<PAGE>
NUVEEN
Investments
Nuveen Growth
Funds
PROSPECTUS NOVEMBER 28, 2000
Portfolios of quality securities offering long-term growth potential.
[PHOTOS APPEAR HERE]
INVEST WELL
LOOK AHEAD
LEAVE YOUR MARK(SM)
Nuveen Innovation Fund
Nuveen International Growth Fund
Nuveen Rittenhouse Growth Fund
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Section 1 The Funds
This section provides you with an overview of the funds including investment
objectives, expenses and portfolio holdings.
Introduction 1
Nuveen Innovation Fund 2
Nuveen International Growth Fund 4
Nuveen Rittenhouse Growth Fund 6
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies
Who Manages the Funds 8
What Types of Securities We Invest In 9
How We Select Investments 11
How the Portfolio Managers Have Performed 13
What the Risks Are 15
How We Manage Risk 17
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of your
account
What Share Classes We Offer 19
How to Reduce Your Sales Charge 20
How to Buy Shares 21
Systematic Investing 21
Systematic Withdrawal 22
Special Services 22
How to Sell Shares 23
Section 4 General Information
This section summarizes the funds' distribution policies and other general fund
information
Dividends, Distributions and Taxes 25
Distribution and Service Plans 26
Net Asset Value 27
Fund Service Providers 27
Section 5 Financial Highlights
This section provides the funds' financial performance since inception
Nuveen Innovation Fund 28
Nuveen International Growth Fund 29
Nuveen Rittenhouse Growth Fund 30
</TABLE>
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
Investment Strategy
Risks
Fees, Charges and Expenses
Shareholder Instructions
Performance and Current Portfolio Information
<PAGE>
November 28, 2000
Section 1 The Funds
Nuveen Innovation Fund
Nuveen International Growth Fund
Nuveen Rittenhouse Growth Fund
Introduction
This prospectus is intended to provide important information to help
you evaluate whether one of the Nuveen Growth Funds listed above may
be right for you. Please read it carefully before investing and keep
it for future reference.
NOT FDIC OR GOVERNMENT INSURED MAY LOSE VALUE NO BANK GUARANTEE
Section 1 The Funds 1
<PAGE>
Nuveen Innovation Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide capital appreciation without
consideration for income.
How the Fund Pursues Its Objective
The fund will invest at least 65% of its total assets in stocks of companies
which utilize innovative technologies to gain a strategic competitive advantage
in their industry and in companies that develop, provide and service those
technologies. Innovative technologies are new technologies that have the
potential to transform how business is conducted or services are provided. We
concentrate on stocks with positive earnings momentum and the expectation of
positive earnings surprises. Although we emphasize technology-related stocks,
the fund is not restricted to investment in companies in a particular business
sector or industry. The fund may invest a portion of its assets in securities of
foreign issuers traded in foreign securities markets.
What are the Risks of Investing in the Fund?
The fund exposes you to market risk. Market risk is the risk that stocks will
decline in response to such factors as adverse company news or industry
developments or a general economic decline. The fund may be exposed to
additional market risk due to its concentration in securities of technology
companies. Technology stocks, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall stock market. The fund's
potential investment in foreign stocks also presents additional risk. Foreign
risk is the risk that foreign stocks will be more volatile than U.S. stocks due
to such factors as adverse economic, currency, political or regulatory changes
in a country. As with any mutual fund investment, loss of money is a risk of
investing.
Is this Fund Right for You?
This fund may be right for you if you are seeking:
. an aggressive growth stock portfolio;
. to participate in the technology industry;
. to meet long-term financial goals.
You should not invest in this fund if you are:
. unwilling to accept share price fluctuation, including the possibility
of sharp price declines;
. seeking to earn regular income;
. investing to meet short-term financial goals.
Fund Performance/Cost of Investment
Fund Performance
Fund performance is not included in this prospectus because the fund has not
been effective for a full calendar year.
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/1/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/2/
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 5.75%/3/ None None None
-----------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
-----------------------------------------------------------------------------
Exchange Fees None None None None
-----------------------------------------------------------------------------
Deferred Sales Charge/4/ None/3/ 5%/5/ 1%/6/ None
-----------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/7/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 1.00% 1.00% 1.00% 1.00%
-----------------------------------------------------------------------------
12b-1 Distribution and Service Fees .25% 1.00% 1.00% --%
-----------------------------------------------------------------------------
Other Expenses .72% .72% .75% .87%
-----------------------------------------------------------------------------
Total Operating Expenses* 1.97% 2.72% 2.75% 1.87%
-----------------------------------------------------------------------------
</TABLE>
* After Expense Reimbursements
Net expenses reflect a voluntary expense waiver by the fund's investment
adviser that may be modified or discontinued without notice at the
adviser's discretion.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
A B C R
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expense Reimbursements (.11%) (.12%) (.18%) (.39%)
-------------------------------------------------------------------
Total Operating Expense--Net 1.86% 2.60% 2.57% 1.48%
-------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the costs of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
---------- -------------
Share Class A B C R A B C R
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 763 $ 666 $ 278 $ 190 $ 763 $ 275 $ 278 $ 190
--------------------------------------------------------------------------------
3 Years $ 1,158 $ 1,153 $ 853 $ 588 $ 1,158 $ 844 $ 853 $ 588
--------------------------------------------------------------------------------
5 Years $ 1,576 $ 1,548 $ 1,454 $ 1,011 $ 1,576 $ 1,440 $ 1,454 $ 1,011
--------------------------------------------------------------------------------
10 Years $ 2,739 $ 2,871 $ 3,080 $ 2,190 $ 2,739 $ 2,871 $ 3,080 $ 2,190
--------------------------------------------------------------------------------
</TABLE>
2 Section 1 The Funds
<PAGE>
How the Fund Is Invested (as of 7/31/00)
Portfolio Allocation
Equity 100%
-------------------------------------------------------------
Cash Equivalents --%
-------------------------------------------------------------
Top 10 Stock Holdings/8/
Calpine Corporation 4.7%
-------------------------------------------------------------
CIENA Corporation 3.5%
-------------------------------------------------------------
Siebel System, Inc. 3.5%
-------------------------------------------------------------
i2 Technologies Inc. 3.5%
-------------------------------------------------------------
Check Point Software Technologies Ltd. 3.4%
-------------------------------------------------------------
JDS Uniphase Corporation 3.3%
-------------------------------------------------------------
Applied Micro Circuits Corporation 3.2%
-------------------------------------------------------------
Oracle Corporation 3.1%
-------------------------------------------------------------
BEA System, Inc. 3.0%
-------------------------------------------------------------
Nortel Networks Corporation 2.9%
-------------------------------------------------------------
Sector Diversification (Top 5)/9/
Technology 82.4%
-------------------------------------------------------------
Utilities 7.4%
-------------------------------------------------------------
Healthcare 6.5%
-------------------------------------------------------------
Energy 2.1%
-------------------------------------------------------------
Consumer Cyclicals 1.6%
-------------------------------------------------------------
1. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
2. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
3. Reduced Class A sales charges apply to purchases of $50,000 or more.
Certain Class A purchases at net asset value of $1 million or more may bear
a contingent deferred sales charge (CDSC) if redeemed within 18 months of
purchase. See "How You Can Buy and Sell Shares."
4. As a percentage of lesser of purchase price or redemption proceeds.
5. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
6. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
7. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
8. As a percentage of the fund's stock holdings. Holdings will vary.
9. As a percentage of the fund's stock holdings. Holdings will vary. Sectors
may consist of multiple industries.
Section 1 The Funds 3
<PAGE>
Nuveen International Growth Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide long-term capital
appreciation.
How the Fund Pursues Its Objective
The fund primarily invests in stocks of companies domiciled in countries other
than the United States.
The fund will typically be invested in about 15 different countries, holding a
total of 50-60 stocks. The fund will concentrate in stocks with positive
earnings momentum and the expectation of positive earnings surprises. The fund
will invest mainly in common stocks of companies with medium and large market
capitalizations. Although the fund will concentrate its investments in developed
countries, it may invest up to 20% of its assets in companies located in
emerging markets.
What are the Risks of Investing in the Fund?
The fund exposes you to market and foreign risk. Market risk is the risk that
stocks will decline in response to such factors as adverse company news or
industry developments or a general economic decline. Foreign risk is the risk
that foreign stocks will be more volatile than U.S. stocks due to such factors
as adverse economic, currency, political or regulatory changes in a country. As
with any mutual fund investment, loss of money is a risk of investing.
Is This Fund Right For You?
This fund may be right for you if you seek to:
. invest in foreign stocks;
. pursue the high potential returns of foreign stocks;
. diversify your otherwise U.S.-oriented equity portfolio.
You should not invest in this fund if you are:
. unwilling to accept share price fluctuation, including the possibility
of sharp price declines;
. unwilling to accept the risks of foreign investment;
. investing to meet short-term financial goals.
Fund Performance/Cost of Investment
Fund Performance
Fund performance is not included in this prospectus because the fund has not
been effective for a full calendar year.
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/1/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/2/
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 5.75%/3/ None None None
--------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
--------------------------------------------------------------------------------
Exchange Fees None None None None
--------------------------------------------------------------------------------
Deferred Sales Charge/4/ None/3/ 5%/5/ 1%/6/ None
--------------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/7/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 1.05% 1.05% 1.05% 1.05%
--------------------------------------------------------------------------------
12b-1 Distribution and Service Fees .25% 1.00% 1.00% -%
--------------------------------------------------------------------------------
Other Expenses 1.36% 1.36% 1.35% 1.53%
--------------------------------------------------------------------------------
Total Operating Expenses* 2.66% 3.41% 3.40% 2.58%
--------------------------------------------------------------------------------
</TABLE>
* After Expenses Reimbursements
Net expenses reflect a voluntary expense waiver by the fund's investment
adviser that may be modified or discontinued
without notice at the adviser's discretion.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
A B C R
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expense Reimbursements (.91%) (.91%) (.89%) (1.15%)
------------------------------------------------------------------------------
Total Operating Expense-Net 1.75% 2.50% 2.51% 1.43%
------------------------------------------------------------------------------
</TABLE>
4 Section 1 The Funds
<PAGE>
The following example is intended to help you compare the cost of investing in
the fund with the costs of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 829 $ 732 $ 343 $ 261 $ 829 $ 344 $ 343 $ 261
--------------------------------------------------------------------------------
3 Years $1,354 $1,350 $1,045 $ 802 $1,354 $1,048 $1,045 $ 802
--------------------------------------------------------------------------------
5 Years $1,904 $1,879 $1,769 $1,370 $1,904 $1,774 $1,769 $1,370
--------------------------------------------------------------------------------
10 Years $3,396 $3,525 $3,685 $2,915 $3,396 $3,525 $3,685 $2,915
--------------------------------------------------------------------------------
</TABLE>
1. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
2. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
3. Reduced Class A sales charges apply to purchases of $50,000 or more.
Certain Class A purchases at net asset value of $1 million or more may bear
a contingent deferred sales charge (CDSC) if redeemed within 18 months of
purchase. See "How You Can Buy and Sell Shares."
4. As a percentage of lesser of purchase or redemption proceeds.
5. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during fourth, 2% during the fifth, and 1% during the sixth year.
6. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
7. Long-term holders of Class B and C shares may pay more in Rule 12b-1 fees
and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
8. As a percentage of the fund's stock holdings. Holdings will vary.
9. As a percentage of the fund's stock holdings. Holdings will vary. Sectors
may consist of multiple industries.
How the Fund Is Invested (as of 7/31/00)
Portfolio Allocation
Equity 100%
-------------------------------------------------------------
Cash Equivalent %
-------------------------------------------------------------
Top 10 Country Allocations/8/
Japan 16.7%
-------------------------------------------------------------
United Kingdom 15.2%
-------------------------------------------------------------
France 13.6%
-------------------------------------------------------------
Germany 8.2%
-------------------------------------------------------------
Canada 6.9%
-------------------------------------------------------------
Denmark 6.5%
-------------------------------------------------------------
Norway 4.5%
-------------------------------------------------------------
Israel 4.0%
-------------------------------------------------------------
Hong Kong 4.0%
-------------------------------------------------------------
Sweden 3.3%
-------------------------------------------------------------
Top 10 Stock Holdings/8/
Anritsu Corporation 3.3%
-------------------------------------------------------------
Nortel Networks Corporation 3.3%
-------------------------------------------------------------
Alcatel 3.2%
-------------------------------------------------------------
Schering AG 2.8%
-------------------------------------------------------------
Thomson Multimedia Sponsored ADR 2.7%
-------------------------------------------------------------
Vestas Wind Systems A/S 2.7%
-------------------------------------------------------------
ARM Holdings plc 2.6%
-------------------------------------------------------------
Heineken NV 2.6%
-------------------------------------------------------------
William Demant A/S 2.6%
-------------------------------------------------------------
Tecan AG 2.6%
-------------------------------------------------------------
Sector Diversification (Top 5)/9/
Technology 38.8%
-------------------------------------------------------------
Capital Goods 18.0%
-------------------------------------------------------------
Healthcare 14.4%
-------------------------------------------------------------
Consumer Staples 9.3%
-------------------------------------------------------------
Consumer Cyclicals 6.8%
-------------------------------------------------------------
Section 1 The Funds 5
<PAGE>
Nuveen Rittenhouse Growth Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide long-term growth of capital
by investing in a diversified portfolio consisting primarily of equity
securities traded in U.S. securities markets of large capitalization companies
that have a history of consistent earnings and dividend growth.
How the Fund Pursues Its Objective
The fund ordinarily will invest at least 65% of its total assets in the equity
securities of blue chip companies-those large-capitalization companies with a
high financial strength rating and a history of consistent and predictable
earnings growth. Through fundamental analysis, Rittenhouse seeks to invest in
the 20-50 companies that have a demonstrated leadership position and offer the
best mix of sustained growth opportunities at reasonable valuations.
What are the Risks of Investing in the Fund?
The fund exposes you to market risk. Market risk is the risk that stocks will
decline in response to such factors as adverse company news or industry
developments or a general economic decline. The fund's potential investment in
foreign stocks also presents additional risk. Foreign risk is the risk that
foreign stocks will be more volatile than U.S. stocks due to such factors as
adverse economic, currency, political or regulatory changes in a country. As
with any mutual fund investment, loss of money is a risk of investing.
Is this Fund Right for You?
This fund may be right for you if you are seeking:
. a conservative growth stock fund as the core of a diversified investment
plan;
. to build and protect wealth over time through prudent capital
management;
. to meet long-term financial goals.
You should not invest in this fund if you are:
. unwilling to accept share price fluctuation, including the possibility
of sharp price declines;
. investing to meet short-term financial goals.
How the Fund Has Performed
Nuveen has selected Rittenhouse Financial Services, Inc. to manage the fund's
portfolio. The chart and table below illustrate annual fund calendar year
returns for each of the past two years as well as annualized fund and index
returns for the one-year and since inception periods ended December 31, 1999.
This information is intended to help you assess the variability of fund returns
(and consequently, the potential rewards and risks of a fund investment). The
information also shows how the fund's performance compares with the returns of a
broad measure of market performance and an index of funds with similar
investment objectives.
Total Returns/1/
Class A Annual Returns
[BAR CHART APPEARS HERE]
1998 - 25.3
1999 - 14.1
From January 1, 1998 through December 31, 1999, the fund's highest and lowest
quarterly returns were 21.21% and -10.86%, respectively, for the quarters ending
12/31/98 and 9/30/98. The bar chart and highest/lowest quarterly returns do not
reflect sales charges, which would reduce returns, while the average annual
return table does reflect sales charges. See "How the Portfolio Managers Have
Performed" for additional performance information. The fund's and the portfolio
manager's past performance are not necessarily an indication of how the fund
will perform in the future.
Average Annual Total Returns for
the Periods Ended December 31, 1999
Inception
1 Year (December 31, 1997)
------------------------------------------------------------------------
Class A 7.54% 16.06%
------------------------------------------------------------------------
Class B 9.25% 17.01%
------------------------------------------------------------------------
Class C 13.20% 18.72%
------------------------------------------------------------------------
Class R 14.35% 19.88%
------------------------------------------------------------------------
S&P 500 Index/2/ 21.04% 24.75%
------------------------------------------------------------------------
Lipper Peer Group/2/ 19.35% 23.08%
------------------------------------------------------------------------
6 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/3/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/4/
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 5.75%/5/ None None None
---------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
---------------------------------------------------------------------------
Exchange Fees None None None None
---------------------------------------------------------------------------
Deferred Sales Charge/6/ None/5/ 5%/7/ 1%/8/ None
---------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/9/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .83% .83% .83% .83%
------------------------------------------------------------------------------
12b-1 Distribution and Service Fees .25% 1.00% 1.00% -%
------------------------------------------------------------------------------
Other Expenses .29% .30% .30% .29%
------------------------------------------------------------------------------
Total Operating Expenses 1.37% 2.13% 2.13% 1.12%
------------------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the costs of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 706 $ 610 $ 216 $ 114 $ 706 $ 216 $ 216 $ 114
-------------------------------------------------------------------------------------------
3 Years $ 984 $ 981 $ 667 $ 356 $ 984 $ 667 $ 667 $ 356
-------------------------------------------------------------------------------------------
5 Years $ 1,282 $ 1,256 $ 1,144 $ 617 $ 1,282 $ 1,144 $ 1,144 $ 617
-------------------------------------------------------------------------------------------
10 Years $ 2,127 $ 2,269 $ 2,462 $ 1,363 $ 2,127 $ 2,269 $ 2,462 $ 1,363
-------------------------------------------------------------------------------------------
</TABLE>
1. The Class A year-to-date return on net asset value as of 9/30/00 was 3.89%.
2. Peer Group returns reflect the performance of the Lipper Large Cap Core Fund
Index, an index that represents the average annualized returns of the 30
largest funds in the Lipper Large Cap Core Fund Category. Returns assume
reinvestment of dividends and do not reflect any applicable sales charges.
The S&P 500 Index is an unmanaged index generally considered representative
of the U.S. stock market. The index returns assume reinvestment of
dividends, but do not include any brokerage commissions, sales charges, or
other fees.
3. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
How the Fund Is Invested (as of 7/31/00)
Portfolio Allocation
Equity 97%
-------------------------------------------------------
Cash Equivalents 3%
-------------------------------------------------------
Portfolio Statistics
Beta 0.92
-------------------------------------------------------
Average Market Capitalization (Stocks) $172 billion
-------------------------------------------------------
Average P/E 36.5
-------------------------------------------------------
Top 10 Stock Holdings/10/
American International Group, Inc. 5.7%
-------------------------------------------------------
General Electric Company 4.9%
-------------------------------------------------------
EMC Corporation 4.9%
-------------------------------------------------------
Pfizer Inc. 4.6%
-------------------------------------------------------
The Coca-Cola Company 4.3%
-------------------------------------------------------
Automatic Data Processing, Inc. 4.3%
-------------------------------------------------------
Intel Corporation 4.2%
-------------------------------------------------------
Colgate-Palmolive Company 4.0%
-------------------------------------------------------
Cisco System, Inc. 3.8%
-------------------------------------------------------
Merck & Co., Inc. 3.6%
-------------------------------------------------------
Sector Diversification (Top 5)/11/
Technology 35.2%
-------------------------------------------------------
Healthcare 18.2%
-------------------------------------------------------
Financials 16.1%
-------------------------------------------------------
Consumer Staples 14.6%
-------------------------------------------------------
Capital Goods 7.5%
-------------------------------------------------------
4. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
5. Reduced Class A sales charges apply to purchases of $50,000 or more.
Certain Class A purchases at net asset value of $1 million or more may bear
a contingent deferred sales charge (CDSC) if redeemed within 18 months of
purchase. See "How You Can Buy and Sell Shares."
6. As a percentage of lesser of purchase price or redemption proceeds.
7. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
8. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
9. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules. The adviser, pursuant to a contractual agreement, waived
fees and reimbursed expenses from the fund's inception through July 31,
2000, in order to prevent Total Operating Expenses (excluding any
distribution or service fees and extraordinary expenses) from exceeding
1.10% of the average daily net assets of any class of fund shares. The
Total Operating Expenses provided in the table do not reflect such fee
waiver and expense reimbursement.
10. As a percentage of the fund's stock holdings. Holdings will vary.
11. As a percentage of the fund's stock holdings. Holdings will vary. Sectors
may consist of multiple industries.
Section 1 The Funds 7
<PAGE>
Section 2 How We Manage Your Money
To help you understand the funds better, this section includes a detailed
discussion of our investment and risk management strategies. For a more
complete discussion of these matters, please consult the Statement of
Additional Information.
Who Manages the Funds
Nuveen Institutional Advisory Corp. ("NIAC"), the funds' investment
adviser, together with its advisory affiliate, Nuveen Advisory Corp., offer
premier advisory and investment management services to a broad range of
mutual fund clients. In the Nuveen family, these advisers are commonly
referred to as Nuveen Investment Management or NIM. NIAC has overall
responsibility for management of the funds. NIAC oversees the management of
the funds' portfolios, manages the funds' business affairs and provides
certain clerical, bookkeeping and other administrative services. The NIM
advisers are located at 333 West Wacker Drive, Chicago, IL 60606.
The NIM advisers are wholly owned subsidiaries of Nuveen Investments
("Nuveen"). Founded in 1898, Nuveen has been synonymous with investments
that withstand the test of time. Today, we provide managed assets and
structured investment products and services to help financial advisors
serve the wealth management needs of individuals and families. Nuveen
manages or oversees $71 billion in assets.
NIAC has selected Columbus Circle Investors ("CCI"), Metro Center, One
Station Place, Stamford CT 06902, as subadviser to manage the investment
portfolios of the Innovation Fund and the International Growth Fund. CCI is
an institutional investment management firm with over 25 years of
experience and approximately $6.3 billion in assets under management.
Anthony Rizza, Chartered Financial Analyst, is responsible for the day-to-
day management of the Innovation Fund's portfolio. Mr. Rizza joined CCI in
1991 and is a Managing Director of the firm. Clifford G. Fox, Chartered
Financial Analyst, is responsible for the day-to-day management of the
International Growth Fund's portfolio. Mr. Fox joined CCI in 1992 and is a
Managing Director of the firm.
NIAC has selected Rittenhouse Financial Services, Inc. ("Rittenhouse"), Two
Radnor Corporate Center, Radnor, PA 19087-9570, as sub-adviser to manage
the investment portfolio of the Rittenhouse Growth Fund. Rittenhouse, a
wholly owned subsidiary of The John Nuveen Company, is an institutional
investment management firm with over 20 years of experience and
approximately $18 billion in assets under management. Rittenhouse's
investment management strategy and portfolio purchase and sale
determinations are set through a team approach, with all of its investment
professionals contributing. The investment team meets regularly to review
pertinent information from internal and external sources and make decisions
regarding all Rittenhouse investment
8 Section 2 How We Manage Your Money
<PAGE>
positions. The activities of the investment team are overseen by an
investment oversight committee, which meets regularly to review the
investment strategy, market sectors, and individual security holdings to
verify their continued appropriateness.
For providing these services, NIAC is paid an annual fund
management fee according to the following schedule:
<TABLE>
<CAPTION>
Nuveen Nuveen Nuveen
Average Daily Innovation International Rittenhouse
Net Assets Fund Growth Fund Growth Fund
<S> <C> <C> <C>
For the first $125 million 1.0000% 1.0500% 0.8500%
------------------------------------------------------------------------------------
For the next $125 million 0.9875% 1.0375% 0.8375%
------------------------------------------------------------------------------------
For the next $250 million 0.9750% 1.0250% 0.8250%
------------------------------------------------------------------------------------
For the next $500 million 0.9625% 1.0125% 0.8125%
------------------------------------------------------------------------------------
For the next $1 billion 0.9500% 1.0000% 0.8000%
------------------------------------------------------------------------------------
For net assets over $2 billion 0.9250% 0.9750% 0.7750%
------------------------------------------------------------------------------------
</TABLE>
For the most recent fiscal year, the funds paid NIAC the following
management fees (as a percentage of average net assets):
Nuveen Innovation Fund .87%
--------------------------------------------------------------
Nuveen International Growth Fund .08%
--------------------------------------------------------------
Nuveen Rittenhouse Growth Fund .80%
--------------------------------------------------------------
Out of the fund management fee, NIAC pays a portfolio management fee to CCI
for the Innovation Fund and the International Growth Fund and to
Rittenhouse for the Rittenhouse Growth Fund. Each fund pays for its own
operating expenses such as custodial, transfer agent, accounting and legal
fees; brokerage commissions; distribution and service fees; and
extraordinary expenses.
What Types of Securities We Invest In
Each fund's investment objective may not be changed without shareholder
approval. The funds' investment policies may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this
prospectus or the Statement of Additional Information.
Equity Securities
Each fund invests in equity securities. Eligible equity securities include
common stocks; preferred stocks; warrants to purchase common stocks or
preferred stocks; securities convertible into common or preferred stocks,
such as convertible bonds and debentures and other securities with equity
characteristics. The International Growth Fund may also invest in pooled
investment vehicles. For the Innovation Fund and the International Growth
Fund, any convertible bonds and debentures must be rated investment grade
(one of the four highest ratings by Moody's Investors Service, Standard &
Poor's, Duff & Phelps or Fitch IBCA, Inc.) when purchased. For the
Rittenhouse Growth Fund, convertible bonds and debentures must be rated A
or better by Moody's Investors Service, Standard & Poor's, Duff & Phelps or
Fitch IBCA, Inc. when purchased.
Section 2 How We Manage Your Money 9
<PAGE>
Foreign Investments
The International Growth Fund primarily invests in equity securities of
companies domiciled in countries other than the United States. The
International Growth Fund may invest in foreign securities either directly
or indirectly through American Depositary Receipts ("ADRs") and other types
of depositary receipts. ADRs are denominated in U.S. dollars and represent
indirect ownership interests in securities of foreign issuers. Although the
fund will concentrate its investments in developed countries, it may invest
up to 20% of its assets in companies located in emerging markets.
The Innovation Fund may invest up to 15% of its assets in securities which
are traded principally in securities markets outside the United States and
may invest without limit in securities of foreign issuers that are traded
in U.S. markets. The Innovation Fund may also invest in ADRs and other
types of depositary receipts.
The Rittenhouse Growth Fund may invest in equity securities of foreign
issuers traded in U.S. security markets or in ADRs or other instruments
denominated in U.S. dollars (limited to 15% of net assets).
All foreign investments involve certain risks in addition to those
associated with U.S. investments (see "What the Risks Are-Foreign
investment risk").
Innovative Technologies
The Innovation Fund invests at least 65% of its assets in a diversified
portfolio of common stocks of companies which utilize innovative
technologies to gain a strategic competitive advantage in their industry as
well as companies that develop, provide and service those technologies.
Innovative technologies are new technologies that have the potential to
transform how business is conducted or services are provided. Companies
that utilize innovative technologies include, but are not limited to,
companies in the technology, telecommunications and healthcare industries.
Securities will be selected with minimal emphasis on more traditional
factors such as growth potential or value relative to intrinsic worth.
Instead, the fund will be guided by the theory of Positive Momentum and
Positive Surprise (described below) with special emphasis on common stocks
of companies whose perceived strength lies in their use of innovative
technologies in new products, enhanced distribution systems and improved
management techniques. Although the fund emphasizes the utilization of
technologies, it is not restricted to investment in companies in a
particular business sector or industry.
Short-Term Investments
The funds may invest in short-term investments, including U.S. government
securities, quality commercial paper or similar fixed-income securities
with remaining maturities of one year or less. For more information on
eligible short-term investments, see the Statement of Additional
Information.
Delayed Delivery Transactions
The funds may buy or sell securities on a when-issued or delayed-delivery
basis, paying for or taking delivery of the securities at a later date,
normally within 15 to 45 days of the trade. These transactions involve an
element of risk because the value of the security to be purchased may
decline to a level below its purchase price before the settlement date.
10 Section 2 How We Manage Your Money
<PAGE>
How We Select Investments
Innovation Fund and International Growth Fund
The Innovation Fund Invests in Technology for Capital Appreciation For many
investors, building a portfolio with the potential for superior growth is a
critical part of a long-term investment strategy. In a portfolio designed
for long-term growth, investors are willing to tolerate the short-term
volatility of stocks with an expectation that over time volatility will
give way to growth exceeding that of other investments. In the recent past,
the demand for technology has grown exponentially. Not surprisingly, the
stocks of companies developing and utilizing technology have captured both
the imagination and the investments of many long-term investors. The
Innovation Fund offers these investors a time-tested way of investing in
some of the industry's most attractive opportunities for long-term growth
while moderating risks introduced by individual securities.
Positive Momentum and Positive Surprise
The investment philosophy of the Innovation Fund and the International
Growth Fund is based on the premise that companies doing better than
expected will have rising securities prices, while companies producing less
than expected results will not. CCI calls this discipline Positive Momentum
and Positive Surprise. CCI believes that Positive Momentum in a company's
progress plus Positive Surprise in reported results yield superior returns
through rising stock prices. In practice, CCI strives to invest in
companies that exceed investors' expectations, and sells or avoids those
that fall short of those expectations.
The funds' teams of investment analysts monitor numerous factors including
political and/or economic developments, secular trends, industry and/or
group dynamics, and company-specific events to determine which companies
are best positioned to benefit in revenue and earnings acceleration. For
the International Growth Fund the analysts also monitor macroeconomic
factors. Investments are selected on the basis of their potential to exceed
consensus forecasts. Companies selected for purchase remain in each fund's
portfolio only if they continue to achieve or exceed expectations, and are
replaced when business or earnings results are disappointing.
In addition to meeting the criteria for potential Positive Momentum and
Positive Surprise, thorough fundamental analysis is completed prior to an
investment recommendation. Each fund's portfolio management team uses
internally-generated reports and pertinent information provided by industry
trade groups, individual companies, and reports provided by leading
investment research firms. All research is assessed to either confirm or
invalidate opinions pertaining to the key elements in a company's
analysis.
Rittenhouse Growth Fund
The Rittenhouse Growth Fund will ordinarily invest at least 65% of its
total assets in the equity securities of blue chip companies. Blue chip
companies are generally characterized by their substantial capitalization,
established history of earnings and dividends, ready access to credit,
industry leadership position and superior management structure.
Section 2 How We Manage Your Money 11
<PAGE>
From the universe of all stocks traded in the U.S. securities markets,
Rittenhouse first identifies companies with an aggregate market
capitalization of at least $5 billion under current market conditions and
with a financial strength rating of A or better by Standard & Poor's or
Value Line. Of those, Rittenhouse selects companies with a history of
rising earnings. Then Rittenhouse selects industries with the most
attractive potential based upon its evaluation of current market conditions
and long-term industry growth trends. Through fundamental analysis,
Rittenhouse seeks to invest in the 20-50 stocks within these industries
that have a demonstrated leadership position and offer the best mix of
sustained growth opportunities at reasonable valuations.
Certain of the Rittenhouse Growth Fund's investment policies may result in
reduced taxable distributions and enhanced after-tax returns. Because it
invests in stocks with lower dividend yields, the fund expects to
distribute little, if any, taxable dividend income. The fund anticipates
minimizing realized short-term and long-term capital gains as a result of
its low portfolio turnover rate and generally long investment holding
periods. Upon selling a stock, Rittenhouse will seek to minimize realized
gains by selling shares with the highest cost basis first, and where
consistent with the fund's investment objective, offsetting gains with
capital losses realized from the sale of other stocks in the portfolio.
Portfolio Turnover
The funds buy and sell portfolio securities in the normal course of their
investment activities. The proportion of a fund's investment portfolio that
is sold and replaced with new securities during a year is known as the
fund's portfolio turnover rate. The Innovation Fund and the International
Growth Fund expect that the annual portfolio turnover rates for each fund
will generally be between 75% and 150%. The Rittenhouse Growth Fund expects
its annual portfolio turnover to be between 20% and 30% under normal market
conditions, and will generally not exceed 50%. A turnover rate of 100%
would occur, for example, if a fund sold and replaced securities valued at
100% of its net assets within one year. The Innovation Fund and the
International Growth Fund anticipate that they may engage in active trading
in securities. Active trading results in the payment by a fund of increased
brokerage costs and could result in the payment by shareholders of
increased taxes on realized investment gains. Accordingly, active trading
may adversely affect fund performance.
12 Section 2 How We Manage Your Money
<PAGE>
How the Portfolio Managers Have Performed
The charts and tables below illustrate the historical performance of the
portfolio managers' investment strategy for the respective funds. The chart and
table for the Innovation Fund present the performance of CCI's Technology
Composite, which represents all its managed accounts (totalling $219.3 million)
that have substantially the same investment objectives and policies as the
Innovation Fund. The chart and table for the International Growth Fund present
the performance of CCI's International Composite, which represents all its
managed accounts (totalling $246.2 million) that have substantially the same
investment objectives and policies as the International Growth Fund. The chart
and table for the Rittenhouse Growth Fund present the performance of
Rittenhouse's Blended Equity Composite, which represents all its individually
managed accounts (totalling $10.1 billion) that have substantially the same
investment objectives and policies as the Rittenhouse Growth Fund.
Of course, past performance is no indication of future results, and the charts
and tables represent performance of managed accounts and not the performance of
the funds.
CCI's Technology Composite
Growth of a $10,000 Investment 1/1/95 - 9/30/00
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Science and
CCI Technology Composite S&P 500 Technology Fund Index
<S> <C> <C> <C>
12/94 $ 9,425 $ 10,000 $ 10,000
6/95 12,081 12,021 12,690
12/95 13,445 13,757 13,857
6/96 15,837 15,145 14,386
12/96 16,539 16,916 16,203
6/97 16,593 20,403 17,285
12/97 17,913 22,562 17,472
6/98 24,360 26,558 20,523
12/98 31,839 29,011 25,675
6/99 43,124 32,604 32,695
12/99 86,817 35,116 54,919
6/00 100,382 34,971 59,824
9/00 117,992 34,632 58,566
</TABLE>
___ CCI Technology Composite $117,992
--- Lipper Science and Technology Fund Index $58,566
... S&P 500 Index $34,632
CCI's Technology Composite Returns
<TABLE>
<CAPTION>
Average Annual Total Returns (as of 9/30/00)
-----------------------------------------------
Since Composite
1-Year 5-Year Inception (1/1/95)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
On Offer 125.73% 51.84% 53.61%
------------------------------------------------------------------------------------------------------
On NAV 139.51% 53.65% 55.20%
------------------------------------------------------------------------------------------------------
S&P 500 Index 13.28% 21.69% 24.11%
------------------------------------------------------------------------------------------------------
Lipper Science and Technology Fund Index 67.56% 31.89% 35.99%
------------------------------------------------------------------------------------------------------
</TABLE>
As of September 30, 2000, the CCI Technology Composite included seven managed
accounts. The managed accounts reflected above are not subject to all of the
same investment restrictions, investment inflows and outflows, and distribution
requirements as the Innovation Fund, which affect fund performance. We assumed
that an investor paid a maximum Class A sales charge of 5.75%, and we deducted
from the CCI's Technology Composite's gross-of-fee returns the Class A gross
operating expenses of 1.97% for the fund's most recent fiscal year. The chart
would be different for a Class B, C or R investment because of their different
sales charges and operating expenses. The Composite's inception date is
January 1, 1995. The Lipper Science and Technology Fund Index is a managed index
that represents the 10 largest funds in the Lipper Science and Technology Fund
Category. The S&P 500 Index is an unmanaged index generally considered
representative of the U.S. stock market. Index returns assume reinvestment of
all dividends but do not include any brokerage commissions, sales charges or
other fees. This chart does not represent past or future performance of the
Innovation Fund.
Section 2 How We Manage Your Money 13
<PAGE>
CCI's International Composite
Growth of a $10,000 Investment 7/1/96 - 9/30/00
[MOUNTAIN CHARTS APPEAR HERE]
MSCI All
CCI International Lipper International Country World
Composite Fund Index Index ex USA
6/96 $ 9,425 $10,000 $10,000
6/97 13,605 11,999 11,400
6/98 19,270 13,080 11,471
6/99 23,712 13,602 12,650
6/00 48,414 16,817 14,972
9/00 48,586 15,582 13,740
== CCI International Composite $48,586
-- Lipper International Fund Index $15,582
-- MSCI All Country World Index ex USA $13,740
CCI's International Composite Returns
Average Annual Total Returns (as of 9/30/00)
--------------------------------------------
Since Composite
1-Year Inception (6/30/96)
--------------------------------------------------------------------------------
On Offer 66.08% 45.05%
--------------------------------------------------------------------------------
On NAV 76.22% 47.09%
--------------------------------------------------------------------------------
MSCI All Country World Index ex USA 5.19% 7.76%
--------------------------------------------------------------------------------
Lipper International Fund Index 10.83% 11.00%
--------------------------------------------------------------------------------
As of September 30, 2000, the CCI International Composite included five managed
accounts. The managed accounts reflected above are not subject to all of the
same investment restrictions, investment inflows and outflows, and distribution
requirements as the International Growth Fund, which affect fund performance. We
assumed that an investor paid a maximum Class A sales charge of 5.75%, and we
deducted from the CCI's International Composite's gross-of-fee returns the Class
A gross operating expenses of 2.66% for the fund's most recent fiscal year. The
chart would be different for a Class B, C or R investment because of their
different sales charges and operating expenses. The Composite's inception date
is June 30, 1996. The MSCI All Country World Index ex USA is a capitalization-
weighted index of listed securities in 46 markets around the world, including
both developed and emerging markets, but excluding the U.S. The Lipper
International Fund Index is a managed index that represents the average
annualized returns of the 30 largest funds in the Lipper International Fund
category. Index returns assume reinvestment of all dividends but do not include
any brokerage commissions, sales charges or other fees. This chart does not
represent past or future performance of the International Growth Fund.
14 Section 2 How We Manage Your Money
<PAGE>
Rittenhouse's Blended Equity Composite
Growth of a $10,000 Investment 1/1/83 - 9/30/00
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
Rittenhouse Lipper
Blended Large Cap
Equity S&P S&P/Barra Core
Composite 500 Growth Index Index CPI
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9,425 10,000 10,000 10,000 10,000
-----------------------------------------------------------------------------
1Q83 10,200 11,002 10,876 10,974 10,034
-----------------------------------------------------------------------------
1Q84 11,763 11,962 11,000 11,535 10,508
-----------------------------------------------------------------------------
1Q85 14,635 14,220 13,005 13,807 10,902
-----------------------------------------------------------------------------
1Q86 20,839 19,573 17,983 18,700 11,148
-----------------------------------------------------------------------------
1Q87 25,879 24,698 22,514 22,257 11,486
-----------------------------------------------------------------------------
1Q88 24,164 22,639 19,851 20,552 11,933
-----------------------------------------------------------------------------
1Q89 29,123 26,748 23,050 23,770 12,527
-----------------------------------------------------------------------------
1Q90 33,941 31,902 28,573 27,823 13,183
-----------------------------------------------------------------------------
1Q91 40,165 36,501 34,456 31,803 13,829
-----------------------------------------------------------------------------
1Q92 45,440 40,528 38,808 36,087 14,269
-----------------------------------------------------------------------------
1Q93 49,972 46,702 42,794 40,875 14,709
-----------------------------------------------------------------------------
1Q94 47,895 47,391 41,842 42,211 15,077
-----------------------------------------------------------------------------
1Q95 55,885 54,769 49,528 46,627 15,508
-----------------------------------------------------------------------------
1Q96 72,654 72,356 64,988 59,878 15,950
-----------------------------------------------------------------------------
1Q97 85,413 86,696 79,980 68,817 16,389
-----------------------------------------------------------------------------
1Q98 127,845 128,308 122,413 100,094 16,615
-----------------------------------------------------------------------------
1Q99 146,196 152,002 159,967 116,806 16,901
-----------------------------------------------------------------------------
1Q00 163,793 179,277 199,924 139,310 17,525
-----------------------------------------------------------------------------
3Q00 168,200 172,815 179,690 135,630 17,791
</TABLE>
___ S&P 500 Index $172,815
=== Rittenhouse Blended Equity Composite $168,200
--- Lipper Large Cap Core Index $135,630
... CPI $17,791
Rittenhouse's Blended Equity Composite Returns
<TABLE>
Average Annual Total Returns (as of 9/30/00)
Since Composite
1-Year 5-Year 10-Year Inception (1/1/83)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
On Offer 13.39% 19.36% 17.28% 17.24%
------------------------------------------------------------------------------
On NAV 20.21% 20.78% 17.98% 17.63%
------------------------------------------------------------------------------
S&P 500 Index 13.28% 21.69% 19.44% 17.41%
------------------------------------------------------------------------------
Lipper Large Cap Core 17.72% 20.12% 18.01% 15.82%
------------------------------------------------------------------------------
CPI 3.45% 2.54% 2.73% 3.30%
------------------------------------------------------------------------------
</TABLE>
As of September 30, 2000, the Rittenhouse Blended Equity Composite included
28,157 managed accounts. The managed accounts reflected above are not subject to
all of the same investment restrictions, investment inflows and outflows, and
distribution requirements as the Rittenhouse Growth Fund, which affect fund
performance. We assumed that an investor paid a maximum Class A sales charge of
5.75%, and we deducted from the Rittenhouse Blended Equity Composite's gross-of-
fee returns the Class A gross operating expenses of 1.37% for the fund's most
recent fiscal year. The chart would be different for a Class B, C or R
investment because of their different sales charges and operating expenses. The
Composite's inception date is January 1, 1983. The Lipper Large Cap Core Index
represents the average annualized returns of the 30 largest funds in the Lipper
Large Cap Core Category. The S&P 500 Index is an unmanaged index generally
considered representative of the U.S. stock market. Index returns assume
reinvestment of all dividends but do not include any brokerage commissions,
sales charges or other fees. This chart does not represent past or future
performance of the Rittenhouse Growth Fund.
What the Risks Are
Risk is inherent in all investing. Investing in a mutual fund--even the most
conservative--involves risk, including the risk that you may receive little or
no return on your investment or even that you may lose part or all of your
investment. Therefore before investing you should consider carefully the
following risks that you assume when you invest in these funds. Because of these
and other risks, you should consider an investment in these funds to be a
long-term investment.
Market Risks: As mutual funds investing all or a portion of their assets in
stocks, the funds are subject to market risk. Market risk is the risk that a
particular stock, an industry, or stocks in general may fall in value. The value
of your investment in a fund will go up and down with the prices of the
securities in which the fund invests. The prices of stocks change in response to
many factors, including the historical and prospective earnings
Section 2 How We Manage Your Money 15
<PAGE>
of the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market liquidity.
Foreign investment risk: Securities of foreign issuers present risks beyond
those of domestic securities. The prices of foreign securities can be more
volatile than U.S. stocks due to such factors as political or economic
instability, less publicly available information, exchange rate changes,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards. The securities of developing
countries involve risks greater than, or in addition to, investing in
foreign developed countries.
Concentration risk: The Innovation Fund will be concentrated in the
securities of companies that develop, service, provide or utilize
innovative technologies. This concentration makes the Innovation Fund more
susceptible to any single occurrence affecting the industry and may subject
the fund to greater market risk than more diversified funds. Companies
involved in the technology industry must contend with rapidly changing
technology, worldwide competition, rapid obsolescence of products and
services, government regulation, high research and development costs, loss
of patent protections, cyclical market patterns, evolving industry
standards and frequent new product introductions. The stocks of many
technology companies have exceptionally high price-to-earnings ratios with
little or no earnings histories. In addition, many technology companies
have experienced extreme price and volume fluctuations that often have been
unrelated to their operating performance.
Although the following risk factors are not principal risks, they may still
affect your investment in a fund:
Inflation risk: Like all mutual funds, the funds are subject to inflation
risk. Inflation risk is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of a fund's assets can decline as
can the value of a fund's distributions.
Correlation risk: The U.S. and foreign equity markets often rise and fall
at different times or by different amounts due to economic or other
developments particular to a given country or region. This phenomenon would
tend to lower the overall price volatility of a portfolio that included
both U.S. and foreign stocks. Sometimes, however, global trends will cause
the U.S. and foreign markets to move in the same direction, reducing or
eliminating the risk reduction benefit of international investing.
16 Section 2 How We Manage Your Money
<PAGE>
How We Manage Risk
Time-tested risk management strategies are utilized to help protect your
capital during periods of market uncertainty or weakness. These strategies
include broad portfolio diversification, investment limitations and
hedging. The Innovation Fund and the International Growth Fund also employ
a rigorous sell discipline. While these strategies are utilized to control
or reduce risk, there is no assurance that they will succeed.
Investment Limitations
The funds have adopted certain investment limitations (based on total
assets) that cannot be changed without shareholder approval and are
designed to limit your investment risk and maintain portfolio
diversification. Each fund may not have more than:
. 5% in securities of any one issuer, or 10% of the voting securities of
that issuer (except for U.S. government securities or for 25% of the
fund's total assets);
. 25% in any one industry (except U.S. government securities and, in the
case of the Innovation Fund, the securities of companies that use
innovative technologies to gain a strategic, competitive advantage in
their industries as well as companies that develop, provide and
service those technologies).
Please see the Statement of Additional Information for a more detailed
discussion of investment limitations.
A Focus on Blue Chips
The Rittenhouse Growth Fund invests primarily in equity securities of blue
chip companies. Blue chip companies are generally characterized by their
substantial capitalization, established history of earnings and dividends,
ready access to credit, industry leadership position and superior
management structure. As a result, blue chip companies have historically
exhibited less risk and price volatility than companies lacking these high
quality characteristics. In addition, the large market of publicly held
shares for these companies and substantial trading volume create a high
degree of liquidity for their stocks.
Section 2 How We Manage Your Money 17
<PAGE>
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% of its assets in cash, cash equivalents and
short-term investments as a temporary defensive measure in response to
adverse market conditions, or to keep cash on hand fully invested. During
these periods, the funds may not achieve their investment objectives.
Although these are not principal investment strategies, we may use various
investment techniques designed to hedge against changes in the values of
securities a fund owns or expects to purchase, to limit the risk of price
fluctuations, and to preserve capital. These hedging strategies include
using financial futures contracts, options on financial futures, or stock
index options. To protect against foreign currency exchange rate risk, the
Innovation Fund and the International Growth Fund may enter into foreign
currency hedging transactions, including forward currency exchange
contracts, foreign currency futures contracts and options on foreign
currency futures contracts. These funds may also buy or sell foreign
currencies. These strategies may reduce fund returns and will benefit the
funds largely to the extent we are able to use them successfully. A fund
could lose money on futures transactions or an option can expire
worthless.
18 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
We offer four classes of fund shares, each with a different combination of
sales charges, fees, eligibility requirements and other features. Your
financial advisor can help you determine which class is best for you. We
offer a number of features for your convenience. Please see the Statement
of Additional Information for further details.
What Share Classes We Offer
Class A Shares
You can buy Class A shares at the offering price, which is the net asset
value per share plus an up-front sales charge. You may qualify for a
reduced sales charge, or the sales charge may be waived, as described in
"How to Reduce Your Sales Charge." Class A shares are also subject to an
annual service fee of .25% of your fund's average daily assets which
compensates your financial advisor for providing ongoing service to you.
Nuveen retains the up-front sales charge and the service fee on accounts
with no authorized dealer of record. The up-front Class A sales charge for
the funds is as follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 and over -/1/ - -/1/
</TABLE>
/1/You can buy $1 million or more of Class A shares at net asset value without
an up-front sales charge. Nuveen pays authorized dealers a commission equal to
the sum of 1% of the first $2.5 million, plus 0.50% of the next $2.5 million,
plus 0.25% of any amount over $5 million. Unless the authorized dealer waived
the commission, you may be assessed a contingent deferred sales charge ("CDSC")
of 1% if you redeem any of your shares within 18 months of purchase. The CDSC is
calculated on the lower of your purchase price or your redemption proceeds. You
do not pay a CDSC on any Class A shares you purchase by reinvesting dividends.
Class B Shares
You can buy Class B shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of 1% of your fund's average daily assets. The annual .25% service
fee compensates your financial advisor for providing ongoing service to you.
Nuveen retains the service fee on accounts with no authorized dealer of record.
The annual .75% distribution fee compensates Nuveen for paying your financial
advisor a 4% up-front sales commission, which includes an advance of the first
year's service fee. If you sell your shares within six years of purchase, you
will normally pay a CDSC as shown in the schedule below. The CDSC is based on
your purchase or sale price, whichever is lower. You do not pay a CDSC on any
Class B shares you purchase by reinvesting dividends.
Section 3 How You Can Buy and Sell Shares 19
<PAGE>
Class B shares automatically convert to Class A shares eight years after you
buy them so that the distribution fees you pay over the life of your
investment are limited. You will continue to pay an annual service fee on
any converted Class B shares.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6 Over 6
-------------------------------------------------------------------------------------------------
CDSC 5% 4% 4% 3% 2% 1% None
-------------------------------------------------------------------------------------------------
</TABLE>
Class C Shares
You can buy Class C shares at the offering price, which is the net asset
value per share without any up-front sales charge so that the full amount of
your purchase is invested in the fund. However, you will pay annual
distribution and service fees of 1% of your fund's average daily assets. The
annual .25% service fee compensates your financial advisor for providing
ongoing service to you. Nuveen retains the service fee on accounts with no
authorized dealer of record. The annual .75% distribution fee reimburses
Nuveen for paying your financial advisor an ongoing sales commission. Nuveen
advances the first year's service and distribution fees. If you sell your
shares within 12 months of purchase, you will normally pay a 1% CDSC based
on your purchase or sale price, whichever is lower. You do not pay a CDSC on
any Class C shares you purchase by reinvesting dividends.
Class R Shares
You may purchase Class R shares only under limited circumstances, at the
offering price, which is the net asset value on the day of purchase. In
order to qualify, you must be eligible under one of the programs described
in "How to Reduce Your Sales Charge" (below) or meet certain other purchase
size criteria. Class R shares are not subject to sales charges or ongoing
service or distribution fees. Class R shares have lower ongoing expenses
than the other classes.
How to Reduce Your sales Charge
We offer a number of ways to reduce or eliminate the up-front sales charge
on Class A shares or to qualify to purchase Class R shares.
Class A Sales Charge Reductions
. Rights of Accumulation
. Letter of intent
. Group purchase
Class A Sales Charge Waivers
. Nuveen Defined Portfolio or Exchange-Traded Fund reinvestment
. Retirement plans
. Certain employees and directors of Nuveen or employees of authorized
dealers
. Bank trust departments
Class R Eligibility
. Certain employees and directors of Nuveen or employees of authorized
dealers
. Bank trust departments
In addition, Class A shares at net asset value and Class R shares may be
purchased through registered investment advisors, certified financial
planners and registered broker-dealers who charge asset-based or
20 Section 3 How You Can Buy and Sell Shares
<PAGE>
comprehensive "wrap" fees for their services. Please refer to the Statement
of Additional Information for detailed program descriptions and eligibility
requirements. Additional information is available from your financial
advisor or by calling (800) 257-8787. Your financial advisor can also help
you prepare any necessary application forms. You or your financial advisor
must notify Nuveen at the time of each purchase if you are eligible for any
of these programs. The funds may modify or discontinue these programs at any
time.
How to Buy Shares
Fund shares may be purchased on any business day, which is any day the New
York Stock Exchange is open for business and normally ends at 4 p.m. New
York time. Generally, the Exchange is closed on weekends and national
holidays. The share price you pay will depend on when Nuveen receives your
order. Orders received before the close of trading on a business day will
receive that day's closing share price, otherwise you will receive the next
business day's price.
Through a Financial Advisor
You may buy shares through your financial advisor, who can handle all the
details for you, including opening a new account. Financial advisors can
also help you review your financial needs and formulate long-term investment
goals and objectives. In addition, financial advisors generally can help you
develop a customized financial plan, select investments and monitor and
review your portfolio on an ongoing basis to help assure your investments
continue to meet your needs as circumstances change. Financial advisors are
paid for ongoing investment advice and services either from fund sales
charges and fees or by charging you a separate fee in lieu of a sales
charge. If you do not have a financial advisor, call (800) 257-8787 and
Nuveen can refer you to one in your area.
By Mail
You may open an account and buy shares by mail by completing the enclosed
application and mailing it along with your check to: Nuveen Investor
Services, P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186. No
third party checks will be accepted.
Investment Minimums
The minimum initial investment is $3,000 ($1,000 for a Traditional/Roth IRA
account; $500 for an Education IRA account; $50 through systematic
investment plan accounts) and may be lower for accounts opened through
certain fee-based programs. Subsequent investments must be in amounts of $50
or more. The funds reserve the right to reject purchase orders and to waive
or increase the minimum investment requirements.
Systematic Investing
Systematic investing allows you to make regular investments through
automatic deductions from your bank account, directly from your paycheck or
from exchanging shares from another mutual fund account (simply complete the
appropriate application). The minimum automatic deduction is $50 per month.
There is no charge to participate in each fund's systematic invesment plan.
You can stop the deductions at any time by notifying your fund in writing.
To do this, simply complete the appropriate
Section 3 How You Can Buy and Sell Shares 21
<PAGE>
section of the account application form or submit an Account Update Form.
From Your Bank Account
You can make systematic investments of $50 or more per month by authorizing
us to draw preauthorized checks on your bank account.
From Your Paycheck
With your employer's consent, you can make systematic investments of $25 or
more per pay period (meeting the monthly minimum of $50) by authorizing your
employer to deduct monies from your paycheck.
Systematic Exchanging
You can make systematic investments by authorizing Nuveen to exchange shares
from one Nuveen mutual fund account into another identically registered
Nuveen account of the same share class.
One of the benefits of systematic investing is dollar cost averaging.
Because you regularly invest a fixed amount of money over a period of years
regardless of the share price, you buy more shares when the price is low and
fewer shares when the price is high. As a result, the average share price
you pay should be less than the average share price of fund shares over the
same period. To be effective, dollar cost averaging requires that you invest
over a long period of time and does not assure that you will profit.
Systematic Withdrawal
If the value of your fund account is at least $10,000, you may request to
have $50 or more withdrawn automatically from your account. You may elect to
receive payments monthly, quarterly, semi-annually or annually, and may
choose to receive a check, have the monies transferred directly into your
bank account (see "Special Services--Fund Direct" below), paid to a third
party or sent payable to you at an address other than your address of
record. You must complete the appropriate section of the account application
or Account Update Form to participate in a fund's systematic withdrawal
plan.
You should not establish systematic withdrawals if you intend to make
concurrent purchases of Class A, B or C shares because you may unnecessarily
pay a sales charge or CDSC on these purchases.
Special Services
To help make your investing with us easy and efficient, we offer you the
following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered account at any
time for an appropriate class of another Nuveen mutual fund available in
your state. Your exchange must meet the minimum purchase requirements of the
fund into which you are exchanging. You may have to pay a sales charge when
exchanging shares that you purchased without a sales charge for shares that
are sold with a sales charge. Please consult the Statement of Additional
Information for details.
22 Section 3 How You Can Buy and Sell Shares
<PAGE>
The exchange privilege is not intended to allow you to use a fund for short-term
trading. Because excessive exchanges may interfere with portfolio management,
raise fund operating expenses or otherwise have an adverse effect on other
shareholders, each fund reserves the right to revise or suspend the exchange
privilege, limit the amount or number of exchanges, or reject any exchange.
The funds may change or cancel their exchange policy at any time upon 60 days'
notice. Because an exchange is treated for tax purposes as a purchase and sale,
and any gain may be subject to tax, you should consult your tax advisor about
the tax consequences of exchanging your shares.
Fund Direct(SM)
The Fund Direct Program allows you to link your fund account to your bank
account, transfer money electronically between these accounts and perform a
variety of account transactions, including purchasing shares by telephone and
investing through a systematic investment plan. You may also have dividends,
distributions, redemption payments or systematic withdrawal plan payments sent
directly to your bank account. Your financial advisor can help you complete the
forms for these services, or you can call Nuveen at (800) 257-8787 for copies of
the necessary forms.
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds up to one year later without incurring any additional charges. You may
only reinvest into the same share class you redeemed. If you paid a CDSC, we
will refund your CDSC and reinstate your holding period. You may use this
reinstatement privilege only once for any redemption.
How to Sell Shares
You may sell (redeem) your shares on any business day. You will receive the
share price next determined after Nuveen has received your properly completed
redemption request. Your redemption request must be received before the close of
trading for you to receive that day's price. If you are selling shares purchased
recently with a check, you will not receive your redemption proceeds until your
check has cleared. This may take up to ten business days from your purchase
date. While the funds do not charge a redemption fee, you may be assessed a
CDSC, if applicable. When you redeem Class A, Class B, or Class C shares subject
to a CDSC, each fund will first redeem any shares that are not subject to a
CDSC, and then redeem the shares you have owned for the longest period of time,
unless you ask the fund to redeem your shares in a different order. No CDSC is
imposed on shares you buy through the reinvestment of dividends and capital
gains. The holding period is calculated on a monthly basis and begins on the
first day of the month in which you buy shares. When you redeem shares subject
to a CDSC, the CDSC is calculated on the lower of your purchase price or
redemption proceeds, deducted from your redemption proceeds, and paid to Nuveen.
The CDSC may be waived under certain special circumstances as described in the
Statement of Additional Information.
Section 3 How You Can Buy and Sell Shares 23
<PAGE>
Through Your Financial Advisor
You may sell your shares through your financial advisor who can prepare the
necessary documentation. Your financial advisor may charge for this.
By Telephone
If you have authorized telephone redemption privileges, you can redeem your
shares by calling (800) 257-8787. Telephone redemptions are not available if you
own shares in certificate form and may not exceed $50,000. Checks will only be
issued to you as the shareholder of record and mailed to your address of record.
If you have established Fund Direct privileges, you may have redemption proceeds
transferred electronically to your bank account. We will normally mail your
check the next business day.
By Mail
You can sell your shares at any time by sending a written request to the
appropriate fund, c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green
Station, New York, NY 10274-5186. Your request must include the following
information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person to whom you want your redemption proceeds paid (if
other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if other than the
address of record);
. Any certificates you have for the shares; and
. Any required signature guarantees.
We will normally mail your check the next business day, but in no event more
than seven days after we receive your request. If you purchased your shares by
check, your redemption proceeds will not be mailed until your check has cleared.
Guaranteed signatures are required if you are redeeming more than $50,000, you
want the check payable to someone other than the shareholder of record or you
want the check sent to another address (or the address of record has been
changed within the last 60 days). Signature guarantees must be obtained from a
bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that is otherwise approved by a fund. A
notary public cannot provide a signature guarantee.
Redemptions In-Kind
The funds generally pay redemption proceeds in cash. Under unusual conditions
that make cash payment unwise and for the protection of existing shareholders,
the funds may pay all or a portion of your redemption proceeds in securities or
other fund assets. Although it is unlikely that your shares would be redeemed
in-kind, you would probably have to pay brokerage costs to sell the securities
distributed to you, as well as taxes on any capital gains from that sale.
An Important Note About Telephone Transactions
Although Nuveen Investor Services has certain safeguards and procedures to
confirm the identity of callers, it will not be liable for losses resulting from
following telephone instructions it reasonably believes to be genuine. Also, you
should verify your trade confirmations immediately upon receipt.
An Important Note About Involuntary Redemption
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days' written
notice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
Nuveen Defined Portfolio reinvestment account. You will not be assessed a CDSC
on an involuntary redemption.
24 Section 3 How You Can Buy and Sell Shares
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the funds, this
section includes important details about how the funds make distributions
to shareholders. We discuss some other fund policies, as well.
Dividends, Distributions and Taxes
The funds intend to pay income dividends and any taxable gains
annually.
Payment and Reinvestment Options
The funds automatically reinvest your dividends in additional fund shares
unless you request otherwise. You may request to have your dividends paid
to you by check, deposited directly into your bank account, paid to a third
party, sent to an address other than your address of record or reinvested
in shares of another Nuveen mutual fund. For further information, contact
your financial advisor or call Nuveen at (800) 257-8787.
Foreign Income Tax Considerations
Investment income that the funds receive from their foreign investments may
be subject to foreign income taxes, which generally will reduce fund
distributions. However, the U.S. has entered into tax treaties with many
foreign countries that may entitle you to certain tax benefits.
Taxes and Tax Reporting
The funds will make distributions that may be taxed as ordinary income or
capital gains (which may be taxable at different rates, depending on the
length of time a fund holds its assets). Dividends from a fund's long-term
capital gains are taxable as capital gains, while dividends from short-term
capital gains and net investment income are generally taxable as ordinary
income. The tax you pay on a given capital gains distribution depends
generally on how long the fund has held the portfolio securities it sold.
It does not depend on how long you have owned your fund shares. Dividends
generally do not qualify for a dividends received deduction if you are a
corporate shareholder.
Early in each year, you will receive a statement detailing the amount and
nature of all dividends and capital gains that you were paid during the
prior year. If you hold your investment at the firm where you purchased
your fund shares, you will receive the statement from that firm. If you
hold your shares directly at the fund, Nuveen will send you the statement.
The tax status of your dividends is the same whether you reinvest your
dividends or elect to receive them in cash. The sale of shares in your
account may produce a gain or loss, and is a taxable event. For tax
purposes, an exchange is generally the same as a sale.
Please note that if you do not furnish your fund with your correct Social
Security number or employer identification number, federal law requires the
fund to withhold federal income tax from your distributions and redemption
proceeds, currently at a rate of 31%.
Section 4 General Information 25
<PAGE>
Please consult the Statement of Additional Information and your tax advisor
for more information about taxes.
Buying or Selling Shares Close to a Record Date
Buying fund shares shortly before the record date for a taxable dividend is
commonly known as "buying the dividend." The entire dividend may be taxable
to you even though a portion of the dividend effectively represents a
return of your purchase price.
Distribution and Service Plans
Nuveen serves as the selling agent and distributor of the funds' shares. In
this capacity, Nuveen manages the offering of the funds' shares and is
responsible for all sales and promotional activities. In order to reimburse
Nuveen for its costs in connection with these activities, including
compensation paid to authorized dealers, each fund has adopted a
distribution and service plan in accordance with Rule 12b-1 under the
Investment Company Act of 1940. (See "How You Can Buy and Sell Shares" for
a description of the distribution and service fees paid under this plan.)
Nuveen receives the distribution fee for Class B and Class C shares
primarily for providing compensation to authorized dealers, including
Nuveen, in connection with the distribution of shares. Nuveen uses the
service fee for Class A, Class B, and Class C shares to compensate
authorized dealers, including Nuveen, for providing ongoing account
services to shareholders. These services may include establishing and
maintaining shareholder accounts, answering shareholder inquiries, and
providing other personal services to shareholders. These fees also
compensate Nuveen for other expenses, including printing and distributing
prospectuses to persons other than shareholders, and preparing, printing,
and distributing advertising and sales literature and reports to
shareholders used in connection with the sale of shares. Because these fees
are paid out of a fund's assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
Nuveen periodically undertakes sales promotion programs with authorized
dealers and may pay them the full applicable sales charge as a commission.
In addition, Nuveen may provide support at its own expense to authorized
dealers in connection with sales meetings, seminars, prospecting seminars
and other events at which Nuveen presents its products and services. Under
certain circumstances, Nuveen also will share with authorized dealers up to
half the costs of advertising that features the products and services of
both parties. The Statement of Additional Information contains further
information about these programs.
26 Section 4 General Information
<PAGE>
Net Asset Value
The price you pay for your shares is based on the fund's net asset value
per share which is determined as of the close of trading (normally 4:00
p.m. New York time) on each day the New York Stock Exchange is open for
business. Net asset value is calculated for each class of each fund by
taking the value of the class' total assets, including interest or
dividends accrued but not yet collected, less all liabilities, and dividing
by the total number of shares outstanding. The result, rounded to the
nearest cent, is the net asset value per share. All valuations are subject
to review by the funds' Board of Trustees or its delegate.
In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are
valued at market value. Common stocks and other equity securities are
valued at the last sales price that day. Common stocks and other equity
securities not listed on a securities exchange or Nasdaq are valued at the
most recent bid prices. The prices of fixed-income securities are provided
by a pricing service and based on the mean between the bid and asked price.
When price quotes are not readily available the pricing service establishes
fair value based on prices of comparable securities. In addition, if it is
determined that market prices for a security are unavailable or
inappropriate, the Board of Trustees of the funds, or its designee, may
establish a fair value for the security. See the Statement of Additional
Information for details.
If a fund hold securities that are primarily listed on foreign exchanges,
the net asset value of the fund's shares may change on days when
shareholders will not be able to purchase or redeem the fund's shares.
Fund Service Providers
The custodian of the assets of the funds is The Chase Manhattan Bank, 4 New
York Plaza, New York, NY 10004-2413. Chase also provides certain accounting
services to the funds. The funds' transfer, shareholder services and
dividend paying agent, Chase Global Funds Services Company, P.O. Box 5186,
Bowling Green Station, New York, NY 10274-5186, performs bookkeeping, data
processing and administrative services for the maintenance of shareholder
accounts.
Section 4 General Information 27
<PAGE>
Section 5 Financial Highlights
The financial highlights table is intended to help you
understand a fund's financial performance for the period of the
fund's operations. Certain information reflects financial
results for a single fund share. The total returns in the table
represent the rate that an investor would have earned on an
investment in a fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur
Andersen LLP, whose report, along with the fund's financial
statements, are included in the Statement of Additional
Information and annual report, which are available upon request.
Nuveen Innovation Fund
<TABLE>
<CAPTION>
Investment Operations Less Distributions Ratios/Supplemental Data
Class Ratio of Net
(Inception Net Investment
Date) Realized Ratio of Income
Net and Ending Ending Expenses (Loss)
Beginning Investment Unrealized Net Net Net to Average to Average Portfolio
Year Ended Net Asset Income Investment Investment Capital Asset Total Assets Net Net Turnover
July 31, Value (Loss) Gain (Loss) Total Income Gains Total Value Return(a) (000) Assets(b) Assets(b) Rate
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
(12/99)
2000 (c) $20.00 $(.26) $3.53 $3.27 $ - $ - $ - $23.27 16.30% $22,838 1.89%* (1.82)%* 117%
Class B
(12/99)
2000 (c) 20.00 (.37) 3.52 3.15 - - - 23.15 15.70 33,288 2.63* (2.56)* 117
Class C
(12/99)
2000 (c) 20.00 (.37) 3.54 3.17 - - - 23.17 15.80 39,907 2.60* (2.53)* 117
Class R
(12/99)
2000 (c) 20.00 (.21) 3.50 3.29 - - - 23.29 16.45 4,020 1.51* (1.47)* 117
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are 1.86%*, 2.60%*, 2.57%* and 1.48%* for classes A, B,
C and R, respectively, and the Ratios of Net Investment Income (Loss) to
Average Net Assets for 2000 are (1.79)%*, (2.53)%*, (2.50)%* and (1.44)%*
for classes A, B, C and R, respectively.
(c) From commencement of class operations as noted.
28 Section 5 Financial Highlights
<PAGE>
Nuveen International Growth Fund
<TABLE>
<CAPTION>
Investment Operations Less Distributions Ratios/Supplemental Data
Class Ratio of Net
(Inception Net Investment
Date) Realized Ratio of Income
Net and Ending Ending Expenses (Loss)
Beginning Investment Unrealized Net Net Net to Average to Average Portfolio
Year Ended Net Asset Income Investment Investment Capital Asset Total Assets Net Net Turnover
July 31, Value (Loss) Gain (Loss) Total Income Gains Total Value Return(a) (000) Assets(b) Assets(b) Rate
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
(12/99)
2000 (c) $20.00 $(.15) $3.08 $2.93 $ - $ - $ - $22.93 14.65% $10,676 1.82%* (1.05)%* 111%
Class B
(12/99)
2000 (c) 20.00 (.25) 3.07 2.82 - - - 22.82 14.10 6,435 2.57* (1.76)* 111
Class C
(12/99)
2000 (c) 20.00 (.24) 3.06 2.82 - - - 22.82 14.10 6,925 2.58* (1.75)* 111
Class R
(12/99)
2000 (c) 20.00 (.12) 3.08 2.96 - - - 22.96 14.80 14,265 1.50* (.90)* 111
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are 1.75%*, 2.50%*, 2.51%* and 1.43%* for classes A, B,
C and R, respectively, and the Ratios of Net Investment Income (Loss) to
Average Net Assets for 2000 are (.99)%*, (1.70)%*, (1.69)%* and (.84)%* for
classes A, B, C and R, respectively.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 29
<PAGE>
Nuveen Rittenhouse Growth Fund
<TABLE>
<CAPTION>
Investment Operations Less Distributions Ratios/Supplemental Data
Class Ratio of Net
(Inception Net Investment
Date) Realized Ratio of Income
Net and Ending Ending Expenses (Loss)
Beginning Investment Unrealized Net Net Net to Average to Average Portfolio
Year Ended Net Asset Income Investment Investment Capital Asset Total Assets Net Net Turnover
July 31, Value (Loss) Gain (Loss) Total Income Gains Total Value Return(a) (000) Assets(b) Assets(b) Rate
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (12/97)
2000 $25.10 $(.12) $4.12 $4.00 $ - $(.01) $(.01) $29.09 15.93% $121,610 1.35% (.45)% 28%
1999 22.75 (.04) 2.45 2.41 - (.06) (.06) 25.10 10.62 101,080 1.27 (.18) 22
1998 (c) 20.00 (.01) 2.76 2.75 - - - 22.75 13.75 43,092 1.35* (.09)* 4
Class B (12/97)
2000 24.82 (.33) 4.07 3.74 - (.01) (.01) 28.55 15.01 287,993 2.10 (1.20) 28
1999 22.66 (.23) 2.45 2.22 - (.06) (.06) 24.82 9.86 222,156 2.01 (.93) 22
1998 (c) 20.00 (.11) 2.77 2.66 - - - 22.66 13.30 81,823 2.10* (.84)* 4
Class C (12/97)
2000 24.84 (.33) 4.06 3.73 - (.01) (.01) 28.56 15.01 190,520 2.10 (1.20) 28
1999 22.67 (.23) 2.46 2.23 - (.06) (.06) 24.84 9.86 146,927 2.01 (.93) 22
1998 (c) 20.00 (.11) 2.78 2.67 - - - 22.67 13.35 43,260 2.10* (.84)* 4
Class R (12/97)
2000 25.22 (.05) 4.13 4.08 - (.01) (.01) 29.29 16.17 49,256 1.10 (.19) 28
1999 22.79 .02 2.47 2.49 - (.06) (.06) 25.22 10.95 45,211 1.03 .08 22
1998 (c) 20.00 .03 2.76 2.79 - - - 22.79 13.95 37,664 1.10* .20* 4
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) From commencement of class operations as noted.
30 Section 5 Financial Highlights
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
Growth
International Growth Fund
Innovation Fund
Nuveen Rittenhouse Growth Fund
Growth and Income
Growth and Income Stock Fund
European Value Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Income
Income Fund
Floating Rate Fund/1/
Tax-Free Income
National Municipal Bond Funds
High Yield
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona Louisiana North Carolina
California/2/ Maryland Ohio
Colorado Massachusetts/2/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky New York/2/
Cash Reserves
Money Market Fund
Municipal Money Market Fund
California Tax-Exempt Money Market Fund
New York Tax-Exempt Money Market Fund
Several additional sources of information are available to you, including the
codes of ethics adopted by the funds, Nuveen and NIAC. The Statement of
Additional Information ("SAI"), incorporated by reference into this prospectus,
contains detailed information on the policies and operation of the funds
included in this prospectus. Additional information about the funds' investments
is available in the funds' annual and semi-annual reports to shareholders. In
the funds' annual reports, you will find a discussion of the market conditions
and investment strategies that significantly affected the funds' performance
during their last fiscal year. Call Nuveen at (800) 257-8787 to request a free
copy of any of these materials or other fund information; or ask your financial
advisor for copies.
You may also obtain this and other fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request fund information by sending
an e-mail request to [email protected] or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549. The funds'
Investment Company file number is 811-08333.
1. This is a continuously-offered closed-end interval fund. As such, redemptions
are only available during quarterly repurchase periods. See fund prospectus
for additional information.
2. Long-term and insured long-term portfolios.
EPR-CCI-RIT 11-00 NA
N U V E E N
Investments
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
<PAGE>
Statement of Additional Information
November 28, 2000
Nuveen Investment Trust II
333 West Wacker Drive
Chicago, Illinois 60606
NUVEEN INNOVATION FUND
NUVEEN INTERNATIONAL GROWTH FUND
NUVEEN RITTENHOUSE GROWTH FUND
NUVEEN SELECT STOCK FUND
This Statement of Additional Information is not a prospectus. A prospectus may
be obtained without charge from certain securities representatives, banks and
other financial institutions that have entered into sales agreements with
Nuveen Investments ("Nuveen"), or from the Funds by written request to the ap-
plicable Fund, c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green Sta-
tion, New York, NY 10274-5186 or by calling 800-257-8787. This Statement of
Additional Information relates to, and should be read in conjunction with, the
Prospectus for the Nuveen Innovation Fund, Nuveen International Growth Fund
and Nuveen Rittenhouse Growth Fund, dated November 28, 2000 and the Prospectus
for the Nuveen Select Stock Fund, dated September 26, 2000.
<TABLE>
<S> <C>
Table of Contents Page
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General Information B-2
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Investment Policies and Restrictions B-2
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Investment Policies and Techniques B-4
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Management B-27
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Fund Manager and Sub-Advisers B-33
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Portfolio Transactions B-35
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Net Asset Value B-37
------------------------------------------------------------------------------
Tax Matters B-38
------------------------------------------------------------------------------
Performance Information B-44
------------------------------------------------------------------------------
Additional Information on the Purchase and Redemption of Fund Shares and
Shareholder Programs B-52
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Distribution and Service Plans B-65
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Independent Public Accountants, Custodian and Transfer Agent B-67
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Financial Statements B-67
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General Trust Information B-67
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Appendix A--Ratings of Investments A-1
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</TABLE>
The audited financial statements for each Fund's most recent fiscal year
(other than the Nuveen Select Stock Fund) appear in the Funds' Annual Reports,
which are incorporated herein by reference. The Annual Reports accompany this
Statement of Additional Information.
<PAGE>
GENERAL INFORMATION
The Nuveen Innovation Fund (the "Innovation Fund"), Nuveen International Growth
Fund (the "International Fund"), Nuveen Rittenhouse Growth Fund (the "Ritten-
house Fund") and Nuveen Select Stock Fund (the "Select Stock Fund") (individu-
ally a "Fund" and collectively, the "Funds") are open-end management investment
companies and are series of the Nuveen Investment Trust II (the "Trust"). The
Innovation Fund, International Fund and Rittenhouse Fund are diversified funds.
The Select Stock Fund is a non-diversified fund. Each series of the Trust rep-
resents shares of beneficial interest in a separate portfolio of securities and
other assets, with its own objectives and policies. Currently, four series of
the Trust are authorized and outstanding.
Certain matters under the Investment Company Act of 1940, which must be submit-
ted to a vote of the holders of the outstanding voting securities of a series
company, shall not be deemed to have been effectively acted upon unless ap-
proved by the holders of a majority of the outstanding voting securities of
each series affected by such matter.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Restrictions
The investment objective and certain fundamental investment policies of the
Funds are described in the Prospectuses for the Funds. The Funds, as a funda-
mental policy, may not, without the approval of the holders of a majority of
the shares of the Funds:
(1) With respect to 75% of the total assets of the Innovation Fund, Interna-
tional Fund and Rittenhouse Fund, individually, purchase the securities of any
issuer (except securities issued or guaranteed by the United States government
or any agency or instrumentality thereof) if, as a result, (i) more than 5% of
a Fund's total assets would be invested in securities of that issuer, or (ii) a
Fund would hold more than 10% of the outstanding voting securities of that is-
suer.
(2) With respect to the Innovation Fund, International Fund and Select Stock
Fund, borrow money, except that a Fund may (i) borrow money from banks for tem-
porary or emergency purposes (but not for leverage or the purchase of invest-
ments) and (ii) engage in other transactions permissible under the Investment
Company Act of 1940 that may involve a borrowing (such as obtaining such short-
term credits as are necessary for the clearance of transactions, engaging in
delayed-delivery transactions, or purchasing certain futures and options), pro-
vided that the combination of (i) and (ii) shall not exceed 33 1/3% of the
value of a Fund's total assets (including the amount borrowed), less a Fund's
liabilities (other than borrowings).
(3) With respect to the Rittenhouse Fund, borrow money, except that the Fund
may (i) borrow money from banks for temporary or emergency purposes (but not
for leverage or the purchase of investments) and (ii) make other investments or
engage in other transactions permissible under the Investment Company Act of
1940 that may involve a borrowing, provided that the combination of (i) and
(ii) shall not exceed 33 1/3% of the value of the Fund's total assets (includ-
ing the amount borrowed), less the Fund's liabilities (other than borrowings).
(4) Act as an underwriter of another issuer's securities, except to the extent
that a Fund may be deemed to be an underwriter within the meaning of the Secu-
rities Act of 1933 in connection with the purchase and sale of portfolio secu-
rities.
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(5) Make loans to other persons, except through (i) the purchase of debt secu-
rities permissible under a Fund's investment policies, (ii) repurchase agree-
ments, or (iii) the lending of portfolio securities, provided that no such loan
of portfolio securities may be made by a Fund if, as a result, the aggregate of
such loans would exceed 33 1/3% of the value of the Fund's total assets.
(6) Purchase or sell physical commodities unless acquired as a result of owner-
ship of securities or other instruments (but this shall not prevent a Fund from
purchasing or selling options, futures contracts, or other derivative instru-
ments, or from investing in securities or other instruments backed by physical
commodities).
(7) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prohibit a Fund from pur-
chasing or selling securities or other instruments backed by real estate or of
issuers engaged in real estate activities).
(8) Issue senior securities, except as permitted under the Investment Company
Act of 1940.
(9) Purchase the securities of any issuer if, as a result, 25% or more of a
Fund's total assets would be invested in the securities of issuers whose prin-
cipal business activities are in the same industry; except that this restric-
tion shall not be applicable to: (1) securities issued or guaranteed by the
U.S. government or any agency or instrumentality thereof; (2) the Innovation
Fund in regards to its concentration of more than 25% of its assets in compa-
nies that use innovative technologies to gain a strategic, competitive advan-
tage in their industries as well as companies that develop, provide and service
those technologies; and (3) the Select Stock Fund in regards to its possible
concentration of more than 25% of its assets in companies in a given industry
if the Peroni Select Stock List (or any successor stock list that the Select
Stock Fund may utilize) is also concentrated in such industry.
Except for restriction (3) that relates exclusively to the Rittenhouse Fund,
the foregoing restrictions and limitations will apply only at the time of pur-
chase of securities, and the percentage limitations will not be considered vio-
lated unless an excess or deficiency occurs or exists immediately after and as
a result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment ob-
jective of each Fund and certain other policies specifically identified in the
applicable Prospectus, cannot be changed without approval by holders of a "ma-
jority of the Fund's outstanding voting shares." As defined in the Investment
Company Act of 1940, this means the vote of (i) 67% or more of the Fund's
shares present at a meeting, if the holders of more than 50% of the Fund's
shares are present or represented by proxy, or (ii) more than 50% of the Fund's
shares, whichever is less.
In addition to the foregoing fundamental investment policies, the Funds are
also subject to the following non-fundamental restrictions and policies, which
may be changed by the Board of Trustees. The Funds may not:
(1) Sell securities short, unless a Fund owns or has the right to obtain secu-
rities equivalent in kind and amount to the securities sold short at no added
cost, and provided that transactions in options, futures contracts, options on
futures contracts, or other derivative instruments are not deemed to constitute
selling securities short.
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(2) Purchase securities on margin, except that a Fund may obtain such short
term credits as are necessary for the clearance of transactions; and provided
that margin deposits in connection with futures contracts, options on futures
contracts, or other derivative instruments shall not constitute purchasing se-
curities on margin.
(3) With respect to the Innovation Fund, International Fund and Select Stock
Fund, pledge, mortgage or hypothecate any assets owned by a Fund except as may
be necessary in connection with permissible borrowings or investments and then
such pledging, mortgaging, or hypothecating may not exceed 33 1/3% of a Fund's
total assets at the time of the borrowing or investment.
(4) With respect to the Innovation Fund, International Fund and Select Stock
Fund, purchase securities of open-end or closed-end investment companies except
in compliance with the Investment Company Act of 1940 and applicable state law.
(5) With respect to the Rittenhouse Fund, purchase securities of open-end and
closed-end investment companies except in compliance with the Investment Com-
pany Act of 1940.
(6) Enter into futures contracts or related options if more than 30% of a
Fund's net assets would be represented by futures contracts or more than 5% of
a Fund's net assets would be committed to initial margin deposits and premiums
on futures contracts and related options.
(7) With respect to the Rittenhouse Fund, enter into futures contracts or re-
lated options if more than 30% of the Fund's net assets would be represented by
such instruments or more than 5% of the Fund's net assets would be committed to
initial margin deposits and premiums on futures contacts and related options.
(8) Invest in direct interests in oil, gas or other mineral exploration pro-
grams or leases; however, a Fund may invest in the securities of issuers that
engage in these activities.
(9) Purchase securities when borrowings exceed 5% of its total assets. If due
to market fluctuations or other reasons, the value of a Fund's assets falls be-
low 300% of its borrowings, the Fund will reduce its borrowings within 3 busi-
ness days. To do this, the Fund may have to sell a portion of its investments
at a time when it may be disadvantageous to do so.
(10) Invest in illiquid securities if, as a result of such investment, more
than 15% of a Fund's net assets would be invested in illiquid securities.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Funds' investment
objectives, policies, and techniques that are described in the Prospectuses for
the Funds.
Equity Securities for the Rittenhouse Fund
Under normal market conditions, the Rittenhouse Fund invests primarily in eq-
uity securities of blue chip companies. Equity Securities for the Rittenhouse
Fund include common stocks; preferred stocks; warrants to purchase common
stocks or preferred stocks; securities convertible into common or preferred
stocks, such as convertible bonds and debentures; and other securities with eq-
uity characteristics. The Rittenhouse Fund expects to be substantially fully
invested in Equity Securities under normal market conditions, and will invest
at least 65% of its total assets in Equity Securities which do not include war-
rants or rights to purchase common stock.
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Convertible securities for the Rittenhouse Fund must be rated A or higher by
Moody's Investors Service ("Moody's"), Standard & Poor's ("S&P"), Duff &
Phelps, Inc. ("D&P") or Fitch IBCA, Inc. ("Fitch") when purchased. A general
description of ratings may be found in Appendix A.
In addition, the Rittenhouse Fund may invest up to 15% of its net assets in eq-
uity securities of foreign issuers, either directly in U.S. market-traded secu-
rities of those issuers or indirectly through investments in American Deposi-
tary Receipts ("ADRs") or other instruments denominated in U.S. dollars, as de-
scribed in "Securities of Foreign Issuers" below.
Cash Equivalents and Short-Term Investments
Short-Term Taxable Fixed Income Securities
The Innovation Fund and International Fund may invest up to 35% of their total
assets and the Select Stock Fund may invest up to 20% of its total assets, and
for temporary defensive purposes or to keep cash on hand fully invested up to
100% of their total assets, in cash equivalents, money market funds and short-
term taxable fixed income securities from issuers having a long-term rating of
at least A or higher by S&P, Moody's or Fitch, or A- or higher by Duff &
Phelps, Inc. ("D&P"), or determined by the portfolio manager to be of compara-
ble quality, and having a maturity of one year or less. For temporary defensive
purposes and to keep cash on hand fully invested, the Rittenhouse Fund may in-
vest up to 100% of its total assets in cash equivalents and short-term taxable
fixed income securities. Cash equivalents and short-term fixed income securi-
ties must be from issuers having a long-term rating of at least A or higher by
S&P, Moody's or Fitch, or A- or higher by D&P, and must have a maturity of one
year or less. Such securities include, without limitation, the following:
Short-term taxable fixed income securities are defined to include, without lim-
itation, the following;
(1) Each Fund may invest in U.S. government securities, including bills, notes
and bonds differing as to maturity and rates of interest, which are either is-
sued or guaranteed by the U.S. Treasury or by U.S. government agencies or in-
strumentalities. U.S. government agency securities include securities issued by
(a) the Federal Housing Administration, Farmers Home Administration, Export-Im-
port Bank of the United States, Small Business Administration, and the Govern-
ment National Mortgage Association, whose securities are supported by the full
faith and credit of the United States; (b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks, and the Tennessee Valley Authority, whose securities
are supported by the right of the agency to borrow from the U.S. Treasury; (c)
the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain obliga-
tions of the agency or instrumentality; and (d) the Student Loan Marketing As-
sociation, whose securities are supported only by its credit. While the U.S.
government provides financial support to such U.S. government-sponsored agen-
cies or instrumentalities, no assurance can be given that it always will do so
since it is not so obligated by law. The U.S. government, its agencies, and in-
strumentalities do not guarantee the market value of their securities, and con-
sequently, the value of such securities may fluctuate. In addition, each Fund
other than the Rittenhouse Fund, may invest in sovereign debt obligations of
foreign countries. A sovereign debtor's willingness or ability to repay princi-
pal and interest in a timely manner may be affected by a number of factors, in-
cluding its cash flow situation, the extent of its foreign reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the rela-
tive size of the debt service burden to the economy as a whole, the sovereign
debtor's policy toward principal international lenders and the political
constraints to which it may be subject.
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(2) Each Fund may invest in certificates of deposit issued against funds depos-
ited in a bank or savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are normally ne-
gotiable. If such certificates of deposit are non-negotiable, they will be con-
sidered illiquid securities and be subject to the Fund's 15% restriction on in-
vestments in illiquid securities. Pursuant to the certificate of deposit, the
issuer agrees to pay the amount deposited plus interest to the bearer of the
certificate on the date specified thereon. Under current FDIC regulations, the
maximum insurance payable as to any one certificate of deposit is $100,000;
therefore, certificates of deposit purchased by a Fund may not be fully in-
sured.
(3) Each Fund may invest in bankers' acceptances, which are short-term credit
instruments used to finance commercial transactions. Generally, an acceptance
is a time draft drawn on a bank by an exporter or an importer to obtain a
stated amount of funds to pay for specific merchandise. The draft is then "ac-
cepted" by a bank that, in effect, unconditionally guarantees to pay the face
value of the instrument on its maturity date. The acceptance may then be held
by the accepting bank as an asset or it may be sold in the secondary market at
the going rate of interest for a specific maturity.
(4) The Nuveen Innovation Fund may invest in Eurodollar certificates of depos-
it, which are certificates of deposit issued by foreign banks that are denomi-
nated in U.S. dollars.
(5) Each Fund may invest in repurchase agreements which involve purchases of
debt securities. In such an action, at the time the Fund purchases the securi-
ty, it simultaneously agrees to resell and redeliver the security to the sell-
er, who also simultaneously agrees to buy back the security at a fixed price
and time. This assures a predetermined yield for the Fund during its holding
period since the resale price is always greater than the purchase price and re-
flects an agreed-upon market rate. Such actions afford an opportunity for a
Fund to invest temporarily available cash. A Fund may enter into repurchase
agreements only with respect to obligations of the U.S. government, its agen-
cies or instrumentalities; certificates of deposit; or bankers' acceptances in
which the Fund may invest. Repurchase agreements may be considered loans to the
seller, collateralized by the underlying securities. The risk to the Fund is
limited to the ability of the seller to pay the agreed-upon sum on the repur-
chase date; in the event of default, the repurchase agreement provides that the
affected Fund is entitled to sell the underlying collateral. If the value of
the collateral declines after the agreement is entered into, however, and if
the seller defaults under a repurchase agreement when the value of the under-
lying collateral is less than the repurchase price, the Fund could incur a loss
of both principal and interest. The portfolio manager monitors the value of the
collateral at the time the action is entered into and at all times during the
term of the repurchase agreement. The portfolio manager does so in an effort to
determine that the value of the collateral always equals or exceeds the agreed-
upon repurchase price to be paid to the Fund. If the seller were to be subject
to a federal bankruptcy proceeding, the ability of the Fund to liquidate the
collateral could be delayed or impaired because of certain provisions of the
bankruptcy laws.
(6) Each Fund may invest in bank time deposits, which are monies kept on de-
posit with banks or savings and loan associations for a stated period of time
at a fixed rate of interest. There may be penalties for the early withdrawal of
such time deposits, in which case the yields of these investments will be re-
duced.
(7) Each Fund may invest in commercial paper, which are short-term unsecured
promissory notes, including variable rate master demand notes issued by corpo-
rations to finance their current operations. Master demand notes are direct
lending arrangements between a Fund and a corporation. There is no second-
ary market for the notes. However, they are redeemable by the Fund at any time.
The portfolio manager
B-6
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will consider the financial condition of the corporation (e.g., earning power,
cash flow, and other liquidity ratios) and will continuously monitor the cor-
poration's ability to meet all of its financial obligations, because the
Fund's liquidity might be impaired if the corporation were unable to pay prin-
cipal and interest on demand. The Innovation Fund, International Fund and Se-
lect Stock Fund may only invest in commercial paper rated A-2 or better by
S&P, Prime-2 or higher by Moody's, Duff 2 or higher by D&P or Fitch 2 or
higher by Fitch, or unrated commercial paper which is, in the opinion of the
portfolio manager, of comparable quality. The Rittenhouse Fund may only invest
in commercial paper rated A-1 or better by S&P, Prime-1 or better by Moody's,
Duff 2 or higher by D&P or Fitch 2 or higher by Fitch, or unrated commercial
paper which is, in the opinion of the portfolio manager, of comparable quali-
ty.
Foreign Securities
Investments in securities of foreign issuers involve risks in addition to the
usual risks inherent in domestic investments, including currency risks. The
value of a foreign security in U.S. dollars tends to decrease when the value
of the U.S. dollar rises against the foreign currency in which the security is
denominated and sends to increase when the value of the U.S. dollar falls
against such currency.
Foreign securities are affected by the fact that in many countries there is
less publicly available information about issuers than is available in the re-
ports and ratings published about companies in the U.S. and companies may not
be subject to uniform accounting, auditing and financial reporting standards.
Other risks inherent in foreign investments include expropriation; confisca-
tory taxation; withholding taxes on dividends and interest; less extensive
regulation of foreign brokers, securities markets and issuers; diplomatic de-
velopments; and political or social instability. Foreign economies may differ
favorably or unfavorably from the U.S. economy in various respects, and many
foreign securities are less liquid and their prices tend to be more volatile
than comparable U.S. securities. From time to time, foreign securities may be
difficult to liquidate rapidly without adverse price effects.
The Funds may invest in foreign securities by purchasing depositary receipts,
including ADRs, European Depository Receipts ("EDRs"), or Global Depositary
Receipts ("GDRs"), or other securities representing indirect ownership inter-
ests in the securities of foreign issuers. However, the Rittenhouse Fund and
Select Stock Fund may only purchase depositary receipts denominated in U.S.
dollars. Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets, while EDRs and GDRs,
in bearer form, may be denominated in other currencies and are designed for
use in European and other markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying foreign se-
curity. ADRs do not eliminate all the risk inherent in investing in foreign
issuers, such as changes in foreign currency exchange rates. However, by in-
vesting in ADRs rather than directly in foreign issuers' stock, the Funds
avoid currency risks during the settlement period. For purposes of a Fund's
investment policies, ADRs, EDRs, and GDRs are deemed to have the same classi-
fication as the underlying securities they represent, except that ADRs, EDRs,
and GDRs shall be treated as indirect foreign investments. Thus, an ADR, EDR,
or GDR representing ownership of common stock will be treated as common stock.
ADRs, EDRs, and GDRs do not eliminate all of the risks associated with di-
rectly investing in the securities of foreign issuers.
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Other types of depositary receipts include American Depositary Shares ("ADSs"),
Global Depositary Certificates ("GDCs"), and International Depositary Receipts
("IDRs"). ADSs are shares issued under a deposit agreement representing the un-
derlying ordinary shares that trade in the issuer's home market. An ADR, de-
scribed above, is a certificate that represents a number of ADSs. GDCs and IDRs
are typically issued by a foreign bank or trust company, although they may
sometimes also be issued by a U.S. bank or trust company. GDCs and IDRs are de-
positary receipts that evidence ownership of underlying securities issued by
either a foreign or a U.S. corporation.
Depositary receipts may be available through "sponsored" or "unsponsored" fa-
cilities. A sponsored facility is established jointly by a depositary and the
issuer of the security underlying the receipt. An unsponsored facility may be
established by a depositary without participation by the issuer of the security
underlying the receipt. There are greater risks associated with holding
unsponsored depositary receipts. For example, if a Fund holds an unsponsored
depositary receipt, it will generally bear all of the costs of establishing the
unsponsored facility. In addition, the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications re-
ceived from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
The Funds may also invest directly in the securities of foreign issuers. The
Innovation Fund may invest up to 15% of its assets in securities which are
traded principally in securities markets outside the U.S. and may invest with-
out limit in securities of foreign issuers that are traded in U.S. markets. The
International Fund may invest up to 100% of its assets in the securities of
foreign issuers. The Select Stock Fund may invest up to 20% of its assets in
equity securities of foreign issuers that are traded in U.S. security markets,
ADRs, or other depositary receipts denominated in U.S. dollars. The Rittenhouse
Fund may invest up to 15% of its net assets in equity securities of foreign is-
suers, either directly in equity securities of those issuers traded in U.S. se-
curities markets, or indirectly in ADRs or other instruments denominated in
U.S. dollars that permit indirect investment in foreign securities. The foreign
issuers in which the Rittenhouse Fund invests are generally large-capitaliza-
tion companies having characteristics similar to those the Fund seeks in in-
vestments in U.S. issuers listed on U.S. exchanges.
In considering whether to invest in the securities of a foreign company, the
portfolio manager considers such factors as the characteristics of the particu-
lar company, differences between economic trends, and the performance of secu-
rities markets within the U.S. and those within other countries. The portfolio
manager also considers factors relating to the general economic, governmental,
and social conditions of the country or countries where the company is located.
The Innovation Fund and International Fund may purchase debt obligations issued
or guaranteed by governments (including states, provinces or municipalities) of
countries other than the United States, or by their agencies, authorities, or
instrumentalities. Such Funds also may purchase debt obligations issued or
guaranteed by supranational entities organized or supported by several national
governments, such as the International Bank for Reconstruction and Development
(the "World Bank"), the Inter-American Development Bank, the Asian Development
Bank, and the European Investment Bank. In addition, the Innovation Fund and
the International Fund may purchase debt obligations of foreign corporations or
financial institutions, such as Yankee bonds (dollar-denominated bonds sold in
the United States by non-U.S. issuers), Samurai bonds (yen-denominated bonds
sold in Japan by non-Japanese issuers), and Euro bonds (bonds not issued in the
country (and possibly not the currency of the country) of the issuer).
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The investments of the Innovation Fund and International Fund may be allocated
among securities denominated in the currencies of a number of foreign coun-
tries and, within each such country, among different types of securities. The
percentage of assets invested in securities of a particular country or denomi-
nated in a particular currency will vary in accordance with the portfolio man-
ager's assessment of the country's gross domestic product, purchasing power
parity and market capitalization and the relationship of a country's currency
to the United States dollar.
Securities transactions conducted outside the U.S. may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other instru-
ments. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in a Fund's ability to act upon economic events occurring in for-
eign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and the margin require-
ments than in the U.S., (v) currency exchange rate changes, and (vi) lower
trading volume and liquidity.
The Innovation Fund and International Fund may invest in Eurodollar
convertibles. Eurodollar convertibles are fixed-income securities of a foreign
issuer that are issued in U.S. dollars outside the U.S. and are convertible
into or exchangeable for specified equity securities.
Emerging Markets. The Innovation Fund and International Fund may invest in
companies located in developing countries. The risks of investing in foreign
securities are particularly high when securities of issuers based in develop-
ing (or "emerging market") countries are involved. Investing in emerging mar-
ket countries involves certain risks not typically associated with investing
in U.S. securities, and imposes risks greater than, or in addition to, risks
of investing in foreign, developed countries. A number of emerging market
countries restrict, to varying degrees, foreign investment in securities. Re-
patriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerg-
ing market countries. A number of the currencies of emerging market countries
have experienced significant declines against the U.S. dollar in recent years,
and devaluation may occur subsequent to investments in these currencies by a
Fund. Inflation and rapid fluctuations in inflation rates have had, and may
continue to have, negative effects on the economies and securities markets of
certain emerging market countries. Many of the emerging securities markets are
relatively small, have low trading volumes, suffer periods of relative illi-
quidity, and are characterized by significant price volatility. There is a
risk in emerging market countries that a future economic or political crisis
could lead to price controls, forced mergers of companies, expropriation or
confiscatory taxation, seizure, nationalization, or creation of government mo-
nopolies, any of which may have a detrimental effect on a Fund's investment.
Additional risks of investing in emerging market countries may include: cur-
rency exchange rate fluctuations; greater social, economic and political un-
certainty and instability (including the risk of war); more substantial gov-
ernmental involvement in the economy; less governmental supervision and regu-
lation of the securities markets and participants in those markets; unavaila-
bility of currency hedging techniques in certain emerging market countries;
the fact that companies in emerging market countries may be
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newly organized and may be smaller and less seasoned companies; the difference
in, or lack of, auditing and financial reporting standards, which may result in
unavailability of material information about issuers; the risk that it may be
more difficult to obtain and/or enforce a judgment in a court outside the
United States; and significantly smaller market capitalization of securities
markets. Also, any change in the leadership or policies of emerging market
countries, or the countries that exercise a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and adversely affect existing investment op-
portunities.
In addition, emerging securities markets may have different clearance and set-
tlement procedures, which may be unable to keep pace with the volume of securi-
ties transactions or otherwise make it difficult to engage in such transac-
tions. Settlement problems may cause a Fund to miss attractive investment op-
portunities, hold a portion of its assets in cash pending investment, or delay
in disposing of a portfolio security. Such a delay could result in possible li-
ability to a purchaser of the security.
Special Risks of Investing in Russian and Other Eastern European Securities.
The Innovation Fund and International Fund may invest a portion of their assets
in securities of issuers located in Russia and in other Eastern European coun-
tries. The political, legal and operational risks of investing in the securi-
ties of Russian and other Eastern European issuers, and of having assets
custodied within these countries, may be particularly acute. Investments in
Eastern European countries may involve acute risks of nationalization, expro-
priation and confiscatory taxation. The communist governments of a number of
Eastern European countries appropriated large amounts of private property in
the past, in many cases without adequate compensation, and there can be no as-
surance that such expropriation will not occur in the future. Also, certain
Eastern European countries, which do not have market economies, are character-
ized by an absence of developed legal structures governing private and foreign
investments and private property.
In addition, governments in certain Eastern European countries may require that
a governmental or quasi-governmental authority act as custodian of a Fund's as-
sets invested in such country. To the extent such governmental or quasi-govern-
mental authorities do not satisfy the requirements of the 1940 Act to act as
foreign custodians of the Fund's cash and securities, the Fund's investment in
such countries may be limited or may be required to be effected through inter-
mediaries. The risk of loss through governmental confiscation may be increased
in such circumstances.
Investments in securities of Russian issuers may involve a particularly high
degree of risk and special considerations not typically associated with invest-
ing in U.S. and other more developed markets, many of which stem from Russia's
continuing political and economic instability and the slow-paced development of
its market economy. Investments in Russian securities should be considered
highly speculative. Such risks and special considerations include: (a) delays
in settling portfolio transactions and the risk of loss arising out of Russia's
system of share registration and custody (see below); (b) pervasiveness of cor-
ruption, insider trading, and crime in the Russian economic system; (c) diffi-
culties associated in obtaining accurate market valuations of many Russian se-
curities, based partly on the limited amount of publicly available information;
(d) the general financial condition of Russian companies, which may involve
particularly large amounts of inter-company debt; and (e) the risk that the
Russian tax system will not be reformed to prevent inconsistent, retroactive
and/or exorbitant taxation or, in the alternative, the risk that a reformed tax
system may result in the inconsistent and unpredictable enforcement of the
B-10
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new tax laws. Also, there is the risk that the government of Russia or other
executive or legislative bodies may decide not to continue to support the eco-
nomic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries at the expense of other sectors or investors, a
return to the centrally planned economy that existed prior to the dissolution
of the Soviet Union, or the nationalization of privatized enterprises.
A risk of particular note with respect to direct investment in Russian securi-
ties is the way in which ownership of shares of companies is normally record-
ed. Ownership of shares (except where shares are held through depositories
that meet the requirements of the 1940 Act) is defined according to entries in
the company's share register and normally evidenced by extracts from the reg-
ister or, in certain limited circumstances, by formal share certificates. How-
ever, there is no central registration system for shareholders and these serv-
ices are carried out by the companies themselves or by registrars located
throughout Russia. These registrars are not necessarily subject to effective
state supervision nor are they licensed with any governmental entity. It is
possible for a Fund to lose its registration through fraud, negligence or even
mere oversight. While a Fund will endeavor to ensure that its interest contin-
ues to be appropriately recorded, which may involve a custodian or other agent
inspecting the share register and obtaining extracts of share registers
through regular confirmations, these extracts have no legal enforceability and
it is possible that subsequent illegal amendment or other fraudulent act may
deprive the Fund of its ownership rights or improperly dilute its interests.
In addition, while applicable Russian regulations impose liability on regis-
trars for losses resulting from their errors, it may be difficult for a Fund
to enforce any rights it may have against the registrar or issuer of the secu-
rities in the event of loss of share registration.
Also, although a Russian public enterprise with more than 500 shareholders is
required by law to contract out the maintenance of its shareholder register to
an independent entity that meets certain criteria, this regulation has not al-
ways been strictly enforced in practice. Because of this lack of independence,
management of a company may be able to exert considerable influence over who
can purchase and sell the company's shares by illegally instructing the regis-
trar to refuse to record transactions in the share register. In addition, so-
called "financial-industrial groups" have emerged in recent years that seek to
deter outside investors from interfering in the management of companies they
control. These practices may prevent a Fund from investing in the securities
of certain Russian companies deemed suitable by the Fund's portfolio manager.
Further, this also could cause a delay in the sale of Russian securities held
by a Fund if a potential purchaser is deemed unsuitable, which may expose the
Fund to potential loss on the investment.
Special Risks Associated with the Introduction of the Euro. The introduction
of a single currency, the euro, on January 1, 1999 for participating European
nations in the European Economic and Monetary Union presents unique uncertain-
ties for European securities in the markets in which they trade and with re-
spect to the operation of the Funds that invest in securities denominated in
European currencies and other European securities. The introduction of the
euro will result in the redenomination of European debt and equity securities
over a period of time. Uncertainties raised by the introduction of the euro
include the creation of suitable clearing and settlement payment systems for
the new currency, the valuation and legal treatment of outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro, and adverse accounting or tax consequences that may arise from
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the transition to the euro. These or other factors could cause market disrup-
tions and could adversely affect the value of securities and foreign currencies
held by the Funds.
Currency Risks. To the extent that a Fund invests in securities that are denom-
inated in a currency other than U.S. dollars, the Fund will be subject to cur-
rency risk, which is the risk that an increase in the U.S. dollar relative to
the foreign currency will reduce returns or portfolio value. Generally, when
the U.S. dollar rises in value relative to a foreign currency, a Fund's invest-
ment in securities denominated in that currency will lose value because its
currency is worth fewer U.S. dollars. On the other hand, when the value of the
U.S. dollar falls relative to a foreign currency, a Fund's investments denomi-
nated in that currency will tend to increase in value because that currency is
worth more U.S. dollars. The exchange rates between the U. S. dollar and for-
eign currencies depend upon such factors as supply and demand in the currency
exchange markets, international balances of payments, governmental interven-
tion, speculation, and other economic and political conditions. Although each
Fund values its assets daily in U.S. dollars, a Fund may not convert its hold-
ings of foreign currencies to U.S. dollars daily. A Fund may incur conversion
costs when it converts its holdings to another currency. Foreign exchange deal-
ers may realize a profit on the difference between the price at which the Fund
buys and sells currencies. A Fund may engage in foreign currency exchange
transactions in connection with its portfolio investments. A Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market or through
forward contracts to purchase or sell foreign contracts.
Small and Medium Market Capitalizations
The Funds may invest in common stock of companies with market capitalizations
that are small compared to other publicly traded companies. Generally, small
market capitalization is considered to be less than $1.5 billion and large mar-
ket capitalization is considered to be more than $5 billion. Investments in
larger companies present certain advantages in that such companies generally
have greater financial resources, more extensive research and development, man-
ufacturing, marketing and service capabilities, and more stability and greater
depth of management and personnel. Investments in smaller, less seasoned compa-
nies may present greater opportunities for growth but also may involve greater
risks than customarily are associated with more established companies. The se-
curities of smaller companies may be subject to more abrupt or erratic market
movements than larger, more established companies. These companies may have
limited product lines, markets or financial resources, or they may be dependent
upon a limited management group. Their securities may be traded in the over-
the-counter market or on a regional exchange, or may otherwise have limited li-
quidity. As a result of owning large positions in this type of security, a Fund
is subject to the additional risk of possibly having to sell portfolio securi-
ties at disadvantageous times and prices if redemptions require the Fund to
liquidate its securities positions. In addition, it may be prudent for a Fund
with a relatively large asset size to limit the number of relatively small po-
sitions it holds in securities having limited liquidity in order to minimize
its exposure to such risks, to minimize transaction costs, and to maximize the
benefits of research. As a consequence, as a Fund's asset size increases, the
Fund may reduce its exposure to illiquid small capitalization securities, which
could adversely affect performance.
The Funds may also invest in stocks of companies with medium market capitaliza-
tions. Whether a U.S. issuer's market capitalization is medium is determined by
reference to the capitalization for all issuers
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whose equity securities are listed on a United States national securities ex-
change or which are reported on NASDAQ. Issuers with market capitalizations
within the range of capitalization of companies included in the S&P Mid Cap
400 Index may be regarded as being issuers with medium market capitalizations.
Such investments share some of the risk characteristics of investments in
stocks of companies with small market capitalizations described above, al-
though such companies tend to have longer operating histories, broader product
lines and greater financial resources and their stocks tend to be more liquid
and less volatile than those of smaller capitalization issuers.
Technology Risks
The Innovation Fund is concentrated in the technology sector and the Select
Stock Fund may be concentrated in this sector. There are risks associated with
investments in this sector, and an investment in a Fund concentrated in this
sector should be made with an understanding of the characteristics of the
technology industry and the risks which such an investment may entail.
Technology companies generally include companies involved in the development,
design, manufacture and sale of computers, computer-related equipment, com-
puter networks, communications systems, telecommunications products, elec-
tronic products and other related products, systems and services. The market
for these products, especially those specifically related to the Internet, is
characterized by rapidly changing technology, rapid product obsolescence, cy-
clical market patterns, evolving industry standards and frequent new product
introductions. The success of certain issuers of the equity securities in-
cluded in a Fund concentrated in the technology sector depends in substantial
part on the timely and successful introduction of new products. An unexpected
change in one or more of the technologies affecting an issuer's products or in
the market for products based on a particular technology could have a material
adverse affect on an issuer's operating results. Furthermore, there can be no
assurance that the issuers of the equity securities included in a Fund concen-
trated in the technology sector will be able to respond in a timely manner to
compete in the rapidly developing marketplace.
Based on the trading history of common stocks, factors such as announcements
of new products or development of new technologies and general conditions of
the industry have caused and are likely to cause the market price of high-
technology common stocks to fluctuate substantially. In addition, technology
company stocks have experienced extreme price and volume fluctuations that of-
ten have been unrelated to the operating performance of such companies. This
market volatility may adversely affect the market price of the equity securi-
ties held in a Fund concentrated in the technology sector.
Some key components of certain products of technology issuers are currently
available only from single sources. There can be no assurance that in the fu-
ture suppliers will be able to meet the demand for components in a timely and
cost effective manner. Accordingly, an issuer's operating results and customer
relationships could be adversely affected by either an increase in price for,
or an interruption or reduction in supply of, any key components. Addition-
ally, many technology issuers are characterized by a highly concentrated cus-
tomer base consisting of a limited number of large customers who may require
product vendors to comply with rigorous industry standards. Any failure to
comply with such standards may result in a significant loss or reduction of
sales. Because many products and technologies of technology companies are in-
corporated into other related products, such companies are often highly depen-
dent on the performance of the personal computer, electronics and telecommuni-
cations industries. There can be no assurance that these customers will place
additional orders, or that an issuer of equity securities
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<PAGE>
held by a Fund concentrated in the technology sector will obtain orders of a
similar magnitude as past orders from other customers. Similarly, the success
of certain technology companies is tied to a relatively small concentration of
products or technologies. Accordingly, a decline in demand of such products,
technologies or from such customers could have a material adverse impact on is-
suers of equity securities held in a Fund concentrated in the technology sec-
tor.
Many technology companies rely on a combination of patents, copyrights, trade-
marks and trade secret laws to establish and protect their proprietary rights
in their products and technologies. There can be no assurance that the steps
taken by the issuers of the equity securities held by a Fund concentrated in
the technology sector to protect their proprietary rights will be adequate to
prevent misappropriation of their technology or that competitors will not inde-
pendently develop technologies that are substantially equivalent or superior to
such issuers' technology. In addition, due to the increasing public use of the
Internet, it is possible that other laws and regulations may be adopted to ad-
dress issues such as privacy, pricing, characteristics, and quality of Internet
products and services.
Hedging Strategies
General Description of Hedging Strategies
Each Fund may engage in hedging activities. The portfolio manager may cause a
Fund to utilize a variety of financial instruments, including options, futures
contracts (sometimes referred to as "futures") and options on futures contracts
to attempt to hedge the Fund's holdings. The Rittenhouse Fund may also use for-
ward contracts to hedge holdings.
Hedging or derivative instruments on securities generally are used to hedge
against price movements in one or more particular securities positions that a
Fund owns or intends to acquire. Such instruments may also be used to "lock-in"
realized but unrecognized gains in the value of portfolio securities. Hedging
instruments on stock indices, in contrast, generally are used to hedge against
price movements in broad equity market sectors in which a Fund has invested or
expects to invest. Hedging strategies, if successful, can reduce the risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce the opportunity for gain by offsetting the positive effect of favorable
price movements in the hedged investments. A Fund may also use derivative in-
struments to manage the risks of its assets. Risk management strategies in-
clude, but are not limited to, facilitating the sale of Fund securities, estab-
lishing a position in the derivatives markets as a substitute for buying or
selling certain securities or creating or altering exposure to certain asset
classes, such as foreign securities. The use of derivative instruments may pro-
vide a less expensive, more expedient, or more specifically focused way for a
Fund to invest than would "traditional" securities (i.e., stocks or bonds). The
use of hedging instruments is subject to applicable regulations of the Securi-
ties and Exchange Commission (the "SEC"), the several options and futures ex-
changes upon which they are traded, the Commodity Futures Trading Commission
(the "CFTC") and various state regulatory authorities. In addition, a Fund's
ability to use hedging instruments will be limited by tax considerations.
General Limitations on Futures and Options Transactions
The Trust has filed a notice of eligibility for exclusion from the definition
of the term "commodity pool operator" with the CFTC and the National Futures
Association, which regulate trading in the futures
B-14
<PAGE>
markets. Pursuant to Section 4.5 of the regulations under the Commodity Ex-
change Act (the "CEA"), the notice of eligibility for a Fund includes the rep-
resentation that the Fund will use futures contracts and related options solely
for bona fide hedging purposes within the meaning of CFTC regulations. A Fund
will not enter into futures and options transactions if the sum of the initial
margin deposits and premiums paid for unexpired options exceeds 5% of the
Fund's net assets. In addition, a Fund will not enter into futures contracts
and options transactions if more than 30% of its net assets would be committed
to such instruments.
The foregoing limitations are not fundamental policies of a Fund and may be
changed without shareholder approval as regulatory agencies permit. Various ex-
changes and regulatory authorities have undertaken reviews of options and
futures trading in light of market volatility. Among the possible actions that
have been presented are proposals to adopt new or more stringent daily price
fluctuation limits for futures and options transactions and proposals to in-
crease the margin requirements for various types of futures transactions.
Asset Coverage for Futures and Options Positions
Each Fund will comply with the regulatory requirements of the SEC and the CFTC
with respect to coverage of options and futures positions by registered invest-
ment companies and, if the guidelines so
require, will set aside cash, U.S. government securities, high grade liquid
debt securities and/or other liquid assets permitted by the SEC and CFTC in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or options position is out-
standing, unless replaced with other permissible assets, and will be marked-to-
market daily.
Certain Considerations Regarding Options
There is no assurance that a liquid secondary market on an options exchange
will exist for any particular option, or at any particular time, and for some
options no secondary market on an exchange or elsewhere may exist. If a Fund is
unable to close out a call option on securities that it has written before the
option is exercised, the Fund may be required to purchase the optioned securi-
ties in order to satisfy its obligation under the option to deliver such secu-
rities. If a Fund is unable to effect a closing sale transaction with respect
to options on securities that it has purchased, it would have to exercise the
option in order to realize any profit and would incur transaction costs upon
the purchase and sale of the underlying securities.
The writing and purchasing of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. Imperfect correlation between the
options and securities markets may detract from the effectiveness of attempted
hedging. Options transactions may result in significantly higher transaction
costs and portfolio turnover for a Fund.
Federal Income Tax Treatment of Options
Certain option transactions have special federal income tax results for the
Funds. Expiration of a call option written by a Fund will result in short-term
capital gain. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the security covering the call option and, in determining
such gain or loss, the option premium will be included in the proceeds of the
sale.
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<PAGE>
If a Fund writes options, or purchases puts that are subject to the loss defer-
ral rules of Section 1092 of the Internal Revenue Code of 1986, as amended (the
"Code"), any losses on such options transactions, to the extent they do not ex-
ceed the unrecognized gains on the securities covering the options, may be sub-
ject to deferral until the securities covering the options have been sold.
In the case of transactions involving "nonequity options," as defined in Code
Section 1256, a Fund will treat any gain or loss arising from the lapse, clos-
ing out or exercise of such positions as 60% long-term and 40% short-term capi-
tal gain or loss as required by Section 1256 of the Code. In addition, certain
of such positions must be marked-to-market as of the last business day of the
year, and gain or loss must be recognized for federal income tax purposes in
accordance with the 60%/40% rule discussed above even though the position has
not been terminated. A "nonequity option" includes an option with respect to
any group of stocks or a stock index if there is in effect a designation by the
CFTC of a contract market for a contract based on such group of stocks or in-
dexes. For example, options involving stock indexes such as the S&P 500 Index
would be "nonequity options" within the meaning of Code Section 1256.
Stock Index Options
Each Fund may (i) purchase stock index options for any purpose, (ii) sell stock
index options in order to close out existing positions, and/or (iii) write cov-
ered options on stock indexes for hedging purposes. Stock index options are put
options and call options on various stock indexes. In most respects, they are
identical to listed options on common stocks. The primary difference between
stock options and index options occurs when index options are exercised. In the
case of stock options, the underlying security, common stock, is delivered.
However, upon the exercise of an index option, settlement does not occur by de-
livery of the securities comprising the index. The option holder who exercises
the index option receives an amount of cash if the closing level of the stock
index upon which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. This amount
of cash is equal to the difference between the closing price of the stock index
and the exercise price of the option expressed in dollars times a specified
multiple.
A stock index fluctuates with changes in the market values of the stock in-
cluded in the index. For example, some stock index options are based on a broad
market index, such as the Standard & Poor's 500 or the Value Line Composite In-
dex or a narrower market index, such as the Standard & Poor's 100. Indexes may
also be based on an industry or market segment, such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index. Options on stock indexes
are currently traded on the following exchanges: the Chicago Board of Options
Exchange, the New York Stock Exchange, the American Stock Exchange, the Pacific
Stock Exchange, and the Philadelphia Stock Exchange.
Each Fund's use of stock index options is subject to certain risks. Successful
use by a Fund of options on stock indexes will be subject to the ability of the
portfolio manager to correctly predict movements in the direction of the stock
market. This requires different skills and techniques than predicting changes
in the prices of individual securities. In addition, a Fund's ability to effec-
tively hedge all or a portion of the securities in its portfolio, in anticipa-
tion of or during a market decline through transactions in put options on stock
indexes, depends on the degree to which price movements in the underlying index
correlate with the price movements of the securities held by the Fund. Inasmuch
as a Fund's securities
B-16
<PAGE>
will not duplicate the components of an index, the correlation will not be per-
fect. Consequently, a Fund will bear the risk that the prices of its securities
being hedged will not move in the same amount as the prices of its put options
on the stock indexes. It is also possible that there may be a negative correla-
tion between the index and a Fund's securities which would result in a loss on
both such securities and the options on stock indexes acquired by the Fund.
The hours of trading for options may not conform to the hours during which the
underlying securities are traded. To the extent that the options markets close
before the markets for the underlying securities, significant price and rate
movements can take place in the underlying markets that cannot be reflected in
the options markets. The purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The purchase of stock index
options involves the risk that the premium and transaction costs paid by a Fund
in purchasing an option will be lost as a result of unanticipated movements in
prices of the securities comprising the stock index on which the option is
based.
Futures Contracts
Each Fund may enter into futures contracts (hereinafter referred to as
"Futures" or "Futures Contracts"), including index Futures as a hedge against
movements in the equity markets, in order to establish more definitely the ef-
fective return on securities held or intended to be acquired by a Fund or for
other purposes permissible under the CEA. A Fund's hedging may include sales of
Futures as an offset against the effect of expected declines in stock prices
and purchases of Futures as an offset against the effect of expected increases
in stock prices. A Fund will not enter into Futures Contracts which are prohib-
ited under the CEA and will, to the extent required by regulatory authorities,
enter only into Futures Contracts that are traded on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal interest rate Futures exchanges in the United States are the
Board of Trade of the City of Chicago and the Chicago Mercantile Exchange.
Futures exchanges and trading are regulated under the CEA by the CFTC.
An interest rate futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial instru-
ment (e.g., a debt security) or currency for a specified price at a designated
date, time and place. An index Futures Contract is an agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to
the difference between the value of the index at the close of the last trading
day of the contract and the price at which the index Futures Contract was orig-
inally written. Transaction costs are incurred when a Futures Contract is
bought or sold and margin deposits must be maintained. A Futures Contract may
be satisfied by delivery or purchase, as the case may be, of the instrument or
by payment of the change in the cash value of the index. More commonly, Futures
Contracts are closed out prior to delivery by entering into an offsetting
transaction in a matching Futures Contract. Although the value of an index
might be a function of the value of certain specified securities, no physical
delivery of those securities is made. If the offsetting purchase price is less
than the original sale price, a gain will be realized; if it is more, a loss
will be realized. Conversely, if the offsetting sale price is more than the
original purchase price, a gain will be realized; if it is less, a loss will be
realized. The transaction costs must also be included in these calculations.
There can be no assurance, however, that a Fund will be able to enter into an
offsetting transaction with respect to a particular Futures Contract at a par-
ticular time. If a Fund is not able to
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<PAGE>
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the Futures Contract.
Margin is the amount of funds that must be deposited by a Fund with its custo-
dian in a segregated account in the name of the futures commission merchant in
order to initiate Futures trading and to maintain the Fund's open positions in
Futures Contracts. A margin deposit is intended to ensure a Fund's performance
of the Futures Contract. The margin required for a particular Futures Contract
is set by the exchange on which the Futures Contract is traded and may be sig-
nificantly modified from time to time by the exchange during the term of the
Futures Contract. Futures Contracts are customarily purchased and sold on mar-
gins that may range upward from less than 5% of the value of the Futures Con-
tract being traded.
If the price of an open Futures Contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if
the value of a position increases because of favorable price changes in the
Futures Contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund. In computing daily net asset value, a
Fund will mark to market the current value of its open Futures Contracts. The
Funds expect to earn interest income on their margin deposits.
Because of the low margin deposits required, Futures trading involves an ex-
tremely high degree of leverage. As a result, a relatively small price movement
in a Futures Contract may result in immediate and substantial loss, as well as
gain, to the investor. For example, if at the time of purchase, 10% of the
value of the Futures Contract is deposited as margin, a subsequent 10% decrease
in the value of the Futures Contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the Futures Contract were closed out. Thus, a pur-
chase or sale of a Futures Contract may result in losses in excess of the
amount initially invested in the Futures Contract. However, a Fund would pre-
sumably have sustained comparable losses if, instead of the Futures Contract,
it had invested in the underlying financial instrument and sold it after the
decline.
Most United States Futures exchanges limit the amount of fluctuation permitted
in Futures Contract prices during a single trading day. The day limit estab-
lishes the maximum amount that the price of a Futures Contract may vary either
up or down from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular type of Futures
Contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures Contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of Futures positions and sub-
jecting some Futures traders to substantial losses.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a Futures position. The Fund would continue to be required
to meet margin requirements until the position is closed, possibly resulting in
a decline in the Fund's net asset value. In addition, many of the
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<PAGE>
contracts discussed above are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an active second-
ary market will develop or continue to exist.
A public market exists in Futures Contracts covering a number of indexes, in-
cluding, but not limited to, the Standard & Poor's 500 Index, the Standard &
Poor's 100 Index, the Nasdaq-100 Index, the Value Line Composite Index and the
New York Stock Exchange Composite Index.
Options on Futures
Each Fund may also purchase or write put and call options on Futures Contracts
and enter into closing transactions with respect to such options to terminate
an existing position. A futures option gives the holder the right, in return of
the premium paid, to assume a long position (call) or short position (put) in a
Futures Contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the holder acquires a long position in
the Futures Contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. Prior to exercise or expira-
tion, a futures option may be closed out by an offsetting purchase or sale of a
futures option of the same series.
Each Fund may use options on Futures Contracts in connection with hedging
strategies. Generally, these strategies would be applied under the same market
and market sector conditions in which the Fund uses put and call options on se-
curities or indexes. The purchase of put options on Futures Contracts is analo-
gous to the purchase of puts on securities or indexes so as to hedge a Fund's
securities holdings against the risk of declining market prices. The writing of
a call option or the purchasing of a put option on a Futures Contract consti-
tutes a partial hedge against declining prices of the securities which are de-
liverable upon exercise of the Futures Contract. If the futures price at expi-
ration of a written call option is below the exercise price, a Fund will retain
the full amount of the option premium which provides a partial hedge against
any decline that may have occurred in the Fund's holdings of securities. If the
futures price when the option is exercised is above the exercise price, howev-
er, a Fund will incur a loss, which may be offset, in whole or in part, by the
increase in the value of the securities held by the Fund that were being
hedged. Writing a put option or purchasing a call option on a Futures Contract
serves as a partial hedge against an increase in the value of the securities
the Fund intends to acquire.
As with investments in Futures Contracts, a Fund is required to deposit and
maintain margin with respect to put and call options on Futures Contracts writ-
ten by it. Such margin deposits will vary depending on the nature of the under-
lying Futures Contract (and the related initial margin requirements), the cur-
rent market value of the option, and other futures positions held by the Fund.
A Fund will set aside in a segregated account at the Fund's custodian liquid
assets, such as cash, U.S. government securities or other high grade liquid
debt obligations equal in value to the amount due on the underlying obligation.
Such segregated assets will be marked-to-market daily, and additional assets
will be placed in the segregated account whenever the total value of the segre-
gated account falls below the amount due on the underlying obligation.
The risks associated with the use of options on Futures Contracts include the
risk that a Fund may close out its position as a writer of an option only if a
liquid secondary market exists for such options, which cannot be assured. A
Fund's successful use of options on Futures Contracts depends on the portfolio
manager's ability to correctly predict the movement in prices of Futures Con-
tracts and the underlying
B-19
<PAGE>
instruments, which may prove to be incorrect. In addition, there may be imper-
fect correlation between the instruments being hedged and the Futures Contract
subject to the option. For additional information, see "Futures Contracts."
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and options on
futures contracts markets are subject to daily variation margin calls and
might be compelled to liquidate futures or options on futures contracts posi-
tions whose prices are moving unfavorably to avoid being subject to further
calls. These liquidations could increase the price volatility of the instru-
ments and distort the normal price relationship between the futures or options
and the investments being hedged. Also, because of initial margin deposit re-
quirements in futures markets, there might be increased participation by spec-
ulators in the futures markets. This participation also might cause temporary
price distortions. In addition, activities of large traders in both the
futures and securities markets involving arbitrage, "program trading," and
other investment strategies might result in temporary price distortions.
Federal Income Tax Treatment of Futures Contracts
For federal income tax purposes, each Fund is required to recognize as income,
for each taxable year, its net unrealized gains and losses on Futures Con-
tracts as of the end of the year, as well as gains and losses actually real-
ized during the year. Except for transactions in Futures Contracts that are
classified as part of a "mixed straddle" under Code Section 1256, any gain or
loss recognized with respect to a Futures Contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss, with-
out regard to the holding period of the Futures Contract. Under certain cir-
cumstances, the recognition of losses may be required to be deferred to a
later taxable year.
If a Fund enters into Futures Contracts with respect to property the same as,
or substantially identical to, assets held by the Fund, the timing of recogni-
tion of gain or loss, or the characterization of such gain or loss as long-
term capital gain, short-term capital gain or ordinary income could be affect-
ed.
Each Fund will distribute to shareholders annually any net capital gains which
have been recognized for federal income tax purposes (including unrealized
gains at the end of the Fund's fiscal year) on Futures transactions. Such dis-
tributions will be combined with distributions of capital gains realized on
the Fund's other investments and shareholders will be advised of the nature of
the payments.
Risks and Special Considerations Concerning Derivatives
The use of derivative instruments involves certain general risks and consid-
erations as described below. The specific risks pertaining to certain types of
derivative instruments are described in the sections that follow.
(1) Market Risk. Market risk is the risk that the value of the underlying
assets may go up or down. Adverse movements in the value of an underlying as-
set can expose the Fund to losses. Market risk is the primary risk associated
with derivative transactions. Derivative instruments may include elements of
leverage and, accordingly, fluctuations in the value of the derivative instru-
ment in relation to the underlying asset may be magnified. The successful use
of derivative instruments depends upon a variety of factors, particularly the
portfolio manager's ability to predict movements of the securities, curren-
cies, and commodities markets, which may require different skills than pre-
dicting changes in the prices of
B-20
<PAGE>
individual securities. There can be no assurance that any particular strategy
adopted will succeed. A decision to engage in a derivative transaction will
reflect the portfolio manager's judgment that the derivative transaction will
provide value to the applicable Fund and its shareholders and is consistent
with the Fund's objectives, investment limitations, and operating policies. In
making such a judgment, the portfolio manager will analyze the benefits and
risks of the derivative transactions and weigh them in the context of the
Fund's overall investments and investment objective.
(2) Credit Risk. Credit risk is the risk that a loss may be sustained as a
result of the failure of a counterpart to comply with the terms of a deriva-
tive instrument. The counterparty risk for exchange-traded derivatives is gen-
erally less than for privately-negotiated or OTC derivatives, since generally
a clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated in-
struments, there is no similar clearing agency guarantee. In all transactions,
a Fund will bear the risk that the counterparty will default, and this could
result in a loss of the expected benefit of the derivative transactions and
possibly other losses to the Fund. A Fund will enter into transactions in de-
rivative instruments only with counterparties that their respective portfolio
manager reasonably believes are capable of performing under the contract.
(3) Correlation Risk. Correlation risk is the risk that there might be an
imperfect correlation, or even no correlation, between price movements of a
derivative instrument and price movements of investments being hedged. When a
derivative transaction is used to completely hedge another position, changes
in the market value of the combined position (the derivative instrument plus
the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged with any change in the price of the under-
lying asset. With an imperfect hedge, the value of the derivative instrument
and its hedge are not perfectly correlated. For example, if the value of a de-
rivative instrument used in a short hedge (such as writing a call option, buy-
ing a put option or selling a futures contract) increased by less than the de-
cline in value of the hedged investments, the hedge would not be perfectly
correlated. This might occur due to factors unrelated to the value of the in-
vestments being hedged, such as speculative or other pressures on the markets
in which these instruments are traded. The effectiveness of hedges using in-
struments on indices will depend, in part, on the degree of correlation be-
tween price movements in the index and the price movements in the investments
being hedged.
(4) Liquidity Risk. Liquidity risk is the risk that a derivative instrument
cannot be sold, closed out, or replaced quickly at or very close to its funda-
mental value. Generally, exchange contracts are very liquid because the ex-
change clearinghouse is the counterparty of every contract. OTC transactions
are less liquid than exchange-traded derivatives since they often can only be
closed out with the other party to the transaction. A Fund might be required
by applicable regulatory requirements to maintain assets as "cover," maintain
segregated accounts, and/or make margin payments when it takes positions in
derivative instruments involving obligations to third parties (i.e., instru-
ments other than purchase options). If a Fund is unable to close out its posi-
tions in such instruments, it might be required to continue to maintain such
assets or accounts to make such payments until the position expires, matures,
or is closed out. These requirements might impair a Fund's ability to sell a
security or make an investment at a time when it would otherwise be favorable
to do so, or require that the Fund sell a portfolio security at a disadvanta-
geous time. A Fund's ability to sell or close out a position in an instrument
prior to expiration or maturity depends upon the existence of a liquid second-
ary market or, in the absence of such a market, the ability and willingness of
the counterparty to enter into a transaction closing out the
B-21
<PAGE>
position. Due to liquidity risk, there is no assurance that any derivatives po-
sition can be sold or closed out at a time and price that is favorable to a
Fund.
(5) Legal Risk. Legal risk is the risk of loss caused by the unenforceability
of a party's obligations under the derivative. While a party seeking price cer-
tainty agrees to surrender the potential upside in exchange for downside pro-
tection, the party taking the risk is looking for a positive payoff. Despite
this voluntary assumption of risk, a counterparty that has lost money in a de-
rivative transaction may try to avoid payment by exploiting various legal un-
certainties about certain derivative products.
(6) Systemic or "Interconnection" Risk. Systemic or interconnection risk is
the risk that a disruption in the financial markets will cause difficulties for
all market participants. In other words, a disruption in one market will spill
over into other markets, perhaps creating a chain reaction. Much of the OTC de-
rivatives market takes place among the OTC dealers themselves, thus creating a
large interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create losses
for other dealers and destabilize the entire market for OTC derivative instru-
ments.
Foreign Hedging Instruments
Foreign Currency Transactions. The Innovation Fund and International Fund may
engage in foreign currency forward contracts, options, and futures transac-
tions. A Fund will enter into foreign currency transactions for hedging and
other permissible risk management purposes only. Foreign currency futures and
options contracts are traded in the U.S. on regulated exchanges such as the
Chicago Mercantile Exchange, the Mid-America Commodities Exchange, and the
Philadelphia Stock Exchange. If a Fund invests in a currency futures or options
contract, it must make a margin deposit to secure performance of such contract.
With respect to investments in currency futures contracts, a Fund may also be
required to make a variation margin deposit because the value of futures con-
tracts fluctuates from purchase to maturity. In addition, a Fund may segregate
assets to cover its futures contracts obligations.
Forward Foreign Currency Exchange Contracts. The Innovation Fund and Interna-
tional Fund may enter into forward currency exchange contracts. Forward foreign
currency exchange contracts may limit potential gains that could result from a
positive change in such currency relationships. The portfolio manager believes
that it is important to have the flexibility to enter into forward foreign cur-
rency exchange contracts whenever it determines that it is in the Fund's best
interest to do so. A Fund will not speculate in foreign currency exchange.
A Fund will not enter into forward currency exchange contracts or maintain a
net exposure in such contracts that it would be obligated to deliver an amount
of foreign currency in excess of the value of its portfolio securities or other
assets denominated in that currency or, in the case of a "cross-hedge," denomi-
nated in a currency or currencies that the portfolio manager believes will tend
to be closely correlated with that currency with regard to price movements.
Generally, a Fund will not enter into a forward foreign currency exchange con-
tract with a term longer than one year.
Foreign Currency Options. A foreign currency option provides the option buyer
with the right to buy or sell a stated amount of foreign currency at the exer-
cise price on a specified date or during the option period. The owner of a call
option has the right, but not the obligation, to buy the currency. Converse-
B-22
<PAGE>
ly, the owner of a put option has the right, but not the obligation, to sell
the currency. When the option is exercised, the seller (i.e., writer) of the
option is obligated to fulfill the terms of the sold option. However, either
the seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on a foreign currency generally
rises in value if the underlying currency depreciates in value. Although pur-
chasing a foreign currency option can protect a Fund against an adverse move-
ment in the value of a foreign currency, the option will not limit the movement
in the value of such currency. For example, if a Fund held securities denomi-
nated in a foreign currency that was appreciating and had purchased a foreign
currency put to hedge against a decline in the value of the currency, the Fund
would not have to exercise its put option. Likewise, if a Fund entered into a
contract to purchase a
security denominated in foreign currency and, in conjunction with that pur-
chase, purchased a foreign currency call option to hedge against a rise in
value of the currency, and if the value of the currency instead depreciated be-
tween the date of purchase and the settlement date, the Fund would not have to
exercise its call. Instead, the Fund could acquire in the spot market the
amount of foreign currency needed for settlement.
Special Risks Associated with Foreign Currency Options. Buyers and sellers of
foreign currency options are subject to the same risks that apply to options
generally. In addition, there are certain risks associated with foreign cur-
rency options. The markets in foreign currency options are relatively new, and
a Fund's ability to establish and close out positions on such options is sub-
ject to the maintenance of a liquid secondary market. Although a Fund will not
purchase or write such options unless and until, in the
opinion of the portfolio manager, the market for them has developed suffi-
ciently to ensure that the risks in connection with such options are not
greater than the risks in connection with the underlying currency, there can be
no assurance that a liquid secondary market will exist for a particular option
at any specific time.
In addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally. The value of a
foreign currency option depends upon the value of the underlying currency rela-
tive to the U. S. dollar. As a result, the price of the option position may
vary with changes in the value of either or both currencies and may have no re-
lationship to the investment merits of a foreign security. Because foreign cur-
rency transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million) for the under-
lying foreign currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign curren-
cies or any regulatory requirements that quotations available through dealers
or other market sources be firm or revised on a timely basis. Available quota-
tion information is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the ex-
tent that the U. S. options markets are closed while the markets for the under-
lying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets
until they reopen.
B-23
<PAGE>
Foreign Currency Futures Transactions. By using foreign currency futures con-
tracts and options on such contracts, a Fund may be able to achieve many of the
same objectives as it would through the use of forward foreign currency ex-
change contracts. A Fund may be able to achieve these objectives possibly more
effectively and at a lower cost by using futures transactions instead of for-
ward foreign currency exchange contracts.
Special Risks Associated with Foreign Currency Futures Contracts and Related
Options. Buyers and sellers of foreign currency futures contacts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on currencies, as de-
scribed above.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, a Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the opinion of its portfolio manager, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying for-
eign currency futures contracts. Compared to the purchase or sale of foreign
currency futures contracts, the purchase of call or put options on futures con-
tracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the option (plus transaction costs). However,
there may be circumstances when the purchase of a call or put option on a
futures contract would result in a loss, such as when there is no movement in
the price of the underlying currency or futures contract.
Other Investment Policies and Techniques
Delayed-Delivery Transactions
Each Fund may from time to time purchase securities on a "when-issued" or other
delayed-delivery basis. The price of securities purchased in such transactions
is fixed at the time the commitment to purchase is made, but delivery and pay-
ment for the securities take place at a later date. Normally, the settlement
date occurs within 45 days of the purchase. During the period between the pur-
chase and settlement, no payment is made by a Fund to the issuer and no inter-
est is accrued on debt securities or dividend income is earned on equity secu-
rities. Delayed-delivery commitments involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. This risk is in
addition to the risk of decline in value of a Fund's other assets. While secu-
rities purchased in delayed-delivery transactions may be sold prior to the set-
tlement date, the Fund intends to purchase such securities with the purpose of
actually acquiring them. At the time a Fund makes the commitment to purchase a
security in a delayed-delivery transaction, it will record the transaction and
reflect the value of the security in determining its net asset value. The Funds
do not believe that net asset value will be adversely affected by purchases of
securities in delayed-delivery transactions.
Each Fund will maintain in a segregated account cash, U.S. government securi-
ties, and high grade liquid debt securities equal in value to commitments for
delayed-delivery securities. Such segregated securities will mature or, if nec-
essary, be sold on or before the settlement date. When the time comes to
B-24
<PAGE>
pay for delayed-delivery securities, a Fund will meet its obligations from
then-available cash flow, sale of the securities held in the segregated account
described above, sale of other securities, or, although it would not normally
expect to do so, from the sale of the delayed-delivery securities themselves
(which may have a market value greater or less than the Fund's payment obliga-
tion).
Illiquid Securities
Each Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). For purposes of this restriction, illiquid securities in-
clude, but are not limited to, restricted securities (securities the disposi-
tion of which is restricted under the federal securities laws), securities that
may only be resold pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"), but that are deemed to be illiquid; and repur-
chase agreements with maturities in excess of seven days. However, a Fund will
not acquire illiquid securities if, as a result, such securities would comprise
more than 15% of the value of the Fund's net assets. The Board of Trustees or
its delegate has the ultimate authority to determine, to the extent permissible
under the federal securities laws, which securities are liquid or illiquid for
purposes of this 15% limitation. The Board of Trustees has delegated to the ap-
plicable adviser of a Fund the day-to-day determination of the illiquidity of
any security held by the Funds, although it has retained oversight and ultimate
responsibility for such determinations. Although no definitive liquidity crite-
ria are used, the Board of Trustees has directed the applicable adviser of a
Fund to look to such factors as (i) the nature of the market for a security
(including the institutional private resale market; the frequency of trades and
quotes for the security; the number of dealers willing to purchase or sell the
security; the amount of time normally needed to dispose of the security; the
method of soliciting offers; and the mechanics of transfer), (ii) the terms of
certain securities or other instruments allowing for the disposition to a third
party or the issuer thereof (e.g., certain repurchase obligations and demand
instruments), and (iii) other permissible relevant factors.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in ef-
fect under the Securities Act. Where registration is required, a Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective registration state-
ment. If, during such a period, adverse market conditions were to develop, a
Fund might obtain a less favorable price than that which prevailed when it de-
cided to sell. Illiquid securities will be priced at fair value as determined
in good faith by the Board of Trustees or its delegate. If, through the appre-
ciation of illiquid securities or the depreciation of liquid securities, a Fund
should be in a position where more than 15% of the value of its net assets are
invested in illiquid securities, including restricted securities which are not
readily marketable, the affected Fund will take such steps as is deemed advis-
able, if any, to protect liquidity.
Short Sales Against the Box
When the applicable portfolio manager believes that the price of a particular
security held by a Fund may decline, it may make "short sales against the box"
to hedge the unrealized gain on such security. Selling short against the box
involves selling a security which the Fund owns for delivery at a specified
date in the future. Each Fund will limit its transactions in short sales
against the box to 5% of its net assets. In addition, each Fund (other than the
Rittenhouse Fund) will limit its transactions such that the value of the secu-
rities of any issuer in which it is short will not exceed the lesser of 2% of
the value of
B-25
<PAGE>
the Fund's net assets or 2% of the securities of any class of the issuer. If,
for example, a Fund bought 100 shares of ABC at $40 per share in January and
the price appreciates to $50 in March, the Fund might "sell short" the 100
shares at $50 for delivery the following July. Thereafter, if the price of the
stock declines to $45, it will realize the full $1,000 gain rather than the
$500 gain it would have received had it sold the stock in the market. On the
other hand, if the price appreciates to $55 per share, the Fund would be re-
quired to sell at $50 and thus receive a $1,000 gain rather than the $1,500
gain it would have received had it sold the stock in the market. A Fund may
also be required to pay a premium for short sales which would partially offset
any gain.
Warrants
Each Fund (other than the Rittenhouse Fund) may invest in warrants if, after
giving effect thereto, not more than 5% of its net assets will be invested in
warrants other than warrants acquired in units or attached to other securities.
For each Fund (other than the Rittenhouse Fund), of such 5%, not more than 2%
of its assets at the time of purchase may be invested in warrants that are not
listed on the New York Stock Exchange or the American Stock Exchange. The Rit-
tenhouse Fund does not intend to invest more than 5% of its net assets in war-
rants. Investing in warrants is purely speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of the
corporation issuing them. Warrants basically are options to purchase equity se-
curities at a specific price for a specific period of time. They do not repre-
sent ownership of the securities but only the right to buy them. Warrants are
issued by the issuer of the security, which may be purchased on their exercise.
The prices of warrants do not necessarily parallel the prices of the underlying
securities.
Lending of Portfolio Securities
Each Fund may lend its portfolio securities, up to 33 1/3% of its total assets,
to broker-dealers or institutional investors. The loans will be secured contin-
uously by collateral at least equal to the value of the securities lent by
"marking to market" daily. A Fund will continue to receive the equivalent of
the interest or dividends paid by the issuer of the securities lent and will
retain the right to call, upon notice, the lent securities. A Fund may also re-
ceive interest on the investment of the collateral or a fee from the borrower
as compensation for the loan. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will be made only
to firms deemed by the portfolio manager to be of good standing.
Investment Companies
Each Fund may invest in shares of other investment companies to the extent per-
mitted by the Investment Company Act of 1940. Such companies include open-end
funds, closed-end funds and unit investment trusts. Investing in another in-
vestment company subjects the Funds to the same risks associated with investing
in the securities held by the applicable investment company. In addition, the
benefit of investing in another investment company is largely dependent on the
skill of the investment adviser of the underlying company and whether the asso-
ciated fees and costs involved with investing in such company are offset by the
potential gains. Investing in another investment company, including those af-
filiated with the Fund or its investment adviser, may subject the Fund to over-
lapping fees and expenses that may be payable to the adviser or its affiliates.
B-26
<PAGE>
MANAGEMENT
The management of the Trust, including general supervision of the duties per-
formed for the Funds under the Management Agreement, is the responsibility of
its Board of Trustees. The number of trustees of the Trust is six, one of whom
is an "interested person" (as the term "interested person" is defined in the
Investment Company Act of 1940) and five of whom are "disinterested persons."
The names and business addresses of the trustees and officers of the Trust and
their principal occupations and other affiliations during the past five years
are set forth below, with those trustees who are "interested persons" of the
Trust indicated by an asterisk.
<TABLE>
-------------------------------------------------------------------------------------
<CAPTION>
Date of Position and Principal Occupations
Name and Address Birth Offices with Trust During Past Five Years
-------------------------------------------------------------------------------------
<C> <C> <C> <S>
Timothy R. Schwertfeger* 3/28/49 Chairman, President and Chairman (since July
333 West Wacker Drive Trustee 1996) and Director,
Chicago, IL 60606 formerly Executive Vice
President, of The John
Nuveen Company (from
March 1992 to July 1996)
and of Nuveen
Investments; Director
and Chairman (since July
1996), formerly
Executive Vice President
(from May 1994 to July
1996) of Nuveen
Institutional Advisory
Corp and Nuveen Advisory
Corp.; Chairman and
Director (since January
1997) of Nuveen Asset
Management, Inc.;
Director (since 1996) of
Institutional Capital
Corporation; Chairman
and Director of
Rittenhouse Financial
Services Inc. (since
1999); Chief Executive
Officer (since September
1999) of Nuveen Senior
Loan Asset Management
Inc.
-------------------------------------------------------------------------------------
James E. Bacon 2/27/31 Trustee Business consultant;
114 W. 47th St. retired. Formerly,
New York, NY 10036 Director Lone Star
Industries, Inc. (1992-
1999).
-------------------------------------------------------------------------------------
Jack B. Evans 10/22/48 Trustee President, The Hall-
115 Third Street, S.E. Perrine Foundation, a
Cedar Rapids, IA 52401 private philanthropic
corporation (since
1996); formerly,
President and Chief
Operating Officer, SCI
Financial Group, Inc.,
(a regional financial
services firm).
-------------------------------------------------------------------------------------
William L. Kissick 7/29/32 Trustee Professor, School of
University of Pennsylvania Medicine and the Wharton
3615 Chestnut Street School of Management and
Philadelphia, PA 19104 former Chairman, Leonard
Davis Institute of
Health Economics,
University of
Pennsylvania.
-------------------------------------------------------------------------------------
Thomas E. Leafstrand 11/11/31 Trustee Retired, previously,
412 W. Franklin Vice President in charge
Wheaton, IL 60187 of Municipal
Underwriting and Dealer
Sales at The Northern
Trust Company.
-------------------------------------------------------------------------------------
Sheila W. Wellington 2/24/32 Trustee President (since 1993)
250 Park Avenue of Catalyst (a not-for-
New York, NY 10003 profit organization
focusing on women's
leadership development
in business and the
professions).
</TABLE>
--------------------------------------------------------------------------------
B-27
<PAGE>
<TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<CAPTION>
Date of Position and Principal Occupations
Name and Address Birth Offices with Trust During Past Five Years
--------------------------------------------------------------------------------
<C> <C> <C> <S>
Alan G. Berkshire 12/28/60 Senior Vice President Senior Vice President
333 West Wacker Drive and Assistant Secretary (since May 1999),
Chicago, IL 60606 formerly Vice President
and General Counsel
(since September 1997)
and Secretary (since May
1998) of The John Nuveen
Company and Nuveen
Investments; Vice
President (since
September 1997) and
Secretary (since May
1998) of Nuveen Advisory
Corp. and Nuveen
Institutional Advisory
Corp.; Senior Vice
President and Secretary
(since September 1999)
of Nuveen Senior Loan
Asset Management Inc.;
prior thereto, Partner
in the law firm of
Kirkland & Ellis.
--------------------------------------------------------------------------------
Peter H. D'Arrigo 11/28/67 Vice President Vice President of Nuveen
333 West Wacker Drive and Treasurer Investments (January
Chicago, IL 60606 1999); prior thereto,
Assistant Vice President
(January 1997);
formerly, Associate of
Nuveen Investments; Vice
President and Treasurer
(since September 1999)
of Nuveen Senior Loan
Asset Management Inc.
--------------------------------------------------------------------------------
Michael S. Davern 6/26/57 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. (since
Chicago, IL 60606 January 1997); prior
thereto, Vice President
and Portfolio Manager
(since September 1991)
of Flagship Financial.
--------------------------------------------------------------------------------
Lorna C. Ferguson 10/24/45 Vice President Vice President of Nuveen
333 West Wacker Drive Investments; Vice
Chicago, IL 60606 President (since January
1998) of Nuveen Advisory
Corp. and Nuveen
Institutional Advisory
Corp.
--------------------------------------------------------------------------------
William M. Fitzgerald 3/2/64 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. (since
Chicago, IL 60606 December 1995);
Assistant Vice President
of Nuveen Advisory Corp.
(from September 1992 to
December 1995);
Chartered Financial
Analyst.
--------------------------------------------------------------------------------
Stephen D. Foy 5/31/54 Vice President and Vice President of Nuveen
333 West Wacker Drive Controller Investments; Vice
Chicago, IL 60606 President (since
September 1999) of
Nuveen Senior Loan Asset
Management Inc.;
Certified Public
Accountant.
--------------------------------------------------------------------------------
J. Thomas Futrell 7/5/55 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp.;
Chicago, IL 60606 Chartered Financial
Analyst.
--------------------------------------------------------------------------------
Richard A. Huber 3/26/63 Vice President Vice President of Nuveen
333 West Wacker Drive Institutional Advisory
Chicago IL 60606 Corp. (since March 1998)
and Nuveen Advisory
Corp. (since January
1997); prior thereto,
Vice President and
Portfolio Manager of
Flagship Financial.
--------------------------------------------------------------------------------
Steven J. Krupa 8/21/57 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp.
Chicago IL 60606
</TABLE>
--------------------------------------------------------------------------------
B-28
<PAGE>
<TABLE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<CAPTION>
Date of Position and Principal Occupations
Name and Address Birth Offices with Trust During Past Five Years
-------------------------------------------------------------------------------
<C> <C> <C> <S>
David J. Lamb 3/22/63 Vice President Vice President (since
333 West Wacker Drive (Since 2000) March 2000) of Nuveen
Chicago, IL 60606 Investments, previously
Assistant Vice President
(since January 1999),
prior thereto, Associate
of Nuveen Investments;
Certified Public
Accountant.
-------------------------------------------------------------------------------
Larry W. Martin 7/27/51 Vice President and Vice President, Assistant
333 West Wacker Drive Assistant Secretary Secretary and Assistant
Chicago, IL 60606 General Counsel of Nuveen
Investments; Vice
President and Assistant
Secretary of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.; Vice President and
Assistant Secretary (since
January 1997) of Nuveen
Asset Management, Inc.;
Assistant Secretary of The
John Nuveen Company; Vice
President and Assistant
Secretary (since September
1999) of Nuveen Senior
Loan Asset Management Inc.
-------------------------------------------------------------------------------
Edward F. Neild, IV 7/7/65 Vice President Vice President (since
333 West Wacker Drive September 1996),
Chicago, IL 60606 previously Assistant Vice
President (since December
1993) of Nuveen Advisory
Corp., Portfolio Manager
prior thereto; Vice
President (since September
1996), previously
Assistant Vice President
(since May 1995) of Nuveen
Institutional Advisory
Corp., Portfolio Manager
prior thereto; Chartered
Financial Analyst.
-------------------------------------------------------------------------------
Stephen S. Peterson 9/20/57 Vice President Vice President (since
333 West Wacker Drive September 1997 of Nuveen
Chicago IL 60606 Advisory Corp.),
previously Assistant Vice
President (since September
1996 of Nuveen Advisory
Corp.), Portfolio Manager
prior thereto; Chartered
Financial Analyst.
-------------------------------------------------------------------------------
Thomas C. Spalding, Jr. 7/31/51 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory
Corp.; Chartered Financial
Analyst.
-------------------------------------------------------------------------------
Gifford R. Zimmerman 9/9/56 Vice President and Vice President, Assistant
333 West Wacker Drive Secretary Secretary and Associate
Chicago, IL 60606 General Counsel,
previously Assistant
General Counsel of Nuveen
Investments; Vice
President and Assistant
Secretary of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.; Assistant Secretary
of The John Nuveen
Company; Vice President
and Assistant Secretary
(since September 1999) of
Nuveen Senior Loan Asset
Management Inc.; Chartered
Financial Analyst.
</TABLE>
--------------------------------------------------------------------------------
William L. Kissick and Timothy R. Schwertfeger serve as members of the Execu-
tive Committee of the Board of Trustees. The Executive Committee, which meets
between regular meetings of the Board of Trustees, is authorized to exercise
all of the powers of the Board of Trustees.
The trustees of the Trust are trustees of fourteen open-end and closed-end
funds advised by NIAC and two funds advised by Nuveen Senior Loan Asset Manage-
ment Inc. None of the independent trustees has ever been a director, officer,
or employee of, or a consultant to, NIAC, Nuveen or their affiliates.
Mr. Schwertfeger is a director or trustee, as the case may be, of 91 Nuveen
open-end funds and closed-end funds advised by Nuveen Advisory Corp.
B-29
<PAGE>
The following table sets forth compensation paid by the Trust to each of the
trustees who are not designated as "interested persons" during the Trust's fis-
cal year ended July 31, 2000, the total compensation that the Nuveen Funds paid
to such trustees during fiscal year ended July 31, 2000 and the amount esti-
mated to be paid to such Trustees by the Select Stock Fund for the fiscal year
ending July 31, 2001. The Trust has no retirement or pension plans. The offi-
cers and trustees affiliated with Nuveen serve without any compensation from
the Trust.
<TABLE>
<CAPTION>
Total
Deferred Compensation
Aggregate Compensation from Trust Estimated
Compensation Payable from and Fund Compensation
from the the Complex Paid to from the Select
Name of Trustee Trust (1) Trust (2) Trustees (3) Stock Fund (4)
--------------- ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
James E. Bacon.......... $5,842 $4,154 $45,500 $1,152
Jack B. Evans........... $5,768 $4,177 $45,500 1,152
William L. Kissick...... $6,264 $3,728 $45,500 1,152
Thomas E. Leafstrand.... $5,547 $4,105 $47,100 1,189
Sheila W. Wellington.... $1,474 $8,353 $45,500 1,152
</TABLE>
--------
(1) The compensation paid to the independent trustees for the fiscal year ended
July 31, 2000 for services to the Trust.
(2) Pursuant to a deferred compensation agreement with the Trust, deferred
amounts are treated as though an equivalent dollar amount has been invested
in shares of one or more eligible Nuveen Funds. The amounts provided are
the total deferred fees (including the return from the assumed investment
in the eligible Nuveen Funds) payable from the Trust.
(3) Based on the compensation paid to the independent trustees for the fiscal
year ended July 31, 2000 for services to the fourteen open-end and closed-
end funds advised by NIAC.
(4) The compensation estimated to be paid to the independent trustees for the
fiscal year ended July 31, 2001 for services to the Select Stock Fund.
Each trustee who is not affiliated with NIAC receives a $35,000 annual retainer
for serving as a director or trustee of all funds for which NIAC serves as in-
vestment adviser or manager and a $1,000 fee per day plus expenses for atten-
dance at all meetings held on a day on which a regularly scheduled Board meet-
ing is held, a $500 fee per day plus expenses for attendance in person or a
$500 fee per day plus expenses for attendance by telephone at a meeting held on
a day on which no regular Board meeting is held, a $100 fee per day plus ex-
penses for attendance in person or by telephone at a meeting of the Executive
Committee held solely to declare dividends, and a $200 fee per day plus ex-
penses for attendance in person or by telephone at a meeting of the Dividend
Committee. The annual retainer, fees and expenses are allocated among the funds
for which NIAC serves as investment adviser or manager on the basis of relative
net asset sizes. The Trust requires no employees other than its officers, all
of whom are compensated by NIAC or Nuveen.
The John Nuveen Company ("JNC") maintains its charitable contributions programs
to encourage the active support and involvement of individuals in the civic ac-
tivities of their community. These programs include a matching contributions
program and a direct contributions program.
The independent trustees of the funds managed by the NIAC are eligible to par-
ticipate in the charitable contributions program of JNC. Under the matching
program, JNC will match the personal contributions of a trustee to Section
501(c)(3) organizations up to an aggregate maximum amount of $10,000 during any
calendar year. Under its direct (non-matching) program, JNC makes contributions
to qualifying Section 501(c)(3) organizations, as approved by the Corporate
Contributions Committee of JNC.
B-30
<PAGE>
The independent trustees are also eligible to submit proposals to the committee
requesting that contributions be made under this program to Section 501(c)(3)
organizations identified by the trustees, in an aggregate amount not to exceed
$5,000 during any calendar year. Any contribution made by JNC under the direct
program is made solely at the discretion of the Corporate Contributions Commit-
tee.
As of November 7, 2000, the officers and trustees of the Funds, in the aggre-
gate, own less than 1% of the shares of the Fund.
As of November 7, 2000, NIAC owns 100% of the outstanding shares of the Select
Stock Fund. Accordingly, NIAC has the ability to significantly influence the
outcome of any item voted on by shareholders of the Fund. NIAC will be deemed
to control the Select Stock Fund so long as it owns more than 25% of the Fund's
voting securities.
The following table sets forth the percentage ownership of each person, who, as
of November 7, 2000, owns of record, or is known by the Trust to own of record
or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
Percentage
of Record
Name of Fund and Class Name and Address of Owner Ownership
---------------------- ------------------------- ----------
<S> <C> <C>
Nuveen Innovation Fund
Class R Shares................ American Express Trust Co. 32.70%
Amer Exp. Trust Ret. Ser. Pl.
c/o Pat Brown
50534 AXP Financial Center
Minneapolis, MN 55474
Donald A. Chiboncas 12.64%
51 Milbank Rd
Fairfield, CT 06430
Class A Shares................ Merrill Lynch, Pierce, Fenner & Smith 28.18%
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
Class B Shares................ Merrill Lynch, Pierce, Fenner & Smith 20.02%
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
Class C Shares................ Merrill Lynch, Pierce, Fenner & Smith 21.14%
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
</TABLE>
B-31
<PAGE>
<TABLE>
<CAPTION>
Percentage
of Record
Name of Fund and Class Name and Address of Owner Ownership
---------------------- ------------------------- ----------
<S> <C> <C>
Nuveen International Growth
Fund The John Nuveen Company 76.67%
Class R Shares............... 333 W. Wacker Dr.
Chicago, Illinois 60606
Class A Shares............... Merrill Lynch, Pierce, Fenner & Smith 51.80%
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
Class B Shares............... Merrill Lynch, Pierce, Fenner & Smith 42.26%
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
Class C Shares............... Merrill Lynch, Pierce, Fenner & Smith 72.55%
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
Nuveen Rittenhouse Growth Fund
Class R Shares............... George W. Connell 61.21%
121 Cheswold Ln
Havenford, PA 19041-1801
American Express Trust Co 8.93%
Amer Exp Trust Ret Ser Pl
U/A 07/01/89
c/o Nancy Jendro
PO Box 534
Minneapolis, MN 55440-0534
Class A Shares............... Merrill Lynch, Pierce, Fenner & Smith 32.22%
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
Class B Shares............... Merrill Lynch, Pierce, Fenner & Smith 48.07%
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
Class C Shares............... Merrill Lynch, Pierce, Fenner & Smith 52.17%
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
</TABLE>
B-32
<PAGE>
FUND MANAGER AND SUB-ADVISERS
Fund Manager
Nuveen Institutional Advisory Corp. ("NIAC") acts as the manager of each Fund,
with responsibility for the overall management of each Fund. NIAC is a Dela-
ware corporation and its address is 333 West Wacker Drive, Chicago, Illinois
60606. For the Innovation Fund and International Fund, NIAC has entered into a
Sub-Advisory Agreement with Columbus Circle Investors ("CCI") under which CCI,
subject to NIAC's supervision, manages the Funds' investment portfolios. For
the Rittenhouse Fund, NIAC has entered into a Sub-Advisory Agreement with Rit-
tenhouse Financial Services, Inc. ("Rittenhouse") under which Rittenhouse,
subject to NIAC's supervision, manages the Rittenhouse Fund's investment port-
folio. NIAC manages the Select Stock Fund's investment portfolio. NIAC is also
responsible for managing each Fund's business affairs and providing day-to-day
administrative services to each Fund. For additional information regarding the
management services performed by NIAC, CCI and Rittenhouse, see "Who Manages
the Fund(s)" in the applicable Prospectus.
NIAC is a wholly-owned subsidiary of Nuveen Investments ("Nuveen"), 333 West
Wacker Drive, Chicago, Illinois 60606, which is also the principal underwriter
of each Fund's shares. Nuveen is sponsor of the Nuveen Defined Portfolios,
registered unit investment trusts, and is the principal underwriter for the
Nuveen Mutual Funds, and has served as co-managing underwriter for the shares
of the Nuveen Exchange-Traded Funds. Over 1,300,000 individuals have invested
to date in Nuveen's funds and defined portfolios. Founded in 1898, Nuveen is a
subsidiary of JNC which, in turn, is approximately 78% owned by The St. Paul
Companies, Inc. ("St. Paul"). St. Paul is located in St. Paul, Minnesota, and
is principally engaged in providing property-liability insurance through sub-
sidiaries.
For the fund management services and facilities furnished by NIAC, each Fund
has agreed to pay an annual management fee at rates set forth in the applica-
ble Prospectus under "Who Manages the Fund(s)." In addition, NIAC may agree to
waive all or a portion of its management fee or reimburse certain expenses of
each Fund as specified in the Prospectus. In addition to the management fee,
each Fund also pays its portion of the Nuveen Investment Trust II's general
administrative expenses allocated in proportion to its net assets. All fees
and expenses are accrued daily and deducted before payment of dividends to in-
vestors. The following table sets forth the management fees (net of expenses
reimbursements) paid by the Funds and the fees waived and expenses reimbursed
by NIAC for the three most recent fiscal years.
<TABLE>
<CAPTION>
Amount of Management Fees (Net of Amount of Fees Waived and
Expense Reimbursements by NIAC) Expenses Reimbursed by NIAC
---------------------------------- -----------------------------
12/31/97 12/31/97
(inception)- 8/1/98- 8/1/99- (inception)- 8/1/98- 8/1/99-
7/31/98 7/31/99 7/31/00 7/31/98 7/31/99 7/31/00
------------ ---------- ---------- ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Nuveen Innovation Fund.. N/A N/A $ 377,125* N/A N/A $ 57,200*
Nuveen International
Growth Fund............ N/A N/A $ 12,831* N/A N/A $157,005*
Nuveen Rittenhouse
Growth Fund............ $515,670 $3,090,596 $4,817,323 $48,782 $10,536 $149,870
</TABLE>
--------
*For the period from December 20, 1999 (inception) through the fiscal year
ended July 31, 2000.
The Funds, the other Nuveen funds, NIAC, the sub-advisers and other related
entities have adopted codes of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from en-
gaging in personal investments which compete or interfere with, or attempt to
take advantage of a Fund's anticipated or actual portfolio transactions, and
is designed to assure that the interests of Fund shareholders are placed be-
fore the interests of Nuveen personnel in connection with personal investment
transactions.
B-33
<PAGE>
Sub-Advisers
CCI was founded in 1975 and is located at Metro Center, One Station Place,
Stamford, CT 06902. Under the Sub-Advisory Agreement for the Innovation Fund
and International Fund, CCI is compensated by NIAC for its investment advisory
services with respect to the Innovation Fund and International Fund. Under a
Sub-Advisory Agreement with NIAC, CCI manages the investment portfolio of the
Innovation Fund and International Fund. CCI is an investment management firm
organized as a general partnership. CCI has two partners: CCIP LLC and Columbus
Circle Investor Management Inc. The predecessors of CCI, including the Columbus
Circle Investors Division of Thomson Advisory Group L.P. ("TAG"), commenced op-
erations in 1975. CCI is registered as an investment advisor with the Securi-
ties and Exchange Commission.
At the center of CCI's equity investment strategy is its theory of Positive Mo-
mentum and Positive Surprise. This theory asserts that a good company doing
better than generally expected will experience a rise in its stock price, and
conversely, a company falling short of expectations will experience a drop in
its stock price. Based on this theory, CCI attempts to manage the Funds with a
view to investing in growing companies that are surprising the market with
business results that are better than anticipated.
Investment decisions made by CCI are generally made by one or more committees,
although Anthony Rizza and Clifford G. Fox have primary responsibility for the
day-to-day management of the Innovation Fund and International Fund, respec-
tively. Mr. Rizza was the portfolio manager for the Pimco Innovation Fund from
1994 to 1999. The Pimco Innovation Fund was named Mutual Fund Magazine's 1998
Fund of the Year.
Out of the fund management fee, NIAC pays CCI a portfolio management fee based
on the daily net assets of the applicable Fund for which it serves as the port-
folio manager, according to the following base schedule:
<TABLE>
<CAPTION>
Innovation International
Daily Net Assets Fund Fund
---------------- ---------- -------------
<S> <C> <C>
For the first $1 billion......................... 0.37% 0.30%
For assets over $1 billion....................... 0.30% 0.25%
</TABLE>
CCI provides continuous advice and recommendations concerning the Innovation
Fund's and International Fund's investments, and is responsible for selecting
the broker/dealers who execute the portfolio transactions. CCI also serves as
investment advisor to pension and profit-sharing plans, and other institutional
and private investors. As of November 28, 2000, CCI had approximately $6.3 bil-
lion under management.
Rittenhouse is an institutional investment management firm based in Radnor,
Pennsylvania with over 20 years of experience and approximately $18 billion in
assets under management as of November 28, 2000. Rittenhouse is a wholly owned
subsidiary of The John Nuveen Company. Under the Sub-Advisory Agreement, Rit-
tenhouse is compensated by NIAC for its investment advisory services to the
Rittenhouse Fund.
Out of the fund management fee, NIAC pays Rittenhouse a portfolio management
fee based on the daily net assets of the Rittenhouse Fund at an annual rate as
set forth below:
<TABLE>
<CAPTION>
Rittenhouse
Daily Net Assets Fund
---------------- -----------
<S> <C>
For the first $500 million.................................... 0.35%
For assets over $500 million.................................. 0.30%
</TABLE>
B-34
<PAGE>
Rittenhouse provides continuous advice and recommendations concerning the Rit-
tenhouse Fund's investments, and is responsible for selecting the broker-deal-
ers who execute the portfolio transactions. In executing such transactions,
Rittenhouse seeks to obtain the best net result for the Rittenhouse Fund. Rit-
tenhouse also serves as investment adviser to pension and profit-sharing plans,
and other institutional and private investors.
The following table sets forth the fees paid by NIAC to CCI and Rittenhouse for
the funds for which they serve as sub-advisors:
<TABLE>
<CAPTION>
Amount Paid by NIAC to Sub-Advisor
-------------------------------------------
12/31/97 (inception)- 8/1/98- 8/1/99-
7/31/98 7/31/99 7/31/00
--------------------- ---------- ----------
<S> <C> <C> <C>
Nuveen Innovation Fund............. N/A N/A $ 163,520*
Nuveen International Growth Fund... N/A N/A $ 50,393*
Nuveen Rittenhouse Growth Fund..... $233,038 $1,298,035 $2,044,634
</TABLE>
--------
* For the period December 20, 1999 (inception) through the fiscal year ended
July 31, 2000.
Select Stock Fund Portfolio Manager
NIAC has selected Eugene E. Peroni, Jr. to serve as the portfolio manager of
the Select Stock Fund. Mr. Peroni is responsible for the day-to-day management
of the Fund's portfolio. Mr. Peroni joined Nuveen in 1999 and is currently Vice
President, Director of Equity Research. Mr. Peroni is widely recognized as one
of Wall Street's most respected investment strategists whose insights and rec-
ommendations are frequently sought by the Wall Street Journal, CNBC, Bloomberg
TV and Nightly Business Report. Over a quarter century of ongoing research and
analysis has shown Mr. Peroni that investors' trading behavior may help reveal
emerging investment themes that can power the future growth potential of indi-
vidual stocks, industry sectors and the overall market.
PORTFOLIO TRANSACTIONS
CCI is responsible for decisions to buy and sell securities for the Innovation
Fund and International Fund, Rittenhouse is responsible for such decisions for
The Rittenhouse Fund and NIAC is responsible for such decisions for the Select
Stock Fund. CCI, Rittenhouse and NIAC are also responsible for the applicable
Fund, for the placement of the Funds' securities business, the negotiation of
the commissions to be paid on brokered transactions, the prices for principal
trades in securities, and the allocation of portfolio brokerage and principal
business. It is the policy of CCI, Rittenhouse and NIAC to seek the best execu-
tion at the best security price available with respect to each transaction, and
with respect to brokered transactions, in light of the overall quality of bro-
kerage and research services provided to the respective advisor and its
advisees. The best price to the Funds means the best net price without regard
to the mix between purchase or sale price and commission, if any. Purchases may
be made from underwriters, dealers, and, on occasion, the issuers. Commissions
will be paid on a Fund's futures and options transactions, if any. The purchase
price of portfolio securities purchased from an underwriter or dealer may in-
clude underwriting commissions and dealer spreads. The Funds may pay mark-ups
on principal transactions. In selecting broker-dealers and in negotiating com-
missions, CCI, Rittenhouse and NIAC consider, among other things, the firm's
reliability, the quality of its execution services on a continuing basis and
its financial condition. Brokerage will not be allocated based on the sale of a
Fund's shares.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)") permits
an investment adviser, under certain circumstances, to cause an account to pay
a broker or dealer who supplies brokerage and
B-35
<PAGE>
research services a commission for effecting a transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
the transaction. Brokerage and research services include (a) furnishing advice
as to the value of securities, the advisability of investing, purchasing or
selling securities, and the availability of securities or purchasers or sell-
ers of securities; (b) furnishing analyses and reports concerning issuers, in-
dustries, securities, economic factors and trends, portfolio strategy, and the
performance of accounts; and (c) effecting securities transactions and per-
forming functions incidental thereto (such as clearance, settlement, and cus-
tody).
In light of the above, in selecting brokers, CCI, Rittenhouse and NIAC con-
sider investment and market information and other research, such as economic,
securities and performance measurement research, provided by such brokers, and
the quality and reliability of brokerage services, including execution capa-
bility, performance, and financial responsibility. Accordingly, the commis-
sions charged by any such broker may be greater than the amount another firm
might charge if CCI, Rittenhouse or NIAC determine in good faith that the
amount of such commissions is reasonable in relation to the value of the re-
search information and brokerage services provided by such broker to CCI, Rit-
tenhouse or NIAC or a Fund. CCI, Rittenhouse and NIAC believe that the re-
search information received in this manner provides a Fund with benefits by
supplementing the research otherwise available to the Fund. The Management
Agreement and the Sub-Advisory Agreement, if applicable, provide that such
higher commissions will not be paid by a Fund unless the applicable adviser
determines in good faith that the amount is reasonable in relation to the
services provided. The investment advisory fees paid by a Fund to NIAC under
the Management Agreement or the subadvisory fees paid by NIAC to CCI or Rit-
tenhouse under the Sub-Advisory Agreements are not reduced as a result of re-
ceipt by either NIAC, Rittenhouse or CCI of research services.
CCI, Rittenhouse and NIAC place portfolio transactions for other advisory ac-
counts managed by them. Research services furnished by firms through which
each Fund effects its securities transactions may be used by CCI, Rittenhouse
and NIAC in servicing all of their accounts; not all of such services may be
used by CCI, Rittenhouse or NIAC in connection with a Fund. CCI, Rittenhouse
and NIAC believe it is not possible to measure separately the benefits from
research services to each of the accounts (including the Funds) managed by it.
Because the volume and nature of the trading activities of the accounts are
not uniform, the amount of commissions in excess of those charged by another
broker paid by each account for brokerage and research services will vary.
However, CCI, Rittenhouse and NIAC believe such costs to each Fund will not be
disproportionate to the benefits received by a Fund on a continuing basis.
CCI, Rittenhouse and NIAC seek to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by a
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to a Fund.
In making such allocations between a Fund and other advisory accounts, the
main factors considered by CCI, Rittenhouse and NIAC are the respective in-
vestment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment and the size of
investment commitments generally held.
B-36
<PAGE>
The following table sets forth the aggregate amount of brokerage commissions
paid by the Funds for the three most recent fiscal years.
<TABLE>
<CAPTION>
Aggregate Amount of
Brokerage Commissions
---------------------------------------
12/31/97 (inception)- 8/1/98- 8/1/99-
7/31/98 7/31/99 7/31/00
--------------------- -------- --------
<S> <C> <C> <C>
Nuveen Innovation Fund................. N/A N/A $ 56,928*
Nuveen International Growth Fund....... N/A N/A $189,463*
Nuveen Rittenhouse Growth Fund......... $170,160 $347,720 $287,252
</TABLE>
--------
*For the period December 20, 1999 (inception) through the fiscal year ended
July 31, 2000.
The differences between brokerage commissions paid by the Rittenhouse Fund in
the 1998 fiscal year, and the 1999 and 2000 fiscal years, was due, in part, to
an increase in portfolio activity, and that the Fund did not operate for a full
year during its first fiscal year. During the fiscal year ended July 31, 2000,
the Innovation Fund, International Fund, and Rittenhouse Fund paid to brokers
as commissions in return for research services $15,746, $0, and $259,570, re-
spectively, and the aggregate amount of those transactions per Fund on which
such commissions were paid were $18,781,320, $0, and $269,808,699, respective-
ly.
Under the Investment Company Act of 1940, a Fund may not purchase portfolio se-
curities from any underwriting syndicate of which Nuveen is a member except un-
der certain limited conditions set forth in Rule 10f-3. The Rule sets forth re-
quirements relating to, among other things, the terms of a security purchased
by a Fund, the amount of securities that may be purchased in any one issue and
the assets of the Fund that may be invested in a particular issue. In addition,
purchases of securities made pursuant to the terms of the Rule must be approved
at least quarterly by the Board of Trustees, including a majority of the trust-
ees who are not interested persons of the Trust.
NET ASSET VALUE
Each Fund's net asset value per share is determined separately for each class
of a Fund's shares as of the close of trading (normally 4:00 p.m. eastern time)
on each day the New York Stock Exchange (the "Exchange") is open for business.
The Exchange is not open for trading on New Year's Day, Washington's Birthday,
Martin Luther King's Birthday, Good Friday, Memorial Day, Independence Day, La-
bor Day, Thanksgiving Day and Christmas Day. A Fund's net asset value may not
be calculated on days during which the Fund receives no orders to purchase
shares and no shares are tendered for redemption. Net asset value per share of
a class of a Fund is calculated by taking the value of the pro rata portion of
the Fund's total assets attributable to that class, including interest or divi-
dends accrued but not yet collected, less all liabilities attributable to that
class (including the class's pro rata portion of the Fund's liabilities), and
dividing by the total number of shares of that class outstanding. The result,
rounded to the nearest cent, is the net asset value per share of that class. In
determining net asset value, expenses are accrued and applied daily and securi-
ties and other assets for which market quotations are available are valued at
market value. Common stocks and other equity-type securities are valued at the
last sales price on the securities exchange or Nasdaq on which such securities
are primarily traded; however, securities traded on a securities exchange or
Nasdaq for which there were no transactions on a given day
B-37
<PAGE>
or securities not listed on a securities exchange or Nasdaq are valued at the
most recent bid prices. Fixed- income securities are valued by a pricing serv-
ice that values portfolio securities at the mean between the quoted bid and
asked prices or the yield equivalent when quotations are readily available. Se-
curities for which quotations are not readily available are valued at fair
value as determined by the pricing service using methods that include consider-
ation of the following: yields or prices of securities or bonds of comparable
quality, type of issue, coupon, maturity and rating; indications as to value
from securities dealers; and general market conditions. The pricing service may
employ electronic data processing techniques and/or a matrix system to deter-
mine valuations. Debt securities having remaining maturities of 60 days or less
when purchased are valued by the amortized cost method when the Board of Trust-
ees determines that the fair market value of such securities is their amortized
cost. Under this method of valuation, a security is initially valued at its ac-
quisition cost, and thereafter amortization of any discount or premium is as-
sumed each day, regardless of the impact of fluctuating interest rates on the
market value of the security.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. These securities generally include but are not limited to, re-
stricted securities (securities which may not be publicly sold without regis-
tration under the Securities Act of 1933) for which a pricing service is unable
to provide a market price; securities whose trading has been formally suspend-
ed; debt securities that have gone into default and for which there is no cur-
rent market quotation; a security whose market price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after
the market has closed but before the calculation of fund NAV (as may be the
case in foreign markets on which the security is primarily traded) or make it
difficult or impossible to obtain a reliable market quotation; and, a security
whose price, as provided by the pricing service, does not reflect the
security's "fair value." As a general principle, the current "fair value" of an
issue of securities would appear to be the amount which the owner might reason-
ably expect to receive for them upon their current sale. A variety of factors
may be considered in determining the fair value of such securities.
Regardless of the method employed to value a particular security, all valua-
tions are subject to review by a Fund's Board of Trustees or its delegate who
may determine the appropriate value of a security whenever the value as calcu-
lated is significantly different from the previous day's calculated value.
If a Fund holds securities that are primarily listed on foreign exchanges, the
net asset value of the Fund's shares may change on days when shareholders will
not be able to purchase or redeem the Fund's shares.
TAX MATTERS
Federal Income Tax Matters
The following discussion of federal income tax matters is based upon the advice
of Chapman and Cutler, counsel to the Trust.
Each Fund intends to qualify under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code") for tax treatment as a regulated investment com-
pany. In order to qualify as a regulated investment company, each Fund (i) must
elect to be treated as a regulated investment company and (ii)
B-38
<PAGE>
for each taxable year thereafter must satisfy certain requirements relating to
the source of its income, diversification of its assets, and distributions of
its income to shareholders.
First, each Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to securi-
ties loans, gains from the sale or other disposition of stock or securities,
foreign currencies or other income (including but not limited to gains from op-
tions, futures, or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income
test"). Second, each Fund must diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the value of its total
assets is comprised of cash, cash items, United States Government securities,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater in value than 5% of the
value of the Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
the Fund's total assets is invested in the securities of any one issuer (other
than United States Government securities and securities of other regulated in-
vestment companies) or two or more issuers controlled by the Fund and engaged
in the same, similar or related trades or businesses.
As a regulated investment company, each Fund will not be subject to federal in-
come tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (without regard to its net capi-
tal gain, i.e., the excess of its net long-term capital gain over its short-
term capital loss) and (ii) its net tax-exempt interest (the excess of its
gross tax-exempt interest income over certain disallowed deductions). In addi-
tion, to the extent a Fund timely distributes to shareholders at least 98% of
its taxable income (including any net capital gain), it will not be subject to
the 4% excise tax on certain undistributed income of "regulated investment com-
panies." Each Fund intends to make timely distributions in compliance with
these requirements and consequently it is anticipated that they generally will
not be required to pay the excise tax. A Fund may retain for investment its net
capital gain. However, if a Fund retains any net capital gain or any investment
company taxable income, it will be subject to federal income tax at regular
corporate rates on the amount retained. If a Fund retains any net capital gain,
the Fund may designate the retained amount as undistributed capital gains in a
notice to its shareholders who, if subject to federal income tax on long-term
capital gains, (i) will be required to include in income for federal income tax
purposes, as long-term capital gain, their shares of such undistributed amount,
and (ii) will be entitled to credit their proportionate shares of the tax paid
by the Fund against their federal income tax liabilities if any, and to claim
refunds to the extent the credit exceeds such liabilities. For federal income
tax purposes, the tax basis of shares owned by a shareholder of a Fund will be
increased by an amount equal to the difference between the amount of such in-
cludible gains and the tax deemed paid by such shareholder in respect of such
shares. Each Fund intends to distribute at least annually to its shareholders
all or substantially all of its investment company taxable income and net capi-
tal gain.
Treasury regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain, to elect (unless it has
made a taxable year election for excise tax purposes as discussed below) to
treat all or part of any net capital loss, any net long-term capital loss or
any net foreign currency loss incurred after October 31 as if they had been in-
curred in the succeeding year.
B-39
<PAGE>
If a Fund engages in hedging transactions involving financial futures and op-
tions, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to the Fund, defer the Fund's losses, cause
adjustments in the holding periods of the Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Prior to purchasing shares in a Fund, the impact of dividends or distributions
which are expected to be or have been declared, but not paid, should be care-
fully considered. Any dividend or distribution declared shortly after a pur-
chase of such shares prior to the record date will have the effect of reducing
the per share net asset value by the per share amount of the dividend or dis-
tribution and will be subject to federal income tax to the extent it is a dis-
tribution of ordinary income or capital gain.
In any taxable year of a Fund, distributions from the Fund, other than distri-
butions which are designated as capital gains dividends, will to the extent of
the earnings and profits on the Fund, constitute dividends for Federal income
tax purposes which are taxable as ordinary income to shareholders. To the ex-
tent that distributions to a shareholder in any year exceed a Fund's current
and accumulated earnings and profits, they will be treated as a return of capi-
tal and will reduce the shareholder's basis in his or her shares and, to the
extent that they exceed his or her basis, will be treated as gain from the sale
of such shares as discussed below. Distributions of a Fund's net capital gain
which are properly designated as capital gain dividends by the Fund will be
taxable to the shareholders as long-term capital gain, regardless of the length
of time the shares have been held by a shareholder. Distributions will be taxed
in the manner described (i.e., as ordinary income, long-term capital gain, re-
turn of capital or exempt-interest dividends) even if reinvested in additional
shares of a Fund.
Although dividends generally will be treated as distributed when paid, divi-
dends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by a Fund (and received by
the shareholders) on December 31 of the year such dividends are declared.
The redemption or exchange of the shares of a Fund normally will result in cap-
ital gain or loss to the shareholders. Generally, a shareholder's gain or loss
will be long-term gain or loss if the shares have been held for more than one
year. Present law taxes both long- and short-term capital gains of corporations
at the rates applicable to ordinary income. The Internal Revenue Service Re-
structuring and Reform Act of 1998 (the "1998 Tax Act") provides that for tax-
payers other than corporations, net capital gain (which is defined as net long-
term capital gain over net short-term capital loss for the taxable year) real-
ized from property (with certain exclusions) is generally subject to a maximum
marginal stated tax rate of 20% (10% in the case of certain taxpayers in the
lowest tax bracket). However, capital gain realized from assets held more than
one year that is considered unrecaptured Section 1250 gain is taxed at a maxi-
mum marginal stated tax rate of 25%. For tax years beginning after December 31,
2000, the 20% rate is reduced to 18% and the 10% rate is reduced to 8% for
long-term gains from most property held for more than five years. However, the
reduction of the 20% rate to 18% applies only if the holding period for the
property begins after December 31, 2000. Therefore, you will not be eligible
for the 18% capital gain rate on assets for which your holding period began be-
fore January 1, 2001. However, if you are an individual, you may elect to treat
certain assets you hold on January 1, 2001 as having been sold
B-40
<PAGE>
for their fair market value on the next business day after January 1, 2001 for
purposes of this holding period requirement. If you make this election for an
asset, the asset would be eligible for the 18% rate if it is held by you for
more than five years after this deemed sale. If you make this election, you
must recognize any gain from this deemed sale, but any loss is not recognized.
Capital gain or loss is long-term if the holding period for the asset is more
than one year, and is short-term if the holding period for the asset is one
year or less. The date on which a share is acquired (i.e., the "trade date") is
excluded for purposes for determining the holding period of the share. Capital
gains realized from assets held for one year or less are taxed at the same
rates as ordinary income. Note that if a sale of shares held for less than six
months results in loss, the loss will be treated as a long-term capital loss to
the extent of any capital gain distribution made with respect to such shares
during the period those shares are held by the shareholder. In the case of cap-
ital gains dividends, the determination of which portion of the capital gain
dividend, if any, that may be treated as long-term gain from property held for
more than five years and eligible for the 18% (or 8%) tax rate will be made
based on regulations prescribed by the United States Treasury.
In addition, please note that capital gains may be recharacterized as ordinary
income in the case of certain financial transactions that are considered "con-
version transactions" effective for transactions entered into after April 30,
1993. Shareholders and prospective investors should consult with their tax ad-
visers regarding the potential effect of this provision on their investment in
shares of a Fund.
Under the Code, certain miscellaneous itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses, will be
deductible by individuals only to the extent they exceed 2% of adjusted gross
income. Miscellaneous itemized deductions subject to this limitation under
present law do not include expenses incurred by a Fund as long as the shares of
the Fund are held by or for 500 or more persons at all times during the taxable
year or another exception is met. In the event the shares of a Fund are held by
fewer than 500 persons, additional taxable income may be realized by the indi-
vidual (and other non-corporate) shareholders in excess of the distributions
received from the Fund.
All or a portion of a sales load paid in purchasing shares of a Fund cannot be
taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of the Fund or another fund are subsequently acquired without payment of
a sales load or with the payment of a reduced sales load pursuant to the rein-
vestment or exchange privilege. Any disregarded portion of such load will re-
sult in an increase in the shareholder's tax basis in the shares subsequently
acquired. Moreover, losses recognized by a shareholder on the
redemption or exchange of shares of a Fund held for six months or less are dis-
allowed to the extent of any distribution of exempt-interest dividends received
with respect to such shares and, if not disallowed, such losses are treated as
long-term capital losses to the extent of any distributions of long-term capi-
tal gains made with respect to such shares. In addition, no loss will be al-
lowed on the redemption or exchange of shares of a Fund if the shareholder pur-
chases other shares of the Fund (whether through reinvestment of distributions
or otherwise) or the shareholder acquires or enters into a contract or option
to acquire securities that are substantially identical to shares of the Fund
within a period of 61 days beginning 30 days before and ending 30 days after
such redemption or exchange. If disallowed, the loss will be reflected in an
adjustment to the basis of the shares acquired.
B-41
<PAGE>
If in any year a Fund should fail to qualify under Subchapter M for tax treat-
ment as a regulated investment company, the Fund would incur a regular corpo-
rate federal income tax upon its income for that year, and distributions to its
shareholders would be taxable to shareholders as ordinary dividend income for
federal income tax purposes to the extent of the Fund's available earnings and
profits.
Each Fund is required in certain circumstances to withhold 31% of taxable divi-
dends and certain other payments paid to non-corporate holders of shares who
have not furnished to the Fund their correct taxpayer identification number (in
the case of individuals, their social security number) and certain certifica-
tions, or who are otherwise subject to backup withholding.
A shareholder who is a foreign investor (i.e., an investor other than a United
States citizen or resident or a United States corporation, partnership, estate
or trust) should be aware that, generally, subject to applicable tax treaties,
distributions from a Fund which constitute dividends for Federal income tax
purposes (other than dividends which a Fund designates as capital gain divi-
dends) will be subject to United States income taxes, including withholding
taxes. However, distributions received by a foreign investor from a Fund that
are designated by a Fund as capital gain dividends should not be subject to
United States Federal income taxes, including withholding taxes, if all of the
following conditions are met: (i) the capital gain dividend is not effectively
connected with the conduct by the foreign investor of a trade or business
within the United States, (ii) the foreign investor (if an individual) is not
present in the United States for 183 days or more during his or her taxable
year, and (iii) the foreign investor provides all certification which may be
required of his status (foreign investors may contact the Fund to obtain a Form
W-8-BEN which must be filed with such Fund and refiled every three calendar
years thereafter). Foreign investors should consult their tax advisors with re-
spect to United States tax consequences of ownership of Shares. Units in a Fund
and Fund distribution may also be subject to state and local taxation and
Shareholders should consult their tax advisors in this regard.
Generally, Fund dividends are not entitled to the 70% dividends received deduc-
tion for corporations. However, a corporate shareholder (other than corporate
shareholders, such as "S" corporations, which are not eligible for the deduc-
tion because of their special characteristics and other than for purposes of
special taxes such as the accumulated earnings tax and the personal holding
corporation tax) may be entitled to a 70% dividends-received deduction with re-
spect to any portion of such shareholder's ordinary income dividends which are
attributable to dividends received by a Fund on certain Equity Securities. A
Fund will designate the portion of any taxable dividend which is eligible for
this deduction. However, a corporate shareholder should be aware that Sections
246 and 246A of the Code impose additional limitations on the eligibility of
dividends for the 70% dividends received deduction. These limitations include a
requirement that stock (and therefore Shares of a Fund) must generally be held
at least 46 days (as determined under, and during the period specified in, Sec-
tion 246(c) of the Code). Regulations have been issued which address special
rules that must be considered in determining whether the 46 day holding re-
quirement is met. Moreover, the allowable percentage of the deduction will gen-
erally be reduced from 70% if a corporate shareholder owns Shares of a Fund the
financing of which is directly attributable to indebtedness incurred by such
corporation. To the extent dividends received by a Fund are attributable to
foreign corporations, a corporate shareholder will not be entitled to the divi-
dends received deduction with respect to its share of such foreign dividends
since the dividends received deduction is generally available only with respect
to dividends paid by domestic corpora-
B-42
<PAGE>
tions. It should be noted that payments to a Fund of dividends on equity Secu-
rities that are attributable to foreign corporations may be subject to foreign
withholding taxes. Corporate shareholders should consult with their tax advis-
ers with respect to the limitations on, and possible modifications to, the div-
idends received deduction.
A Fund may elect to pass through to the shareholders the foreign income and
similar taxes paid by the Fund in order to enable such shareholders to take a
credit (or deduction) for foreign income taxes paid by a Fund. If such an elec-
tion is made, shareholders of a Fund, because they are deemed to own a pro rata
portion of the foreign securities held by the Fund, must include in their gross
income, for federal income tax purposes, both their portion of dividends re-
ceived by such Fund and also their portion of the amount which the Fund deems
to be the shareholders' portion of foreign income taxes paid with respect to,
or withheld from, dividends, interest or other income of the Fund from its for-
eign investments. Shareholders may then subtract from their federal income tax
the amount of such taxes withheld, or else treat such foreign taxes as deduc-
tions from gross income; however, as in the case of investors receiving income
directly from foreign sources, the above described tax credit or deduction is
subject to certain limitations. The 1997 Act imposes a required holding period
for such credits. Shareholders should consult their tax advisers regarding this
election and its consequences to them.
Foreign currency gains and losses realized by a Fund in connection with certain
transactions that involve foreign currency-denominated debt securities, certain
foreign currency options, foreign currency forward contracts, foreign curren-
cies, or payables or receivables denominated in a foreign currency are subject
to Section 988 of the Code, which generally causes such gains and losses to be
treated as ordinary income and losses and may affect the amount, timing and
character of distributions to shareholders. For example, if a Fund sold a for-
eign stock or bond and part of the gain or loss on the sale was attributable to
an increase or decrease in the value of a foreign currency, then the currency
gain or loss may be treated as ordinary income or loss. If such transactions
result in higher net ordinary income, the dividends paid by the Fund will be
increased; if such transactions result in lower net ordinary income, a portion
of dividends paid could be classified as a return of capital.
Each Fund may qualify for and make an election permitted under the "pass
through" provisions of Section 853 of the Internal Revenue Code, which allows a
regulated investment company to elect to have its foreign tax credit taken by
its shareholders instead of on its own tax return. To be eligible for this
credit, more than 50% of the value of a Fund's total assets at the close of its
taxable year must consist of stock or other securities in foreign corporations,
and the Fund must meet certain other requirements.
If a Fund makes this election, it may not take any foreign tax credit and may
not take a deduction for foreign taxes paid. However, each Fund is allowed to
include the amount of foreign taxes paid in a taxable year in its dividends
paid deduction. Each shareholder would then include in his gross income, and
treat as paid by him, his proportionate share of the foreign taxes paid by the
Fund.
If the U.S. government were to impose any restrictions, through taxation or
other means, on foreign investments by U.S. investors such as those to be made
through a Fund, the Board of Trustees of each Fund will promptly review the
policies of the Fund to determine whether significant changes in its invest-
ments are appropriate.
B-43
<PAGE>
General
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
federal income taxation of a Fund and its shareholders and relates only to the
federal income tax status of a Fund and to the tax treatment of distributions
by a Fund to United States shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or adminis-
trative action, and any such change may be retroactive with respect to Fund
transactions. Shareholders are advised to consult their own tax advisors for
more detailed information concerning the federal taxation of a Fund and the in-
come tax consequences to its shareholders, as well as with respect to foreign,
state and local tax consequences of ownership of Fund shares.
PERFORMANCE INFORMATION
Each Fund may quote its yield, distribution rate, beta, average annual total
return or cumulative total return in reports to shareholders, sales literature
and advertisements each of which will be calculated separately for each class
of shares.
In accordance with a standardized method prescribed by rules of the Securities
and Exchange Commission ("SEC"), yield is computed by dividing the net invest-
ment income per share earned during the specified one month or 30-day period by
the maximum offering price per share on the last day of the period, according
to the following formula:
Yield=2[(a-b +1)/6/ -1]
cd
In the above formula, a = dividends and interest earned during the period; b =
expenses accrued for the period (net of reimbursements); c = the average daily
number of shares outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share on the last day of the
period. In the case of Class A shares, the maximum offering price includes the
current maximum front-end sales charge of 5.75%.
In computing yield, each Fund follows certain standardized accounting practices
specified by SEC rules. These practices are not necessarily consistent with
those that the Fund uses to prepare its annual and interim financial statements
in conformity with generally accepted accounting principles. Thus, yield may
not equal the income paid to shareholders or the income reported in a Fund's
financial statements.
<TABLE>
<CAPTION>
Yield (as of 7/31/00)
----------------------------------
Class A Class B Class C Class R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Nuveen Innovation Fund...................... -2.23% -3.15% -3.15% -2.10%
Nuveen International Growth Fund............ -1.50% -2.35% -2.35% -1.33%
Nuveen Rittenhouse Fund..................... -1.06% -1.85% -1.85% -.90%
</TABLE>
B-44
<PAGE>
Each Fund may from time to time in its advertising and sales materials report a
quotation of its current distribution rate. The distribution rate represents a
measure of dividends distributed for a specified period. The distribution rate
is computed by taking the most recent dividend per share, multiplying it as
needed to annualize it, and dividing by the appropriate price per share (e.g.,
net asset value for purchases to be made without a load such as reinvestments
from Nuveen Defined Portfolios, or the maximum public offering price). The dis-
tribution rate differs from yield and total return and therefore is not in-
tended to be a complete measure of performance. Distribution rate may sometimes
differ from yield because a Fund may be paying out more than it is earning and
because it may not include the effect of amortization of bond premiums to the
extent such premiums arise after the bonds were purchased.
Each Fund may from time to time in its advertising and sales literature quote
its beta. Beta is a standardized measure of a security's risk (variability of
returns) relative to the overall market, i.e., the proportion of the variation
in the security's returns that can be explained by the variation in the return
of the overall market. For example, a security with a beta of 0.85 is expected
to have returns that are 85% as variable as overall market returns. Conversely,
a security with a beta of 1.25 is expected to have returns that are 125% as
variable as overall market returns. The beta of the overall market is by defi-
nition 1.00.
The formula for beta is given by:
Beta = S A * B / C
where
A = (Xi - X), i=1,..., N
B = (Yi - Y), i=1,..., N
C = S (Xi - X)/2/, i=1,..., N
Xi = Security Return in period i
Yi = Market Return in period i
X = Average of all observations Xi
Y = Average of all observations Yi
N = Number of observations in the measurement period
The betas for the Innovation Fund, International Fund and the Rittenhouse Fund
on July 31, 2000 were 1.21, 1.29 and 0.92, respectively. The beta equals the
weighted average of the betas for each stock in a Fund's investment portfolio.
The beta for each stock in each Fund's portfolio was calculated based on weekly
returns for the periods ended July 31, 2000 and using the S&P 500 Index as the
market benchmark.
All total return figures assume the reinvestment of all dividends and measure
the net investment income generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the underlying investments in each
Fund over a specified period of time. Average annual total return figures are
annualized and therefore represent the average annual percentage change over
the specified period. Cumulative total return figures are not annualized and
represent the aggregate percentage or dollar value
B-45
<PAGE>
change over a stated period of time. Average annual total return and cumula-
tive total return are based upon the historical results of the Funds and are
not necessarily representative of the future performance of the Funds.
The average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation as-
sumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.
Calculation of cumulative total return is not subject to a prescribed formula.
Cumulative total return for a specific period is calculated by first taking a
hypothetical initial investment in Fund shares on the first day of the period,
deducting (in some cases) the maximum sales charge, and computing the "redeem-
able value" of that investment at the end of the period. The cumulative total
return percentage is then determined by subtracting the initial investment
from the redeemable value and dividing the remainder by the initial investment
and expressing the result as a percentage. The calculation assumes that all
income and capital gains distributions by each Fund have been reinvested at
net asset value on the reinvestment dates during the period. Cumulative total
return may also be shown as the increased dollar value of the hypothetical in-
vestment over the period. Cumulative total return calculations that do not in-
clude the effect of the sales charge would be reduced if such charge were in-
cluded. Average annual and cumulative total returns may also be presented in
advertising and sales literature without the inclusion of sales charges.
From time to time, each Fund may compare its risk-adjusted performance with
other investments that may provide different levels of risk and return. For
example, a Fund may compare its risk level, as measured by the variability of
its periodic returns, or its risk-adjusted total return, with those of other
funds or groups of funds. Risk-adjusted total return would be calculated by
adjusting each investment's total return to account for the risk level of the
investment.
The risk level for a class of shares of each Fund, and any of the other in-
vestments used for comparison, would be evaluated by measuring the variability
of the investment's return, as indicated by the standard deviation of the in-
vestment's monthly returns over a specified measurement period (e.g., two
years). An investment with a higher standard deviation of monthly returns
would indicate that the Fund had greater price variability, and therefore
greater risk, than an investment with a lower standard deviation.
The risk-adjusted total return for a class of shares of each Fund and for
other investments over a specified period would be evaluated by dividing (a)
the remainder of the investment's annualized two-year total return, minus the
annualized total return of an investment in Treasury bill securities (essen-
tially a risk-free return) over that period, by (b) the standard deviation of
the investment's monthly returns for the period. This ratio is sometimes re-
ferred to as the "Sharpe measure" of return. An investment with a higher
Sharpe measure would be regarded as producing a higher return for the amount
of risk assumed during the measurement period than an investment with a lower
Sharpe measure.
B-46
<PAGE>
Class A Shares of the Funds are sold at net asset value plus a current maximum
sales charge of 5.75% of the offering price. This current maximum sales charge
will typically be used for purposes of calculating performance figures. Returns
and net asset value of each class of shares of the Funds will fluctuate. Fac-
tors affecting the performance of a Fund include general market conditions, op-
erating expenses and investment management. Any additional fees charged by a
securities representative or other financial services firm would reduce returns
described in this section. Shares of the Funds are redeemable at net asset val-
ue, which may be more or less than original cost.
In reports and other communications to shareholders or in advertising and sales
literature, the Funds may also present economic statistics obtained from gov-
ernmental agencies or industry or financial publications comparing foreign
countries to the U.S. Additionally, a Fund may discuss certain economic and fi-
nancial trends existing in foreign countries in order to illustrate the general
investment opportunities in those countries. A Fund may present historical per-
formance of certain countries, as reported by independent data providers, as a
way to show the opportunities provided by such countries. A Fund may also show
the historical performance of certain foreign equity market indicies to compare
against other international equity market indices and to show how maintaining
investments in both foreign stocks and U.S. stocks may moderate risk. This data
is obtained from independent services such as Morgan Stanley Capital Interna-
tional and Ibbotson Associates, Inc.
In reports or other communications to shareholders or in advertising and sales
literature, a Fund may also compare its performance or the performance of its
portfolio manager with that of, or reflect the performance of: (1) the Consumer
Price Index; (2) equity mutual funds or mutual fund indexes as reported by
Lipper Analytical Services, Inc. ("Lipper"), Morningstar, Inc. ("Morningstar"),
Wiesenberger Investment Companies Service ("Wiesenberger") and CDA Investment
Technologies, Inc. ("CDA") or similar independent services which monitor the
performance of mutual funds, or other industry or financial publications such
as Barron's, Changing Times, Forbes and Money Magazine; and/or (3) the S&P
500 Index or other unmanaged indices reported by Lehman Brothers. Performance
comparisons by these indexes, services or publications may rank mutual funds
over different periods of time by means of aggregate, average, year-by-year, or
other types of total return and performance figures. Any given performance quo-
tation or performance comparison should not be considered as representative of
the performance of the Fund for any future period.
There are differences and similarities between the investments which a Fund may
purchase and the investments measured by the indexes and reporting services
which are described herein. The Consumer Price Index is generally considered to
be a measure of inflation. Lipper, Morningstar, Wiesenberger and CDA are widely
recognized mutual fund reporting services whose performance calculations are
based upon changes in net asset value with all dividends reinvested and which
do not include the effect of any sales charges.
Each Fund may also from time to time in its advertising and sales literature
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank certifi-
cates of deposit (CDs) or money market funds or indices that represent these
types of investments. U.S. Government bonds are long-term investments backed by
the full faith and credit of the U.S. Government. Bank CDs are generally short-
term, FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term in-
vestments with stable net asset values, fluctuating yields and special features
enhancing liquidity.
B-47
<PAGE>
Nuveen Innovation Fund
The Fund commenced operations on December 20, 1999. The table below represents
the investment returns for the specified period of the Fund's Class A, Class B,
Class C and Class R shares. The total return figures for Class A shares are
shown both with and without the effect of the maximum sales charge. The total
return figures for the Class B shares and Class C shares include the effect of
the applicable CDSC.
<TABLE>
<CAPTION>
Nuveen Innovation Fund
----------------------------------------------------------------------------
Cumulative
------------
12/20/99
(inception)-
7/31/00
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class ANAV................................... 16.30%
Class APOP................................... 9.61%
Class B...................................... 10.70%
Class C...................................... 14.80%
Class R...................................... 16.45%
</TABLE>
Total returns reflect past performance and are not predictive of future re-
sults.
Nuveen International Growth Fund
The Fund commenced investment operations on December 20, 1999. The table below
represents the investment returns for the specified period of the Fund's Class
A, Class B, Class C and Class R shares. The total return figures for Class A
shares are shown both with and without the effect of the maximum sales charge.
The total return figures for the Class B shares and Class C shares include the
effect of the applicable CDSC.
<TABLE>
<CAPTION>
Nuveen International Growth Fund
---------------------------------------------------------------------------
Cumulative
----------
12/20/99
(inception)-
7/31/00
---------------------------------------------------------------------------
<S> <C> <C> <C>
Class ANAV............................................. 14.65%
Class APOP............................................. 8.06%
Class B................................................ 9.10%
Class C................................................ 13.10%
Class R................................................ 14.80%
</TABLE>
Total returns reflect past performance and are not predictive of future re-
sults.
CCI's Performance Record
The table below presents annual investment returns for the CCI Technology
Composite between January 1, 1995 and December 31, 1999 and the 2000 year-to-
date returns through 9/30. The CCI Technology Composite represents the
composite performance of the seven managed accounts totalling
B-48
<PAGE>
approximately $219.3 million as of September 30, 2000, for which CCI serves as
investment advisor and that have substantially the same investment objectives
and policies as the Innovation Fund.
<TABLE>
<CAPTION>
Annual Total Returns for the Year
Ending December 31,
1/1/00-
9/30/00 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CCI Technology Composite
(Gross)................ 37.88% 177.82% 81.13% 10.45% 25.43% 45.40%
CCI Technology Composite
(Net).................. 35.91% 172.67% 77.74% 8.31% 23.02% 42.65%
S&P 500 Index........... -1.39% 21.04% 28.58% 33.38% 22.96% 37.58%
Lipper Science and
Technology Fund Index.. 6.63% 113.90% 46.95% 7.83% 16.93% 38.57%
</TABLE>
The table below presents annual investment returns for the CCI International
Composite between January 1, 1997 and December 31, 1999 and the 2000 year-to-
date returns through September 30, 2000. The CCI International Composite
represents the composite performance of the five managed accounts totalling
approximately $246.2 million as of September 30, 2000, for which CCI serves as
investment advisor and that have substantially the same investment objectives
and policies as the International Fund.
<TABLE>
<CAPTION>
Annual Total Returns
for the Year Ending
1/1/00- December 31,
9/30/00 1999 1998 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CCI International Composite (Gross).............. 4.87% 146.04% 40.18% 43.71%
CCI International Composite (Net)................ 2.80% 140.02% 36.59% 40.04%
MSCI All Country World Index ex USA.............. -11.06% 31.80% 14.11% 1.71%
Lipper International Fund Index.................. -11.15% 37.83% 12.66% 7.26%
</TABLE>
The gross performance results of the CCI Technology Composite and the CCI In-
ternational Composite reflect the investment performance of the respective com-
posites before deduction of any investment advisory fees or other expenses. The
net performance results of the Composites' reflect the deduction of the annual
operating expenses for the most recent fiscal year (without waivers or reim-
bursements) for Class A shares of the Funds as summarized in What are the Costs
of Investing? in the respective Fund's Prospectus and may be compared to the
performance of the indices referenced below. The performance information of a
Composite should not be interpreted as indicative of future performance of a
fund. The MSCI All Country World Index ex USA is a capitalization weighted in-
dex of listed securities in 46 markets around the world, including both devel-
oped and emerging markets, but excluding the United States. The Lipper Interna-
tional Fund Index is a managed index that represents the average annualized re-
turns of the 30 largest funds in the Lipper International Fund Category and as-
sumes reinvestment of all fund dividends and distributions. The Lipper Science
and Technology Fund Index is a managed index that represents the 10 largest
funds in the Lipper Science and Technology Fund Category and assumes reinvest-
ment of all fund dividends and distributions. The Standard & Poor's 500 Compos-
ite Stock Price Index (the "S&P 500") is a widely-recognized, unmanaged index
of common stock prices. S&P 500 returns assume reinvestment of all dividends
paid by the stocks included in the index, but do not include brokerage commis-
sions or other fees an investor would incur by investing in the portfolio of
stocks comprising the index.
The information shown reflects the past performance achieved by CCI's managed
accounts, and does not reflect past performance of the Funds. Past performance
is not predictive of future results.
B-49
<PAGE>
Nuveen Rittenhouse Growth Fund
The Fund commenced operations on December 31, 1997. The table below represents
the investment returns for the specified periods of the Fund's Class A, Class
B, Class C and Class R shares. The total return figures for Class A shares are
shown both with and without the effect of the maximum sales charge. The total
return figures for the Class B shares include the effect of the applicable Con-
tingent Deferred Sales Charge ("CDSC").
<TABLE>
<CAPTION>
Average Annual
Total Return Cumulative
-------------------- ------------
12/31/97 12/31/97
8/1/99- (inception)- (inception)-
7/31/00 7/31/00 7/31/00
------- ------------ ------------
<S> <C> <C> <C>
Class ANAV.............................. 15.93% 15.73% 45.87%
Class APOP.............................. 9.27% 13.11% 37.50%
Class B................................. 11.01% 13.64% 39.16%
Class C................................. 15.01% 14.91% 43.21%
Class R................................. 16.17% 16.03% 46.87%
</TABLE>
--------
Total returns reflect past performance and are not predictive of future re-
sults.
Rittenhouse's Performance Record
The table below presents annual investment returns for the Rittenhouse Blended
Equity Composite between January 1, 1983 (inception) and December 31, 1999 and
the 2000 year-to-date returns through September 30, 2000. The Rittenhouse
Blended Equity Composite represents the composite performance of the 28,157
managed accounts totalling approximately $10.1 billion as of September 30, 2000
for which Rittenhouse serves as investment adviser and that have the same in-
vestment objectives and policies as the Fund.
<TABLE>
<CAPTION>
Annual Total Returns for the Year Ending December 31,
1/1/00- -------------------------------------------------------------
9/30/00 1999 1998 1997 1996 1995 1994 1993 1992 1991
------- ------ ------ ------ ------ ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rittenhouse (Gross)..... 4.33% 15.64% 28.29% 38.06% 18.97% 38.66% 2.60% 2.87% 5.66% 35.22%
Rittenhouse (Net)....... 3.27% 14.12% 26.63% 36.32% 17.42% 36.92% 1.21% 1.48% 4.23% 33.51%
S&P 500................. -1.39% 21.04% 28.58% 33.36% 22.96% 37.59% 1.32% 10.08% 7.61% 30.47%
Lipper Large Cap Core
Index.................. 1.51% 19.35% 26.93% 29.22% 19.84% 31.76% -1.08% 11.41% 7.70% 31.30%
</TABLE>
<TABLE>
<CAPTION>
Annual Total Returns for the Year Ending December 31,
------------------------------------------------------
1990 1989 1988 1987 1986 1985 1984 1983
------ ------ ------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rittenhouse (Gross)..... 1.64% 33.84% 18.90% 4.98% 23.43% 38.89% 13.40% 28.48%
Rittenhouse (Net)....... 0.25% 32.15% 17.35% 3.55% 21.83% 37.14% 11.90% 26.83%
S&P 500 Index........... -3.10% 31.69% 16.61% 5.25% 18.66% 31.73% 6.27% 22.56%
Lipper Large Cap Core
Index.................. -2.96% 28.54% 14.06% 2.99% 15.00% 29.60% 4.95% 21.00%
</TABLE>
B-50
<PAGE>
The gross performance results of the Rittenhouse Blended Equity Composite re-
flect the investment performance of the composite before deduction of any in-
vestment advisory fees or other expenses. The net performance results of the
Rittenhouse Blended Equity Composite reflect the deduction of the annual oper-
ating expenses (without waiver or reimbursement) for Class A shares of the
Fund, as summarized in "What are the Costs of Investing?" in the Prospectus and
may be compared to the performance of the indices referenced below. The S&P 500
is a widely-recognized, unmanaged index of common stock prices. S&P 500 returns
assume reinvestment of all dividends paid by the stocks included in the index,
but do not include brokerage commissions or other fees an investor would incur
by investing in the portfolio of stocks comprising the index. The current
Lipper Large Cap Core Index reflects the average returns with dividends rein-
vested of the 30 largest funds in the Lipper Large Cap Core Objective and as-
sumes reinvestment of all fund dividends and distributions. The performance in-
formation of the Composite should not be interpreted as indicative of future
performance of the Fund.
The information shown reflects the past performance achieved by Rittenhouse's
managed accounts, and does not reflect past performance of the Rittenhouse
Fund. Past performance is not predictive of future results.
The Effect of Taxes on Total Return
The effect of taxes on the total return of an investment is an important con-
sideration for investors. The Rittenhouse Fund is designed for investors seek-
ing a tax-efficient way to build and sustain wealth. The Rittenhouse Fund has
adopted certain investment policies that are designed to reduce taxable distri-
butions, with a view toward enhancing the Rittenhouse Fund's after-tax returns.
Because the Rittenhouse Fund generally invests in stocks with low dividend
yields, the Rittenhouse Fund expects to distribute relatively little, if any,
taxable dividend income.
The chart below shows how taxes can erode an investor's returns over time. The
illustration assumes that the hypothetical investor is subject to a 31% federal
tax rate on income and a 20% federal tax rate on realized capital gains. As
stated in the chart, a before-tax return of 15%--2% income, 3.25% in unrealized
gains and 9.75% in realized gains--would be equivalent to, on an after-tax ba-
sis, a 12.43% return. Accordingly, this investor would lose 2.57% to taxes.
This example is for illustrative purposes only and does not represent the ac-
tual or future performance of the Rittenhouse Fund or any other investment
product.
<TABLE>
<CAPTION>
Before Tax After Tax Loss Due to Taxes
<S> <C> <C> <C>
Income................................... 2.00% 1.38% 0.62%
Realized Gains........................... 9.75% 7.80% 1.95%
Unrealized Gains......................... 3.25% 3.25% --
------ ------ ----
Total Return............................. 15.00% 12.43% 2.57%
------ ------ ----
</TABLE>
B-51
<PAGE>
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES AND
SHAREHOLDER PROGRAMS
As described in the applicable Prospectus, the Funds provide you with alterna-
tive ways of purchasing Fund shares based upon your individual investment needs
and preferences.
Each class of shares of a Fund represents an interest in the same portfolio of
investments. Each class of shares is identical in all respects except that each
class bears its own class expenses, including distribution and administration
expenses, and each class has exclusive voting rights with respect to any dis-
tribution or service plan applicable to its shares. As a result of the differ-
ences in the expenses borne by each class of shares, net income per share, div-
idends per share and net asset value per share will vary among a Fund's classes
of shares. There are no conversion, preemptive or other subscription rights,
except that Class B shares automatically convert into Class A shares as de-
scribed below.
Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include distri-
bution and service fees.
The expenses to be borne by specific classes of shares may include (i) transfer
agency fees attributable to a specific class of shares, (ii) printing and post-
age expenses related to preparing and distributing materials such as share-
holder reports, prospectuses and proxy statements to current shareholders of a
specific class of shares, (iii) Securities and Exchange Commission ("SEC") and
state securities registration fees incurred by a specific class of shares, (iv)
the expense of administrative personnel and services required to support the
shareholders of a specific class of shares, (v) litigation or other legal ex-
penses relating to a specific class of shares, (vi) directors' fees or expenses
incurred as a result of issues relating to a specific class of shares, (vii)
accounting expenses relating to a specific class of shares and (viii) any addi-
tional incremental expenses subsequently identified and determined to be prop-
erly allocated to one or more classes of shares.
Class A Shares
You may purchase Class A Shares at a public offering price equal to the appli-
cable net asset value per share plus an up-front sales charge imposed at the
time of purchase as set forth in the Prospectus. You may qualify for a reduced
sales charge, or the sales charge may be waived in its entirety, as described
below. Class A Shares are also subject to an annual service fee of .25%. See
"Distribution and Service Plan." Set forth below is an example of the method of
computing the offering price of the Class A shares of a Fund. The example as-
sumes a purchase of each Fund (other than the Select Stock Fund) on July 31,
2000, (September 26, 2000 for the Select Stock Fund) of Class A shares of a
Fund aggregating
B-52
<PAGE>
less than $50,000 subject to the schedule of sales charges set forth in the
Prospectus at a price based upon the net asset value of the Class A shares.
<TABLE>
<CAPTION>
Innovation International Rittenhouse Select Stock
Fund Growth Fund Fund Fund
---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net Asset Value per share.... $ 23.27 $ 22.93 $ 29.09 $20.00
Per Share Sales Charge--5.75%
of public offering price
(6.10%, 6.11%, 6.08% and
6.10% of net asset value per
share)...................... $ 1.42 $ 1.40 $ 1.77 1.22
------- ------- --------- ------
Per Share Offering Price to
the Public.................. $ 24.69 $ 24.33 $ 30.86 $21.22
------- ------- --------- ------
Shares Outstanding........... 981,587 465,631 4,180,725
------- ------- ---------
</TABLE>
Each Fund receives the entire net asset value of all Class A Shares that are
sold. Nuveen retains the full applicable sales charge from which it pays the
uniform reallowances shown in the Prospectus to Authorized Dealers.
Certain commercial banks may make Class A Shares of the Funds available to
their customers on an agency basis. Pursuant to the agreements between Nuveen
and these banks, some or all of the sales charge paid by a bank customer in
connection with a purchase of Class A Shares may be retained by or paid to the
bank. Certain banks and other financial institutions may be required to regis-
ter as securities dealers in certain states.
Reduction or Elimination of Up-Front Sales Charge on Class A Shares and Class R
Share Purchase Availability
Rights of Accumulation
You may qualify for a reduced sales charge on a purchase of Class A Shares of a
Fund if the amount of your purchase, when added to the value that day of all of
your prior purchases of shares of the Fund, of another Nuveen Mutual Fund or
Nuveen exchange-traded fund, or units of a Nuveen Defined Portfolio, on which
an up-front sales charge or ongoing distribution fee is imposed, or is normally
imposed, falls within the amounts stated in the Class A sales charges and com-
missions table in "How You Can Buy and Sell Shares" in the applicable Prospec-
tus. You or your financial advisor must notify Nuveen or the Fund's transfer
agent of any cumulative discount whenever you plan to purchase Class A Shares
of a Fund that you wish to qualify for a reduced sales charge.
Letter of Intent
You may qualify for a reduced sales charge on a purchase of Class A Shares of a
Fund if you plan to purchase Class A Shares of Nuveen Mutual Funds over the
next 13 months and the total amount of your purchases would, if purchased at
one time, qualify you for one of the reduced sales charges shown in the Class A
sales charges and commissions table in "How You Can Buy and Sell Shares" in the
applicable Prospectus. In order to take advantage of this option, you must com-
plete the applicable section of the Application Form or sign and deliver either
to an Authorized Dealer or to the Fund's transfer agent a written Letter of In-
tent that contains the same information and representations contained in the
Application Form. A Letter of Intent states that you intend, but are not obli-
gated, to purchase over the next 13
B-53
<PAGE>
months a stated total amount of Class A shares that would qualify you for a
reduced sales charge shown above. You may count shares of a Nuveen Mutual Fund
that you already own on which you paid an up-front sales charge or an ongoing
distribution fee and any Class B and Class C Shares of a Nuveen Mutual Fund
that you purchase over the next 13 months towards completion of your invest-
ment program, but you will receive a reduced sales charge only on new Class A
Shares you purchase with a sales charge over the 13 months. You cannot count
towards completion of your investment program Class A Shares that you purchase
without a sales charge through investment of distributions from a Nuveen Mu-
tual Fund, a Nuveen Exchange Traded Fund or a Nuveen Defined Portfolio, or
otherwise.
By establishing a Letter of Intent, you agree that your first purchase of
Class A Shares of a Fund following execution of the Letter of Intent will be
at least 5% of the total amount of your intended purchases. You further agree
that shares representing 5% of the total amount of your intended purchases
will be held in escrow pending completion of these purchases. All dividends
and capital gains distributions on Class A Shares held in escrow will be cred-
ited to your account. If total purchases, less redemptions, prior to the expi-
ration of the 13 month period equal or exceed the amount specified in your
Letter of Intent, the Class A Shares held in escrow will be transferred to
your account. If the total purchases, less redemptions, exceed the amount
specified in your Letter of Intent and thereby qualify for a lower sales
charge than the sales charge specified in your Letter of Intent, you will re-
ceive this lower sales charge retroactively, and the difference between it and
the higher sales charge paid will be used to purchase additional Class A
Shares on your behalf. If the total purchases, less redemptions, are less than
the amount specified, you must pay Nuveen an amount equal to the difference
between the amounts paid for these purchases and the amounts which would have
been paid if the higher sales charge had been applied. If you do not pay the
additional amount within 20 days after written request by Nuveen or your fi-
nancial advisor, Nuveen will redeem an appropriate number of your escrowed
Class A Shares to meet the required payment. By establishing a Letter of In-
tent, you irrevocably appoint Nuveen as attorney to give instructions to re-
deem any or all of your escrowed shares, with full power of substitution in
the premises.
You or your financial advisor must notify Nuveen or the Funds' transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.
Reinvestment of Nuveen Defined Portfolio Distributions
You may purchase Class A Shares without an up-front sales charge by reinvest-
ment of distributions from any of the various defined portfolios sponsored by
Nuveen. There is no initial or subsequent minimum investment requirement for
such reinvestment purchases.
Group Purchase Programs
If you are a member of a qualified group, you may purchase Class A Shares of a
Fund or of another Nuveen Mutual Fund at the reduced sales charge applicable
to the group's purchases taken as a whole. A "qualified group" is one which
has previously been in existence, has a purpose other than investment, has ten
or more participating members, has agreed to include Fund sales publications
in mailings to members and has agreed to comply with certain administrative
requirements relating to its group purchases.
B-54
<PAGE>
Under any group purchase program, the minimum initial investment in Class A
Shares of a Fund or portfolio for each participant in the program is $50 per
share class per Fund provided that the group initially invests at least $3,000
in the Fund and the minimum monthly investment in Class A Shares of the Fund or
portfolio by each participant is $50. No certificate will be issued for any
participant's account. All dividends and other distributions by a Fund will be
reinvested in additional Class A Shares of the Fund. No participant may utilize
a systematic withdrawal program.
To establish a group purchase program, both the group itself and each partici-
pant must fill out the appropriate application materials, which the group ad-
ministrator may obtain from the group's financial advisor, by calling Nuveen
toll-free at 800-257-8787.
Reinvestment of Redemption Proceeds from Unaffiliated Funds Subject to Merger
or Closure
You may also purchase Class A Shares at net asset value without a sales charge
if the purchase takes place through an Authorized Dealer and represents the re-
investment of the proceeds of the redemption of shares of one or more regis-
tered investment companies not affiliated with Nuveen that are subject to
merger or closure. You must provide appropriate documentation that the redemp-
tion occurred not more than one year prior to the reinvestment of the proceeds
in Class A Shares, and that you either paid an up-front sales charge or were
subject to a contingent deferred sales charge in respect of the redemption of
such shares of such other investment company.
Elimination of Sales Charge on Class A Shares
Class A Shares of a Fund may be purchased at net asset value without a sales
charge by the following categories of investors:
. investors purchasing $1,000,000 or more; Nuveen may pay Authorized Deal-
ers on Class A sales of $1.0 million and above up to an additional 0.25%
of the purchase amount;
. officers, trustees and former trustees of the Nuveen Funds;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transac-
tion fee basis through a broker-dealer sponsored mutual fund purchase
program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their serv-
ices; and
. any eligible employer-sponsored qualified defined contribution retire-
ment plan. Eligible plans are those with at least 25 employees and which
either (a) make an initial purchase of one or
B-55
<PAGE>
more Nuveen mutual funds aggregating $500,000 or more; or (b) execute a
Letter of Intent to purchase in the aggregate $500,000 or more of fund
shares. Nuveen will pay Authorized Dealers a sales commission on such
purchases equal to 1% of the first $2.5 million, plus 0.50% of the next
$2.5 million, plus 0.25% of any amount purchased over $5.0 million.
Also, investors will be able to buy Class A shares at net asset value by using
the proceeds of sales of Nuveen Exchange-Traded fund shares or the
termination/maturity proceeds from Nuveen Defined Portfolios. You must provide
Nuveen appropriate documentation that the fund sale or Defined Portfolio
termination/maturity occurred not more than one year prior to reinvestment. In
addition, investors also may buy Class A shares at net asset value without a
sales charge by directing their monthly dividends from Nuveen Exchange-Traded
funds.
For investors that purchased Class A Shares at net asset value because they
purchased such shares through an eligible employer-sponsored qualified defined
contribution plan or because the purchase amount equaled or exceeded $1 mil-
lion and the Authorized Dealer did not waive the sales commission, a contin-
gent deferred sales charge of 1.00% will be assessed on redemptions within 18
months of purchase.
Any Class A Shares purchased pursuant to a special sales charge waiver must be
acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by a Fund. You or your finan-
cial advisor must notify Nuveen or the Fund's transfer agent whenever you make
a purchase of Class A Shares of the Fund that you wish to be covered under
these special sales charge waivers.
Class A Shares of a Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment com-
pany. All purchases under the special sales charge waivers will be subject to
minimum purchase requirements as established by each Fund.
In determining the amount of your purchases of Class A Shares of a Fund that
may qualify for a reduced sales charge, the following purchases may be com-
bined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their imme-
diate family members (i.e., their spouses, parents, children, grandparents,
grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a sib-
ling's spouse, and a spouse's siblings); or (3) all purchases made through a
group purchase program as described above.
Class R Share Purchase Eligibility
Class R Shares are available for purchases of $10 million or more and for pur-
chases using dividends and capital gains distributions on Class R Shares.
Class R Shares also are available for the following categories of investors
and pension, profit-sharing, 401(k), IRA or other similar plans maintained by
or for the benefit of such persons:
. officers, trustees and former trustees of the Trust or any Nuveen-spon-
sored registered investment company and their immediate family members
or trustees/directors of any fund spon-
B-56
<PAGE>
sored by Nuveen, any parent company of Nuveen and subsidiaries thereof
and their immediate family members;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. officers, directors or bona fide employees of any investment advisory
partner of Nuveen that provides sub-advisory services for a Nuveen prod-
uct, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates, or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transac-
tion fee basis through a broker-dealer sponsored mutual fund purchase
program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their serv-
ices; and
. any shares purchased by investors falling within any of the first five
categories listed above must be acquired for investment purposes and on
the condition that they will not be transferred or resold except through
redemption by the Fund.
In addition, purchasers of Nuveen Defined Portfolios may reinvest their distri-
butions from such defined portfolios in Class R Shares, if, before September 6,
1994, such purchasers had elected to reinvest distributions in Nuveen Fund
shares (before June 13, 1995 for Nuveen Municipal Bond Fund shares). Sharehold-
ers may exchange their Class R Shares of any Nuveen Fund into Class R Shares of
any other Nuveen Fund. You may also exchange Class R Shares of a Fund for Class
A Shares without a sales charge if the current net asset value of your Class R
Shares is at least $3,000 (or you already own Class A Shares).
The reduced sales charge programs may be modified or discontinued by a Fund at
any time. To encourage their participation, each Fund waives the sales charge
on Class A Shares and offers Class R Shares to trustees and officers of the
Trust and other affiliated persons of the Trust and Nuveen as noted above.
If you are eligible to purchase either Class R Shares or Class A Shares without
a sales charge at net asset value, you should be aware of the differences be-
tween these two classes of shares. Class A Shares are subject to an annual
service fee to compensate Authorized Dealers for providing you with ongoing ac-
count services. Class R Shares are not subject to a distribution or service fee
and, consequently, holders of Class R Shares may not receive the sale types or
levels of services from Authorized Dealers. In choosing between Class A Shares
and Class R Shares, you should weigh the benefits of the services to be pro-
vided by Authorized Dealers against the annual service fee imposed upon the
Class A Shares.
B-57
<PAGE>
For more information about the purchase of Class A Shares or the reduced sales
charge program, or to obtain the required application forms, call Nuveen In-
vestor Services toll-free at (800) 257-8787.
Class B Shares
You may purchase Class B Shares at a public offering price equal to the appli-
cable net asset value per share without any up-front sales charge. Since Class
B Shares are sold without an initial sales charge, the full amount of your pur-
chase payment will be invested in Class B Shares. Class B Shares are subject to
an annual distribution fee to compensate Nuveen for its costs in connection
with the sale of Class B shares, and are also subject to an annual service fee
to compensate Authorized Dealers for providing you with ongoing financial ad-
vice and other account services.
You may be subject to a CDSC if you redeem your Class B shares prior to the end
of the sixth year after purchase. See "Reduction or Elimination of Contingent
Deferred Sales Charge" below. Nuveen compensates Authorized Dealers for sales
of Class B Shares at the time of sale at the rate of 4.00% of the amount of
Class B Shares purchased, which represents a sales commission of 3.75% plus an
advance on the first year's annual service fee of .25%.
Class B Shares acquired through the reinvestment of dividends are not subject
to a CDSC. Any CDSC will be imposed on the lower of the redeemed shares' cost
or net asset value at the time of redemption. Class B Shares will automatically
convert to Class A Shares eight years after purchase. The purpose of the con-
version is to limit the distribution fees you pay over the life of your invest-
ment. All conversions will be done at net asset value without the imposition of
any sales load, fee, or other charge, so that the value of each shareholder's
account immediately before conversion will be the same as the value of the ac-
count immediately after conversion. Class B Shares acquired through reinvest-
ment of distributions will convert into Class A Shares based on the date of the
initial purchase to which such shares relate. For this purpose, Class B Shares
acquired through reinvestment of distributions will be attributed to particular
purchases of Class B Shares in accordance with such procedures as the Board of
Trustees may determine from time to time. Class B Shares that are converted to
Class A Shares will remain subject to an annual service fee that is identical
in amount for both Class B Shares and Class A Shares. Since net asset value per
share of the Class B Shares and the Class A Shares may differ at the time of
conversion, a shareholder may receive more or fewer Class A Shares than the
number of Class B Shares converted. Any conversion of Class B Shares into Class
A Shares will be subject to the continuing availability of an opinion of coun-
sel or a private letter ruling from the Internal Revenue Service to the effect
that the conversion of shares would not constitute a taxable event under fed-
eral income tax law. Conversion of Class B Shares into Class A Shares might be
suspended if such an opinion or ruling were no longer available.
Class C Shares
You may purchase Class C Shares at a public offering price equal to the appli-
cable net asset value per share without any up-front sales charge. Class C
Shares are subject to an annual distribution fee of .75%
B-58
<PAGE>
to compensate Nuveen for paying your financial advisor an ongoing sales commis-
sion. Class C Shares are also subject to an annual service fee of .25% to com-
pensate Authorized Dealers for providing you with on-going financial advice and
other account services. Nuveen compensates Authorized Dealers for sales of
Class C Shares at the time of the sale at a rate of 1% of the amount of Class C
Shares purchased, which represents an advance of the first year's distribution
fee of .75% plus an advance on the first year's service fee of .25%. See "Dis-
tribution and Service Plans."
Redemptions of Class C Shares within 12 months of purchase may be subject to a
CDSC of 1% of the lower of the purchase price or redemption proceeds. Because
Class C Shares do not convert to Class A Shares and continue to pay an annual
distribution fee indefinitely, Class C Shares should normally not be purchased
by an investor who expects to hold shares for significantly longer than eight
years.
Reduction or Elimination of Contingent Deferred Sales Charge
Class A Shares are normally redeemed at net asset value, without any CDSC. How-
ever, in the case of Class A Shares purchased at net asset value because the
purchase amount equaled or exceeded $1 million or pursuant to an eligible em-
ployer-sponsored defined contribution plan described above, where the Autho-
rized Dealer did not waive the sales commission, a CDSC of 1% is imposed on any
redemption within 18 months of purchase. In the case of Class B Shares redeemed
within six years of purchase, a CDSC is imposed, beginning at 5% for redemp-
tions within the first year, declining to 4% for redemptions within years two
and three, and declining by 1% each year thereafter until disappearing
after the sixth year. Class C Shares are redeemed at net asset value, without
any CDSC, except that a CDSC of 1% is imposed upon redemption of Class C Shares
that are redeemed within 12 months of purchase.
In determining whether a CDSC is payable, each Fund will first redeem shares
not subject to any charge and then will redeem shares held for the longest pe-
riod, unless the shareholder specifies another order. No CDSC is charged on
shares purchased as a result of automatic reinvestment of dividends or capital
gains paid. In addition, no CDSC will be charged on exchanges of shares into
another Nuveen Mutual Fund or Nuveen money market fund. The holding period is
calculated on a monthly basis and begins the first day of the month in which
the order for investment is received. The CDSC is calculated based on the lower
of the redeemed shares' cost or net asset value at the time of the redemption
and is deducted from the redemption proceeds. Nuveen receives the amount of any
CDSC shareholders pay. If Class A, Class B or Class C shares subject to a CDSC
are exchanged for shares of a Nuveen money market fund, the CDSC would be im-
posed on the subsequent redemption of those money market fund shares, and the
period during which the shareholder holds the money market fund shares would be
counted in determining the remaining duration of the CDSC. A Fund may elect not
to so count the period during which the shareholder held the money market fund
shares, in which event the amount of any applicable CDSC would be reduced in
accordance with applicable SEC rules by the amount of any 12b-1 plan payments
to which those money market funds shares may be subject.
The CDSC may be waived or reduced under the following circumstances: (i) in the
event of total disability (as evidenced by a determination by the federal So-
cial Security Administration) of the shareholder (including a registered joint
owner) occurring after the purchase of the shares being redeemed;
B-59
<PAGE>
(ii) in the event of the death of the shareholder (including a registered joint
owner); (iii) for redemptions made pursuant to a systematic withdrawal plan, up
to 1% monthly, 3% quarterly, 6% semiannually or 12% annually of an account's
net asset value depending on the frequency of the plan as designated by the
shareholder; (iv) involuntary redemptions caused by operation of law; (v) re-
demptions in connection with a payment of account or plan fees; (vi) redemp-
tions in connection with the exercise of a reinstatement privilege whereby the
proceeds of a redemption of a Fund's shares subject to a sales charge are rein-
vested in shares of certain funds within a specified number of days; (vii) re-
demptions in connection with the exercise of a Fund's right to redeem all
shares in an account that does not maintain a certain minimum balance or that
the applicable board has determined may have material adverse consequences to
the shareholders of the Fund; (viii) in whole or in part for redemptions of
shares by shareholders with accounts in excess of specified breakpoints that
correspond to the breakpoints under which the up-front sales charge on Class A
Shares is reduced pursuant to Rule 22d-1 under the Act; (ix) redemptions of
shares purchased under circumstances or by a category of investors for which
Class A Shares could be purchased at net asset value without a sales charge;
and (x) redemptions of Class A, Class B or Class C Shares if the proceeds are
transferred to an account managed by another Nuveen Adviser and the adviser re-
funds the advanced service and distribution fees to Nuveen. If a Fund waives or
reduces the CDSC, such waiver or reduction would be uniformly applied to all
Fund shares in the particular category. In waiving or reducing a CDSC, the
Funds will comply with the requirements of Rule 22d-1 of the Investment Company
Act of 1940, as amended.
In addition, the CDSC will be waived in connection with the following redemp-
tions of shares held by an employer-sponsored qualified defined contribution
retirement plan: (i) partial or complete redemptions in connection with a dis-
tribution without penalty under Section 72(t) of the Internal Revenue Code
("Code") from a retirement plan: (a) upon attaining age 59 1/2, (b) as part of
a series of substantially equal periodic payments, or (c) upon separation from
service and attaining age 55; (ii) partial or complete redemptions in connec-
tion with a qualifying loan or hardship withdrawal; (iii) complete redemptions
in connection with termination of employment, plan termination or transfer to
another employer's plan or IRA; and (iv) redemptions resulting from the return
of an excess contribution. The CDSC will also be waived in connection with the
following redemptions of shares held in an IRA account: (i) for redemptions
made pursuant to an IRA systematic withdrawal based on the shareholder's life
expectancy including, but not limited to, substantially equal periodic payments
described in Code Section 72(t)(A)(iv) prior to age 59 1/2; and (ii) for re-
demptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Nuveen IRA accounts).
Shareholder Programs
Exchange Privilege
You may exchange shares of a class of a Fund for shares of the same class of
any other Nuveen Mutual Fund with reciprocal exchange privileges, at net asset
value without a sales charge, by sending a written request to the applicable
Fund, c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green Station, New
York, New York 10274-5186. Similarly, Class A, Class B, Class C and Class R
Shares of other Nuveen Mutual Funds may be exchanged for the same class of
shares of one of the Funds at net asset value without a sales charge. Exchanges
of shares from any Nuveen money market fund will be made
B-60
<PAGE>
into Class A Shares, Class B Shares, Class C Shares or Class R Shares (if eli-
gible) of a Fund at the public offering price. If, however, a sales charge has
previously been paid on the investment represented by the exchanged shares
(i.e., the shares to be exchanged were originally issued in exchange for shares
on which a sales charge was paid), the exchange of shares from a Nuveen money
market fund will be made into shares of a Fund at net asset value. All shares
may be exchanged for shares of any Nuveen money market fund.
If you exchange shares subject to a CDSC, no CDSC will be charged at the time
of the exchange. However, if you subsequently redeem the shares acquired
through the exchange, the redemption may be subject to a CDSC, depending on
when you purchased your original shares and the CDSC schedule of the fund from
which you exchanged your shares.
The shares to be purchased must be offered in your state of residence and you
must have held the shares you are exchanging for at least 15 days. The total
value of exchanged shares must at least equal the minimum investment require-
ment of the Nuveen Mutual Fund being purchased. For federal income tax purpos-
es, any exchange constitutes a sale and purchase of shares and may result in
capital gain or loss. Before making any exchange, you should obtain the Pro-
spectus for the Nuveen Mutual Fund you are purchasing and read it carefully. If
the registration of the account for the Fund you are purchasing is not exactly
the same as that of the fund account from which the exchange is made, written
instructions from all holders of the account from which the exchange is being
made must be received, with signatures guaranteed by a member of an approved
Medallion Guarantee Program or in such other manner as may be acceptable to the
Fund. You may also exchange shares by telephone if you authorize telephone ex-
changes by checking the applicable box on the Application Form or by calling
Nuveen Investor Services toll-free at 800-257-8787 to obtain an authorization
form. The exchange privilege may be modified or discontinued by the Fund at any
time.
The exchange privilege is not intended to permit a Fund to be used as a vehicle
for short-term trading. Excessive exchange activity may interfere with portfo-
lio management, raise expenses, and otherwise have an adverse effect on all
shareholders. In order to limit excessive exchange activity and in other cir-
cumstances where Fund management believes doing so would be in the best inter-
est of the Fund, each Fund reserves the right to revise or terminate the ex-
change privilege, or limit the amount or number of exchanges or reject any ex-
change. Shareholders would be notified of any such action to the extent re-
quired by law.
Reinstatement Privilege
If you redeemed Class A, Class B or Class C Shares of one of the Funds or any
other Nuveen Mutual Fund that were subject to a sales charge or a CDSC, you
have up to one year to reinvest all or part of the full amount of the redemp-
tion in the same class of shares of the Fund at net asset value. This rein-
statement privilege can be exercised only once for any redemption, and rein-
vestment will be made at the net asset value next calculated after reinstate-
ment of the appropriate class of Fund shares. If you reinstate shares that were
subject to a CDSC, your holding period as of the redemption date also will be
reinstated for purposes of calculating a CDSC and the CDSC paid at redemption
will be refunded. The federal income tax consequences of any capital gain real-
ized on a redemption will not be affected by reinstatement, but a capital loss
may be disallowed in whole or in part depending on the timing, the amount of
the reinvestment and the fund from which the redemption occurred.
B-61
<PAGE>
Suspension of Right of Redemption
Each Fund may suspend the right of redemption of Fund shares or delay payment
more than seven days (a) during any period when the New York Stock Exchange is
closed (other than customary weekend and holiday closings), (b) when trading in
the markets the Fund normally utilizes is restricted, or an emergency exists as
determined by the Securities and Exchange Commission so that trading of the
Fund's investments or determination of its net asset value is not reasonably
practicable, or (c) for any other periods that the Securities and Exchange Com-
mission by order may permit for protection of Fund shareholders.
Redemption In Kind
Each Fund has reserved the right to redeem in kind (that is, to pay redemption
requests in cash and portfolio securities, or wholly in portfolio securities),
although each Fund has no present intention to
redeem in kind. Each Fund voluntarily has committed to pay in cash all requests
for redemption by any shareholder, limited as to each shareholder during any
ninety-day period to the lesser of $250,000 or 1% of the net asset value of the
Fund at the beginning of the ninety-day period.
General Matters
Each Fund may encourage registered representatives and their firms to help ap-
portion their assets among bonds, stocks and cash, and may seek to participate
in programs that recommend a portion of their assets be invested in equity se-
curities, equity and debt securities, or equity and municipal securities.
Upon notice to all Authorized Dealers, Nuveen may reallow to Authorized Dealers
electing to participate up to the full applicable Class A Share up-front sales
charge during periods and for transactions specified in the notice. The
reallowances made during these periods may be based upon attainment of minimum
sales levels.
In addition to the types of compensation to dealers to promote sales of Fund
shares that are described in the applicable Prospectus, Nuveen may from time to
time make additional reallowances only to certain authorized dealers who sell
or are expected to sell certain minimum amounts of shares of the Nuveen Mutual
Funds and Nuveen Defined Portfolios during specified time periods. Promotional
support may include providing sales literature to and holding informational or
educational programs for the benefit of such Authorized Dealers' representa-
tives, seminars for the public, and advertising and sales campaigns. Nuveen may
reimburse a participating Authorized Dealer for up to one-half of specified me-
dia costs incurred in the placement of advertisements which jointly feature the
Authorized Dealer and Nuveen Funds and Nuveen Defined Portfolios.
Such reimbursement will be based on the number of its financial advisors who
have sold Nuveen Fund shares and Nuveen Defined Portfolio units during the
prior calendar year according to an established schedule. Any such support or
reimbursement would be provided by Nuveen out of its own assets, and not out of
the assets of a Fund, and will not change the price an investor pays for shares
or the amount that a Fund will receive from such a sale. The staff of the Secu-
rities and Exchange Commission takes the position that dealers who receive 90%
or more of the applicable sales charge may be deemed underwriters under the Se-
curities Act of 1933, as amended.
B-62
<PAGE>
To help advisors and investors better understand and more efficiently use the
Funds to reach their investment goals, each Fund may advertise and create spe-
cific investment programs and systems. For example, this may include informa-
tion on how to use a Fund to accumulate assets for future education needs or
periodic payments such as insurance premiums. A Fund may produce software,
electronic information sites, or additional sales literature to promote the ad-
vantages of using the Fund to meet these and other specific investor needs.
Each Fund has authorized one or more brokers to accept on its behalf purchase
and redemption orders. Such brokers are authorized to designate other interme-
diaries to accept purchase and redemption orders on the Fund's behalf. A Fund
will be deemed to have received a purchase or redemption order when an autho-
rized broker or, if applicable, a broker's authorized designee accepts the or-
der. Customer orders received by such broker (or their designee) will be priced
at the Fund's net asset value next computed after they are accepted by an au-
thorized broker (or their designee). Orders accepted by an authorized broker
(or their designee) before the close of regular trading on the New York Stock
Exchange will receive that day's share price; orders accepted after the close
of trading will receive the next business day's share price.
Exchanges of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares avail-
able for public purchase. Shares of the Nuveen money market fund may be pur-
chased on days on which the Federal Reserve Bank of Boston is normally open for
business. In addition to the holidays observed by the Funds, the Nuveen money
market funds observe and will not make fund shares available for purchase on
the following holidays: Columbus Day and Veterans' Day.
In addition, you may exchange Class R Shares of any Fund for Class A Shares of
the same Fund without a sales charge if the current net asset value of those
Class R Shares is at least $3,000 or you already own Class A Shares of that
Fund.
Shares will be registered in the name of the investor or the investor's finan-
cial advisor. A change in registration or transfer of shares held in the name
of a financial advisor may only be made by an order in good form from the fi-
nancial advisor acting on the investor's behalf.
For more information on the procedure for purchasing shares of a Fund and on
the special purchase programs available thereunder, see "How to Buy Shares" and
"Systematic Investing" in the applicable Prospectus.
If you choose to invest in a Fund, an account will be opened and maintained for
you by Chase Global, the Funds' shareholder services agent. Share certificates
will be issued to you only upon written request to Nuveen Investor Services,
and no certificates will be issued for fractional shares. Each Fund reserves
the right to reject any purchase order and to waive or increase minimum invest-
ment requirements. A change in registration or transfer of shares held in the
name of your financial advisor's firm can only be made by an order in good form
from the financial advisor acting on your behalf.
A fee of 1% of the current market value of any shares represented by a certifi-
cate will be charged if the certificate is lost, stolen, or destroyed. The fee
is paid to Seaboard Surety Company for insurance of the lost, stolen, or de-
stroyed certificate.
B-63
<PAGE>
Authorized Dealers are encouraged to open single master accounts. However,
some Authorized Dealers may wish to use Chase Global's sub-accounting system
to minimize their internal recordkeeping requirements. An Authorized Dealer or
other investor requesting shareholder servicing or accounting other than the
master account or sub-accounting service offered by Chase Global will be re-
quired to enter into a separate agreement with another agent for these serv-
ices for a fee that will depend upon the level of services to be provided.
The Shares are offered continuously. However, subject to the rules and regula-
tions of the Securities and Exchange Commission, each Fund reserves the right
to suspend the continuous offering of its shares at any time, but no suspen-
sion shall affect your right of redemption.
Nuveen serves as the principal underwriter of the shares of the Funds pursuant
to a "best efforts" arrangement as provided by a distribution agreement with
the Trust ("Distribution Agreement"). Pursuant to the Distribution Agreement,
the Trust appointed Nuveen to be its agent for the distribution of the Funds'
shares on a continuous offering basis. Nuveen sells shares to or through bro-
kers, dealers, banks or other qualified financial intermediaries (collectively
referred to as "Dealers"), or others, in a manner consistent with the then ef-
fective registration statement of the Trust. Pursuant to the Distribution
Agreement, Nuveen, at its own expense, finances certain activities incident to
the sale and distribution of the Funds' shares, including printing and dis-
tributing of prospectuses and statements of additional information to other
than existing shareholders, the printing and distributing of sales literature,
advertising and payment of compensation and giving of concessions to dealers.
Nuveen receives for its services the excess, if any, of the sales price of a
Fund's shares less the net asset value of those shares, and reallows a major-
ity or all of such amounts to the Dealers who sold the shares; Nuveen may act
as such a Dealer. Nuveen also receives compensation pursuant to a distribution
plan adopted by the Trust pursuant to Rule 12b-1 and described herein under
"Distribution and Service Plans." Nuveen receives any CDSCs imposed on redemp-
tions of Shares, but any amounts as to which a reinstatement privilege is not
exercised are set off against and reduce amounts otherwise payable to Nuveen
pursuant to the distribution plan.
The following table sets forth the aggregate amount of underwriting commis-
sions with respect to the sale of Fund shares, the amount thereof retained by
Nuveen and the compensation on redemptions and repurchases received by Nuveen
for each of the Funds (other than the Select Stock Fund) for the three most
recent fiscal years. All figures are to the nearest thousand.
<TABLE>
<CAPTION>
Amount of Underwriting Amount Retained by Amount of Compensation on
Commissions Nuveen Redemptions and Repurchases
---------------------------- ---------------------------- ----------------------------
12/31/97 12/31/97 12/31/97
(inception)- 8/1/98- 8/1/99- (inception)- 8/1/98- 8/1/99- (inception)- 8/1/98- 8/1/99-
7/31/98 7/31/99 7/31/00 7/31/98 7/31/99 7/31/00 7/31/98 7/31/99 7/31/00
------------ ------- ------- ------------ ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nuveen Innovation Fund.. N/A N/A $244* N/A N/A $25* N/A N/A $ 87*
Nuveen International
Growth Fund............ N/A N/A $105* N/A N/A $12* N/A N/A $ 3*
Nuveen Rittenhouse
Growth Fund ........... $1,617 $2,083 $373 $55 $100 $33 $ 32 $510 $967
</TABLE>
--------
* For the period from December 20, 1999 (inception) through the fiscal year
ended July 31, 2000.
B-64
<PAGE>
DISTRIBUTION AND SERVICE PLANS
Each Fund has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the In-
vestment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will all be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B Shares and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses in-
curred in connection with the distribution of Class B and Class C Shares, re-
spectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Funds, expenses of pre-
paring, printing and distributing advertising and sales literature and reports
to shareholders used in connection with the sale of Class B and Class C Shares,
certain other expenses associated with the distribution of Class B and Class C
Shares, and any distribution-related expenses that may be authorized from time
to time by the Board of Trustees.
The service fee applicable to Class A Shares, Class B Shares and Class C Shares
under each Fund's Plan will be payable to Authorized Dealers in connection with
the provision of ongoing account services to shareholders. These services may
include establishing and maintaining shareholder accounts, answering share-
holder inquiries and providing other personal services to shareholders.
Each Fund may spend up to .25 of 1% per year of the average daily net assets of
Class A Shares as a service fee under the Plan as applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
each of the Class B Shares and Class C Shares as a distribution fee which con-
stitutes an asset-based sales charge whose purpose is the same as an up-front
sales charge and up to .25 of 1% per year of the average daily net assets of
each of the Class B Shares and Class C Shares as a service fee under the Plan
as applicable to such classes.
B-65
<PAGE>
During the fiscal year ended July 31, 2000, the Innovation Fund, International
Fund and Rittenhouse Fund incurred 12b-1 fees pursuant to their respective 12b-
1 Plans in the amounts set forth in the table below. For this period, substan-
tially all of the 12b-1 service fees on Class A Shares were paid out as compen-
sation to Authorized Dealers for providing services to shareholders relating to
their investments. To compensate for commissions advanced to Authorized Deal-
ers, all 12b-1 service fees collected on Class B Shares during the first year
following a purchase, all 12b-1 distribution fees on Class B Shares, and all
12b-1 service and distribution fees on Class C Shares during the first year
following a purchase are retained by Nuveen. After the first year following a
purchase, 12b-1 service fees on Class B Shares and 12b-1 service and distribu-
tion fees on Class C Shares are paid to Authorized Dealers.
<TABLE>
<CAPTION>
12b-1 Fees
Incurred by
each Fund for
the fiscal
year ended
July 31, 2000
-------------
<S> <C>
Nuveen Innovation Fund*
Class A......................................................... $ 22,150
Class B......................................................... $ 132,504
Class C......................................................... $ 183,716
----------
Total......................................................... $ 338,370
Nuveen International Growth Fund*
Class A......................................................... $ 8,801
Class B......................................................... $ 20,293
Class C......................................................... $ 21,048
----------
Total......................................................... $ 50,142
Nuveen Rittenhouse Growth Fund
Class A......................................................... $ 284,238
Class B......................................................... $2,638,505
Class C......................................................... $1,732,199
----------
Total......................................................... $4,654,942
</TABLE>
* For the period from December 20, 1999 (inception) through the fiscal year
ended July 31, 2000.
Under each Fund's Plan, the Fund will report quarterly to the Board of Trustees
for its review all amounts expended per class of shares under the Plan. The
Plan may be terminated at any time with respect to any class of shares, without
the payment of any penalty, by a vote of a majority of the
Trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding vot-
ing securities of such class. The Plan may be renewed from year to year if ap-
proved by a vote of the Board of Trustees and a vote of the non-interested
Trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued only if the trustees who vote to approve such continuance con-
clude, in the exercise of reasonable business judgment and in light of their
fiduciary duties under applicable law, that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan may not be
amended to increase materially the cost which a class of shares may bear under
the Plan without the approval of the shareholders of the affected class, and
any other material amendments of the Plan must be approved by the non-inter-
ested Trustees by a vote cast
B-66
<PAGE>
in person at a meeting called for the purpose of considering such amendments.
During the continuance of the Plan, the selection and nomination of the non-in-
terested Trustees of the Trust will be committed to the discretion of the non-
interested trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS, CUSTODIAN AND TRANSFER AGENT
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago, Illinois 60603 have been selected as auditors for the Trust. In addi-
tion to audit services, Arthur Andersen LLP will provide consultation and as-
sistance on accounting, internal control, tax and related matters. The finan-
cial statements accompanying this Statement of Additional Information have been
audited by Arthur Andersen LLP as indicated in their report with respect there-
to, and are included in reliance upon the authority of said firm as experts in
giving said report.
The custodian of the assets of the Funds is The Chase Manhattan Bank, 4 New
York Plaza, New York, New York 10004. The custodian performs custodial, fund
accounting and portfolio accounting services.
The Funds' transfer, shareholder services, and dividend paying agent is Chase
Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year (other
than the Select Stock Fund) appear in the respective Fund's Annual Report and
each is incorporated herein by reference. The Annual Reports accompany this
Statement of Additional Information.
GENERAL TRUST INFORMATION
The Funds are series of the Trust. The Trust is an open-end management invest-
ment company under the Investment Company Act of 1940. The Trust was organized
as a Massachusetts business trust on June 27, 1997. The Board of Trustees of
the Trust is authorized to issue an unlimited number of shares in one or more
series or "Funds," which may be divided into classes of shares. Currently,
there are four series authorized and outstanding, each of which is divided into
four classes of shares designated as Class A Shares, Class B Shares, Class C
Shares and Class R Shares. Each class of shares represents an interest in the
same portfolio of investments of a Fund. Each class of shares has equal rights
as to voting, redemption, dividends and liquidation, except that each bears
different class expenses, including different distribution and service fees,
and each has exclusive voting rights with respect to any distribution or serv-
ice plan applicable to its shares. There are no conversion, preemptive or other
subscription rights, except that Class B Shares automatically convert into
Class A Shares, as described herein. The Board of Trustees of the Trust has the
right to establish additional series and classes of shares in the future, to
change those series or classes and to determine the preferences, voting powers,
rights and privileges thereof.
B-67
<PAGE>
The Trust is not required and does not intend to hold annual meetings of share-
holders. Shareholders owning more than 10% of the outstanding shares of a Fund
have the right to call a special meeting to remove Trustees or for any other
purpose.
Under Massachusetts law applicable to Massachusetts business trusts, sharehold-
ers of such a trust may, under certain circumstances, be held personally liable
as partners for its obligations. However, the Declaration of Trust of the Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or
the Trustees. The Trust's Declaration of Trust further provides for indemnifi-
cation out of the assets and property of the Trust for all losses and expenses
of any shareholder held personally liable for the obligations of the Trust.
Thus, the risk of a shareholder incurring financial loss on account of share-
holder liability is limited to circumstances in which both inadequate insurance
existed and the Trust or Fund itself was unable to meet its obligations. The
Trust believes the likelihood of the occurrence of these circumstances is re-
mote.
B-68
<PAGE>
APPENDIX A--RATINGS OF INVESTMENTS
Standard & Poor's Ratings Group--A brief description of the applicable Standard
& Poor's Ratings Group ("S&P") rating symbols and their meanings (as published
by S&P) follows:
Issue Credit Ratings
A S&P issue credit rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation. This assessment may
take into consideration the creditworthiness of guarantors, insurers, or other
forms of credit enhancement on the obligation.
The issue credit rating is not a recommendation to purchase, sell, or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors
or obtained by S&P from other sources it considers reliable. S&P does not per-
form an audit in connection with any rating and may, on occasion, rely on unau-
dited financial information. Credit ratings may be changed, suspended, or with-
drawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term ratings
are generally assigned to those obligations considered short-term in the rele-
vant market. In the U.S., for example, that means obligations with an original
maturity of no more than 365 days--including commercial paper. Short-term rat-
ings are also used to indicate the creditworthiness of an obligor with respect
to put features on long-term obligations. The result is a dual rating, in which
the short-term rating addresses the put feature, in addition to the usual long-
term rating. Medium-term notes are assigned long-term ratings.
Long-term issue credit ratings
Issue credit ratings are based, in varying degrees, on the following considera-
tions:
1. Likelihood of default--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA
An obligation rated "AAA' has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation
is extremely strong.
AA
An obligation rated "AA' differs from the highest rated obligation
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
<PAGE>
A An obligation rated "A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obli-
gations in higher rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
BBB An obligation rated "BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated "BB', "B', "CCC', "CC' and "C' are regarded as having sig-
nificant speculative characteristics. "BB' indicates the least degree of spec-
ulation and "C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large un-
certainties or major exposures to adverse conditions.
BB An obligation rated "BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated "B' is more vulnerable to nonpayment than obliga-
tions rated "BB', but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, finan-
cial, or economic conditions will likely impair the obligor's capacity
or willingness to meet its financial commitment on the obligation.
CCC An obligation rated "CCC' is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic condi-
tions to meet its financial commitment on the obligation. In the event
of adverse business, financial, or economic conditions, the obligor is
not likely to have the capacity to its financial commitment on the ob-
ligation.
CC An obligation rated "CC' is currently highly vulnerable to nonpayment.
C A subordinated debt or preferred stock obligation rated "C' is CUR-
RENTLY HIGHLY VULNERABLE to nonpayment. The "C' rating may be used to
cover a situation where a bankruptcy petition has been filed or simi-
lar action taken, but payments on this obligation are being continued.
A "C' also will be assigned to a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
D
An obligation rated "D' is in payment default. The "D' rating category
is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P be-
lieves that such payments will be made during such grace period. The
"D' rating also will be used upon the filing of a bankruptcy petition
or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or Minus (-): The ratings from "AA' to "CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR
Indicates no rating has been requested, that there is insufficient in-
formation on which to base a rating, or that S&P does not rate a par-
ticular type of obligation as a matter of policy.
A-2
<PAGE>
Short-Term Issue Credit Ratings
A-1 A short-term obligation rated "A-1' is rated in the highest category
by S&P. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's ca-
pacity to meet its financial commitment on these obligations is ex-
tremely strong.
A-2 A short-term obligation rated "A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic condi-
tions than obligations in higher rating categories. However, the obli-
gor's capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated "A-3' exhibits adequate protection pa-
rameters. However, adverse economic conditions or changing circum-
stances are more likely to lead to a weakened capacity of the obligor
to meet its financial commitment on the obligation.
B A short-term obligation rated "B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces ma-
jor ongoing uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
C A short-term obligation rated "C' is currently vulnerable to nonpay-
ment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the ob-
ligation.
D A short-term obligation rated "D' is in payment default. The "D' rat-
ing category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired, un-
less S&P believes that such payments will be made during such grace
period. The "D' rating also will be used upon the filing of a bank-
ruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
STANDARD & POOR'S EARNINGS AND DIVIDEND RANKINGS
FOR COMMON STOCKS
The investment process involves assessment of various factors--such as products
and industry position, corporate resources and financial policy--with results
that make some common stocks more highly esteemed than others. In this assess-
ment, Standard & Poor's believes that earnings and dividend performance is the
end result of the interplay of these factors and that, over the long run, the
record of this performance has a considerable bearing on relative quality. The
rankings, however, do not pretend to reflect all of the factors, tangible or
intangible, that bear on stock quality.
Relative quality of bonds or other debt, that is, degrees of protection for
principal and interest, called creditworthiness, cannot be applied to common
stocks, and therefore rankings are not to be confused with bond quality ratings
which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key elements in es-
tablishing Standard & Poor's earnings and dividend rankings for common stocks.
It should be noted, however, that the process also takes into consideration
certain adjustments and modifications deemed desirable in establishing such
rankings.
A-3
<PAGE>
The major driver of these rankings is a computerized scoring system based on
per-share earnings and dividend records of the most recent ten years--a period
deemed long enough to measure significant time segments of secular growth, to
capture indications of basic changes in trend as they develop, and to encompass
the full peak-to-peak range of the business cycle. Basic scores are computed
for earnings and dividends, then adjusted as indicated by a set of predeter-
mined modifiers for growth, stability within long-term trend, and cyclicality.
Adjusted scores for earnings and dividends are then combined to yield a final
score.
In addition, the ranking system makes allowance for the fact that, in general,
corporate size imparts certain recognized advantages from an investment stand-
point. Conversely, minimum size limits (as measured by corporate revenues) are
set for the various rankings, but the system provides for exceptions when the
score reflects an outstanding earnings-dividend record.
The final score for each stock is measured against a scoring matrix determined
by analysis of the scores of a large and representative sample of stocks. The
range of scores in the array of this sample has been aligned with the following
ladder of rankings:
A+ Highest
AHigh
A-Above Average
B+Average
BBelow Average
B-Lower
CLowest
DIn Reorganization
NR signifies no ranking because of insufficient data or because the stock is
not amenable to the ranking process.
The rankings as determined above may be modified in some instances by special
considerations, such as natural disasters, massive strikes, and non-recurring
accounting adjustments.
A ranking is not a forecast of future market price performance, but is basi-
cally an appraisal of past performance of earnings and dividends, and relative
current standing. These rankings must not be used as market recommendations; a
high-scoring stock may at times be so overpriced as to justify its sale, while
a low-scoring stock may be attractively priced for purchase. Rankings based
upon earnings and dividend records are no substitute for complete analysis.
They cannot take into account potential effects on management changes, internal
company policies not yet fully reflected in the earnings and dividend record,
public relations standing, recent competitive shifts, and a host of other fac-
tors that may be relevant to market price or suitability.
STANDARD & POOR'S CORPORATE RATINGS CRITERIA
A Standard & Poor's issue credit rating is a current opinion of the creditwor-
thiness of an obligor with respect to a specific financial obligations, a spe-
cific class of financial obligations, or a specific financial program (includ-
ing ratings on medium-term note programs and commercial paper programs). It
takes
A-4
<PAGE>
into consideration the creditworthiness of guarantors, insurers, or other forms
of credit enhancement on the obligation and takes into account the currency in
which the obligation is denominated. The issue credit rating is not a recommen-
dation to purchase, sell, or hold a financial obligation, inasmuch as it does
not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any credit rat-
ing and may, on occasion, rely on unaudited financial information. Credit rat-
ings may be changed, suspended, or withdrawn as a result of changes in, or un-
availability of, such information, or based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term ratings
are generally assigned to those obligations considered short-term in the rele-
vant market. In the U.S., for example, that means obligations with an original
maturity of no more than 365 days--including commercial paper. Short-term rat-
ings are also used to indicate the creditworthiness of an obligor with respect
to put features on long-term obligations. The result is a dual rating, in which
the short-term rating addresses the put feature, in addition to the usual long-
term rating. Medium-term notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based, in varying degrees, on the following considera-
tions:
1. Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms of
the obligation;
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are typi-
cally rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not conform exactly with the category definition.
"AAA"
An obligation rated "AAA" has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA"
An obligation rated "AA" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A"
An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obli-
gations in higher rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
A-5
<PAGE>
"BBB"An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC," and "C" are regarded as having sig-
nificant speculative characteristics. "BB" indicates the least degree of spec-
ulation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large un-
certainties or major exposures to adverse conditions.
"BB" An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"B" An obligation rated "B" is more vulnerable to nonpayment than obliga-
tions rated "BB," but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, finan-
cial, or economic conditions will likely impair the obligor's capacity
or willingness to meet its financial commitment on the obligation.
"CCC"An obligation rated "CCC" is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic condi-
tions for the obligor to meet its financial commitment on the obliga-
tion. In the event of adverse business, financial, or economic condi-
tions, the obligor is not likely to have the capacity to meet its fi-
nancial commitment on the obligation.
"CC" An obligation rated "CC" is currently highly vulnerable to nonpayment.
"C" The "C" rating may be used to cover a situation where a bankruptcy pe-
tition has been filed or similar action has been taken, but payments
on this obligation are being continued.
"D" An obligation rated "D" is in payment default. The "D" rating category
is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grade pe-
riod. The "D" rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obliga-
tion are jeopardized.
Plus(+)
or minus
(-):
The ratings from "AA" to "CCC" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
r
This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of ex-
pected returns which are NOT addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment risk--such as
interest-only or principal-only mortgage securities; and obligations
with unusually risky interest terms, such as inverse floaters.
A-6
<PAGE>
Moody's Investors Service, Inc.--A brief description of the applicable Moody's
Investors Service, Inc. ("Moody's") rating symbols and their meanings (as pub-
lished by Moody's) follows:
Long Term Debt
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally re-
ferred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all stan-
dards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks ap-
pear somewhat larger than in Aaa securities.
A Bonds which are rated A possess may favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Moody's bond rating symbols may contain numerical modifiers of a ge-
neric rating classification. The modifier 1 indicates that the bond
ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking, and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristi-
cally unreliable over any great length of time. Such bonds lack out-
standing investment characteristics and in fact have speculative char-
acteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protec-
tion of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desir-
able investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
A-7
<PAGE>
C Bonds which are rated C are the lowest rated class of bonds, and is-
sues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Con(...)
Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination
of basis of condition.
Note:Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the sym-
bols Aa1, A1, Baa1, Ba1, and B1.
Municipal Short-Term Loans
MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquid-
ity support or demonstrated broad based access to the market
for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins or protection
are ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security ele-
ments are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well-established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection com-
monly regarded as required of an investment security is pres-
ent and although not distinctly or predominantly speculative,
there is specific risk.
Commercial Paper
Issuers rated Prime-1 (or related supporting institutions) have a superior ca-
pacity for repayment of senior short-term promissory obligations. Prime-1 re-
payment capacity will often be evidenced by many of the following characteris-
tics:
--Leading market positions in well-established industries.
--High rates of return on funds employed.
--Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong capac-
ity for repayment of senior short-term promissory obligations. This will nor-
mally be evidenced by many of the characteristics cited
A-8
<PAGE>
above but to a lesser degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alter-
nate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of senior short-term promissory obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial lev-
erage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co.--A brief description of
the applicable Fitch IBCA, Inc. ("Fitch") ratings symbols and meanings (as
published by Fitch) follows:
Long-Term Credit Ratings
Fitch credit ratings are an opinion on the ability of an entity or of a secu-
rities issue to meet financial commitments, such as interest, preferred divi-
dends, or repayment of principal, on a timely basis. Fitch credit ratings ap-
ply to a variety of entities and issues, including but not limited to sover-
eigns, governments, structured financings, and corporations; debt,
preferred/preference stock, bank loans, and counterparties; as well as the
claims-paying ability of insurance companies and financial guarantors.
Credit ratings are used by investors as indications of the likelihood of get-
ting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment-grade"
ratings (international long-term "AAA' "BBB' categories; short-term "F1' "F3')
indicate a relatively low probability of default, while those in the "specula-
tive" or "non-investment grade" categories (international long-term "BB' "D';
short-term "B' "D') either signal a higher probability of default or that a
default has already occurred. Ratings imply no specific prediction of default
probability. However, for example, it is relevant to note that over the long
term, defaults on "AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for "BBB' rated bonds was 0.35%,
and for "B' rated bonds, 3.0%.
Entities or issues carrying the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect
small differences in the degrees of credit risk.
Fitch credit and other ratings are not recommendations to buy, sell, or hold
any security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt na-
ture or taxability of any payments of any security. The ratings are based on
information obtained from issuers, other obligors, underwriters, their ex-
perts, and other sources Fitch believes to be reliable. Fitch does not audit
or verify the truth or accuracy of such information. Ratings may be changed or
withdrawn as a result of changes in, or the unavailability of, information or
for other reasons.
Fitch program ratings relate only to standard issues made under the program
concerned; it should not be assumed that these ratings apply to every issue
made under the program. In particular, in the case of
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<PAGE>
non-standard issues, i.e. those that are linked to the credit of a third party
or linked to the performance of an index, ratings of these issues may deviate
from the applicable program rating.
Credit ratings do not directly address any risk other than credit risk. In
particular, these ratings do not deal with the risk of loss due to changes in
market interest rates and other market considerations.
Investment Grade
AAA Highest credit quality. "AAA' ratings denote the lowest expecta-
tion of credit risk. They are assigned only in case of exception-
ally strong capacity for timely payment of financial commitments.
This capacity is highly unlikely to be adversely affected by fore-
seeable events.
AA Very high credit quality. "AA' ratings denote a very low expecta-
tion of credit risk. They indicate very strong capacity for timely
payment of financial commitments. This capacity is not signifi-
cantly vulnerable to foreseeable events.
A High credit quality. "A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial commit-
ments is considered strong. This capacity may, nevertheless, be
more vulnerable to changes in circumstances or in economic condi-
tions than is the case for higher ratings.
BBB Good credit quality. "BBB' ratings indicate that there is cur-
rently a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered adequate, but ad-
verse changes in circumstances and in economic conditions are more
likely to impair this capacity. This is the lowest investment-
grade category.
Speculative Grade
BB Speculative. "BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse eco-
nomic change over time; however, business or financial alterna-
tives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
B Highly speculative. "B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for contin-
ued payment is contingent upon a sustained, favorable business and
economic environment.
CCC, CC, C
High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A "CC' rating indi-
cates that default of some kind appears probable. "C' ratings sig-
nal imminent default.
DDD DD, D
Default. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a reor-
ganization or liquidation of the obligor. While expected recovery
values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD' obli-
gations have the
A-10
<PAGE>
highest potential for recovery, around 90%-100% of outstanding
amounts and accrued interest. "DD' indicates potential recoveries
in the range of 50%-90%, and "D' the lowest recovery potential,
i.e., below 50%.
Entities rated in this category have defaulted on some or all of their obliga-
tions. Entities rated "DDD' have the highest prospect for resumption of perfor-
mance or continued operation with or without a formal reorganization process.
Entities rated "DD' and "D' are generally undergoing a formal reorganization or
liquidation process; those rated "DD' are likely to satisfy a higher portion of
their outstanding obligations, while entities rated 'D' have a poor prospect
for repaying all obligations.
Notes:
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the "AAA' long-term rating
category, or to categories below "CCC'.
"NR' indicates that Fitch does not rate the issuer or issue in question.
"Withdrawn': A rating is withdrawn when Fitch deems the amount of information
available to be inadequate for rating purposes, or when an obligation matures,
is called, or refinanced.
Rating Watch: Ratings are placed on Rating Watch to notify investors that there
is a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. Rating Watch is typically resolved over a relatively
short period.
Short-Term Credit Ratings
A short-term rating has a time horizon of less than 12 months for most obliga-
tions, or up to three years for US public finance securities, and thus places
greater emphasis on the liquidity necesssary to meet financial commitments in a
timely manner.
F1 Highest credit quality. Indicates the Best capacity for timely
payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as
in the case of the higher ratings.
F3
Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B
Speculative. Minimal capacity for timely payment of financial com-
mitments, plus vulnerability to near-term adverse changes in fi-
nancial and economic conditions.
C
High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained,
favorable business and economic environment.
D
Default. Denotes actual or imminent payment default.
A-11
<PAGE>
Notes:
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to Short-term ratings other than
"F1'.
"NR' indicates that Fitch does not rate the issuer or issue in question.
"Withdrawn': A rating is withdrawn when Fitch deems the amount of information
available to be inadequate for rating purposes, or when an obligation matures,
is called, or refinanced.
Rating Watch: Ratings are placed on Rating Watch to notify investors that there
is a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. Rating Watch is typically resolved over a relatively
short period.
VALUE LINE FINANCIAL STRENGTH RATINGS CRITERIA
Value Line--Financial Strength Rating (A++, A+, A, B++, B+, C++, C+, C)--The
financial strength of each of the more than 1,600 companies in the VS II data
base is rated relative to all the others. The ratings range from A++ to C in
nine steps. (For screening purposes, think of an A rating as "greater than" a
B). Companies that have the best relative financial strength are given an A++
rating, indicating an ability to weather hard times better than the vast major-
ity of other companies. Those who don't quite merit the top rating are given an
A+ grade, and so on. A rating as low as C++ is considered satisfactory. A rat-
ing of C+ is well below average, and C is reserved for companies with very se-
rious financial problems. The ratings are based upon a computer analysis of a
number of key variables that determine (a) financial leverage, (b) business
risk, and (c) company size, plus the judgment of Value Line's analysts and se-
nior editors regarding factors that cannot be quantified across-the-board for
all companies. The primary variables that are indexed and studied include eq-
uity coverage of debt, equity coverage of intangibles, "quick ratio", account-
ing methods, variability of return, fixed charge coverage, stock price stabili-
ty, and company size.
A-12
<PAGE>
EAI-CCI-RIT 11-00
<PAGE>
Nuveen Investments
Rittenhouse
Growth Fund
ANNUAL REPORT JULY 31, 2000
A blue chip portfolio for investors seeking a tax-efficient way to build and
sustain wealth.
[PHOTOS APPEAR HERE]
INVEST WELL
LOOK AHEAD
LEAVE YOUR MARK/SM/
<PAGE>
Contents
1 Dear Shareholder
3 From the Portfolio Manager's Perspective Nuveen Rittenhouse Growth Fund
7 Nuveen Rittenhouse Growth Fund Spotlight
8 Portfolio of Investments
10 Statement of Net Assets
11 Statement of Operations
12 Statement of Changes in Net Assets
13 Notes to Financial Statements
18 Financial Highlights
19 Report of Independent Public Accountants
21 Fund Information
Must be preceded by or accompanied by a prospectus.
<PAGE>
DEAR
Shareholder,
[Photo of Timothy R. Schwertfeger appears here]
Timothy R. Schwertfeger
Chairman of the Board
Harvard University, Tiffany's and Dom Perignon are each the Rolls-Royce of its
market. Each is synonymous with "quality." Each has established, reinforced and
marketed its brand as one that consistently delivers a quality product -- be it
education, fine jewelry or champagne. Each has made a promise to its customers,
and each works hard to keep that promise, year after year.
Webster defines quality as the degree of excellence that a thing possesses.
Nuveen Investments defines quality by the excellence of our portfolio
management and products as well as of the financial advisors you, and our firm,
work with.
Quality Portfolio Management and Products Nuveen Rittenhouse Growth Fund is
managed by Rittenhouse Financial Services, Inc. The investment philosophy
Rittenhouse established years ago remains firmly in place today -- pursue long-
term growth with high-quality, large capitalization blue chip stocks. We believe
this singular focus translates into consistently strong risk-adjusted returns
and productive, long-lasting relationships.
Rittenhouse's approach focuses not merely on blue chips, but on those
select blue chips they believe have the prospects of providing sustainable,
long-term growth -- ultimately, to limit risk without restricting return
potential.
Rittenhouse is just one of the quality money managers Nuveen works with
to bring investors specialized expertise, judgment and resources that might
otherwise be beyond reach. We believe in the power of focused effort, which is
why we sought out extraordinary talent in each asset class and investment style
-- professionals who we feel have mastered the nuances of the markets they know
best.
We believe this focus leads to a better quality product for you.
Quality Financial Advisors Nuveen Investments works through financial advisors
because we believe in quality advice. Today, you face an unprecedented array of
investment choices, opportunities -- and risks. Your investment advisor can
offer you the professional assistance that will help bring to life your
aspirations -- for yourself and your family, today and in the future.
The potential presence of inflation and price swings in the markets
reinforces the importance of working with an advisor, staying focused on the
long term and adhering to your financial plan. With a sound plan in place, you
may be better positioned to weather the markets' ups and downs.
Looking Ahead The following interview with the portfolio management team of
Nuveen Rittenhouse Growth Fund is intended to give you a review of your fund's
performance during its fiscal year, as well as an overview of the economic
environment in which it operated.
ANNUAL REPORT page 1
<PAGE>
I'd like to share a few words looking ahead. Looking to the latter part
of 2000, we anticipate continued investor uncertainty in the wake of recent
market volatility. The challenge for Nuveen Investments is to help financial
advisors work with you to rebalance portfolios with your greater family wealth
management goals in mind.
We are poised to help you reach your goals with equity and fixed-income
investments that are designed to provide high quality and consistent growth. We
plan to continue to enhance and diversify the investment choices we offer.
For more information on any Nuveen investment, including a prospectus,
contact your financial advisor. Or call Nuveen at (800) 621-7227 or visit our
Internet site at www.nuveen.com. Please read the prospectus carefully before you
invest or send money.
Thank you for your continued confidence.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
September 18, 2000
ANNUAL REPORT page 2
<PAGE>
NUVEEN RITTENHOUSE GROWTH FUND
From the Portfolio Manager's Perspective
--------------------------------------------------------------------------------
Throughout Nuveen Rittenhouse Growth Fund's fiscal year, the fund's manager
continued to focus on companies, in both the "new" and "old" economies, with
dominant market leadership, strong financial conditions and prospects for
consistent and sustainable earnings growth. In this interview, John P. Waterman,
managing director of investments at Rittenhouse Financial Services, Inc. and
portfolio manager of Nuveen Rittenhouse Growth Fund, discusses the fund's
performance during the fiscal year ended July 31, 2000.
Q You and your team were able to take advantage of the fund's modified
investment policy that went into effect prior to the start of the fiscal
year -- the ability to invest in non-dividend paying stocks. This change allowed
the fund to access the burgeoning technology sector. Technology companies, to a
greater extent than companies in other sectors, have opted not to pay dividends
and to use excess cash either for new investment or share repurchases.
Technology makes up the largest sector weighting in the fund -- at 35.2%.
Just 12 months ago, at July 31, 1999, technology was 23.2% of the portfolio. How
were you able to introduce more technology to the portfolio and stay true to
Rittenhouse's conservative growth orientation?
A We remained selective in our approach to technology companies. In fact, we
used very much the same philosophy in choosing stocks for our technology
holdings as we did for our non-technology holdings. We sought strong, well-
positioned companies -- companies that are dominant market leaders in their
industries.
Over the years, technology stocks have proven to be volatile. Given the
rapid change and acute competition to which technology companies have been
exposed, history has shown that survival is often a function of a company's
ability to manage rapid change. We took a prudent approach to investing in these
companies and focused on the most stable, solid performers with market
leadership in technology industries projected to grow at high rates for years to
come.
Q What are some examples of such leading technology companies?
A We added several names during the fund's fiscal year. EMC Corporation was
added and at July 31, 2000, was the fund's third largest holding. EMC is the
market-leading data storage company. Businesses embracing the Internet and e-
commerce must manage an infinite amount of information, and EMC's leading
product solutions offer the intelligence, flexibility and leverage businesses
need to manage this data. We believe the company's commitment to research and
development, combined with the positive long-term outlook for the data storage
industry, has positioned EMC to deliver solid, consistent earnings growth.
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, chosen for their rigorously disciplined
investment approaches.
Drawing on decades of experience and specialized knowledge, these skilled asset
managers have earned reputations for excellence in their fields of expertise,
whether it is blue-chip growth stocks, large-cap value stocks, bonds or
international securities.
Nuveen's advisor for large-cap growth investing, Rittenhouse Financial Services,
Inc., a wholly owned subsidiary of Nuveen, has more than 20 years of investment
experience through a variety of market conditions. With approximately $17
billion in assets under management, Rittenhouse has developed an expertise in
selecting high-quality, large-cap companies that the fund managers believe will
perform well over the long term.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the fiscal year ended July 31, 2000. The views expressed reflect those of
the portfolio management team and are subject to change at any time, based on
market and other conditions.
Annual Report page 3
<PAGE>
"The fund's outperformance of its peer group in part can be attributed to its
focus on leading global companies with strong, sustainable earnings growth."
Another leading technology addition was Oracle Corporation. Oracle is the
dominant supplier of fully integrated software products to businesses. Oracle's
Internet-friendly software is designed to enhance enterprise resource planning,
customer relationship management and supply chain management. The strong vision
of Oracle's management team is likely to drive the continual growth of the
company's Internet-enabling software, in our opinion.
Intel, Texas Instruments and Sun Microsystems--all leaders in their
industries--also did very well for the fund during the period.
NUVEEN RITTENHOUSE GROWTH FUND
Top Ten Stock Holdings
American International Group, Inc. 5.7%
----------------------------------------------
General Electric Company 4.9%
----------------------------------------------
EMC Corporation 4.9%
----------------------------------------------
Pfizer Inc. 4.6%
----------------------------------------------
The Coca-Cola Company 4.3%
----------------------------------------------
Automatic Data Processing, Inc. 4.3%
----------------------------------------------
Intel Corporation 4.2%
----------------------------------------------
Colgate-Palmolive Company 4.0%
----------------------------------------------
Cisco Systems, Inc. 3.8%
----------------------------------------------
Merck & Co., Inc. 3.6%
----------------------------------------------
The companies listed represent their respective percentages of stock holdings as
of July 31, 2000. Over time, the fund's holdings and their percentages will
vary.
Q How did the fund perform during its fiscal year?
A The fund delivered to its shareholders another strong year. The fund reported
a one-year total return for the fiscal year ended July 31, 2000, of 15.93%. The
fund's return compares favorably against its benchmark, the Lipper Large Cap
Core Funds Index, which returned 12.01% and the Standard & Poor's 500 Index
return of 8.97% for the same time period.*
The fund's outperformance of its peer group in part can be attributed to
its focus on leading global companies with s trong, sustainable earnings growth.
Q Much of the market's gains during the year were attributable to the "hot dot"
or "new" economy. Why do you believe your focus on historically more stable,
conservative companies had such a positive effect on the fund's performance?
A The economy and markets experienced the Federal Reserve's series of interest
rate hikes during the period. There is usually a six-to-nine month lag from the
time the increase is made to when the economy slows. The challenge of the Fed is
to slow economic growth sufficiently to relax inflationary pressures. The risk
is always that the Fed steps on the brakes too hard and puts the economy in a
recession.
Since the 1991 recession, Mr. Greenspan and the Fed have proven to be very
capable of managing this historic period of U.S. economic growth. They have
instituted economic measures akin to slowing the economy with "anti-lock" brakes
as opposed to old-fashion drum brakes and to date have avoided putting the
economy into a "skid."
Still, the larger-than-expected half point interest rate hike in May sent
the markets reeling. This was to be expected, however, since the stock market
typically has not performed well in periods of rising interest rates. Volatility
not seen in years, the result of investors' worst fears that corporate profits
would slow in the wake of a slowing economy, reared its ugly head.
* The Lipper Large Cap Core Funds Index is a managed index representing the
average annualized total returns of the 30 largest funds in the Lipper Large Cap
Core Funds category. The S&P 500 Index is an unmanaged index comprising 500
stocks generally considered representative of the U.S. stock market. The returns
assume reinvestment of dividends and do not reflect any applicable sales
charges.
ANNUAL REPORT page 4
<PAGE>
It is during times of market volatility and uncertainty regarding
corporate profit growth that our focus on the historically more stable, market-
leading companies -- companies such as Pfizer, Automatic Data Processing, Coca-
Cola, General Electric and Colgate-Palmolive -- can benefit the fund the most.
This is because investors, in similar economic scenarios -- where they faced
rising interest rates and slowing growth -- have sought out companies that were
positioned to continue to grow their earnings on a consistent basis.
Q Besides the addition of several technology names, what other significant
changes were made to the portfolio during the year?
A We sold our entire position in Procter & Gamble in March when we grew
uncertain about the company's ability to meet its long-term earnings growth
target of 13% to 15%. Procter & Gamble had pre-announced a major earnings
shortfall for the first half of 2000. The news stunned the market, coming after
an analyst meeting at which Procter & Gamble said earnings were on track.
In February, we reduced our position in Johnson & Johnson, and then in
April, we sold the balance of it. We feared Johnson & Johnson's earnings growth
rate would slow due to a lean near-term product pipeline, competitive products,
including one from Amgen, and regulatory setbacks relating to the company's
pharmaceutical business.
We used the proceeds to purchase shares of Amgen, a biotechnology
company expecting to launch three new drugs in early 2001 to 2002, and two in
2003. We also added to the portfolio Bristol-Meyers Squibb, a leading
diversified healthcare company with an increased focus on pharmaceutical
products and a commitment to research we believe has made it a leader in the
fields of hematology, therapeutic protein design, cancer and neuroscience.
Q How did some of the other sectors represented in the fund perform over
the period?
A Consumer cyclicals benefited from a robust economy as well as the
insatiable spending by consumers. Our holdings in this sector include The Home
Depot and Wal-Mart Stores. Both companies have increasingly taken advantage of
technology to stay connected to their customers, which has helped contribute to
their success.
More recently, the performance of retail stocks has lagged due to
concerns as to how slowing economic growth will impact their business. We are
underweighted in the consumer cyclicals sector and believe both Wal-Mart and
Home Depot will continue to deliver strong earnings performance, which should
translate into long-term stock price performance. Consumer staples for the most
part have lagged, but stocks such as Walgreen Co. and Colgate-Palmolive
continued to deliver solid earnings, and they are poised to do better, in our
opinion, particularly if the economy slows.
"We are underweighted in the consumer cyclicals sector and believe both Wal-Mart
and Home Depot will continue to deliver strong earnings performance, which
should translate into long-term stock price performance."
NUVEEN RITTENHOUSE GROWTH FUND
Sector Diversification
[PIE CHART APPEARS HERE]
Technology..............35.2%
Healthcare..............18.2%
Financials..............16.1%
Consumer Staples........14.6%
Capital Goods........... 7.5%
Consumer Cyclicals...... 6.0%
Utilities............... 2.4%
Portfolio composition is as of July 31, 2000, and is subject to change.
Composition is based on the fund's stock holdings. Over time, the fund's
holdings and their percentages will vary.
ANNUAL REPORT page 5
<PAGE>
Q What is your outlook for the market environment and the fund for the
coming months?
A The interest rate and the economic outlook are key factors. Looking out
one to two years, we continue to expect low inflation and moderate economic
growth, which is an ideal environment for the stock market. In the near future,
the Fed has made it clear that a 5% or higher growth rate is not sustainable
without inflation rekindling. The Fed has said it wants to slow growth to a
sustainable 3% to 3.5% rate. Therefore, we expect several more rate increases,
which may create uncertainty and volatility.
Beyond that, we look for slower economic growth and lower interest
rates, which should boost stocks, particularly stable growth stocks with
earnings that have low economic sensitivity.
ANNUAL REPORT page 6
<PAGE>
NUVEEN RITTENHOUSE GROWTH FUND
Fund Spotlight as of July 31, 2000
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $29.09 $28.55 $28.56 $29.29
-----------------------------------------------------------------------
Fund Symbol NRGAX NRGBX NRGCX NRGRX
-----------------------------------------------------------------------
CUSIP 67065W100 67065W209 67065W308 67065W407
-----------------------------------------------------------------------
Inception Date 12/97 12/97 12/97 12/97
-----------------------------------------------------------------------
</TABLE>
Total Returns as of 7/31/00/1/
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV w/CDSC NAV
<S> <C> <C> <C> <C> <C> <C> <C>
YTD* 2.07% -3.80% 1.60% -3.40% 1.60% 0.60% 2.20%
------------------------------------------------------------------------------------------------
1-Year 15.93% 9.27% 15.01% 11.01% 15.01% 15.01% 16.17%
------------------------------------------------------------------------------------------------
Since Inception++ 15.73% 13.11% 14.89% 13.64% 14.91% 14.91% 16.03%
------------------------------------------------------------------------------------------------
</TABLE>
Total Returns as of 6/30/00+
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV w/CDSC NAV
<S> <C> <C> <C> <C> <C> <C> <C>
YTD* 4.95% -1.09% 4.52% -0.48% 4.55% 3.55% 5.06%
------------------------------------------------------------------------------------------------
Since Inception++ 17.60% 14.86% 16.75% 15.47% 16.78% 16.78% 17.92%
------------------------------------------------------------------------------------------------
</TABLE>
+ Returns reflect differences in sales charges and expenses among the share
classes. Class A shares have a 5.75% maximum sales charge. Class B shares have
a CDSC that begins at 5% for redemptions during the first year after purchase
and declines periodically to 0% over the following six years. Class B shares
convert to Class A shares after eight years. Class C shares have a 1% CDSC for
redemptions within one year.
* Cumulative
++Annualized
Index Comparison/./
[MOUNTAIN CHART APPEARS HERE]
Standard
Nuveen Rittenhouse Nuveen Rittenhouse and Poor's
Growth Fund (Offer) Growth Fund (NAV) 500 Index
12/1997 $ 9,425 $10,000 $10,000
7/1998 $10,720 $11,374 $11,645
7/1999 $11,860 $12,584 $13,999
7/2000 $13,752 $14,591 $15,258
_____ Nuveen Rittenhouse Growth Fund (Offer) $13,752
_____ Nuveen Rittenhouse Growth Fund (NAV) $14,591
_____ Standard and Poor's 500 Index $15,258
/./ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund, adjusted for the maximum sales charge
(5.75%) and all ongoing fund expenses. It also shows the Nuveen fund at NAV.
Both are compared to the Standard and Poor's 500 Index, which does not
reflect any initial or ongoing expenses. An index is not available for
direct investment.
Portfolio Allocation/./
[PIE CHART APPEARS HERE]
Equity.............97%
Cash Equivalents... 3%
/./ The fund is actively managed, and its holdings, diversification and
allocation will vary over time.
Portfolio Statistics
Total Net Assets $649.4 million
------------------------------------------
Beta 0.92
------------------------------------------
Average Market
Capitalization (Stocks) $172 billion
------------------------------------------
Number of Stocks 32
------------------------------------------
Turnover Rate (for reporting period) 28%
------------------------------------------
Expense Ratio* 1.35%
------------------------------------------
* Class A shares after credit/reimbursement
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
Terms To Know
The following are a few terms used throughout this report.
Beta is a measure of a fund's volatility compared to the market's. A fund with a
beta of 1.20 is approximately 20% more volatile than the market, while a fund
with a beta of 0.80 is approximately 20% less volatile than the market.
Market Capitalization Also referred to as market cap, market capitalization is
a measure of a corporation's value, calculated by multiplying the number of
outstanding shares of common stock by the current market price per share. Market
capitalization is usually grouped in these main categories:
Large cap: over $5 billion in market capitalization
Mid cap: between $1 billion and $5 billion
Small cap: $1 billion or less
Price/Earnings Ratio (P/E) The P/E ratio of a stock is calculated by dividing
the current price of the stock by its trailing 12 months' earnings per share. A
high P/E generally indicates that the market will pay more to obtain the
company's stock because investors have confidence in the company's ability to
increase its earnings over time. Conversely, a low P/E indicates that investors
are less confident that the company's earnings will increase, and therefore are
not willing to pay as much for its stock. The weighted average of the
price/earnings ratios of the stocks in a mutual fund's portfolio can act as a
gauge of the fund's investment strategy in the current market climate by
indicating a value orientation (low P/E ratios) or a growth orientation (high
P/E ratios).
Total Return is a measure of a fund's performance that takes into account income
dividends, capital gains distribution and change in net asset value.
ANNUAL REPORT page 7
<PAGE>
Portfolio of Investments
Nuveen Rittenhouse Growth Fund
July 31, 2000
<TABLE>
<CAPTION>
Market
Shares Description Value
------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 97.0%
Capital Goods -- 7.3%
606,000 General Electric Company $ 31,171,125
305,000 Tyco International Ltd. 16,317,500
------------------------------------------------------------------------------
Consumer Cyclicals -- 5.9%
437,000 The Home Depot, Inc. 22,614,750
280,000 Wal-Mart Stores, Inc. 15,382,500
------------------------------------------------------------------------------
Consumer Staples -- 14.2%
446,000 The Coca-Cola Company 27,345,375
458,000 Colgate-Palmolive Company 25,504,875
640,000 Walgreen Co. 19,960,000
497,000 The Walt Disney Company 19,227,688
------------------------------------------------------------------------------
Financials -- 15.7%
406,500 American International Group, Inc. 35,644,969
304,000 Fannie Mae 15,162,000
350,000 MBNA Corporation 11,681,250
170,000 State Street Corporation 17,063,750
535,000 Wells Fargo & Company 22,102,188
------------------------------------------------------------------------------
Healthcare -- 17.7%
230,000 Amgen Inc. # 14,935,625
262,000 Bristol-Myers Squibb Company 13,001,750
381,000 Medtronic, Inc. 19,454,813
317,000 Merck & Co., Inc. 22,724,938
670,250 Pfizer Inc. 28,904,531
367,000 Schering-Plough Corporation 15,849,813
------------------------------------------------------------------------------
Technology -- 33.9%
544,000 Automatic Data Processing, Inc. 26,962,000
362,000 Cisco Systems, Inc. # 23,688,375
359,000 EMC Corporation # 30,559,875
161,000 Hewlett-Packard Company 17,579,188
394,000 Intel Corporation 26,299,500
144,000 International Business Machines Corporation 16,191,000
325,000 Lucent Technologies Inc. 14,218,750
185,000 Microsoft Corporation # 12,915,313
170,000 Nokia Oyj Sponsored ADR 7,533,125
180,000 Oracle Corporation # 13,533,750
165,000 Sun Microsystems, Inc. # 17,397,188
240,000 Texas Instruments Incorporated 14,085,000
------------------------------------------------------------------------------
Utilities -- 2.3%
382,000 Worldcom, Inc. # 14,921,871
------------------------------------------------------------------------------
Total Common Stocks (cost $506,919,021) 629,934,375
------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount (000) Description Value
------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 2.9%
$19,018 Swiss Bank Repurchase Agreement, 6.46%, 8/01/00 $ 19,018,000
============------------------------------------------------------------------------------------
Total Short-Term Investments (cost $19,018,000) 19,018,000
----------------------------------------------------------------------------------
Total Investments (cost $525,937,021) - 99.9% 648,952,375
----------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.1% 427,735
----------------------------------------------------------------------------------
Net Assets - 100% $649,380,110
==================================================================================
</TABLE>
# Non-income producing.
See accompanying notes to financial statements.
9
<PAGE>
Statement of Net Assets
Nuveen Rittenhouse Growth Fund
July 31, 2000
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------
Assets
Investment securities, at market value (cost $525,937,021) $648,952,375
Cash 1,413,330
Receivables:
Dividends and interest 237,388
Shares sold 1,809,836
Organizational assets 69,555
Other assets 161,803
---------------------------------------------------------------------------------------------------------
Total assets 652,644,287
---------------------------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased 1,417,613
Shares redeemed 622,560
Accrued expenses:
Management fees 584,719
12b-1 distribution and service fees 440,803
Other liabilities 198,482
---------------------------------------------------------------------------------------------------------
Total liabilities 3,264,177
---------------------------------------------------------------------------------------------------------
Net assets $649,380,110
=========================================================================================================
Class A Shares
Net assets $121,610,499
Shares outstanding 4,180,725
Net asset value and redemption price per share $ 29.09
Offering price per share (net asset value per share plus
maximum sales charge of 5.75% of offering price) $ 30.86
=========================================================================================================
Class B Shares
Net assets $287,992,905
Shares outstanding 10,087,915
Net asset value, offering and redemption price per share $ 28.55
=========================================================================================================
Class C Shares
Net assets $190,520,259
Shares outstanding 6,669,803
Net asset value, offering and redemption price per share $ 28.56
=========================================================================================================
Class R Shares
Net assets $ 49,256,447
Shares outstanding 1,681,697
Net asset value, offering and redemption price per share $ 29.29
=========================================================================================================
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
Statement of Operations
Nuveen Rittenhouse Growth Fund
Year Ended July 31, 2000
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------
Investment Income
Dividends $ 4,327,504
Interest 1,044,663
---------------------------------------------------------------------------------------------------------
Total investment income 5,372,167
---------------------------------------------------------------------------------------------------------
Expenses
Management fees 4,967,193
12b-1 service fees -- Class A 284,238
12b-1 distribution and service fees -- Class B 2,638,505
12b-1 distribution and service fees -- Class C 1,732,199
Shareholders' servicing agent fees and expenses 1,094,186
Custodian's fees and expenses 96,639
Trustees' fees and expenses 68,290
Professional fees 49,924
Shareholders' reports -- printing and mailing expenses 287,265
Federal and state registration fees 97,108
Organizational expenses 36,099
Other expenses 29,420
---------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 11,381,066
Custodian fee credit (487)
Expense reimbursement (149,870)
---------------------------------------------------------------------------------------------------------
Net expenses 11,230,709
---------------------------------------------------------------------------------------------------------
Net investment income (loss) (5,858,542)
---------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions 1,143,490
Net change in unrealized appreciation or depreciation of investments 85,946,069
---------------------------------------------------------------------------------------------------------
Net gain from investments 87,089,559
---------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $81,231,017
=========================================================================================================
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
Statement of Changes in Net Assets
Nuveen Rittenhouse Growth Fund
<TABLE>
<CAPTION>
Year Ended Year Ended
7/31/00 7/31/99
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income (loss) $ (5,858,542) $ (2,462,919)
Net realized gain from investment transactions 1,143,490 2,654,612
Net change in unrealized appreciation or depreciation of investments 85,946,069 30,332,273
-------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 81,231,017 30,523,966
-------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From accumulated net realized gains from investment transactions:
Class A (30,276) (162,515)
Class B (72,146) (332,952)
Class C (47,034) (189,464)
Class R (12,078) (103,805)
-------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (161,534) (788,736)
-------------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from sale of shares 164,747,675 329,272,030
Net proceeds from shares issued to shareholders due to reinvestment
of distributions 77,998 352,550
-------------------------------------------------------------------------------------------------------
164,825,673 329,624,580
Cost of shares redeemed (111,889,392) (49,825,219)
-------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 52,936,281 279,799,361
-------------------------------------------------------------------------------------------------------
Net increase in net assets 134,005,764 309,534,591
Net assets at the beginning of year 515,374,346 205,839,755
-------------------------------------------------------------------------------------------------------
Net assets at the end of year $649,380,110 $515,374,346
=======================================================================================================
Balance of undistributed net investment income at the end of year $ -- $ --
=======================================================================================================
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Investment Trust II (the "Trust") is an open-end, diversified
management investment company registered under the Investment Company Act of
1940. The Trust comprises the Nuveen Rittenhouse Growth Fund (the "Fund"), among
others. The Trust was organized as a Massachusetts business trust in 1997.
The Fund invests in a diversified portfolio consisting primarily of equity
securities traded in U.S. securities markets of large capitalization companies
that have a history of consistent earnings and dividend growth ("blue chip
companies") in order to provide long-term growth of capital.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with
accounting principles generally accepted in the United States.
Securities Valuation
Common stocks and other equity-type securities are valued at the last sales
price on the securities exchange or Nasdaq on which such securities are
primarily traded; however, securities traded on a securities exchange or Nasdaq
for which there are no transactions on a given day or securities not listed on a
securities exchange or Nasdaq are valued at the most recent bid prices. The
prices of fixed-income securities are provided by a pricing service and based
on the mean between the bid and asked price. When price quotes are not readily
available, the pricing service establishes fair market value based on prices of
comparable securities. Short-term securities 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
July 31, 2000, 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 accretion of
discounts.
Dividends and Distributions to Shareholders
Net investment income and net realized capital gains from investment
transactions, if any, are declared and distributed to shareholders 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 accounting principles generally accepted in the United
States. 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.
13
<PAGE>
Notes to Financial Statements (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 offers Class A, B, C and R Shares. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class A Share purchases of $1
million or more are sold at net asset value without an up-front sales charge but
may be subject to a 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 eight years after purchase. Class C
Shares are sold without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1%
if Class C Shares are redeemed within one year of purchase. Class R Shares are
not subject to any sales charge or 12b-1 distribution or service fees. Class R
Shares are available only under limited circumstances.
Derivative Financial Instruments
The Fund may invest in options and futures contracts, which are sometimes
referred to as derivative transactions. Although the Fund is authorized to
invest in such financial instruments, and may do so in the future, it did not
make any such investments during the fiscal year ended July 31, 2000.
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.
14
<PAGE>
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Deferred Organization Costs
The Fund's share of costs incurred by the Trust in connection with its
organization and initial registration of shares was deferred and is being
amortized over a 60-month period beginning December 31, 1997 (commencement of
operations). If any of the initial shares of the Fund are redeemed during this
period, the proceeds of the redemption will be reduced by the pro-rata share of
the unamortized organization costs as of the date of redemption.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires man agement 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>
Year Ended Year Ended
7/31/00 7/31/99
--------------------------- ---------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,409,570 $ 39,108,141 2,927,355 $ 70,955,142
Class B 2,392,325 64,717,015 5,856,226 140,460,433
Class C 2,034,952 55,321,768 4,601,620 110,898,865
Class R 195,022 5,600,751 285,712 6,957,590
Shares issued to shareholders due to reinvestment of distributions:
Class A 697 19,255 4,037 97,207
Class B 1,256 34,214 6,527 156,121
Class C 747 20,375 3,092 73,983
Class R 149 4,154 1,045 25,239
------------------------------------------------------------------------------------------------------------------------------------
6,034,718 164,825,673 13,685,614 329,624,580
------------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,256,508) (34,693,266) (798,461) (19,308,120)
Class B (1,255,776) (34,031,518) (523,896) (12,612,079)
Class C (1,281,803) (34,808,161) (596,853) (14,525,925)
Class R (306,338) (8,356,447) (146,221) (3,379,095)
------------------------------------------------------------------------------------------------------------------------------------
(4,100,425) (111,889,392) (2,065,431) (49,825,219)
------------------------------------------------------------------------------------------------------------------------------------
Net increase 1,934,293 $ 52,936,281 11,620,183 $279,799,361
====================================================================================================================================
</TABLE>
15
<PAGE>
Notes to Financial Statements (continued)
3. Securities Transactions
Purchases and sales (including maturities) of common stocks and short-term
investments for the fiscal year ended July 31, 2000, were as follows:
<TABLE>
------------------------------------------------------------------------------
<S> <C>
Purchases:
Common stocks $ 197,605,251
Short-term investments 4,595,774,000
Sales and maturities:
Common stocks 160,124,809
Short-term investments 4,595,996,000
==============================================================================
</TABLE>
At July 31, 2000, the identified cost of investments owned for federal income
tax purposes was $529,413,773.
4. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
for federal income tax purposes at July 31, 2000, were as follows:
<TABLE>
------------------------------------------------------------------------------
<S> <C>
Gross unrealized:
appreciation $145,554,853
depreciation (26,016,251)
------------------------------------------------------------------------------
Net unrealized appreciation $119,538,602
==============================================================================
</TABLE>
5. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with Nuveen Institutional
Advisory Corp. (the "Adviser"), the Fund pays an annual management fee, payable
monthly, which is based upon the average daily net assets of the Fund as
follows:
<TABLE>
------------------------------------------------------------------------------
<S> <C>
For the first $125 million .8500%
For the next $125 million .8375
For the next $250 million .8250
For the next $500 million .8125
For the next $1 billion .8000
For net assets over $2 billion .7750
==============================================================================
</TABLE>
16
<PAGE>
The Adviser had agreed to waive fees and reimburse expenses through July 31,
2000, in order to prevent total operating expenses (excluding any 12b-1
distribution or service fees and extraordinary expenses) from exceeding 1.10% of
the average daily net assets of any class of Fund shares. The Adviser may
voluntarily agree to reimburse expenses from time to time, which may be
terminated at any time at its discretion.
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Adviser has entered
into a Sub-Advisory Agreement with Rittenhouse Financial Services, Inc.
("Rittenhouse"), a wholly owned subsidiary of The John Nuveen Company, under
which Rittenhouse manages the Fund's investment portfolio. Rittenhouse is
compensated for its services from the management fee paid to the Adviser. The
Fund pays no compensation directly to those of its Trustees who are affiliated
with the Adviser or to its officers, all of whom receive remuneration for their
services to the Fund from the Adviser.
During the fiscal year ended July 31, 2000, Nuveen Investments (the
"Distributor"), a wholly owned subsidiary of The John Nuveen Company, collected
sales charges on purchases of Class A Shares of approximately $373,200, of which
approximately $340,300 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
During the fiscal year ended July 31, 2000, the Distributor compensated
authorized dealers directly with approximately $2,807,200 in commission advances
at the time of purchase. To compensate for commissions advanced to authorized
dealers, all 12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees collected on Class B
Shares, and all 12b-1 service and distribution fees collected on Class C Shares
during the first year following a purchase are retained by the Distributor.
During the fiscal year ended July 31, 2000, the Distributor retained
approximately $3,101,600 in such 12b-1 fees. The remaining 12b-1 fees charged to
the Fund were paid to compensate authorized dealers for providing services to
shareholders relating to their investments. The Distributor also collected and
retained approximately $966,500 of CDSC on share redemptions during the fiscal
year ended July 31, 2000.
6. Composition of Net Assets
At July 31, 2000, the Fund had an unlimited number of $.01 par value per share
common stock authorized. Net assets consisted of:
<TABLE>
--------------------------------------------------------------------------------
<S> <C>
Capital paid-in $529,841,508
Balance of undistributed net investment income --
Accumulated net realized gain (loss) from investment transactions (3,476,752)
Net unrealized appreciation of investments 123,015,354
--------------------------------------------------------------------------------
Net assets $649,380,110
================================================================================
</TABLE>
17
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
----------------------- --------------------
Net
Realized/
Net Unrealized
Beginning Invest- Invest- Net Ending
Net ment ment Invest- Net
Year Ended Asset Income/ Gain ment Capital Asset Total
July 31, Value (Loss) (Loss) Total Income Gains Total Value Return(a)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (12/97)
2000 $25.10 $(.12) 4.12 $4.00 $-- $(.01) $(.01) $29.09 15.93%
1999 22.75 (.04) 2.45 2.41 -- (.06) (.06) 25.10 10.62
1998(d) 20.00 (.01) 2.76 2.75 -- -- -- 22.75 13.75
Class B (12/97)
2000 24.82 (.33) 4.07 3.74 -- (.01) (.01) 28.55 15.01
1999 22.66 (.23) 2.45 2.22 -- (.06) (.06) 24.82 9.86
1998(d) 20.00 (.11) 2.77 2.66 -- -- -- 22.66 13.30
Class C (12/97)
2000 24.84 (.33) 4.06 3.73 -- (.01) (.01) 28.56 15.01
1999 22.67 (.23) 2.46 2.23 -- (.06) (.06) 24.84 9.86
1998(d) 20.00 (.11) 2.78 2.67 -- -- -- 22.67 13.35
Class R (12/97)
2000 25.22 (.05) 4.13 4.08 -- (.01) (.01) 29.29 16.17
1999 22.79 .02 2.47 2.49 -- (.06) (.06) 25.22 10.95
1998(d) 20.00 .03 2.76 2.79 -- -- -- 22.79 13.95
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement(b) Reimbursement(c)
----------------- ----------------- -----------------
Ratio Ratio Ratio
of Net of Net of Net
Invest- Invest- Invest-
Ratio of ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Assets Net Net Net Net Net Net Turnover
(000) Assets Assets Assets Assets Assets Assets Rate
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (12/97)
2000 $121,610 1.37% (.47)% 1.35% (.45)% 1.35% (.45)% 28%
1999 101,080 1.27 (.18) 1.27 (.18) 1.27 (.18) 22
1998(d) 43,092 1.42* (.16)* 1.35* (.09)* 1.35* (.09)* 4
Class B (12/97)
2000 287,993 2.13 (1.23) 2.10 (1.20) 2.10 (1.20) 28
1999 222,156 2.02 (.93) 2.01 (.93) 2.01 (.93) 22
1998(d) 81,823 2.17* (.91)* 2.10* (.84)* 2.10* (.84)* 4
Class C (12/97)
2000 190,520 2.13 (1.23) 2.10 (1.20) 2.10 (1.20) 28
1999 146,927 2.01 (.93) 2.01 (.93) 2.01 (.93) 22
1998(d) 43,260 2.17* (.91)* 2.10* (.84)* 2.10* (.84)* 4
Class R (12/97)
2000 49,256 1.12 (.21) 1.10 (.19) 1.10 (.19) 28
1999 45,211 1.03 .08 1.03 .08 1.03 .08 22
1998(d) 37,664 1.19* .11* 1.10* .20* 1.10* .20* 4
------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
18
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Rittenhouse Growth Fund
We have audited the accompanying statement of net assets, including the
portfolio of investments, of Nuveen Rittenhouse Growth Fund (one of the
portfolios constituting the Nuveen Investment Trust II (a Massachusetts business
trust)), as of July 31, 2000, and the related statements of operations for the
year then ended, the statement of changes in net assets for each of the two
years then ended and the financial highlights for the periods indicated thereon.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of July 31, 2000, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of Nuveen
Rittenhouse Growth Fund as of July 31, 2000, the results of its operations for
the year then ended, the change in its net assets for each of the two years then
ended and its financial highlights for the periods indicated thereon in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 20, 2000
19
<PAGE>
Notes
20
<PAGE>
Fund Information
Board of Trustees
James E. Bacon
Jack B. Evans
William T. Kissick
Thomas E. Leafstrand
Timothy R. Schwertfeger
Sheila W. Wellington
Fund Manager
Nuveen Institutional Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Investment Manager
Rittenhouse Financial Services, Inc.
Two Radnor Corporate Center
Suite 400
Radnor, PA 19087-4570
Transfer Agent and Shareholder Services
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(800) 257-8787
Legal Counsel
Chapman and Cutler
Chicago, IL
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
NASD Regulation, Inc. provides a Public Disclosure Program which supplies
certain information regarding the disciplinary history of NASD members and their
associated persons in response to either telephone inquiries at (800) 289-9999
or written inquiries at www.nasdr.com. NASD Regulation, Inc. also provides an
investor brochure that includes information describing the Public Disclosure
Program.
21
<PAGE>
Serving
Investors
For Generations
[Photo of John Nuveen, Sr. appears here]
John Nuveen, Sr.
A 100-Year Tradition of Quality Investments
Since 1898, Nuveen Investments has been synonymous with investments that
withstand the test of time. In fact, more than 1.3 million investors have
trusted Nuveen to help them build and sustain the wealth of a lifetime.
Whether your focus is long-term growth, dependable income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. We can help
you build a better, well-diversified portfolio.
Call Your Financial Advisor Today
To find out how Nuveen Mutual Funds might round out your investment portfolio,
contact your financial advisor today. Or call Nuveen at (800) 257-8787 for more
information. Ask your advisor or call for a prospectus, which details risks,
fees and expenses. Please read the prospectus carefully before you invest.
NUVEEN
Investments
Nuveen Investments
333 West Wacker Drive
Chicago, Illinois 60606-1286
www.nuveen.com
<PAGE>
Nuveen Investments
Growth Funds
ANNUAL REPORT JULY 31, 2000
[PHOTOS APPEAR HERE]
INVEST WELL
LOOK AHEAD
LEAVE YOUR MARK/SM/
Innovation
International Growth
<PAGE>
Contents
1 Dear Shareholder
3 From the Portfolio Manager's Perspective Nuveen Innovation Fund
7 Nuveen Innovation Fund Spotlight
8 From the Portfolio Manager's Perspective Nuveen International Growth
Fund
11 Nuveen International Growth Fund Spotlight
12 Portfolio of Investments
16 Statement of Net Assets
17 Statement of Operations
18 Statement of Changes in Net Assets
19 Notes to Financial Statements
24 Financial Highlights
26 Report of Independent Public Accountants
29 Fund Information
Must be preceded by or accompanied by a prospectus.
<PAGE>
DEAR
Shareholder,
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
Harvard University, Tiffany's and Dom Perignon are each the Rolls-Royce of its
market. Each is synonymous with "quality." Each has established, reinforced and
marketed its brand as one that consistently delivers a quality product -- be it
education, fine jewelry or champagne. Each has made a promise to its customers,
and each works hard to keep that promise, year after year.
Webster defines quality as the degree of excellence that a thing possesses.
Nuveen Investments defines quality by the excellence of our portfolio management
and products as well as of the financial advisors you, and our firm, work with.
Quality Portfolio Management and Products In December 1999, Nuveen Investments
launched the Nuveen Innovation and Nuveen International Growth funds, which
this report discusses. These funds are managed by Columbus Circle Investors
(CCI), a firm that has been managing money for more than 25 years and has used
a single, disciplined investment philosophy called "Positive Momentum and
Positive Surprise." This philosophy is based on the premise that:
. Strong companies tend to get stronger. CCI believes a company that
demonstrates positive momentum in its business fundamentals tends to generate
superior returns through rising stock prices. This represents the Positive
Momentum CCI seeks.
. Companies positively surprise when their business fundamentals and reported
results exceed investor and analyst expectations. CCI believes this is often
accompanied by strong, accelerating growth. This represents the Positive
Surprise CCI seeks.
I invite you to read the following interviews with the CCI management
teams for the details about how this philosophy has played out for the Nuveen
International Growth and Nuveen Innovation funds.
Quality Financial Advisors Nuveen Investments works through financial advisors
because we believe in quality advice. Today, you face an unprecedented array of
investment choices, opportunities -- and risks. Your investment advisor can
offer you the professional assistance that will help bring to life your
aspirations -- for yourself and your family, today and in the future.
The potential presence of inflation and price swings in the markets
reinforces the importance of working with an advisor, staying focused on the
long term and adhering to your financial plan. With a sound plan in place, you
may be better positioned to weather the markets' ups and downs.
Looking Ahead The following interviews with the portfolio management teams of
the Nuveen Innovation and Nuveen International Growth funds are intended to give
you a review of your fund's performance during its fiscal period, as well as an
overview of the economic environment in which it operated.
ANNUAL REPORT page 1
<PAGE>
I'd like to share a few words looking ahead. Looking to the latter part
of 2000, we anticipate continued investor uncertainty in the wake of recent
market volatility. The challenge for Nuveen Investments is to help financial
advisors work with you to re-balance portfolios with your greater family wealth
management goals in mind.
We are poised to help you reach your goals with equity and fixed-income
investments that are designed to provide high quality and consistent growth. We
plan to continue to enhance and diversify the investment choices we offer.
For more information on any Nuveen investment, including a prospectus,
contact your financial advisor. Or call Nuveen at (800) 621-7227 or visit our
Internet site at www.nuveen.com. Please read the prospectus carefully before you
invest or send money.
Thank you for your continued confidence.
Sincerely,
[SIGNATURE OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
September 18, 2000
ANNUAL REPORT page 2
<PAGE>
NUVEEN INNOVATION FUND
From the Portfolio Manager's Perspective
--------------------------------------------------------------------------------
Nuveen Innovation Fund features portfolio management by Columbus Circle
Investors (CCI), an institutional management firm with more than $6 billion in
assets under management. For more than 25 years, CCI has sought to produce
excellent investment results using a single, disciplined investment process for
all asset classes. To help you understand the fund's performance during the
fiscal period ended July 31, 2000, we spoke with Parke Logan, co-portfolio
manager of the fund and managing director of CCI, the subadvisor of the fund.
Q We'll start with a performance recap: from the fund's actual inception on
December 20, 1999, its total return as of the end of its first fiscal period --
July 31, 2000 -- was 16.30%.
For comparison purposes, we will measure the fund's performance in the
period from December 31, 1999 to July 31, 2000, during which it returned 7.88%.
The Lipper Science and Technology Funds Index returned 3.16%/1/ in that period,
and the S&P 500 Index returned -1.98%./2/
At the fund's inception, the stock market was riding high, and
technology stocks were on top. The new millenium began in much the same manner,
with stocks climbing relentlessly. But as spring began, that feverish investor
optimism waned as the markets corrected. For the first time in a while, both
the so-called "new economy" and "old economy" stocks followed similar paths --
downward. What happened to cause such a dramatic turnaround?
A Despite the seemingly endless gains to be had in the stock market in 1999
and the beginning of 2000, investor sentiment was probably on shaky ground. The
Federal Reserve's interest rate hikes over the last year didn't seem to be
having the intended effect of slowing down the overheated economy. As more
positive economic news came, the more people realized the rate hikes probably
would not cease and that continued rate hikes would cause company stock
valuations to suffer. That was enough to get the ball rolling downhill.
This reality check hit the technology world particularly hard, where
many high-flying start-ups with zero profits had reaped enormous gains in stock
prices. Investors may have suddenly realized that those gains perhaps were
simply a result of a "bandwagon" effect, and that company fundamentals do
matter. The Nasdaq Composite Index fell into bear market territory./3/
The market rebounded in June, though, as economic reports showing
evidence of a slowing economy caused investors to hope the Fed would end its
year-long strategy of interest rate hikes.
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within their
specific areas of expertise. This select group of asset management firms direct
the investment activities of the Nuveen Mutual Funds, and Nuveen has chosen
them for their rigorously disciplined investment approaches and their consistent
long-term performance.
Drawing on decades of experience and specialized knowledge, these skilled asset
managers have earned reputations for excellence in their fields of expertise,
whether it is blue-chip growth stocks, large-cap value stocks, bonds or
international securities.
Nuveen's advisor for growth investing, Columbus Circle Investors (CCI), is an
institutional investment management firm with approximately $6 billion in
assets under management. For more than 25 years, CCI has sought to produce
excellent investment results using a single, disciplined investment process for
all asset classes.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the period from the fund's inception, December 20, 1999, through July 31,
2000. The views expressed reflect those of the portfolio management team and are
subject to change at any time, based on market and other conditions.
/1/ The Lipper Science & Technology Funds Index is a managed index representing
the average annualized total returns of the 30 largest funds in the Lipper
Science & Technology Funds category. An index is not available for direct
investment.
/2/ The S&P 500 Index is an unmanaged index comprising 500 stocks generally
considered representative of the U.S. stock market. The returns assume
reinvestment of dividends and do not reflect any applicable sales charges.
An index is not available for direct investment.
/3/ The Nasdaq Composite Index is an unmanaged index that measures the more
than 5,000 companies listed on the Nasdaq Stock Market Inc. An index is
not available for direct investment.
ANNUAL REPORT page 3
<PAGE>
"The objective of the fund is to seek out what we term the 'innovators' --
companies that use innovative technologies to gain a competitive advantage in
their industries, whatever they may be."
Q So, do you think price levels in technology stocks are more reasonable as a
result of the 2000 bear market?
A Price levels definitely fell, but we're not concerned with prices when we're
looking at companies. We look at changes in fundamentals, because we believe
that the fundamentals lead the prices. Our goal is to find companies showing
positive momentum and positive surprise. That is, companies with strengthening
growth that repeatedly have exceeded investors' earnings expectations. We
believe these types of companies generally will have rising stock prices.
Q How is "positive momentum and positive surprise" different from other styles
of investing?
A Basically, this style is unique in that we focus on change. I mentioned
looking for positive changes, but it works the other way too: if a company
surprises the market with news of deteriorating fundamentals, we try to avoid
it. Current stock price is based on historical results and current expectations.
Stock prices change when earnings results differ from consensus expectations, or
when the expectations themselves change. Those are the factors we look for.
Q Did you adjust your portfolio strategy as the market began to fall?
A As the market fell in March and April, we eliminated positions in companies
with short track records that traded at high prices compared to earnings. Then
we focused on the highest quality and most established firms. Although these
more established firms showed less true positive momentum and surprise, they
also traded at much more reasonable prices and were highly recognized for their
past success. We believed investors would be more likely to return to leaders
like Cisco and Oracle than to the newer companies.
It's not that we abandoned positive momentum and surprise during that
period. We were just careful that any less-established holdings in the portfolio
were showing such compelling momentum and surprise that investors would not
ignore their accomplishments, in our opinion.
Q Are the best days for technology stocks over, in your opinion?
A Technology in our world should continue to improve and proliferate. But it is
important to remember that the fund has a much broader focus than on "typical"
computer-related technology stocks. The objective of the fund is to seek out
what we term the "innovators" -- companies that use innovative technologies to
gain a competitive advantage in their industries, whatever they may be. These
types of companies aren't what you'd think of as typical tech companies, and
they definitely helped cushion the portfolio against the losses seen in the
Nasdaq in the second quarter of 2000. We think investing in a mix of tech
companies and innovators will remain a very viable way to invest in continuing
technological advances.
ANNUAL REPORT page 4
<PAGE>
NUVEEN INNOVATION FUND
Sector Diversification
[PIE CHART APPEARS HERE]
Technology..... 82.4%
Utilities...... 7.4%
Healthcare..... 6.5%
Consumer
Cyclicals...... 1.6%
Energy......... 2.1%
Portfolio composition is as of July 31, 2000, and is subject to change.
Composition is based on the fund's stock holdings. Over time, the fund's
holdings and their percentages will vary.
See Industry Diversification chart on page 6 for a further breakdown of the
fund's technology holdings.
Q Can you give some examples of these "innovators" that helped boost the
fund's returns during the technology rout?
A Calpine Corp. is a great example. Calpine is a non-traditional power
generation company that dominates the efficient natural gas-fired power
generation segment of the energy industry. It continued to surprise investors
with better-than expected results, driven by its acquisition and expansion
strategies that have helped the company grow its earnings. We have been rewarded
by these improving results with higher stock prices.
One innovator in biotechnology also did well over the period: a company
called Affymetrix. Affymetrix developed the GeneChip system, which is used for
gathering, analyzing and managing complex genetic information to make better
diagnoses and treatments of disease. Its customers include pharmaceutical and
biotech companies who will use their product to analyze DNA data.
Abgenix, another biotech-oriented firm that focuses on genomics, also
did extremely well.
Q Were there any "traditional" technology holdings that actually performed
well in this period?
A BEA Systems is a software developer that performed well and has continually
surprised investors with positive earnings news. BEA has quickly become the
leader in business-to-business and Internet infrastructure systems and
applications. It has a core franchise as the leader in middleware, which is
software that connects different systems.
Siebel Systems is software developer of client relationship management
packages. Relationship management has been a priority with companies in many
industries, and we believe software systems catering to that should continue to
positively surprise.
A third example is CIENA Corporation, which provides long-distance
fiberoptic telecommunications networks. Its system is designed to alleviate
capacity constraints, and the company has supply contracts with Sprint and
Worldcom.
NUVEEN INNOVATION FUND
Top Ten Stock Holdings
Calpine Corporation 4.7%
CIENA Corporation 3.5%
Siebel Systems, Inc. 3.5%
i2 Technologies Inc. 3.5%
Check Point Software Technologies Ltd. 3.4%
JDS Uniphase Corporation 3.3%
Applied Micro Circuits Corporation 3.2%
Oracle Corporation 3.1%
BEA Systems, Inc. 3.0%
Nortel Networks Corporation 2.9%
The companies listed represent their respective percentages of stock holdings as
of July 31, 2000. Over time, the fund's holdings and their percentages will
vary.
"BEA Systems is a software developer that performed well and has continually
surprised investors with positive earnings news."
ANNUAL REPORT page 5
<PAGE>
"We will continue to track the changes in the industry and in the markets, and,
regardless of interest rates, plan to stick to our strategy of seeking fast-
growing companies that exceed market expectations."
Q You followed a set of interesting themes. What were some of those themes?
A One of our technological themes has been bandwidth, a cheaper and faster way
to improve the "throughput" or information-carrying capacity on any given line
in a network. There is not enough bandwidth available and demand has been
increasing and insatiable.
Client relationship management software was an important theme, as was
business-to-business Internet applications. It has been a great time for the
semiconductor industry too, as it builds on its cyclical recovery.
The wireless theme was strong through the first quarter, but the
cellular phone industry has begun a product transition from second-generation
digital networks to wireless Internet. Since it takes a certain period of time
for these transitions to play out, product capability began to lag, so people
buying new phones have been limited for the most part to the lower-priced -- and
lower-profit margin -- second-generation products. Although the market has seen
disappointing results from companies like Nokia and Ericsson, we believe that
wireless will come back again as capability catches up.
NUVEEN INNOVATION FUND
Industry Diversification (Top 5)
Computer Software & Services 31.8%
----------------------------------------
Communication Equipment 10.1%
----------------------------------------
Computer Networking 8.9%
----------------------------------------
Electronics Semiconductors 8.3%
----------------------------------------
Electronic Companies 7.4%
----------------------------------------
The Industries listed represent their respective percentages of stock holdings
as of July 31, 2000. Over time, the fund's holdings and their percentages will
vary.
Q What is your outlook for the fund going into its next fiscal year?
A As I said, technology and innovation are trends that are not going away
anytime soon. Obviously, we will be watching closely to see what the Fed's next
moves are, because more interest rate increases could mean more market
volatility. We don't predict the future, but we do follow market sentiment and
expectations very closely, and act on changes. (Editor's note: the Fed kept
rates unchanged at its August 22, 2000, meeting).
We will continue to track the changes in the industry and in the
markets, and, regardless of interest rates, plan to stick to our strategy of
seeking fast-growing companies that exceed market expectations.
Annual Report page 6
<PAGE>
NUVEEN INNOVATION FUND
Fund Spotlight as of July 31, 2000
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $23.27 $23.15 $23.17 $23.29
----------------------------------------------------------------------------
Fund Symbol N/A NIFBX NIFCX N/A
----------------------------------------------------------------------------
CUSIP 67065W886 67065W878 67065W860 67065W852
----------------------------------------------------------------------------
Inception Date 12/99 12/99 12/99 12/99
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total Returns as of 7/31/00/1/
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV w/CDSC NAV
YTD* 7.88% 1.66% 7.38% 2.38% 7.42% 6.42% 8.02%
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Since Inception* 16.30% 9.61% 15.70% 10.70% 15.80% 14.80% 16.45%
--------------------------------------------------------------------------------
Total Returns as of 6/30/00/1/
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV w/CDSC NAV
YTD* 12.06% 5.59% 11.60% 6.60% 11.64% 10.64% 12.15%
--------------------------------------------------------------------------------
Since Inception* 20.80% 13.87% 20.25% 15.25% 20.35% 19.35% 20.90%
--------------------------------------------------------------------------------
</TABLE>
+ Returns reflect differences in sales charges and expenses among the share
classes. Class A shares have a 5.75% maximum sales charge. Class B shares have
a CDSC that begins at 5% for redemptions during the first year after purchase
and declines periodically to 0% over the following six years. Class B shares
convert to Class A shares after eight years. Class C shares have a 1% CDSC for
redemptions within one year.
* Cumulative
Index Comparison
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
LIPPER SCIENCE
NUVEEN INNOVATION NUVEEN INNOVATION STANDARD AND POOR'S AND TECHNOLOGY FUND
FUND (NAV) FUND (OFFER) 500 INDEX INDEX
<S> <C> <C> <C> <C>
12/1999 10,000 9,425 10,000 10,000
7/2000 10,789 10,169 9,803 10,317
</TABLE>
----- Nuveen Innovation Fund (NAV) $10,789
----- Nuveen Innovation Fund (Offer) $10,169
----- Standard and Poor's 500 Index $9,803
----- Lipper Science & Technology Fund Index $10,317
. The Index Comparison shows the change in value of a $10,000 investment in the
Class A shares of the Nuveen fund, adjusted for the maximum sales charge
(5.75%) and all ongoing fund expenses. It also shows the Nuveen fund at NAV.
Both are compared to the Standard and Poor's Index and the Lipper Science &
Technology Fund Index, which do not reflect any initial or ongoing expenses.
An index is not available for direct investment.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
Portfolio Allocation
[PIE CHART APPEARS HERE]
Equity....100%
. The fund is actively managed, and its holdings, diversification and allocation
will vary over time.
<TABLE>
<CAPTION>
Portfolio Statistics
<S> <C>
Total Net Assets $100.1 million
--------------------------------------------
Beta 1.21
--------------------------------------------
Average Market
Capitalization (Stocks) $48 billion
--------------------------------------------
Number of Stocks 43
--------------------------------------------
Turnover Rate (for reporting period) 117%
--------------------------------------------
Expense Ratio* 1.86%
--------------------------------------------
</TABLE>
* Class A shares after credit/reimbursement
Terms To Know
The following are a few terms used throughout this report.
Beta is a measure of a fund's volatility compared to the market's. A fund with a
beta of 1.20 is approximately 20% more volatile than the market, while a fund
with a beta of 0.80 is approximately 20% less volatile than the market.
Market Capitalization Also referred to as market cap, market capitalization is a
measure of a corporation's value, calculated by multiplying the number of
outstanding shares of common stock by the current market price per share. Market
capitalization is usually grouped in these main categories:
Large cap: over $5 billion in market capitalization
Mid cap: between $1 billion and $5 billion
Small cap: $1 billion or less
Price/Earnings Ratio (P/E) The P/E ratio of a stock is calculated by dividing
the current price of the stock by its trailing 12 months' earnings per share. A
high P/E generally indicates that the market will pay more to obtain the
company's stock because investors have confidence in the company's ability to
increase its earnings over time. Conversely, a low P/E indicates that investors
are less confident that the company's earnings will increase, and therefore are
not willing to pay as much for its stock. The weighted average of the
price/earnings ratios of the stocks in a mutual fund's portfolio can act as a
gauge of the fund's investment strategy in the current market climate by
indicating a value orientation (low P/E ratios) or a growth orientation (high
P/E ratios).
Total Return is a measure of a fund's performance that takes into account income
dividends, capital gains distribution and change in net asset value.
Annual Report page 7
<PAGE>
NUVEEN INTERNATIONAL GROWTH FUND
From the Portfolio Manager's Perspective
--------------------------------------------------------------------------------
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within their
specific areas of expertise. This select group of asset management firms direct
the investment activities of the Nuveen Mutual Funds, and Nuveen has chosen
them for their rigorously disciplined investment approaches and their consistent
long-term performance.
Drawing on decades of experience and specialized knowledge, these skilled asset
managers have earned reputations for excellence in their fields of expertise,
whether it is blue-chip growth stocks, large-cap value stocks, bonds or
international securities.
Nuveen's advisor for growth investing, Columbus Circle Investors (CCI), is an
institutional investment management firm with approximately $6 billion in
assets under management. For more than 25 years, CCI has sought to produce
excellent investment results using a single, disciplined investment process for
all asset classes.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the period from the fund's inception, December 20, 1999, through July 31,
2000. The views expressed reflect those of the portfolio management team and are
subject to change at any time, based on market and other conditions.
*The Lipper International Funds Index is a managed index representing the
average annualized total returns of the 30 largest funds in the Lipper
International Funds category. The Morgan Stanley All Country World Index ex-USA
is an unmanaged index comprised of a capitalization-weighted sampling of the
companies listed on the stock exchanges of 14 European countries. The returns
assume reinvestment of dividends and do not reflect any applicable sales
charges. Indices are not available for direct investment.
The fund's investments in foreign stocks present additional risks, including
currency risk. In addition, investing in securities of developing countries
involves risks greater than, or in addition to, investing in foreign developed
countries.
Performance for very short periods of time should not be the sole factor in your
investment decision.
Nuveen International Growth Fund features portfolio management by Columbus
Circle Investors (CCI), an institutional management firm with more than $6
billion in assets under management. For more than 25 years, CCI has sought to
produce excellent investment results using a single, disciplined investment
process for all asset classes. To help you understand the fund's performance
during its first fiscal period ended July 31, 2000, we spoke with Matthew
Goldsmith, co-portfolio manager of the fund and managing director of CCI, the
subadvisor of the fund.
Q It was certainly an interesting period in history for the fund's debut at the
end of 1999. Can you describe the worldwide financial market environment?
A The fund opened in December 1999 amid explosive performance in the equity
markets worldwide, led by technology stocks which seemed to know no limits. But
the U.S. Federal Reserve's series of interest rate increases resumed in January,
and within two months market volatility not seen in years set in around the
world as investors feared the rate hikes would begin to hurt corporate profits.
"Old economy" and "new economy" stocks alike were dragged down.
The world will have to wait to see whether the Fed and other central banks'
interest rate hikes have had their intended effect of slowing the economy. If
not, more hikes may be in store and, most likely, more volatility. Despite all
this, the fund met its objectives.
Q Let's talk about the fund's performance. Remarkable performance in the first
11 days of the fund's life boosted the fund's actual since-inception total
return (from December 20, 1999) to 14.65%. For comparison purposes, we will
measure performance in the period from December 31, 1999 to July 31, 2000,
during which it returned 4.75% against its benchmarks: the Lipper International
Funds Index, which returned -7.22%, and the Morgan Stanley All Country World
Index ex-USA, which returned -6.89%*. How do you explain the fund's
outperformance over its benchmarks given its overweighting in technology?
A Technology was still important, in fact it was one of the most important
themes that we followed -- we were just very selective about what kinds of
technology companies we chose for the fund. The difference was we focused on
what we believed were quality stocks whose positive reports had been
consistent. We are not willing to commit to the lower-tier, unproven names.
One example of a high-quality technology company included
STMicroelectronics, a French producer of semiconductor integrated circuits and
devices. The semiconductor industry has been enjoying a strong rebound, and
although it originated in the U.S., our approach allowed us to pick up on it in
other regions of the world that house promising companies in this sector.
ANNUAL REPORT page 8
<PAGE>
Another example was Check Point Software Technologies, an Israeli company
specializing in Internet firewalls -- or protection of company systems from
intruders -- and virtual private networks. Check Point is an example of a
company that has benefited from the explosive growth of the Internet, and of the
security that companies need when their resources are at stake.
The fund was basically positioned more defensively than usual, though, in
response to the turbulent markets.
NUVEEN INTERNATIONAL GROWTH FUND
Top Ten Stock Holdings
Anritsu Corporation 3.3%
--------------------------------------------
Nortel Networks Corporation 3.3%
--------------------------------------------
Alcatel 3.2%
--------------------------------------------
Schering AG 2.8%
--------------------------------------------
Thomson Multimedia Sponsored ADR 2.7%
--------------------------------------------
Vestas Wind Systems A/S 2.7%
--------------------------------------------
ARM Holdings plc 2.6%
--------------------------------------------
Heineken NV 2.6%
--------------------------------------------
William Demant A/S 2.6%
--------------------------------------------
Tecan AG 2.6%
--------------------------------------------
The companies listed represent their respective percentages of stock holdings as
of July 31, 2000. Over time, the fund's holdings and their percentages will
vary. The fund's investments in foreign stocks present additional risks,
including currency risk. In addition, investing in securities of developing
countries involves risks greater than, or in addition to, investing in foreign
developed countries.
Q What do you mean by "defensive?"
A It was actually the natural result of our positive momentum/positive surprise
approach, not a conscious change in strategy to "defensive." Again, because of
our approach, we were able to single out holdings in sectors that we believed
were more likely to hold up very well amid the turmoil due to the "positively"
surprising nature of the fundamentals.
NUVEEN INTERNATIONAL GROWTH FUND
Sector Diversification
[PIE CHART APPEARS HERE]
Technology..............38.8%
Capital Goods...........18.0%
Healthcare..............14.4%
Consumer Staples.........9.3%
Consumer Cyclicals.......6.8%
Transportation...........5.8%
Energy...................3.6%
Financials...............2.0%
Utilities................1.3%
Portfolio composition is as of July 31, 2000, and is subject to change.
Composition is based on the fund's stock holdings.
Examples of defensive holdings that our research turned up include healthcare
stocks -- which so far have made a strong comeback in 2000 -- such as Takeda,
Schering and SmithKline Beecham, and energy stocks such as Total Fina Elf.
(SmithKline Beecham and Total Fina Elf were sold out of the portfolio before
the end of the period.) Precision Drilling Corporation of Canada was an example
of an old economy stock that performed very well. Precision provides oil field
and industrial services in the U.S. and Canada, and has benefitted from the
industrial supply/demand imbalance stemming from the lack of investment in gas
fields over the last couple of years.
Q How is the "positive momentum and positive surprise" approach different from
other styles of investing?
A In our discipline, we try to invest in good companies believed to be getting
stronger, exhibited by improving fundamentals and positively surprising results.
We believe companies with these attributes are usually accompanied by
consistently rising stock prices. We don't just look at "cheap" stocks and wait
for prices to rise.
"Because of our approach, we were able to single out holdings in sectors that we
believed were more likely to hold up very well amid the turmoil due to the
`positively' surprising nature of the fundamentals."
ANNUAL REPORT page 9
<PAGE>
"In our discipline, we try to invest in good companies believed to be getting
stronger, exhibited by improving fundamentals and positively surprising results.
. . . We don't just look at `cheap' stocks and wait for prices to rise."
Current stock price is based on historical operating results and related
news, as well as consensus expectations for the company, industry and economy.
Changes in stock price can occur for one of two reasons: earnings results are
different from consensus expectations, or the expectations themselves change.
Change -- perceived and real change -- is a very important factor that we
look at when selecting stocks. That's true for the negative side as well as the
positive: if a company surprises the market with negative news, we try to avoid
it.
Q Let's talk about Europe, whose new currency passed the one-year mark in
January. The euro has mainly been newsworthy because of its weakness against the
dollar and yen. What does this mean for those who invest in Europe?
A The euro has been weak mainly as a result of the strength of the dollar and
yen. The irony is we should start seeing stronger earnings from European
companies as the weak euro makes their products more competitive abroad. Short
term, it may increase inflation expectations and may cause central banks to
raise rates to reduce inflation, which may slow down the economy. But the
European economy is fundamentally strong, and we believe the weak euro is a
temporary condition and nothing to be alarmed about in the long-term.
Q What is your outlook for the world's financial markets in the coming months?
A Worldwide interest rates will be a big determinant of what the markets will
do, and rates will be a key factor we'll be watching closely. Our job is to
track expectations as they change. How the world's central banks choose to react
to unfolding economic news will have an effect on corporate profits.
One area we'll be paying close attention to is the Japanese economy,
because of its tremendous impact on Asian markets. Japan has convinced the world
that their economy has improved -- they just haven't convinced their own
residents. Consumer spending, which is absolutely essential to Japan's economic
recovery, has not dramatically improved.
In the technology arena, many wonder if the turbulence recently indicates
that the best days are over. But we believe technology and technology spending
are still extremely important. Tech companies are a big part of the market, and
companies in all industries are using technology more than ever.
Going forward, we are very optimistic about our technology themes such as
broadband and wireless data. In healthcare, we see technological improvement
becoming more important with the growth of genomics and the rapidity with which
new, more powerful drugs are brought to market.
ANNUAL REPORT page 10
<PAGE>
NUVEEN INTERNATIONAL GROWTH FUND
Fund Spotlight as of July 31, 2000
Quick Facts
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $22.93 $22.82 $22.82 $22.96
-------------------------------------------------------------------------------
Fund Symbol N/A N/A N/A N/A
-------------------------------------------------------------------------------
CUSIP 67065W506 67065W605 67065W704 67065W803
-------------------------------------------------------------------------------
Inception Date 12/99 12/99 12/99 12/99
-------------------------------------------------------------------------------
</TABLE>
Total Returns as of 7/31/00/+/
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV w/CDSC NAV
<S> <C> <C> <C> <C> <C> <C> <C>
YTD* 4.75% -1.29% 4.30% -0.70% 4.30% 3.30% 4.89%
-------------------------------------------------------------------------------
Since Inception* 14.65% 8.06% 14.10% 9.10% 14.10% 13.10% 14.80%
Total Returns as of 6/30/00/+/
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV w/CDSC NAV
YTD* 6.62% 0.47% 6.22% 1.22% 6.22% 5.22% 6.76%
--------------------------------------------------------------------------------
Since Inception* 16.70% 10.01% 16.20% 11.20% 16.20% 15.20% 16.85%
</TABLE>
+ Returns reflect differences in sales charges and expenses among the share
classes. Class A shares have a 5.75% maximum sales charge. Class B shares
have a CDSC that begins at 5% for redemptions during the first year after
purchase and declines periodically to 0% over the following six years. Class B
shares convert to Class A shares after eight years. Class C shares have a 1%
CDSC for redemptions within one year.
* Cumulative
Portfolio Statistics
<TABLE>
<CAPTION>
<S> <C>
Total Net Assets $38.3 million
------------------------------------------------
Beta 1.29
------------------------------------------------
Average Market
Capitalization (Stocks) $28 billion
------------------------------------------------
Number of Stocks 56
------------------------------------------------
Turnover Rate (for reporting period) 111%
------------------------------------------------
Expense Ratio* 1.83%
------------------------------------------------
</TABLE>
* Class A shares after credit/reimbursement
Index Comparison.
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
NUVEEN INTERNATIONAL NUVEEN INTERNATIONAL MSCI ALL COUNTRY LIPPER INTERNATIONAL
GROWTH FUND (OFFER) GROWTH FUND (NAV) WORLD INDEX EX-USA FUND INDEX
<S> <C> <C> <C> <C>
12/1999 9,425 10,000 10,000 10,000
7/2000 9,874 10,476 9,312 9,279
</TABLE>
---Nuveen International Growth Fund (Offer) $9,874
---Nuveen International Growth Fund (NAV) $10,476
---MSCI All Country World Index ex-USA $9,312
---Lipper International Fund Index $9,279
. The Index Comparison shows the change in value of a $10,000 investment in the
Class A shares of the Nuveen fund, adjusted for the maximum sales charge
(5.75%) and all ongoing fund expenses. It also shows the Nuveen fund at NAV.
Both are compared to the Lipper International Fund Index and the MSCI All
Country World Index ex-USA, which do not reflect any initial or ongoing
expenses. An index is not available for direct investment.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
Portfolio Allocation.
[PIE CHART APPEARS HERE]
Equity......100%
. The fund is actively managed, and its holdings, diversification and allocation
will vary over time.
Country Allocation (Top 10)*
Japan 16.7%
----------------------------
United Kingdom 15.2%
----------------------------
France 13.6%
----------------------------
Germany 8.2%
----------------------------
Canada 6.9%
----------------------------
Denmark 6.5%
----------------------------
Norway 4.5%
----------------------------
Israel 4.0%
----------------------------
Hong Kong 4.0%
----------------------------
Sweden 3.3%
----------------------------
*As a percentage of stock holdings as of July 31, 2000. Holdings are subject to
change.
The fund's investments in foreign stocks present additional risks including
currency risk. In addition, investing in securities of developing countries
involves risks greater than, or in addition to, investing in foreign developed
countries.
Terms To Know
The following are a few terms used throughout this report.
Beta is a measure of a fund's volatility compared to the market's. A fund with a
beta of 1.20 is approximately 20% more volatile than the market, while a fund
with a beta of 0.80 is approximately 20% less volatile than the market.
Market Capitalization Also referred to as market cap, market capitalization is
a measure of a corporation's value, calculated by multiplying the number of
outstanding shares of common stock by the current market price per share. Market
capitalization is usually grouped in these main categories:
Large cap: over $5 billion in market capitalization
Mid cap: between $1 billion and $5 billion
Small cap: $1 billion or less
Price/Earnings Ratio (P/E) The P/E ratio of a stock is calculated by dividing
the current price of the stock by its trailing 12 months' earnings per share. A
high P/E generally indicates that the market will pay more to obtain the
company's stock because investors have confidence in the company's ability to
increase its earnings over time. Conversely, a low P/E indicates that investors
are less confident that the company's earnings will increase, and therefore are
not willing to pay as much for its stock. The weighted average of the
price/earnings ratios of the stocks in a mutual fund's portfolio can act as a
gauge of the fund's investment strategy in the current market climate by
indicating a value orientation (low P/E ratios) or a growth orientation (high
P/E ratios).
Total Return is a measure of a fund's performance that takes into account income
dividends, capital gains distribution and change in net asset value.
ANNUAL REPORT page 11
<PAGE>
Portfolio of Investments
Nuveen Innovation Fund
July 31, 2000
<TABLE>
<CAPTION>
Market
Shares Description Value
--------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 89.8%
Consumer Cyclicals - 1.4%
23,400 Gemstar-TV Guide International, Inc. # $ 1,423,013
--------------------------------------------------------------------------------
Energy - 1.9%
27,200 Dynegy Inc. 1,914,200
--------------------------------------------------------------------------------
Healthcare - 5.8%
38,000 Abgenix, Inc. # 1,904,750
13,975 Affymetrix, Inc. # 1,908,243
30,500 First Health Group Corp. # 934,063
10,700 United Therapeutics Corporation # 1,048,600
--------------------------------------------------------------------------------
Technology - 74.1%
18,500 Altera Corporation # 1,816,469
21,000 Amdocs Limited # 1,410,938
24,550 Analog Devices, Inc. # 1,641,781
24,700 Applied Materials, Inc. # 1,874,113
19,000 Applied Micro Circuits Corporation # 2,835,750
21,875 Ariba, Inc. # 2,536,133
61,800 BEA Systems, Inc. # 2,661,263
10,000 Broadcom Corporation # 2,242,500
27,950 Business Objects S.A. Sponsored ADR # 2,641,275
26,600 Check Point Software Technologies Ltd. # 3,085,600
22,325 CIENA Corporation # 3,172,941
36,050 Cisco Systems, Inc. # 2,359,022
29,500 Commerce One, Inc. # 1,240,844
78,700 Compaq Computer Corporation 2,208,519
19,700 Copper Mountain Networks, Inc. # 1,553,530
10,575 Cree, Inc. # 1,189,027
59,650 Dynatech Corporation # 1,700,025
12,425 Extreme Networks, Inc. # 1,735,035
24,130 i2 Technologies, Inc. # 3,130,868
24,900 JDS Uniphase Corporation # 2,941,313
36,000 KLA-Tencor Corporation # 1,917,000
13,250 Mercury Interactive Corporation # 1,315,270
12,750 Micromuse Inc. # 1,654,113
23,400 Network Appliance, Inc. # 2,016,788
35,550 Nortel Networks Corporation 2,644,031
37,525 Oracle Corporation # 2,821,411
56,550 Palm, Inc. # 2,205,450
32,525 Portal Software, Inc. # 1,637,939
14,550 Redback Networks Inc. # 1,891,500
21,850 Siebel Systems, Inc. # 3,168,250
21,300 Sun Microsystems, Inc. # 2,245,819
26,450 Teradyne, Inc. # 1,676,269
34,725 Vitria Technology, Inc. # 1,640,756
18,575 Waters Corporation # 2,203,459
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Description Value
--------------------------------------------------------------------------------
<C> <S> <C>
Technology (continued)
8,200 Yahoo! Inc. # $ 1,055,238
--------------------------------------------------------------------------------
Utilities - 6.6%
45,425 The AES Corporation # 2,427,392
59,200 Calpine Corporation # 4,218,000
--------------------------------------------------------------------------------
Total Investments (cost $80,251,066) - 89.8% 89,848,500
------------------------------------------------------------------
Other Assets Less Liabilities - 10.2% 10,204,882
------------------------------------------------------------------
Net Assets - 100% $ 100,053,382
==================================================================
</TABLE>
# Non-income producing.
13 See accompanying notes to financial statements.
<PAGE>
Portfolio of Investments
Nuveen International Growth Fund
July 31, 2000
<TABLE>
<CAPTION>
Market
Shares Description Value
------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 89.1%
Capital Goods - 16.1%
38,000 Asahi Glass Company, Limited $364,118
29,000 Assa Abloy AB 550,207
49 CRH plc 831
126,000 ERG Limited 703,275
62,000 Johnson Electric Holdings Limited 602,231
67,000 Nippon Sheet Glass Company, Limited 855,995
12,000 Singulus Technologies AG 766,672
17,100 Skanska AB 566,824
31,000 Tomra Systems ASA 815,467
21,300 Vestas Wind Systems A/S 926,375
-----------------------------------------------------------------------
Consumer Cyclicals - 6.0%
14,000 Pioneer Corporation 459,938
55,000 Sanyo Electric Co., Ltd. 405,046
14,000 Thomson Multimedia Sponsored ADR # 930,125
7,500 WPP Group plc Sponsored ADR 517,500
-----------------------------------------------------------------------
Consumer Staples - 8.3%
3,800 Groupe Danone 570,769
15,600 Heineken NV 891,875
23,000 Kirin Beverage Corporation 548,868
22,100 Mediaset S.p.A. 349,149
10,000 Promotora de Informaciones S.A. # 228,408
8,100 Societe Television Francaise 1 601,940
-----------------------------------------------------------------------
Energy - 3.2%
10,000 Alberta Energy Company Ltd. 361,758
25,200 Precision Drilling Corporation # 859,950
-----------------------------------------------------------------------
Financials - 1.8%
41,000 Bipop-Carire S.p.A. 333,179
29,000 DBS Group Holdings Limited 349,539
-----------------------------------------------------------------------
Healthcare - 12.9%
8,900 Aventis S.A. (DD) 669,169
18,000 Chugai Pharmaceutical Co., Ltd. 327,377
15,000 deCode Genetics, Inc. # 385,313
2,050 Novo Nordisk A/S 399,683
16,500 Schering AG 961,676
7,000 Takeda Chemical Industries, Ltd. 415,222
850 Tecan AG 881,523
25,500 William Demant A/S 884,064
-----------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Description Value
-------------------------------------------------------------------------
<C> <S> <C>
Technology - 34.4%
15,000 Alcatel $ 1,106,365
56,000 Anritsu Corporation 1,121,738
79,200 ARM Holdings plc # 897,345
6,000 AudioCodes Ltd. # 594,000
80,000 Baltimore Technologies plc # 763,229
11,800 Bookham Technology plc Sponsored ADR # 740,450
6,600 Check Point Software Technologies Ltd. # 765,600
90,000 China Unicom Limited # 209,463
16,000 China Unicom Limited Sponsored ADR # 377,000
82,168 Datacraft Asia Limited 612,152
20,800 Jenoptik AG 549,291
28,400 Logica plc 735,851
1 Macronix International Co., Ltd. Sponsored ADR # 13
44,800 Marconi plc (DD) 715,904
28,000 NEC Corporation 746,122
1 Net One Systems Co., Ltd. 10,723
13,180 Nokia Oyj Sponsored ADR 584,039
15,000 Nortel Networks Corporation 1,115,625
107,100 Spirent plc 799,212
13,500 STMicroelectronics N.V. 768,656
-------------------------------------------------------------------------
Transportation - 5.2%
360,000 Cathay Pacific Airways 757,068
20,500 Deutsche Lufthansa AG 506,607
57,500 Frontline Limited # 717,330
-------------------------------------------------------------------------
Utilities - 1.2%
18 NTT DeCoMo, Inc. # 451,720
-------------------------------------------------------------------------
Total Investments (cost $31,535,441) - 89.1% 34,129,569
----------------------------------------------------------------
Other Assets Less Liabilities - 10.9% 4,172,857
----------------------------------------------------------------
Net Assets - 100% $38,302,426
================================================================
Country Allocation (as a percentage of the fund's net assets)
----------------------------------------------------------------
Japan 15.0% Singapore 2.5%
----------------------------------------------------------------
United Kingdom 13.6 Netherlands 2.3
----------------------------------------------------------------
France 12.1 Switzerland 2.3
----------------------------------------------------------------
Germany 7.3 Australia 1.8
----------------------------------------------------------------
Canada 6.1 Italy 1.8
----------------------------------------------------------------
Denmark 5.8 China 1.5
----------------------------------------------------------------
Norway 4.0 Finland 1.5
----------------------------------------------------------------
Israel 3.5 Iceland 1.0
----------------------------------------------------------------
Hong Kong 3.5 Spain 0.6
----------------------------------------------------------------
Sweden 2.9
----------------------------------------------------------------
</TABLE>
# Non-income producing.
(DD) Security purchased on a delayed delivery basis.
See accompanying notes to financial statements.
15
<PAGE>
Statement of Net Assets
July 31, 2000
<TABLE>
<CAPTION>
International
Innovation Growth
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment securities, at market value
(cost $80,251,066 and $31,535,441, respectively) $ 89,848,500 $ 34,129,569
Cash 5,540,104 3,478,826
Receivables:
Dividends -- 13,414
Investments sold 6,761,328 475,297
Shares sold 796,477 1,706,848
Other assets 180 2,623
-----------------------------------------------------------------------------------------------
Total assets 102,946,589 39,806,577
-----------------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased 2,452,432 1,385,582
Net unrealized depreciation on unsettled foreign currency
forward contracts from transaction hedges -- 714
Shares redeemed 187,084 60,643
Accrued expenses:
Management fees 89,510 8,653
12b-1 distribution and service fees 70,636 12,892
Other liabilities 93,545 35,667
-----------------------------------------------------------------------------------------------
Total liabilities 2,893,207 1,504,151
-----------------------------------------------------------------------------------------------
Net assets $100,053,382 $38,302,426
===============================================================================================
Class A Shares
Net assets $ 22,837,927 $10,676,344
Shares outstanding 981,587 465,631
Net asset value and redemption price per share $ 23.27 $ 22.93
Offering price per share (net asset value per share plus
maximum sales charge of 5.75% of offering price) $ 24.69 $ 24.33
===============================================================================================
Class B Shares
Net assets $ 33,288,220 $ 6,435,408
Shares outstanding 1,438,109 281,969
Net asset value, offering and redemption price per share $ 23.15 $ 22.82
===============================================================================================
Class C Shares
Net assets $ 39,907,012 $ 6,925,300
Shares outstanding 1,722,673 303,451
Net asset value, offering and redemption price per share $ 23.17 $ 22.82
===============================================================================================
Class R Shares
Net assets $ 4,020,223 $14,265,374
Shares outstanding 172,608 621,217
Net asset value, offering and redemption price per share $ 23.29 $ 22.96
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
Statement of Operations
December 20, 1999 (commencement of operations) through July 31, 2000
<TABLE>
<CAPTION>
International
Innovation Growth
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Dividends (net of foreign tax expense of $0 and $12,128, respectively) $ 30,121 $ 111,394
-------------------------------------------------------------------------------------------------------
Expenses
Management fees 434,325 169,836
12b-1 service fees -- Class A 22,150 8,801
12b-1 distribution and service fees -- Class B 132,504 20,293
12b-1 distribution and service fees -- Class C 183,716 21,048
Shareholders' servicing agent fees and expenses 65,512 18,037
Custodian's fees and expenses 94,143 63,747
Trustees' fees and expenses 2,316 1,210
Professional fees 37,297 37,433
Shareholders' reports -- printing and mailing expenses 23,597 23,794
Federal and state registration fees 12,791 2,727
Organizational expenses 87,759 87,759
Other expenses 1,432 930
-------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 1,097,542 455,615
Custodian fee credit (13,046) (10,201)
Expense reimbursement (57,200) (157,005)
-------------------------------------------------------------------------------------------------------
Net expenses 1,027,296 288,409
-------------------------------------------------------------------------------------------------------
Net investment income (loss) (997,175) (177,015)
-------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss):
Investment transactions (14,271,235) (2,917,173)
Foreign currency transactions -- (82,006)
Net change in unrealized appreciation or depreciation of investments 9,597,434 2,594,128
Net change in unrealized gain (loss) on translation of assets and
liabilities denominated in foreign currencies -- (707)
-------------------------------------------------------------------------------------------------------
Net gain (loss) (4,673,801) (405,758)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $(5,670,976) $ (582,773)
=======================================================================================================
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
Statement of Changes in Net Assets
December 20, 1999 (commencement of operations) through July 31, 2000
<TABLE>
<CAPTION>
International
Innovation Growth
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income (loss) $ (997,175) $ (177,015)
Net realized gain (loss):
Investment transactions (14,271,235) (2,917,173)
Foreign currency transactions -- (82,006)
Net change in unrealized appreciation or depreciation of investments 9,597,434 2,594,128
Net change in unrealized gain (loss) on translation of assets and
liabilities denominated in foreign currencies -- (707)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (5,670,976) (582,773)
-------------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from sale of shares 121,319,755 44,607,727
Cost of shares redeemed (15,595,397) (5,722,528)
-------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 105,724,358 38,885,199
-------------------------------------------------------------------------------------------------------
Net increase in net assets 100,053,382 38,302,426
Net assets at the beginning of year -- --
-------------------------------------------------------------------------------------------------------
Net assets at the end of year $100,053,382 $38,302,426
=======================================================================================================
Balance of undistributed net investment income at the end of year $ -- $ --
=======================================================================================================
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Investment Trust II (the "Trust") is an open-end, diversified
management investment company registered under the Investment Company Act of
1940. The Trust comprises the Nuveen Innovation Fund ("Innovation") and the
Nuveen International Growth Fund ("International Growth") (collectively, the
"Funds"), among others. The Trust was organized as a Massachusetts business
trust in 1997.
The Innovation Fund will invest at least 65% of its total assets in stocks of
companies which utilize innovative technologies to gain a strategic competitive
advantage in their industry and in companies that develop, provide and service
those technologies in order to provide capital appreciation without
consideration for income.
The International Growth Fund primarily invests in common stocks of medium and
large capitalization companies domiciled in countries other than the United
States in order to provide long-term capital appreciation.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
accounting principles generally accepted in the United States.
Securities Valuation
Common stocks and other equity-type securities held by the Funds are valued at
the last sales price on the securities exchange on which such securities are
primarily traded; however, securities traded on a securities exchange for which
there are no transactions on a given day or securities not listed on a
securities exchange are valued at the most recent bid prices.
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 Funds have 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 July
31, 2000, the International Growth Fund had outstanding delayed delivery
purchase commitments of $1,385,582.
Investment Income
Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders
Net investment income and net realized capital gains from investment
transactions, if any, are declared and distributed to shareholders 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 accounting principles generally accepted in the United
States. 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.
19
<PAGE>
Notes to Financial Statements (continued)
Federal Income Taxes
Each 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
Each Fund offers Class A, B, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 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 eight years after purchase. Class C
Shares are sold without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1%
if Class C Shares are redeemed within one year of purchase. Class R Shares are
not subject to any sales charge or 12b-1 distribution or service fees. Class R
Shares are available only under limited circumstances.
Derivative Financial Instruments
The Funds may invest in options and futures contracts, which are sometimes
referred to as derivative transactions. Although the Funds are authorized to
invest in such financial instruments, and may do so in the future, they did not
make any such investments during the period December 20, 1999 (commencement of
operations) through July 31, 2000. The International Growth Fund has entered
into foreign currency forward contracts for hedging purposes as described in the
Foreign Currency Transactions paragraph below.
Expense Allocation
Expenses of the Funds 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.
Foreign Currency Translations
To the extent that the Funds invest in securities that are denominated in a
currency other than U.S. dollars, each Fund will be subject to currency risk,
which is the risk that an increase in the U.S. dollar relative to the foreign
currency will reduce returns or portfolio value. Generally, when the U.S. dollar
rises in value against a foreign currency, the Fund's investment in securities
denominated in that currency will lose value because its currency is worth fewer
U.S. dollars; the opposite effect occurs if U.S. dollars fall in relative value.
Investments and other assets and liabilities denominated in foreign currencies
are converted into U.S. dollars on a spot (i.e. cash) basis at the spot rate
prevailing in the foreign currency exchange market at the time of valuation.
Purchases and sales of investments and dividend income denominated in foreign
currencies are translated into U.S. dollars on the respective dates of such
transactions.
Foreign Currency Transactions
The Funds may engage in foreign currency exchange transactions in connection
with their portfolio investments and assets and liabilities denominated in
foreign currencies. Each Fund may engage in foreign currency forward contracts,
options and futures transactions. Each Fund will enter into foreign currency
transactions for hedging and other permissible risk management purposes only. If
the Fund invests in a currency futures or options contract, it must make a
margin deposit to secure performance of such contract. With respect to
investments in currency futures contracts, each Fund may also be required to
make a variation margin deposit because the value of futures contracts
fluctuates daily. In addition, each Fund may segregate assets to cover its
futures contracts obligations.
20
<PAGE>
The objective of each Fund's foreign currency hedging transactions is to reduce
the risk that the U.S. dollar value of the Fund's foreign currency denominated
securities and other assets and liabilities will decline in value due to changes
in foreign currency exchange rates. All foreign currency forward contracts,
options and futures transactions are "marked-to-market" daily at the applicable
market rates and any resulting unrealized gains or losses are recorded in the
Fund's financial statements. Each Fund records realized gains and losses at the
time the forward contract is offset by entering into a closing transaction or
extinguished by delivery of the currency. The contractual amounts of forward
foreign currency exchange contracts does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting transactions are
considered. As of July 31, 2000, the International Growth Fund had outstanding
foreign currency forward contracts as follows:
<TABLE>
<CAPTION>
Unrealized
U.S. Dollars Settlement Depreciation
Sold Foreign Currency Purchased Date at July 31, 2000
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 434,858 Japanese Yen (47,729,968) August 2000 $ 714
================================================================================
</TABLE>
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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>
Innovation International Growth
--------------------------- ---------------------------
12/20/99 (commencement of 12/20/99 (commencement of
operations) through 7/31/00 operations) through 7/31/00
--------------------------- ---------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,094,867 $ 28,031,334 688,138 $16,789,418
Class B 1,515,026 39,404,769 291,764 7,292,298
Class C 1,858,190 44,893,290 306,615 7,652,475
Class R 424,389 8,990,362 623,340 12,873,536
----------------------------------------------------------------------------------
4,892,472 121,319,755 1,909,857 44,607,727
----------------------------------------------------------------------------------
Shares redeemed:
Class A (113,280) (2,721,654) (222,507) (5,355,338)
Class B (76,917) (1,798,217) (9,795) (241,683)
Class C (135,517) (3,156,576) (3,164) (76,201)
Class R (251,781) (7,918,950) (2,123) (49,306)
----------------------------------------------------------------------------------
(577,495) (15,595,397) (237,589) (5,722,528)
----------------------------------------------------------------------------------
Net increase 4,314,977 $105,724,358 1,672,268 $38,885,199
==================================================================================
</TABLE>
21
<PAGE>
Notes to Financial Statements (continued)
3. Securities Transactions
Purchases and sales of common stocks for the period December 20, 1999
(commencement of operations) through July 31, 2000, were as follows:
<TABLE>
<CAPTION>
Innovation International Growth
------------------------------------------------------------------------------------
<S> <C> <C>
Purchases $ 169,264,886 $ 61,361,093
Sales 74,742,586 26,908,478
====================================================================================
</TABLE>
At July 31, 2000, the identified cost of investments owned for federal income
tax purposes were as follows:
<TABLE>
<CAPTION>
Innovation International Growth
------------------------------------------------------------------------------------
<S> <C> <C>
$ 94,522,300 $ 34,452,614
====================================================================================
</TABLE>
4. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
for federal income tax purposes at July 31, 2000, were as follows:
<TABLE>
<CAPTION>
Innovation International Growth
------------------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized:
appreciation $ 13,315,729 $ 3,887,634
depreciation (17,989,529) (4,210,679)
------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ (4,673,800) $ (323,045)
====================================================================================
</TABLE>
5. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with Nuveen Institutional
Advisory Corp. (the "Adviser"), each Fund pays an annual management fee, payable
monthly, which is based upon the average daily net assets of each Fund as
follows:
<TABLE>
<CAPTION>
Innovation International Growth
------------------------------------------------------------------------------------
<S> <C> <C>
For the first $125 million 1.0000% 1.0500%
For the next $125 million .9875 1.0375
For the next $250 million .9750 1.0250
For the next $500 million .9625 1.0125
For the next $1 billion .9500 1.0000
For net assets over $2 billion .9250 .9750
====================================================================================
</TABLE>
The Adviser may voluntarily agree to reimburse expenses from time to time, which
may be terminated at any time at its discretion.
22
<PAGE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Adviser has entered
into a Sub-Advisory Agreement with Columbus Circle Investors ("CCI") under which
CCI manages the investment portfolios of the Funds. CCI is compensated for its
services from the management fee paid to the Adviser. The Funds pay no
compensation directly to those of its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Fund from the Adviser.
During the period December 20, 1999 (commencement of operations) through July
31, 2000, Nuveen Investments (the "Distributor"), a wholly owned subsidiary of
The John Nuveen Company, collected sales charges on purchases of Class A Shares,
the majority of which were paid out as concessions to authorized dealers as
follows:
Innovation International Growth
------------------------------------------------------------------------------
Sales charges collected $ 243,750 $ 105,241
Paid to authorized dealers 218,715 93,370
==============================================================================
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 period December 20, 1999 (commencement of operations) through July
31, 2000, the Distributor compensated authorized dealers directly with
commission advances at the time of purchase as follows:
Innovation International Growth
------------------------------------------------------------------------------
Commission advances $ 1,650,773 $ 310,961
==============================================================================
To compensate for commissions advanced to authorized dealers, all 12b-1 service
fees collected on Class B Shares during the first year following a purchase,
all 12b-1 distribution fees collected on Class B Shares, and all 12b-1 service
and distribution fees collected on Class C Shares during the first year
following a purchase are retained by the Distributor. During the period December
20, 1999 (commencement of operations) through July 31, 2000, the Distributor
retained such 12b-1 fees as follows:
Innovation International Growth
------------------------------------------------------------------------------
12b-1 fees retained $ 277,249 $ 34,783
==============================================================================
The remaining 12b-1 fees charged to the Funds were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor also collected and retained CDSC on share redemptions during
the period December 20, 1999 (commencement of operations) through July 31, 2000,
as follows:
Innovation International Growth
------------------------------------------------------------------------------
CDSC retained $ 86,661 $ 3,235
==============================================================================
At July 31, 2000, the Distributor owned 1,250 shares of the International Growth
Fund's Class A, B, and C and The John Nuveen Company owned 496,250 shares of
Class R.
6. Composition of Net Assets
At July 31, 2000, the Funds had an unlimited number of $.01 par value per share
common stock authorized. Net assets consisted of:
Innovation International Growth
------------------------------------------------------------------------------
Capital paid-in $ 104,727,183 $ 38,708,184
Balance of undistributed net
investment income -- --
Accumulated net realized gain (loss)
from investment transactions and
foreign currency transactions (14,271,235) (2,999,179)
Net unrealized appreciation of
investments 9,597,434 2,594,128
Net unrealized gain (loss) on
translation of assets and liabilities
denominated in foreign currencies -- (707)
------------------------------------------------------------------------------
Net assets $ 100,053,382 $ 38,302,426
==============================================================================
23
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout the period December 20, 1999
(commencement of operations) through July 31, 2000:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------- ----------------------------
Innovation Net
Realized/
Beginning Net Unrealized Ending
Net Investment Investment Net Net Total
Year Ended Asset Income/ Gain Investment Capital Asset Return
July 31, Value (Loss) (Loss) Total Income Gains Total Value (a)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (12/99)
2000 (d) $20.00 $(.26) $3.53 $3.27 $ -- $ -- $ -- $23.27 16.30%
Class B (12/99)
2000 (d) 20.00 (.37) 3.52 3.15 -- -- -- 23.15 15.70
Class C (12/99)
2000 (d) 20.00 (.37) 3.54 3.17 -- -- -- 23.17 15.80
Class R (12/99)
2000 (d) 20.00 (.21) 3.50 3.29 -- -- -- 23.29 16.45
===============================================================================================================
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
--------------------- --------------------- ---------------------
Ratio Ratio Ratio
Innovation of Net of Net of Net
Ratio of Investment Ratio of Investment Ratio of Investment
Expenses Income Expenses Income Expenses Income
Ending to (Loss) to to (Loss) to to (Loss) to
Net Average Average Average Average Average Average Portfolio
Year Ended Asset Net Net Net Net Net Net Turnover
July 31, (000) Assets Assets Assets Assets Assets Assets Rate
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (12/99)
2000 (d) $22,838 1.97%* (1.89)%* 1.89%* (1.82)%* 1.86%* (1.79)%* 117%
Class B (12/99)
2000 (d) 33,288 2.72* (2.65)* 2.63* (2.56)* 2.60* (2.53)* 117
Class C (12/99)
2000 (d) 39,907 2.75* (2.68)* 2.60* (2.53)* 2.57* (2.50)* 117
Class R (12/99)
2000 (d) 4,020 1.87* (1.83)* 1.51* (1.47)* 1.48* (1.44)* 117
===============================================================================================================
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) For the period December 20, 1999 (commencement of operations) through
July 31, 2000.
24
<PAGE>
Selected data for a share outstanding throughout the period December 20, 1999
(commencement of operations) through July 31, 2000:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------- ----------------------------
International Growth Net
Realized/
Beginning Net Unrealized Ending
Net Investment Investment Net Net Total
Year Ended Asset Income/ Gain Investment Capital Asset Return
July 31, Value (Loss) (Loss) Total Income Gains Total Value (a)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (12/99)
2000 (d) $20.00 $(.15) $3.08 $2.93 $ -- $ -- $ -- $22.93 14.65%
Class B (12/99)
2000 (d) 20.00 (.25) 3.07 2.82 -- -- -- 22.82 14.10
Class C (12/99)
2000 (d) 20.00 (.24) 3.06 2.82 -- -- -- 22.82 14.10
Class R (12/99)
2000 (d) 20.00 (.12) 3.08 2.96 -- -- -- 22.96 14.80
===============================================================================================================
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
--------------------- --------------------- ---------------------
Ratio Ratio Ratio
International Growth of Net of Net of Net
Ratio of Investment Ratio of Investment Ratio of Investment
Expenses Income Expenses Income Expenses Income
Ending to (Loss) to to (Loss) to to (Loss) to
Net Average Average Average Average Average Average Portfolio
Year Ended Asset Net Net Net Net Net Net Turnover
July 31, (000) Assets Assets Assets Assets Assets Assets Rate
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (12/99)
2000 (d) $10,676 2.66%* (1.90)%* 1.82%* (1.05)%* 1.75%* (.99)%* 111%
Class B (12/99)
2000 (d) 6,435 3.41* (2.61)* 2.57* (1.76)* 2.50* (1.70)* 111
Class C (12/99)
2000 (d) 6,925 3.40* (2.58)* 2.58* (1.75)* 2.51* (1.69)* 111
Class R (12/99)
2000 (d) 14,265 2.58* (1.99)* 1.50* (.90)* 1.43* (.84)* 111
===============================================================================================================
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) For the period December 20, 1999 (commencement of operations) through
July 31, 2000.
25
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Investment Trust II
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen Innovation Fund, and Nuveen International
Growth Fund (two of the portfolios constituting the Nuveen Investment Trust II
(a Massachusetts business trust)), as of July 31, 2000 and the related
statements of operations, the statements of changes in net assets, and the
financial highlights for the period from December 20, 1999 (commencement of
operations) through July 31, 2000. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of July 31, 2000, by correspondence with the custodian and brokers. As
to securities purchased but not received, we requested confirmation from brokers
and, when replies were not received, we carried out alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of the Nuveen
Innovation Fund, and Nuveen International Growth Fund of the Nuveen Investment
Trust II as of July 31, 2000, the results of their operations, the changes in
their net assets, and the financial highlights for the period from December 20,
1999 (commencement of operations) through July 31, 2000 in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 20, 2000
26
<PAGE>
Notes
-----
27
<PAGE>
Notes
28
<PAGE>
Fund Information
Board of Trustees
James E. Bacon
Jack B. Evans
William T. Kissick
Thomas E. Leafstrand
Timothy R. Schwertfeger
Sheila W. Wellington
Fund Manager
Nuveen Institutional Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Investment Manager
Columbus Circle Investors
Metro Center
One Station Place
Stanford, CT 06902
Transfer Agent and
Shareholder Services
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(800) 257-8787
Legal Counsel
Chapman and Cutler
Chicago, IL
Independent Public
Accountants
Arthur Andersen LLP
Chicago, IL
NASD Regulation, Inc. provides a Public Disclosure Program which supplies
certain information regarding the disciplinary history of NASD members and their
associated persons in response to either telephone inquiries at (800) 289-9999
or written inquiries at www.nasdr.com. NASD Regulation, Inc. also provides an
investor brochure that includes information describing the Public Disclosure
Program.
29
<PAGE>
Serving
Investors
For Generations
-------------------------------------------------------------------------
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
A 100-Year Tradition of Quality Investments
Since 1898, Nuveen Investments has been synonymous with investments that
withstand the test of time. In fact, more than 1.3 million investors have
trusted Nuveen to help them build and sustain the wealth of a lifetime.
Whether your focus is long-term growth, dependable income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. We can help
you build a better, well-diversified portfolio.
Call Your Financial Advisor Today
To find out how Nuveen Mutual Funds might round out your investment portfolio,
contact your financial advisor today. Or call Nuveen at (800) 257-8787 for more
information. Ask your advisor or call for a prospectus, which details risks,
fees and expenses. Please read the prospectus carefully before you invest.
NUVEEN
Investments
Nuveen Investments
333 West Wacker Drive
Chicago, Illinois 60606-1286
www.nuveen.com
