<PAGE>
NUVEEN
Growth and Income
Mutual Funds
June 30, 1998
Annual Report
Seeking income for today
and growth for tomorrow.
[PHOTO APPEARS HERE]
Utility
Income Fund
<PAGE>
Highlights
As of June 30, 1998
For Class A shares on net asset value
Industry Diversification
[PIE CHART APPEARS HERE]
Electric Utility 46%
Forest and Paper Products 4%
Financial 24%
Consumer Cyclical 4%
Telecommunications 14%
Natural Gas/Pipeline 8%
Performance Highlights
. One-year total return of 19.32%
. Steady dividend since June 1993
. 4.02% yield on NAV; 3:85% yield on offer
Contents
1 Dear Shareholder
3 Portfolio Manager's Comments
4 Performance Overview
5 Report of Independent
Public Accountants
6 Portfolio of Investments
8 Statement of Net Assets
9 Statement of Operations
10 Statement of Changes in Net Assets
11 Notes to Financial Statements
14 Financial Highlights
16 Building Better Portfolios
17 Fund Information
Is it Time for a Financial Check-Up?
Now is a great time to sit down with your financial adviser and review your
financial plan. How can you make sure that your investment strategy is strong
enough to provide the income you need today and versatile enough to change as
your goals do? Here are some guidelines:
. Make sure you and your adviser understand your current situation. How have
your goals, objectives and risk profile changed? What are your current tax
concerns, interests, lifestyle?
. Revisit your current investment choices. If the value of one portion of your
portfolio has grown substantially, it may be time to rebalance asset classes.
. Determine how your asset mix will be implemented. Changing your asset
allocation is generally a gradual process. Make sure you and your adviser
have a clear understanding of each other's responsibilities. Define and
discuss what you want in terms of support from your adviser.
. Keep revisiting your plan. Don't assume that once you've revised your plan
and reallocated your portfolio the process is finished.
It's recommended that you meet at least once a year with your financial
adviser - and usually more if there have been significant changes in interest
rates, tax laws, retirement plan distributions, lifestyle or health.
Even if things haven't changed, it makes good financial sense to keep in touch
with your adviser.
<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.
I'm pleased to report that the Flagship Utility Income Fund continued to meet
its objectives of providing shareholders with attractive income and growth
potential, despite a volatile year in the utility industry. Since the onset of
the recent wave of utility deregulation, the industry has experienced constant
change as companies adapt to the new competitive environment. Nuveen's
experience in the utility sector has enabled the fund to navigate through this
changing market environment.
The fund continues to provide an attractive investment opportunity for investors
seeking a high level of income for today, along with the appreciation potential
that historically has helped keep investors ahead of inflation. Our portfolio
strategy of focusing on securities with strong income potential has resulted in
very attractive yields for investors. In fact, the Utility Income Fund is ranked
as one of the highest-yielding funds in its peer group and the fund's Class A
shares have maintained a steady dividend since June 1993.
The Economy in Review
Over the past year, the equity markets exhibited continued strength despite
recent volatility sparked by Asia's financial problems. Fixed-income investments
also enjoyed bullish performance, as declining interest rates and low inflation
spurred a bond market rally. A year-to-year comparison shows that today's rates
are significantly lower than those of a year ago. The continued fall of interest
rates has tended to make the value of higher-yielding stocks like those in the
Utility Income Fund even greater. Added strength for income-oriented investments
came from the low inflationary environment, which was caused in part by the
Asian financial crisis. Thanks to a strong dollar and weak commodity prices, the
Consumer Price Index rose only 1.7% for the 12 months ended June 30, 1998, among
its lowest levels in years. Defensive stocks such as utilities gained additional
strength from the "flight to quality," as investors sought a haven from ongoing
Asian uncertainty by moving assets into defensive stocks and fixed-income
securities.
1
<PAGE>
"Today, more than ever, you can count on Nuveen for a wide range of investments
and services that can help you build a well-balanced portfolio designed to
achieve your financial goals."
In coming months, we will continue to watch several key factors affecting the
future of the economy, including the demand for goods and services, the
availability of qualified employees, international economic activity,
particularly in Asia, and indications from the Federal Reserve. We expect that
these factors will continue to influence the tone of the stock and bond markets
during the remainder of the year.
Diversification:
The Key to a Better Portfolio
In the months ahead, we believe that investors will find diversification to be
an increasingly important investment strategy. An appropriately diversified
portfolio one that balances different types of investments, risk levels, and tax
management can help cushion your portfolio against volatility and enhance your
long-term return potential.
Many investors select Nuveen funds because their emphasis on dependable income
and attractive after-tax returns makes them ideal for building and sustaining
long-term financial security. Our range of stock and bond investments can help
create the foundation for a diversified, well-balanced portfolio. We encourage
you to talk with your financial adviser about diversifying your portfolio with
Nuveen's equity and balanced funds, including the Nuveen European Value Fund.
This new equity mutual fund offers a portfolio of quality European company
stocks for investors seeking long-term growth potential and international
diversification. Today, more than ever, you can count on Nuveen for a wide range
of investments and services that can help you build a well-balanced portfolio
designed to achieve your financial goals.
When seeking quality investment solutions that withstand the test of time, we
hope that you continue to think of Nuveen. We thank you for your continued
confidence in us and our family of investments.
Sincerely,
/s/Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
August 15, 1998
2
<PAGE>
Flagship Utility Income Fund
Portfolio Manager's Comments
Portfolio Manager Rick Huber reviews the past year in the utility sector
and talks about the performance of the fund and his outlook for the future.
Comments cover the one-year period ended June 30, 1998, and all
performance statistics are quoted for Class A shares on net asset value.
Utility Sector Review
Deregulation continues to force utility companies in all sectors to become more
cost-efficient, growth-oriented entities. The process of deregulation for
electric utilities continues throughout the country, and President Clinton has
announced plans to assess deregulation on a national scale. Thus far, the plan
looks favorable for most electric utilities and will allow them to pass along at
least some of the costs of their power plants to customers in the coming years.
However, deregulation has also brought with it tremendous volatility, although
the volatility levels for utility stocks have still been lower than those found
in the overall stock market. In addition, this sector has tremendous growth
potential because deregulation has ended what was essentially a "ceiling" on
utility company earnings growth. However, that improved growth potential is
accompanied by concerns over the earnings of these companies, since their
profits are no longer effectively guaranteed. The recent rash of large-scale
acquisitions also raised a number of issues, particularly in telecommunications
sector as the MCI-WorldCom and SBC-Ameritech mergers were announced. Some
analysts are concerned over the impact of these mergers on corporate earnings,
as well as the new conglomerates' ability to adapt quickly to a changing
environment.
Utility stocks were generally able to reap the benefits of the continued
strength of the bull market on Wall Street. In addition, demand for utility
stocks continued to grow as the financial problems in Asia prodded many
investors to consider more defensive securities such as utility stocks. The
continued fall of interest rates also benefited the sector as the attractive
dividends paid by many utilities drew investors seeking competitive income
levels.
Fund Performance
For the year ended June 30, 1998, the fund generated a total return of 19.32%.
Although this return falls below the 30.24% return provided by the benchmark
Standard & Poor's Utility Index, the fund's performance remains attractive when
considering that the Index is comprised purely of common stocks, while the
Utility Income Fund presently holds only 54% of its investments in common
stocks. The remainder is held in bonds and preferred stocks (which are
securities that perform similarly to bonds), helping the fund maintain a steady
income level and subjecting the fund to much less price volatility than common
stocks. In addition, the fund provided shareholders with a yield of 4.02% and
has maintained its current dividend per share level since 1993.
Key Strategies
As the utility sector remained volatile during the year, we began to focus on
the fund's income component and choose those securities that would support the
fund's dividend level and help protect shareholder capital. As a result, we
moved from a weighting of 73% in electric utilities six months ago to an
allocation of 46% at fiscal year-end. The relative price instability of this
sector led us to focus on those high-quality, financially strong companies that
we felt would be the most successful in the changing market environment. In
general, we avoided natural gas company stocks because the commodity-oriented
nature of that business forces tight pricing margins that can hinder
profitability. We also focused on diversifying the fund's holdings over the past
year, working to choose those companies in each of the key utility sectors that
we expected to perform well as the industry evolves. In general, we looked for
the most stable companies - those with strong earnings records, nimble
management and enhanced performance potential in the competitive marketplace.
Outlook for the Future
With the sweeping changes that deregulation has introduced over the past several
years, the dynamics of the utility industry have changed dramatically. As the
stocks in this sector have generally become more volatile, the task of finding
appropriate securities that will provide the dividend income and relative
stability we seek has become more complex. As a result, we are exploring new
strategies to help the fund meet its objectives. For example, we will be looking
for companies that have or plan to successfully diversify into non-regulated
areas of their businesses. This strategy is illustrated by Ameritech, which was
once strictly a local telephone service provider, and has recently expanded into
internet service, cable television and even home security services. These are
the companies that we feel will be most successful in the future and will be
able to outperform their competitors. In addition, we will closely watch
companies that have been able to successfully expand internationally, and have
been able to bring their international experience back to the U.S. For example,
Texas Utilities has recently acquired several utility companies in the United
Kingdom and Australia, which are unregulated markets. Thus far, the company has
been able to learn from these ventures how to thrive in a competitive,
unregulated utility market. We are evaluating these and other strategies to
ensure that the fund is well-positioned to achieve its goals of providing income
for today and growth for the future.
3
<PAGE>
Flagship Utility Income Fund
Performance Overview
As of June 30, 1998
Top Ten Common Stock Holdings
Carolina Power & Light 3.46%
DQE Inc. 2.88%
Sprint Corp. 2.81%
Ameritech Corporation 2.68%
Piedmont Natural Gas 2.68%
CMS Energy Corporation 2.63%
Rochester Gas & Electric Company 2.55%
Texas Utilities Company 2.49%
Florida Progress Corporation 2.46%
Florida Power & Light Company 2.39%
Portfolio Allocation
[PIE CHART APPEARS HERE]
Common Stocks 54%
Preferred Stocks 38%
Bonds 8%
Dividend History (Class A Shares)
[BAR CHART APPEARS HERE]
0.05290 July 1997
0.05290 August 1997
0.05290 September 1997
0.05290 October 1997
0.05290 November 1997
0.05290 December 1997
0.05290 January 1998
0.05290 February 1998
0.05290 March 1998
0.05290 April 1998
0.05290 May 1998
0.05290 June 1998
<TABLE>
<CAPTION>
Fund Highlights
Share Price A C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception Date 8/83 7/93
Net Asset Value $13.06 $ 13.03
Monthly Dividend .0529 .0470
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $25,719
Number of Holdings 42
Turnover Rate 101%
- --------------------------------------------------------------------------------
Annualized Total Return/1/
Share Class A (On NAV) A (On Offer) C
- --------------------------------------------------------------------------------
1-Year 19.32% 14.35% 18.65%
3-Year 14.61% 12.98% 13.96%
5-Year 9.60% 8.67% 8.99%
10-Year/2/ 7.67% 7.27% N/A
Yields/3/
Distribution Rate 4.86% 4.66% 4.33%
SEC 30-Day Yield 4.02% 3.85% 3.47%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Index Comparison /4/
[LINE CHART APPEARS HERE]
Utility Income Fund (Offer) Utility Income Fund (NAV) S&P Utility Index S&P 500
<S> <C> <C> <C> <C>
6/88 9,580 10,000 10,000 10,000
6/89 9,417 9,830 12,759 12,053
6/90 9,658 10,082 14,439 14,042
6/91 9,548 9,967 14,809 15,078
6/92 10,951 11,431 16,939 17,103
6/93 12,685 13,241 21,247 19,435
6/94 11,819 12,337 19,662 19,709
6/95 13,324 13,908 22,667 24,845
6/96 15,299 15,970 27,868 31,303
6/97 16,812 17,549 29,386 42,170
6/98 20,062 20,942 38,276 54,892
</TABLE>
[_] S&P 500 $54,892
[_] S&P Utility Index $38,276
[_] Utility Income Fund (NAV) $20,942
[_] Utility Income Fund (Offer) $20,062
Past performance is not predictive of future results.
/1/ All returns are actual. 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 one-year total return.
/2/ The fund changed its investment objectives and policies as of July 1, 1992,
from a corporate cash management fund to that of a utility fund.
/3/ SEC Yield is a standardized measure of the fund's earnings over the
previous 30-day period. Distribution Rate is the most recent dividend,
multiplied by 12, divided by price. It sometimes differs from SEC Yield due
to a number of factors, including that distribution yield may not reflect
amortization of bond premiums arising after purchase and that the fund may
be paying out more or less than it is currently earning.
/4/ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Utility Income 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 fund return depicted in
the chart reflects the initial maximum sales charge applicable to Class A
shares (4.20%) and all ongoing fund expenses.
4
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Flagship Utility Income Fund
We have audited the accompanying statement of net assets, including the
portfolio of investments, of the Flagship Utility Income Fund (the "Fund") (one
of the series constituting the Flagship Admiral Funds (a Maryland corporation))
as of June 30, 1998 and the related statement of operations, and changes in net
assets and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The financial statements
and financial highlights for the Fund for the years ended June 30, 1997 and
prior were audited by other auditors whose report dated August 20, 1997,
expressed and an unqualified opinion on those financial statements and financial
highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1998, by
correspondence with the custodian and brokers. As to securities purchased but
not received, we requested confirmation from brokers and, when replies were not
received, we carried out alternative auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of Flagship
Utility Income Fund as of June 30, 1998 and the results of its operations, the
changes in its net assets, and its financial highlights for the year then ended,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 17, 1998
5
<PAGE>
Portfolio of Investments
Flagship Utility Income Fund
June 30, 1998
<TABLE>
<CAPTION>
Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 53.0%
Electric Utility -- 35.9%
15,000 CMS Energy Corporation $ 660,000
20,000 Carolina Power & Light Company 867,500
31,200 Dayton Power & Light Company 565,500
20,050 DQE, Incorporated 721,800
9,500 Florida Power & Light Company 598,500
15,000 Florida Progress Corporation 616,875
10,000 Illinova Corporartion 300,000
20,000 LG&E Energy Corporation 541,250
20,000 MCN Corporation 497,500
10,000 New England Electric System 432,500
20,000 Pacificorp 452,500
20,000 Rochester Gas & Electric Company 638,750
15,000 SCANA Corporation 447,188
10,000 Sonat Incorporated 386,250
15,000 Texas Utilities Company 624,375
20,000 The Southern Company 553,750
10,000 Williams Companies Incorporated 337,500
- --------------------------------------------------------------------------------
Natural Gas/Pipeline -- 7.8%
10,000 Consolidated Natural Gas Company 588,750
10,000 National Fuel Gas Company 435,625
7,600 Nicor Incorporated 304,950
20,000 Piedmont Natural Gas 672,500
- --------------------------------------------------------------------------------
Telecommunications -- 9.3%
15,000 Ameritech Corporation 673,125
10,000 Bell Atlantic Corporation 456,250
10,000 GTE Corporation 556,250
10,000 Sprint Corporation 705,000
- --------------------------------------------------------------------------------
Total Common Stocks -- (cost $11,324,523) 13,634,188
- --------------------------------------------------------------------------------
PREFERRED STOCKS -- 36.6%
Electric Utility -- 9.2%
17,969 HL&P Capital Tollroad Trust I (8.125%) 458,210
20,000 Illinois Power Company, Series A (9.450%) 516,250
30,000 MCN Michigan Limited Partnership (9.375%) 774,375
25,000 Western Resource Inc., Series A (7.875%), 629,688
- --------------------------------------------------------------------------------
Finance -- 23.4%
25,000 Bank America Capital (7.000%) 618,750
25,000 Chase Capital IV (7.340%) 626,563
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Shares Description Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
Finance (continued)
30,000 The Coastal Corporation, Coastal Finance I (8.375%) $ 736,875
30,000 Equitable Resources, Incorporated (7.350%) 746,250
30,000 Merrill Lynch Capital Trust 1 (7.000%) 738,750
30,000 Metropolitan Edison (9.000%) 768,750
20,000 Mission Capital L P (9.875%) 520,000
26,875 Pacific Telesis Group (7.560%) 673,555
22,804 Textron Capital (7.920%) 575,801
- ------------------------------------------------------------------------------------
Telecommunications - 4.0%
20,000 GTE Corporation, Series Z (9.250%) 518,750
20,000 MCI Communications Corporation, Series A (8.000%) 508,750
- ------------------------------------------------------------------------------------
Total Preferred Stocks - (cost $9,311,475) 9,411,317
- ------------------------------------------------------------------------------------
Principal
Amount Description Market Value
- ------------------------------------------------------------------------------------
CORPORATE BONDS - 7.9%
Forest and Paper Products - 4.0%
$1,000,000 Georgia-Pacific Corporation Debenture, 7.375%, 12/01/25 1,039,812
- ------------------------------------------------------------------------------------
Consumer Cyclical - 3.9%
1,000,000 TRW Incorporated, 6.250%, 1/15/10 999,222
- ------------------------------------------------------------------------------------
Total Corporate Bonds - (cost $2,020,694) 2,039,034
------------------------------------------------------------------------
Total Investments - (cost $22,656,692) - 97.5% 25,084,539
------------------------------------------------------------------------
Other Assets Less Liabilities - 2.5% 634,902
------------------------------------------------------------------------
Net Assets - 100% $25,719,441
========================================================================
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
Statement of Net Assets
June 30, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C>
Investment securities, at market value (cost $22,656,692) (note 1) $25,084,539
Cash 32,869
Receivables:
Dividends and interest 112,672
Investments sold 1,113,163
Other assets 1,061
- -----------------------------------------------------------------------------------------------------------------------------
Total assets 26,344,304
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased 457,850
Shares redeemed 28,019
Accrued expenses:
Management fees (note 6) 8,189
12b-1 distribution and service fees (notes 1 and 6) 6,850
Other 21,147
Dividends payable 102,808
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 624,863
- -----------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $25,719,441
=============================================================================================================================
Class A Shares (note 1)
Net assets $20,012,542
Shares outstanding 1,532,478
Net asset value and redemption price per share $ 13.06
Offering price per share (net asset value per share plus maximum sales charge of 4.20% of offering price) $ 13.63
=============================================================================================================================
Class C Shares (note 1)
Net assets $ 5,706,899
Shares outstanding 438,103
Net asset value, offering and redemption price per share $ 13.03
=============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Statement of Operations
Year Ended June 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Investment Income (note 1)
<S> <C>
Dividends $1,509,247
Interest 112,922
- ------------------------------------------------------------------------------------------------
Total investment income 1,622,169
- ------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 129,390
12b-1 service fees - Class A (notes 1 and 6) 40,415
12b-1 distribution and service fees - Class C (notes 1 and 6) 42,528
Shareholders' servicing agent fees and expenses 38,438
Custodian's fees and expenses 40,908
Professional fees 10,281
Shareholders' reports - printing and mailing expenses 64,683
Federal and state registration fees 8,581
Other expenses 4,811
- ------------------------------------------------------------------------------------------------
Total expenses before reimbursement 380,035
Expense reimbursement (note 6) (2,443)
- ------------------------------------------------------------------------------------------------
Net expenses 377,592
- ------------------------------------------------------------------------------------------------
Net investment income 1,244,577
- ------------------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 2,296,988
Net change in unrealized appreciation or depreciation of investments 990,857
- ------------------------------------------------------------------------------------------------
Net gain from investments 3,287,845
- ------------------------------------------------------------------------------------------------
Net increase in net assets from operations $4,532,422
================================================================================================
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
6/30/98 6/30/97
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 1,244,577 $ 1,657,466
Net realized gain from investment transactions
(notes 1 and 4) 2,296,988 2,155,531
Net change in unrealized appreciation or depreciation
of investments 990,857 (1,227,092)
- ---------------------------------------------------------------------------------------------------
Net increase in net assets from operations 4,532,422 2,585,905
- ---------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (1,033,890) (1,294,422)
Class C (259,894) (301,321)
- ---------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (1,293,784) (1,595,743)
- ---------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 1,302,662 2,079,070
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 839,065 814,896
- ---------------------------------------------------------------------------------------------------
2,141,727 2,893,966
- ---------------------------------------------------------------------------------------------------
Cost of shares redeemed (5,372,175) (9,484,267)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions (3,230,448) (6,590,301)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 8,190 (5,600,139)
Net assets at the beginning of year 25,711,251 31,311,390
- ---------------------------------------------------------------------------------------------------
Net assets at the end of year $25,719,441 $25,711,251
===================================================================================================
Balance of undistributed net investment income at end of year $ 12,516 $ 61,723
===================================================================================================
</TABLE>
10
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
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 June
30, 1998, 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.
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.
11
<PAGE>
Notes to Financial Statements (continued)
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, 1998.
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.
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
6/30/98 6/30/97
------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 99,136 $ 1,259,086 139,470 $ 1,528,638
Class C 3,043 43,576 49,660 550,432
Shares issued to shareholders due to reinvestment of distributions:
Class A 52,493 645,383 58,233 645,196
Class C 15,831 193,682 15,336 169,700
- --------------------------------------------------------------------------------------------------------------------------
170,503 2,141,727 262,699 2,893,966
- --------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (370,411) (4,588,730) (700,730) (7,812,755)
Class C (64,162) (783,445) (150,184) (1,671,512)
- --------------------------------------------------------------------------------------------------------------------------
(434,573) (5,372,175) (850,914) (9,484,267)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (264,070) $(3,230,448) (588,215) $(6,590,301)
=========================================================================================================================
3. Distributions to Shareholders
The Fund declared a dividend distribution from its net investment income which
was paid on August 3, 1998, to shareholders of record on July 9, 1998, as
follows:
- --------------------------------------------------------------------------------------------------------------------------
Dividend per share:
Class A $ .0529
Class C .0470
==========================================================================================================================
</TABLE>
12
<PAGE>
4. Securities Transactions
Purchases and sales (including maturities) of investment securities, U.S.
government obligations and short-term investments for the fiscal year ended June
30, 1998, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Purchases:
Investment securities $22,811,520
U.S. government obligations 3,030,370
Short-term investments 9,750,000
Sales:
Investment securities 26,170,004
U.S. government obligations 3,005,410
Short-term investments 9,750,000
================================================================================
</TABLE>
At June 30, 1998, the identified cost of investments owned for federal income
tax purposes was the same as the cost for financial reporting purposes.
At June 30, 1998, the Fund had unused capital loss carryforwards of $3,653,149
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, $891,661 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, 1998, net unrealized appreciation aggregated $2,427,847 of which
$2,619,760 related to appreciated securities and $191,913 related to depreciated
securities.
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 those of 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, 1998, the Distributor collected sales
charges on purchases of Class A Shares of approximately $24,800 of which
approximately $21,600 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
During the fiscal year ended June 30, 1998, the Distributor compensated
authorized dealers with approximately $800 in commission advances at the time of
purchase. 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 $3,600 of 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 $900 of CDSC on share redemptions for the
fiscal year ended June 30, 1998.
7. Composition of Net Assets
At June 30, 1998, 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 $26,994,700
Balance of undistributed net investment income 12,516
Accumulated net realized gain (loss) from investment transactions (3,715,622)
Net unrealized appreciation of investments 2,427,847
- --------------------------------------------------------------------------------
Net assets $25,719,441
================================================================================
</TABLE>
13
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
-------------------------------- ----------------------------
Net
Beginning Realized/ Ending
Net Net Unrealized Net Net
Year Ended Asset Investment Investment Investment Capital Asset Total
June 30, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (8/83)
1998 $11.51 $.61 $ 1.57 $2.18 $(.63) $ -- $(.63) $13.06 19.32%
1997 11.09 .66 .40 1.06 (.64) -- (.64) 11.51 9.89
1996 10.24 .64 .85 1.49 (.64) -- (.64) 11.09 14.82
1995 9.69 .64 .55 1.19 (.64) -- (.64) 10.24 12.73
1994 11.04 .63 (1.34) (.71) (.64) -- (.64) 9.69 (6.83)
Class C (7/93)
1998 11.49 .55 1.56 2.11 (.57) -- (.57) 13.03 18.65
1997 11.08 .61 .38 .99 (.58) -- (.58) 11.49 9.25
1996 10.24 .58 .84 1.42 (.58) -- (.58) 11.08 14.15
1995 9.69 .59 .55 1.14 (.59) -- (.59) 10.24 12.14
1994 (c) 11.05 .59 (1.39) (.80) (.56) -- (.56) 9.69 (7.52)*
==============================================================================================================================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
Ratio of Investment Ratio of Investment
Expenses Income Expenses Income
to Average to Average to Average Average
Net Assets Net Assets Net Assets Net Assets
Before Before After after Portfolio
Ending Net Reimburse- Reimburse- Reimburse- Reimburse- Turnover
Assets (000) ment ment ment(a) ment(a) Rate
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$20,013 1.35% 4.92% 1.34% 4.93% 101%
20,157 1.54 5.41 .98 5.97 128
25,010 1.45 5.35 .98 5.82 115
25,000 1.52 6.00 1.00 6.52 159
26,921 1.38 5.48 .94 5.92 193
5,707 1.90 4.38 1.89 4.39 101
5,555 2.09 4.91 1.53 5.47 128
6,302 2.00 4.79 1.52 5.27 115
5,501 2.06 5.49 1.54 6.01 159
5,129 2.04* 5.11* 1.46* 5.69* 193
</TABLE>
* Annualized.
(a) After waiver of certain management fees or reimbursement of expenses by
Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge and
are not annualized except where noted.
(c) From commencement of class operations as noted.
15
<PAGE>
Building a Better Portfolio
Can Make You a Successful Investor
Successful investors know that a well-diversified portfolio - one that balances
different types of investments, levels of risk and tax management - can be the
foundation for building and sustaining wealth. That's why Nuveen offers you and
your financial adviser a wide range of quality investments that can help you
build a better portfolio in the pursuit of your financial goals.
Mutual Funds
Nuveen offers a family of equity, balanced and municipal bond funds featuring
Premier Advisers(SM) including Institutional Capital Corporation, Rittenhouse
Financial Services, and Nuveen Advisory Corp. Each brings a specialized
expertise in a particular investment style or asset class, time-tested
investment strategies and a focus on consistent, long-term performance. With
Nuveen's Premier Adviser funds, you have all the advantages of a family of funds
plus the benefits of specialized investment expertise.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more to invest. A range of actively managed growth, balanced and municipal
income-oriented portfolios are available, all based upon a disciplined
investment philosophy.
Defined Portfolios
Nuveen Defined Portfolios are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, 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.
Nuveen Family
of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth
Nuveen Rittenhouse
Growth Fund
Growth and
Income
European Value Fund
Growth and
Income Stock Fund
Balanced Stock
and Bond Fund
Balanced Municipal
and Stock Fund
Tax-Free Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
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
Transfer Agent and
Shareholder Services
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
17
<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
quality investments designed for individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them pursue their financial goals.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time - with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and tax-free income funds, along with our defined portfolios and
private asset management, can help you build a better, well-diversified
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
1898
NUVEEN 1998
OUR SECOND CENTURY
helping investors sustain the wealth of a lifetime./TM/
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
EAN-UI-6-98
