Ten Stock Holdings
<TABLE>
<S> <C>
Intel Corporation 10.7%
- ----------------------------------------------------
Coca-Cola FEMSA S.A. ADR 9.5%
- ----------------------------------------------------
Duke Power Company 7.2%
- ----------------------------------------------------
Bristol-Myers Squibb Company 6.6%
- ----------------------------------------------------
Mobil Corporation 6.0%
- ----------------------------------------------------
Exxon Corp 5.7%
- ----------------------------------------------------
Newmont Mining Corporation 5.7%
- ----------------------------------------------------
British Petroleum PLC ADR 5.3%
- ----------------------------------------------------
YPF S.A. ADR 5.0%
- ----------------------------------------------------
Barrick Gold Corporation 3.8%
====================================================
</TABLE>
Stock Diversification
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Basic Materials 11%
- ----------------------------------------------------
Utilities 19%
- ----------------------------------------------------
Consumer Non-Cyclical 15%
- ----------------------------------------------------
Technology 11%
- ----------------------------------------------------
Other 2%
- ----------------------------------------------------
Energy 14%
- ----------------------------------------------------
Finance 4%
- ----------------------------------------------------
International 24%
- ----------------------------------------------------
</TABLE>
Fund Highlights
================================================================================
<TABLE>
<CAPTION>
Share Class A
<S> <C>
Inception Date 7/91
- --------------------------------------------------------------------------------
Net Asset Value (NAV) $19.31
- --------------------------------------------------------------------------------
Last Quarterly Dividend .1702
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $157,183
- --------------------------------------------------------------------------------
Number of Stocks 30
- --------------------------------------------------------------------------------
Expense Ratio (after reimbursement) 1.09%
- --------------------------------------------------------------------------------
</TABLE>
Portfolio Allocation Stocks Corporate Bonds U.S. Govt. Obligations Cash
45% 1% 51% 3%
- --------------------------------------------------------------------------------
Annualized Total Return/1/
================================================================================
<TABLE>
<CAPTION>
Share Class A(NAV) A(Offer)
<S> <C> <C>
1-Year 16.53% 11.63%
5-Year 11.22% 10.27%
- --------------------------------------------------------------------------------
Since Inception 11.06% 10.26%
- --------------------------------------------------------------------------------
</TABLE>
Dividend Yields
================================================================================
<TABLE>
<CAPTION>
Share Class A(NAV) A (Offer)
<S> <C> <C>
Distribution Rate 3.53% 3.38%
- --------------------------------------------------------------------------------
SEC 30-Day Yield 3.68% 3.52%
- --------------------------------------------------------------------------------
</TABLE>
------
6
<PAGE>
The Golden Rainbow A James Advised Mutual Fund
June 30, 1997 Annual Report
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
The The
Golden Golden
Rainbow Rainbow
Fund Fund S&P Blended
(Offer) (NAV) 500 50/50
<S> <C> <C> <C> <C>
7/91 9,580.0 10,000.0 10,000.0 10,000.0
7/92 10,564.4 11,027.5 11,346.7 11,351.3
7/93 12,474.0 13,020.8 12,888.1 12,722.4
7/94 12,286.6 12,825.2 13,060.8 12,795.3
7/95 14,319.7 14,947.5 16,460.8 15,100.4
7/96 15,400.2 16,075.4 20,748.0 17,384.2
8/97 17,945.0 18,731.8 27,945.5 20,940.4
</TABLE>
[_] S&P 500 $27,945.55
[_] Blended 50/50 $20,940.39
[_] The Golden Rainbow Fund (NAV) $18,731.75
[_] The Golden Rainbow Fund (Offer) $17,945.01
Past performance is not predictive of future performance.
1 Returns are adjusted for the maximum 4.20% sales charge.
2 The Index Comparison shows the change in value of a $10,000 investment in
shares of The Golden Rainbow Fund compared with the Standard & Poor's 500
Index and a Blended 50/50 Index. The Blended Index is comprised of a 50%
weighting in the S&P 500 and 50% in the Lehman Brothers Intermediate
Corporate/Government Bond Index. The indexes do not reflect any initial or
ongoing expenses. The fund return depicted in the chart reflects the initial
maximum sales charge of 4.20% and all ongoing fund expenses.
------
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
12 Statement of Net Assets
13 Statement of Operations
14 Statement of Changes
in Net Assets
15 Notes to Financial Statements
19 Financial Highlights
22 Independent Auditors' Report
9
<PAGE>
Portfolio of Investments
The Golden Rainbow A James Advised Mutual Fund
<TABLE>
<CAPTION>
Market
Shares Description Value
- -------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--44.4%
Automotive--0.3%
10,000 General Motors Corporation $ 556,875
- -------------------------------------------------------------------------
Basic Materials--5.0%
119,900 Barrick Gold Corporation 2,637,800
21,200 E.I. du Pont de Nemours and Company Ltd. 1,332,950
101,050 Newmont Mining Corporation 3,940,950
- -------------------------------------------------------------------------
Consumer Non-Cyclical--6.7%
57,000 Bristol-Myers Squibb Company 4,617,000
22,000 Hershey Foods Corporation 1,216,875
35,900 Johnson & Johnson 2,311,063
16,500 Procter & Gamble 2,330,625
- -------------------------------------------------------------------------
Energy--6.1%
65,000 Exxon Corporation 3,997,500
60,000 Mobil Corporation 4,192,500
32,250 Williams Company 1,410,938
- -------------------------------------------------------------------------
Finance--1.6%
53,300 Health and Retirement Property Trust 1,002,706
8,000 Public Storage Property Trust 234,000
40,750 Security Capital Industrial Trust 876,125
20,000 Universal Health Realty Inc. 378,750
- -------------------------------------------------------------------------
Industrial--0.6%
13,000 Case Corporation 895,375
- -------------------------------------------------------------------------
International--10.9%
49,354 British Petroleum PLC ADR 3,695,381
128,000 Coca-Cola FEMSA S.A. ADR 6,608,000
20,000 Telecom New Zealand ADR 815,000
31,000 Telefonica De Argentina ADR 1,073,375
42,500 Telefonos Chile ADR 1,402,500
113,000 YPF S.A. ADR 3,474,750
- -------------------------------------------------------------------------
Technology--5.0%
5,000 Eastman Kodak Company 383,750
52,400 Intel Corporation 7,430,975
- -------------------------------------------------------------------------
Utilities--8.2%
30,000 Ameritech Corporation 2,038,125
22,000 Columbia Gas 1,435,500
104,718 Duke Power Company 5,019,919
45,200 Energen Corporation 1,522,675
56,000 NIPSCO Industries 2,313,500
30,000 Washington Water and Power Company 588,750
- -------------------------------------------------------------------------
Total Common Stocks--(cost $42,091,370) 69,734,232
- -------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount Description Value
====================================================================================================================================
<S> <C> <C>
Corporate Bonds - 0.9%
500,000 GTE Corporation, 7.510%, 4/01/09 $ 514,840
500,000 Illinois Bell Telephone, 7.125%, 7/01/23 473,672
500,000 Procter & Gamble, 7.375%, 3/1/23 489,788
- ------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds - (cost $1,515,967) 1,478,300
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Obligations -- 50.1%
9,000,000 U.S. Treasury Notes, 6.250%, 4/30/01 8,977,500
5,000,000 U.S. Treasury Notes, 6.500%, 5/31/01 5,028,125
12,000,000 U.S. Treasury Notes, 6.875%, 5/15/06 12,247,500
9,000,000 U.S. Treasury Notes, 7.000%, 7/15/06 9,258,750
21,000,000 U.S. Treasury Notes, 6.250%, 2/15/07 20,540,625
500,000 U.S. Treasury Bonds, 10.375%, 11/15/09 607,657
2,000,000 U.S. Treasury Bonds, 10.000%, 5/15/10 2,407,500
3,000,000 U.S. Treasury Bonds, 6.250%, 8/15/23 2,775,939
5,000,000 Federal Home Loan Bank Bonds, 6.500%, 3/10/00 5,007,300
3,000,000 Federal Home Loan Bank Bonds, 7.000%, 1/28/02 3,011,019
8,910,296 Government National Mortgage Association, 7.500%, 9/15/26 8,932,599
- ------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Obligations - (cost $77,679,396) 78,794,514
----------------------------------------------------------------------------------------------------------
Short-Term Investments - 3.0%
Vista Government Money Market Fund (at cost) 4,717,264
----------------------------------------------------------------------------------------------------------
Total Investments - (cost $126,003,997) - 98.4% 154,724,310
----------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.6% 2,459,167
----------------------------------------------------------------------------------------------------------
Net Assets - 100% $157,183,477
==========================================================================================================
------ See accompanying notes to financial statements.
11
</TABLE>
<PAGE>
Statement of Net Assets
June 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
<S> <C>
Assets
Investment securities, at market value (cost $126,003,997) (note 1) $ 154,724,310
Receivables:
Dividends and interest 1,521,573
Investments sold 1,472,428
Shares sold 12,965
Other assets 6,186
- -----------------------------------------------------------------------------------------
Total assets 157,737,462
- -----------------------------------------------------------------------------------------
Liabilities
Cash overdraft 339,304
Payable for Shares redeemed 17,396
Accrued expenses:
Management fees (note 4) 96,409
12b-1 distribution and service fees (notes 1 and 4) 44,589
Other 56,287
- -----------------------------------------------------------------------------------------
Total liabilities 553,985
- -----------------------------------------------------------------------------------------
Net assets (note 5) $ 157,183,477
=========================================================================================
Shares outstanding 8,138,864
=========================================================================================
Net asset value and redemption price per share $ 19.31
=========================================================================================
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 20.16
=========================================================================================
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
Statement of Operations The Golden Rainbow A. James Advised Mutual Fund
Year ended June 30,1997 June 30, 1997 Annual Report
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
<S> <C>
Investment Income (note 1)
Dividends $ 1,768,647
Interest 6,224,523
- ----------------------------------------------------------------------------------------
Total investment income 7,993,170
- ----------------------------------------------------------------------------------------
Expenses
Management fees (note 4) 1,252,243
12b-1 distribution and service fees--Class A (notes 1 and 4) 676,534
Shareholders' servicing agent fees and expenses 34,534
Custodian's fees and expenses 63,035
Directors' fees and expenses (note 4) 6,110
Professional fees 54,390
Federal and state registration fees 4,264
Other expenses 8,979
- ----------------------------------------------------------------------------------------
Total expenses before expense reimbursement 2,100,089
Expense reimbursement (note 4) (254,532)
- ----------------------------------------------------------------------------------------
Net expenses 1,845,557
- ----------------------------------------------------------------------------------------
Net investment income 6,147,613
- ----------------------------------------------------------------------------------------
Realized and Unrealized Gain From Investments
Net realized gain from investment transactions (notes 1 and 3) 7,061,120
Net change in unrealized appreciation or depreciation of investments 12,505,157
- ----------------------------------------------------------------------------------------
Net gain from investments 19,566,277
- ----------------------------------------------------------------------------------------
Net increase in net assets from operations $ 25,713,890
========================================================================================
</TABLE>
13 See accompanying notes to financial statements.
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
6/30/97 6/30/96
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 6,147,613 $ 7,756,168
Net realized gain from investment transactions
(notes 1 and 3) 7,061,120 12,088,033
Net change in unrealized appreciation or depreciation
of investments 12,505,157 (5,260,060)
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 25,713,890 14,584,141
- ----------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income (6,084,217) (7,849,812)
From accumulated net realized gains from investment transactions (3,654,423) (13,926,555)
- ----------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (9,738,640) (21,776,367)
- ----------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 6,057,561 23,343,645
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 8,979,282 19,977,346
- ----------------------------------------------------------------------------------------------------------
15,036,843 43,320,991
- ----------------------------------------------------------------------------------------------------------
Cost of shares redeemed (58,135,678) (43,294,230)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
fund share transactions (43,098,835) 26,761
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (27,123,585) (7,165,465)
Net assets at beginning of year 184,307,062 191,472,527
- ----------------------------------------------------------------------------------------------------------
Net assets at end of year $157,183,477 $184,307,062
==========================================================================================================
Balance of undistributed net investment income at end of year $ 71,720 $ 8,324
==========================================================================================================
</TABLE>
14 See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
The Golden Rainbow A James Advised Mutual Fund
June 30, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Golden Rainbow A James Advised Mutual Fund (the "Fund") is a series of
Flagship Admiral Funds Inc. (the "Corporation"), a Maryland corporation
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The Fund seeks to provide total return through a combination of growth and
income primarily in equity and/or debt securities and preservation of capital
in declining markets.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co. Incorporated,
the distributor (the "Distributor") and manager (the "Manager") of the Fund,
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.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements, in accordance with
generally accepted accounting principles.
Securities Valuation
Common stocks and other equity-type securities are valued at the last sales
price on the national securities exchange on which such securities are
primarily traded; however, securities traded on a national securities exchange
for which there are no transactions on a given day or securities not listed on a
national securities exchange are valued at the mean between the last reported
bid and asked prices. Restricted securities and other portfolio securities for
which market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Directors.
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 Fund has instructed the custodian
to segregate assets in a separate account with a current value at least equal
to the amount of its when-issued and delayed delivery purchase commitments. At
June 30, 1997, the Fund had no such outstanding purchase commitments.
Investment Income
Dividend income is recorded on the ex-dividend date. 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
Net investment income is distributed to shareholders quarterly. Net realized
capital gains 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 carryovers.
- -----
15
<PAGE>
Notes to Financial Statements--continued
Distributions to shareholders of net investment income and net realized capital
gains 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 and/or
distributions in excess of net realized gains from investment transactions,
where applicable.
Federal Income Taxes
The Fund intends to distribute all taxable income and capital gains to
shareholders and to otherwise comply with the requirements of Subchapter M of
the Internal Revenue Code applicable to regulated investment companies.
Therefore, no federal tax provision is required.
Flexible Sales Charge Program
The Fund is authorized to issue Class A, B, C and R Shares but to date has not
issued Class B, C or R Shares. Class A Shares are sold to the public with a
sales charge and incur annual 12b-1 distribution and service fees. Class A
Shares are offered at net asset value to certain trust customers of Citizens
Federal Bank, F.S.B. ("Citizens Federal"). 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 contingent deferred sales charge
("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 at the end of eight years. 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 Fund may invest in options and futures transactions, which are sometimes
referred to as derivative transactions as well as restricted securities.
Although the Fund is authorized to invest in such financial instruments, and may
do so in the future, it did not make any such investments during the fiscal year
ended June 30, 1997.
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.
- -----
16
<PAGE>
The Golden Rainbow A James Advised Mutual Fund
June 30, 1997 Annual Report
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
6/30/97 6/30/96
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 332,181 1,286,586
Shares issued to shareholders due to reinvestment of distributions 492,197 1,116,623
- ---------------------------------------------------------------------------------------------------------------------
824,378 2,403,209
- ---------------------------------------------------------------------------------------------------------------------
Shares redeemed (3,180,078) (2,390,075)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (2,355,700) 13,134
=====================================================================================================================
</TABLE>
3. Securities Transactions
Purchases and sales (including maturities) of investments in common and
preferred stocks for the fiscal year ended June 30, 1997, equaled $19,683,946
and $31,312,580, respectively. Purchases and sales of investments in U.S.
government obligations for the fiscal year ended June 30, 1997, equaled
$69,158,044 and $91,560,874, respectively.
At June 30, 1997, the identified cost of investments owned for federal income
tax purposes was the same as the cost for financial reporting purposes.
The net unrealized appreciation for financial reporting and federal income tax
purposes aggregated $28,720,313, of which $29,143,110 related to appreciated
securities and $422,797 related to depreciated securities.
4. Management Fee and Other Transactions with Affiliates
Under the Fund's investment management agreement with the Manager, the Fund pays
an annual management fee, payable monthly, of .74 of 1%, which is based upon the
average daily net asset value of the Fund. The management fee compensates the
Manager for overall investment advisory and administrative services and general
office facilities. The Manager has entered into an Agreement with James
Investment Research, Inc. (the "Adviser"), under which the Adviser manages the
Fund's investment portfolio. The Adviser is compensated for its services from
the management fee paid to the Manager. The Fund pays no compensation directly
to its Directors who are affiliated with the Manager or to its officers, all of
whom receive remuneration for their services to the Fund from the Manager.
The Manager may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended June 30, 1997, the Distributor and its predecessor
(Flagship Funds Inc., a wholly owned subsidiary of Flagship Resources Inc.)
collected gross sales charges on Class A Shares of approximately $3,300 of which
approximately $2,900 were paid out as concessions to authorized dealers. The
Distributor and its predecessor also received 12b-1 distribution and service
fees on Class A Shares approximately one-half of which was paid to compensate
authorized dealers for providing services to shareholders relating to their
investments.
- -----
17
<PAGE>
Notes to Financial Statements--continued
5. Composition of Net Assets
At June 30, 1997, the Fund had 100,000,000 shares of $.001 par value common
stock authorized. Net assets consisted of:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Capital paid-in $121,330,337
Balance of undistributed net investment income 71,720
Accumulated net realized gain from investment transactions 7,061,107
Net unrealized appreciation of investments 28,720,313
- ---------------------------------------------------------------------------------------------------------
Net assets $157,183,477
=========================================================================================================
</TABLE>
- ------
18
<PAGE>
Financial Highlights
- ------
19
<PAGE>
Financial Highlights
Selected data for a common share outstanding is as follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
--------------------- -------------------------
THE GOLDEN RAINBOW
A JAMES ADVISED MUTUAL FUND
Net
Net realized and Net Total
asset unrealized Dividends asset return
value Net gain (loss) from net Distributions value on net
Year ending beginning investment from investment from capital end of asset
June 30, of period income(b) investments income gains period value(a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (7/91)
1997 $17.56 $ .66 $ 2.16 $ (.68) $ (.39) $19.31 16.53%
1996 18.27 .73 .61 (.74) (1.31) 17.56 7.76
1995 16.67 .69 1.94 (.68) (.35) 18.27 16.55
1994 17.81 .66 (.89) (.66) (.25) 16.67 (1.49)
1993 15.88 .76 2.05 (.75) (.13) 17.81 18.09
1992(d) 15.00 .87 .90 (.87) (.02) 15.88 11.91
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total returns are calculated on net asset value without any
sales charge.
(b) After waiver of certain management fees or reimbursement of
expenses by John Nuveen & Co. Incorporated or its predecessor
Flagship Funds Inc.
(c) Average commission rate paid on equity portfolio transactions.
Commissions paid are included in the cost of the securities.
Disclosure was not required prior to June 30, 1996.
(d) Fund commenced operations as noted.
- -----
20
<PAGE>
The Golden Rainbow A James Advised Mutual Fund
June 30, 1997 Annual Report
<TABLE>
<CAPTION>
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
Net assets before before after after Portfolio Average
end of period reimburse- reimburse- reimburse- reimburse- turnover commission
(in thousands) ment ment ment(b) ment(b) rate rate paid(c)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$157,183 1.24% 3.48% 1.09% 3.63% 56% $.0846
184,307 1.26 3.81 1.06 4.01 83 .0832
191,473 1.27 3.82 1.04 4.05 48 --
188,747 1.24 3.42 .96 3.70 31 --
179,209 1.28 4.18 1.02 4.44 38 --
124,563 1.33 5.27 1.09 5.51 10 --
====================================================================================================================================
</TABLE>
- -----
21
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
The Golden Rainbow A James Advised Mutual Fund:
We have audited the accompanying statement of net assets of The Golden Rainbow
A James Advised Mutual Fund ("Fund"), including the portfolio of investments, as
of June 30, 1997, the related statement of operations for the year ended and the
statement of changes in net assets, and the financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the Fund's custodian. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Golden Rainbow A
James Advised Mutual Fund at June 30, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
August 20, 1997
22
<PAGE>
Shareholder Meeting Report
The Golden Rainbow
A James Advised Mutual Fund
<TABLE>
<CAPTION>
Directors A Shares
<S> <C>
=============================================================================
Bremner For 9,672,037
Withhold 5,725
Abstain 1,185
-----------------------------------------------------
Total 9,678,947
=============================================================================
Brown For 9,672,037
Withhold 5,725
Abstain 1,185
-----------------------------------------------------
Total 9,678,947
=============================================================================
Dean For 9,672,037
Withhold 5,725
Abstain 1,185
-----------------------------------------------------
Total 9,678,947
=============================================================================
Impellizzeri For 9,672,037
Withhold 5,725
Abstain 1,185
-----------------------------------------------------
Total 9,678,947
=============================================================================
Rosenheim For 9,672,037
Withhold 5,725
Abstain 1,185
-----------------------------------------------------
Total 9,678,947
=============================================================================
Sawers For 9,672,037
Withhold 5,725
Abstain 1,185
-----------------------------------------------------
Total 9,678,947
=============================================================================
Schneider For 9,672,037
Withhold 5,725
Abstain 1,185
-----------------------------------------------------
Total 9,678,947
=============================================================================
Schwertfeger For 9,672,037
Withhold 5,725
Abstain 1,185
-----------------------------------------------------
Total 9,678,947
=============================================================================
Advisory Agreement For 9,676,522
Against --
Abstain 2,425
-----------------------------------------------------
Total 9,678,947
=============================================================================
Broker Non Votes --
=============================================================================
12b-1 Plan For 9,673,799
Against 3,891
Abstain 1,257
-----------------------------------------------------
Total 9,678,947
=============================================================================
Broker Non Votes --
-----------------------------------------------------
</TABLE>
======
23
<PAGE>
Fund Information
Board of Directors
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 Adviser
James Investment Research, Inc.
Beavercreek, Ohio
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Boston Financial Data Service
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
=====
24
<PAGE>
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
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach--purchasing securities of strong companies and
communities that represent good long-term value--is the cornerstone of Nuveen's
investment philosophy. It is a careful, long-term strategy that offers the
potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com EAN-GR-6.97
<PAGE>
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
List all financial statements and exhibits as part of the Registration
Statement.
(a) FINANCIAL STATEMENTS:
Included in Part A of the Registration Statement:
Financial Highlights for each series.
Included in Part B of the Registration Statement:
Audited Financial Statements for fiscal year ended June 30, 1997 for
each series of the Registrant.
Schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are omitted because they
are not required under the related instructions, they are inapplicable, or the
required information is presented in the financial statements or notes
thereto.
(b) EXHIBITS:
<TABLE>
<C> <S>
(1) Articles of Incorporation*
(a) Amendments approved on October 15, 1987*
(b) Articles Supplementary*
(c) Articles Supplementary classifying Golden Rainbow Stock*
(d) Articles of Amendment dated June 5, 1992*
(e) Articles Supplementary classifying Flagship Short Term
U.S. Government Fund Stock, Flagship Medium Term U.S.
Government Fund Stock and Flagship Long Term U.S. Govern-
ment Fund Stock*
(f) Articles Supplementary creating sub-classes for Golden
Rainbow Stock*
(2)(a) By-Laws*
(b) By-Laws as amended*
(c) Amended and Restated By-Laws*
(4)(a) Form of Certificate of Basic Value Fund Portfolio Stock*
(b) Form of Certificate of Plus Fund Portfolio Stock*
(c) Form of Certificate for the Golden Rainbow Fund Stock*
(d) Form of Certificate of Flagship Utility Income Fund Stock*
(e) Form of Certificate of Flagship Short Term U.S. Government
Fund Stock*
(f) Form of Certificate of Flagship Medium Term U.S. Govern-
ment Fund Stock*
(g) Form of Certificate of Flagship Long Term U.S. Government
Fund Stock*
(5)(a) Investment Management Agreement between Flagship Utility
Income Fund and Nuveen Advisory Corp., dated January 1,
1997.
(b) Form of Plus Fund Advisory Agreement*
(c) Instrument Relating to Typographical Error*
(d) Form of Investment Advisory Agreement--Golden Rainbow
Fund*
(e) Management Agreement between The Golden Rainbow A James
Advised Mutual Fund and Nuveen Advisory Corp., dated Jan-
uary 1, 1997.
(f) Form of Investment Advisory Agreement--Flagship Short Term
U.S. Government Fund*
(g) Form of Investment Advisory Agreement--Flagship Medium
Term U.S. Government Fund*
(h) Form of Investment Advisory Agreement--Flagship Long Term
U.S. Government Fund*
(i) Assignment and Assumption of Rights and Obligations be-
tween Flagship Financial, Inc. and Nuveen Advisory Corp.
concerning the Investment Advisory Agreement of The
Golden Rainbow Fund, dated January 1, 1997.
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
(6)(a) Distribution Agreement between Flagship Admiral Funds,
Inc. and John Nuveen & Co. Incorporated, dated January 1,
1997.
(b) Selling Agreement*
(c) Form of Distribution Agreement--Golden Rainbow Fund*
(d) Form of Selling Agreement--Golden Rainbow Fund*
(e) Form of Distribution Agreement--Flagship Short Term U.S.
Government Fund*
(f) Form of Distribution Agreement--Flagship Medium Term U.S.
Government Fund*
(g) Form of Distribution Agreement--Flagship Long Term U.S.
Government Fund*
(8) Custodian Agreement as amended
(9)(a) Transfer Agent and Service Agreement between Flagship Ad-
miral Funds Inc. and State Street Bank and Trust Company,
dated February 1, 1997.
(b) Asset Purchase Agreement*
(10)(a) Opinion and Consent of Counsel, Fried, Frank, Harris,
Shriver & Jacobson.
(b) Opinion and Consent of Counsel as to Series Stock*
(c) Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom as to Tax Matters*
(d) Opinion and Consent of Counsel for GR Fund Stock*
(e) Opinion and Consent of Counsel as to validity of Flagship
Short, Medium and Long Term U.S. Government Fund Stock*
(11) Consent of Deloitte & Touche LLP, Independent Auditors.
(13) Letter of Understanding relating to initial capital*
(15)(a) Distribution Plan*
(b) Service Agreement*
(c) Form of Distribution Plan--Golden Rainbow Fund*
(d) Form of Distribution Plan--Flagship Short Term U.S. Gov-
ernment Fund*
(e) Form of Distribution Plan--Flagship Medium Term U.S. Gov-
ernment Fund*
(f) Form of Distribution Plan--Flagship Long Term U.S. Govern-
ment Fund*
(16) Yield and Total Return Calculations
(17) Financial Data Schedules
(18) Rule 18f-3 Plan*
(99)(a). Original Powers of Attorney for the Trustees authorizing,
among others, Gifford R. Zimmerman and Larry W. Martin to
execute the Registration Statement.
(99)(b). Certified copy of Resolution of Board of Trustees autho-
rizing the signing of the names of trustees and officers
on the Registrant's Registration Statement pursuant to
power of attorney.
(99)(c). Code of Ethics and Reporting Requirements.
</TABLE>
- --------
*Previously filed.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
C-2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of October 8, 1997, the approximate number of holders was:
<TABLE>
<CAPTION>
(1) (2)
NUMBER OF
RECORD
TITLE OF CLASS HOLDERS
-------------- ---------
<S> <C>
Shares of common stock, par value $.001 per share...............
Flagship Utility Income Fund
Class A........................................................ 738
Class C........................................................ 187
The Golden Rainbow A James Advised Mutual Fund.................. 66
</TABLE>
ITEM 27. INDEMNIFICATION.
Please see Article IX (S) 1 of the Registrant's By-Laws (Exhibit 2) and
Section 2-418 of the Maryland General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant and the investment advisor and distributor pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant and the
principal underwriter in connection with the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person or the Distributor in connection with the shares
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Nuveen Advisory Corp. serves as investment adviser to the following open-end
management type investment companies: Nuveen Flagship Multistate Trust I,
Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III,
Nuveen Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust, Flagship
Admiral Funds Inc., Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free
Money Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., and Nuveen
Tax-Free Reserves, Inc. It also serves as investment adviser to the following
closed-end management type investment companies: Nuveen Municipal Value Fund,
Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York Municipal
Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium Income
Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc., Nuveen
California Performance Plus Municipal Fund, Inc., Nuveen New York Performance
Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc., Nuveen
Municipal Market Opportunity Fund, Inc., Nuveen California Municipal Market
Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc., Nuveen
California Investment Quality Municipal Fund, Inc., Nuveen New York Investment
Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund, Inc.,
Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey Investment
Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality Municipal
Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California Select
Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal Fund,
Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured Municipal
Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund, Nuveen
Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc. Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium
C-3
<PAGE>
Income Municipal Fund, Nuveen Massachusetts Premium Income Municipal Fund,
Nuveen Virginia Premium Income Municipal Fund, Nuveen Washington Premium
Income Municipal Fund, Nuveen Connecticut Premium Income Municipal Fund,
Nuveen Georgia Premium Income Municipal Fund, Nuveen Missouri Premium Income
Municipal Fund, Nuveen North Carolina Premium Income Municipal Fund, Nuveen
California Premium Income Municipal Fund, and Nuveen Insured Premium Income
Municipal Fund 2. Nuveen Advisory Corp. has no other clients or business at
the present time. The principal business address for all of these investment
companies is 333 West Wacker Drive, Chicago, Illinois 60606.
For a description of other business, profession, vocation or employment of a
substantial nature in which any director or officer, other than Timothy R.
Schwertfeger and Anthony T. Dean, of the investment adviser has engaged during
the last two years for his account or in the capacity of director, officer,
employee, partner or trustee, see the descriptions under "Management" in the
Statement of Additional Information.
Timothy R. Schwertfeger is Chairman and Director of Nuveen Advisory Corp., the
investment adviser. Mr. Schwertfeger has, during the last two years, been
Chairman and Director and formerly Executive Vice President and Director of
the John Nuveen Company, John Nuveen & Co. Incorporated, and Nuveen
Institutional Advisory Corp. Anthony T. Dean is President and Director of
Nuveen Advisory Corp., the investment adviser. Mr. Dean has, during the last
two years, been President (since July 1996) and Director and formerly
Executive Vice President and Director of The John Nuveen Company, John Nuveen
& Co. Incorporated and Nuveen Institutional Advisory Corp.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) John Nuveen & Co., Incorporated ("Nuveen") acts as principal underwriter
to the following open-end management type investment companies: Nuveen
Flagship Multistate Trust I, Nuveen Flagship Multistate Trust II, Nuveen
Flagship Multistate Trust III, Nuveen Flagship Multistate Trust IV, Nuveen
Flagship Municipal Trust, Nuveen California Tax-Free Fund, Inc., Nuveen Tax-
Free Money Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc.,
Nuveen Tax-Free Reserves, Inc., Flagship Admiral Funds Inc., and Nuveen
Investment Trust. Nuveen also acts as depositor and principal underwriter of
the Nuveen Tax-Exempt Unit Trust and Nuveen Unit Trusts, registered unit
investment trusts. Nuveen has also served or is serving as co-managing
underwriter to the following closed-end management type investment companies:
Nuveen Municipal Value Fund, Inc., Nuveen California Municipal Value Fund,
Inc., Nuveen New York Municipal Value Fund, Inc., Nuveen Municipal Income
Fund, Inc., Nuveen Premium Income Municipal Fund, Inc., Nuveen Performance
Plus Municipal Fund, Inc., Nuveen California Performance Plus Municipal Fund,
Inc., Nuveen New York Performance Plus Municipal Fund, Inc., Nuveen Municipal
Advantage Fund, Inc., Nuveen Municipal Market Opportunity Fund, Inc., Nuveen
California Municipal Market Opportunity Fund, Inc., Nuveen Investment Quality
Municipal Fund, Inc., Nuveen California Investment Quality Municipal Fund,
Inc., Nuveen New York Investment Quality Municipal Fund, Inc., Nuveen Insured
Quality Municipal Fund, Inc., Nuveen Florida Investment Quality Municipal
Fund, Nuveen New Jersey Investment Quality Municipal Fund, Inc., Nuveen
Pennsylvania Investment Quality Municipal Fund, Nuveen Select Quality
Municipal Fund, Inc., Nuveen California Select Quality Municipal Fund, Inc.,
Nuveen New York Select Quality Municipal Fund, Inc., Nuveen Quality Income
Municipal Fund, Inc., Nuveen Insured Municipal Opportunity Fund, Inc., Nuveen
Florida Quality Income Municipal Fund, Nuveen Michigan Quality Income
Municipal Fund, Inc., Nuveen Ohio Quality Income Municipal Fund, Inc., Nuveen
Texas Quality Income Municipal Fund, Nuveen California Quality Income
Municipal Fund, Inc., Nuveen New York Quality Income Municipal Fund, Inc.,
Nuveen Premier Municipal Income Fund, Inc., Nuveen Premier Insured Municipal
Income Fund, Inc., Nuveen Premium Income Municipal Fund 2, Inc., Nuveen
Insured California Premium Income Municipal Fund, Inc., Nuveen Insured New
York Premium Income Municipal Fund, Inc., Nuveen Select Maturities Municipal
Fund, Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Insured
Florida Premium Income Municipal Fund, Nuveen Michigan Premium Income
Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund, Inc.,
Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North
Carolina Premium Income Municipal Fund, Nuveen California Premium Income
Municipal Fund, Nuveen Insured Premium Income Municipal Fund 2, Nuveen Select
Tax-Free Income Portfolio, Nuveen Select Tax-Free Income Portfolio 2, Nuveen
Insured California Select Tax-Free Income Portfolio, Nuveen Insured New York
Select Tax-Free Income Portfolio and Nuveen Select Tax-Free Income Portfolio
3.
C-4
<PAGE>
(b)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- --------------------------------------------------------------------------------
<S> <C> <C>
Timothy R. Schwertfeger Chairman of the Board, Chairman of the Board
333 West Wacker Drive Chief Executive Officer and Trustee
Chicago, IL 60606
Anthony T. Dean President President and Trustee
333 West Wacker Drive
Chicago, IL 60606
Bruce P. Bedford Executive Vice President None
333 West Wacker Drive
Chicago, IL 60606
John P. Amboian Executive Vice President None
333 West Wacker Drive and Chief Financial Officer
Chicago, IL 60606
William Adams IV Vice President None
333 West Wacker Drive
Chicago, IL 60606
Richard P. Davis Vice President None
One South Main Street
Dayton, OH 45402
Clifton L. Fenton Vice President None
333 West Wacker Drive
Chicago, IL 60606
Kathleen M. Flanagan Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Stephen D. Foy Vice President None
333 West Wacker Drive
Chicago, IL 60606
Robert D. Freeland Vice President None
333 West Wacker Drive
Chicago, IL 60606
Michael G. Gaffney Vice President None
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Robert B. Kuppenheimer Vice President None
19900 MacArthur Blvd.
Irvine, CA 92612
Larry W. Martin Vice President and Vice President and
333 West Wacker Drive Assistant Secretary Assistant Secretary
Chicago, IL 60606
Thomas C. Muntz Vice President None
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ------------------------------------------------------------------------------------
<S> <C> <C>
O. Walter Renfftlen Vice President Vice President and
333 West Wacker Drive and Controller Controller
Chicago, IL 60606
Stuart W. Rogers Vice President None
333 West Wacker Drive
Chicago, IL 60606
Bradford W. Shaw, Jr. Vice President None
333 West Wacker Drive
Chicago, IL 60606
H. William Stabenow Vice President Vice President and
333 West Wacker Drive and Treasurer Treasurer
Chicago, IL 60606
Paul C. Williams Vice President None
333 West Wacker Drive
Chicago, IL 60606
Gifford R. Zimmerman Vice President Vice President and
333 West Wacker Drive and Assistant Secretary Assistant Secretary
Chicago, IL 60606
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholder meetings and contracts of the Registrant and all advisory material
of the investment adviser.
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004
maintains all general and subsidiary ledgers, journals, trial balances,
records of all portfolio purchases and sales, and all other required records
not maintained by Nuveen Advisory Corp., Shareholder Services, Inc. or Boston
Financial.
Boston Financial Data Services, 225 Franklin Street, Boston, Massachusetts
02106 maintains all the required records in its capacity as transfer, dividend
paying, and shareholder service agents for the Funds.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant will furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders upon
request and without charge.
C-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT THIS REGISTRATION STATEMENT
MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS UNDER PARAGRAPH (B) OF RULE 485
UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE 27 DAY OF
OCTOBER, 1997.
FLAGSHIP ADMIRAL FUNDS INC.
/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 AND
ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ O. Walter Renfftlen
-------------------------------
O. Walter Renfftlen Vice President and October 27, 1997
Controller (Principal
Financial and
Accounting Officer) By /s/ Gifford R. Zimmerman
Timothy R. Schwertfeger Chairman of the Board -------------------------
and Trustee (Principal Gifford R. Zimmerman
Executive Officer) Attorney-in-Fact
Anthony T. Dean President and Trustee October 27, 1997
Robert P. Bremner Trustee
Lawrence H. Brown Trustee
Anne E. Impellizzeri Trustee
Peter R. Sawers Trustee
William J. Schneider Trustee
Judith M. Stockdale Trustee
</TABLE>
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, HAS BEEN EXECUTED AND IS FILED AS AN
EXHIBIT.
C-7
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-1A
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------- ------- ------
<C> <S> <C>
(1) Articles of Incorporation*
(a) Amendments approved on October 15, 1987*
(b) Articles Supplementary*
(c) Articles Supplementary classifying Golden Rainbow Stock*
(d) Articles of Amendment dated June 5, 1992*
(e) Articles Supplementary classifying Flagship Short Term U.S.
Government Fund Stock, Flagship Medium Term U.S. Govern-
ment Fund Stock and Flagship Long Term U.S. Government
Fund Stock*
(f) Articles Supplementary creating sub-classes for Golden
Rainbow Stock*
(2)(a) By-Laws*
(b) By-Laws as amended*
(c) Amended and Restated By-Laws*
(4)(a) Form of Certificate of Basic Value Fund Portfolio Stock*
(b) Form of Certificate of Plus Fund Portfolio Stock*
(c) Form of Certificate for the Golden Rainbow Fund Stock*
(d) Form of Certificate of Flagship Utility Income Fund Stock*
(e) Form of Certificate of Flagship Short Term U.S. Government
Fund Stock*
(f) Form of Certificate of Flagship Medium Term U.S. Government
Fund Stock*
(g) Form of Certificate of Flagship Long Term U.S. Government
Fund Stock*
(5)(a) Investment Management Agreement between Flagship Utility
Income Fund and Nuveen Advisory Corp., dated January 1,
1997.
(b) Form of Plus Fund Advisory Agreement*
(c) Instrument Relating to Typographical Error*
(d) Form of Investment Advisory Agreement--Golden Rainbow Fund*
(e) Management Agreement between The Golden Rainbow A James Ad-
vised Mutual Fund and Nuveen Advisory Corp., dated January
1, 1997.
(f) Form of Investment Advisory Agreement--Flagship Short Term
U.S. Government Fund*
(g) Form of Investment Advisory Agreement--Flagship Medium Term
U.S. Government Fund*
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------- ------- ------
<C> <S> <C>
(h) Form of Investment Advisory Agreement--Flagship Long Term
U.S. Government Fund*
(i) Assignment and Assumption of Rights and Obligations between
Flagship Financial, Inc. and Nuveen Advisory Corp. con-
cerning the Investment Advisory Agreement of The Golden
Ranbow Fund, dated January 1, 1997.
(6)(a) Distribution Agreement between Flagship Admiral Funds, Inc.
and John Nuveen & Co. Incorporated, dated January 1, 1997.
(b) Selling Agreement*
(c) Form of Distribution Agreement--Golden Rainbow Fund*
(d) Form of Selling Agreement--Golden Rainbow Fund*
(e) Form of Distribution Agreement--Flagship Short Term U.S.
Government Fund*
(f) Form of Distribution Agreement--Flagship Medium Term U.S.
Government Fund*
(g) Form of Distribution Agreement--Flagship Long Term U.S.
Government Fund*
(8) Custodian Agreement as amended
(9)(a) Transfer Agent and Service Agreement between Flagship Admi-
ral Funds, Inc. and State Street Bank and Trust Company,
dated February 1, 1997.
(b) Asset Purchase Agreement*
(10)(a) Opinion and Consent of Counsel, Fried, Frank, Harris,
Shriver & Jacobson.
(b) Opinion and Consent of Counsel as to Series Stock*
(c) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
as to Tax Matters*
(d) Opinion and Consent of Counsel for GR Fund Stock*
(e) Opinion and Consent of Counsel as to validity of Flagship
Short, Medium and Long Term U.S. Government Fund Stock*
(11) Consent of Deloitte & Touche LLP, Independent Auditors.
(13) Letter of Understanding relating to initial capital*
(15)(a) Distribution Plan*
(b) Service Agreement*
(c) Form of Distribution Plan--Golden Rainbow Fund*
(d) Form of Distribution Plan--Flagship Short Term U.S. Govern-
ment Fund*
(e) Form of Distribution Plan--Flagship Medium Term U.S. Gov-
ernment Fund*
(f) Form of Distribution Plan--Flagship Long Term U.S. Govern-
ment Fund*
(16) Yield and Total Return Calculations
(17) Financial Data Schedules
(18) Rule 18f-3 Plan*
(99)(a). Original Powers of Attorney for the Trustees authorizing,
among others, Gifford R. Zimmerman and Larry W. Martin to
execute the Registration Statement.
(99)(b). Certified copy of Resolution of Board of Trustees authoriz-
ing the signing of the names of trustees and officers on
the Registrant's Registration Statement pursuant to power
of attorney.
(99)(c). Code of Ethics and Reporting Requirements.
</TABLE>
- --------
*Previously filed.
C-9
<PAGE>
EXHIBIT 5(a)
INVESTMENT MANAGEMENT AGREEMENT
-------------------------------
AGREEMENT made as of the 1st day of January, 1997, by and between FLAGSHIP
UTILITY INCOME FUND (the "Fund"), a series of FLAGSHIP ADMIRAL FUNDS INC., a
Maryland corporation, and NUVEEN ADVISORY CORP., a Delaware corporation (the
"Adviser").
W I T N E S S E T H
- - - - - - - - - -
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for,
and to manage the investment and reinvestment of the assets of the Fund in
accordance with the Fund's investment objective and policies and limitations,
and to administer the Fund's affairs to the extent requested by and subject to
the supervision of the Board of Directors of the Fund for the period and upon
the terms herein set forth. The investment of such assets shall be subject to
the Fund's policies, restrictions and limitations with respect to securities
investments as set forth in the Fund's registration statement on Form N-1A under
the Securities Act of 1933 and the Investment Company Act of 1940 covering the
Fund's shares of common stock, including the Prospectus and Statement of
Additional Information forming a part thereof, all as filed with the Securities
and Exchange Commission and as from time to time amended, and all applicable
laws
<PAGE>
and the regulations of the Securities and Exchange Commission relating to the
management of registered open-end, management investment companies.
The Adviser accepts such employment and agrees during such period to render such
services, to furnish office facilities and equipment and clerical, bookkeeping
and administrative services (other than such services, if any, provided by the
Fund's custodian, transfer agent and shareholder service agent, and the like)
for the Fund, to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions,
and to assume the obligations herein set forth for the compensation herein
provided. The Adviser shall, for all purposes herein provided, be deemed to be
an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for nor represent the Fund in any
way, nor otherwise be deemed an agent of the Fund.
2. For the period from January 1, 1997 through January 31, 1997, the Fund will
pay to the Adviser for the services and facilities described in Section 1, an
investment management fee computed daily and paid at the end of the period at an
annual rate of .50% of the average daily net assets of the Fund up to and
including $100 million, plus .45% of such net assets over $100 million up to and
including $200 million, plus .40% of such net assets over $200 million up to and
including $300 million, plus .35% of such net assets over $300 million up to and
including $500 million, plus .30% of such net assets over $500 million.
1
<PAGE>
From February 1, 1997 forward, the Fund will pay to the Adviser at the end of
each month for the services and facilities described in Section 1, an investment
management fee computed at an annual rate of:
Rate Net Assets
---- ----------
.5000% For the first $125 million
.4875% For the next $125 million
.4750% For the next $250 million
.4625% For the next $500 million
.4500% For the next $1 billion
.4250% For assets over $2 billion
For the month and year in which this Agreement becomes effective, or terminates,
there shall be an appropriate proration on the basis of the number of days that
the Agreement shall have been in effect, during the month and year,
respectively. The services of the Adviser to the Fund under this Agreement are
not to be deemed exclusive, and the Adviser shall be free to render similar
services or other services to others so long as its services hereunder are not
impaired thereby.
Regardless of any of the above provisions, the Adviser guarantees that the total
expenses of the Fund in any fiscal year, exclusive of taxes, interest, brokerage
commissions, and extraordinary expenses such as litigation costs, shall not
exceed, and the Adviser undertakes to pay or refund to the Fund any amount up to
but not greater than the aggregate fees received by the Adviser under this
Agreement for such fiscal year, the limitation imposed by any jurisdiction in
which the Fund continues to offer and sell shares after exceeding such
limitation.
2
<PAGE>
The net asset value of the Fund shall be calculated as provided in the Articles
of Incorporation of the Fund. On each day when the net asset value is not
calculated, the net asset value of a share of beneficial interest of the Fund
shall be deemed to be the net asset value of such share as of the close of
business on the last day on which such calculation was made for the purpose of
the foregoing computations.
3. The Adviser shall arrange for officers or employees of the Adviser to
serve, without compensation from the Fund, as trustees, officers or agents of
the Fund, if duly elected or appointed to such positions, and subject to their
individual consent and to any limitations imposed by law.
4. Subject to applicable statutes and regulations, it is understood that
officers, trustees, or agents of the Fund are, or may be, interested in the
Adviser as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested in
the Fund otherwise than as trustees, officers or agents.
5. The Adviser shall not be liable for any loss sustained by reason of the
purchase, sale or retention of any security, whether or not such purchase, sale
or retention shall have been based upon the investigation and research made by
any other individual, firm or corporation, if such recommendation shall have
been selected with due care and in good faith, except loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the
3
<PAGE>
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. The Adviser currently manages other investment accounts and funds,
including those with investment objectives similar to the Fund, and reserves the
right to manage other such accounts and funds in the future. Securities
considered as investments for the Fund may also be appropriate for other
investment accounts and funds that may be managed by the Adviser. Subject to
applicable laws and regulations, the Adviser will attempt to allocate equitably
portfolio transactions among the Fund and the portfolios of its other investment
accounts and funds purchasing or selling securities whenever decisions are made
to purchase or sell securities by the Fund and one or more of such other
accounts or funds simultaneously. In making such allocations, the main factors
to be considered by the Adviser will be the respective investment objectives of
the Fund and such other accounts and funds, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other accounts and funds, the size of investment
commitments generally held by the Fund and such accounts and funds, and the
opinions of the persons responsible for recommending investments to the Fund and
such other accounts and funds.
7. This Agreement shall continue in effect until August 1, 1997, unless and
until terminated by either party as hereinafter provided, and shall continue in
force from year to year thereafter, but only as long as such continuance is
specifically approved, at least annually, in the manner required by the
Investment Company Act of 1940.
4
<PAGE>
This Agreement shall automatically terminate in the event of its assignment, and
may be terminated at any time without the payment of any penalty by the Fund or
by the Adviser upon sixty (60) days' written notice to the other party. The Fund
may effect termination by action of the Board of Directors, or, by vote of a
majority of the outstanding voting securities of the Fund, accompanied by
appropriate notice.
This Agreement may be terminated, at any time, without the payment of any
penalty, by the Board of Directors of the Fund, or, by vote of a majority of the
outstanding voting securities of the Fund, in the event that it shall have been
established by a court of competent jurisdiction that the Adviser, or any
officer or director of the Adviser, has taken any action which results in a
breach of the covenants of the Adviser set forth herein.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation, described in Section
2, earned prior to such termination.
8. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule, or otherwise, the remainder shall not be thereby
affected.
5
<PAGE>
9. The Adviser and its affiliates reserve the right to grant, at any time, the
use of the name "Nuveen" or the name "Flagship", or any approximation or
abbreviation thereof, to any other investment company or business enterprise.
Upon termination of this Agreement by either party, or by its terms, the Fund
shall thereafter refrain from using any name of the Fund which includes "Nuveen"
or "Flagship" or any approximation or abbreviation thereof, or is sufficiently
similar to such name as to be likely to cause confusion with such name, and
shall not allude in any public statement or advertisement to the former
association.
10. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for receipt of such notice.
6
<PAGE>
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year above written.
FLAGSHIP UTILITY INCOME FUND,
a series of Flagship Admiral Funds Inc.
by: /s/ Richard P. Davis
-----------------------------------
title: President
Attest: /s/ Michael D. Kalbfleisch
---------------------------
Secretary
NUVEEN ADVISORY CORP.
by: /s/ James J. Wesolowski
-----------------------------------
Vice President
Attest: /s/ Gifford R. Zimmerman
---------------------------
Assistant Secretary
7
<PAGE>
EXHIBIT 5(e)
MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of January, 1997 between The Golden Rainbow A
James Advised Mutual Fund, a series of Flagship Admiral Funds Inc., a Maryland
corporation (hereinafter called the "Fund"), and NUVEEN ADVISORY CORP.
(hereinafter called the "Manager").
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is agreed by and between the parties hereto as follows:
(1) In General
The Manager agrees, all as more fully set forth herein, to act as Manager
of the Fund with respect to the investment of the Fund's assets including
general supervision of the purchase of securities for and the sale of securities
held in the investment portfolio of the Fund; and to furnish personnel and
facilities as shall be required to provide effective corporate administration of
the Fund and its affairs.
(2) Duties and Obligations of the Manager
with Respect to Investments of Assets of Fund
(a) Subject to the succeeding provisions of this paragraph and subject
to the discretion and control of the Fund's Board of Directors, and except as it
may be delegated to a third party, the Manager shall (i) act as investment
adviser to and supervise and manage the investment and reinvestment of the
Fund's assets and in connection therewith have complete discretion in purchasing
and selling securities and other assets for the Fund and in voting, exercising
consents and exercising all other rights appertaining to such securities and
assets on behalf of the Fund, except that the Manager shall be permitted to
delegate any or all of such responsibilities, rights or duties to one or more
subadvisers who shall enter into agreements with the Fund and
<PAGE>
the Manager, which agreements shall be approved and ratified by the Board of
Directors and shareholders of the Fund; (ii) supervise continuously the
investment program of the Fund and the composition of its investment portfolio;
(iii) arrange, subject to the provisions of paragraph 4 hereof, for the purchase
of securities and other investments and for the sale of securities and other
assets held in the investment portfolio of the Fund; and (iv) provide general
corporate administration of the Fund.
(b) In the performance of its duties under this Agreement, the Manager
shall at all times conform to, and act in accordance with, any requirements
imposed by (i) the provisions of the Investment Company Act of 1940, and of any
rules or regulations in force thereunder; (ii) any other applicable provision of
law; (iii) the provisions of the Articles of Incorporation and By-Laws of the
Fund as amended from time to time; (iv) any fundamental policies of the Fund and
policies and determinations of the Board of Directors of the Fund; and (v) the
terms of the registration statement of the Fund, as amended from time to time
under the Securities Act of 1933 and the Investment Company Act of 1940.
(c) The Manager will bear all costs and expenses of its officers and
employees and any overhead incurred in connection with its duties hereunder and
shall bear the costs of any salaries or directors fees of any officers or
directors of the Fund who are affiliated persons (as defined in the Investment
Company Act of 1940) of the Manager except that the Board of Directors may
specifically approve reimbursement for the salaries, bonuses, health insurance,
retirement benefits and all similar employment costs for the time spent on Fund
operations of all personnel employed by the Manager who devote substantial time
to investment company operations including a pro rata portion of the costs
attributable to Fund operations.
(d) The Manager shall give the Fund the benefit of its best judgment and
effort in rendering services hereunder, but the Manager shall not be liable for
any act or omission to act or loss sustained by the Fund in connection with the
matters to
2
<PAGE>
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under this Agreement.
(e) Nothing in this Agreement shall prevent the Manager or any director,
officer, employee or other affiliate thereof from acting as investment adviser
for any other person, firm or corporation, or from engaging in any other lawful
activity, and shall not in any way limit or restrict the Manager or any of its
directors, officers, stockholders or employees from buying, selling or trading
any securities for its own or their own accounts or for the accounts of others
for whom it or they may be acting, provided, however, that the Manager will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations under this Agreement.
(f) Nothing in this Agreement shall be construed to prevent the Manager
from entering into additional agreements with the Fund at the request of the
Board of Directors with respect to the performance of functions or tasks not
directly related to the provision of investment advice and to be paid therefor.
(3) Allocation of Expenses
(a) The Manager shall at its expense provide all executive,
administrative and clerical personnel as shall be required to provide effective
corporation administration for the Fund. The Manager shall, at its own cost and
expense, also provide the Fund with adequate office space, facilities, equipment
and related services. The Manager is expressly permitted, at its option, to
arrange for the provision of these administrative services and functions by
others. All other costs and expenses not expressly assumed by the Manager under
this Agreement shall be paid by the Fund, including, but not limited to (i)
compilation and maintenance of records with respect to the Fund's operations and
the preparation and filing of such reports with
3
<PAGE>
respect thereto as shall be required by rules or regulations promulgated by the
Securities and Exchange Commission; (ii) the composition, printing and mailing
of registration statements and prospectuses required by Federal and state laws
for continuous public sale of shares of the Fund; (iii) interest and taxes; (iv)
insurance premiums for fidelity and other coverage requisite to its operations;
(v) compensation and expenses of its directors other than those associated or
affiliated with the Manager; (vi) legal and audit expenses; (vii) custodian and
transfer agent fees and expenses, costs of stockholders services and brokerage
commissions, if any, (viii) expenses incident to the redemption of its shares;
(ix) expenses incident to the issuance of its shares against payment therefor by
or on behalf of the subscribers thereto; (x) fees and expenses, other than as
hereinabove provided, incident to the registration, under Federal and state
securities laws, of shares of the Fund for public sale; (xi) expenses of
composition, printing and mailing periodic reports with respect to its
operations and notices and proxy materials to stockholders of the Fund; (xii)
all expenses incidental to holding meetings of the Fund's stockholders; and
(xiii) such non-recurring expenses as may arise, including litigation affecting
the Fund and the legal obligation which the Fund may have to indemnify its
directors, officers and others.
(4) Portfolio Transactions and Brokerage
The Manager is authorized, for the purchase and sale of the Fund's
portfolio securities, to employ such securities dealers as may, in the judgment
of the Manager, implement the policy of the Fund to obtain the best net results
taking into account such factors as price (including dealer spread, where
applicable), the size, type and difficulty of the transaction involved, the
firm's general execution and operation facilities and the firm's risk in
positioning the securities involved. Consistent with this policy, the Manager is
authorized to direct the execution of the Fund's portfolio transactions to
dealers and brokers furnishing statistical information or research deemed by the
Manager to be useful or valuable to the performance of its investment advisory
functions for the Fund.
4
<PAGE>
(5) Compensation of the Manager
---------------------------
(a) The Fund agrees to charge each stockholder account and to pay
over to the Manager and the Manager agrees to accept as full compensation from
the Fund's stockholders for all services rendered by the Manager as such, a fee
computed daily and payable monthly, at an annual rate of .74% of the Fund's
average daily net assets.
(b) Regardless of any of the above provisions, the Manager agrees
that the total expenses of the Fund in any fiscal year, exclusive of taxes,
interest, brokerage commissions and extraordinary expenses such as litigation
costs, shall not exceed, and the Manager undertakes to pay or refund to the
stockholders in proportion to the fees paid by them any amount, up to but not
greater than the aggregate fees received by the Manager under this Agreement
(excluding fees paid to any subadviser) for such fiscal year, by which such
expenses shall exceed the limitation imposed by any jurisdiction in which the
Fund continues to offer and sell its shares exceeding such limitation, provided
that any such payment shall only be for amounts in excess of those due after
payment of such amounts by any subadviser who shall be obligated under any
agreement with the Fund to be primarily responsible for such reimbursements.
(c) For purposes of this Agreement, the net assets attributable to
each stockholder account and the net assets of the Fund shall be calculated in
the same manner as provided in the Articles of Incorporation or By-Laws of the
Fund for calculating the net asset value of the Fund's shares.
(6) Indemnity
---------
(a) The Fund hereby agrees to indemnify the Manager and each of the
Manager's directors, officers, employees, and agents (including any individual
who
5
<PAGE>
serves at the Manager's request as director, officer, partner, trustee or the
like of another corporation) (each person being an "indemnitee") against any
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel fees (all as provided in
accordance with applicable corporate law) reasonably incurred by such indemnitee
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
investigative body in which he may be or may have been involved as a party or
otherwise or with which he may be or may have been threatened, while acting in a
capacity set forth above with respect to the Fund or thereafter by reason of his
having acted in any such capacity, except with respect to any matter as to which
he shall have been adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Fund and furthermore, in
the case of any criminal proceeding, so long as he had no reasonable cause to
believe that the conduct was unlawful, provided, however, that (1) no indemnitee
shall be indemnified hereunder against any liability to the Fund or its
shareholders or any expense of such indemnitee arising by reason of (i) willful
misfeasance, (ii) bad faith, (iii) gross negligence or (iv) reckless disregard
of the duties involved in the conduct of his position (the conduct referred to
in such clauses (i) through (iv) being sometimes referred to as "disabling
conduct") (2) as to any matter disposed of by settlement or a compromise payment
by such indemnitee pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless there
has been a determination that such settlement or compromise is in the best
interests of the Fund and that such indemnitee appears to have acted in good
faith in the reasonable belief that his action was in the best interest of the
Fund and did not involve disabling conduct by such indemnitee and (3) with
respect to any action, suit or other proceeding voluntarily prosecuted by an
indemnitee as plaintiff, indemnification shall be mandatory only if the
prosecution of such action, suit or other proceeding by such indemnitee was
authorized by a majority of the full Board of the Fund.
6
<PAGE>
(b) The Fund shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might be
sought hereunder if the Fund receives a written affirmation of the indemnitee's
good faith belief that the standard of conduct necessary for indemnification has
been met and a written undertaking to the reimburse the Fund unless it is
subsequently determined that he is entitled to such indemnification and if the
Directors of the Fund determine that the facts then known to them would not
preclude indemnification. In addition, at least one of the following conditions
must be met: (A) the indemnitee shall provide a security for his undertaking,
(B) the Fund shall be insured against losses arising by reason of any lawful
advances, or (C) a majority of a quorum consisting of Directors of the Fund who
are neither "interested persons" of the Fund (as defined in Section 2(a)(19) of
the Investment Company Act of 1940) nor parties to the proceeding
("Disinterested Non-Party Directors") or an independent legal counsel in a
written opinion, shall determine, based on a review of readily available facts
(as opposed to a full trial-type inquiry), that there is reason to believe that
the indemnitee ultimately will be found entitled to indemnification. These
indemnification provisions shall survive termination of this Agreement.
(c) All determinations with respect to indemnification hereunder
shall be made (1) by a final decision on the merits by a court or other body
before whom the proceeding was brought that such indemnitee is not liable by
reason of disabling conduct or, (2) in the absence of such a decision, by (i) a
majority vote of a quorum of the Disinterested Non-Party Directors of the Fund,
or (ii) if such a quorum is not obtainable, or even, if obtainable, if a
majority vote of such quorum so directs, independent legal counsel in a written
opinion. All determinations that advance payments in connection with the expense
of defending any proceeding shall be authorized and shall be made in accordance
with the immediately preceding clause (2) above.
7
<PAGE>
The rights accruing to any indemnitee under these provisions shall
not exclude any other right to which he may be lawfully entitled.
(7) Duration and Termination
------------------------
This Agreement shall become effective on the date first set forth
above and shall continue in effect for a period of two years or until the next
meeting of stockholders of the Fund and thereafter from year to year, but only
so long as such continuation is specifically approved at least annually in
accordance with the requirements of the Investment Company Act of 1940.
This Agreement may be terminated by the Manager at any time without
penalty upon giving the Fund sixty days' written notice (which notice may be
waived by the Fund) and may be terminated by the Fund at any time without
penalty upon giving the Manager sixty days' notice (which notice may be waived
by the Manager), provided that such termination by the Fund shall be directed or
approved by the vote of a majority of all of the Board of Directors of the Fund,
including a majority of the "Disinterested Directors" (as defined in the
Investment Company Act of 1940), in office at the time or by the vote of the
holders of a "majority" (as defined in the Investment Company Act of 1940) of
the voting securities of the Fund at the time outstanding and entitled to vote.
This agreement shall automatically terminate in the event of its "assignment"
(as defined in the Investment Company Act of 1940).
(8) Stockholder Liability
---------------------
The Manager understands and agrees that the obligations of the Fund
under this Agreement are not binding upon any stockholder of the Fund
personally, but bind only the Fund and the Fund's property.
8
<PAGE>
(9) Governing Law
-------------
This Agreement shall be governed by the laws of the state of New York
without reference to choice of law principles thereof and in accordance with the
provisions of the Investment Company Act 1940.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their respective
seals to be hereunto affixed, all as to the day and year first above written.
THE GOLDEN RAINBOW A JAMES
ADVISED MUTUAL FUND
By: /s/ Richard B. Davis
---------------------------
NUVEEN ADVISORY CORP.
By: /s/ James J. Wesolowski
---------------------------
9
<PAGE>
EXHIBIT 5(i)
ASSIGNMENT AND ASSUMPTION OF RIGHTS AND OBLIGATIONS UNDER
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of January l, 1997, between Flagship Financial, Inc., a
Delaware corporation (the "Assignor"), and Nuveen Advisory Corp., a Delaware
corporation (the Assignee").
RECITALS
WHEREAS, Flagship Resources Inc. has entered into an Agreement and Plan of
Merger dated as of July 16, 1996, pursuant to which Flagship Resources Inc. and
its subsidiaries, Flagship Financial, Inc. and Flagship Funds Inc., will be
acquired by The John Nuveen Company (the "Acquisition"); and
WHEREAS, Flagship Financial, Inc. acts as investment manager to the Golden
Rainbow Fund A James Advised Mutual Fund ("Golden Rainbow Fund"), a series of
Flagship Admiral Funds, Inc., pursuant to a Management Agreement dated May 30,
1991 the ("Management Agreement"); and James Investment Research, Inc. acts as
investment adviser to the Golden Rainbow Fund pursuant to an Investment Advisory
Agreement dated May 30, 1991 among James Investment Research, Inc., Flagship
Financial, Inc. and the Golden Rainbow Fund (the "Advisory Agreement"); and
WHEREAS, on December 20, 1996, shareholders of the Golden Rainbow Fund approved
a new investment management agreement identical to the existing Management
Agreement, except that Nuveen Advisory Corp. will be substituted for Flagship
Financial, Inc.; and
WHEREAS, by approving the new investment management agreement that is identical
to the existing Management Agreement with Nuveen Advisory Corp. being
substituted for Flagship Financial, Inc. shareholders of the Golden Rainbow Fund
also reapproved the existing Advisory Agreement with James Investment Research,
Inc., with Nuveen Advisory Corp. being substituted for Flagship Financial, Inc.
NOW, THEREFORE, IT IS AGREED THAT:
1. The Assignor hereby assigns to the Assignee, and Assignee hereby accepts,
all of Assignor's rights and interests under the Advisory Agreement.
2. The Assignee hereby assumes and covenants to perform all the duties and
obligations of the Assignor under the Advisory Agreement.
<PAGE>
IN WITNESS WHEREOF the parties have signed this instrument.
FLAGSHIP FINANCIAL, INC.
/s/Richard P. Davis
-------------------------
By: Richard P. Davis
Its: President
NUVEEN ADVISORY CORP.
/s/James J. Wesolowski
-------------------------
By: James J. Wesolowski
Its: Vice President
The undersigned hereby consent to and acknowledge the assignment and assumption
of rights and obligations contemplated by this agreement.
THE GOLDEN RAINBOW A JAMES ADVISED
MUTUAL FUND, a series of Flagship Admiral Funds Inc.
/s/Richard P. Davis Dated as of: December 20, 1996
- -------------------------------
By: Richard P. Davis
Its: President
JAMES INVESTMENT RESEARCH, INC.
/s/Francis E. James, Jr., Ph.D. Dated as of: 24 December 1996
- -------------------------------
By: Francis E. James, Jr., Ph.D.
Its: President
<PAGE>
EXHIBIT 6(a)
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of this 1st day of January, 1997 between FLAGSHIP ADMIRAL
FUNDS INC., a Maryland corporation (the "Fund"), and JOHN NUVEEN & CO.
INCORPORATED, a Delaware corporation (the "Underwriter").
W I T N E S S E T H
- - - - - - - - - -
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints the Underwriter its agent for the distribution of
its common shares, including such series or classes of shares as may now or
hereafter be authorized (the "Shares"), in jurisdictions wherein Shares may
legally be offered for sale; provided, however, that the Fund, in its absolute
discretion, may: (a) issue or sell Shares directly to holders of Shares of the
Fund upon such terms and conditions and for such consideration, if any, as it
may determine, whether in connection with the distribution of subscription or
purchase rights, the payment or reinvestment of dividends or distributions, or
otherwise; and (b) issue or sell Shares at net asset value in connection with
merger or consolidation with, or acquisition of the assets of, other investment
companies or similar companies.
2. The Underwriter hereby accepts appointment as agent for the distribution of
the Shares and agrees that it will use its best efforts to sell such part of the
authorized Shares remaining unissued as from time to time shall be effectively
registered under the Securities Act of 1933 ("Securities Act"), at prices
determined as hereinafter provided and on terms hereinafter set forth, all
subject to applicable Federal and State laws and regulations and to the Articles
of Incorporation of the Fund.
3. The Fund agrees that it will use its best efforts to keep effectively
registered under the Securities Act for sale, as herein contemplated, such
Shares as the Underwriter shall reasonably request and as the Securities and
Exchange Commission shall permit to be so registered.
4. Notwithstanding any other provision hereof, the Fund may terminate, suspend,
or withdraw the offering of the Shares, or Shares of any series or class,
whenever, in its sole discretion, it deems such action to be desirable.
5. The Underwriter shall sell Shares to, or through, brokers, dealers, banks or
other qualified financial intermediaries (hereinafter referred to as "dealers"),
or others, in such manner not inconsistent with the provisions hereof and the
then effective Registration Statement of the Fund under the Securities Act (and
related Prospectus and Statement of Additional Information) as the Underwriter
may determine from time to time, provided that no dealer, or other person, shall
be appointed nor authorized to act as agent of the Fund without the prior
consent of the Fund. The Underwriter shall have the right to enter into
agreements with brokers, dealers and banks (referred to herein as "dealers") of
its choice for the sale of Shares and fix therein the portion of the sales
charge which may be allocated to such dealers; provided that the Fund shall
approve the
<PAGE>
form of such agreements and shall evidence such approval by filing said
form and any amendments thereto as attachments to this Agreement, which
shall be filed as an exhibit to the Fund's currently effective
registration statement under the Securities Act. Shares sold to dealers
shall be for resale by such dealers only at the public offering price(s)
set forth in the Fund's then current Prospectus. The current forms of such
agreements are attached hereto as Exhibits 1, 2 and 3.
6. Shares offered for sale, or sold by the Underwriter, shall be so offered
or sold at a price per Share determined in accordance with the then
current Prospectus relating to the sale of Shares except as departure from such
prices shall be permitted by the rules and regulations of the
Securities and Exchange Commission. Any public offering price shall be the
net asset value per Share plus a sales charge of not more than 4.75% of such
public offering price. Shares may be sold at net asset value without a
sales charge to such class or classes of investors or in such class or
classes of transactions as may be permitted under applicable rules of
the Securities and Exchange Commission and as described in the then current
Prospectus of the Fund. The net asset value per Share of each series or
class shall be calculated in accordance with the Articles of
Incorporation of the Fund and shall be determined in the manner, and at the
time, set forth in the then current Prospectus of the Fund relating to
such Shares.
7. The price the Fund shall receive for all Shares purchased from the Fund
shall be the net asset value used in determining the public offering price
applicable to the sale of such Shares. The excess, if any, of the sales price
over the net asset value of Shares sold by the Underwriter as agent shall
be retained by the Underwriter as a commission for its services hereunder.
Out of such commission, the Underwriter may allow commissions or concessions to
dealers in such amount as the Underwriter shall determine from time to time.
Except as may be otherwise determined by the Underwriter and the Fund from time
to time, such commissions or concessions shall be uniform to all dealers.
8. The Underwriter shall issue and deliver, or cause to be issued and
delivered, on behalf of the Fund such confirmations of sales made by it as
agent, pursuant to this Agreement, as may be required. At, or prior to, the
time of issuance of Shares, the Underwriter will pay, or cause to be
paid, to the Fund the amount due the Fund for the sale of such Shares.
Certificates shall be issued, or Shares registered on the transfer
books of the Fund, in such names and denominations as the Underwriter may
specify.
9. The Fund will execute any and all documents, and furnish any and all
information, which may be reasonably necessary in connection with the
qualification of the Shares for sale (including the qualification of the
Fund as a dealer, where necessary or advisable) in such states as the
Underwriter may reasonably request (it being understood that the Fund shall
not be required, without its consent, to comply with any requirement which,
in its opinion, is unduly burdensome).
10. The Fund will furnish to the Underwriter, from time to time, such
information with respect to the Fund and the Shares as the Underwriter may
reasonably request for use in connection with
2
<PAGE>
the sale of Shares. The Underwriter agrees that it will not use or distribute,
nor will it authorize dealers or others to use, distribute or disseminate, in
connection with the sale of such Shares, any statements other than those
contained in the Fund's current Prospectus and Statement of Additional
Information, except such supplemental literature or advertising as shall be
lawful under Federal and State securities laws and regulations, and that it will
furnish the Fund with copies of all such material.
11. The Underwriter shall order Shares from the Fund only to the extent that it
shall have received purchase orders therefor. The Underwriter will not make, nor
authorize any dealers or others, to make: (a) any short sale of Shares; or (b)
any sale of Shares to any officer or trustee of the Fund, nor to any officer or
trustee of the Underwriter, or of any corporation or association furnishing
investment advisory, managerial, or supervisory services to the Fund, nor to any
such corporation or association, unless such sales are made in accordance with
the then current Prospectus relating to the sale of such Shares.
12. In selling Shares for the account of the Fund, the Underwriter will in all
respects conform to the requirements of all Federal and State laws and the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
relating to such sales, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by the Underwriter or any
employee, representative, or agent of the Underwriter. The Underwriter will
observe and be bound by all the provisions of the Articles of Incorporation of
the Fund (and of any fundamental policies adopted by the Fund pursuant to the
Investment Company Act of 1940, notice of which shall have been given by the
Fund to the Underwriter) which at the time in any way require, limit, restrict,
prohibit or otherwise regulate any action on the part of the Underwriter.
13. The Underwriter will require each dealer to conform to the provisions hereof
and of the Registration Statement (and related Prospectus) at the time in effect
under the Securities Act with respect to the public offering price of the
Shares, and neither the Underwriter nor any such dealer shall withhold the
placing of purchase orders so as to make a profit thereby.
14. The Fund will pay, or cause to be paid, expenses (including the fees and
disbursements of its own counsel) of any registration of Shares under the
Securities Act, expenses of qualifying or continuing the qualification of the
Shares for sale and, in connection therewith, of qualifying or continuing the
qualification of the Fund as a dealer or broker under the laws of such states as
may be designated by the Underwriter under the conditions herein specified, and
expenses incident to the issuance of the Shares such as the cost of Share
certificates, issue taxes, and fees of the transfer and shareholder service
agent. The Underwriter will pay, or cause to be paid, all expenses (other than
expenses which any dealer may bear pursuant to any agreement with the
Underwriter) incident to the sale and distribution of the Shares issued or sold
hereunder, including, without limiting the generality of the foregoing, all: (a)
expenses of printing and distributing any Prospectus and Statement of Additional
Information and of preparing, printing and distributing or disseminating any
other literature, advertising and selling aids in connection with such offering
of the Shares for sale (except that such expenses need not include expenses
3
<PAGE>
incurred by the Fund in connection with the preparation, printing and
distribution of any report or other communication to holders of Shares in their
capacity as such), and (b) expenses of advertising in connection with such
offering. No transfer taxes, if any, which may be payable in connection with the
issue or delivery of Shares sold as herein contemplated, or of the certificates
for such Shares, shall be borne by the Fund, and the Underwriter will indemnify
and hold harmless the Fund against liability for all such transfer taxes.
15. This agreement shall continue in effect until August 1, 1997, unless and
until terminated by either party as hereinafter provided, and will continue from
year to year thereafter, but only so long as such continuance is specifically
approved, at least annually, in the manner required by the Investment Company
Act of 1940. Either party hereto may terminate this agreement on any date by
giving the other party at least six months' prior written notice of such
termination, specifying the date fixed therefor. Without prejudice to any other
remedies of the Fund in any such event, the Fund may terminate this agreement at
any time immediately upon any failure of fulfillment of any of the obligations
of the Underwriter hereunder.
Without prejudice to any other remedies of the Fund in any such event, the Fund
may terminate this Agreement at any time immediately upon any failure of
fulfillment of any of the obligations of the Underwriter hereunder.
16. This agreement shall automatically terminate in the event of its assignment.
17. Any notice under this agreement shall be in writing, addressed, and
delivered or mailed, postage pre-paid, to the other party at such address as
such other party may designate for the receipt of such notice.
4
<PAGE>
IN WITNESS WHEREOF, the Fund and the Underwriter have each caused this
agreement to be executed on its behalf as of the day and year first above
written.
FLAGSHIP ADMIRAL FUNDS INC.
By /s/ Richard P. Davis
----------------------------
Title: President
Attest:
/s/ Michael D. Kalbfleisch
- ----------------------------
Secretary
JOHN NUVEEN & CO. INCORPORATED
By /s/ Larry W. Martin
-----------------------------
Vice President
Attest:
/s/ Karen L. Healy
- ----------------------
Assistant Secretary
5
<PAGE>
Exhibit 1
NUVEEN
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606-1286
Telephone 312 917-7700
NUVEEN MUTUAL FUNDS
Dealer Distribution and
Shareholder Servicing Agreement
As principal underwriter of shares of the various Nuveen non-money market
open-end mutual funds, and of the shares of any future such funds (collectively,
the "Funds"), we invite you to join a selling group for the distribution of
shares of common stock of the Funds (the "Shares"). As exclusive agent of the
Funds, we offer to sell you Shares on the following terms:
1. In all sales of Shares to the public you shall act as dealer for your own
account, and in no transaction shall you have any authority to act as agent
for any Fund, for us or for any other member of the Selling Group.
2. Orders received from you shall be accepted by us only at the public offering
price applicable to each order, as established by the then current
Prospectus of the appropriate Fund, subject to the discounts provided in
such Prospectus. Upon receipt from you of any order to purchase Shares we
shall confirm to you in writing or by wire to be followed by a confirmation
in writing. Additional instructions may be forwarded to you from time to
time. All orders are subject to acceptance or rejection by us in our sole
discretion.
3. You may offer and sell Shares to your customers only at the public offering
price determined in the manner described in the current Prospectus of the
appropriate Fund. Shares will be offered at a public offering price based
upon the net asset value of such Shares plus, with respect to certain
class(es) of Shares, a sales charge from which you shall receive a discount
equal to a percentage of the applicable offering price as provided in the
Prospectus. You may receive a distribution fee and/or a service fee with
respect to certain class(es) of Shares for which such fees are applicable,
as provided in the applicable Prospectus, which distribution fee and/or
service fee shall be payable for such periods and at such intervals as are
from time to time specified by us. Your placement of an order for Shares
after the date of any notice of such amendment shall conclusively evidence
your agreement to be bound thereby.
Reduced sales charges may also be available as a result of a cumulative
discount or pursuant to a letter of intent. Further information as to such
reduced sales charges, if any, is set forth in the appropriate Fund
Prospectus. You agree to advise us promptly as to the amounts of any sales
made by you to the public qualifying for reduced sales charges.
4. By accepting this Agreement, you agree:
a) That you will purchase Shares only from us;
b) That you will purchase Shares from us only to cover purchase orders
already received from your customers, or for your own bona fide
investment; and
c) That you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding.
d) That, with respect to the sale of Shares of Funds that offer multiple
classes of Shares, you will comply with the terms of the Policies and
Procedures with Respect to Sales of Multiple Classes of Shares, attached
hereto as Exhibit A.
5. We will not accept from you any conditional orders for Shares.
6. Payment for Shares ordered from us shall be in New York clearing house funds
and must be received by the Funds' agent, Shareholder Services, Inc., P.O.
Box 5330, Denver, Colorado 80217-5330, within three business days after our
acceptance of your order. If such payment is not received, we reserve the
right, without notice, forthwith to cancel the sale or, at our option, to
cause the Fund to redeem the Shares ordered, in which case we may hold you
responsible for any loss, including loss of profit, suffered by us as a
result of your failure to make such payment. If any Shares confirmed to you
under the terms of this agreement are repurchased by the issuing Fund or by
us as agent for the Fund, or are tendered for repurchase, within seven
business days after the date of
1
<PAGE>
our confirmation of the original purchase order, you shall promptly refund
to us the full discount, commission, or other concession, if any, allowed
or paid to you on such Shares.
7. Shares sold hereunder shall be available in book-entry form on the books of
Shareholder Services, Inc. unless other instructions have been given.
8. No person is authorized to make any representations concerning Shares or
any Fund except those contained in the applicable current Prospectus and
printed information subsequently issued by the appropriate Fund or by us as
information supplemental to such Prospectus. You agree that you will not
offer or sell any Shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws and that
in connection with sales and offers to sell Shares you will furnish to each
person to whom any such sale or offer is made a copy of the then current
Prospectus for the appropriate Fund (as the amended or supplemented) and
will not furnish to any persons any information relating to Shares which is
inconsistent in any respect with the information contained in the then
current Prospectus or cause any advertisement to be published in any
newspaper or posted in any public place without our consent and the consent
of the appropriate Fund. You shall be responsible for any required filing
of such advertising.
9. All sales will be made subject to our receipt of Shares from the
appropriate Fund. We reserve the right, in our discretion, without notice,
to modify, suspend or withdraw entirely the offering of any Shares, and
upon notice to change the price, sales charge, or dealer discount or to
modify, cancel or change the terms of this agreement.
10. Your acceptance of this agreement constitutes a representation that you are
a registered securities dealer and a member in good standing of the
National Association of Securities Dealers, Inc. and agree to comply with
all applicable state and Federal laws, rules and regulations applicable to
transactions hereunder and to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., including specifically Section 26,
Article III thereof. You likewise agree that you will not offer to sell
Shares in any state or other jurisdiction in which they may not lawfully be
offered for sale.
11. You shall provide such office space and equipment, telephone facilities,
personnel and literature distribution as is necessary or appropriate for
providing information and services to your customers. Such services and
assistance may include, but not be limited to, establishment and
maintenance of shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
and such other services as may be agreed upon from time to time and as may
be permitted by applicable statute, rule, or regulation. You shall perform
these services in good faith and with reasonable care. You shall
immediately inform the Funds or us of all written complaints received by
you from Fund shareholders relating to the maintenance of their accounts
and shall promptly answer all such complaints.
12. All communications to us should be sent to 333 W. Wacker Drive, Chicago,
Illinois 60606. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. This Agreement shall be construed in accordance with the laws of the State
of Illinois. This Agreement is subject to the Prospectuses of the Funds
from time to time in effect, and, in the event of a conflict, the terms of
the Prospectuses shall control. References herein to the "Prospectus" of a
Fund shall mean the prospectus and statement of additional information of
such Fund as from time to time in effect. Any changes, modifications or
additions reflected in any such Prospectus shall be effective on the date
of such Prospectus (or supplement thereto) unless specified otherwise. This
Agreement shall supersede any prior dealer distribution agreement with
respect to the Funds.
John Nuveen & Co. Incorporated
John Nuveen
Authorized Signature
- --------------------------------------------------------------------------------
2
<PAGE>
We have read the foregoing agreement and accept and agree to the terms and
conditions therein.
Firm
- --------------------------------------------------------------------------------
Month Day Year
Authorized Signature
- --------------------------------------------------------------------------------
Print Name of
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City Zip
- --------------------------------------------------------------------------------
Tax ID Number NASD
- --------------------------------------------------------------------------------
The above agreement should be executed in duplicate and both copies returned to
us for signature.
We will return a fully executed copy to you for your files.
Please return the completed agreement to:
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois 60606-
1286
3
<PAGE>
Exhibit A to Nuveen Mutual Funds
Dealer Distribution and
Shareholder Servicing Agreement
Policies and Procedures With Respect to
Sales of Multiple Classes of Funds
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee; Class B Shares, which are subject to an asset-based sales charge, a service
fee, and a declining contingent deferred sales charge ("CDSC"); and Class C
Shares, which are subject to an asset-based sales charge, a service fee, and a
12-month CDSC, it is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Funds shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or cumulative discount, as
described in the Prospectus for the Fund, and any anticipated changes in
the funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
that the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B of Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B Shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquires about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
Exhibit A (Page 2)
- ----------------------------------------------
Nuveen Mutual Funds
<TABLE>
<CAPTION>
---------------------
CUSIP Quotron
Number Symbol
- ------------------------------------------------------------------
<S> <C> <C>
Nuveen Tax-Free Money Market Funds
Nuveen Tax-Exempt Money Market Fund, In. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfolio 670637602 NTFXX
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
-------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Growth and Income Stock Fund 67064Y503 # 67064Y602 # 67064Y701 # 67064Y800 #
Nuveen Balanced Stock and Bond Fund 67064Y107 # 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 # 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Golden Rainbow Fund 33841G207 GLRBX - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Mutual Funds
Nuveen Municipal Bond Fund, Inc. 67065Q202 NMBAX 67065Q103 # 67065Q301 # 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 # 67065Q806 NITNX
Nuveen Flagship All-American Tax Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX 67065Q780 #
Nuveen Flagship AL Municipal Bond Fund 67065P105 FABTX 67065P204 # 67065P303 # 67065P402 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NCAAX* 67065N209 # 67065N308 # 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX* 67065N605 # 67065N704 # 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FCTCX 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L658 # 67065L641 NFLCX 67065L872 NMFLX
Nuveen Flagship FL Intermediate Municipal Bond
Fund 67065L864 FIFAX - # 67065L856 FIFCX 67065L849 #
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term Municipal Bond
Fund 67065R887 FLKAX - - 67065R879 FLKCX 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX 67065P857 #
Nuveen MD Municipal Bond Fund 67065L831 NMDAX* 67065L823 # 67065L815 # 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX* 67065N837 # 67065N829 # 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX* 67065N787 # 67065N779 # 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX 67065R770 #
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective February 1, 1997
<PAGE>
Exhibit A (Page 3)
- --------------------------------
Nuveen Mutual Funds
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Mutual Funds (cont.)
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX 67065N720 NMNJX
Nuveen Flagship NJ Intermediate Municipal Bond Fund 67065N712 FNJIX - # - 67065N696 # 67065N688 #
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX* 67065N662 # 67065N654 NNYCX 67065N647 NTNYX
Nuveen NY Insured Municipal Bond Fund 67065N639 NNYIX* 67065N621 # 67065N613 # 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX 67065P816 #
Nuveen Flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPNCX 67065L716 NBPAX
Nuveen Flagship SC Municipal Bond Fund 67065P790 FLSCX 67065P782 # 67065P774 # 67065P766 #
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
- -----------------------------------------------------------------------------------------------------------------------------------
# Will receive a supplemental listing when the number of class shareholder accounts is 300 or when the class asset base reaches $1
million.
NOTE: A Quotron Symbol requires 1,000 shareholder accounts or $25 million in assets.
*Denotes supplemental listing only
Effective February 1, 1997
</TABLE>
<PAGE>
Exhibit 2 NUVEEN
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606-1286
Telephone 312 917-7700
NUVEEN MUTUAL FUNDS
Distribution and Shareholder
Servicing Agreement
(Version for Bank-Affiliated Broker-Dealers)
As principal underwriter of shares of common stock (the "Shares") of the various
Nuveen non-money market open-end mutual funds and any future such funds
(collectively, the "Funds"), we offer to make available Shares for purchase by
your customers on the following terms:
1. In all sales of Shares to the public you shall act as agent for your
customers, and in no transaction shall you have any authority to act as
agent for any Fund or for us. The customers in question are for all purposes
your customers and not customers of John Nuveen & Co. Incorporated. We shall
execute transactions for each of your customers only upon your
authorization, it being understood in all cases that (a) you are acting as
agent for the customer; (b) the transactions are without recourse against
you by the customer; (c) as between you and the customer, the customer will
have full beneficial ownership of the securities; (d) each transaction is
initiated solely upon the order of the customer; and (e) each transaction is
for the account of the customer and not for your account.
2. Orders received from you shall be accepted by us only at the public offering
price applicable to each order, as established by the then current
Prospectus of the appropriate Fund, subject to the discounts provided in
such Prospectus. Upon receipt from you of any order to purchase Shares we
shall confirm to you in writing or by wire to be followed by a confirmation
in writing, and we shall concurrently send to your customer a letter
confirming such order, together with a copy of the appropriate Fund's
current Prospectus. Additional instructions may be forwarded to you from
time to time. All orders are subject to acceptance or rejection by us in our
sole discretion.
3. Members of the general public, including your customers, may purchase Shares
only at the public offering price determined in the manner described in the
current Prospectus of the appropriate Fund. Shares will be offered at a
public offering price based upon the net asset value of such Shares plus,
with respect to certain class(es) of Shares, a sales charge which, together
with the amount of that sales charge to be retained by banks or bank-
affiliated broker-dealers acting as agent for their customers, is set forth
in the Prospectus. You may receive a distribution fee and/or a service fee
with respect to certain class(es) of Shares for which such fees are
applicable, as provided in the applicable Prospectus, which distribution fee
and/or service fee shall be payable for such periods and at such intervals
as are from time to time specified by us. Your placement of an order for
Shares after the date of any notice of such amendment shall conclusively
evidence your agreement to be bound thereby. Reduced sales charges may
also be available as a result of a cumulative discount or pursuant to a
letter of intent. Further information as to such reduced sales charges, if
any, is set forth in the appropriate Fund Prospectus. You agree to advise us
promptly as to the amounts of any sales made by or through you to the public
qualifying for reduced sales charges.
4. By accepting this Agreement, you agree:
a) That you will purchase Shares only from us, and only to cover purchase
orders already received from your customers;
b) That you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding; and
c) That, with respect to the sale of Shares of Funds that offer multiple
classes of Shares, you will comply with the terms of the Policies and
Procedures with Respect to Sales of Multiple Classes of Shares, attached
hereto as Exhibit A.
5. We will not accept from you any conditional orders for Shares.
1
<PAGE>
6. Payment for Shares ordered from us shall be in New York clearing house
funds and must be received by the Funds' agent, Shareholder Services, Inc.,
P.O. Box 5330, Denver, Colorado 80217-5330, within three business days
after our acceptance of your order. If such payment is not received, we
reserve the right, without notice, forthwith to cancel the sale or, at our
option, to cause the Fund to redeem the Shares ordered, in which case we
may hold you responsible for any loss, including loss of profit, suffered
by us as result of your or your customer's failure to make such payment. If
any Shares confirmed to you or your customer under the terms of this
agreement are repurchased by the issuing Fund or by us as agent for the
Fund, or are tendered for repurchase, within seven business days after the
date of our confirmation of the original purchase order, you shall promptly
refund to us the full discount, commission, or other concession, if any,
allowed or paid to you on such Shares.
7. Shares sold hereunder shall be available in book-entry form on the books of
Shareholder Services, Inc. unless other instructions have been given.
8. No person is authorized to make any representations concerning Shares or
any Fund except those contained in the applicable current Prospectus and
printed information issued by the appropriate Fund or by us as information
supplemental to such Prospectus. You agree that you will not offer or sell
any Shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection
with sales and offers to sell Shares you will furnish to each person to
whom any such sale or offer is made a copy of then current Prospectus for
the appropriate Fund (as amended or supplemented) and will not furnish to
any persons any information relating to Shares which is inconsistent in any
respect with the information contained in the then current Prospectus or
cause any advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the appropriate Fund.
You shall be responsible for any required filing of such advertising.
9. All sales will be made subject to our receipt of Shares from the
appropriate Fund. We reserve the right, in our discretion, without notice,
to modify, suspend or withdraw entirely the offering of any Shares, and
upon notice to change the price, sales charge, or dealer discount or to
modify, cancel or change the terms of this agreement.
10. Your acceptance of this agreement constitutes a representation that you are
a registered securities broker-dealer and a member in good standing of the
National Association of Securities Dealers, Inc. and agree to comply with
all state and Federal laws, rules and regulations applicable to
transactions hereunder and with the Rules of Fair Practice of the NASD,
including specifically Section 26 of Article III thereof. You likewise
agree that you will not offer to sell Shares in any state or other
jurisdiction in which they may not lawfully be offered for sale. We agree
to advise you currently of the identity of those states and jurisdictions
in which the Shares may lawfully be offered for sale.
11. You shall provide such office space and equipment, telephone facilities,
personnel and literature distribution as is necessary or appropriate for
providing information and services to your customers. Such services and
assistance may include, but not be limited to, establishment and
maintenance of shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
and such other services as may be agreed upon from time to time and as may
be permitted by applicable statute, rule, or regulation. You shall perform
these services in good faith and with reasonable care. You shall
immediately inform the Funds or us of all written complaints received by
you from Fund shareholders relating to the maintenance of their accounts
and shall promptly answer all such complaints.
12. All communications to us should be sent to 333 W. Wacker Drive, Chicago,
Illinois 60606. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. This Agreement shall be construed in accordance with the laws of the State
of Illinois. This Agreement is subject to the Prospectuses of the Funds
from time to time in effect, and, in the event of a conflict, the terms of
the Prospectuses shall control. References herein to the "Prospectus" of a
Fund shall mean the prospectus and statement of additional information of
such Fund as from time to time in effect. Any changes, modifications or
additions reflected in any such Prospectus shall be effective on the date
of such Prospectus (or supplement thereto) unless specified otherwise. This
Agreement shall supersede any prior distribution agreement with respect to
the Funds.
John Nuveen & Co. Incorporated
John Nuveen
Authorized Signature
- -------------------------------------------------------------------------------
2
<PAGE>
We have read the foregoing agreement and accept and agree to the terms and
conditions therein.
Firm
- --------------------------------------------------------------------------------
Month Day Year
Authorized Signature
- --------------------------------------------------------------------------------
Print Name of
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City Zip
- --------------------------------------------------------------------------------
Tax ID Number NASD
- --------------------------------------------------------------------------------
The above agreement should be executed in duplicate and both copies returned to
us for signature.
We will return a fully executed copy to you for your files.
Please return the completed agreement to:
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois 60606-
1286
3
<PAGE>
Exhibit A to Nuveen Mutual Funds
Dealer Distribution and
Shareholder Servicing Agreement
Policies and Procedures With Respect to
Sales of Multiple Classes of Funds
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee: Class B Shares, which are subject to an asset-based sales charge, a service
fee, and a declining contingent deferred sales charge ("CDSC"); and Class C
Shares, which are subject to an asset-based sales charge, a service fee, and a
12-month CDSC, it is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Fund shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or a cumulative discount,
as described in the Prospectus for the Fund, and any anticipated changes
in the funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B or Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B Shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquiries about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
Exhibit A (Page 2)
- --------------------------------------------------
Nuveen Mutual Funds
<TABLE>
<CAPTION>
-------------------
CUSIP Quotron
Number Symbol
- --------------------------------------------------------------------
<S> <C> <C>
Nuveen Tax-Free Money Market Funds
Nuveen Tax-Exempt Money Market Fund, Inc. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfolio 670637602 NTFXX
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
----------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Growth and Income Stock Fund 67064Y503 # 67064Y602 # 67064Y701 # 67064Y800 #
Nuveen Balanced Stock and Bond Fund 67064Y107 # 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 # 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Golden Rainbow Fund 33841G207 GLRBX - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Municipal Mutual Funds
Nuveen Municipal Bond Fund, Inc. 67065Q202 NMBAX 67065Q103 # 67065Q301 # 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 # 67065Q806 NITNX
Nuveen Flagship All-American Tax Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX 67065Q780 #
Nuveen Flagship AL Municipal Bond Fund 67065P105 FABTX 67065P204 # 67065P303 # 67065P402 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NCAAX* 67065N209 # 67065N308 # 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX* 67065N605 # 67065N704 # 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FCTCX 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L658 # 67065L641 NFLCX 67065L872 NMFLX
Nuveen Flagship FL Intermediate Municipal
Bond Fund 67065L864 FIFAX - - 67065L856 FIFCX 67065L849 #
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term Municipal
Bond Fund 67065R887 FLKAX - - 67065R879 FLKCX 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX 67065P857 #
Nuveen MD Municipal Bond Fund 67065L831 NMDAX* 67065L823 # 67065L815 # 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX* 67065N837 # 67065N829 # 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX* 67065N787 # 67065N779 # 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX 67065R770 #
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective February 1, 1997
<PAGE>
Exhibit A (Page 3)
- ------------------------------------------------------
Nuveen Mutual Funds
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Mutual Funds (cont.)
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX 67065N720 NMNJX
Nuveen Flagship NJ Intermediate Municipal Bond Fund 67065N712 FNJIX - - 67065N696 # 67065N688 #
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX* 67065N662 # 67065N654 NNYCX 67065N647 NTNYX
Nuveen NY Insured Municipal Bond Fund 67065N639 NNYIX* 67065N621 # 67065N613 # 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX 67065P816 #
Nuveen Flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPNCX 67065L716 NBPAX
Nuveen Flagship SC Municipal Bond Fund 67065P790 FLSCX 67065P782 # 67065P774 # 67065P766 #
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Will receive a supplemental listing when the number of class shareholder
accounts is 300 or when the class asset base reaches $1 million.
NOTE; A Quotron Symbol requires 1,000 shareholder accounts or $25 million in
assets.
*Denotes supplemental listing only
Effective February 1, 1997
<PAGE>
Exhibit 3
NUVEEN
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606-1286
Telephone 312 917-7700
NUVEEN MUTUAL FUNDS
Distribution and Shareholder
Servicing Agreement
(Bank Version)
As principal underwriter of shares of common stock (the "Shares") of the various
Nuveen non-money market open-end mutual funds and any future such funds
(collectively, the "Funds"), we offer to make available Shares for purchase by
your customers on the following terms:
1. In all sales of Shares to the public you shall act as agent for your
customers, and in no transaction shall you have any authority to act as
agent for any Fund or for us. The customers in question are for all purposes
your customers and not customers of John Nuveen & Co. Incorporated. We shall
execute transactions for each of your customers only upon your
authorization, it being understood in all cases that (a) you are acting as
agent for the customer; (b) the transactions are without recourse against
you by the customer; (c) as between you and the customer, the customer will
have full beneficial ownership of the securities; (d) each transaction is
initiated solely upon the order of the customer; and (e) each transaction is
for the account of the customer and not for your account.
2. Orders received from you shall be accepted by us only at the public offering
price applicable to each order, as established by the then current
Prospectus of the appropriate Fund, subject to the discounts provided in
such Prospectus. Upon receipt from you of any order to purchase Shares we
shall confirm to you in writing or by wire to be followed by a confirmation
in writing, and we shall concurrently send to your customer a letter
confirming such order, together with a copy of the appropriate Fund's
current Prospectus. Additional instructions may be forwarded to you from
time to time. All orders are subject to acceptance or rejection by us in our
sole discretion.
3. Members of the general public, including your customers, may purchase Shares
only at the public offering price determined in the manner described in the
current Prospectus of the appropriate Fund. Shares will be offered at a
public offering price based upon the net asset value of such Shares plus,
with respect to certain class(es) of Shares, a sales charge which, together
with the amount of that sales charge to be retained by banks acting as agent
for their customers, is set forth in the Prospectus. You may receive a
distribution fee and/or a service fee with respect to certain class(es) of
Shares for which such fees are applicable, as provided in the applicable
Prospectus, which distribution fee and/or service fee shall be payable for
such periods and at such intervals as are from time to time specified by us.
Your placement of an order for Shares after the date of any notice of such
amendment shall conclusively evidence your agreement to be bound thereby.
Reduced sales charges may also be available as a result of a cumulative
discount or pursuant to a letter of intent. Further information as to such
reduced sales charges, if any, is set forth in the appropriate Fund
Prospectus. You agree to advise us promptly as to the amounts of any sales
made by or through you to the public qualifying for reduced sales charges.
4. By accepting this Agreement, you agree:
a) That you will purchase Shares only from us, and only to cover purchase
orders already received from your customers;
b) That you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding; and
c) That, with respect to the sale of Shares of Funds that offer multiple
classes of Shares, you will comply with the terms of the Policies and
Procedures with Respect to Sales of Multiple Classes of Shares, attached
hereto as Exhibit A.
5. We will not accept from you any conditional orders for Shares.
1
<PAGE>
6. Payment for Shares ordered from us shall be in New York clearing house
funds and must be received by the Funds' agent, Shareholder Services, Inc.,
P.O. Box 5330, Denver, Colorado 80217-5330, within three business days
after our acceptance of your order. If such payments is not received, we
reserve the right, without notice, forthwith to cancel the sale or, at our
option, to cause the Fund to redeem the Shares ordered, in which case we
may hold you responsible for any loss, including loss of profit, suffered
by us as result of your or your customer's failure to make such payment. If
any Shares confirmed to you or your customer under the terms of this
agreement are repurchased by the issuing Fund or by us as agent for the
Fund, or are tendered for repurchase, within seven business days after the
date of our confirmation of the original purchase order, you shall promptly
refund to us the full discount, commission, or other concession, if any,
allowed or paid to you on such Shares.
7. Shares sold hereunder shall be available in book-entry form on the books of
Shareholder Services, Inc. unless other instructions have been given.
8. No person is authorized to make any representations concerning Shares of
any Fund except those contained in the applicable current Prospectus and
printed information issued by the appropriate Fund or by us as information
supplemental to such Prospectus. You agree that you will not offer or sell
any Shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection
with sales and offers to sell Shares you will furnish to each person to
whom any such sale or offer is made a copy of the then current Prospectus
for the appropriate Fund (as amended or supplemented) and will not furnish
to any persons any information relating to Shares which is inconsistent in
any respect with the information contained in the then current Prospectus
or cause any advertisement to be published in any newspaper or posted in
any public place without our consent and the consent of the appropriate
Fund. You shall be responsible for any required filing of such advertising.
9. All sales will be made subject to our receipt of Shares from the
appropriate Fund. We reserve the right, in our discretion, without notice,
to modify, suspend or withdraw entirely the offering of any Shares, and
upon notice to change the price, sales charge, or dealer discount or to
modify, cancel or change the terms of this agreement.
10. Your acceptance of this agreement constitutes a representation that you are
a bank as defined in Section 3(a)(6) of the Securities Exchange Act of
1934, as amended, and are duly authorized to engage in the transactions to
be performed hereunder. You hereby agree to comply with all applicable
state and Federal laws, rules and regulations applicable to transactions
hereunder. You likewise agree that you will not make Shares available in
any state or other jurisdiction in which they may not lawfully be offered
for sale.
11. You shall provide such office space and equipment, telephone facilities,
personnel and literature distribution as is necessary or appropriate for
providing information and services to your customers. Such services and
assistance may include, but not be limited to, establishment and
maintenance of shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
and such other services as may be agreed upon from time to time and as may
be permitted by applicable statute, rule, or regulation. You shall perform
these services in good faith and with reasonable care. You shall
immediately inform the Funds or us of all written complaints received by
you from Fund shareholders relating to the maintenance of their accounts
and shall promptly answer all such complaints.
12. All communications to us should be sent to 333 W. Wacker Drive, Chicago,
Illinois 60606. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. This Agreement shall be construed in accordance with the laws of the State
of Illinois. This Agreement is subject to the Prospectuses of the Funds
from time to time in effect, and, in the event of a conflict, the terms of
the Prospectuses shall control. References herein to the "Prospectus" of a
Fund shall mean the prospectus and statement of additional information of
such Fund as from time to time in effect. Any changes, modifications or
additions reflected in any such Prospectus shall be effective on the date
of such Prospectus (or supplement thereto) unless specified otherwise. This
Agreement shall supersede any prior dealer distribution agreement with
respect to the Funds.
John Nuveen & Co. Incorporated
John Nuveen
Authorized Signature
- --------------------------------------------------------------------------------
2
<PAGE>
We have read the foregoing agreement and accept and agree to the terms and
conditions therein.
Firm
- --------------------------------------------------------------------------------
Month Day Year
Authorized Signature
- --------------------------------------------------------------------------------
Print Name of
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City Zip
- --------------------------------------------------------------------------------
Tax ID Number NASD
- --------------------------------------------------------------------------------
The above agreement should be executed in duplicate and both copies returned to
us for signature.
We will return a fully executed copy to you for your files.
Please return the completed agreement to:
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois
60606-1286
3
<PAGE>
Exhibit A to Nuveen Mutual Funds
Dealer Distribution and
Shareholder Servicing Agreement
Policies and Procedures With Respect to
Sales of Multiple Classes of Funds
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee; Class B Shares, which are subject to an asset-based sales charge, a service
fee, and a declining contingent deferred sales charge ("CDSC"); and Class C
Shares, which are subject to an asset-based sales charge, a service fee, and a
12-month CDSC, it is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Fund shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or a cumulative discount,
as described in the Prospectus for the Fund, and any anticipated changes
in the funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B or Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B Shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquiries about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
Exhibit A (Page 2)
- --------------------------------------------------
Nuveen Mutual Funds
<TABLE>
<CAPTION>
-------------------
CUSIP Quotron
Number Symbol
- --------------------------------------------------------------------
<S> <C> <C>
Nuveen Tax-Free Money Market Funds
Nuveen Tax-Exempt Money Market Fund, Inc. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfolio 670637602 NTFXX
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
----------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Growth and Income Stock Fund 67064Y503 # 67064Y602 # 67064Y701 # 67064Y800 #
Nuveen Balanced Stock and Bond Fund 67064Y107 # 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 # 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Golden Rainbow Fund 33841G207 GLRBX - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Municipal Mutual Funds
Nuveen Municipal Bond Fund, Inc. 67065Q202 NMBAX 67065Q103 # 67065Q301 # 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 # 67065Q806 NITNX
Nuveen Flagship All-American Tax Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX 67065Q780 #
Nuveen Flagship AL Municipal Bond Fund 67065P105 FABTX 67065P204 # 67065P303 # 67065P402 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NCAAX* 67065N209 # 67065N308 # 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX* 67065N605 # 67065N704 # 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FCTCX 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L658 # 67065L641 NFLCX 67065L872 NMFLX
Nuveen Flagship FL Intermediate Municipal
Bond Fund 67065L864 FIFAX - - 67065L856 FIFCX 67065L849 #
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term Municipal
Bond Fund 67065R887 FLKAX - - 67065R879 FLKCX 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX 67065P857 #
Nuveen MD Municipal Bond Fund 67065L831 NMDAX* 67065L823 # 67065L815 # 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX* 67065N837 # 67065N829 # 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX* 67065N787 # 67065N779 # 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX 67065R770 #
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective February 1, 1997
<PAGE>
Exhibit A (Page 3)
- --------------------------------------------------
Nuveen Mutual Funds
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
----------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Mutual Funds (cont.)
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX 67065N720 NMNJX
Nuveen Flagship NJ Intermediate Municipal
Bond Fund 67065N712 FNJIX - - 67065N696 # 67065N688 #
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX* 67065N662 # 67065N654 NNYCX 67065N647 NTNYX
Nuveen NY Insured Municipal Bond Fund 67065N639 NNYIX* 67065N621 # 67065N613 # 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX 67065P816 #
Nuveen Flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPNCX 67065L716 NBPAX
Nuveen Flagship SC Municipal Bond Fund 67065P790 FLSCX 67065P782 # 67065P774 # 67065P766 #
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
#Will receive a supplemental listing when the number of class shareholder
accounts is 300 or when the class asset base reaches $1 million.
NOTE: A Quotron Symbol requires 1,000 shareholder accounts or $25 million in
assets.
*Denotes supplemental listing only
Effective February 1, 1997
<PAGE>
EXHIBIT 8
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 3
4. Delivery and Registration of the Property 4
5. Voting Rights 5
6. Receipt and Disbursement of Money 5
6A. Advances By Custodian 7
7. Receipt and Delivery of Securities 8
8. Use of Securities Depository or the Book Entry System 9
9. Segregated Account 11
10. Instructions Consistent With The Declaration, etc. 12
11. Transaction Not Requiring Instructions, 15
Collection of Income and Other Payments 15
Miscellaneous Transactions 16
12. Transactions Requiring Instructions 16
13. Purchase of Securities 19
14. Sale of Securities 20
15. Not In Use 20
16. Records 20
17. Cooperation with Accountants 21
18. Reports to Fund Independent Public Accountants 21
19. Confidentiality 21
20. Equipment Failures 22
21. Right to Receive Advice 22
22. Compliance with Governmental Rules and Regulations 23
23. Compensation 23
24. Indemnification 23
25. Responsibility of Chase Manhattan Bank 25
26. Collection of Income 26
27. Ownership Certificates for Tax Purposes 26
28. Effective Period; Terminations and Amendment 27
29. Successor Custodian 28
30. Notices 29
31. Further Actions 29
32. Amendments 29
33. Additional Funds 30
34. Miscellaneous 30
</TABLE>
<PAGE>
CUSTODY AGREEMENT
-----------------
THIS AGREEMENT is made as of the 1st day of February, 1997 by and
between FLAGSHIP ADMIRAL FUNDS INC. (the "Fund"), and THE CHASE MANHATTAN BANK.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interest in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently offers shares in two series, The Golden
Rainbow A James Advised Mutual Fund and Flagship Utility Income Fund (such
series together with all other series subsequently established by the Fund and
made subject to this Contract in accordance with paragraph 33, being herein
referred to as the "Fund(s)):
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints The Chase Manhattan Bank
to act as custodian of its portfolio securities, cash and other property on the
terms set forth in this Agreement. The Chase Manhattan Bank accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Section 23 of this Agreement.
2. Delivery of Documents. The Fund has furnished The Chase
Manhattan Bank with copies properly certified or authenticated of each of the
following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of The Chase Manhattan Bank as Custodian of the portfolio
securities, cash and other property of the Fund and approving this Agreement;
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(b) Incumbency and signature certificates identifying and containing
the signatures of the Fund's officers and/or the persons authorized to sign
Proper Instructions, as hereinafter defined, on behalf of the Fund;
(c) The Fund's Articles of Incorporation filed with the State of
Maryland and all amendments thereto (such Articles of Incorporation as currently
in effect and from time to time, be amended, are herein called the
"Declaration");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws"),
(e) Resolutions of the Fund's Board of Directors appointing the
investment advisor of the Fund and resolutions of the Fund's Board of Directors
and the Fund's Shareholders approving the proposed Investment Advisory Agreement
between the Fund and the advisor (the "Advisory Agreement");
(f) The Advisory Agreement
(g) The Fund's Registration Statement on Form N-1A under the 1940 Act
and the Securities Act of 1933, as amended ("the 1933 Act") as filed with the
SEC; and
(h) The Fund's most recent prospectus and statement of additional
information including all amendments and supplements thereto (the "Prospectus").
Upon request the Fund will furnish The Chase Manhattan Bank with
copies of all amendments of or supplements to the foregoing, if any. The Fund
will also furnish The Chase Manhattan Bank upon request with a copy of the
opinion of counsel for the Fund with respect to the validity of the Shares and
the status of such Shares under the 1933 Act filed with the SEC, and any other
applicable federal law or regulation.
2
<PAGE>
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the term "Authorized
Person" means the Fund's President, Treasurer and any other person, whether or
not any such person is an officer or employee of the Fund, duly authorized by
the Board of Directors of the Fund to give Proper Instructions on behalf of the
Fund as set forth in resolutions of the Fund's Board of Directors.
(b) "Book-Entry System". As used in this Agreement, the term "Book-Entry
System" means a book-entry system authorized by the U.S. Department of Treasury,
its successor or successors and its nominee or nominees.
(c) "Proper Instructions". Proper Instructions as used herein means a
writing signed or initialed by two or more persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if The Chase Manhattan Bank reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
such oral instructions to be confirmed in writing. Upon receipt of a certificate
of the Secretary or an Assistant Secretary as to the authorization by the Board
of Directors of the Fund accompanied by a detailed description of procedures
approved by the Board of Directors, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and The Chase Manhattan Bank are
satisfied that such procedures afford adequate safeguards for the Fund's assets.
For purposes of this Section, Proper Instructions shall include instructions
received by The Chase Manhattan Bank pursuant to any three-party agreement which
requires a segregated asset account in accordance with Section 9.
(d) "Property". The term "Property", as used in this Agreement, means:
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<PAGE>
(i) any and all securities and other property of the Fund which
the Fund may from time to time deposit, or cause to be deposited, with
The Chase Manhattan Bank or which The Chase Manhattan Bank may from
time to time hold for the Fund;
(ii) all income in respect of any such securities or other
property;
(iii) all proceeds of the sales of any of such securities or other
property; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by The Chase Manhattan Bank from time to time from
or on behalf of the Fund.
(e) "Securities Depository". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee or
nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of a
resolution of the Company's Board of Directors approving deposits by The Chase
Manhattan Bank therein.
4. Delivery and Registration of the Property. The Fund will deliver
or cause to be delivered to The Chase Manhattan Bank all securities and all
moneys owned by it, including payments of interest, principal and capital
distributions and cash received for the issuance of its Shares, at any time
during the period of this Agreement, except for securities and monies to be
delivered to any subcustodian appointed pursuant to Section 7 hereof. The Chase
Manhattan Bank will not be responsible for such securities and such monies until
actually received by it. All securities delivered to The Chase Manhattan Bank or
to any such subcustodian (other than in bearer form) shall be registered in the
name of the Fund or in the name of a nominee of the Fund or in the name of The
Chase Manhattan Bank or any nominee of The Chase Manhattan Bank (with or without
indication of fiduciary
4
<PAGE>
status) or in the name of any subcustodian or any nominee of such subcustodian
appointed pursuant to Paragraph 7 hereof or shall be properly endorsed and in
form for transfer satisfactory to The Chase Manhattan Bank.
5. Voting Rights. With respect to all securities, however registered,
it is understood that the voting and other rights and powers shall be exercised
by the Fund. The Chase Manhattan Bank's only duty shall be to mail for delivery
on the next business day to the Fund any documents received, including proxy
statements and offering circulars, with any proxies for securities registered in
a nominee name executed by such nominee. Where warrants, options, tenders or
other securities have fixed expiration dates, the Fund understands that in order
for The Chase Manhattan Bank to act, The Chase Manhattan Bank must receive the
Fund's instructions at its offices in New York, addressed as The Chase Manhattan
Bank may from time to time request, by no later than noon (NY City time) at
least one business day prior to the last scheduled date to act with respect
thereto (or such earlier date or time as The Chase Manhattan Bank may reasonably
notify the Fund). Absent The Chase Manhattan Bank's timely receipt of such
instructions, such instruments will expire without liability to The Chase
Manhattan Bank.
6. Receipt and Disbursement of Money.
(a) The Chase Manhattan Bank shall open and maintain a custody account
for the Fund, subject only to draft or order by The Chase Manhattan Bank acting
pursuant to the terms of this Agreement, and shall hold in such account, subject
to the provisions hereof, all cash received by it from or for the Fund other
than cash maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the 1940 Act. Funds held by The Chase Manhattan
Bank for the Fund may be deposited by it to its credit at The Chase Manhattan
Bank in the Banking Department of The Chase Manhattan Bank or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided,
5
<PAGE>
however, that every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act, and that each such bank or trust company shall be
approved by vote of a majority of the Board of Directors of the Fund. Such funds
shall be deposited by The Chase Manhattan Bank in its capacity as Custodian and
shall be withdrawable by The Chase Manhattan Bank only in that capacity.
(b) Upon receipt of Proper Instructions (which may be continuing
instructions as deemed appropriate by the parties) The Chase Manhattan Bank
shall make payments of cash to, or for the account of, the Fund from such cash
only (i) for the purchase of securities, options, futures contracts or options
on futures contracts for the Fund as provided in Section 13 hereof; (ii) in the
case of a purchase of securities effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section 8
hereof; (iii) in the case of repurchase agreements entered into between the Fund
and The Chase Manhattan Bank, or another bank, or a broker-dealer which is a
member of The National Association of Securities Dealers, Inc. ("NASD"), either
(a) against delivery of the securities either in certificate form or through an
entry crediting The Chase Manhattan Bank's account at the Federal Reserve Bank
with such securities or (b) against delivery of the receipt evidencing purchase
by the Fund of securities owned by The Chase Manhattan Bank along with written
evidence of the agreement by The Chase Manhattan Bank to repurchase such
securities from the Fund; (iv) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund; (v) for the payment of dividends
or other distributions on shares declared pursuant to the governing documents of
the Fund, or for the payment of interest, taxes, administration, distribution or
advisory fees or expenses which are to be borne by the Fund under the terms of
this Agreement, any Advisory Agreement, or any
6
<PAGE>
administration agreement; (vi) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by the Fund and held
by or to be delivered to The Chase Manhattan Bank; (vii) to a subcustodian
pursuant to Section 7 hereof; (viii) for such common expenses incurred by the
Fund in the ordinary course of its business, including but not limited to
printing and mailing expenses, legal fees, accountants fees, exchange fees; or
(ix) for any other proper purpose, but only upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of Directors
or of the Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
(c) The Chase Manhattan Bank is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money received as
custodian for the Fund.
6A. Advances by Custodian. The Custodian may from time to time agree to
advance cash to the Fund, without interest, for the fund's other proper
corporate purposes. If the Custodian advances cash for any purpose, the Fund
shall and hereby does grant to the Custodian a security interest in Fund
securities equal in value to the amount of the cash advance but in no event
shall the value of securities in which a security interest has been granted
exceed 20% of the value of the Fund's total assets at the time of the pledge;
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to reasonably dispose of any securities
in which it has a security interest to the extent necessary to obtain
reimbursement.
7
<PAGE>
7. Receipt and Delivery of Securities.
(a) Except as provided by Section 8 hereof, The Chase Manhattan Bank shall
hold and physically segregate all securities and noncash Property received by it
for the Fund. All such securities and non-cash Property are to be held or
disposed of by The Chase Manhattan Bank for the Fund pursuant to the terms of
this Agreement. In the absence of Proper Instructions accompanied by a certified
resolution authorizing the specific transaction by the Fund's Board, The Chase
Manhattan Bank shall have no power or authority to withdraw, deliver, assign,
hypothecate, pledge or otherwise dispose of any such securities and investments,
except in accordance with the express terms provided for in this Agreement. In
no case may any Trustee, officer, employee or agent of the Fund withdraw any
securities. In connection with its duties under this Section 7, The Chase
Manhattan Bank may, at its own expense, enter into subcustodian agreements with
other banks or trust companies for the receipt of certain securities and cash to
be held by The Chase Manhattan Bank for the account of the Fund pursuant to this
Agreement; provided that each such bank or trust company has an aggregate
capital, surplus and undivided profits, as shown by its last published report,
of not less than twenty million dollars ($20,000,000) and that such bank or
trust company agrees with The Chase Manhattan Bank to comply with all relevant
provisions of the 1940 Act and applicable rules and regulations thereunder. The
Chase Manhattan Bank will be liable for acts or omissions of any subcustodian.
The Chase Manhattan Bank shall employ sub-custodians upon receipt of Proper
Instructions, but only in accordance with an applicable vote by the Board of
Directors of the Fund.
(b) Promptly after the close of business on each day The Chase Manhattan
Bank shall furnish the Fund with confirmations and a summary of all transfers to
or from the account of the Fund during said day. Where securities are
transferred to the account of the Fund established at a Securities Depository or
Book Entry
8
<PAGE>
System pursuant to Section 8 hereof, The Chase Manhattan Bank shall also by
book-entry or otherwise identify as belonging to such Fund the quantity of
securities in a fungible bulk of securities registered in the name of The Chase
Manhattan Bank (or its nominee) or shown in The Chase Manhattan Bank's account
on the books of a Securities Depository or Book-Entry System. At least monthly
and from time to time, The Chase Manhattan Bank shall furnish the Fund with a
detailed statement of the Property held for the Fund under this Agreement.
8. Use of Securities Depository or Book-Entry System. The Fund shall
deliver to The Chase Manhattan Bank a certified resolution of the Board of
Directors of the Fund approving, authorizing and instructing The Chase Manhattan
Bank on a continuous and ongoing basis until instructed to the contrary by
Proper Instructions actually received by The Chase Manhattan Bank (i) to deposit
in a Securities Depository or Book-Entry System all securities of the Fund
eligible for deposit therein and (ii) to utilize a Securities Depository or
Book-Entry System to the extent possible in connection with the performance of
its duties hereunder, including without limitation settlements of purchases and
sales of securities by the Fund, and deliveries and returns of securities
collateral in connection with borrowings. Without limiting the generality of
such use, it is agreed that the following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or Book-Entry System will at all times (1) be represented in an
account of The Chase Manhattan Bank in the Securities Depository or Book Entry
System (the "Account") and (2) be segregated from any assets and cash controlled
by The Chase Manhattan Bank in other than a fiduciary or custodian capacity but
may be commingled with other assets held in such capacities. The Chase Manhattan
Bank will effect payment for securities and receive and deliver securities in
accordance with accepted industry practices as set forth in (b) below, unless
the Fund has given
9
<PAGE>
The Chase Manhattan Bank Proper Instructions to the contrary. The records of The
Chase Manhattan Bank with respect to securities of the Fund maintained in a
Securities Depository or Book Entry System shall identify by book entry those
securities belonging to the Fund.
(b) The Chase Manhattan Bank shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities Depository or
Book Entry System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of The Chase Manhattan Bank to
reflect such payment and transfer for the account of the Fund. Upon receipt of
Proper Instructions, The Chase Manhattan Bank shall transfer securities sold for
the account of the Fund upon (i) receipt of advice from the Securities
Depository or Book Entry System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the records of
The Chase Manhattan Bank to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities Depository or Book Entry
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by The Chase Manhattan Bank and be provided to
the Fund at its request. Upon request, The Chase Manhattan Bank shall furnish
the Fund confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in a Securities Depository
or Book Entry System for the account of the Fund.
(c) The Chase Manhattan Bank shall provide the Fund with any report
obtained by The Chase Manhattan Bank on the Securities Depository or Book Entry
System's accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities Depository or Book Entry
System;
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(d) All Books and records maintained by The Chase Manhattan Bank which
relate to the Fund participation in a Securities Depository or Book-Entry System
will at all times during The Chase Manhattan Bank's regular business hours be
open to the inspection of the Fund's duly authorized employees or agents, and
the Fund will be furnished with all information in respect of the services
rendered to it as it may require.
(e) Anything to the contrary in this Agreement notwithstanding, The Chase
Manhattan Bank shall be liable to the Fund for any loss or damage to the Fund
resulting from any negligence, misfeasance or misconduct of The Chase Manhattan
Bank or any of its agents or of any of its or their employees in connection with
its or their use of the Securities Depository or Book Entry Systems or from
failure of The Chase Manhattan Bank or any such agent to enforce effectively
such rights as it may have against such Securities Depository or Book Entry
System; at the election of the Fund, it shall be entitled to be subrogated to
the rights of The Chase Manhattan Bank with respect to any claim against the
Securities Depository or Book Entry System or any other person which The Chase
Manhattan Bank may have as a consequence of any such loss or damage if and to
the extent that the Fund has not been made whole for any such loss or damage.
9. Segregated Account. The Chase Manhattan Bank shall upon receipt of
Proper Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by The
Chase Manhattan Bank pursuant to Section 8 hereof, (i) in accordance with the
provisions of any agreement among the Fund, The Chase Manhattan Bank and a
broker dealer registered under the Securities and Exchange Act of 1934 and a
member of the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The Options
Clearing
11
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Corporation and of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or government securities in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon purchased or sold
by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
10. Instructions Consistent With The Declaration, etc.
(a) Unless otherwise provided in this Agreement, The Chase Manhattan Bank
shall act only upon Proper Instructions. The Chase Manhattan Bank may assume
that any Proper Instructions received hereunder are not in any way inconsistent
with any provision of the Declaration or By-Laws or any vote or resolution of
the Fund's Board of Directors or any committee thereof. The Chase Manhattan Bank
shall be entitled to rely upon any Proper Instructions actually received by The
Chase Manhattan Bank pursuant to this Agreement. The Fund agrees that The Chase
Manhattan Bank shall incur no liability in acting in good faith upon Proper
Instructions given to The Chase Manhattan Bank, except to the extent such
liability was incurred as a result of The Chase Manhattan Bank's negligence or
willful misconduct. In accord with instructions from the Fund, as
12
<PAGE>
required by accepted industry practice or as The Chase Manhattan Bank may elect
in effecting the execution of Fund instructions, advances of cash or other
Property made by The Chase Manhattan Bank, arising from the purchase, sale,
redemption, transfer or other disposition of Property of the Fund, or in
connection with the disbursement of funds to any party, or in payment of fees,
expenses, claims or liabilities owed to The Chase Manhattan Bank by the Fund, or
to any other party which has secured judgment in a court of law against the Fund
which creates an overdraft in the accounts or over-delivery of Property, shall
be deemed a loan by The Chase Manhattan Bank to the Fund, payable on demand,
bearing interest at such rate customarily charged by The Chase Manhattan Bank
for similar loans.
(b) The Fund agrees that test arrangements, authentication methods or
other security devices to be used with respect to instructions which the Fund
may give by telephone, telex, TWX, facsimile transmission, bank wire or other
teleprocess, or through an electronic instruction system, shall be processed in
accordance with terms and conditions for the use of such arrangements, methods
or devices as The Chase Manhattan Bank may put into effect and modify from time
to time. The Fund shall safeguard any test keys, identification codes or other
security devices which The Chase Manhattan Bank makes available to the Fund and
agrees that the Fund shall be responsible for any loss, liability or damage
incurred by The Chase Manhattan Bank or by the Fund as a result of The Chase
Manhattan Bank's acting in accordance with instructions from any unauthorized
person using the proper security device except to the extent such loss,
liability or damage was incurred as a result of The Chase Manhattan Bank's
negligence or willful misconduct. The Chase Manhattan Bank may electronically
record, but shall not be obligated to so record, any instructions given by
telephone and any other telephone discussions with respect to the Fund. In the
event that the Fund uses The Chase Manhattan Bank's Asset Management system or
any successor electronic
13
<PAGE>
communications or information system, the Fund agrees that The Chase
Manhattan Bank is not responsible for the consequences of the failure of that
system to perform for any reason, beyond the reasonable control of The Chase
Manhattan Bank, or the failure of any communications carrier, utility, or
communications network. In the event that system is inoperable, the Fund agrees
that it will accept the communication of transaction instructions by telephone,
facsimile transmission on equipment compatible to The Chase Manhattan Bank's
facsimile receiving equipment or by letter, at no additional charge to the Fund.
(c) The Chase Manhattan Bank shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and the maturity
of futures contracts purchased or sold by the Fund) received by The Chase
Manhattan Bank from issuers of the securities being held for the Fund. With
respect to tender or exchange offers, The Chase Manhattan Bank shall transmit
promptly by facsimile to the Fund all written information received by The Chase
Manhattan Bank from issuers of the securities whose tender or exchange is sought
and from the party (or his agents) making the tender or exchange offer. If the
Fund desires to take action with respect to any tender offer, exchange offer or
any other similar transaction, the Fund shall notify The Chase Manhattan Bank at
least three business days prior to the date on which The Chase Manhattan Bank is
to take such action or upon the date such notification is first received by the
Fund, if later. If any Property registered in the name of a nominee of The Chase
Manhattan Bank is called for partial redemption by the issuer of such property,
The Chase Manhattan Bank is authorized to allot the called portion to the
respective beneficial holders of the Property in such manner deemed to be fair
and equitable by The Chase Manhattan Bank in its sole discretion.
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11. Transactions Not Requiring Instructions. The Chase Manhattan Bank is
authorized to take the following action without Proper Instructions:
(a) Collection of Income and Other Payments. The Chase Manhattan Bank
shall:
(i) collect and receive on a timely basis for the account of
the Fund, all income and other payments and distributions, including
(without limitation) stock dividends, rights, warrants and similar
items, included or to be included in the Property of the Fund, and
promptly advise the Fund of such receipt and shall credit such income,
as collected, to the Fund. From time to time, The Chase Manhattan Bank
may elect, but shall not be obligated, to credit the account with
interest, dividends or principal payments on payable or contractual
settlement date, in anticipation of receiving same from a payor,
central depository, broker or other agent employed by the Fund or The
Chase Manhattan Bank. Any such crediting and posting shall be at the
Fund's sole risk, and The Chase Manhattan Bank shall be authorized to
reverse any such advance posting in the event it does not receive good
funds from any such payor, central depository, broker or agent of the
Customer. The Chase Manhattan Bank agrees to promptly notify the Fund
of the reversal of any such advance posting.
(ii) endorse and deposit for collection in the name of the
Fund, checks, drafts, or other orders for the payment of money on the
same day as received;
(iii) receive and hold for the account of the Fund all
securities received by the Fund as a result of a stock dividend, share
split-up or reorganization, merger, recapitalization, readjustment or
other rearrangement or distribution of rights or similar securities
issued
15
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with respect to any portfolio securities of the Fund held by The Chase
Manhattan Bank hereunder;
(iv) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable;
(v) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other
payments and the endorsement for collection of checks, drafts and
other negotiable instruments;
(vi) to effect an exchange of the securities where the par value
is changed, and to surrender securities at maturity or upon an earlier
call for redemption, or when securities otherwise become payable,
against payment therefore in accordance with accepted industry
practice. If any Property registered in the name of a nominee of The
Chase Manhattan Bank is called for partial redemption by the issuer of
such property, The Chase Manhattan Bank is authorized to allot the
called portion to the respective beneficial holders of the Property in
such manner deemed to be fair and equitable by The Chase Manhattan
Bank in its sole discretion.
(b) Miscellaneous Transactions. The Chase Manhattan Bank is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor for examination by a dealer selling for the account
of the Fund in accordance with street delivery custom.
12. Transactions Requiring Instructions. In addition to the actions
requiring Proper Instructions set forth herein, upon receipt of Proper
Instructions and not otherwise, The Chase Manhattan Bank, directly or through
the use of a Securities Depository or Book-Entry System, shall:
16
<PAGE>
(a) Execute and deliver to such persons as may be designated in such
Proper Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
issuer of securities or corporation, or the exercise of any conversion
privilege;
(c) Deliver any securities held for the Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
issuer of securities or corporation, against receipt of such certificates of
deposit, interim receipts or other instruments or documents, and cash, if any,
as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust company
for the purpose of pledge or hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be released only upon payment to
The Chase Manhattan Bank of the monies borrowed, or upon receipt of adequate
collateral as agreed upon by the Fund and The Chase Manhattan Bank which may be
in the form of cash or obligations issued by the U.S. government, its agencies
or instrumentalities, except that in cases where additional collateral is
required to secure a borrowing already made, subject to proper prior
authorization, further securities may be released for that purpose; and pay such
loan upon re-delivery to it
17
<PAGE>
of the securities pledged or hypothecated therefore and upon surrender of the
note or notes evidencing the loan; and
(f) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Funds;
(g) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund; and
(h) Deliver securities against payment or other consideration or written
receipt therefore for transfer of securities into the name of the Fund or The
Chase Manhattan Bank or a nominee of either, or for exchange or securities for a
different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to The Chase Manhattan Bank;
(i) Exchange securities in temporary form for securities in definitive
form;
(j) Surrender, in connection with their exercise, warrants, rights or
similar securities, provided that in each case, the new securities and cash, if
any, are to be delivered to The Chase Manhattan Bank;
18
<PAGE>
(k) Deliver securities upon receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Fund;
(1) Deliver securities pursuant to any other proper corporate purpose, but
only upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive Committee signed by an
officer of the Funds and certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
13. Purchase of Securities. Promptly after each purchase of securities,
options, futures contracts or options on futures contracts by the investment
advisor, the Fund shall deliver to The Chase Manhattan Bank (as Custodian)
Proper Instructions specifying with respect to each such purchase: (a) the name
of the issuer and the title of the securities, (b) the number of shares of the
principal amount purchased and accrued interest, if any, (c) the dates of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, (f) the name of the person from whom or the broker
through whom the purchase was made and (g) the Fund name. The Chase Manhattan
Bank shall upon receipt of securities purchased by or for the Fund registered in
the name of the Fund or in the name of a nominee of The Chase Manhattan Bank or
of the Fund or in proper form for transfer or upon receipt of evidence of title
to options, futures contracts or options on futures contracts purchased by the
Fund, pay out of the moneys held for the account of the Fund the total amount
payable to the person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Proper Instructions. Except as specifically stated otherwise in this
Agreement, in any and every case where payment for purchase of securities for
the account of the Fund is made by
19
<PAGE>
The Chase Manhattan Bank in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund to so pay in advance,
The Chase Manhattan Bank shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by The
Chase Manhattan Bank.
14. Sale of Securities. Promptly after each sale of securities by the Fund
at the instruction of the investment advisor, the Fund shall deliver to The
Chase Manhattan Bank (as Custodian) Proper Instructions, specifying with respect
to each such sale; (a) the name of the issuer and the title of the security, (b)
the number of shares or principal amount sold, and accrued interest, if any, (c)
the date of sale, (d) the sale price per unit, (e) the total amount payable to
the Fund upon such sale, (f) the name of the broker through whom or the person
to whom the sale was made and (g) the Fund name. The Chase Manhattan Bank shall
deliver the securities upon receipt of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as set
forth in such Proper Instructions. Subject to the foregoing, The Chase Manhattan
Bank may accept payment in such form as shall be satisfactory to it, and may
deliver securities and arrange for payment in accordance with the customs
prevailing among dealers in securities.
15. Not In Use.
16. Records. The books and records pertaining to the Fund which are in the
possession of The Chase Manhattan Bank shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the 1940 Act,
as amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representative, shall have access to such books
and records at all times during The Chase Manhattan Bank's normal business
hours, and such books and records shall be surrendered to the Fund promptly upon
request. Upon reasonable request of the Fund, copies of any such books and
records
20
<PAGE>
shall be provided by The Chase Manhattan Bank to the Fund or the Fund's
authorized representative at the Fund's expense.
17. Cooperation with Accountants. The Chase Manhattan Bank shall cooperate
with the Fund's independent certified public accountants and shall take all
reasonable action in the performance of its obligations under this Agreement to
assure that the necessary information is made available to such accountants for
the expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's Form N-1A, Form N-SAR and other reports to the
Securities and Exchange Commission and with respect to any other requirement of
such Commission.
18. Reports to Fund by Independent Public Accountants. The Chase Manhattan
Bank shall provide the Fund, at such times as the Fund may reasonably require,
with reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities deposited
and/or maintained in a Securities Depository or Book Entry System, relating to
the services provided by The Chase Manhattan Bank under this Contract; such
reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
19. Confidentiality. The Chase Manhattan Bank agrees on behalf of itself
and its employees to treat confidentially and as the proprietary information of
the Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to the advisors and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after
21
<PAGE>
prior notification to and approval in writing by the Fund, which approval shall
not be unreasonably withheld and may not be withheld where The Chase Manhattan
Bank may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund. Nothing contained herein,
however, shall prohibit The Chase Manhattan Bank from advertising or soliciting
the public generally with respect to other products or services, regardless of
whether such advertisement or solicitation may include prior, present or
potential Shareholders of the Fund.
20. Equipment Failures. In the event of equipment failures beyond The
Chase Manhattan Bank's control, The Chase Manhattan Bank shall, at no additional
expense to the Fund, take reasonable steps to minimize service interruptions but
shall not have liability with respect thereto. The Chase Manhattan Bank shall
enter into and shall maintain in effect with appropriate parties one or more
agreements making reasonable provisions for back up emergency use of electronic
data processing equipment to the extent appropriate equipment is available.
21. Right to Receive Advice.
(a) Advice of Fund. If The Chase Manhattan Bank shall be in doubt as to
any action to be taken or omitted by it, it may request, and shall receive, from
the Fund clarification or advice.
(b) Advice of Counsel. If The Chase Manhattan Bank shall be in doubt as to
any question of law involved in any action to be taken or omitted by The Chase
Manhattan Bank, it may request advice at its own cost from counsel of its own
choosing (who may be counsel for the Fund or The Chase Manhattan Bank, at the
option of The Chase Manhattan Bank).
(c) Conflicting Advice. In case of conflict between directions or advice
received by The Chase Manhattan Bank pursuant to sub-paragraph (a) of this
22
<PAGE>
paragraph and advice received by The Chase Manhattan Bank pursuant to
subparagraph (b) of this paragraph, The Chase Manhattan Bank shall be entitled
to rely on and follow the advice received pursuant to the latter provision
alone.
(d) Protection of The Chase Manhattan Bank. The Chase Manhattan Bank shall
be protected in any action or inaction which it takes or omits to take in
reliance on any directions or advice received pursuant to subparagraphs (a) or
(b) of this section which The Chase Manhattan Bank, after receipt of any such
directions or advice, in good faith believes to be consistent with such
directions or advice. However, nothing in this paragraph shall be construed as
imposing upon The Chase Manhattan Bank any obligation (i) to seek such
directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms of another provision of this
Agreement, the same is a condition to The Chase Manhattan Bank's properly taking
or omitting to take such action. Nothing in this subsection shall excuse The
Chase Manhattan Bank when an action or omission on the part of The Chase
Manhattan Bank constitutes willful misfeasance, bad faith, negligence or
reckless disregard by The Chase Manhattan Bank of its duties under this
Agreement.
22. Compliance with Governmental Rules and Regulations. The Fund assumes
full responsibility for insuring that the contents of each Prospectus of the
Fund complies with all applicable requirements of the 1933 Act, the 1940 Act,
and any laws, rules and regulations of governmental authorities having
jurisdiction.
23. Compensation. As compensation for the services rendered by The Chase
Manhattan Bank during the term of this Agreement, the Fund will pay to The Chase
Manhattan Bank, in addition to reimbursement of its out-of-pocket expenses,
monthly fees as outlined in Exhibit A.
24. Indemnification. The Fund, as sole owner of the Property, agrees to
indemnify and hold harmless The Chase Manhattan Bank and its nominees from all
23
<PAGE>
taxes, charges, expenses, assessments, claims, and liabilities (including,
without limitation, liabilities arising under the 1933 Act, the Securities
Exchange Act of 1934, the 1940 Act, and any state and foreign securities and
blue sky laws, all as or to be amended from time to time) and expenses,
including (without limitation) attorney's fees and disbursements (hereafter
"liabilities and expenses"), arising directly or indirectly from any action or
thing which The Chase Manhattan Bank takes or does or omits to take or do (i) at
the request or on the direction of or in reliance on the advice of the Fund, or
(ii) upon Proper Instructions, provided, that neither The Chase Manhattan Bank
nor any of its nominees or sub-custodians shall be indemnified against any
liability to the Fund or to its Shareholders (or any expenses incident to such
liability) arising out of (x) The Chase Manhattan Bank's or such nominee's or
sub-custodian's own willful misfeasance, bad faith, negligence or reckless
disregard of its duties under this Agreement or any agreement between The Chase
Manhattan Bank and any nominee or subcustodian or (y) The Chase Manhattan Bank's
own negligent failure to perform its duties under this Agreement. The Chase
Manhattan Bank similarly agrees to indemnify and hold harmless the Fund from all
liabilities and expenses arising directly or indirectly from The Chase Manhattan
Bank's or such nominee's or sub-custodian's willful misfeasance, bad faith,
negligence or reckless disregard in performing its duties under this agreement.
In the event of any advance of cash for any purpose made by The Chase Manhattan
Bank resulting from orders or Proper Instructions of the Fund, or in the event
that The Chase Manhattan Bank or its nominee or subcustodian shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's or sub-custodian's own negligent action, negligent failure
to act, willful misconduct, or reckless disregard, the Fund shall
24
<PAGE>
promptly reimburse The Chase Manhattan Bank for such advance of cash or such
taxes, charges, expenses, assessments claims or liabilities.
25. Responsibility of The Chase Manhattan Bank. In the performance of its
duties hereunder, The Chase Manhattan Bank shall be obligated to exercise care
and diligence and to act in good faith to insure the accuracy and completeness
of all services performed under this Agreement. The Chase Manhattan Bank shall
be responsible for its own negligent failure or that of any subcustodian it
shall appoint to perform its duties under this Agreement but to the extent that
duties, obligations and responsibilities are not expressly set forth in this
Agreement, The Chase Manhattan Bank shall not be liable for any act or omission
which does not constitute willful misfeasance, bad faith, or negligence on the
part of The Chase Manhattan Bank or such subcustodian or reckless disregard of
such duties, obligations and responsibilities. Without limiting the generality
of the foregoing or of any other provision of this Agreement, The Chase
Manhattan Bank in connection with its duties under this Agreement shall, so long
as and to the extent it is in the exercise of reasonable care, not be under any
duty or obligation to inquire into and shall not be liable for or in respect of
(a) the validity or invalidity or authority or lack thereof of any advice,
direction, notice or other instrument which conforms to the applicable
requirements of this Agreement, if any, and which The Chase Manhattan Bank
believes to be genuine, (b) the validity of the issue of any securities
purchased or sold by the Fund, the legality of the purchase or sale thereof or
the propriety of the amount paid or received therefor, (c) the legality of the
issue or sale of any Shares, or the sufficiency of the amount to be received
therefore, (d) the legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor, (e) the legality of the declaration or payment
of any dividend or distribution on Shares, of (f) delays or errors or loss of
data occurring by reason of circumstances beyond The Chase Manhattan Bank's
control, including acts of civil
25
<PAGE>
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown (except as provided in Section 20), flood or catastrophe,
acts of God, insurrection, war, riots, or failure of the mail, transportation
communication or power supply.
26. Collection of Income. The Chase Manhattan Bank shall collect on a
timely basis all income and other payments with respect to registered securities
held hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by The Chase Manhattan Bank or
its agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, The Chase
Manhattan Bank shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder. Income due the Fund on
securities loaned pursuant to the provisions of Section 9 shall be the
responsibility of the Fund. The Chase Manhattan Bank will have no duty or
responsibility in connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is properly
entitled.
27. Ownership Certificates for Tax Purposes. The Chase Manhattan Bank
shall execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to securities of the Fund held by it and in connection with
transfers of securities.
26
<PAGE>
28. Effective Period; Termination and Amendment.
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that The Chase Manhattan Bank shall not act under Section 8 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund has approved the
initial use of a particular Securities Depository or Book Entry System, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended;
provided further, however, that the Fund shall not amend or terminate this
Agreement in contravention of any applicable federal or state regulations, or
any provision of the Articles of Incorporation, and further provided, that the
Fund may at any time by action of its Board of Directors (i) substitute another
bank or trust company for The Chase Manhattan Bank by giving notice as described
above to The Chase Manhattan Bank, or (ii) immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for The Chase
Manhattan Bank by the Comptroller of the Currency or upon the happening of a
like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to The Chase
Manhattan Bank such compensation as may be due as of the date of such
termination and shall likewise reimburse The Chase Manhattan Bank for its costs,
expenses and disbursements.
27
<PAGE>
29. Successor Custodian
If a successor custodian shall be appointed by the Board of Directors of
the Fund, The Chase Manhattan Bank shall, upon termination, deliver to such
successor custodian at the office of the custodian, duly endorsed and in the
form for transfer, all securities then held by it hereunder and shall transfer
to an account of the successor custodian all of the Fund's securities held in a
Securities Depository or Book Entry System.
If no such successor custodian shall be appointed, The Chase Manhattan Bank
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Directors of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
The Chase Manhattan Bank on or before the date when such termination shall be
come effective, then The Chase Manhattan Bank shall have the right to deliver to
a bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business in New York, New York, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
The Chase Manhattan Bank and all instruments held by The Chase Manhattan Bank
relative thereto and all other property held by it under this Agreement and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities Depository or Book Entry System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of The Chase Manhattan Bank after the date of termination hereof
owing to failure of the Fund to procure the certified copy of the vote referred
to or of
28
<PAGE>
the Board of Directors to appoint a successor custodian, The Chase Manhattan
Bank shall be entitled to fair compensation for its services during such period
as The Chase Manhattan Bank retains possession of such securities, funds and
other properties and the provisions of this Contract relating to the duties and
obligations of The Chase Manhattan Bank shall remain in full force and effect.
30. Notices. All notices and other communications (collectively referred
to as "Notice" or "Notices") in this section hereunder shall be in writing and
shall be first sent by telegram, cable, telex, or facsimile sending device and
thereafter by overnight mail for delivery on the next business day. Notices
shall be addressed (a) if to The Chase Manhattan Bank, at The Chase Manhattan
Bank's address, 4 New York Plaza, 3rd floor, New York, New York, 10004,
facsimile number (212) 623-8997; (b) if to the Fund, at the address of the Fund
Attention: Controller, facsimile number (312) 917-8049; or (c) if to neither
of the foregoing, at such other address as shall have been notified to the
sender of any such Notice or other communication. Notices sent by overnight mail
shall be deemed to have been given the next business day. Notices sent by
messenger shall be deemed to have been given on the day delivered, and notices
sent by confirming telegram, cable, telex or facsimile sending device shall be
deemed to have been given immediately. All postage, cable, telegram, telex and
facsimile sending device charges arising from the sending of a Notice hereunder
shall be paid by the sender.
31. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
32. Amendments. This Agreement or any part hereof may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of such change or waiver is sought.
29
<PAGE>
33. Additional Funds. In the event that the Fund establishes one or more
series of Shares in addition to The Golden Rainbow A James Advised Mutual Fund
and Flagship Utility Income Fund, with respect to which it desires to have the
Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Fund hereunder.
34. Miscellaneous. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall insure to the benefit of the parties hereto and their respective
successors.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE CHASE MANHATTAN BANK
Attest: /s/ THOMAS V. DIBELLA By: /s/ PETER C. ARRIGHETTI
--------------------- -----------------------
THOMAS V. DIBELLA PETER C. ARRIGHETTI
VICE PRESIDENT SENIOR VICE PRESIDENT
FLAGSHIP ADMIRAL FUNDS INC.
Attest: /s/ GIFFORD R. ZIMMERMAN By: /s/ O. WALTER RENFFTLEN
------------------------ -----------------------
GIFFORD R. ZIMMERMAN O. WALTER RENFFTLEN
ASSISTANT GENERAL COUNSEL VICE PRESIDENT & CONTROLLER
31
<PAGE>
EXHIBIT A
---------
CUSTODY SERVICE FEE
-------------------
Administration and Maintenance Fee
- ----------------------------------
.01375% (l 3/8 Basis Points) on first $10 billion
.00875% (7/8 Basis Point) on second $10 billion
.0075% (3/4 Basis Point) on third $10 billion
.005% (l/2 Basis Point) on remainder
Transaction Fees
- ----------------
$15.00 Per Book Entry Transaction
$25.00 Per Physical Transaction
$35.00 Per Future Contract or Option wire
$8.00 Per outgoing Wire Transfer for ETFs
$5.00 Per incoming and outgoing Wire Transfer for Open End
and Money Market Funds
NOTES:
l. Schedule should be applied to total assets for all Exchange Traded funds,
Open End Load Funds, and Money Market Funds.
2. Add $5.00 per book entry transaction and physical transaction if Custody
inputs trades.
The following applies only to Flagship Utility Income Fund
----------------------------------------------------------
BALANCES
--------
1. During each month, daily net overdrafts are offset by daily net cash
balances dollar for dollar with no penalty or charge for daily net
overdrafts.
2. At the end of each month, the net overdraft for the month incurs an
overdraft charge computed as follows:
The negative net cumulative balance plus 10% reserves multiplied by the
average monthly Fed Funds rate divided by 365 days.
3. Net credit balance at month end carries forward and is eligible for offset
with overdrafts in the next month. The carry forward net credit balance
incurs a 10% reduction. Carry forward balances expire at the end of each
portfolio's fiscal year end for "fully invested funds"; for new funds not
fully invested, the credit balance carries forward until the fund become
fully invested. Each series of the Fund will use its best efforts to keep
its cumulative balances at each calendar quarter end below $50 million.
4. Nuveen Institutional Advisory Corp. or Nuveen Advisory Corp. will be
responsible for promptly advising The Chase Manhattan Bank of the date a new
fund becomes fully invested.
5. Effective January 1, l996, FDIC charges will be no longer applied to the
portfolios.
6. Overdrafts are permissible only as a means of compensating for positive
balances.
7. Due to FDIC capitalization requirements, overdrafts are not permissible on
June 30th and December 31st.
<PAGE>
EXHIBIT 9(a)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
FLAGSHIP ADMIRAL FUNDS INC.
and
STATE STREET BANK AND TRUST COMPANY
lG-Domestic Corp/Series
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
1. Terms of Appointment; Duties of the Bank........................... 1
2. Fees and Expenses.................................................. 3
3. Representations and Warranties of the Bank......................... 4
4. Representations and Warranties of the Fund......................... 4
5. Wire Transfer Operating Guidelines................................. 5
6. Data Access and Proprietary Information............................ 6
7. Indemnification.................................................... 8
8. Standard of Care................................................... 9
9. Covenants of the Fund and the Bank................................. 9
10. Termination of Agreement........................................... 10
11. Additional Funds................................................... 10
12. Assignment......................................................... ll
13. Amendment.......................................................... 11
14. Massachusetts Law to Apply......................................... 11
15. Force Majeure...................................................... 11
16. Consequential Damages.............................................. 11
17. Merger of Agreement................................................ 12
18. Counterparts....................................................... 12
19. Reproduction of Documents.......................................... 12
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 1st day of February, 1997, by and between FLAGSHIP
ADMIRAL FUNDS INC., a Maryland corporation, having its principal office and
place of business at, 333 West Wacker Drive, Chicago, Illinois 60606 (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, Flagship
Utility Income Fund and The Golden Rainbow a James Advised Mutual Fund (each
such series, together with all other series subsequently established by the Fund
and made subject to this Agreement in accordance with Article 11, being herein
referred to as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE. in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment; Duties of the Bank
----------------------------------------
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund,
on behalf of the Portfolios, hereby employs and appoints the Bank to act
as, and the Bank agrees to act as its transfer agent for the Fund's
authorized and issued shares of its common stock $ .001 par value,
("Shares"), dividend disbursing agent, custodian of certain retirement
plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus")
of the Fund on behalf of the applicable Portfolio, including without
limitation any periodic investment plan or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian
<PAGE>
the Fund authorized pursuant to the Articles of Incorporation
of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and protecting
the Bank and the Fund, and the Bank at its option, may issue
replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain pursuant
to SEC Rule 17Ad-10(e) a record of the total number of
shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares or
to take cognizance of any laws relating to the issue or sale
of such shares, which functions shall be the sole
responsibility of the Fund.
2
<PAGE>
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a) the Bank shall: (i)
perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as
relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts preparing Shareholder meeting
lists, mailing proxies, receiving and tabulating proxies, mailing
Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts,
preparing and filing U.S. Treasurer Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions
by federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable transactions
in Shareholder accounts, preparing and mailing activity statements for
Shareholders and providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total
number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may perform these
services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. Fees and Expenses
-----------------
2.1 For the performance by the Bank pursuant to this Agreement, the Fund agrees
on behalf of each of the Portfolios to pay the Bank an annual maintenance
fee for each Shareholder account as set out in the initial fee schedule
attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.2 below may be changed from time to time
subject to mutual written agreement between the Fund and the Bank.
3
<PAGE>
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, tabulating proxies, records
storage, or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the
Bank at the request or with the consent of the Fund, will be reimbursed by
the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all shareholder accounts shall be advanced to
the Bank by the Fund at least seven (7) days prior to the mailing date of
such materials.
3. Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good standing under
the laws of the State of Maryland.
4.2 It is empowered under applicable laws and by its Articles of Incorporation
and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Articles of Incorporation and
By-Laws have
4
<PAGE>
been taken to authorize it to enter into and perform this Agreement.
4.4 It is an open-end and diversified management investment company registered
under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of the Fund being
offered for sale.
5. Wire Transfer Operating Guidelines/Articles 4A of the
-----------------------------------------------------
Uniform Commercial Code
-----------------------
5.1 The Bank is authorized to promptly debit the appropriate Fund account(s)
upon the receipt of a payment order in compliance with the selected
security procedure (the "Security Procedure") chosen for funds transfer and
in the amount of money that the Bank has been instructed to transfer. The
Bank shall execute payment orders in compliance with the Security Procedure
and with the Fund instructions on the execution date provided that such
payment order is received by the customary deadline for processing such a
request, unless the payment order specifies a later time. All payment
orders and communications received after this the customary deadline will
be deemed to have been received the next business day.
5.2 The Fund acknowledges that the Security Procedure it has designated on the
Fund Selection Form was selected by the Fund from security procedures
offered by the Bank. The Fund shall restrict access to confidential
information relating to the Security Procedure to authorized persons as
communicated to the Bank in writing. The Fund must notify the Bank
immediately if it has reason to believe unauthorized persons may have
obtained access to such information or of any change in the Fund's
authorized personnel. The Bank shall verify the authenticity of all Fund
instructions according to the Security Procedure.
5.3 The Bank shall process all payment orders on the basis of the account
number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account number, the
account number shall take precedence and govern.
5.4 The Bank reserves the right to decline to process or delay the processing
of a payment order which (a) is in excess of the collected balance in the
account to be charged at the time of the Bank's receipt of such payment
order; (b) if initiating such payment order would cause the Bank, in the
Bank's sole judgement, to exceed any volume, aggregate dollar, network,
time, credit or similar limits which are applicable to the Bank; or (c) if
the Bank, in good faith, is unable to satisfy itself that the transaction
has been properly authorized.
5
<PAGE>
5.5 The Bank shall use reasonable efforts to act on all authorized requests to
cancel or amend payment orders received in compliance with the Security
Procedure provided that such requests are received in a timely manner
affording the Bank reasonable opportunity to act. However, the Bank assumes
no liability if the request for amendment or cancellation cannot be
satisfied.
5.6 The Bank shall assume no responsibility for failure to detect any erroneous
payment order provided that the Bank complies with the payment order
instructions as received and the Bank complies with the Security Procedure.
The Security Procedure is established for the purpose of authenticating
payment orders only and not for the detection of errors in payment orders.
5.7 The Bank shall assume no responsibility for lost interest with respect to
the refundable amount of any unauthorized payment order, unless the Bank is
notified of the unauthorized payment order within thirty (30) days or
notification by the Bank of the acceptance of such payment order. In no
event (including failure to execute a payment order) shall the Bank be
liable for special, indirect or consequential damages, even if advised of
the possibility of such damages.
5.8 When the Fund initiates or receives Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the National
Automated Clearing House Association and the New England Clearing House
Association, the Bank will act as an Originating Depository Financial
Institution and/or receiving depository Financial Institution, as the case
may be, with respect to such entries. Credits given by the Bank with
respect to an ACH credit entry are provisional until the Bank receives
final settlement for such entry from the Federal Reserve Bank. If the Bank
does not receive such final settlement, the Fund agrees that the Bank shall
receive a refund of the amount credited to the Fund in connection with such
entry, and the party making payment to the Fund via such entry shall not be
deemed to have paid the amount of the entry.
5.9 Confirmation of Bank's execution of payment orders shall ordinarily be
provided within twenty-four (24) hours notice of which may be delivered
through the Bank's proprietary information systems, or by facsimile or
call-back. Fund must report any objections to the execution of an order
within thirty (30) days.
6. Data Access and Proprietary Information
---------------------------------------
6.1 The Fund acknowledges that the data bases, computer programs, screen
format, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank
on data bases under the control and ownership of the Bank ("Data Access
Services") constitute copyrighted, trade secret, or other proprietary
information (collectively, "Proprietary Information") of substantial value
to the Bank or
6
<PAGE>
other third party. In no event shall Proprietary Information be deemed
Customer Data. The Fund agrees to treat all Proprietary Information as
proprietary to the Bank and further agrees that it shall not divulge any
Proprietary Information to any person or organization except as may be
provided hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such
information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other location,
except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 6. The obligations of this Section shall
survive any earlier termination of this Agreement.
6.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible
for the contents of such data and the Fund agrees to make no claim against
the Bank arising out of the contents of such third-party data including,
but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL
COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS
ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
7
<PAGE>
6.3 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or
other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity
with security procedures established by the Bank from time to time.
7. Indemnification
---------------
7.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and against,
any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken
in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by
the Bank or its agents or subcontractors, and (ii) have been prepared,
maintained or performed by the Fund or any other person or firm on
behalf of the Fund including but not limited to any previous transfer
agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
(f) The negotiations and processing of checks made payable to prospective
or existing Shareholders tendered to the Bank for the purchase of
Shares, such checks are commonly known as "third party checks."
7.2 At any time the Bank may apply to any officer of the Fund for instructions,
and may consult with legal counsel with respect to any matter arising in
connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or
8
<PAGE>
subcontractors shall not be liable and shall be indemnified by the Fund on
behalf of the applicable Portfolio for any action taken or omitted by it
in reliance upon such instructions or upon the opinion of such counsel. The
Bank, its agents and subcontractors shall be protected and indemnified in
acting upon any paper or document, reasonably believed to be genuine and to
have been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall also
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of
the officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or co-
registrar.
7.3 In order that the indemnification provisions contained in this Section 7
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of
such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend against
said claim in its own name or in the name of the Bank. The Bank shall in no
case confess any claim or make any compromise in any case in which the Fund
may be required to indemnify the Bank except with the Fund's prior written
consent.
8. Standard of Care
----------------
8.1 The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but shall be liable for loss or damage due
to errors only if said errors are caused by its negligence, bad faith, or
willful misconduct or that of its employees and otherwise shall not be held
responsible or liable.
8.2 If the Fund suffers a loss for which the Bank is liable under section 8.1
hereunder the Bank's obligation to the Fund shall include the Fund's
counsel fees and expenses directly arising out of or attributable to such
liability.
9. Covenants of the Fund and the Bank
----------------------------------
9.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund and
all
9
<PAGE>
amendments thereto.
9.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms
and devices.
9.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Fund Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
9.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
9.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank still endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
10. Termination of Agreement
------------------------
10.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
10.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne
by the Fund on behalf of the applicable Portfolio(s). Additionally, the
Bank reserves the right to charge for any other reasonable expenses
associated with such termination and/or a charge equivalent to the average
of three (3) months' fees.
11. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to the Portfolios with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide
such services, such series of Shares shall become a Portfolio hereunder.
10
<PAGE>
12. Assignment
----------
12.1 Except as provided in Section 12.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
12.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
12.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services, Inc., a
Massachusetts corporation ("BFDS") which is duly registered as a transfer
agent pursuant to Section 17A(c)(2) of the Securities Exchange Act of 1934,
as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly registered as
a transfer agent pursuant to Section 17A(c)(2) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund
for the acts and omissions of any subcontractor as it is for its own acts
and omissions.
13. Amendment
---------
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board of
Directors of the Fund.
14. Massachusetts Law to Apply
--------------------------
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
15. Force Majeure
-------------
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform
or otherwise from such causes.
16. Consequential Damages
---------------------
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
11
<PAGE>
17. Merger of Agreement
-------------------
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
18. Counterparts
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
19. Reproduction of Documents
-------------------------
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not
such reproduction was made by a party in the regular course of business,
and that any enlargement, facsimile or further reproduction shall likewise
be admissible in evidence.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers as of the day and year first above written.
FLAGSHIP ADMIRAL FUNDS INC.
BY: /s/ Anna Kucinskis
-------------------------------
ATTEST:
/s/ Gifford R. Zimmerman
- --------------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
-------------------------------
Executive Vice President
ATTEST:
/s/ Steven Cesso
- --------------------------------
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- -------------------
Bank Fund
---- ----
<S> <C> <C>
1. Receives orders for the purchase X X
of Shares.
2. Issue Shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X X
4. Effect transactions 1-3 above X X
directly with broker-dealers.
5. Pay over monies to redeeming X
Shareholders.
6. Effect transfers of Shares. X
7. Prepare and transmit dividends X
and distributions.
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and X
accurate control book for each
issue of securities.
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current X X
Shareholders.
15. Withhold taxes on U.S. resident X
and non-resident alien accounts.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- -------------------
Bank Fund
---- ----
<S> <C> <C>
16. Prepare and file U.S. Treasury X
Department forms.
17. Prepare and mail account and X
confirmation statements for
Shareholders.
18. Provide Shareholder account X
information.
19. Blue sky reporting. X
</TABLE>
* Such services are more fully described in Section 1.2(a), (b) and (c) of
the Agreement.
FLAGSHIP ADMIRAL FUNDS INC.
BY: /s/ Anna Kucinskis
-----------------------------
ATTEST:
/s/ Gifford R. Zimmerman
- ----------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
-----------------------------
Executive Vice President
ATTEST:
/s/ Steven Cesso
- ----------------------------
<PAGE>
STATE STREET BANK AND TRUST COMPANY
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
FLAGSHIP ADMIRAL FUNDS, INC.
(FLAGSHIP UTILITY INCOME FUND)
General - Fees are based on annual per shareholder account charges for account
maintenance plus out-of-pocket expenses. Annual maintenance charges for various
kinds of mutual funds are given below. There is a minimum charge of $600.00 per
fund or class of shares. This minimum will be waived for the six-month period,
February 1, 1997 through July 31, 1997.
Annual Maintenance Charges - Fees are billable on a monthly basis at the rate
of 1/12 of the annual fee. A charge is made for an account in the month that an
account opens or closes.
Type (A) Fund 0 - $75 million in assets $13.50
Type (B) Fund $75 - $150 million in assets $15.50
Type (C) Fund Over $150 million in assets $16.50
The per account maintenance fee will be adjusted annually based on each fund's
assets as of the first day of June. Multiple classes of shares will be billed
as a separate Fund.
Other Fees - The following features will each be assessed an additional charge
as an add-on to the annual per account rate if they are present:
12B-1 $5.50 per account*
Manually entered share and maintenance transactions $1.00 each
Closed Accounts per account, per month $0.10
Disaster Recovery/Emergency backup per account serviced,
per year $0.25
* This fee will be reduced to $4.50 for the six-month period, February 1, 1997
through July 31, 1997.
Out-of-Pocket Expenses - Out-of-Pocket expenses include but are not limited to:
Confirmation statements, postage, forms, ACH, telephone, microfilm, microfiche,
proxy tabulation, checkwriting and other expenses incurred at the specific
direction of the Fund.
FLAGSHIP ADMIRAL FUNDS, INC. STATE STREET BANK AND TRUST CO.
By: /s/ Anna Kucinskis By: /s/ Ronald E. Logue
---------------------------- ----------------------------
Title: Vice Pres. Title: Executive Vice President
------------------------- -------------------------
Date: 3/24/97 Date: March 20, 1997
-------------------------- --------------------------
<PAGE>
STATE STREET BANK AND TRUST COMPANY
Fee information for Services as
Plan, Transfer and Dividend Disbursing Agent
FLAGSHIP ADMIRAL FUNDS, INC.
(THE GOLDEN RAINBOW A JAMES ADVISED MUTUAL FUND)
General - Fees are based on annual per shareholder account charges for account
maintenance plus out-of-pocket expenses. Annual maintenance charges for various
kinds of mutual funds are given below. There is a minimum charge of $600.00 per
fund or class of shares. This minimum will be waived for the six-month period.
February 1, 1997 through July 31, 1997.
Annual Maintenance Charges - Fees are billable on a monthly basis at the rate of
1/12 of the annual fee. A charge is made for an account in the month that an
account opens or closes.
Open Account Fee $13.50
Other Fees - The following features will each be assessed an additional charge
as an add-on to the annual per account rate if they are present:
12B-1 $5.00 per account*
Manually entered share and maintenance transactions $1.00 each
Closed Accounts per account, per month $0.10
Disaster Recovery/Emergency backup per account services,
per year $0.25
* This fee will be reduced to $4.50 for the six-month period, February 1, 1997
through July 31, 1997.
Out-of-Pocket Expenses - Out-of-Pocket expenses include but are not limited to:
Confirmation statements postage, forms, ACH, telephone, microfilm, microfiche,
checkwriting and other expenses incurred at the specific direction of the fund.
FLAGSHIP ADMIRAL FUNDS, INC. STATE STREET BANK AND TRUST CO.
By: /s/ Anna Kucinskis By: /s/ Ronald E. Logue
---------------------------- ----------------------------
Title: Vice Pres. Title: Executive Vice President
------------------------- -------------------------
Date: 3/24/97 Date: March 20, 1997
-------------------------- --------------------------
<PAGE>
Exhibit 10(a)
October 27, 1997
Flagship Admiral Funds Inc. (202) 639-7065
333 West Wacker Drive
Chicago, Illinois 60606
RE: Post-Effective Amendment No. 24 to Registration Statement
on Form N-1A Under the Securities Act of 1933
(File No. 2-84470)
---------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Flagship Admiral Funds Inc., a Maryland
corporation (the "Corporation"), in connection with the above-referenced
Registration Statement on Form N-1A (as amended, the "Registration Statement")
which relates to the Class A Shares and Class C Shares, where applicable
(collectively, the "Shares") of the Flagship Utility Income Fund and The Golden
Rainbow A James Advised Fund (collectively, the "Series"). This opinion is being
delivered to you in connection with the Corporation's filing of Post-Effective
Amendment No. 24 to the Registration Statement (the "Amendment") to be filed
with the Securities and Exchange Commission on or about October 28, 1997
pursuant to Rule 485(b) of the Securities Act of 1933 (the "1933 Act"). With
your permission, all assumptions and statements of reliance herein have been
made without any independent investigation or verification on our part except to
the extent otherwise expressly stated, and we express no opinion with respect to
the subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the Secretary of State of the State of Maryland as to
the existence of the Corporation;
(b) copies, certified by the Secretary of State of the State of Maryland,
of the Corporation's Articles of Incorporation and of all amendments
thereto on file in the office of the Secretary of State (the
"Charter");
(c) a certificate executed by Michael D. Kalbfleisch, who served as the
Secretary of the Corporation throughout the period from July 1, 1996
to the close of business
-1-
<PAGE>
Flagship Admiral Funds Inc.
October 27, 1997
Page 2
on January 30, 1997, certifying as to, and attaching copies of, the
Charter, Corporation By-Laws, and certain resolutions of the Board of
the Corporation authorizing the issuance of the Shares covered by the
Notice during that period;
(d) a certificate executed by Karen L. Healy, an Assistant Secretary of
the Corporation since January 31, 1997, certifying as to the Charter,
Corporation By-Laws, and certain resolutions of the Board in effect as
of the close of business on January 30, 1997, that the Charter and
those Corporation By-Laws and certain resolutions were not amended,
altered, or repealed, and remained in full force and effect during the
period from January 31, 1997 to June 30, 1997; and
(e) a printer's proof, dated October 27, 1997, of the Amendment.
In our capacity as counsel to the Corporation, we have examined the
originals, or certified, conformed or reproduced copies, of all records,
agreements, instruments and documents as we have deemed relevant or necessary as
the basis for the opinions hereinafter expressed. In all such examinations, we
have assumed the legal capacity of all natural persons executing documents, the
genuineness of all signatures, the authenticity of all original or certified
copies, and the conformity to original or certified copies of all copies
submitted to us as conformed or reproduced copies. As to various questions of
fact relevant to such opinion, we have relied upon, and assume the accuracy of,
certificates and oral or written statements of public officials and officers or
representative of the Corporation. We have assumed that the Registration
Statement, as filed with the Securities and Exchange Commission, will be in
substantially the form of the printer's proof referred to in paragraph (e)
above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the
Corporation's Charter and By-Laws, and for the consideration described in the
Registration Statement, will be legally issued, fully paid and non-assessable,
except that, as set forth in the Registration Statement.
The opinion expressed herein is limited to the laws of the State of
Maryland.
-2-
<PAGE>
Flagship Admiral Funds Inc.
October 27, 1997
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Thomas S. Harman
----------------------------------------
Thomas S. Harman
-3-
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 24 to Registration
Statement under the Securities Act of 1933, filed under Registration Statement
No. 2-84470, of our reports dated August 20, 1997, relating to the Flagship
Admiral Funds Inc., including The Golden Rainbow A James Advised Mutual Fund and
the Flagship Utility Income Fund, included in the respective Statement of
Additional Information and to the reference to us under the headings "Financial
Highlights" in such Registration Statement.
DELOITTE & TOUCHE LLP
Dayton, OH
October 24, 1997
<PAGE>
EXHIBIT 16
SCHEDULE OF COMPUTATION OF PERFORMANCE FIGURES*
I. YIELD
A. Yield Formula
Yield is computed according the following formula:
A - B 6
YIELD = 2 [ ( ----- + 1) - 1
CD
Where: A = dividends and interest(degrees) 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.
D = the maximum offering price per share on the last day of the period.
- --------
*The maximum sales charge in effect during the periods shown was 4.20%.
(degrees)Interest earned on tax-exempt obligations is determined as follows:
A. In the case of a tax-exempt obligation (1) with a current market premium or
(2) issued at a discount where the current market discount is less than the
then-remaining portion of the original issue discount, it is necessary to
first compute the yield to maturity (YTM). The YTM is then divided by 360
and the quotient is multiplied by the market value of the obligation (plus
accrued interest).
B. In the case of a tax-exempt obligation issued at a discount where the
current market discount is in excess of the then-remaining portion of the
original issue discount, the adjusted original issue discount basis of the
obligation (plus accrued interest) is used in lieu of the market value of
the obligation (plus accrued interest) in computing the yield to maturity
(YTM). The YTM is then divided by 360 and the quotient is multi-plied by
the adjusted original issue basis of the obligation (plus ac-crued
interest).
C. In the case of a tax-exempt obligation issued without original issue
discount and having a current market discount, the coupon rate of inter-est
is used in lieu of the yield to maturity. The coupon rate is then di-vided
by 360 and the quotient is multiplied by the par value of the obli-gation.
B. Yield Calculations
1. Golden Rainbow
The following is a 30-day yield as of June 30, 1997, for the Class A Shares
of the Fund:
[$ 621,212.49 - $140,057.07] 6
Yield = 2[ ( ----------------------------- + 1) - 1]
[ 8,192,337.66 X $ 20.16]
= 3.52%
2. Utility Income
The following is a 30-day yield as of June 30, 1997, for the Class A Shares
of the Fund:
[$ 93,069.99 - $ 22,375.93] 6
Yield = 2[ ( ----------------------------- + 1) - 1]
[ 1,763,224.01 X 12.01]
= 4.04%$
The following is a 30-day yield as of June 30, 1997, for the Class C Shares
of the Fund:
[$ 25,815.61 - $ 8,731.16] 6
Yield = 2[ ( ----------------------------- + 1) - 1]
[ 489,838.40 X $ 11.49]
= 3.67%
1
<PAGE>
II. DISTRIBUTION RATE
A. Distribution Rate Formula
The formula for calculation of distribution rate for the Golden Rainbow is as
follows:
Distribution Rate = 4 X most recent dividend per share
----------------------------------
share price
The formula for calculation of distribution rate for Utility Income Fund is
as follows:
Distribution Rate = + (12 X most recent dividend per share)
-------------------------------------
share price
B. Distribution Rate Calculations
1. Golden Rainbow:
The following is the distribution rate as of June 30, 1997, based on the
maximum public offering price for the Flagship Golden Rainbow Fund:
Class A Distribution Rate = 4 X $.1702
----------
$20.16
= 3.38%
2. Utility Income Fund:
The following is the distribution rate as of June 30, 1997, based on the
maximum public offering price for the Utility Income Fund:
Class A Distribution Rate = 12 X $.0529
$12.01
= 5.29%
Class C Distribution Rate = 12 X $.0481
-----------
$11.49
= 5.02%
III. AVERAGE ANNUAL TOTAL RETURN
A. Average Annual Total Return Formula
Average Annual Total Return is computed according to the following formula:
ERV /1//N
T = --- -1
P
Where: T = average annual total return.
P = a hypothetical initial payment of $1,000.
N = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10-year (or fractional portion thereof) pe-
riods at the end of such 1, 5 or 10-year (or fractional portion
thereof) periods.
2
<PAGE>
B. Average Annual Total Return Calculations
The following are the average annual total returns for Class A and C Shares
of the Funds for the period from inception and the 1 and 5 year periods ended
June 30, 1997, including the current maximum sales charge. For the Golden
Rainbow Fund and Utility Income Fund, Class A performance reflects actual
performance since inception. For the Utility Income Fund, Class C performance
reflects actual performance since inception, and Class A performance for
periods prior to inception, adjusted for the differences in sales charges and
fees between the classes.
ANNUALIZED CLASS A TOTAL RETURNS including current maximum sales charges of
4.20%:
1. Golden Rainbow Fund:
$1,116 1/1
A. 1 year ended June 30, 1997 = ( ------- ) - 1 = 11.63%
$1,000 =====
$1,629 1/5
B. 5 years ended June 30, 1997 = ( ------- ) - 1 = 10.25%
$1,000 =====
$1,823 1/5.999
C. Inception through June 30, 1997 = ( ------- ) - 1 = 10.53%
$1,000 =====
2. Utility Income Fund:
A. 1 year ended June 30, 1997 $1,053 1/1
= ( ------- ) - 1 = 5.28%
$1,000 ====
$1,471 1/4.997
B. Inception through June 30, 1997 = -------- - 1 = 8.02%
$1,000 ====
ANNUALIZED CLASS C TOTAL RETURNS:
1. Utility Income Fund:
$1,093 1/1
A. 1 year ended June 30, 1997 = ( ------- ) - 1 = 9.25%
$1,000 ====
$1,493 1/4.997
B. Inception through June 30, 1997 = ( ------- ) - 1 = 8.35%
$1,000 ====
IV. CUMULATIVE TOTAL RETURN
A. Cumulative Total Return Formula
Cumulative Total Return is computed according to the following formula:
ERV - P
T = -------
P
Where: T = cumulative total return.
P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
inception of the Fund or at the first day of a specified 1-year, 5-
year or 10-year period.
3
<PAGE>
B. Cumulative Total Return Calculation
The following are the cumulative total returns for the Class A and C Shares
of the Funds for the periods from inception and for the one and five year
period ended June 30, 1997, including the current maximum sales charge. For
the Golden Rainbow Fund and Utility Income Fund, Class A performance reflects
actual performance since inception. For the Utility Income Fund, Class C
performance reflects actual performance since inception, and Class A
performance for periods prior to inception, adjusted for the differences in
sales charges and fees between the classes.
CUMULATIVE CLASS A TOTAL RETURNS including current maximum sales charge of
4.20%:
1. Golden Rainbow Fund:
$1,116 - $1,000
A. 1 year ended June 30, 1997 = ( ---------------- ) = 11.63%
$1,000 =====
B. 5 years ended June 30, 1997 $1,629 - $1,000
= ( --------------- ) = 62.90%
$1,000 =====
$1,823- $1,000
C. Inception through June 30, 1997 = ( --------------- ) = 82.30%
$1,000 =====
2. Utility Income Fund:
A. 1 year ended June 30, 1997 $1,053 - $1,000
= ( ---------------- ) = 5.28%
$1,000 ====
B. Inception through June 30, 1997 $1,471 - $1,000
= ( ---------------- ) = 47.05%
$1,000 =====
CUMULATIVE CLASS C TOTAL RETURNS:
1. Utility Income Fund:
$1,093 - $1,000
A. 1 year ended June 30, 1997 = ( ---------------- ) = 9.25%
$1,000 ====
B. Inception through June 30, 1997 $1,493 - $1,000
= ( ---------------- ) = 49.32%
$1,000 =====
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> FLAGSHIP GOLDEN RAINBOW CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 126004
<INVESTMENTS-AT-VALUE> 154724
<RECEIVABLES> 3007
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 157737
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 554
<TOTAL-LIABILITIES> 554
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121330
<SHARES-COMMON-STOCK> 8139
<SHARES-COMMON-PRIOR> 10495
<ACCUMULATED-NII-CURRENT> 72
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7061
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28720
<NET-ASSETS> 157183
<DIVIDEND-INCOME> 1769
<INTEREST-INCOME> 6225
<OTHER-INCOME> 0
<EXPENSES-NET> 1846
<NET-INVESTMENT-INCOME> 6148
<REALIZED-GAINS-CURRENT> 7061
<APPREC-INCREASE-CURRENT> 12505
<NET-CHANGE-FROM-OPS> 25714
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6084
<DISTRIBUTIONS-OF-GAINS> 3654
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 332
<NUMBER-OF-SHARES-REDEEMED> (3180)
<SHARES-REINVESTED> 492
<NET-CHANGE-IN-ASSETS> (27124)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3654
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1252
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2100
<AVERAGE-NET-ASSETS> 169134
<PER-SHARE-NAV-BEGIN> 17.56
<PER-SHARE-NII> .66
<PER-SHARE-GAIN-APPREC> 2.16
<PER-SHARE-DIVIDEND> (.68)
<PER-SHARE-DISTRIBUTIONS> (.39)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.31
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> FLAGSHIP UTILITY INCOME FUND CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 23695
<INVESTMENTS-AT-VALUE> 25132
<RECEIVABLES> 104
<ASSETS-OTHER> 739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25975
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264
<TOTAL-LIABILITIES> 264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30222
<SHARES-COMMON-STOCK> 1751
<SHARES-COMMON-PRIOR> 2254
<ACCUMULATED-NII-CURRENT> 62
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6010)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1437
<NET-ASSETS> 25711
<DIVIDEND-INCOME> 1960
<INTEREST-INCOME> 5
<OTHER-INCOME> 0
<EXPENSES-NET> 308
<NET-INVESTMENT-INCOME> 1657
<REALIZED-GAINS-CURRENT> 2156
<APPREC-INCREASE-CURRENT> (1227)
<NET-CHANGE-FROM-OPS> 2586
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1294
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 139
<NUMBER-OF-SHARES-REDEEMED> (701)
<SHARES-REINVESTED> 58
<NET-CHANGE-IN-ASSETS> (5600)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (20014)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 141
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 466
<AVERAGE-NET-ASSETS> 22498
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> .66
<PER-SHARE-GAIN-APPREC> .40
<PER-SHARE-DIVIDEND> (.64)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.51
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> FLAGSHIP UTILITY INCOME FUND CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 23695
<INVESTMENTS-AT-VALUE> 25132
<RECEIVABLES> 104
<ASSETS-OTHER> 739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25975
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264
<TOTAL-LIABILITIES> 264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30222
<SHARES-COMMON-STOCK> 483
<SHARES-COMMON-PRIOR> 569
<ACCUMULATED-NII-CURRENT> 62
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6010)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1437
<NET-ASSETS> 25711
<DIVIDEND-INCOME> 1960
<INTEREST-INCOME> 5
<OTHER-INCOME> 0
<EXPENSES-NET> 308
<NET-INVESTMENT-INCOME> 1657
<REALIZED-GAINS-CURRENT> 2156
<APPREC-INCREASE-CURRENT> (1227)
<NET-CHANGE-FROM-OPS> 2586
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 301
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50
<NUMBER-OF-SHARES-REDEEMED> (150)
<SHARES-REINVESTED> 15
<NET-CHANGE-IN-ASSETS> (5600)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (20014)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 141
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 466
<AVERAGE-NET-ASSETS> 5747
<PER-SHARE-NAV-BEGIN> 11.08
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> .38
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.49
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 99(a)
FLAGSHIP ADMIRAL FUNDS INC.
------------
POWER OF ATTORNEY
------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) his true and lawful attorney-in-fact and agent, for him on his behalf
and in his name, place and stead, in any and all capacities, to sign, execute
and affix his seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully to all intents and purposes
as he might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of of the above-referenced
organization has hereunto set his hand this 30th day of January, 1997.
/s/ Robert P. Bremner
---------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth
- --------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
-----------------------------
My Commission Expires: 10/26/97
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
------------
POWER OF ATTORNEY
------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) his true and lawful attorney-in-fact and agent, for him on his behalf
and in his name, place and stead, in any and all capacities, to sign, execute
and affix his seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully to all intents and purposes
as he might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of the above-referenced
organization has hereunto set his hand this 30th day of January, 1997.
/s/ Anthony T. Dean
--------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 30th day of January, 1997, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
- ----------------------------------
"OFFTCIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- ----------------------------------
/s/ Virginia L. Corcoran
--------------------------------------
My Commission Expires: 10/26/97
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
------------
POWER OF ATTORNEY
------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) his true and lawful attorney-in-fact and agent, for him on his behalf
and in his name, place and stead, in any and all capacities, to sign, execute
and affix his seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully to all intents and purposes
as he might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of the above-referenced
organization has hereunto set his hand this 30th day of January, 1997.
/s/ Lawrence H. Brown
--------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 30th day of January, 1997, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
- ---------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- ---------------------------------
/s/ Virginia L. Corcoran
--------------------------------------
My Commission Expires: 10/26/97
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
------------
POWER OF ATTORNEY
------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) her true and lawful attorney-in-fact and agent, for her on her behalf
and in her name, place and stead, in any and all capacities, to sign, execute
and affix her seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully to all intents and purposes
as she might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of the above-referenced
organization has hereunto set her hand this 30th day of January, 1997.
/s/ Anne E. Impellizzeri
--------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 30th day of January, 1997, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
- -----------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- -----------------------------------
/s/ Virginia L. Corcoran
--------------------------------------
My Commission Expires: 10/26/97
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
------------
POWER OF ATTORNEY
------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) her true and lawful attorney-in-fact and agent, for her on her behalf
and in her name, place and stead in any and all capacities, to sign, execute and
affix her seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully to all intents and purposes
as she might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of the above-referenced
organization has hereunto set her hand this 30th day of January, 1997.
/s/Margaret K. Rosenheim
------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 30th day of January, 1997, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
- ----------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- ----------------------------------
/s/ Virginia L. Corcoran
--------------------------------------
My Commission Expires: 10/26/97
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
--------------
POWER OF ATTORNEY
--------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) his true and lawful attorney-in-fact and agent, for him on his behalf
and in his name, place and stead, in any and all capacities, to sign, execute
and affix his seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully to all intents and purposes
as he might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of the above-referenced
organization has hereunto set his hand this 30th day of January, 1997.
/s/ Peter R. Sawers
--------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 30th day of January, 1997, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
- ---------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Comission Expires 10/26/97
- ---------------------------------
/s/ Virginia L. Corcoran
--------------------------------------
My Commission Expires: 10/26/97
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
-----------------------
POWER OF ATTORNEY
-----------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) his true and lawful attorney-in-fact and agent, for him on his behalf
and in his name, place and stead, in any and all capacities, to sign, execute
and affix his seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully to all intents and purposes
as he might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of the above-referenced
organization has hereunto set his hand this 30th day of January, 1997.
/s/ William J. Schneider
--------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 30th day of January, 1997, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
- ---------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- ---------------------------------
/s/ Virginia L. Corcoran
------------------------------
My Commission Expires: 10/26/97
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
____________
POWER OF ATTORNEY
____________
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) his true and lawful attorney-in-fact and agent, for him on his behalf
and in his name, place and stead, in any and all capacities, to sign, execute
and affix his seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully to all intents and purposes
as he might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director of the above-referenced
organization has hereunto set his hand this 30th day of January, 1997.
/s/ Timothy R. Schwertfeger
--------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 30th day of January, 1997, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
- -----------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- -----------------------------------
/s/ Virginia L. Corcoran
------------------------------
My Commission Expires: 10/26/97
<PAGE>
FLAGSHIP ADMIRAL FUNDS INC.
------------
POWER OF ATTORNEY
------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) his true and lawful attorney-in-fact and agent, for him on his behalf
and in his name, place and stead, in any and all capacities, to sign, execute
and affix his seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, without limitation, granting unto said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in order to effectuate
the same as fully to all intents and purposes as he might or could do if
personally present, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned director of the above-referenced
organization has hereunto set his hand this 1st day of July, 1997.
/s/ Judith M. Stockdale
--------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 1st day of July, 1997, personally appeared before me, a Notary Public in
and for said County and State, the person named above who is known to me to be
the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
- --------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
---------------------------------------
My Commission Expires: 10/26/97
<PAGE>
EXHIBIT 99(b)
Certified Resolution
The undersigned, Gifford R. Zimmerman, hereby certifies, on behalf of Flagship
Admiral Funds, Inc. (the "Fund"), (1) that he is the duly elected, qualified and
acting Assistant Secretary of the Fund, and that as such Assistant Secretary he
has custody of its corporate books and records, (2) that attached to this
Certificate is a true and correct copy of a resolution duly adopted by the Board
of Trustees of the Fund at a meeting held on January 30, 1997, and (3) that said
resolution has not been amended or rescinded and remains in full force and
effect.
July 15, 1997
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Assistant Secretary
<PAGE>
FURTHER RESOLVED, that each member of the Board and officer of the Fund who may
be required to execute the registration statement on Form N-1A, or any amendment
or amendments thereto, be, and each of them hereby is, authorized to execute a
power of attorney appointing Timothy R. Schwertfeger, Anthony T. Dean, Bruce P.
Bedford, Larry W. Martin, Gifford R. Zimmerman, and Thomas S. Harman, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the registration statement, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done, as fully to all intents and purposes as he might or could
do in person, and ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
<PAGE>
EXHIBIT 99(c)
NUVEEN UNIT TRUSTS
NUVEEN MUTUAL FUNDS
NUVEEN EXCHANGE-TRADED FUNDS
NUVEEN ADVISORY CORP.
NUVEEN INSTITUTIONAL ADVISORY CORP.
NUVEEN ASSET MANAGEMENT INC.
JOHN NUVEEN & CO. INCORPORATED
----------------------------
Standards and Procedures
Regarding
Conflicts of Interest
----------------------------
Code of Ethics
And
Reporting Requirements
The Securities and Exchange Commission, in Investment Company Act Release No.
11421, has adopted Rule 17j-1 "to provide guidance to investment companies as to
the minimum standards of conduct appropriate for persons who have access to
information regarding the purchase and sale of portfolio securities by
investment companies." The Rule requires registered investment companies, their
investment advisers and their principal underwriters to adopt codes of ethics
and reporting requirements to guard against violations of the standards set
forth in the Rule and the principles provided below and to establish guidelines
for the conduct of persons who (1) may obtain material non-public information
concerning securities held by or considered for purchase or sale by any series
of the Nuveen Unit Trusts (the "Trusts") or by any of the Nuveen-sponsored
registered management investment companies (the "Funds") or non-management
investment company clients ("Clients") to which Nuveen Advisory Corp., Nuveen
Asset Management Inc. or Nuveen Institutional Advisory Corp. act as investment
advisers or (2) may make any recommendation or participate in the determination
of which recommendation shall be made concerning the purchase or sale of any
securities by a Trust, Fund or Client. The equity Funds advised pursuant to
subadvisory agreements with non-controlled advisers ("Subadvised Funds")
acknowledge that, in lieu of being subject to this Code of Ethics, all employees
and other persons affiliated with such subadvisers shall be subject to the
subadviser's Code of Ethics. In addition, due to limited access to information
regarding the subadvisers' portfolio activities concerning equity securities,
Nuveen personnel who are access persons of the Subadvised Funds shall not be
required to preclear any transactions solely for being access persons of such
Funds. This Code of Ethics (the "Code") consists of six sections--1. Statement
of General Principles; 2. Definitions; 3. Exempted Transactions;
4. Prohibitions; 5. Reporting Requirements; and 6. Sanctions.
<PAGE>
2
I. Statement of General Principles
The Code is based upon the principle that the officers, directors and
employees of a Fund, Nuveen Advisory Corp., Nuveen Institutional Advisory
Corp., Nuveen Asset Management Inc. and John Nuveen & Co. Incorporated owe
a fiduciary duty to, among others, the unitholders and shareholders of the
Trusts and Funds and the Clients, to conduct their personal securities
transactions in a manner which does not interfere with Trust, Fund or
Client portfolio transactions or otherwise take unfair advantage of their
relationship to the Trusts, Funds or Clients. In accordance with this
general principle, persons covered by the Code must: (1) place the
interests of unitholders and shareholders of the Trusts and Funds and the
Clients first; (2) execute personal securities transactions in compliance
with the Code; (3) avoid any actual or potential conflict of interest and
any abuse of their positions of trust and responsibility; and (4) not take
inappropriate advantage of their positions. It bears emphasis that
technical compliance with the Code's procedures will not automatically
insulate from scrutiny trades which show a pattern of abuse of the
individual's fiduciary duties to the Trust, Fund or Client. In addition, a
violation of the general principles of the Code may constitute a punishable
violation.
II. Definitions
As used herein:
(1) "Access person" shall mean:
(a) Any director, officer or advisory person of any Fund or Trust or
of Nuveen Advisory Corp., Nuveen Institutional Advisory Corp. or
Nuveen Asset Management Inc.
(b) Any director or officer of John Nuveen & Co. Incorporated who in
the ordinary course of his business makes, participates in or
obtains information regarding the purchase or sale of securities
for the Funds, Trusts or Clients or whose functions or duties as
part of the ordinary course of his business relate to the making
of any recommendation to such Fund, Trust or Client regarding the
purchase or sale of securities.
A list of access persons of all entities other than the Flagship
Utility Income Fund ("Utility Fund") is attached as Exhibit A. A list
of persons deemed to be access persons of the Utility Fund is attached
as Exhibit B ("Utility Fund Access Persons").
<PAGE>
3
For purposes of this section "advisory person" shall mean:
(a) Any employee of a Fund, of Nuveen Advisory Corp., of Nuveen
Institutional Advisory Corp., of Nuveen Asset Management Inc. or of
John Nuveen & Co. Incorporated who, in connection with his or her
regular functions or duties, makes, participates in, or obtains
information, regarding the purchase or sale of a security by a Trust,
Fund or Client or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and
(b) Any director or officer of John Nuveen & Co. Incorporated who obtains
information concerning recommendations made to such Trust, Fund or
Client with respect to the purchase or sale of a security.
(2) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the recommendation,
when such person considers making such recommendation.
(3) Beneficial ownership shall be interpreted in accordance with the definition
set forth in Rule 16a-1(a)(2) under the Securities Exchange Act of 1934.
Section 16a-1(a)(2) specifies that a person will be deemed to be the
"beneficial owner" of securities that such individual, directly or
indirectly, through any contract, arrangement, understanding, relationship
or otherwise has or shares in the opportunity to profit or share in any
profit derived from a transaction in the subject security. In addition, a
person will be deemed to be the beneficial owner of securities:
(a) held by members of such person's immediate family sharing the same
household;
(b) held by a general or limited partnership for which such person is a
general partner;
(c) held in a trust:
(i) of which such person is trustee and the trustee or members of
his or her immediate family have a pecuniary interest in the
trust;
(ii) in which such person has a vested beneficial interest or shares
in investment control with the trustee;
<PAGE>
4
(iii) of which such person is settlor and which the settlor has
the power to revoke the trust without consent of the
beneficiaries; or
(iv) certain other trusts as set forth in Rule 16a-1(a)(2)
under the Securities Exchange Act of 1934.
A person will not be deemed to be the beneficial owner of
securities held in the portfolio of a registered investment
company solely by reason of his or her ownership of shares or
units of such registered investment company.
(4) "Security" shall mean any stock, bond, debenture, evidence of
indebtedness or in general any other instrument defined to be a
security in Section 2(a)(36) of the Investment Company Act of 1940
except that it shall not include securities issued by the Government
of the United States, short term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the Investment
Company Act of 1940, bankers' acceptances, bank certificates of
deposit, commercial paper and shares of registered open-end
investment companies.
(5) "Purchase of sale of a security" shall include any transaction in
which a beneficial interest in a security is acquired or disposed of,
including but not limited to the writing of an option to purchase or
sell a security or the cancellation of a good-until-canceled order.
(6) "Control" shall have the same meaning as set forth in Section 2(a) (9)
of the Investment Company Act of 1940.
(7) "Investment personnel" shall mean any employee of Nuveen Advisory
Corp., Nuveen Institutional Advisory Corp., Nuveen Asset Management
Inc. or John Nuveen and Co. Incorporated who acts as a portfolio
manager or as an analyst or trader who provides information or advice
to the portfolio manager or who helps execute the portfolio manager's
decisions. A list of investment personnel of all entities other than
the Utility Fund is included in Exhibit A. A list of persons deemed to
be investment personnel of the Utility Fund is included in Exhibit B.
Investment personnel are also access persons by definition.
(8) "Portfolio manager" shall mean any employee of Nuveen Advisory Corp.,
Nuveen Institutional Advisory Corp., Nuveen Asset Management Inc. or
John Nuveen & Co. Incorporated who is entrusted with the direct
responsibility and authority to make investment decisions affecting a
Trust, Fund or Client. A list of portfolio managers of all entities
other than the Utility Fund is included in Exhibit A. A list
<PAGE>
5
of persons deemed to be portfolio managers of the Utility Fund is
included in Exhibit B. Portfolio managers are also investment
personnel and access persons by definition.
(9) "Utility Fund Eligible Securities" shall include preferred and common
stock of companies in the public utilities industry, such as companies
principally engaged in the production, transmission or distribution of
electric energy, gas, water, or communications services or in solid
waste disposal.
III. Exempted Transactions
The prohibitions of Section IV of this Code shall not apply to:
(1) Purchases or sales affecting any account over which the party involved
has no direct or indirect influence or control;
(2) Purchases or sales which are non-volitional on the part of either the
party involved or a Trust, Fund or Client;
(3) Purchases which are part of an automatic dividend reinvestment plan.
(4) Purchases effected upon the exercise or rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
IV. Prohibitions
(1) Unless such transaction is exempted above or is previously cleared in
the manner described in paragraph (9) below, no access person shall
purchase or sell the following securities for his or her own account
or for any account in which he or she has any beneficial ownership:
(a) securities offered in a private placement;
(b) shares of The John Nuveen Company;
(c) municipal securities (other than variable rate securities with
reset periods of 6 months or less);
(d) shares of a Nuveen-sponsored exchange-traded fund (excluding
preferred shares of those funds); or
(e) Utility fund Eligible Securities (for Utility Fund Access Persons
only).
<PAGE>
6
The purchase of securities identified in paragraph (1)(a) by
investment personnel must also comply with paragraph (4) below.
Directors of the Funds who are not "interested persons" of the Funds
are not subject to the prohibition of subparagraph (a) above and are
only subject to subparagraphs (c) and (e) to the extent such
director purchases or sells a security that he knows, or reasonably
should have known, is being considered for purchase or sale by a
Trust, Fund or Client. Individuals who are only non-interested
directors of the Nuveen open-end Funds shall not be subject to the
prohibition of subparagraph (d) above.
(2) No portfolio manager shall execute a securities transaction on a day
during which a Trust, Fund or Client that is managed or surveyed by
the company he is employed by has a pending "buy" or "sell" order in
that same security until that order is executed or withdrawn.
However, this prohibition shall not apply to securities transactions
involving a security held by a Fund and invested and managed under a
subadvisory agreement unless the portfolio manager knows, or
reasonably should have known, that the Fund has a pending "buy" or
"sell" order involving such security. No other access person shall
execute a securities transaction on a day during which a Trust, Fund
or Client has a pending "buy" or "sell" order in that same security
until that order is executed or withdrawn if that person knows, or
reasonably should have known, an order is pending. In addition, only
Utility Fund Access Persons shall be subject to the restrictions
imposed by this paragraph for securities held or considered for
purchase by Utility Fund. Trades made in violation of this
prohibition shall be unwound or, if that is impractical, any profits
realized must be disgorged to a charitable organization.
(3) Investment personnel shall not purchase any securities in an initial
public offering other than an offering of securities issued by
municipal or United States government entities.
(4) Unless such transaction is previously approved in the manner
described in paragraph (10) below and the criteria set forth in that
paragraph are followed, investment personnel shall not purchase any
security in a private placement.
(5) Investment personnel shall not profit in the purchase and sale, or
sale and purchase, of the same (or equivalent) security within 60
calendar days if such security is a municipal security or shares
issued by a Nuveen-sponsored exchange-traded fund. In addition,
Utility Fund investment personnel shall not profit in such purchases
or sales or sales and purchases of the same (or equivalent) security
within 60 calendar days is such security is a Utility Fund Eligible
Security. Trades made in violation of this prohibition shall be
unwound or, if that is impractical, any profits realized must be
disgorged to a charitable organization.
<PAGE>
7
(6) Investment personnel shall not accept any gift or other thing of
material value from any person or entity that does business with or
on behalf of a Trust, Fund or Client. For purposes of this
prohibition the term "material value" shall have the same meaning
expressed in Rule 2830 of the National Association of Securities
Dealers, Inc.'s Conduct Rules.
(7) Unless such service is previously cleared in the manner described in
paragraph (11) below and the criteria set forth in that paragraph are
followed, investment personnel shall not serve as board members or
other decision-makers for entities that issue municipal securities.
In addition, Utility Fund investment personnel shall not serve as a
board member or decision-maker for a company that issues Utility Fund
Eligible Securities without preclearance.
(8) No portfolio manager of a Trust, Fund or Client shall purchase or
sell any security within seven calendar days before or after the
Trust, Fund or Client he surveys or manages trades or considers to
purchase or sell such security. This prohibition shall not apply to
securities invested and managed under a subadvisory agreement. Trades
made in violation of this prohibition should be unwound or, if that
is impractical, any profits realized must be disgorged to a
charitable organization.
(9) An access person may request clearance of a transaction otherwise
prohibited by paragraph (1) above prior to the placement of any order
in connection therewith by submitting a written or oral request for
clearance to the General Counsel of John Nuveen & Co. Incorporated or
his designee. Unless specifically exempted herein, no such
transaction may be effected without the prior clearance of the
transaction. Clearance may be reflected in a written or an electronic
report. Clearance shall be valid for three business days. Clearance
shall not be granted for municipal security limit orders.
(10) Investment personnel may request approval of a transaction otherwise
prohibited by paragraph (4) above prior to the placement of any order
in connection therewith by submitting a written request for approval
to the General Counsel of John Nuveen & Co. Incorporated or his
designee. Unless specifically exempted herein, no such transaction
may be effected without the prior clearance of the transaction.
Clearance may be reflected in a written or an electronic report. Any
approval shall be valid for three business days. Transactions may be
approved only if the party clearing the transaction takes into
account, among other factors, whether the investment opportunity
should be reserved for a Trust, Fund or Client and whether the
opportunity is being offered to an individual by virtue of his or her
position. In addition, investment personnel who receive authorization
to purchase securities in
<PAGE>
8
a private placement have an affirmative duty to disclose that
position to the General Counsel or his designee if he or she plays
a role in a Trust's, Fund's or Client's subsequent investment
decision regarding the same issuer. Once such disclosure is made,
the General Counsel or his designee shall assemble a commission of
investment personnel with no personal interest in the issuer
involved to independently review the Trust's, Fund's or Client's
investment decision.
(11) Investment personnel may request clearance of service otherwise
prohibited by paragraph (7) above, prior to acceptance of any such
position, by submitting a written request for clearance to the
General Counsel of John Nuveen & Co. Incorporated or his designee.
Such request shall state the position sought, the reason service is
desired and any possible conflicts of interest known at the time of
the request. No such position may be accepted without prior
clearance. Clearance may be reflected in a written or an electronic
report. Service may be cleared only if the party clearing the
transaction determines that service in that capacity would not be
inconsistent with the interests of the Trusts, Funds or Clients.
In addition, investment personnel who receive authorization to
serve in such a capacity must be isolated through "Chinese Wall"
procedures from those making investment decisions regarding
securities issued by the entity involved.
V. Reporting Requirements
(1) Every access person (other than directors of a Fund who are not
"interested persons" of such Fund) shall report to the Legal
Department of John Nuveen & Co. Incorporated details of each
transaction by reason of which he or she acquires any direct or
indirect beneficial ownership of any security (as defined in
Section II herein). Notwithstanding the foregoing, an access person
need not make a report pursuant hereto where such report would
duplicate information recorded pursuant to Rules 204-2(a)(12) or
204-2(a)(13) under the Investment Advisers Act of 1940. In addition
to the reporting requirement expressed above, access persons (other
than directors who are not "interested persons") shall authorize
the Legal Department to direct their broker or brokers to supply to
the Legal Department, on a timely basis, duplicate copies of
confirmations of all securities transactions and copies of periodic
statements for all securities accounts involving securities in
which such access person acquires or disposes of direct or indirect
beneficial ownership. Such duplicate confirmations and periodic
statements received during the prescribed period shall satisfy the
reporting requirements set forth in this paragraph. Also, trades
executed through Nuveen or in an account in which Nuveen is the
broker of record shall be deemed to have been reported for purposes
of this paragraph. Notwithstanding the provisions of this
paragraph, a report shall
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not be required for purchases and sales in any account over which
the party involved does not have direct or indirect influence or
control.
(2) Every director of a Fund who is not an "interested person" of such
Fund shall be required to report the details of each transaction
with respect to which such director knew or, in the ordinary course
of fulfilling his or her official duties as a director of the Fund,
should have known that during the 15 day period immediately
preceding or after the date of the transaction in a security by the
director such security is or was purchased or sold by the Fund or
such purchase or sale by the Fund is or was considered by the Fund
or its investment adviser.
(3) Every report required to be made pursuant to paragraphs 1 and 2 of
this Section (other than duplicate copies of confirmations and
periodic statements) shall be made not later than 10 days after the
end of the calendar quarter in which the transaction to which the
report relates was effected, and shall contain the following
information:
(a) the date of the transaction, the title and the number of
shares, or principal amount of each security involved;
(b) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(c) the price at which the transaction was effected; and
(d) the name of the broker, dealer or bank with or through whom
the transaction was effected.
Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he
or she has or disposed of any direct or indirect beneficial
ownership in the security to which the report relates.
(4) The reporting requirements established pursuant to paragraphs 1 and
2 of this Section (other than duplicate copies of confirmations and
periodic statements) shall apply only to transactions by an access
person in securities in which such access person has, or by reason
of such transaction acquires or disposes of, any direct or indirect
beneficial ownership in the security.
(5) Investment personnel shall disclose to the General Counsel of John
Nuveen & Co. Incorporated all personal securities holdings within 10
days of commencement of employment as an investment person and shall
continue to disclose such holdings on an annual basis.
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VI. Sanctions
Upon discovery of a violation of this Code, including either
violations of the enumerated provisions or the general principles
provided, any Fund, Nuveen Advisory Corp., Nuveen Institutional
Advisory Corp., Nuveen Asset Management Inc. or John Nuveen & Co.
Incorporated may impose such sanctions as it deems appropriate,
including, inter alia, a letter of censure or suspension or
termination of the employment of the violator. All material violations
of this Code and any sanctions imposed with respect thereto shall be
reported periodically to the board of directors of the management
investment company with respect to securities of which the violation
occurred, or to the Executive Committee of John Nuveen & Co.
Incorporated if the violation was with respect to securities of any
series of the Nuveen Unit Trusts, or to the board of directors of
Nuveen Institutional Advisory Corp., Nuveen Asset Management Inc. or
Nuveen Advisory Corp. with respect to securities of non-management
investment company clients advised by these entities.
Revised December 31, 1996
