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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------- ------
Commission file number 1-11123
THE JOHN NUVEEN COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-3817266
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 312-917-7700
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, $.01 par value New York Stock Exchange
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
-----
The aggregate market value of the outstanding Common Stock held by
non-affiliates of the Registrant on March 19, 1998 was $228,154,000.
The number of shares of the Registrant's Common Stock outstanding at March
19, 1998, was 31,893,551 consisting of 7,451,813 shares of Class A Common
Stock, $.01 par value, and 24,441,738 shares of Class B Common Stock, $.01 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1997 are incorporated by reference into Parts II and IV of
this report. Portions of Registrant's Proxy Statement relating to the annual
meeting of stockholders to be held May 7, 1998 are incorporated by reference
into Parts I and III of this report.
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PART I
ITEM 1. BUSINESS
GENERAL
The John Nuveen Company (together with its subsidiaries, the "Company")
specializes in the sponsorship, marketing and management of fixed income and
equity investment products, and in municipal and corporate investment banking
services. The Company sponsors investment products ("Investment Products"),
including unit investment trusts ("UITs"), mutual funds and money market funds
("Money Market Funds") (together, "Mutual Funds"), and closed-end funds that
issue common stock traded on stock exchanges in the United States and, in some
cases, also issue preferred stock ("MuniPreferred(R) Stock") ("Exchange-Traded
Funds").
The Company has five subsidiaries including John Nuveen & Co. Incorporated
("Nuveen & Co."), a registered broker and dealer in securities under the
Securities Exchange Act of 1934 and four investment advisory subsidiaries
registered under the Investment Advisers Act of 1940. These include Nuveen
Advisory Corp. ("NAC"), Nuveen Institutional Advisory Corp. ("NIAC"), Nuveen
Asset Management Inc. ("NAM") and Rittenhouse Financial Services, Inc.
("Rittenhouse"). NAC and NIAC provide investment advice to and administer the
business affairs of the Nuveen family of management investment companies. NAM
and Rittenhouse provide investment management services for individuals and
institutional investors, while Rittenhouse also acts as a sub-advisor and
portfolio manager to certain funds advised by NIAC.
The Company's principal businesses consist of sponsoring and providing
investment advisory, administrative and distribution services to the Mutual
Funds and Exchange-Traded Funds (together, "Managed Funds", the "Funds" or
"Nuveen Funds"), providing investment management services for individual and
institutional investment accounts ("Managed Accounts"), sponsoring and
distributing UITs and monitoring their portfolios, underwriting and trading
municipal bonds, and providing other municipal and corporate finance investment
banking services.
The Company is the successor to a business formed in 1898 by Mr. John
Nuveen to serve as an underwriter and trader of municipal bonds. This core
business was augmented in 1961 when the Company developed and introduced its
first tax-free UIT, which is a fixed portfolio of municipal securities selected
and purchased by the Company and deposited in a trust. The Company introduced
its first tax-free Mutual Fund in 1976 (the year in which Congress first
permitted management investment companies investing in municipal securities to
pay dividends that retain their tax-exempt character), its first tax-free Money
Market Fund in 1981, and its first tax-free Exchange-Traded Fund in 1987. The
Company began providing individual managed account services to investors in
early 1995 and sponsored its first taxable equity Mutual Fund during 1996.
The Company expanded its UIT product line in mid 1997 to include UITs in
which the underlying trust assets were comprised of equities, treasury bonds
and corporate bonds.
On January 2, 1997, the Company completed the acquisition of Flagship
Resources Inc. ("Flagship") and its wholly owned subsidiaries, Flagship
Financial Inc., a registered investment adviser under the Investment Advisers
Act of 1940, and Flagship Funds Inc., a registered broker-dealer under the
Securities Exchange Act of 1934. At December 31, 1996, Flagship managed over
$4.2 billion in predominantly tax-exempt, open-end mutual funds and
approximately $400 million in managed accounts for individual investors. Upon
the completion of the acquisition, Flagship Financial Inc. became a wholly
owned subsidiary of the Company and changed its name to Nuveen Asset Management
Inc. NAM now is primarily responsible for providing private investment
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management services to individual and institutional managed accounts with both
balanced portfolios of equity and municipal securities and portfolios invested
exclusively in municipal securities. Flagship Funds Inc. was combined into the
Company's broker/dealer subsidiary.
On August 31, 1997 the Company completed the acquisition of Rittenhouse
Financial Services, a nationally known equity and balanced account manager.
Rittenhouse specializes in managing individual portfolios for high net worth
individuals. Rittenhouse's main products are equity and balanced portfolios
that seek attractive long-term capital appreciation with moderate risk through
investments primarily in quality, large capitalization companies. Rittenhouse
managed approximately $9 billion in assets at the acquisition date. It is
maintained as a separate wholly-owned subsidiary of the Company.
The Company was incorporated in the State of Delaware on March 23, 1992 as
a wholly-owned subsidiary of The St. Paul Companies, Inc. ("St. Paul"). Nuveen
& Co., the predecessor of the Company, had been a wholly-owned subsidiary of
St. Paul since 1974. During 1992, St. Paul sold in a public offering a portion
of its ownership interest in the Company. As of the date of this report, St.
Paul owned approximately 77% of the outstanding voting securities of the
Company.
The following series of tables including Assets Under Management, Gross
Sales of Investment Products, Redemptions, and Investment Advisory Fees,
provide detailed financial data which should be helpful in understanding the
Company's Investment Products businesses and should be referred to while
reading the separate product discussions which follow the tables.
ASSETS UNDER MANAGEMENT
The following table shows net assets managed by the Company at December 31
of each of the past three years including Managed Funds and Managed Accounts.
The Company does not include UITs under surveillance in net assets under
management since the trusts are not actively managed and do not generate on
going advisory fees.
NET ASSETS UNDER MANAGEMENT
(IN MILLIONS)
December 31,
-------------------------
1997 1996 1995
------- ------- -------
Managed Funds
Mutual Funds -Tax-Free...................... $ 9,753 $ 5,434 $ 5,457
Mutual Funds -Taxable....................... 1,132 496 -
Exchange-Traded Funds - Tax-Free ........... 26,117 25,434 25,784
Money Market Funds - Tax-Free .............. 970 1,004 1,113
Managed Accounts.............................. 11,622 823 688
------- ------- -------
Total................................. $49,594 $33,191 $33,042
======= ======= =======
Mutual Funds - Tax-Free reported in 1997 include $4.2 billion in assets
formerly managed by Flagship prior to its acquisition by the Company on January
2, 1997. Included in Managed Accounts at December 31, 1997 are approximately
$10 billion in assets managed by Rittenhouse.
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GROSS SALES OF INVESTMENT PRODUCTS
The following table summarizes gross sales data for the Company for the past
three years including UITs, Managed Funds and Managed Accounts.
GROSS SALES OF INVESTMENT PRODUCTS
(IN THOUSANDS)
Year Ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
UIT (par value):
Primary UITs - Tax-Free $ 555,743 $ 812,813 $ 943,829
.......................
Primary UITs - Taxable 82,352 - -
.......................
Secondary UITs......... 118,944 150,326 148,859
---------- ----------- -----------
Total................. $ 757,039 $ 963,139 $1,092,688
---------- ----------- -----------
Managed Funds:
Mutual Funds:
Tax-Free.............. $ 600,240 $ 154,159 $ 179,281
Taxable............... 350,377 494,533 -
---------- ----------- -----------
Total................ $ 950,617 $ 648,692 $ 179,281
---------- ----------- -----------
Exchange-Traded Funds.. $ 125,000 $ - $ -
---------- ----------- -----------
Total Managed Funds... $1,075,617 $ 648,692 $ 179,281
---------- ----------- -----------
Managed Accounts....... $1,192,904 $ 134,573 $ 346,010
---------- ----------- -----------
Total Gross Sales...... $3,025,560 $1,746,404 $1,617,979
========== =========== ===========
Sales of Mutual Funds in 1997 reflect, in part, contributions from the
distribution and sales staff acquired by the Company from Flagship. Sales of
Taxable Mutual Funds in 1996 are exclusively those of the Nuveen Growth and
Income Stock Fund sold through a special offering to current Nuveen and
Flagship fund shareholders and to current Nuveen unit trust holders. Managed
Account sales in 1997 include four months of Rittenhouse activity.
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REDEMPTIONS
The following table summarizes redemptions for Managed Funds and Managed
Accounts for the past three years. Exchange-Traded Funds are traded on the
national securities exchanges and do not continually offer to sell or redeem
their shares and are therefore not included in this table. Redemptions of
Mutual Funds - Tax-Free during 1997 includes redemptions from both Nuveen and
former Flagship fund shareholders. The acquisition of Flagship in 1997
increased the Company's tax-free mutual fund assets under management by
approximately 74%.
REDEMPTIONS
(IN THOUSANDS)
Year Ended December 31,
-------------------------------
1997 1996 1995
----------- -------- --------
Managed Funds:
Mutual Funds - Tax-Free ....... $1,136,935 $644,071 $577,546
Mutual Funds - Taxable ........ 96,923 5,146 -
----------- -------- --------
Total......................... $1,233,858 $649,217 $577,546
----------- -------- --------
Managed Accounts................ $ 471,578 $ - $ -
----------- -------- --------
Total........................... $1,705,436 $649,217 $577,546
=========== ======== ========
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INVESTMENT ADVISORY FEES
Management fees earned from assets managed by the Company for each of the
past three years including Mutual Funds, Exchange-Traded Funds and Managed
Accounts, are shown in the following table. UITs sold by the Company do not
generally produce ongoing advisory fees.
INVESTMENT ADVISORY FEES
(IN THOUSANDS)
Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ----------- -----------
Managed Funds:
Mutual Funds:
Management fees .......................... $ 51,562 $ 26,124 $ 24,809
Less: Reimbursed expenses ............... (5,753) (629) (897)
---------- ----------- -----------
Net management fees ..................... $ 45,809 $ 25,495 $ 23,912
---------- ----------- -----------
Exchange-Traded Funds:
Management fees .......................... $156,392 $155,172 $153,777
---------- ----------- -----------
Money Market Funds:
Management fees .......................... $ 4,317 $ 4,925 $ 5,359
Less: Reimbursed expenses ............... (516) (495) (336)
---------- ----------- -----------
Net management fees ..................... $ 3,801 $ 4,430 $ 5,023
---------- ----------- -----------
Total Managed Funds .................... $206,002 $185,097 $182,712
---------- ----------- -----------
Managed Accounts:
Advisory fees ............................. $ 15,633 $ 748 $ 423
---------- ----------- -----------
Total.................................... $221,635 $185,845 $183,135
========== =========== ===========
THE NUVEEN MANAGED FUNDS
OVERVIEW
At December 31, 1997, approximately 77% of the Investment Products managed
by the Company were invested in portfolios of tax-exempt municipal bonds.
While the investment objectives of these Funds vary, each has a primary
investment objective to provide as high a level of current interest income
exempt from regular federal (and in some cases, state and local) income tax as
is consistent with preservation of capital. Each municipal bond Mutual Fund has
historically invested substantially all of its assets in a diversified portfolio
of municipal bonds which are rated within the four highest investment grades.
Taxable Mutual Funds include Funds which may invest in equity and other
taxable securities as well as tax-exempt securities. The Nuveen Growth and
Income Stock Fund, first introduced during 1996 seeks to provide over time a
superior return from a diversified portfolio consisting primarily of
under-valued equity securities with market capitalizations of at least $500
million. During 1997, the Company introduced and marketed two new taxable funds
including a balanced municipal bond and stock fund and a balanced stock and
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bond fund. Also early in 1998, the Company began marketing the Nuveen
Rittenhouse Growth Fund. This fund invests in a portfolio of equity securities
of U.S.-based large capitalization companies that have a history of consistent
earnings and dividend growth.
The Mutual Funds continually offer to sell and redeem their shares at
prices based on the daily net asset values of their portfolios. The Mutual
Funds are actively managed and include tax-free insured and uninsured
nationally-diversified and state-specific portfolios, growth and balanced
taxable portfolios, and several Money Market Funds. Money Market Funds are
tax-free Mutual Funds that invest solely in short-term, liquid and relatively
low-risk securities and seek to maintain a stable net asset value of $1 per
share.
The Exchange-Traded Funds invest exclusively in tax-free investment
portfolios which are also actively-managed; these funds, however do not
continually offer to sell and redeem their shares. Rather, daily liquidity is
provided by the ability to trade the shares of these funds on the national
securities exchanges, at a price that may be above or below the share's net
asset value. The Exchange-Traded Funds include insured and uninsured national
and single-state funds. Most of the Exchange-Traded Funds have a "leveraged"
capital structure; these funds issue MuniPreferred Stock that pay dividends at
rates based on short-term tax-free interest rates, while the capital raised by
the sale of the MuniPreferred Stock is invested by the funds in longer-term
municipal securities. So long as the return provided by these longer-term
investments, net of expenses, exceeds the current dividend rate on the
preferred stock, investors in the common stock of leveraged funds realize a
higher rate of return than if the fund were not leveraged. Leverage results,
however, in greater volatility of the net asset value of shares of common stock
of leveraged funds and possibly in their market value as well. In addition,
fluctuations in the preferred stock dividend rate will affect the return to
holders of common stock. To the extent that the dividend rate on the preferred
stock increases (e.g., in the event of a rise in short-term interest rates),
the income to fund dividends for common shareholders will be reduced. If the
preferred stock dividend rate were to exceed the rate of return on the
investment portfolio for an extended period, holders of common stock would
realize a lower rate of dividend return than if the fund were not leveraged.
The Exchange-Traded Funds also include a managed fund containing bonds
with intermediate effective maturity characteristics (the "Select Maturities
Fund"), and the Select Portfolios (the "Portfolios"), a series of investment
portfolios which are managed for stability of income and, unlike the other
Nuveen Exchange-Traded Funds, have a finite life and provide for a liquidating
distribution of assets to investors upon reaching a fixed termination date.
The common shares of most of the Exchange-Traded Funds are listed on the
New York Stock Exchange; the shares of the remaining Funds are listed on the
American Stock Exchange. The common shares of the Exchange-Traded Funds trade
in the open market at a price that is influenced by several factors including
supply and demand, net asset value and yield. Common shares of the
Exchange-Traded Funds may trade at a premium or a discount to net asset value.
During 1997 some Exchange-Traded Fund shares traded at a discount while others
traded at a premium to net asset value. Furthermore, some fund shares traded
at both premiums during certain periods of the year and at discounts during
other periods. The Board of Directors of each Exchange-Traded Fund has
determined that, at least annually, it will consider action that might be taken
to reduce or eliminate any sustained material discount to net asset value at
which such shares may be trading. This action may include the repurchase of
such shares in the open market or in private transactions, the making of a
tender offer for such shares at net asset value, or a proposal to the
shareholders to convert the Fund to an open-end investment company. The
consequence of any
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such action, if taken, could be a reduction in both the aggregate net assets of
the Exchange-Traded Funds and in the management fee paid by such Funds to NAC
or NIAC.
The Nuveen Funds include five Money Market Funds. These funds seek to
maintain a stable net asset value of $1.00 per share. Although under no legal
obligation to do so, in the past some money market fund managers, including the
Company, have voluntarily, and at their own expense, taken action to protect
the value of fund assets when portfolio bond credit or related financial
guarantees have deteriorated. These actions have included, in the case of
several money market fund sponsors, purchasing securities from the fund
portfolio at par, and in the case of the Company, arranging for supplemental
credit and liquidity enhancements in order to preserve the value of the fund's
investment. Although the Company is under no obligation to do so,
circumstances may arise in the future in which the Company may determine to
take similar action; such action could involve substantial expense to the
Company.
The Money Market Funds managed by the Company have obtained commitments
(each, a "Commitment") from MBIA Insurance Corporation ("MBIA") with respect to
certain designated bonds held by the Money Market Funds for which credit
support is furnished by banks ("Approved Banks") approved by MBIA under its
established credit approval standards. Under the terms of a Commitment, if
NAC were to determine that certain adverse circumstances relating to the
financial condition of an Approved Bank had occurred, it could cause MBIA to
issue a "while-in-fund" insurance policy covering the underlying bonds; after
time and subject to further terms and conditions, the adviser could obtain from
MBIA an "insured-to-maturity" insurance policy as to the covered bonds. Each
type of insurance policy would insure timely payment of interest on the bonds
and payment of principal at maturity. Although such insurance would not
guarantee the market value of the bonds or the value of the Money Market Funds'
shares, the Company believes that the ability to obtain insurance for such
bonds under such adverse circumstances would enable the Money Market Funds to
hold or dispose of such bonds at a price at or near their par value.
ADVISORY FEES
NAC and NIAC provide investment management services to the Funds and the
Portfolios, pursuant to investment management agreements, and receive fees
based on each Fund's average daily net assets or on a combination of the
average daily net assets and gross interest income. Institutional Capital
Corporation ("ICAP") performs portfolio management services on behalf of three
of the equity Mutual Funds pursuant to a sub-advisory agreement with NIAC.
Rittenhouse, a wholly-owned subsidiary of the Company, performs portfolio
management services for the Nuveen Rittenhouse Growth Fund pursuant to a
sub-advisory agreement with NIAC.
The Company's management fee schedules currently provide for maximum fees
ranging from .40 of 1% to .50 of 1% of net asset value annually in the case of
the Money Market Funds, .45 of 1% to .55 of 1% in the case of the tax-free
Mutual Funds and .50 of 1% to .85 of 1% in the case of the taxable Mutual
Funds. Maximum fees in the case of the Exchange-Traded Funds currently range
from .50 of 1% to .65 of 1%, except that with respect to the Portfolios, the
investment management agreements provide for annual management fees ranging
from .25 of 1% to .30 of 1%. In each case, the management fee schedules
provide for reductions in the fee rate at greater asset levels.
The Company pays ICAP, the sub-adviser for the Nuveen Growth and Income
Stock Fund and two balanced funds, a portfolio management fee for sub-advisory
services based on the aggregate amounts of assets in all funds they sub-advise
at a maximum rate of .35 of 1% of the average daily equity net assets of the
funds and a maximum fee of .20 of 1% with respect to the average daily balance
of any taxable fixed-income investments in the funds. These rates decline when
specified asset levels are reached.
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INVESTMENT MANAGEMENT AGREEMENTS
Each Fund has entered into an investment management agreement with NAC or
with NIAC (each, an "Adviser"). Although the specific terms of each such
agreement vary, the basic terms of the agreements are similar. Pursuant to the
agreements, the Adviser provides overall management services to each of the
Funds, subject to the supervision of each Fund's Board of Directors and in
accordance with each Fund's fundamental investment objectives and policies.
The investment management agreements are approved by Fund shareholders and
their continuance must be approved annually by the directors of the respective
Funds, including a majority of the directors who are not "interested persons"
of the Adviser, as defined in the Investment Company Act. Amendments to such
agreements typically must be approved by Fund shareholders. Each agreement
may be terminated without penalty by either party upon 60 days written notice,
and terminates automatically upon its assignment (as defined in the Investment
Company Act and the Investment Advisers Act). Such an "assignment" will take
place in the event of a change in control of the Adviser. Under the Investment
Company Act, a change in control of the Adviser would be deemed to occur in the
event of certain changes in the ownership of the Company's voting stock. The
termination of the investment management agreements for any reason could have a
material effect on the Company's business and results of operations.
Each Fund bears all expenses associated with its operation and the
issuance and, in the case of the Money Market and Mutual Funds, redemption of
its securities, except for the compensation of directors and officers of the
Fund who are employed by the Company and/or the Adviser. Some investment
management agreements provide that, to the extent certain enumerated expenses
exceed a specified percentage of a Fund's or a Portfolio's average net assets
for a given year, the Adviser will absorb such excess through a reduction in
the management fee and, if necessary, pay such expenses so that the
year-to-date net expense will not exceed the specified percentage. In
addition, the Company may waive all or a portion of its advisory fee to a Fund,
and reimburse expenses, for competitive reasons. During 1997, the expense
ratios specified under these arrangements ranged from .45% for certain of the
Money Market Funds, to .75% for certain of the tax-free long-term Mutual Funds,
to .975% for long-term tax-free Mutual Funds whose portfolio bonds are insured
by a third party insurer. Expense limits on the taxable mutual funds sponsored
by the Company range from .85% to 1.10% of the funds' average net assets. The
Company reimbursed expenses for Mutual Funds and Money Market Funds including
voluntary waivers aggregating to $6,269,000 during the year ended December 31,
1997. Although the Company expects to continue voluntary waivers in the future
in order for the Company's products to remain competitive in the market, it
does not expect such amounts will have a material effect on the results of its
operations.
PORTFOLIO MANAGEMENT AND RESEARCH
Each Adviser is responsible for the execution of the investment policy of
the various Funds it advises. Investment decisions for each Fund are made by
the portfolio manager responsible for such Fund. The Company has a very low
turnover rate for its portfolio managers, and the majority of the Company's
portfolio managers have devoted most of their professional careers to municipal
securities within the Nuveen organization, including experience in financial
analysis, research and surveillance, institutional and broker-dealer sales,
securities trading, and competitive and negotiated underwriting. To support
these managers, the Company maintains a municipal research department. The
Company's principal method of securities evaluation is through fundamental
research and valuation analysis.
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With respect to certain of the taxable Mutual Funds, the Company has
entered into sub-advisory agreements with ICAP, a Chicago based institutional
money manager, or with Rittenhouse to perform portfolio advisory services. ICAP
employs a value-oriented approach to selecting securities for the investment
portfolios. Investment decisions are made through a team approach, with all of
the ICAP investment professionals contributing to the process. A key element in
the decision making process is a formal investment committee meeting generally
held each business day and attended by all the investment professionals.
Investment recommendations are presented to the committee for decisions. These
meetings also provide for ongoing review of ICAP's investment positions. ICAP
has managed separate private accounts since 1971. Rittenhouse uses a
disciplined stock selection process that screens U.S. exchange listed stocks for
quality, liquidity and sustained growth potential. Only a small percentage of
stocks that pass these screens are purchased for the fund's portfolio.
Rittenhouse has been managing private accounts since 1983.
THE NUVEEN MANAGED ACCOUNTS
In addition to services provided to Mutual Funds, the Company, through its
wholly-owned subsidiaries NAM and Rittenhouse, also provides investment
management services for individuals and institutional accounts which the
Company refers to as Managed Accounts. At December 31, 1997, most of all such
assets under management were managed by Rittenhouse.
Through its Institutional Group, Private Client Group and Broker Sponsored
Group, Rittenhouse provides investment advisory services to individuals,
trusts, estates, charitable organizations, corporations, pension and profit
sharing plans, banks, thrifts and investment companies. Rittenhouse manages
accounts on a discretionary and non-discretionary basis.
Rittenhouse follows a growth stock strategy that centers on identifying
blue chip companies that are financially strong, global leaders and have
demonstrated consistent and predictable growth in earnings and dividends.
Services are provided to Managed Accounts pursuant to management contacts
with each of the individual accounts which may be customized to suit a
particular account. The Company generally receives fees based on the value of
the assets managed on a particular date such as the last calendar day of a
quarter.
UNIT INVESTMENT TRUSTS
OVERVIEW
The Company is a major sponsor of unit investment trusts. Each UIT
consists of a fixed portfolio of securities selected and purchased by the
Company and deposited in a trust. The trustee of the UITs is not affiliated
with the Company. Units of undivided beneficial interest in the portfolio of
securities are sold to investors at a price equal to the per unit market price
of the securities deposited in the trust plus a sales charge. UIT portfolios
are not actively traded; once the initial portfolio is deposited, securities
can be sold only for the purpose of raising cash to pay for units that have
been redeemed or sold pursuant to the Company's monitoring program; the
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proceeds of any securities sales must be distributed to unit holders. No new
securities may be added, and securities may be exchanged or substituted only
under extremely limited circumstances.
The Company created and introduced its first municipal bond UIT in 1961,
and since that date has deposited and sold units of more than 4,685 different
trusts with an aggregate principal value of approximately $37.3 billion. The
Company sponsors nationally diversified and single-state trusts, uninsured
trusts, trusts whose portfolio bonds are insured by a third party insurer, and
trusts of varying average portfolio maturities. At December 31, 1997, the
Company had approximately 3,400 trusts outstanding with an aggregate market
value exceeding $12 billion.
In May of 1997, the Company expanded its trust product line to include
taxable unit investment trusts. The Company presently offers units in series
of an equity trust, corporate debt trust and treasury securities trust. The
currently offered equity trust uses a model developed with the assistance and
expertise of Standard and Poor's that seeks to select a portfolio of common
stocks of companies with the potential for above average capital appreciation
with a moderated level of risk as compared to the S&P 500. The corporate debt
trust invests in a portfolio consisting primarily of investment grade corporate
debt obligations and zero coupon U.S. Treasury Obligations. The treasury
trusts invest a portfolio of U.S. Treasury Obligations that are backed by the
full faith and credit of the United States Government. In addition, these
trusts pass through to unitholders the exemption from state and local income
taxes afforded to direct owners of U.S. Treasury Obligations.
UIT REVENUES
The following table shows the Company's UIT revenues during each of the
last three years:
UIT REVENUES
(IN THOUSANDS)
Year Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
Distribution revenues:
Primary UITs-Tax-free..................... $7,192 $10,740 $12,633
Primary UITs-Taxable...................... 496 - -
Secondary UITs ........................... 1,701 2,010 1,565
-------- -------- --------
Total................................... $9,389 $12,750 $14,198
======== ======== ========
Units of the Company's UITs are sold to the public with a sales charge.
The Company's UIT revenues include the sales charge, less an applicable
concession to dealers for the placement of UIT units based on the public
offering price of the units sold. For certain equity trusts, the Company
receives a deferred sales charge over the ten month period following the
initial sale date.
The Company realizes profits or incurs losses to the extent that the
market price of securities deposited in a trust exceeds or is less than the
original cost of the securities to the Company. After the date of deposit, the
Company is the holder of all of the units of the particular trust series and
will realize profit or incur loss depending on whether the public offering
price of units increases or decreases before the units are sold. In connection
with the accumulation of bonds for deposit into newly created tax-free UITs,
the Company attempts to manage its exposure to interest rate
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fluctuations by, among other practices, coordinating inventory levels to the
rate of sale of various types of trusts and hedging through the use of futures
contracts.
MARKET MAKING
The Company maintains a secondary market in units of the UITs that it
sponsors, buying units at a price equal to their redemption value (equal to the
per unit "bid" side market price of the bonds in the trust) and selling them to
other dealers and financial intermediaries at a price equal to the per unit
"bid" side market price of the bonds in the trust plus a sales charge less a
dealer concession. The Company, like any other unitholder, can also tender
units it holds to the UIT trustee for redemption at their redemption value.
MARKETING AND DISTRIBUTION OF INVESTMENT PRODUCTS
DISTRIBUTION
The Company markets its investment products through registered
representatives ("Registered Representatives") associated with unaffiliated
national and regional broker-dealers, commercial banks and thrifts,
broker-dealer affiliates of insurance agencies and independent insurance
dealers, and financial planners, accountants, tax consultants and advisers
associated with registered broker-dealer firms ("Retail Distribution Firms").
The Company's distribution strategy is to maximize the liquidity and
distribution potential of its investment products by maintaining strong
relationships with a broad array of Registered Representatives. The Company
has well-established relationships with Registered Representatives in Retail
Distribution Firms throughout the country. Revenue associated with
relationships at any single Retail Distribution Firm did not account for as
much as 5% of the Company's consolidated revenues in 1997.
The Company currently has relationships with more than 100,000 Registered
Representatives at almost 4,000 Retail Distribution Firms. These Registered
Representatives participate in the Company's marketing programs to different
degrees, depending upon: their interests in distributing investments provided
by the Company; their perception of the relative attractiveness of the Nuveen
Funds and UITs; the profiles of their customers and their clients' needs; and
the conditions prevalent in financial markets. Registered Representatives may
reduce or eliminate involvement in any Nuveen marketing activity at any time,
or may elect to emphasize the investment products of competing sponsors, or the
proprietary products of their own firm. Registered Representatives may receive
compensation incentives to sell their firm's investment products or may choose
to recommend to their customers investment products sponsored by firms other
than the Company based on such considerations as investment performance, types
and amount of distribution compensation, sales assistance and administrative
service payments and level and quality of customer service. In addition, the
ability of Registered Representatives to distribute the Company's Mutual Funds
is subject to the continuation of a selling agreement between their firm and
the Company that is terminable by either party upon 60 days notice and does not
obligate the Retail Distribution Firm to sell any specific amount of Funds.
The Company currently has such selling agreements related to the Mutual Funds
with over 2,000 Retail Distribution Firms.
Shares of the Money Market Funds are sold to the public without sales
charges. However, each Money Market Fund (except the Nuveen Tax-Exempt Money
Market Fund, which is marketed primarily to institutions) has a plan adopted in
accordance with Rule 12b-1 under the Investment Company Act (each, a "Plan")
pursuant to which distributors of the Fund's shares are compensated for costs
associated with distribution and administrative services they perform. For the
year ended
11
13
December 31, 1997, approximately $620,000 in Plan fees were paid to
distributors of the Money Market Funds. Slightly more than half of such amount
was paid by the Company and the remainder was paid by the Money Market Funds.
All of the long-term Mutual Funds have adopted a Flexible Sales Charge
Program which provides investors with alternative ways of purchasing Fund
shares based upon their individual needs and preferences. Class A shares may
be purchased at a price equal to the Fund's net asset value plus an up-front
sales charge which is calculated as a percentage of the public offering price.
At the maximum sales charge level, approximately 90% to 95% of the sales charge
is typically reallowed as concessions to Retail Distribution Firms. From time
to time, the Company may reallow all of the sales charge to Retail Distribution
Firms or waive the sales charge and advance a sales commission to such Firms in
connection with marketing programs or special promotions. Additionally,
purchases of Class A shares which equal or exceed $1 million may be made
without an up-front sales charge, but are subject to a Contingent Deferred
Sales Charge of 1% for shares redeemed within 18 months. In order to compensate
Retail Distribution Firms for Class A share sales which are $1 million or
greater, the Company advances a 1% sales commission at the time of sale. Class
A shares are also subject to an annual Rule 12b-1 service fee, which is used to
compensate securities dealers for providing ongoing financial advice and other
services. Class B shares may be purchased at a price equal to the Fund's net
asset value without an up-front sales charge. Class B shares are subject to an
annual Rule 12b-1 distribution fee to compensate the Company for costs incurred
in connection with the sale of such shares, an annual Rule 12b-1 service fee
for the ongoing services of securities dealers and a Contingent Deferred Sales
Charge, ranging from 5% to 1%, for shares redeemed within a period of 6 years.
The Company compensates Retail Distribution Firms for sales of Class B shares
at the time of sale at the rate of 4% of the amount of Class B shares sold,
which represents a sales commission plus an advance of the first year's annual
Rule 12b-1 service fee. Class C shares may be purchased without any up-front
sales charges at a price equal to the Fund's net asset value but are subject to
an annual Rule 12b-1 distribution fee designed to compensate securities dealers
over time for the sale of the Fund shares, an annual Rule 12b-1 service fee
used to compensate securities dealers for providing continuing financial advice
and other services and a 1% Contingent Deferred Sales Charge for shares
redeemed within 12 months of purchase. In addition, the Company advances a 1%
sales commission to Retail Distribution Firms at the time of sale and in
return, receives the first year's Rule 12b-1 distribution fee and Rule 12b-1
service fee. Class R shares are available for purchase at a price equal to the
Fund's net asset value only under certain limited circumstances.
Common Shares of the Exchange-Traded Funds are sold to the public in
offerings that are underwritten by a syndication group. During the year ended
December 31, 1997 no such offerings were made. However, one Exchange-Traded
Fund did issue $125 million of MuniPreferred Stock during 1997.
Services are provided to Managed Accounts pursuant to management contacts
with each of the individual accounts which may be customized to suit a
particular account. The Company generally receives fees based on the value of
the assets managed on a particular date such as the last calendar day of a
quarter.
The typical sales charge for Nuveen UITs range from 1.75% to 4.9% of the
public offering price (1.78% to 5.15% of the net amount invested), with reduced
sales charges at various sales breakpoints. At the maximum sales charge level,
the dealer concession ranges from $1.00 to $3.20 per unit (a unit represents
$100 par value of bonds in a fixed-income trust and a $10 par value of bonds in
an equity trust). The sales charges for UITs in the secondary market are
established based on the number of years remaining to maturity for each bond in
the UIT.
The market for the sale of unit investment trusts is relatively
concentrated, with only a few sponsors accounting for a majority of total
sales. Based upon the information available, the Company believes it has been
one of the market share leaders in tax-free unit investment trust sales in each
of the last three years. During 1997, the Company entered the taxable unit
investment trust
12
14
market and believes that its sales of taxable unit investment trusts accounted
for less than a 5% share of this market based on the information available.
The markets for mutual funds and money market funds are highly competitive,
with many participating sponsors. Based upon the information available, the
Company believes that it had less than a 5% share of the market with respect to
net sales of mutual funds and money market funds in each of the last three
years.
RELATIONS WITH DISTRIBUTORS
The Company employs approximately 170 wholesalers and sales assistants who
are supported by the Company's marketing department. Wholesalers work closely
with individual Registered Representatives to develop their businesses. The
Company's wholesalers regularly visit distributors of the Company's Investment
Products to provide product information, explain new products and discuss ideas
to respond to particular investor concerns. The Company provides individual
Registered Representatives with daily prices, weekly, monthly and quarterly
sales bulletins, monthly product statistical and performance updates, product
education programs and training seminars, and promotional programs coordinated
with its advertising campaigns. In addition, the Company regularly coordinates
its marketing and promotional efforts with individual Registered
Representatives.
ADVERTISING AND PRODUCT PROMOTION
To generate investor and Registered Representative interest and
understanding of its Investment Products, the Company augments its marketing
efforts through magazine and newspaper advertising, targeted direct mail and
telemarketing sales programs and sponsorship of certain sports and civic
activities. For the year ended December 31, 1997, the Company expended $18.9
million on advertising and promotional efforts.
INVESTMENT BANKING
Nuveen & Co. underwrites and distributes municipal and corporate bonds,
trades bonds in the secondary market and serves as remarketing agent for
variable rate bonds. The majority of its underwritings are for governmental
and not-for-profit entities and substantially all of its sales are to
institutional investors including casualty insurance companies, managed
municipal bond funds, sponsors of unit investment trusts (including the
Company), bank portfolios, trust departments and other dealers. The
constituent departments of Investment Banking responsible for these activities
include Municipal Finance, Corporate Finance, Trading and Commitments, and
Institutional Sales. Both Corporate and Municipal Finance furnished
underwriting and/or strategic financial advisory services to health care
corporations. In addition, Investment Banking may, on occasion, act as
financial adviser and/or broker to municipal or other not-for-profit issuers
with respect to transactions in interest rate swaps, forward transactions or
other investment agreements.
The principal sources of revenue of Investment Banking include
underwriting profits and management fees derived from negotiated and
competitive bond underwritings, financial advisory fees, remarketing agent
fees, and profits from other principal transactions including secondary market
trading and furnishing investment securities to investment banking clients
incidental to their bond financing transactions.
Revenues from the underwriting of municipal securities and fees from
financial advisory and remarketing activities are set forth in the following
table for each of the last three years:
13
15
INVESTMENT BANKING REVENUES
(IN THOUSANDS)
Year Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
Underwriting Revenues........ $ 7,229 $ 5,154 $ 5,489
Merger and Acquisition and Other
Financial Advisory Fees..... 4,206 4,318 3,383
Remarketing Fees............. 1,974 1,626 1,462
-------- -------- --------
Total........................ $13,409 $11,098 $10,334
======== ======== ========
The Company is remarketing agent with respect to approximately 100 issues
of Variable Rate Demand Obligations ("VRDOs") representing an aggregate
principal value in excess of $1.8 billion. VRDOs are municipal bonds issued
with a longer term (typically 20-30 year) maturity, having variable rates of
interest and options granted to the holders to put the obligations to the
issuers on seven days notice and receive payments of the full principal
amounts. These obligations to pay are secured by letters of credit typically
issued by commercial banks. Periodically the remarketing agents, pursuant to
agreements with the issuers, reset the interest rates at a level that the
remarketing agent anticipates will permit them, as agents, to remarket at par
any VRDOs with respect to which a notice of put has been received. Although
remarketing agents, including the Company, generally are only obligated to use
their best efforts in locating purchasers for the VRDOs, they frequently
purchase VRDOs for resale to other buyers within a few days. During the period
that the Company holds any VRDOs, it has, like any holder, the unconditional
right secured by the letter of credit to put the obligation to the issuer and
receive payment of the full principal amount. During temporary periods of
imbalance between supply and demand for VRDOs, the Company may hold substantial
amounts of such obligations for resale. The Company has come to expect such
imbalances at year-end and, to a lesser extent, at each calendar quarter-end.
INVENTORY POSITIONS
The Company regularly purchases and holds for resale municipal securities
and UIT units. Inventory positions are recorded at market value and unrealized
gains and losses are reported in the Company's operating results. The level of
inventory maintained by the Company will fluctuate daily and is dependent upon
the need to maintain municipal inventory for future UITs, and the need to
maintain UIT inventory to support ongoing sales.
14
16
The market value of the Company's inventory at December 31 for each of the
last three years and the average daily inventory balances outstanding during
each year are set forth below:
INVENTORY
(IN THOUSANDS)
Average Daily Inventory
Inventory, at market value (par value)
on December 31, for year ended December 31,
------------------------------- -------------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
Nuveen UITs............... $31,926 $39,206 $39,069 $35,253 $43,121 $47,945
========= ========= ========= ========= ========= =========
Municipal securities
Held for:
Deposit in UITs ........ $ 30 $ - $ 1,000 $ 2,776 $ 4,597 $ 6,036
Resale.................. 542 4,553 11,308 2,086 3,202 2,924
--------- --------- --------- --------- --------- ---------
Total Municipal securities $ 572 $ 4,553 $12,308 $ 4,862 $ 7,799 $ 8,960
========= ========= ========= ========= ========= =========
EMPLOYEES
At December 31, 1997, the Company had 647 full-time employees including
Rittenhouse. Employees are compensated with a combination of salary, cash
bonus and fringe benefits. In addition, the Company has sought to retain its
key and senior employees through competitive compensation arrangements which
include equity based incentive awards.
COMPETITION
The Company is subject to substantial competition in all aspects of its
business. The Registered Representatives that distribute the Company's
Investment Products also distribute numerous competing products, often
including products sponsored by the Retail Distribution Firms where they are
employed. In recent years, competition among securities firms has adversely
affected the profitability associated with the underwriting of municipal
securities. There are relatively few barriers to entry by new investment
management firms. Investment products are sold to the public by broker-dealers,
banks, insurance companies and others, and many competing investment product
sponsors offer a broader array of investment products. Many of these
institutions have substantially greater resources than the Company. The
Company competes with other providers of products primarily on the basis of the
range of products offered, the investment performance of such products, quality
of service, fees charged, the level and type of broker compensation, the manner
in which such products are marketed and distributed, and the services provided
to investors.
15
17
REGULATION
Nuveen & Co. is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is subject to regulation by the Securities and
Exchange Commission (the "Commission"), the NASD Regulation, Inc., the
Municipal Securities Rulemaking Board and other federal and state agencies and
self-regulatory organizations. Nuveen & Co. is subject to the Commission's
Uniform Net Capital Rule, designed to enforce minimum standards regarding the
general financial condition and liquidity of a broker-dealer. Under certain
circumstances, this rule may limit the ability of the Company to make
withdrawals of capital and receive dividends from Nuveen & Co. Nuveen & Co.'s
regulatory net capital has consistently exceeded such minimum net capital
requirements. At December 31, 1997, Nuveen & Co. had aggregate net capital, as
defined, of approximately $31 million, which exceeded the regulatory minimum by
approximately $28 million. The securities industry is one of the most highly
regulated in the United States, and failure to comply with related laws and
regulations can result in the revocation of broker-dealer licenses, the
imposition of censures or fines and the suspension or expulsion from the
securities business of a firm, its officers or employees.
Each Adviser is registered with the Commission under the Investment
Advisers Act. Each Fund and UIT is registered with the Commission under the
Investment Company Act and each national Fund is qualified for sale (or not
required to be so qualified) in all states in the United States and the
District of Columbia; each single-state Fund is qualified for sale (or not
required to be so qualified) in the state for which it is named and other
designated states. Virtually all aspects of the Company's investment
management business are subject to various federal and state laws and
regulations. These laws and regulations are primarily intended to benefit the
investment product holder and generally grant supervisory agencies and bodies
broad administrative powers, including the power to limit or restrict the
Company from carrying on its investment management business in the event that
it fails to comply with such laws and regulations. In such event, the possible
sanctions which may be imposed include the suspension of individual employees,
limitations on the Company's engaging in the investment management business for
specified periods of time, the revocation of the Advisers' registrations as
investment advisers or other censures and fines.
The Company's officers, directors, and employees may, from time to time,
own securities which are also held by one or more of the Funds. The Company's
internal policies with respect to individual investments require prior
clearance of all transactions in municipal securities, securities of
Exchange-Traded Funds and securities of the Company, and reporting of all
securities transactions, and restrict certain transactions so as to avoid the
possibility of conflicts of interest. Additionally, employees of Rittenhouse
are subject to their own internal policies with respect to the pre-clearance of
the purchase or sale of securities held in adviser accounts.
ITEM 2. PROPERTIES
The Company, which is headquartered in Chicago, conducts its principal
operations through leased offices located there and in other United States
cities. The Company leases approximately 231,000 square feet of office space
across the country. Management believes that the Company's facilities are
adequate to serve its currently anticipated business needs.
16
18
ITEM 3. LEGAL PROCEEDINGS
As previously reported most recently in the Form 10-Q for the quarter
ending September 30, 1997, a lawsuit brought in June, 1996 by certain
shareholders is currently pending in federal district court for the Northern
District of Illinois against Nuveen & Co., Nuveen Advisory, six Nuveen
investment companies and two of the Funds' former directors seeking unspecified
damages, an injunction and other relief. The suit also seeks certification of
a defendant class consisting of all Nuveen-managed leveraged funds. The
complaint is filed on behalf of a purported class of present and former
shareholders of all Nuveen leveraged investment companies, including the Funds,
which allegedly engaged in certain practices which plaintiffs allege violated
various provisions of the Investment Company Act of 1940 and common law.
Plaintiffs allege among other things, breaches of fiduciary duty and various
misrepresentations and omissions in disclosures in connection with the use and
maintenance of leverage through the issuance and periodic auctioning of
preferred stock and the payment of management and brokerage fees to Nuveen
Advisory and Nuveen & Co. The defendants are vigorously contesting this action
and have filed motions to dismiss the entire action which are pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter
ended December 31, 1997.
EXECUTIVE OFFICERS AND OTHER KEY OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers and other key
officers of the Company as of December 31, 1997 are set forth below. Executive
officers and other key officers of the Company serve at the discretion of the
Board of Directors. Unless otherwise indicated in the following descriptions,
each of the following executive officers and other key officers have held his
current position with the Company or its predecessor for more than the past
five years.
Executive Officers Age Principal Position
- ------------------ --- ------------------
Timothy R. Schwertfeger 48 Chairman, Chief Executive Officer and Director
Anthony T. Dean 52 President, Chief Operating Officer and Director
John P. Amboian 36 Executive Vice President, Chief Financial
Officer and Secretary
Bruce P. Bedford 57 Executive Vice President
Other Key Officers
- ------------------
Alan G. Berkshire 37 Vice President and General Counsel
O. Walter Renfftlen 58 Vice President and Controller
All executive officers and other key officers of the Company are elected
for a one-year term. There are no family relationships between any of the
Registrant's executive officers, key
17
19
officers and directors, and there are no arrangements or understandings between
any of these executive officers and/or key officers and any other persons
pursuant to which the executive officer or key officer was selected.
Descriptions of the business experience for the past five years of Messrs.
Schwertfeger, Dean and Amboian appear on page 6 of the Registrant's Proxy
Statement relating to the annual meeting of shareholders to be held on May 7,
1998 (the "1998 Proxy Statement") and are incorporated herein by reference.
Mr. Bedford has been Executive Vice President of the Company since
February 1997; prior thereto Chairman, Chief Executive Officer and Director of
Flagship Resources, Inc., Flagship Funds, Inc., Flagship Financial Inc. and the
Flagship funds from October 1984 until December 1996.
Mr. Berkshire has been Vice President and General Counsel of the Company
since 1997. He joined Nuveen & Co. in September 1997 as Vice President and
General Counsel. Prior thereto he was a Partner at the law firm of Kirkland &
Ellis since October 1992.
Mr. Renfftlen has been Vice President and Controller of the Company since
inception, and of Nuveen & Co. since he joined the firm in 1975. He has also
served as Vice President and Controller of Nuveen Advisory, each of the Nuveen
Funds, and Nuveen Institutional Advisory since their inception. Mr. Renfftlen
is a Certified Public Accountant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
18
20
Information required by this item is contained in footnote 11 on page 27
and 28 of the Registrant's 1997 Annual Report to Shareholders (the "1997 Annual
Report") and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The "Five Year Financial Summary" section on page 30 of the 1997 Annual
Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section on pages 10 through 15 of the 1997 Annual Report
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data on pages 16 through 28 of
the 1997 Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The "Nominees for Directors" subsection and the "Nominees for Class B
Directors" subsection in the "Election of Directors" section on pages 5 through
7 of the 1998 Proxy Statement and the "Compliance with section 16(a) of the
Securities Exchange Act of 1934" subsection of the Beneficial Ownership of
Common Stock" section on pages 4 and 5 of the 1998 Proxy Statement, are
incorporated herein by reference. Information regarding the Registrant's
executive officers is included in this Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The "Executive Compensation", "Retirement Plans" and "Employment
Agreements" sections on pages 10 through 13, and the "Compensation of
Directors" subsection in the "Election of Directors" section on page 9 of the
Proxy Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
19
21
The "Beneficial Ownership of the Company's Stock" section on pages 2
through 4 of the 1998 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into an Employment Agreement with George Connell, who
serves as Chief Investment Officer of the Company's wholly-owned subsidiary,
Rittenhouse Financial Services, Inc., in connection with the acquisition of the
stock of Rittenhouse from Mr. Connell. The term of the Employment Agreement
continues until December 31, 2002 and the Agreement provides for Mr. Connell to
receive from Rittenhouse an annual base salary of $500,000 during the term of
the Agreement and to participate in such insurance programs and other fringe
benefits as are available to senior management employees of Rittenhouse. Mr.
Connell is the owner of 500,000 shares of the Company's Class A Common Stock,
representing 6.8% of the outstanding shares of such class, according to a
Schedule 13G filed by Mr. Connell in February, 1998. These shares were
acquired in open market transactions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FILED DOCUMENTS. The following documents are filed as part of this
report:
Page
1. Financial Statements: Number
--------------------- ------
Consolidated Balance Sheets - December 31, 1997 and 1996 *
Consolidated Statements of Income - Years ended
December 31, 1997, 1996 and 1995 *
Consolidated Statement of Changes in Stockholders' Equity -
December 31, 1997, 1996 and 1995 *
Consolidated Statements of Cash Flows - Years ended
December 31, 1997, 1996 and 1995 *
Notes to Consolidated Financial Statements *
----------------------
* Incorporated by reference to the 1997 Annual Report, which,
except as specifically incorporated by reference in this Form 10-K,
shall not be deemed to be filed with the Commission.
2. Financial Statement Schedules: None
All schedules are omitted because they are not required, are not
applicable or the information is otherwise shown in the financial statements or
notes thereto.
20
22
3. Exhibits:
See Exhibit Index on pages E-1 through E-4 hereof.
The following management contracts and compensatory plans and
arrangements have previously been filed as Exhibits 10.1 through 10.3,
10.6 and 10.7 to the Company's 1992 Form 10-K filed on March 30, 1993
and are incorporated herein by reference:
Nuveen 1992 Special Incentive Plan
Form of Employment Agreement with Executive Officers
Annual Cash Bonus Plan
Excess Benefit Retirement Plan
Deferred Bonus Plan
The following management contracts and compensatory plans and
arrangements have previously been filed as Exhibits 10.4 and 10.5 to the
Company's 1995 Form 10-K filed on March 29, 1996 and are incorporated
herein by reference:
Employees' Profit Sharing Plan
Employees' Retirement Plan
The following management contracts and compensatory plans and
arrangements have previously been filed as Exhibits 10.3(a), 10.4,
10.10(a) and 10.10(b) to the Company's 1996 Form 10-K filed on March 31,
1997 and are incorporated herein by reference:
Nuveen Executive Officer Performance Plan
Amended and Restated Employee Profit Sharing Plan
Management Agreement between Nuveen Investment Trust and NIAC
Investment Sub-Advisory Agreement
(b) REPORTS ON FORM 8-K.
None
21
23
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 26, 1998.
THE JOHN NUVEEN COMPANY
By /s/ John P. Amboian
-------------------------------
John P. Amboian
Executive Vice President, Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 26, 1998.
Signature Title
--------- -----
*
- -------------------------------------- Chairman, Chief Executive Officer and
Timothy R. Schwertfeger Director (Principal Executive Officer)
*
- -------------------------------------- President, Chief Operating Officer and
Anthony T. Dean Director
*
- -------------------------------------- Director
Willard L. Boyd
*
- -------------------------------------- Director
W. John Driscoll
22
24
*
- -------------------------------------- Director
Duane R. Kullberg
*
- -------------------------------------- Director
Douglas W. Leatherdale
*
- -------------------------------------- Director
Paul J. Liska
*
- -------------------------------------- Director
Patrick A. Thiele
/s/ O. Walter Renfftlen Vice President and Controller
- -------------------------------------- (Principal Accounting Officer)
O. Walter Renfftlen
*By /s/ John P. Amboian
- ---------------------------
John P. Amboian
As Attorney-in-Fact for each
of the persons indicated
23
25
EXHIBIT INDEX
to
ANNUAL REPORT ON FORM 10-K
for the
FISCAL YEAR ENDED DECEMBER 31, 1997
Copies of the documents listed below which are identified with an asterisk (*)
have heretofore been filed with the Commission as exhibits to registration
statements or reports filed with the Commission and are incorporated herein by
reference and made a part hereof; the exhibit number and location of each
document so filed and incorporated herein by reference are set forth opposite
each such exhibit. Exhibits not so identified are filed herewith.
Page No. of
Exhibit in
Sequential
Exhibit Exhibit No. Numbering
Designation Exhibit and Location System
- ----------- ------- ------------ -----------
*3.1 Restated Certificate Exhibit 3.1 to
of Incorporation of Registration
The John Nuveen Statement on Form S-1
Company filed on April 2,
1992, File No.
33-46922 (the "S-1
Registration
Statement")
*3.2 Amended and Restated Exhibit 3.2 to the
By-Laws of The John Company's Form 10-K
Nuveen Company for year ended
December 31, 1993
filed on March 29,
1994 (the "1993 Form
10-K")
*10.1 Nuveen 1992 Special Exhibit 10.1 to
Incentive Plan Company's Form 10-K
for the year ended
December 31, 1992
filed on March 30,
1993 (the "1992 Form
10-K")
*10.1(a) Nuveen 1996 Equity Exhibit 4.2 to
Incentive Award Plan Company's Form S-8
filed on July 10,
1996
10.2(a) Form of Employment --
Agreement with Bruce
P. Bedford
26
*10.3(a) Executive Officer Exhibit 10.3(a) to the
Performance Plan Company's Form 10-K
for the year ended
December 31, 1996
filed on March 31,
1997 (the "1996
Form 10-K")
*10.4 Amended and Restated Exhibit 10.4 to
Profit Sharing Plan Company's 1996 Form
10-K
*10.5 Amended and Exhibit 10.5 to
Restated Retirement 1994 Form 10-K
Plan
*10.6 Excess Benefit Exhibit 10.6 to the
Retirement Plan S-1 Registration
Statement
*10.7 Deferred Bonus Plan Exhibit 10.7 to the
S-1 Registration
Statement
*10.8(a) Lease dated August Exhibit 10.8 to the
10, 1984 between S-1 Registration
333 Wacker Drive Statement
Venture and John
Nuveen & Co.
Incorporated, as
amended
*10.8(b) Amendment dated Exhibit 10.8(b) to
January 1, 1993 to 1992 Form 10-K
lease between 333
Wacker Drive Venture
and John Nuveen & Co.,
Incorporated
**10.9 Investment Management Exhibit 10.9 to Pre-
Agreements between effective Amendment No.
Nuveen Advisory Corp. 1 and Exhibits 10.9 to
and each Nuveen Fund both the 1992 and 1993
Forms 10-K
27
**10.10 Investment Managemnt Exhibit 10.10 to
Agreement between Pre-effective
Nuveen Institutional Amendment No. 1 and
Advisory Corp. and Exhibits 10.10 to
each Nuveen Select both the 1992 and
Tax-Free Income 1993 Forms 10-K
Portfolio
*10.10(a) Management Agreeement Exhibit 10.10(a) to
between Nuveen the 1996 Form 10-K
Investment Trust and
Nuveen Institutional
Advisory Corp.
*10.10(b) Investment Sub-Advisory Exhibit 10.10(b) to
Agreement the 1996 Form 10-K
between Nuveen
Institutional Advisory
Corp. and Institutional
Capital Corporation
10.10(c) Management Agreement --
between Nuveen
Investment Trust II and
Nuveen Institutional
Advisory Corp.
10.10(d) Investment Sub-Advisory --
Agreement between
Nuveen Institutional
Advisory Corp. and
Rittenhouse
Financial Services, Inc.
*10.11(a) Joint Venture Advisory Exhibit 10.11(a) to
and Administration 1995 Form 10-K
Agreement dated
September 29, 1995
between Nuveen
Institutional Advisory
Corp. and C.H. Dean &
Associates, Inc.
*10.12 Tax Sharing Exhibit 10.13 to
Agreement between S-1 Registration
The St. Paul Companies Statement
Inc. and John Nuveen &
Co. Incorporated
*10.13 Registration Rights Exhibit 10.13 to
Agreement between 1992 Form 10-K
The John Nuveen
Company and The St.
Paul Companies, Inc.
28
*10.14 Indemnity Agreement Exhibit 10.14 to
between The St. Paul 1992 Form 10-K
Companies, Inc. and
The John Nuveen Company
10.15 Credit Agreement --
between The John Nuveen
Company and The First
National Bank of Chicago
13 Annual Report to --
Shareholders for the
fiscal year ended
December 31, 1997
21 List of Subsidiaries --
of The John Nuveen
Company
23 Consent of Independent --
Auditor
24.1 Powers of Attorney --
24.2 Certified Copy of --
Resolutions of Board
of Directors
Authorizing Signatures
27 Financial Data Schedule --
* Previously filed; incorporated herein by reference.
** Previously filed, other than Form of Renewal of Investment Management
Agreement,
which are filed herewith.