<PAGE>
[NUVEEN LOGO]
Mutual Funds
December 31, 1998
Semiannual Report
Seeking income for today
and growth for tomorrow.
[PHOTO APPEARS HERE]
Utility
Income Fund
<PAGE>
Highlights
As of December 31, 1998
For Class A shares on net asset value
Industry Diversification
[PIE CHART APPEARS HERE]
Utilities 74.7%
Energy 11.8%
Financials 10.8%
Capital Goods 2.7%
Performance Highlights
. One-year total return of 8.12%
. Steady dividend since 1993
Contents
1 Dear Shareholder
3 Portfolio Manager's Comments
5 Performance Overview
6 Shareholder Meeting Report
7 Portfolio of Investments
9 Statement of Net Assets
10 Statement of Operations
10 Statement of Changes in Net Assets
11 Notes to Financial Statements
15 Financial Highlights
16 Building Better Portfolios
17 Fund Information
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
Wealth takes
a lifetime
to build.
Once achieved,
it should be
preserved.
I'm pleased to report that the Flagship Utility Income Fund continued to perform
well in pursuit of its objective of providing you with attractive current
income, long-term growth of income, and capital appreciation.
Recently, shareholders approved expansion of the Fund's investment strategy to
enhance the Fund's investment potential. With an eye toward providing income for
today and growth opportunities for tomorrow, the Fund manager may now explore a
broader, more diversified range of quality investment opportunities to achieve
the target portfolio blend, rather than focusing exclusively on the utility
sector. To reflect this new philosophy, the fund's name has been changed to the
Nuveen Dividend and Growth Fund. We are optimistic that the fund's new direction
will offer you investment income, plus a measure of capital growth over time to
help overcome the effects of inflation and protect your purchasing power.
The Year in Review
Over the past year, the markets endured bouts of volatility, as the Asian
financial crisis spilled over into emerging markets and affected economies
around the globe. To avert a potential domestic credit crunch and bring some
stability to global markets, the Federal Reserve moved to ease short-term
interest rates for the first time in almost three years. Between the end of
September and mid-November, three successive cuts reduced the federal funds
rate to 4.75%.
Despite the uncertainty in foreign markets, U.S. equities enjoyed another banner
year. The Dow Jones Industrial Average recorded an increase for the eighth
consecutive time, and the S&P 500 posted a total return of almost 29%. This
increase is even more impressive in light of the S&P 500's decline of almost 20%
over the summer.
In the coming months, we will continue to watch several key factors affecting
the economy's future, including corporate earnings reports, wage and employment
statistics, the strength of the U.S. dollar, events in international markets,
and any further interest rate indications from the Federal Reserve.
1
<PAGE>
"An appropriately diversified portfolio ... can help cushion your investments
against volatility and enhance your overall total return potential."
Nuveen's Premier Advisers
As a further enhancement to our management capabilities, Nuveen has assembled a
strong core of Premier Advisers/SM/, a group of asset management firms who are
experts in their particular areas of the market, to provide their experience and
insights. In addition to Nuveen Investment Advisory Services, our Premier
Adviser for income investing, you can rely on other Premier Advisers for equity
investments, including Institutional Capital Corporation for value investing
and Rittenhouse Financial Services, Inc. for growth investing. For more
information about Nuveen Mutual Funds, including sales charges and expenses,
contact your financial adviser for a prospectus, or call Nuveen at (800) 621-
7227. Please read the prospectus carefully before you invest or send money.
Considering the market volatility of 1998, we believe that investors will
continue to find diversification to be an important strategy in the months
ahead. An appropriately diversified portfolio -- one that balances different
types of investments, levels of risk, and tax management strategies -- can help
cushion your investments against volatility and enhance your overall total
return potential.
We encourage you to talk with your financial adviser about the ways Nuveen
Mutual Funds can help you establish a diversified portfolio designed to build
and sustain long-term financial security. We are grateful for the confidence you
have placed in us and are dedicated to maintaining that trust in the years
ahead.
Sincerely,
/s/Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
February 15, 1999
2
<PAGE>
Flagship Utility Income Fund
Portfolio Manager's Comments
Investors found 1998 to be a very challenging year, and many expect volatile,
yet growing markets in 1999. To gain a clearer perspective on recent events and
the future of the Flagship Utility Income Fund (now named the Nuveen Dividend
and Growth Fund), we talked with Rick Huber of Nuveen Investment Advisory
Services, who is the portfolio manager of the fund.
What is your assessment of the stock market's results last year?
The equity market turned in another strong performance in 1998, setting a number
of records in the process. The S&P 500 generated a total return of 28.6% for
the year, its fourth consecutive year of increasing more than 20% and the first
such string of gains in over 100 years. The Dow Jones Industrial Average has now
risen for each of the last eight years, and 16 of the last 17 years.
The market's performance, though solid, was also marked by volatility last year.
The S&P 500 declined almost 20% during the summer, only to eventually rebound
and reach record highs four months later.
Equity market performance was also notable in 1998 for its concentration of
return in a relatively small group of large-capitalization, growth-oriented
issues. The top five contributors to the S&P 500's total return in 1998 were
Microsoft, General Electric, Wal-Mart, Lucent Technologies, and Cisco. These
five stocks showed a median return of nearly 115% while the median return for
the other 495 stocks in the S&P 500 was less than 7%. In the wake of financial
turmoil around the globe, investors sought out large companies whose earnings
growth was expected to be strong and secure; valuation became a secondary
consideration to predictability of earnings.
At year-end, the stock market hovered near record highs despite the continuing
financial instability in Asia and Russia as well as the impeachment of
President Clinton.
How did the economic landscape affect financial markets' performance last year?
The economy continued to support the market's advance in 1998, growing at about
4% even in the face of slowed foreign trade. While the economy is not likely
headed for recession, there are signs that growth will slow in 1999: U.S.
exports continue to be affected by financial market turmoil; spending on capital
expenditures should moderate; and housing growth should slow. But even though
the economy's pace could taper off in the coming months, there are adjustments
taking place that could lessen the economic slowdown anticipated in 1999, such
as foreign central banks moving aggressively to reduce interest rates, higher
government spending in the U.S. due to the current budget surplus, and initial
signs of stability in Asia.
What role did the Federal Reserve play in the stock market's strong performance?
The Federal Reserve played an important role in the strength of the economy and
the financial markets in 1998, lowering short-term interest rates three times
in the last half of the year. These actions helped to stave off further declines
in stock prices and set the stage for the unprecedented market recovery to new
highs.
How did the Flagship Utility Income Fund perform in 1998?
The Flagship Utility Income Fund generated an 8.12% total return on Class A
shares at net asset value for 1998. This compares to an 18.40% total return for
the Lipper Utility Fund category.
See your fund's performance overview in this report, on page five, for more
information.
The Fund's relative underperformance, when compared to the Lipper Utility Fund
category, can be attributed mainly to the Fund's significant holdings in
preferred stocks. Preferred stocks can generate an attractive income stream, but
they provide relatively little in the way of capital appreciation. Until
December 1998, the Fund's focus was on current income. Going forward, it will be
a combination of income and capital growth.
Overall, the utility industry performed very well over the past year.
Deregulation in this sector contributed to attractive buy opportunities over the
course of the year
3
<PAGE>
and forced companies to become more cost-efficient and growth oriented. As the
equity market enjoyed a record setting year, additional common stock issues
from the utility sector replaced some preferred stock holdings in order to
enhance the fund's performance.
What investment strategies were employed in managing the Flagship Utility Income
Fund? In addition, what are some of the holdings you've identified as being
particularly attractive?
For much of 1998, the primary investment strategy for the Flagship Utility
Income Fund was to focus on income-producing, common and preferred utility
stocks. This strategy provided attractive income and stable returns in a
volatile market environment. Going forward, we will screen for value and income
among all security classes, including corporate bonds, preferred stocks, and
equity securities. The stocks the Fund now holds provide a stable, growing
income source as well as the potential for capital appreciation.
Looking ahead, the changes in the Fund's investment policy will allow us greater
flexibility in terms of adding equities from different sectors to the
portfolio. The resulting effect, diversification, should better serve to
potentially enhance the Fund's performance. For example, several holdings in
the telecommunications sector, such as Ameritech Corporation, AT&T Corp., and
Sprint Corporation have recently been added to the portfolio due to their
financial strength as well as their potential impact on the future of technology
and voice and data delivery. For these reasons, we believe telecommunications
companies offer a unique blend of an attractive level of current income in
addition to the potential for significant capital appreciation.
Other names that have been added to the Fund's portfolio as a result of the
investment policy change include Enron and Williams Companies, which are both
part of the energy sector. We believe that many energy companies are undervalued
and have significant upside potential to match their attractive dividend yields.
In addition, we think that corporate bonds and preferred stock are also very
attractive, and will remain so, particularly if interest rates continue to
decline. Companies like TRW Incorporated and Coastal Finance represent the types
of issues we like in those asset classes.
In this time of rising valuations, is the portfolio management team still able
to find attractive value opportunities?
Yes. We believe that the valuations of the portfolio holdings are quite
attractive on an absolute basis, as well as relative to the overall market.
Finding undervalued opportunities is an appropriate element of the fund's
investment strategy. While the current frenzy in Internet-related stocks seems
to make valuation comparisons irrelevant, we continue to believe that our focus
of searching for undervalued securities has the potential to be rewarding for
the shareholders.
4
<PAGE>
Flagship Utility Income Fund
Performance Overview
As of December 31, 1998
Top Five Common Stocks (as a % of common stock holdings)
<TABLE>
<S> <C>
Ameritech Corporation 7.5%
............................................
Sprint Group (FON Group) 6.6%
............................................
AT&T Corp. 5.9%
............................................
CMS Energy Corporation 5.7%
............................................
Carolina Power & Light Company 5.6%
............................................
</TABLE>
1998 Monthly Dividend History (Class A Shares)
[BAR CHART APPEARS HERE]
January 0.05290
February 0.05290
March 0.05290
April 0.05290
May 0.05290
June 0.05290
July 0.05290
August 0.05290
September 0.05290
October 0.05290
November 0.05290
December 0.05290
Fund Highlights
<TABLE>
<CAPTION>
Share Price A B C R
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 8/83 12/98 7/93 12/98
..............................................................................
Net Asset Value $13.64 $13.64 $13.60 $13.64
..............................................................................
Total Net Assets ($000) $25,129
..............................................................................
Average Market Capitalization of Common Stocks in Portfolio $23.1 billion
..............................................................................
Expense Ratio (A Shares after reimbursement) 1.20%
..............................................................................
</TABLE>
Annualized Total Return/1/
<TABLE>
<CAPTION>
Share Class A (On NAV) A (On Offer) C
- ------------------------------------------------------------------
<S> <C> <C> <C>
1-Year 8.12% 1.89% 7.40%
..................................................................
3-Year 12.48% 10.27% 11.84%
..................................................................
5-Year 10.86% 9.56% 10.25%
..................................................................
10-Year/2/ 8.80% 8.16% 8.20%
- ------------------------------------------------------------------
</TABLE>
1 Returns for Class A are actual. Returns for Class C are actual for the period
since inception and prior to class inception are the returns for Class A,
adjusted for the difference in sales charge and expenses. Class A shares have
a 5.75% maximum sales charge. Class C shares have a 1% CDSC for redemptions
within one year, which is not reflected in the 1-year total return.
2 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.
5
<PAGE>
Shareholder Meeting Report
<TABLE>
<CAPTION>
Class A Shares Class C Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Approval of Changes to
Fund's Fundamental Policies
- --------------------------------------------------------------------------------
For 690,138 162,579
Against 70,275 21,983
Abstain 27,668 9,271
Broker Non-votes 136,404 19,932
-----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Approval of a New Advisory
Agreement
- --------------------------------------------------------------------------------
For 698,848 166,463
Against 55,985 14,527
Abstain 33,248 12,843
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Approval of a New
Rule 12b-1 Plan
- --------------------------------------------------------------------------------
For 689,142 154,039
Against 60,256 20,093
Abstain 38,683 19,701
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Approval of Tax-Free
Reorganization into New Fund
- --------------------------------------------------------------------------------
For 879,038 199,242
Against 39,630 13,230
Abstain 41,060 14,385
Broker Non-votes 90,520 5,806
----------------------------------------------------------------------------
Total 1,050,248 232,663
- --------------------------------------------------------------------------------
Ratification of Election to
Board of Trustees
- --------------------------------------------------------------------------------
James E. Bacon
For 1,009,759 213,288
Withhold 40,489 19,375
----------------------------------------------------------------------------
Total 1,050,248 232,663
- --------------------------------------------------------------------------------
Anthony T. Dean
For 1,008,716 213,288
Withhold 41,532 19,375
----------------------------------------------------------------------------
Total 1,050,248 232,663
- --------------------------------------------------------------------------------
William L. Kissick
For 1,008,878 213,288
Withhold 41,370 19,375
----------------------------------------------------------------------------
Total 1,050,248 232,663
- --------------------------------------------------------------------------------
Thomas E. Leafstrand
For 1,007,835 213,288
Withhold 42,413 19,375
----------------------------------------------------------------------------
Total 1,050,248 232,663
- --------------------------------------------------------------------------------
Sheila W. Wellington
For 1,009,759 213,288
Withhold 40,489 19,375
----------------------------------------------------------------------------
Total 1,050,248 232,663
- --------------------------------------------------------------------------------
Approval of changes to fundamental policies concerning:
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
For 719,559 169,034
Against 44,392 9,293
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Borrowing
- --------------------------------------------------------------------------------
For 717,395 167,734
Against 46,556 10,593
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- -------------------------------------------------------------------------------
Senior Securities
- -------------------------------------------------------------------------------
For 714,667 169,034
Against 49,284 9,293
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Underwriting
- --------------------------------------------------------------------------------
For 715,928 169,034
Against 48,023 9,293
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Real Estate
- --------------------------------------------------------------------------------
For 715,928 167,734
Against 48,023 10,593
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Commodities
- --------------------------------------------------------------------------------
For 711,341 169,034
Against 52,610 9,293
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Loans
- --------------------------------------------------------------------------------
For 713,764 169,034
Against 50,187 9,293
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Investment Companies
- --------------------------------------------------------------------------------
For 717,941 167,734
Against 46,556 10,593
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 925,031 213,765
- --------------------------------------------------------------------------------
Short Sales and Margin Purchases
- --------------------------------------------------------------------------------
For 710,180 167,382
Against 53,771 10,945
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Affiliate Purchases
- --------------------------------------------------------------------------------
For 712,803 167,382
Against 51,148 10,945
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Pledges
- --------------------------------------------------------------------------------
For 716,434 167,382
Against 47,517 10,945
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
- --------------------------------------------------------------------------------
Illiquid Securities
- --------------------------------------------------------------------------------
For 710,180 167,382
Against 53,771 10,945
Abstain 24,130 15,506
Broker Non-votes 136,404 19,932
----------------------------------------------------------------------------
Total 924,485 213,765
</TABLE>
6
<PAGE>
Portfolio of Investments (Unaudited)
Flagship Utility Income Fund
December 31, 1998
<TABLE>
<CAPTION>
Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 50.7%
Energy - 4.1%
10,000 Natural Fuel Gas Company $ 451,875
10,000 Sonat Incorporated 270,625
10,000 Williams Companies Incorporated 311,875
- --------------------------------------------------------------------------------
Financials - 4.2%
9,500 Boston Properties, Inc. 289,750
20,000 Camden Property Trust 520,000
10,000 Equity Office Properties Trust 240,000
- --------------------------------------------------------------------------------
Utilities - 42.4%
10,000 AT&T Corp. 752,500
15,000 Ameritech Corporation 950,625
15,000 CMS Energy Corporation 726,563
15,200 Carolina Power & Light Company 715,350
31,200 Dayton Power & Light Company 674,700
15,050 DQE, Incorporated 661,259
10,000 Enron Corporation 570,625
10,000 GTE Corporation 650,000
20,000 LG&E Energy Corp. 566,250
20,000 MCN Corporation 381,250
25,000 Pacificorp 526,563
17,000 Piedmont Natural Gas Company, Inc. 614,125
20,000 Rochester Gas & Electric Company 625,000
10,000 The Southern Company 290,625
10,000 Sprint Corporation (FON Group) 841,250
5,000 Sprint Corporation (PCS Group) 115,625
10,000 Texas Utilities Company 466,875
9,900 Wicor, Inc. 215,944
10,000 Wisconsin Energy Corporation 314,374
- --------------------------------------------------------------------------------
Total Common Stocks - (cost $10,106,511) 12,743,628
-----------------------------------------------------------------
</TABLE>
7
<PAGE>
Portfolio of Investments (Unaudited) (continued)
Flagship Utility Income Fund
December 31, 1998
<TABLE>
<CAPTION>
Shares Description Market Value
- --------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS - 34.9%
Capital Goods - 2.3%
22,804 Textron Capital (7.920%) $ 577,226
- --------------------------------------------------------------------------------
Energy - 6.0%
30,000 The Coastal Corporation, Coastal Finance I (8.375%) 738,750
30,000 Equitable Resources, Incorporated (7.350%) 757,500
- --------------------------------------------------------------------------------
Financials - 5.1%
25,000 Bank America Corporation (7.000%) 639,063
25,000 Chase Capital IV (7.340%) 640,625
- --------------------------------------------------------------------------------
Utilities - 21.5%
20,000 GTE Delaware (9.250%) 512,500
20,000 Illinois Power Company (9.450%) 513,750
20,000 MCI Capital I (8.000%) 517,500
30,000 MCN Michigan Limited Partnership (9.375%) 765,000
20,000 MediaOne Financing Trust III (9.040%) 512,500
30,000 Metropolitan Edison (9.000%) 763,125
20,000 Mission Capital L P (9.875%) 518,750
26,875 Pacific Telesis Group (7.560%) 680,273
25,000 Penelec Capital Limited Partnership (8.750%) 632,813
- --------------------------------------------------------------------------------
Total Preferred Stocks - (cost $8,640,883) 8,769,375
-----------------------------------------------------------------
Principal
Amount Description Market Value
- --------------------------------------------------------------------------------
Corporate Bonds - 8.4%
Capital Goods - 1.9%
$ 525,000 Interpool Capital Trust, 9.875%, 2/15/27 463,672
- --------------------------------------------------------------------------------
Consumer Cyclical - 4.1%
1,000,000 TRW Incorporated, 6.250%, 1/15/10 1,025,741
- --------------------------------------------------------------------------------
Utilities - 2.4%
600,000 Sprint Capital Corporation, 6.15%, 11/15/08 613,339
- --------------------------------------------------------------------------------
Total Corporate Bonds - (cost $2,027,692) 2,102,752
-----------------------------------------------------------------
Total Investments - (cost $20,775,086) - 94.0% 23,615,755
-----------------------------------------------------------------
Other Assets Less Liabilities - 6.0% 1,513,282
-----------------------------------------------------------------
Net Assets - 100% $25,129,037
=================================================================
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Statement of Net Assets (Unaudited)
December 31, 1998
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Assets
Investment securities, at market value (cost $20,775,086) (note 1) $ 23,615,755
Cash 1,345,755
Receivables:
Dividends and interest 147,037
Shares sold 3,000
Other assets 68,624
- --------------------------------------------------------------------------------
Total assets 25,180,171
- --------------------------------------------------------------------------------
Liabilities
Payable for shares redeemed 273
Accrued expenses:
Management fees (note 6) 10,579
12b-1 distribution and service fees (notes 1 and 6) 6,748
Other 33,534
- --------------------------------------------------------------------------------
Total liabilities 51,134
- --------------------------------------------------------------------------------
Net assets (note 7) $ 25,129,037
================================================================================
Class A Shares (note 1)
Net assets $ 19,730,293
Shares outstanding 1,446,887
Net asset value and redemption price per share $ 13.64
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price)* $ 14.24
================================================================================
Class B Shares (note 1)
Net assets $ 1,500
Shares outstanding 110
Net asset value, offering and redemption price per share $ 13.64
================================================================================
Class C Shares (note 1)
Net assets $ 5,395,744
Shares outstanding 396,702
Net asset value, offering and redemption price per share $ 13.60
================================================================================
Class R Shares (note 1)
Net assets $ 1,500
Shares outstanding 110
Net asset value, offering and redemption price per share $ 13.64
================================================================================
</TABLE>
* Effective after the close of business on December 31, 1998, the maximum sales
charge on Class A Shares was increased from 4.20% to 5.75%. The offering
price of Class A Shares at the 5.75% maximum sales charge on December 31,
1998, would have been $14.47 per share.
See accompanying notes to financial statements.
9
<PAGE>
Statement of Operations (Unaudited)
Six Months Ended December 31, 1998
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Investment Income (note 1)
Dividends $ 617,878
Interest 107,615
- --------------------------------------------------------------------------------
Total investment income 725,493
- --------------------------------------------------------------------------------
Expenses
Management fees (note 6) 62,384
12b-1 service fees - Class A (notes 1 and 6) 19,514
12b-1 distribution and service fees - Class C (notes 1 and 6) 20,399
Shareholders' servicing agent fees and expenses 35,658
Custodian's fees and expenses 21,066
Directors' fees and expenses (note 6) 765
Professional fees 5,423
Shareholders' reports - printing and mailing expenses 22,778
Federal and state registration fees 11,540
Other expenses 2,746
- --------------------------------------------------------------------------------
Total expenses 202,273
- --------------------------------------------------------------------------------
Net investment income 523,220
- --------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 711,215
Net change in unrealized appreciation or depreciation of investments 412,822
- --------------------------------------------------------------------------------
Net gain from investments 1,124,037
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 1,647,257
================================================================================
</TABLE>
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
12/31/98 6/30/98
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 523,220 $ 1,244,577
Net realized gain from investment
transactions (notes 1 and 4) 711,215 2,296,988
Net change in unrealized appreciation
or depreciation of investments 412,822 990,857
- -------------------------------------------------------------------------------
Net increase in net assets from operations 1,647,257 4,532,422
- -------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (470,685) (1,033,890)
Class C (117,388) (259,894)
- -------------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (588,073) (1,293,784)
- -------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 505,812 1,302,662
Net proceeds from shares issued to
shareholders due to reinvestment of
distributions 288,815 839,065
- -------------------------------------------------------------------------------
794,627 2,141,727
- -------------------------------------------------------------------------------
Cost of shares redeemed (2,444,215) (5,372,175)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions (1,649,588) (3,230,448)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets (590,404) 8,190
Net assets at the beginning of period 25,719,441 25,711,251
- -------------------------------------------------------------------------------
Net assets at the end of period $25,129,037 $25,719,441
===============================================================================
Balance of undistributed (over-distributed)
net investment income at end of period $ (52,337) $ 12,516
===============================================================================
</TABLE>
See accompanying notes to financial statements.
10
<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.
Effective after the close of business on December 31, 1998, the Corporation and
the Fund changed their names to Nuveen Taxable Funds Inc. and Nuveen Dividend
and Growth Fund, respectively. The Fund also changed the way in which it will
pursue its investment objective. The Dividend and Growth Fund will invest the
majority of fund assets in fixed-income securities with varying maturities. The
balance of fund assets will be invested primarily in stocks of established,
well-known companies.
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.
Effective after the close of business on December 31, 1998, the prices used to
value fixed-income securities in the Portfolio of Investments are based on the
mean between the bid and ask prices as provided by an independent pricing
service. When price quotes are not readily available, the pricing service
establishes fair market value based on prices of comparable securities. Common
stocks and other equity securities are valued at the last sales price that day.
Securities not listed on a national securities exchange or Nasdaq are valued at
the most recent bid 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, 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.
11
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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 did not offer
Class B and R Shares until December 31, 1998. 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 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, 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. Actual results may differ
from those estimates.
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended 12/31/98 Year Ended 6/30/98
-------------------------- ----------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 32,109 $ 416,746 99,136 $ 1,259,086
Class B 110 1,500 -- --
Class C 6,527 86,066 3,043 43,576
Class R 110 1,500 -- --
Shares issued to shareholders
due to reinvestment of
distributions:
Class A 17,461 228,726 52,493 645,383
Class B -- -- -- --
Class C 4,599 60,089 15,831 193,682
Class R -- -- -- --
- ----------------------------------------------------------------------------------
60,916 794,627 170,503 2,141,727
- ----------------------------------------------------------------------------------
Shares redeemed:
Class A (135,161) (1,759,449) (370,411) (4,588,730)
Class B -- -- -- --
Class C (52,527) (684,766) (64,162) (783,445)
Class R -- -- -- --
- ----------------------------------------------------------------------------------
(187,688) (2,444,215) (434,573) (5,372,175)
- ----------------------------------------------------------------------------------
Net increase (decrease) (126,772) $(1,649,588) (264,070) $(3,230,448)
==================================================================================
</TABLE>
12
<PAGE>
3. Distributions to Shareholders
The Fund declared a dividend distribution from its net investment income which
was paid on February 1, 1999, to shareholders of record on January 8, 1999, as
follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $ .0990
Class B .0865
Class C .0865
Class R .1030
================================================================================
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investment securities, U.S.
government obligations and short-term investments for the six months ended
December 31, 1998, were as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Purchases:
Investment securities $ 6,936,266
U.S. government obligations 1,427,062
Short-term investments 2,997,244
Sales:
Investment securities 9,553,485
U.S. government obligations 1,400,380
Short-term investments 3,000,000
================================================================================
</TABLE>
At December 31, 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's last fiscal year end, 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 December 31, 1998, net unrealized appreciation aggregated $2,840,669 of which
$3,230,230 related to appreciated securities and $389,561 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>
Effective after the close of business on December 31, 1998, the Fund will pay 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 .7500 of 1%
For the next $125 million .7375 of 1
For the next $250 million .7250 of 1
For the next $500 million .7125 of 1
For the next $1 billion .7000 of 1
For net assets over $2 billion .6750 of 1
================================================================================
</TABLE>
13
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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.
Through December 31, 1998, the Adviser voluntarily reimbursed expenses from time
to time at its discretion. Effective after the close of business on December 31,
1998, the Adviser has agreed to waive fees and reimburse expenses through July
31, 1999, in order to prevent total operating expenses (excluding any 12b-1
distribution and service fees and extraordinary expenses) from exceeding .95% of
the average daily net asset value of any class of Fund shares.
During the six months ended December 31, 1998, the Distributor collected sales
charges on purchases of Class A Shares, the majority of which were paid out as
concessions to authorized dealers. The Distributor also received 12b-1 service
fees on Class A Shares, substantially all of which were paid to compensate
authorized dealers for providing services to shareholders relating to their
investments.
During the six months ended December 31, 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 $2,300 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 $200 of CDSC on share redemptions for the
six months ended December 31, 1998.
7. Composition of Net Assets
At December 31, 1998, the Fund had 200,000,000 shares of $.001 par value common
stock authorized. Net assets consisted of:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Capital paid-in $ 25,345,112
Balance of undistributed (over-distributed) net investment income (52,337)
Accumulated net realized gain (loss) from investment transactions (3,004,407)
Net unrealized appreciation of investments 2,840,669
- --------------------------------------------------------------------------------
Net assets $ 25,129,037
================================================================================
</TABLE>
14
<PAGE>
Financial Highlights (Unaudited)
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------- ---------------------------
Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
June 30, Value Income (a) (Loss) Total Income Gain Total Value Return (b)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (8/83)
1999 (e) $ 13.06 $.28 $ .62 $ .90 $ (.32) $ -- $(.32) $13.64 7.00%
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 B (12/98)
1999 (d) 13.64 -- -- -- -- -- -- 13.64 --
Class C (7/93)
1999 (e) 13.03 .25 .60 .85 (.28) -- (.28) 13.60 6.65
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)*
Class R (12/98)
1999 (d) 13.64 -- -- -- -- -- -- 13.64 --
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
Ratio of Investment Ratio of Investment
Expenses Income Expenses Income to
to Average to Average to Average Average
Ending Net Assets Net Assets Net Assets Net Assets
Net Before Before After After Portfolio
Year Ended Assets Reimburse- Reimburse- Reimburse- Reimburse- Turnover
June 30, (000) ment ment ment (a) ment (a) Rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (8/83)
1999 (e) $ 19,730 1.50%* 4.32%* 1.50%* 4.32%* 35%
1998 20,013 1.35 4.92 1.34 4.93 101
1997 20,157 1.54 5.41 .98 5.97 128
1996 25,010 1.45 5.35 .98 5.82 115
1995 25,000 1.52 6.00 1.00 6.52 159
1994 26,921 1.38 5.48 .94 5.92 193
Class B (12/98)
1999 (d) 2 -- -- -- -- 35
Class C (7/93)
1999 (e) 5,396 2.05* 3.75* 2.05* 3.75* 35
1998 5,707 1.90 4.38 1.89 4.39 101
1997 5,555 2.09 4.91 1.53 5.47 128
1996 6,302 2.00 4.79 1.52 5.27 115
1995 5,501 2.06 5.49 1.54 6.01 159
1994 (c) 5,129 2.04* 5.11* 1.46* 5.69* 193
Class R (12/98)
1999 (d) 2 -- -- -- -- 35
===============================================================================================================================
</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.
(d) Commencement of class operations was December 31, 1998.
(e) For the six months ended December 31, 1998.
15
<PAGE>
Building a Better Portfolio
Can Make You a Successful Investor
Nuveen Family
of Mutual Funds
Nuveen offers a variety
of funds designed to
help you reach your
financial goals.
Growth
Nuveen Rittenhouse
Growth Fund
Growth and
Income
European Value Fund
Growth and
Income Stock Fund
Balanced Stock
and Bond Fund
Balanced Municipal
and Stock Fund
Dividend and
Growth Fund
Income
Income Fund
Tax-Free Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
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 Investment Advisory Services. Each brings a
specialized expertise in a particular investment style or asset class,
time-tested investment strategies and a focus on consistent, long-term
performance. With Nuveen's Premier Adviser funds, you have all the advantages
of a family of funds plus the benefits of specialized investment expertise.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more to invest. A range of actively managed growth, balanced and municipal
income-oriented portfolios are available, all based upon a disciplined
investment philosophy.
Defined Portfolios
Nuveen Defined Portfolios are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, while also offering
experienced, professional security selection and surveillance. In addition,
Nuveen Defined Portfolios provide daily liquidity at that day's net asset value
for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
investment-grade quality municipal bonds. The fund shares are listed and traded
on the New York and American stock exchanges. Exchange-traded funds provide the
investment convenience, price visibility and liquidity of common stocks.
MuniPreferred(R)
Nuveen MuniPreferred offers investors a AAA rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
16
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Transfer Agent and
Shareholder Services
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Public
Accountants
Arthur Andersen LLP
Chicago, IL
17
<PAGE>
Serving Investors for Generations
[PHOTO OF JOHN NUVEEN, SR., APPEARS HERE]
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today we offer a broad range of
quality investments designed for individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them pursue their financial goals.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time. 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, income, and tax-free income funds, along with our defined portfolios
and private asset management, can help you build a better, well-diversified
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
