<PAGE>
NUVEEN
Growth and Income
Mutual Funds
December 31, 1997
Semiannual Report
Seeking income for today
and growth for tomorrow.
[PHOTO APPEARS HERE]
Utility
Income Fund
<PAGE>
Contents
1 Dear Shareholder
3 Portfolio Manager's Comments
6 Performance Overview
7 Financial Section
20 Building Better Portfolios
21 Fund Information
<PAGE>
[Photo of Timothy R. Schwertfeger appears here]
Timothy R. Schwertfeger
Chairman of the Board
Wealth takes a lifetime
to build. Once achieved,
it should be preserved.
Dear Shareholder
It's a pleasure to report to you on the performance of the Flagship Utility
Income Fund for the one-year period ended December 31, 1997. The fund achieved
outstanding performance in recent months - including a one-year total return on
net asset value of 23.60% for Class A shares, which is more than twice the
rolling annual return we reported to you six months ago. This performance is
particularly impressive when compared with the Standard & Poor's Utility Index
total return of 24.65% for the same period. Although the return for the
unmanaged index is slightly higher, the index is comprised purely of common
stocks, while your fund is heavily weighted in preferred stocks in addition to
its common stock component. When considering the added stability that preferred
stocks provide, the performance of your fund is indeed impressive. In addition
to the strong total returns, the fund continued to generate steady dividends and
attractive yields.
The Year in Review
Over the past year, American investors have benefited from robust economic
growth with little evidence of inflationary pressures. As unemployment rates hit
20-year lows and the current economic expansion entered its seventh year, benign
inflation sparked debate over whether the traditional link between growth and
inflation has been broken. The bull market continued on Wall Street, with stocks
surging ahead and the Dow Jones Industrial Average reaching new highs. However,
continued concern that excess growth would generate higher inflation disrupted
the markets on several occasions. Still, improvements in productivity kept
producer prices in check, while low import prices - due in part to weak Asian
markets - limited U.S. companies' ability to raise consumer
1
<PAGE>
"In addition to the strong total returns, the fund continued to generate steady
dividends and attractive yields."
prices. This combination has kept inflation subdued and the Fed "on hold" since
its last interest rate tightening in March 1997. Long-term investors are finding
additional encouragement in the shrinking federal deficit and passage of the
Taxpayer Relief Act of 1997.
Helping You Build A Better Portfolio
The events of 1997 focused renewed attention on the need for diversification and
appropriate asset allocation. Stock market volatility provided a vivid
illustration of the benefits of a well-constructed, risk-resistant investment
portfolio.
You already know that you can rely on Nuveen to provide the tax-efficient, risk-
resistant investments you need to achieve your financial goals. Your financial
adviser can also introduce you to a number of other Nuveen products and services
designed to round out your portfolio of core investments, including the Nuveen
Rittenhouse Growth Fund, which was introduced in January. This new fund invests
in stocks of blue chip companies with a history of consistent earnings and
growth - providing a tax-efficient way for investors to build and sustain
wealth. We encourage you to talk with your financial adviser to see if the
Nuveen Rittenhouse Growth Fund - or another of our equity, balanced and fixed-
income investments - may be right for you.
We at Nuveen remain committed to providing you with quality investment solutions
that withstand the test of time. We thank you for your confidence in us and our
family of investments, and we look forward to our next report to you.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
February 17, 1998
2
<PAGE>
Portfolio Manager's Comments
Portfolio Manager Rick Huber talks about the utility industry and offers
insights into factors that affected the performance of the fund over the past
year.
Utility Industry Review
Volatility in the stock market and the uncertainty about the future of the
economy have had a tremendous impact on the utility industry, as was reflected
in the strong performance of the fund over the last few months. The price
volatility of the stock market, and the relatively low yields offered from bonds
have driven investors toward high-quality, defensive issues such as utilities
due to their increasing growth potential, lower volatility and general lack of
exposure to international issues such as the weakness in Asian markets.
Deregulation in the electric utility sector continues to have a tremendous
impact on the utility industry. Most electric utility companies are responding
well to deregulation, cutting costs and streamlining operations in preparation
for increased competition. The process continues to unfold state by state, with
16 states now having enacted deregulation legislation or developed comprehensive
plans to do so. In general, legislation has been favorable to utilities,
providing significant cash flows that have allowed the companies to reduce debt,
repurchase their own shares and pursue both domestic and international growth
opportunities. The market's optimism regarding deregulation and companies'
response to it has led to impressive price growth for these stocks, which
accounts in part for the price appreciation of many of the securities in the
portfolio.
3
<PAGE>
"We anticipated that the interest in utility stocks would continue and managed
the asset allocation of the fund accordingly."
The natural gas industry has stabilized since its deregulation in the early
1990s. Over the past year, natural gas companies have been viewed as ideal
acquisition candidates for the major electric utilities. Several electric/gas
mergers have taken place, resulting in strong stock price performance. Merger
and acquisition activity has also increased in the telecommunications industry,
as the nature of this business expands beyond local and long-distance telephone
service into cellular, Internet and even cable television services.
Fund Performance
As Tim mentioned in his letter to shareholders, the fund performed well in 1997,
providing a steady monthly dividend of $.0529 per share for the last 11 months
and generating a total return on net asset value of 23.60% on Class A shares. We
anticipated that the interest in utility stocks would continue and managed the
asset allocation of the fund accordingly. At the peak of the market early in the
fourth quarter of 1997, the fund was invested almost 80% in common stocks.
However, the asset allocation has shifted significantly, and was at 64% common
stocks at the year-end.
Value in This Market Environment
We gravitated to electric utilities during the period as we continued to find
value in companies that were undergoing restructuring campaigns. For example, we
feel that the purchase of shares in the Rochester Gas and Electric Company (New
York) was a good choice for the fund because of its recent price decline in the
face of regulatory reform. We generally maintained smaller positions in
telecommunications and integrated natural gas companies, which are currently
trading at high price-to-earnings ratios. In particular, natural gas companies
have struggled this year due in part to the warmer weather we have experienced
throughout the country.
4
<PAGE>
"The outlook for the utility industry is positive, and we expect growth to
continue despite the slow-down in the overall market."
Strategies for the Future
We will continue to take advantage of the opportunities that arise as
deregulation legislation sweeps the country, seeking the companies that we feel
will perform the best in the new competitive environment. With the situation in
Asia still evolving, we will try to avoid any companies that have exposure to
international markets. Our strategy is to seek securities of strong, quality
companies that we feel are undervalued by the market as a whole. This involves
taking a cautious approach, particularly in the telecommunications sector, where
we see these securities as fully valued.
Outlook for the Year Ahead
Looking at the year ahead, we believe the economy may finally begin to slow
down, with growth constrained by weaker U.S. exports, high consumer debt, and
lack of expansion in the labor force. A key variable involves productivity and
its ability to continue to improve at the current pace.
The outlook for the utility industry is positive, and we expect growth to
continue despite the slow-down in the overall market. We anticipate that prices
will remain fairly stable as legislative reform moves forward and cash flows to
utility companies continue. This should continue to strengthen balance sheets
and encourage further stock buy-backs. In addition to price stability, we
foresee continued dividend growth among the higher-quality utility companies, as
a number of theses companies have already taken the lead and raised their
dividends.
5
<PAGE>
Flagship Utility Income Fund
Performance Overview
As of December 31, 1997
Top Ten Holdings
MCN Corporation 6.8%
MidAmerican Energy Holdings Co. 4.7%
GTE Corporation 4.3%
Rochester Gas & Electric 4.0%
MCI Communications Corporation 3.8%
CMS Energy Corporation 3.5%
Consolidated Edison Company 3.5%
Carolina Power & Light 3.5%
Texas Utilities Company 3.4%
Ameritech Corporation 3.3%
Industry Diversification
[PIE CHART APPEARS HERE]
Telecommunications 14%
Finance 3%
Electric Utility 73%
Natural Gas/Pipeline 10%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Highlights
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Share Class A C
CUSIP 33841G108 33841G306
Inception Date 8/83 7/93
Net Asset Value (NAV) $13.24 $ 13.22
Last Monthly Dividend .0529 .0475
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $27,482
Number of Stocks 37
Turnover Rate 42%
Expense Ratio 1.34% 1.89%
Portfolio Allocation Common Stocks Preferred Stocks
64% 36%
- --------------------------------------------------------------------------------
Annualized Total Return/1/
- --------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) C
1-Year 23.60% 18.41% 23.02%
5-Year 11.47% 10.52% 10.87%
Since Inception/2/ 11.42% 10.55% 10.82%
- --------------------------------------------------------------------------------
Dividend Yields
- --------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) C
Distribution Rate 4.79% 4.59% 4.31%
SEC 30-Day Yield 3.81% 3.65% 3.28%
- --------------------------------------------------------------------------------
</TABLE>
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
January 1997 $.05
February 1997 $.05
March 1997 $.05
April 1997 $.05
May 1997 $.05
June 1997 $.05
July 1997 $.05
August 1997 $.05
September 1997 $.05
October 1997 $.05
November 1997 $.05
December 1997 $.05
/1/ Returns for Class A are actual. Returns for Class C are actual for the
period since class 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 less than 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.
6
<PAGE>
Financial Section
Contents
8 Portfolio of Investments
10 Statement of Assets
11 Statement of Operations
12 Statement of Changes
in Net Assets
13 Notes to Financial Statements
17 Financial Highlights
7
<PAGE>
Portfolio of Investments (Unaudited)
Flagship Utility Income Fund
<TABLE>
<CAPTION>
Market
Shares Description Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 57.3%
Electric Utility -- 43.0%
20,000 Carolina Power & Light $ 848,750
15,000 Cinergy Corporation 574,688
19,500 CMS Energy Corporation 859,219
20,800 DPL, Inc. 598,000
20,000 DTE Energy Company 693,750
22,250 DQE, Inc. 781,531
24,700 Entergy Corporation 739,456
25,000 1st Energy Corporation 725,000
15,000 Florida Progress Corporation 588,750
10,000 FPL Group, Inc. 591,875
20,000 LG&E Energy Corporation 495,000
20,000 Pacificorp 546,250
28,600 Rochester Gas & Electric Corporation 972,400
15,000 SCANA Corporation 449,063
5,000 Sonat, Inc. 228,750
20,000 Southern Company 517,500
20,000 Texas Utilities Company 831,250
20,000 UtiliCorp United, Inc. 776,250
- -------------------------------------------------------------------------------------------
Natural Gas/Pipeline -- 5.8%
21,400 MCN Corporation 864,025
20,000 Piedmont Natural Gas Company, Inc. 718,750
- -------------------------------------------------------------------------------------------
Telecommunications -- 8.5%
10,000 Ameritech Corporation 805,000
10,000 GTE Corporation 522,500
10,000 MCI Communications Corporation 428,125
10,000 Sprint Corporation 586,250
- -------------------------------------------------------------------------------------------
Total Common Stock -- (cost $11,875,890) 15,742,132
- -------------------------------------------------------------------------------------------
PREFERRED STOCK -- 31.8%
Electric Utility -- 22.6%
33,400 Consolidated Edison Company (7.750%) Series A 853,788
17,969 HL&P Capital Trust I (8.125%) 463,825
20,000 Illinois Power Company, (9.450%) Series A 530,000
30,000 Med-Ed Capital (9.000%) Series A 776,250
44,000 MidAmerican Energy Holdings Company (7.980%) Series A 1,149,500
20,000 Mission Energy Company (9.875%) Series A 533,750
30,000 MP&L Capital (8.050%) 768,750
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Electric Utility -- continued
20,000 SCE&G Trust I (7.550%) Series A $ 511,250
25,000 Western Resources, Inc. (7.875%) Series A 629,687
- -------------------------------------------------------------------------------------------
Finance -- 2.5%
26,875 Pacific Telesis Group (7.560%) 680,273
- -------------------------------------------------------------------------------------------
Natural Gas/Pipeline -- 2.9%
30,000 MCN Corporation (9.375%) Series A 791,250
- -------------------------------------------------------------------------------------------
Telecommunications -- 3.8%
20,000 GTE Corporation (9.250%) Series Z 532,500
20,000 MCI Communications Corporation (8.000%) Series A 513,750
- -------------------------------------------------------------------------------------------
Total Preferred Stock -- (cost $8,432,356) 8,734,573
---------------------------------------------------------------------------
Total Investments -- (cost $20,308,246) -- 89.1% 24,476,705
---------------------------------------------------------------------------
Other Assets less Liabilities -- 10.9% 3,005,124
---------------------------------------------------------------------------
Net Assets -- 100% $ 27,481,829
===========================================================================
</TABLE>
9 See accompanying notes to financial statements.
<PAGE>
Statement of Net Assets (Unaudited)
December 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Assets
<S> <C>
Investment securities, at market value
(cost $20,308,246) (note 1) $24,476,705
Cash 2,363,027
Receivables:
Dividends and interest 84,070
Investments sold 617,329
Shares sold 45,155
Other assets 1,943
- -------------------------------------------------------------------------------------------
Total assets 27,588,229
- -------------------------------------------------------------------------------------------
Liabilities
Payables for Share redeemed 3,873
Accrued expenses:
Management fees (note 6) 11,298
12b-1 distribution and service fees (notes 1 and 6) 7,181
Other 38,976
Dividends payable 45,072
- -------------------------------------------------------------------------------------------
Total liabilities 106,400
- -------------------------------------------------------------------------------------------
Net assets (note 7) $27,481,829
- -------------------------------------------------------------------------------------------
Class A Shares (note 1)
Net assets $21,582,858
Shares outstanding 1,629,894
Net asset value and redemption price per share $13.24
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $13.82
- -------------------------------------------------------------------------------------------
Class C Shares (note 1)
Net assets $ 5,898,971
Shares outstanding 446,321
Net asset value, offering and redemption price per share $13.22
- -------------------------------------------------------------------------------------------
</TABLE>
10 See accompanying notes to financial statements.
<PAGE>
Statement of Operations (Unaudited)
Six months ended December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Investment Income (note 1)
<S> <C>
Dividends $ 806,399
Interest 34,817
- --------------------------------------------------------------------------------------------------
Total investment income 841,216
- --------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 64,372
12b-1 service fees -- Class A (notes 1 and 6) 20,171
12b-1 distribution and service fees -- Class C (notes 1 and 6) 20,916
Shareholders' servicing agent fees and expenses 14,414
Custodian's fees and expenses 19,582
Directors' fees and expenses 262
Professional fees 9,169
Shareholders' reports -- printing and mailing expenses 29,323
Federal and state registration fees 8,299
Other expenses 1,808
- --------------------------------------------------------------------------------------------------
Net expenses 188,316
- --------------------------------------------------------------------------------------------------
Net investment income 652,900
- --------------------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 923,074
Net change in unrealized appreciation or depreciation of investments 2,731,468
- --------------------------------------------------------------------------------------------------
Net gain from investments 3,654,542
- --------------------------------------------------------------------------------------------------
Net increase in net assets from operations $4,307,442
- --------------------------------------------------------------------------------------------------
</TABLE>
11 See accompanying notes to financial statements.
<PAGE>
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six months ended Year ended
12/31/97 6/30/97
- ----------------------------------------------------------------------------------------------------------
Operations
<S> <C> <C>
Net investment income $ 652,900 $ 1,657,466
Net realized gain from investment transactions
(notes 1 and 4) 923,074 2,155,531
Net change in unrealized appreciation or depreciation
of investments 2,731,468 (1,227,092)
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 4,307,442 2,585,905
- ----------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (534,664) (1,294,422)
Class C (133,871) (301,321)
- ----------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (668,535) (1,595,743)
- ----------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 458,592 2,079,070
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 521,591 814,896
- ----------------------------------------------------------------------------------------------------------
980,183 2,893,966
- ----------------------------------------------------------------------------------------------------------
Cost of shares redeemed (2,848,512) (9,484,267)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (1,868,329) (6,590,301)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 1,770,578 (5,600,139)
Net assets at the beginning of period 25,711,251 31,311,390
- ----------------------------------------------------------------------------------------------------------
Net assets at the end of period $27,481,829 $25,711,251
==========================================================================================================
Balance of undistributed net investment income at end of period $ 46,088 $ 61,723
==========================================================================================================
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements (Unaudited)
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 ("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 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 the when-issued and delayed delivery purchase commitments. At
December 31, 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. Net
realized capital gains from investment transactions, if any, are declared and
distributed to shareholders not less frequently than annually. Furthermore,
capital gains are distributed only to the extent they exceed available capital
loss carryforwards.
Distributions to shareholders of 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.
13
<PAGE>
Notes to Financial Statements (Unaudited)--continued
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 R Shares. Class A Shares are sold with a sales charge and
incur an annual 12b-1 service fee. Class A Share purchases of $1 million or more
are sold at net asset value without an up-front sales charge but may be subject
to a 1% contingent deferred sales charge ("CDSC") if redeemed within 18 months
of purchase. Class B Shares are sold without a sales charge but incur annual
12b-1 distribution and service fees. An investor purchasing Class B Shares
agrees to pay a CDSC of up to 5% depending upon the length of time the shares
are held by the investor (CDSC is reduced to 0% at the end of six years). Class
B Shares convert to Class A Shares 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 restriced 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 six months ended
December 31, 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, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
14
<PAGE>
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Six months ended 12/31/97 Year ended 6/30/97
--------------------------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 37,661 $ 454,926 139,470 $ 1,528,638
Class C 291 3,666 49,660 550,432
Shares issued to shareholders
due to reinvestment
of distributions:
Class A 33,778 399,899 58,233 645,196
Class C 10,331 121,692 15,336 169,700
- -----------------------------------------------------------------------------------------------------
82,061 980,183 262,699 2,893,966
- -----------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (192,805) (2,283,552) (700,730) (7,812,755)
Class C (47,692) (564,960) (150,184) (1,671,512)
- -----------------------------------------------------------------------------------------------------
(240,497) (2,848,512) (850,914) (9,484,267)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) (158,436) $(1,868,329) (588,215) $(6,590,301)
=====================================================================================================
</TABLE>
3. Distributions to Shareholders
On January 9, 1998, the Fund declared a dividend distribution from its net
investment income which was paid on February 2, 1998, to shareholders of record
on January 9, 1998, as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Dividend per share:
<S> <C>
Class A $ .0529
Class C .0470
--------------------------------------------------------------------------------------
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investment securities other than
short-term investments for the six months ended December 31, 1997, equaled
$10,598,760 and $14,906,760, respectively. There were no purchases or sales of
U.S. government obligations during the six months ended December 31, 1997.
Purchases and sales (including maturities) of short-term investments for the six
months ended December 31, 1997, equaled $6,250,000 and $6,250,000, respectively.
At December 31, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes.
At June 30, 1997, the Fund's last fiscal year end, the Fund had unused capital
loss carrryforwards 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 carryforwards 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 December 31, 1997, net unrealized appreciation aggregated $4,168,459 of which
$4,173,134 related to appreciated securities and $4,675 related to depreciated
securities.
15
<PAGE>
Notes to Financial Statements (Unaudited) -- 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:
<TABLE>
<CAPTION>
Average daily net asset value Management fee
------------------------------------------------------------------
<S> <C>
For the first $125 million .5000 of 1%
For the next $125 million .4875 of 1
For the next $250 million .4750 of 1
For the next $500 million .4625 of 1
For the next $1 billion .4500 of 1
For net assets over $2 billion .4250 of 1
------------------------------------------------------------------
</TABLE>
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 six months ended December 31, 1997, the Distributor collected sales
charges on purchases of Class A Shares of approximately $13,600 of which
approximately $11,900 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
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 are retained by the Distributor. The Distributor
retained approximately $1,900 in such 12b-1 fees. The remaining
12b-1 fees charged to the Fund were paid to compensate authorized dealers for
providing services to shareholders relating to their investments.
The Distributor also collected and retained approximately $800 of CDSC on share
redemptions for the six months ended December 31, 1997.
7. Composition of Net Assets
At December 31, 1997, the Fund had 200,000,000 shares of $.001 par value common
stock authorized. Net assets consisted of:
<TABLE>
<CAPTION>
------------------------------------------------------------------
<S> <C>
Capital paid-in $28,354,119
Balance of undistributed net investment income 46,088
Accumulated net realized gain (loss) from investment
transactions (5,086,837)
Net unrealized appreciation of investments 4,168,459
------------------------------------------------------------------
Net assets $27,481,829
------------------------------------------------------------------
</TABLE>
16
<PAGE>
Financial Highlights
17
<PAGE>
Financial Highlights (Unaudited)
Selected data for a common share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
------------------------ ------------------------------
Net
Net realized and Net Total
asset unrealized Dividends asset return
value Net gain (loss) from Distributions value on net
Year ended beginning investment from net 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)***
1998 (e) $11.51 $ .31 $ 1.74 $ (.32) $-- $13.24 18.08%
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)
1998 (e) 11.49 .28 1.74 (.29) -- 13.22 17.82
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 ended 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 and are not annualized except where noted.
(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.
(e) For the six months ended December 31, 1997.
18
<PAGE>
<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>
$ 21,583 1.34%* 5.19%* 1.34%* 5.19%* 42% $.0639
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 --
5,899 1.89* 4.64* 1.89* 4.64* 42 .0639
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>
19
<PAGE>
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth
Nuveen Rittenhouse
Growth Fund
Growth and Income
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Utility Income Fund
Tax-Free Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited Term
State Funds
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
Building Better Portfolios with Nuveen
Reducing the impact of taxes and moderating risk are important goals for many
risk-sensitive investors seeking to build better portfolios. For these
investors, a tax-efficient, risk-resistant investment portfolio often forms the
foundation of a carefully crafted financial plan for building and sustaining
wealth. Nuveen is committed to providing investors and their financial advisers
with a range of products and investment tools to help build better portfolios.
Mutual Funds
Nuveen Mutual Funds offer investors access to the Nuveen family of premier
advisers, including Nuveen Advisory Corp., Institutional Capital Corp. and
Rittenhouse Financial Services. Our equity, balanced and income funds seek to
provide consistent performance, time-tested strategies to reduce risk and
experienced, professional management.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more. A range of actively managed growth, balanced and municipal income-
oriented portfolios are available, all based upon a disciplined investment
philosophy.
Unit Trusts
Nuveen Unit Trusts are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, experienced, professional
security selection and surveillance, and daily liquidity at that day's net asset
value for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
investment-grade quality municipal bonds. The fund shares are listed and traded
on the New York and American stock exchanges. Exchange-traded funds provide the
investment convenience, price visibility and liquidity of common stocks.
MuniPreferred/R/
Nuveen MuniPreferred offers investors a AAA-rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as
a wide variety of state-specific portfolios.
20
<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
Transfer Agent and
Shareholder Services
Boston Financial Data Services
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 Public
Accountants
Arthur Andersen LLP
Chicago, Illinois
21
<PAGE>
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
Serving Investors for Generations
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 risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted 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 focused on providing consistent, attractive
performance over time -- with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 225-8530 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
1898
NUVEEN 1998
OUR SECOND CENTURY
helping investors sustain the wealth of a lifetime.
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
ESA-UI-12.97
<PAGE>
Nuveen
Growth and Income
Mutual Funds
December 31, 1997
Semiannual 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
5 Performance Overview
6 Portfolio of Investments
9 Statement of Net Assets
10 Statement of Operations
11 Statement of Changes in Net Assets
12 Notes to Financial Statements
14 Financial Highlights
16 Building Better Portfolios
17 Fund Information
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Wealth takes a lifetime
to build. Once achieved,
it should be preserved.
Dear Shareholder
Despite a volatile stock market, the Golden Rainbow Fund continued to allow
investors to take advantage of the growth potential of stocks while moderating
risk. The fund produced a total return of 12.74% over the one-year period ended
December 31, 1997, along with dividends that increased each quarter during the
year. In addition, shareholders received a capital gains distribution of $1.4294
per share in December. Although the fund's returns were significantly lower than
those of comparable market measures, that is to be expected given the fund's
more conservative positioning and heavy weighting in bonds.
The Year in Review
Over the past year, American investors have benefited from robust economic
growth with little evidence of inflationary pressures. As unemployment rates hit
20-year lows and the current economic expansion entered its seventh year, benign
inflation sparked debate over whether the traditional link between growth and
inflation has been broken. The bull market on Wall Street continued, with stocks
surging ahead and the Dow Jones Industrial Average reaching new highs. However,
continued concern that excess growth would generate higher inflation disrupted
the markets on several occasions. Still, improvements in productivity kept
producer prices in check, while low import prices - due in part to weak Asian
markets - limited U.S. companies' ability to raise consumer prices. This
combination has
1
<PAGE>
"Despite a volatile stock market, the fund continued to allow investors to take
advantage of the growth potential of stocks while moderating risk."
kept inflation subdued and the Fed "on hold" since its last interest rate
tightening in March 1997. Long-term investors are finding additional
encouragement in the strinking federal deficit and passage of the Taxpayer
Relief Act of 1997.
Helping You Build A Better Portfolio
The events of 1997 focused renewed attention on the need for diversification and
appropriate asset allocation. Stock market volatility provided a vivid
illustration of the benefits of a well-constructed, risk-resistant investment
portfolio. The Golden Rainbow Fund - with its blend of stocks, bonds and other
investments - emphasizes the value of balanced investing.
You already know that you can rely on Nuveen to provide the risk-resistant
investments you need to achieve your financial goals. Your financial adviser can
also introduce you to a number of other Nuveen products and services designed to
round out your portfolio of core investments, including the Nuveen Rittenhouse
Growth Fund, which was introduced in January. The new fund invests in blue chip
companies with a history of consistent earnings and growth - providing a tax-
efficient way for investors to building and sustain wealth. We encourage you to
talk with your financial adviser to see if the Nuveen Rittenhouse Growth Fund -
along with our variety of equity, balanced and fixed-income investments - may be
right for you.
We at Nuveen remain committed to providing you with quality investment solutions
that withstand the test of time. We thank you for your confidence in us and our
family of investments, and we look forward to our next report to you.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
February 17, 1998
2
<PAGE>
Portfolio Adviser's Comments
Portfolio Adviser Barry James talks about the financial markets and offers
insights into factors that affected the performance of the fund over the past
year.
An Unstable Market
In anticipation of a volatile stock market, we maintained a conservative asset
allocation and continued to invest in defensive securities that would cushion
investors during the periodic market downturns that we experienced over the past
year. In addition to a heavy weighting in bonds, we focused on utility stocks as
a means of generating conservative income and growth, while protecting investors
against a potential stock market correction. Ultimately, the markets were less
volatile than we had initially expected, resulting in below-average returns.
Finding Value in the Markets
When selecting stocks for the portfolio, we are always looking for companies
that we feel have the best potential for long-term growth. To accomplish this,
one of the first elements that we assess is the price of the stock relative to
its underlying value, with a focus on measures such as the price-to-earnings
ratio. In the current marketplace, we feel that many stocks are overvalued, with
the price-to-earnings ratio of the S&P 500 Index at 24.53 at year-end, compared
with its 1996 P/E ratio of 20.77. With our eye on stocks with lower P/Es than
the overall market or their peers, we found value in stocks such as American
Banker's Insurance. With its solid earnings growth and confident management, we
felt that this stock was undervalued. Shortly after the fund purchased this
stock, ABI received two takeover bids from larger companies willing to purchase
the stock at a significant premium to its current price.
3
<PAGE>
"With these factors in mind, we will maintain our focus on moderating risk by
relying on quality bonds and stocks with good relative value."
We also continued to find good value in the bond market, as the spread between
inflation and yields widened. In addition to tempered inflation, the supply and
demand environment was another positive factor in our evaluation of bonds.
Supply is declining as the Treasury Department issues less debt in line with the
declining federal deficit. Demand has recently taken a boost due to the volatile
equity market, the situation in Asia, and the increase in foreign purchases of
U.S. securities. While near-term bond returns may be somewhat hampered, our
long-term outlook remains positive.
Focus for the Future
Looking at the year ahead, we believe the economy may finally begin to slow
down, with growth constrained by weaker U.S. exports, high consumer debt, and
lack of expansion in the labor force. A key variable involves productivity and
its ability to continue to improve at the current pace.
With these factors in mind, we will maintain our focus on moderating risk by
relying on quality bonds and stocks with good relative value. With a possible
stock market correction and the Asian economics showing no signs of recovery, we
will focus on securities that should perform well in volatile and potentially
difficult markets. In particular, we will look closely at utility stocks, some
financial services companies, and value stocks in the basic materials area, such
as specialty chemicals and steel. We expect the favorable environment for bonds
to continue, and plan to take advantage of any opportunities that develop to
purchase high-quality corporate bonds and intermediate-term Treasury bonds.
4
<PAGE>
The Golden Rainbow Fund
Performance Overview
As of December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Top Ten Stock Holdings/1/
- -------------------------------------
Intel Corporation 11.9%
- -------------------------------------
Duke Power Company 8.9%
- -------------------------------------
Bristol-Myers Squibb Company 8.1%
- -------------------------------------
Coca-Cola FEMSA S.A. ADR 6.4%
- -------------------------------------
YPF S.A. ADR 6.2%
- -------------------------------------
Exxon Corporation 5.5%
- -------------------------------------
Mobil Corporation 5.1%
- -------------------------------------
Newmont Mining Corporation 4.8%
- -------------------------------------
British Petroleum PLC ADR 4.7%
- -------------------------------------
NIPSCO Industries 4.5%
- -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Stock Diversification/1/
- -------------------------------------
[PIE CHART APPEARS HERE]
<S> <C>
Utilities 20%
Finance 3%
International 19%
Industrial 3%
Energy 16%
Other 6%
Technology 12%
Consumer Non-Cyclical 11%
Basic Materials 10%
- -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fund Highlights
============================================================================
<S> <C>
CUSIP 33841G207
Inception Date 7/91
Net Asset Value (NAV) $18.39
Last Quarterly Dividend .1822
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Total Net Assets ($000) $147,229
Number of Stocks 33
Expense Ratio 1.07%
Portfolio Allocation U.S. Govt. Obligations Stocks Cash Corporate Bonds
54% 43% 2% 1%
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return
============================================================================
NAV Offer/2/
<S> <C> <C>
1-Year 12.74% 8.00%
5-Year 10.21% 9.27%
Since Inception 11.15% 10.42%
- ----------------------------------------------------------------------------
Tax-Free Yields
============================================================================
NAV Offer
Distribution Rate 3.96% 3.80%
SEC 30-Day Yield 3.69% 3.53%
- ----------------------------------------------------------------------------
</TABLE>
/1/ As a percentage of the fund's stock holdings.
/2/ Returns are adjusted for the 4.20% maximum sales charge.
5
<PAGE>
Portfolio of Investments (Unaudited)
The Golden Rainbow A James Advised Mutual Fund
<TABLE>
<CAPTION>
Market
Shares Description Value
- --------------------------------------------------------------------------------
<C> <S> <C>
Common Stocks -- 42.1%
Automotive -- 0.4%
10,000 General Motors Corporation $ 606,250
- --------------------------------------------------------------------------------
Basic Materials -- 4.4%
119,900 Barrick Gold Corporation 2,233,138
21,700 E.I. du Pont de Nemours and Company Ltd. 1,303,356
101,050 Newmont Mining Corporation 2,968,344
- --------------------------------------------------------------------------------
Consumer Non-Cyclical -- 4.5%
53,000 Bristol-Myers Squibb Company 5,015,125
20,000 Procter & Gamble 1,596,250
- --------------------------------------------------------------------------------
Defense -- 0.1%
638 Raytheon Company 31,447
- --------------------------------------------------------------------------------
Durable Goods -- 0.6%
10,000 Kimball International, Inc. 184,375
26,000 Premark International, Inc. 754,000
- --------------------------------------------------------------------------------
Energy -- 6.7%
56,000 Exxon Corporation 3,426,500
5,000 Lakehead Pipe Line Partners 218,438
44,000 Mobil Corporation 3,176,250
20,000 Snyder Oil Corporation 365,000
15,000 Tidewater, Inc. 826,875
64,500 Williams Company 1,830,188
- --------------------------------------------------------------------------------
Finance -- 1.4%
15,000 Lehman Brothers 765,000
8,000 Public Storage Property Trust 235,000
40,750 Security Capital Industrial Trust 1,013,656
- --------------------------------------------------------------------------------
Industrial -- 1.4%
13,000 Case Corporation 785,688
37,000 Timken Company 1,271,875
- --------------------------------------------------------------------------------
Insurance -- 0.9%
30,000 American Bankers Insurance Group 1,378,125
- --------------------------------------------------------------------------------
International -- 7.8%
36,354 British Petroleum PLC ADR 2,896,959
68,000 Coca-Cola FEMSA S.A. ADR 3,944,000
28,500 Korea Electric Power ADR 286,781
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Description Value
- --------------------------------------------------------------------------------------------
<C> <S> <C>
International -- continued
18,500 Telefonos Chile ADR $ 552,688
113,000 YPF S.A. ADR 3,863,188
- --------------------------------------------------------------------------------------------
Retail -- 0.4%
14,500 Jones Apparel Group, Inc. 623,500
- --------------------------------------------------------------------------------------------
Technology -- 5.0%
104,800 Intel Corporation 7,362,200
- --------------------------------------------------------------------------------------------
Utilities -- 8.5%
22,000 Columbia Gas 1,728,375
99,718 Duke Power Company 5,521,884
45,200 Energen Corporation 1,796,700
56,000 NIPSCO Industries 2,768,500
30,000 Washington Water and Power Company 729,375
- --------------------------------------------------------------------------------------------
Total Common Stocks -- (cost $38,413,615) 62,059,030
- --------------------------------------------------------------------------------------------
Principal Market
Amount Description Value
- --------------------------------------------------------------------------------------------
Corporate Bonds -- 1.1%
500,000 GTE Corporation, 7.510%, 4/10/09 536,224
500,000 Illinois Bell Telephone, 7.125%, 7/01/23 512,008
500,000 Procter & Gamble, 7.375%, 3/01/23 526,254
- --------------------------------------------------------------------------------------------
Total Corporate Bonds -- (cost $1,515,894) 1,574,486
- --------------------------------------------------------------------------------------------
U.S. Government Agency Obligations -- 52.9%
16,000,000 U.S. Treasury Notes, 6.125%, 3/31/98 16,025,008
9,000,000 U.S. Treasury Notes, 6.250%, 4/30/01 9,140,625
5,000,000 U.S. Treasury Notes, 6.500%, 5/31/01 5,118,750
16,000,000 U.S. Treasury Notes, 6.250%, 2/15/07 16,515,008
7,500,000 U.S. Treasury Notes, 6.125%, 8/15/07 7,708,598
9,000,000 U.S. Treasury Principal Strip, 0.000%, 5/15/08 4,905,540
500,000 U.S. Treasury Bonds, 10.375%, 11/15/09 625,000
2,000,000 U.S. Treasury Bonds, 10.000%, 5/15/10 2,486,250
3,000,000 U.S. Treasury Bonds, 6.875%, 8/15/25 3,344,063
3,000,000 Federal Home Loan Bank Bonds, 7.000%, 1/28/02 3,002,975
5,000,000 Federal National Mortgage Association, 6.870%, 7/17/07 5,072,414
3,855,432 Government National Mortgage Association, 7.500%, 9/15/26 3,948,204
- --------------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations -- (cost $75,453,306) 77,892,435
- --------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Portfolio of Investments (Unaudited) -- CONTINUED
The Golden Rainbow A James Advised Mutual Fund
<TABLE>
<CAPTION>
Market
Description Value
- ----------------------------------------------------------------------------------
<S> <C>
Short-Term Investments -- 1.8%
Vista Government Money Market -- (cost $2,580,487) $ 2,580,487
- ----------------------------------------------------------------------------------
Total Investments -- (cost $117,963,302) 97.9% 144,106,438
- ----------------------------------------------------------------------------------
Other Assets Less Liabilities -- 2.1% 3,122,172
- ----------------------------------------------------------------------------------
Net Assets -- 100% $147,228,610
==================================================================================
</TABLE>
8 See accompanying notes to financial statements.
<PAGE>
Statement of Net Assets (Unaudited)
December 31, 1997
<TABLE>
- ----------------------------------------------------------------------------
<S> <C>
Assets
Investment securities, at market value
(cost $117,963,302) (note 1) $144,106,438
Receivables:
Dividends and interest 1,456,152
Investments sold 2,252,114
Shares sold 202,684
Other assets 7,179
- ----------------------------------------------------------------------------
Total assets 148,024,567
- ----------------------------------------------------------------------------
Liabilities
Cash Overdraft 234,474
Payables:
Investments purchased 239,943
Shares redeemed 166,197
Accrued expenses:
Management fees (note 4) 86,745
12b-1 distribution and service fees (notes 1 and 4) 41,324
Other 27,274
- ----------------------------------------------------------------------------
Total liabilities 795,957
- ----------------------------------------------------------------------------
Net assets (note 5) $147,228,610
- ----------------------------------------------------------------------------
Shares outstanding 8,006,139
- ----------------------------------------------------------------------------
Net asset value and redemption price per share $ 18.39
- ----------------------------------------------------------------------------
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 19.20
- ----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
Statement of Operations (Unaudited)
Six months ended December 31, 1997
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------
Investment Income (note 1)
Dividends $ 708,882
Interest 2,746,145
- ------------------------------------------------------------------------------------
Total investment income 3,455,027
- ------------------------------------------------------------------------------------
Expenses
Management fees (note 4) 569,006
12b-1 distribution and service fees -- Class A (notes 1 and 4) 192,232
Shareholders' servicing agent fees and expenses 3,942
Custodian's fees and expenses 23,375
Directors' fees and expenses (note 4) 1,617
Professional fees 20,568
Shareholders' reports -- printing and mailing expenses 5,740
Federal and state registration fees 554
Other expenses 3,833
- ------------------------------------------------------------------------------------
Net expenses 820,867
- ------------------------------------------------------------------------------------
Net investment income 2,634,160
- ------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain from investment transactions (notes 1 and 3) 6,829,078
Net change in unrealized appreciation or depreciation of investments (2,577,177)
- ------------------------------------------------------------------------------------
Net gain from investments 4,251,901
- ------------------------------------------------------------------------------------
Net increase in net assets from operations $ 6,886,061
====================================================================================
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six months ended Year ended
12/31/97 6/30/97
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 2,634,160 $ 6,147,613
Net realized gain from investment transactions
(notes 1 and 3) 6,829,078 7,061,120
Net change in unrealized appreciation or depreciation
of investments (2,577,177) 12,505,157
- -----------------------------------------------------------------------------------------------
Net increase in net assets from operations 6,886,061 25,713,890
- -----------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income (2,695,947) (6,084,217)
From accumulated net realized gains from investment
transactions (10,825,570) (3,654,423)
- -----------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (13,521,517) (9,738,640)
- -----------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 4,885,755 6,057,561
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 12,798,253 8,979,282
- -----------------------------------------------------------------------------------------------
17,684,008 15,036,843
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (21,003,419) (58,135,678)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from Fund share transactions (3,319,411) (43,098,835)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (9,954,867) (27,123,585)
Net assets at the beginning of period 157,183,477 184,307,062
- -----------------------------------------------------------------------------------------------
Net assets at the end of period $147,228,610 $157,183,477
===============================================================================================
Balance of undistributed net investment income at end of period $ 9,933 $ 71,720
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
Notes to Financial Statements (Unaudited)
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 ("Distributor") and manager ("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 the when-issued and delayed delivery purchase commitments. At
December 31, 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 declared and 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 carryforwards.
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 eight years after purchase. Class C Shares are sold
without a sales charge but incur annual 12b-1 distribution and service fees. An
investor purchasing Class C Shares agrees to pay a CDSC of 1% if Class C Shares
are redeemed within one year of purchase. Class R Shares are not subject to any
sales charge or 12b-1 distribution or service fees. Class R Shares are available
for purchases of over $1 million and in other limited circumstances.
12
<PAGE>
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 six months
ended December 31, 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.
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
12/31/97 6/30/97
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 250,155 332,181
Shares issued to shareholders due to reinvestment of distributions 688,348 492,197
- -------------------------------------------------------------------------------------------------------------
938,503 824,378
- -------------------------------------------------------------------------------------------------------------
Shares redeemed (1,071,228) (3,180,079)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) (132,725) (2,355,701)
=============================================================================================================
</TABLE>
3. Securities Transactions
Purchases and sales (including maturities) of investment securities other than
U.S. government obligations and short-term investments for the six months ended
December 31, 1997, equaled $14,618,553 and $29,419,440, respectively. Purchases
and sales (including maturities) of investments in U.S. government obligations
for the six months ended December 31, 1997, equaled $43,598,452 and $41,591,797,
respectively. Purchases and sales (including maturities) of investments in
short-term securities equaled $43,520,036 and $45,656,813, respectively.
At December 31, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes.
Net unrealized appreciation aggregated $26,143,136 of which $27,484,114 related
to appreciated securities and $1,340,978 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 six months ended December 31, 1997, the Distributor collected sales
charges on purchases of Class A Shares of approximately $10,300 of which
approximately $8,300 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 distribution and service fees on Class A Shares,
substantially all of which were paid to compensate authorized dealers for
providing services to shareholders relating to their investments.
5. Composition of Net Assets
At December 31, 1997, the Fund had 100,000,000 shares of $.001 par value common
stock authorized. Net assets consisted of:
<TABLE>
---------------------------------------------------------------------------------------
<S> <C>
Capital paid-in $118,010,925
Balance of undistributed net investment income 9,933
Accumulated net realized gain from investment transactions 3,064,616
Net unrealized appreciation of investments 26,143,136
---------------------------------------------------------------------------------------
Net assets $147,228,610
=======================================================================================
</TABLE>
13
<PAGE>
Financial Highlights (Unaudited)
Selected data for a common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
--------------------- ------------------
Net
Net realized and Net Total
asset unrealized Dividends asset return
value Net gain (loss) from net Distributions value on net
Year ended 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)
1998 (e) $19.31 $.34 $ .53 $(.36) $ (1.43) $18.39 4.48%
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>
* Annualized.
(a) Total returns are calculated on net asset value without any
sales charge and are not annualized.
(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) From commencement of operations as noted.
(e) For the six months ended December 31, 1997.
14
<PAGE>
<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
end of before before after after Portfolio Average
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>
$147,229 1.07%* 3.42%* 1.07%* 3.42%* 40% $.0827
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>
15
<PAGE>
Nuveen Family
of Mutual Funds
Nuveen offers a variety of
funds designed
to help you reach
your financial goals.
Growth
Nuveen Rittenhouse
Growth Fund
Growth and
Income
Growth and
Income Stock Fund
Balanced Stock
and Bond Fund
Balanced Municipal
and Stock Fund
Golden Rainbow Fund
Tax-Free Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited Term
State Funds
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
Building Better Portfolios with Nuveen
Reducing the impact of taxes and moderating risk are important goals for many
risk-sensitive investors seeking to build better portfolios. For these
investors, a tax-efficient, risk-resistant investment portfolio often forms the
foundation of a carefully crafted financial plan for building and sustaining
wealth. Nuveen is committed to providing investors and their financial advisers
with a range of products and investment tools to help build better portfolios.
Mutual Funds
Nuveen Mutual Funds offer investors access to the Nuveen family of premier
advisers, including Nuveen Advisory Corp., Institutional Capital Corp. and
Rittenhouse Financial Services. Our equity, balanced and income funds seek to
provide consistent performance, time-tested strategies to reduce risk and
experienced, professional management.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more. A range of actively managed growth, balanced and municipal income-
oriented portfolios are available, all based upon a disciplined investment
philosophy.
Unit Trusts
Nuveen Unit Trusts are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, experienced, professional
security selection and surveillance, and daily liquidity at that day's net asset
value for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios
of investment-grade quality municipal bonds. The fund shares are listed and
traded on the New York and American stock exchanges. Exchange-traded funds
provide the investment convenience, price visibility and liquidity of
common stocks.
MuniPreferred(R)
Nuveen MuniPreferred offers investors a AAA-rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as
a wide variety of state-specific portfolios.
16
<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
Fund Adviser
James Investment Research, Inc.
Beavercreek, Ohio
Transfer Agent and
Shareholder Services
Boston Financial Data Services
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 Public
Accountants
Arthur Andersen LLP
Chicago, Illinois
17
<PAGE>
[Photo of John Nuveen, Sr. appears here]
John Nuveen, Sr.
Serving Investors for Generations
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 risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted 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 focused on providing consistent, attractive
performance over time-with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 225-8530 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
1898
NUVEEN 1998
OUR SECOND CENTURY
helping investors sustain the wealth of a lifetime
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
ESA-GR-12.97
