<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
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COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FLAGSHIP ADMIRAL FUNDS INC.
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Notes:
<PAGE> 2
IMPORTANT INFORMATION FOR SHAREHOLDERS OF THE
FLAGSHIP UTILITY INCOME FUND
At a special shareholder meeting on November 12, 1998, you will be asked to
approve a series of proposed changes to your fund that are designed to enhance
its ability to achieve its investment objectives. Although we recommend that you
read carefully the proxy statement that describes the proposed transaction in
detail, we have prepared the following "Questions & Answer" for your
convenience.
Q. WHY IS A SPECIAL SHAREHOLDER MEETING BEING HELD?
A. The Board of Directors of the Flagship Utility Income Fund has called a
special shareholder meeting for November 12, 1998 at which you will be asked
to vote on a series of proposed changes to your fund. These changes are
designed primarily to enhance the fund's ability to achieve its stated
investment objectives of current income and long-term growth of income and
capital.
Q. WHY ARE THESE CHANGES BEING RECOMMENDED?
A. The purposes of the proposed changes are to enable you to benefit from (i)
EXPANDED INVESTMENT FLEXIBILITY by eliminating the fund's policy of
concentrating its portfolio in utility securities; (ii) ENHANCEMENT OF THE
FUND'S ABILITY TO DISTRIBUTE ITS SHARES by making the fund's 12b-1 Plan more
attractive to dealers, potentially creating greater economies of scale and
over time lowering operating costs through increased fund assets; and (iii)
INCREASED OPERATING AND POTENTIAL COST EFFICIENCIES by standardizing the
fund's corporate structure with other Nuveen Mutual Funds. The fund's Board
of Directors has unanimously agreed that these proposals are in your best
interests and recommends that you vote in favor of them.
Q. HOW ARE THE FUND'S INVESTMENT POLICIES CHANGING?
A. The fund would be permitted to invest a substantial portion of its assets
outside the utility industry instead of concentrating its investments (at
least 65%) in the utility industry. The fund's Board of Directors also
approved other minor revisions to the fund's fundamental investment policies
that will standardize these policies with those of other Nuveen Mutual Funds.
Over the past five years, utility industry deregulation, increasing
competition, new industry entrants, and rapid technological change have
significantly altered the utility sector's historical investment
characteristics. Those changes have reduced the investment opportunities in
the utility sector that are consistent with the fund's objectives of current
income and long-term growth of income and capital, with the result that income
is making up an increasingly smaller portion, and capital gains are an
increasingly larger portion, of the returns available from utility sector
investments. The Board believes that permitting the fund to invest a
substantial portion of its assets outside the utility industry would enhance
the fund's ability to meet its investment objectives by enabling it to access
the broader range of attractive investment opportunities available in today's
markets. This change will enable the fund to invest in a broad range of
fixed-income securities, including investment grade and high yield corporate
bonds, U.S. Treasury and agency bonds, and mortgage-and asset-backed
securities, and in stocks of established, well-known companies in a variety of
industries that offer high current income or attractive appreciation
potential.
Q. HOW ARE THE FUND'S PRICING OPTIONS CHANGING?
A. If approved, the fund's Class A and Class C 12b-1 service fee and the Class C
12b-1 distribution fee would increase to 0.25% (from 0.20%) and 0.75% (from
0.55%), respectively, of average daily net assets. These changes are expected
to enhance the fund's ability to distribute its shares by standardizing the
fund's 12b-1 service and distribution fees with those of Nuveen's other
taxable funds and by aligning those fees with competitive funds having
comparable investment objectives and policies. Expanded distribution is
expected to increase fund assets, thereby helping to create greater economies
of scale that over time are expected to reduce fund operating costs by more
than the increase in 12b-1 fees. The fund will also be expanding the range of
available pricing options by offering Class B and Class R shares.
1
<PAGE> 3
Q. HOW WILL THE PROPOSED CHANGES AFFECT MANAGEMENT FEES AND ANNUAL FUND
OPERATING EXPENSES?
A. The fund's Board of Directors has approved a proposed increase in the
management fee to 0.75% (from 0.50%) of average daily net assets. This
proposed increase reflects the increased research and portfolio management
resources required to manage the fund under its proposed investment policy
and will align management fee levels with the industry average for
competitive funds having comparable investment objectives and policies. At
the same time, Nuveen has voluntarily agreed to reimburse the fund through at
least July 31, 1999 so that the fund's operating expenses (which exclude Rule
12b-1 fees) would be capped at 0.95% of average net assets. This expense
level would be less than the current annual operating expenses of 1.17%.
Total fund operating expenses (including Rule 12b-1 fees) net of expense
reimbursements on an annual basis are expected to decline approximately 0.15%
for Class A shareholders and increase 0.05% for Class C shareholders.
Q. WILL I HAVE TO PAY ANY FEES OR EXPENSES IN CONNECTION WITH THE PROPOSED
CHANGES?
A. You will pay no fees or sales charges directly in connection with the
implementation of the proposed changes. However, the costs associated with
the shareholder meeting will be borne by the fund. These costs are estimated
to be approximately $0.03 per share. The fund's Board of Directors believes
these costs will be more than offset by the increased performance potential
created by the fund's enhanced ability to meet its investment objectives.
Q. WHY IS A REORGANIZATION OF THE FUND BEING RECOMMENDED?
A. The proposed tax-free reorganization of the fund's corporate structure will
standardize the fund's organizational structure with those of Nuveen's other
mutual funds. Standardization is designed to promote operational and
potential cost efficiencies.
If the reorganization is approved, the fund will transfer all of its assets
and liabilities to, and fund shareholders will become holders of the same
number of shares of, the Nuveen Dividend and Growth Fund, a series of Nuveen
Investment Trust IV, a newly-organized Massachusetts business trust which has
a different Board of Trustees than the fund's current Board. As part of the
reorganization, Nuveen Institutional Advisory Corp., an affiliate of the
fund's current investment adviser, Nuveen Advisory Corp., will become the
fund's investment adviser. THE REORGANIZATION WILL NOT CHANGE THE FUND'S
PORTFOLIO MANAGEMENT PERSONNEL, ITS INVESTMENT OBJECTIVES AND POLICIES (OTHER
THAN THE SPECIFIC POLICY CHANGES DESCRIBED ABOVE), OR CREATE ANY TAX
CONSEQUENCES FOR EITHER THE FUND OR ITS SHAREHOLDERS.
Q. WHAT WILL HAPPEN TO THE VALUE OF MY INVESTMENT AND THE SHARES I OWN?
A. After approval and upon completion of the reorganization, all of the fund's
assets will be transferred, tax-free, to the Nuveen Dividend and Growth Fund.
Your fund shares will automatically convert into the same class and same
number of Dividend and Growth Fund shares with the same net asset value per
share. At the time of issuance, your investment in the Dividend and Growth
Fund will have the same value as your investment in the Utility Fund on that
date. Those shares will appear on your next shareholder or broker statement.
No certificates for Dividend and Growth Fund shares will be issued as part of
the reorganization, although we will send you certificates upon request. If
you currently own fund shares in certificate form, you will need to return
these certificates to Nuveen in order to receive new certificates for your
Dividend and Growth Fund shares.
Q. WILL THE REORGANIZATION CREATE ANY TAX LIABILITY FOR ME?
A. You will recognize no gain or loss on the transaction and the tax basis and
holding period of the Dividend and Growth Fund shares you receive will be the
same as the tax basis and holding period of your fund shares. The
reorganization will not change the fund's portfolio management personnel, its
investment objectives and policies (other than the specific policy changes
described above), or create any tax consequences for either the fund or its
shareholders. In addition, the fund will consummate the reorganization only
if it receives an opinion from the fund's tax counsel that that the
reorganization will qualify as a tax-free reorganization.
2
<PAGE> 4
Q. CAN I EXCHANGE OR REDEEM MY FUND SHARES BEFORE THE PROPOSED CHANGES TAKE
EFFECT?
A. You may exchange your fund shares for shares of any other Nuveen Mutual Fund
or redeem your shares at any time. If you choose to do so, your request will
be treated as a normal exchange or redemption of shares and will be a taxable
transaction.
Q. WHO SHOULD I CALL FOR FURTHER INFORMATION?
A. Your financial adviser will be able to answer any questions you have about
the proposed reorganization. You may also call Nuveen at 1-800-257-8787
weekdays from 7:00 a.m. to 7:00 p.m. Central time.
3
<PAGE> 5
October 5, 1998
DEAR FLAGSHIP UTILITY INCOME FUND SHAREHOLDER:
A special meeting of shareholders will be held Thursday, November 12, 1998 at
10:00 a.m., Central time, in the 31st floor conference room of John Nuveen & Co.
Incorporated, 333 West Wacker Drive, Chicago, Illinois. At this meeting, you
will be asked to vote on proposals to make certain changes to the investment
advisory agreement and changes relating to how the Flagship Utility Income Fund
(the "Fund") is organized and managed. These changes are designed to enhance the
Fund's ability to meet its investment objectives, lower Fund operating costs and
create economies of scale through expanded distribution.
THE BOARD OF DIRECTORS OF THE FUND HAS UNANIMOUSLY DETERMINED THAT THESE
PROPOSALS YOU WILL VOTE ON ARE IN THE BEST INTERESTS OF ALL SHAREHOLDERS AND
URGES YOU TO VOTE IN FAVOR OF THE PROPOSALS.
The enclosed proxy statement describes the proposals relating to the Fund in
greater detail.
WHETHER OR NOT YOU PLAN TO JOIN US AT THE MEETING, PLEASE COMPLETE, DATE AND
SIGN YOUR PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE
WILL BE COUNTED.
We appreciate your continued support and confidence.
Very truly yours,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
<PAGE> 6
FLAGSHIP UTILITY INCOME FUND
A SERIES OF FLAGSHIP ADMIRAL FUNDS INC.
333 WEST WACKER DRIVE,
CHICAGO, ILLINOIS 60606
TELEPHONE 800-621-7227
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOVEMBER 12, 1998
A special meeting of shareholders of Flagship Utility Income Fund (the "Fund")
will be held in the 31st floor conference room of John Nuveen & Co.
Incorporated, 333 West Wacker Drive, Chicago, Illinois on Thursday, November 12,
1998 at 10:00 a.m., Central time.
The central purpose of the proposed changes is to reposition the Fund by
expanding its investments beyond the public utility sector and change the Fund's
management fee and distribution structure to match the changed investment
strategy. We are also taking the opportunity to ask you to approve a
reorganization into a new corporate structure and to conform several of the
Fund's investment restrictions to those used by similar Nuveen mutual funds.
The specific items you will be asked to vote on, each of which is discussed in
this proxy statement, are:
1. To approve changes to one of the Fund's fundamental policies allowing the
Fund to broaden its investments to permit the Fund to no longer concentrate
its portfolio in the utilities industry.
2. To approve a new advisory agreement.
3. To approve a new Rule 12b-1 Plan.
4. To approve a tax-free reorganization of the Fund into a new fund called the
Nuveen Dividend and Growth Fund, a series of a new Massachusetts business
trust.
5. To ratify the election of trustees to the Board of Trustees of the new
business trust.
6. To approve changes to several of the Fund's other fundamental policies to
conform them to the policies of the other Nuveen mutual funds. Each of
these changes will be voted on separately.
7. To transact such other business as may properly come before the Meeting.
Shareholders of record at the close of business on September 15, 1998 are
entitled to notice of and to vote at the Meeting.
Gifford R. Zimmerman
Secretary
October 5, 1998
<PAGE> 7
FLAGSHIP UTILITY INCOME FUND
A SERIES OF FLAGSHIP ADMIRAL FUNDS INC.
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 1998
INTRODUCTION
This proxy statement explains each of the items you will be asked to vote on at
the special meeting of the shareholders of Flagship Utility Income Fund to be
held at 10:00 a.m., Central time, on Thursday, November 12, 1998, in the 31st
floor conference room of John Nuveen & Co. Incorporated ("Nuveen"), 333 West
Wacker Drive, Chicago, Illinois 60606. In this proxy statement, Flagship Utility
Income Fund is referred to as the "Fund." The Fund is a series of Flagship
Admiral Funds Inc., which is referred to in the proxy statement as the
"Corporation."
REASONS FOR THE PROPOSED CHANGES
Since 1992, the Fund's investments have been concentrated in the securities of
companies in the public utilities industry. In the early 1990's, the historical
operating and financial characteristics of the utility industry fit well with
the Fund's objective of current income and long-term growth of income and
capital, with capital appreciation as a secondary objective. Utilities
historically enjoyed regional monopolies, regulated prices and profitability
based on a fair return to investors, slow but steady and predictable growth, and
high dividend yields. That landscape is changing. Rapid technological
developments have led to deregulation, increasing competition and new market
entrants. Those new factors are dramatically transforming the historical
investment profile of the utility industry. Income is making up an increasingly
smaller portion, and capital gains an increasingly larger portion, of the
returns available from investments in the utility sector. These trends have
reduced the available investment opportunities within the utility sector
consistent with the Fund's objectives of current income and long-term growth of
income and capital. At the same time, new market sectors have emerged that offer
attractive investment opportunities consistent with the Fund's investment
objective. We believe that permitting the Fund to invest a substantial portion
of its assets outside the utility industry would enhance the Fund's ability to
meet its investment objectives by enabling it to access the broader range of
attractive investment opportunities available in today's markets.
Under the proposed changes, the Fund would continue to invest in a balanced
portfolio of bonds and stocks in order to seek to provide current income and
long-term growth of income and capital, with capital appreciation as a secondary
objective. The Fund will invest the majority of its assets in an
intermediate-term portfolio of investment grade quality taxable bonds, with the
balance of the portfolio invested in stocks of established, well-known domestic
companies with at least $1 billion in market capitalization. The bonds in the
portfolio would have an average maturity of 5 to 10 years. [THE FUND'S NEW
INVESTMENT STRATEGY IS DESCRIBED MORE COMPLETELY IN THE SUPPLEMENT DATED
, 1998 TO THE FUND'S PROSPECTUS, A COPY OF WHICH HAS BEEN DELIVERED TO
EACH SHAREHOLDER.]
The changes we are asking you to approve to accomplish this are:
- - change the Fund's investment restriction on concentration, so that the Fund
will no longer be required to concentrate its investments in the utility
industry;
- - approve a new advisory agreement, increasing the management fee paid to the
Fund's adviser, Nuveen Advisory Corp., to reflect the increased research and
portfolio management resources required to manage the fund under its proposed
investment policy and to align management fee levels with the industry average
for competitive funds having comparable investment objectives and policies;
and
- - approve a new 12b-1 plan, creating the same type of distribution arrangement
as the other Nuveen balanced mutual funds.
Nuveen Advisory Corp. ("Nuveen Advisory") has agreed to limit the Fund's
operating expenses (excluding Rule 12b-1 fees) through July 31, 1999 so that
there will be no increase in operating expenses, excluding 12b-1 fees, through
that date. See Proposal 2 for more information on the effect of the proposed
changes on the Fund's expenses.
1
<PAGE> 8
We are also taking the opportunity to ask you to act on three other matters:
- - approve a Reorganization of the Fund into a new series called Nuveen Dividend
and Growth Fund of a Massachusetts business trust (the new series is referred
to as the "New Fund");
- - ratify the election of the trustees of the New Fund; and
- - approve changes to several other investment policies to conform them to
Nuveen's standard policies, but without any change in how the Fund invests.
Each of these proposals is discussed thoroughly in this proxy statement. In
addition, on page of this proxy statement, you will find a chart showing the
required votes for each proposal and whether there are other proposals that have
to be approved in order for a proposal to be implemented. We urge you to refer
to the chart and to read this proxy statement carefully.
WE RECOMMEND THAT YOU VOTE "FOR" ALL PROPOSALS
PROPOSAL 1 CHANGING THE FUNDAMENTAL POLICY ON CONCENTRATION SO THAT THE FUND
CAN BROADEN ITS INVESTMENTS
We are proposing that the fundamental investment policy of the Fund relating to
concentration of investment in securities of companies in the public utilities
industry be changed to permit the Fund to invest the majority of its assets in a
diversified portfolio of securities including, but no longer limited to,
securities of companies in the public utilities industry. Essentially, you are
being asked through this Proposal to broaden the Fund's current investment focus
and permit the Fund to access a broader range of investment opportunities,
available in today's markets consistent with the Fund's current investment
objectives. If this change is approved by shareholders, the new policy will
become a fundamental investment policy of the Fund and the Fund's name will be
changed to Nuveen Dividend and Growth Fund.
WE RECOMMEND THAT YOU VOTE "FOR" PROPOSAL 1
We propose that the Fund's fundamental investment restriction on concentration
be revised as follows (with the new language underscored, and deleted language
stricken through):
The Fund, as a fundamental policy, will concentrate its investments with at
least 65% of its total assets invested in companies in the public utilities
industry may not, without the approval of the holders of a majority of the
shares of the Fund, purchase the securities of any issuer if, as a result,
25% or more of the Fund's total assets would be invested in the securities
of issuers whose principal business activities are in the same industry
(except that this restriction shall not be applicable to securities issued
or guaranteed by the U.S. government or any agency or instrumentality
thereof). Electric company securities, natural gas company securities, and
telecommunications company securities shall each be considered securities
of issuers in separate industries for purposes of this restriction.
The current fundamental policy requires the Fund to concentrate its investments,
with at least 65% of its total assets invested in companies in the public
utilities industry. If Proposal 1 is approved (and certain other conditions are
satisfied, as described below), the Fund will no longer concentrate its
investments in companies in the public utilities industry. In fact, the Fund
will not be permitted to invest more than 25% of its total assets in securities
of issuers whose principal business activities are in the same industry, subject
to the above-noted qualifications. The proposed new restriction as set forth
above conforms to the industry concentration policy that is currently standard
for most Nuveen mutual funds. Nuveen Advisory recommended this change in order
to enhance the Fund's ability to meet its investment objectives.
Nuveen Advisory believes that the utility sector's deregulation over the past
several years and technological advances have reduced the sector's historical
attractiveness to the Fund given the Fund's investment objectives. At the same
time, new market sectors have emerged to offer attractive investment
opportunities consistent with the Fund's orientation. Consequently, Nuveen
Advisory believes continued concentration of its investments in the public
utility sector is no longer in the best interests of Fund shareholders in light
of the Fund's investment objectives and the current market environment.
THE FUND'S INVESTMENT OBJECTIVE -- TO SEEK CURRENT INCOME AND LONG-TERM GROWTH
OF INCOME AND CAPITAL, WITH CAPITAL APPRECIATION AS A SECONDARY
OBJECTIVE -- WILL NOT BE CHANGED AS A RESULT OF THIS PROPOSAL.
2
<PAGE> 9
This Proposal is closely related to other proposals being presented at this
meeting. If the Reorganization (Proposal 4), the change to the fundamental
investment policy described herein, the advisory fee increase (Proposal 2) and
the Rule 12b-1 fee increase (Proposal 3) are approved, the change, as approved,
will become effective immediately prior to the Reorganization. If, however, the
change to the investment policy (and Proposals 2 and 3) are approved but the
Reorganization is not approved, the change to the fundamental investment policy,
as approved, will become effective shortly after shareholder approval as is
practicable. The effectiveness of the change described in Proposal 1 is
contingent upon the approval of Proposals 2 and 3 (with respect to both
classes). If Proposal 1 is not approved by shareholders, there can be no
assurance of the continued operation of the Fund over time in its current
structure.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THE CHANGE IN THE FUND'S FUNDAMENTAL POLICY BY
VOTING "FOR" PROPOSAL 1
PROPOSAL 2 NEW ADVISORY AGREEMENT
INTRODUCTION
We have unanimously approved a proposed new investment advisory agreement (the
"New Advisory Agreement") for the Fund. As described in more detail under the
heading "Factors Considered by the Board of Directors," this recommendation
results from our evaluation of a substantial amount of information. The New
Advisory Agreement is similar in content to the Fund's current agreement (the
"Existing Agreement") in all material respects except for an increase in the fee
schedule. The fee increase is discussed below, and the new and existing
agreements are compared.
If the Reorganization, and all other shareholder approvals necessary for the
Reorganization to be effected, are approved by shareholders, as discussed under
Proposal 4, the terms of the New Advisory Agreement will be approved by the
Fund, as the initial shareholder of the New Fund, in the form of a new advisory
agreement between the New Fund and Nuveen Institutional Advisory Corp. ("NIAC").
Because we reviewed the New Advisory Agreement in light of the Reorganization,
we reviewed all of the factors relevant to our approval and recommendation of
the New Advisory Agreement as they relate to Nuveen Advisory and NIAC. As
further discussed below, Nuveen Advisory and NIAC are functionally equivalent
entities, employing many of the same people, and each are wholly-owned
subsidiaries of Nuveen. For purposes of this Proposal 2 and throughout this
proxy, Nuveen Advisory and NIAC may sometimes together be referred to as the
"Adviser."
REASON FOR THE PROPOSED CHANGE
The Adviser requested a fee increase in connection with the proposed change to
the Fund's investment strategy resulting in the broadening of the Fund's current
investment focus. The current fundamental policy of the Fund says that the Fund
will concentrate its investments with at least 65% of its total assets invested
in companies in the public utilities industry. The Adviser believes that the
utility sector's deregulation over the past several years and technological
advances have reduced the sector's historical attractiveness to the Fund given
the Fund's investment objectives. At the same time, new market sectors have
emerged to offer attractive investment opportunities consistent with the Fund's
orientation. Consequently, the Adviser believes continued concentration of its
investments in the public utility sector is no longer in the best interests of
Fund shareholders in light of the Fund's investment objectives and the current
market environment. We determined, as discussed in more detail below, that a fee
increase was warranted in response to the increased research and portfolio
management resources required to manage the Fund under its proposed investment
policy, and that the proposed management fee is comparable to the management
fees of other funds with similar investment objectives.
The New Advisory Agreement would increase the annual advisory fee paid by the
Fund from 0.50% of the average daily net asset value to 0.75% of the average
daily net asset value. The asset levels of the break points and the amount of
fee reduction at those breakpoints (as discussed below) will not change from
those currently in place. The Adviser has agreed to limit the Fund's operating
expenses (excluding Rule 12b-1 fees) through July 31, 1999 so that after the
implementation of the fee increase, annual operating expenses (excluding Rule
12b-1 fees) would be capped at 0.95% of the average daily net asset value of the
Fund's shares. As discussed below, if this arrangement had been in place during
the Fund's fiscal year ended June 30, 1998, the annual operating expenses
(excluding Rule 12b-1 fees) would have been .95% instead of 1.15% of the average
daily net asset value of the Fund's shares. As a result, total advisory fees net
of expense waivers/reimbursements will decrease from 0.50% to 0.30% of the
average daily net asset value of each class of Fund shares at
3
<PAGE> 10
least through July 31, 1999. Nuveen Advisory does not currently have a policy to
waive its advisory fee or reimburse a portion of the Fund's expenses under its
existing fee structure with the Fund.
WE RECOMMEND THAT YOU VOTE "FOR" PROPOSAL 2
The fee increase is explained in the discussion below and the reasons for our
decision to approve the New Advisory Agreement are given. The terms of the New
Advisory Agreement are summarized and compared to the Existing Agreement. A form
of the New Advisory Agreement is attached as Exhibit A. Finally, more
information about the Adviser is provided.
CHANGE IN THE RATE OF FEE
Nuveen Advisory has served as investment adviser to the Fund since January 1,
1997. Prior thereto, Flagship Financial Inc. served as investment adviser to the
Fund. The Existing Agreement was last approved by shareholders at a meeting held
on December 12, 1996 in connection with the acquisition by The John Nuveen
Company (of which Nuveen Advisory and NIAC are wholly-owned indirect
subsidiaries) of Flagship Resources Inc. (of which Flagship Financial, Inc. was
a wholly-owned subsidiary). The Existing Agreement was continued by the Board of
Directors at a meeting held on April 25, 1998.
The following table summarizes (i) the annual rate of compensation currently
payable by the Fund to Nuveen Advisory and (ii) the annual rate of compensation
that will be paid by the Fund if the New Advisory Agreement is approved by
shareholders:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
EXISTING AGREEMENT NEW ADVISORY AGREEMENT
- ------------------------------------------------------------------------------------------------------
<S> <C>
0.50% for the first $125 million 0.75% for the first $125 million
0.4875% for the next $125 million 0.7375% for the next $125 million
0.4750% for the next $250 million 0.7250% for the next $250 million
0.4625% for the next $500 million 0.7125% for the next $500 million
0.4500% for the next $1 billion 0.7000% for the next $1 billion
0.4250% for assets over $2 billion 0.6750% for assets over $2 billion
</TABLE>
THE EFFECT OF THE CHANGES
The table below shows (i) the total advisory fees paid by the Fund, with respect
to both Class A and Class C shares, during the fiscal year ended June 30, 1998,
(ii) the fees that would have been paid if the New Advisory Agreement had been
in place throughout those periods, and (iii) the difference between the actual
fees and pro forma fees expressed as a percentage of average net assets:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRO FORMA FEES DIFFERENCE (AS A
PRO FORMA (AFTER EXPENSE PERCENTAGE OF
ACTUAL FEES- WAIVER)- DIFFERENCE (AS A ASSETS
PRO FORMA NEW ADVISORY NEW ADVISORY PERCENTAGE OF AFTER EXPENSE
FEES AGREEMENT AGREEMENT ASSETS) WAIVER)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/30/98 $129,390 $194,010 $77,604 0.25% -0.20%
</TABLE>
The tables below show (i) the actual operating expenses incurred by the Fund
during the fiscal year ended June 30, 1998 and (ii) the expenses that would have
been incurred had the New Advisory Agreement and a proposed new 12b-1 plan been
4
<PAGE> 11
in place throughout those periods, in each case expressed as a percentage of the
average net assets. PLEASE REFER TO PROPOSAL 3 FOR A COMPLETE DISCUSSION OF THE
PROPOSED NEW 12B-1 PLAN.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
JUNE 30, 1998
PRO FORMA WITH
CLASS A ACTUAL PRO FORMA WAIVERS/REIMBURSEMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee .50% .75% .30%
12b-1 fee .20% .25% .25%
Other expenses .65% .65% .65%
Total fund operating expenses 1.35% 1.65%* 1.20%
</TABLE>
* Prior to any waivers or reimbursements of any fees or expenses.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
JUNE 30, 1998
PRO FORMA WITH
CLASS C ACTUAL PRO FORMA WAIVERS/REIMBURSEMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee .50% .75% .30%
12b-1 fee .75% 1.00% 1.00%
Other expenses .65% .65% .65%
Total fund operating expenses 1.90% 2.40%* 1.95%
</TABLE>
* Prior to any waivers or reimbursements of any fees or expenses.
EXAMPLE
The following illustrates the expenses on a $10,000 investment in the Fund under
the Existing and New Advisory Agreement and the existing and new 12b-1 plan
using 1998 data, assuming (i) five percent annual return and (ii) redemption at
the end of each time period:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EXISTING AGREEMENT AND EXISTING 12B-1 PLAN
Class A $552 $830 $1,128 $1,976
Class C $193 $597 $1,026 $2,222
NEW ADVISORY AGREEMENT AND NEW 12B-1 PLAN
Class A $581 $918 $1,279 $2,292
Class C $243 $748 $1,280 $2,736
NEW ADVISORY AGREEMENT AND NEW 12B-1 PLAN AFTER
WAIVER/REIMBURSEMENT*
Class A $537 $785 $1,052 $1,813
Class C $198 $612 $1,052 $2,275
</TABLE>
* These Fund expense levels assume that the Adviser would continue to reimburse
expenses at the same level as it has committed to reimburse through July 31,
1999. There can be no assurance that the Adviser will continue these
reimbursements after July 31, 1999, or continue them at their present levels
after that date. The Adviser currently contemplates that it will determine each
year whether to voluntarily reimburse expenses at a level that would allow the
Fund to compete with peer funds, taking into account factors such as the average
expense levels of peer funds and the effect of the Fund's expense ratio on its
ability to distribute its shares and reach a self-sustaining asset size.
The purpose of these examples and tables is to assist you in understanding how
the various costs and expenses of investing in shares of the Fund will change as
a result of the proposed New Advisory Agreement and new 12b-1 plan. The Fund's
actual expenses and investment performance vary from year to year and will
result in expenses that may be higher or lower than those shown in the tables.
FACTORS CONSIDERED BY THE BOARD OF DIRECTORS
At a Board meeting held on August 28, 1998, the Adviser recommended that we
consider changing the fundamental policy of the Fund relating to industry
concentration to broaden the primary focus of the Fund's portfolio investments
to include securities outside the public utility sector. In connection with that
proposed change, the Adviser requested that we consider
5
<PAGE> 12
a fee increase in connection with the change in the investment focus of the Fund
and the anticipated increase in the Adviser's research and portfolio management
resources necessary to manage efficiently the Fund. At the August 28, 1998
meeting, we considered the appropriateness of the change in the fundamental
policy and the related fee increase. We unanimously approved both the change in
policy and the New Advisory Agreement, including the fee increase, at that
meeting.
In connection with our approval, we reviewed a variety of factors relating to
the nature, quality and scope of the services provided by the Adviser,
comparative fees and expense ratios, and the reasonableness of the proposed
increase in the advisory fee and Rule 12b-1 fees for the Fund under its
broadened investment strategy, assuming the adoption of Proposal 1, in view of
the fees paid by similar mutual funds that are managed like the Fund under its
new investment policies.
Portfolio Management. We evaluated the qualifications and capabilities of the
Adviser to serve as investment adviser of the Fund under the proposed investment
policies. In considering that information, we considered the indirect benefits
that the Adviser might realize from its relationship to the Fund, including the
use (for the Fund and for the Adviser's other clients) of investment research
provided by brokers in return for brokerage commissions.
We noted that the investment style used by the Adviser to manage the Fund under
its proposed investment policies would be more labor intensive than the
investment style necessary to manage the Fund as it currently exists. As
described further under Proposals 1 and 6, the Fund's proposed investment
policies would permit it to invest in a broader range of industries and
securities in pursuit of the Fund's investment objectives. These include, among
others, real estate and asset-backed securities which are expected to make
investment selection, as well as on-going surveillance, more complex. We
determined that the Fund's broader investment focus is anticipated to result in
a more labor intensive portfolio management process requiring the Adviser to
expand its portfolio management team, including its supporting team of research
analysts.
Comparative Fees and Expense Ratios. We also compared the advisory fees and
total expense ratios of the Fund to similar mutual funds (including other funds
similarly managed by the Adviser), and determined that the fees were within the
range of rates for those comparable mutual funds.
Other Factors. Other factors that we considered include: arrangements for
distribution of the Fund's shares; the nature, cost and quality of
non-investment management services to be provided by the Adviser; and other
organizational information relating to the Adviser, its advisory personnel and
investment decision-making processes. As noted above, because we reviewed the
New Advisory Agreement in light of the Reorganization (as discussed in Proposal
4), we reviewed all of the above-noted factors as they relate to BOTH Nuveen
Advisory and NIAC.
During the review process, we consulted with Morgan, Lewis & Bockius, our legal
counsel.
COMPARISON OF THE EXISTING AGREEMENT AND THE NEW ADVISORY AGREEMENT
The discussion here is only a summary and for more details you should refer to
the New Advisory Agreement. The New Advisory Agreement is similar in content to
the Existing Agreement in all material respects other than the fee increase. The
New Advisory Agreement will be in effect for an initial term of up to two years,
and may continue thereafter from year to year if it is continued at least
annually by a vote of "a majority of the outstanding voting securities" of the
Fund, as defined in the 1940 Act, or by us and, in either event, the vote of a
majority of the directors who are not parties to the New Advisory Agreement or
interested persons of any such party, cast in person at a meeting called for
such purpose. Any amendment to the New Advisory Agreement must be approved in
the same manner.
Advisory Services. Under the Existing Agreement, Nuveen Advisory acts as
investment adviser to the Corporation and its only series, the Fund. Nuveen
Advisory's obligations under the Existing Agreement include (i) providing the
Fund with clerical, bookkeeping and administrative services, other than those
services provided by the Fund's custodian, transfer agent and shareholder
service agent, (ii) permitting its officers and employees to serve without
compensation as officers and trustees of the Fund and (iii) providing office
facilities and equipment. The New Advisory Agreement states that the Adviser
will provide the same types of services and will act as investment adviser for
and manage the investment and reinvestment of the assets of the Fund.
Fees and Expenses. Each of the Existing Agreement and the New Advisory
Agreement provide that the Adviser will, in the event that operating expenses of
the Fund (including fees paid to Nuveen Advisory but excluding taxes, interest,
brokerage commissions and extraordinary expenses) for any fiscal year exceed the
expense limitations imposed by applicable state
6
<PAGE> 13
securities laws and any regulations thereunder, up to the amount of its fee, pay
the Fund (or pay and refund the Fund in the case of the Existing Agreement) the
amount of the excess. In addition, the New Advisory Agreement specifically sets
forth that the Fund is obligated to pay all of its expenses other than those
paid by the Adviser, including taxes and charges for auditing and legal
services, custodian and transfer agent fees, expenses of shareholder and
trustees meetings, registration, filing and other fees in connection with
requirements of regulatory authorities, and the printing and mailing of reports
to shareholders. This provision is essentially unchanged from the Existing
Agreement. For more information, you should refer to the above discussion of the
fee increase.
The fees payable by the Fund under the New Advisory Agreement are the
obligations only of the Fund and impose no liability on any other fund that is a
series of the Corporation.
Standard of Care. Like the Existing Agreement, the New Advisory Agreement
provides that the Adviser shall not be liable to the Corporation, the Fund or
its shareholders for any loss sustained by the Fund or its shareholders by
reason of the purchase, sale or retention of any security if such recommendation
was selected with due care and in good faith, except for liability resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser, or by reason of reckless disregard by the Adviser of its obligations
and duties.
Termination. Each of the Existing Agreement and the New Advisory Agreement may
be terminated by the Fund without penalty by the vote of the Board of Directors
of the Fund or the shareholders of the Fund (by a majority as defined in the
1940 Act) on sixty days' written notice to the Adviser or by the Adviser on
sixty days' written notice to the Fund, and will terminate automatically in the
event of its assignment.
CONCLUSION OF THE BOARD OF DIRECTORS
After considering the information described above, we concluded that the New
Advisory Agreement was fair and reasonable.
INFORMATION ABOUT THE ADVISER
Nuveen Advisory and NIAC are each wholly-owned subsidiaries of John Nuveen & Co.
Incorporated, located at 333 W. Wacker Drive, Chicago, Illinois 60606. Nuveen
has issued over $32 billion of taxable and tax-exempt defined portfolios since
1961 and currently sponsors 99 managed investment company portfolios with
approximately $38 billion in assets under management. Over 1,300,000 individuals
have invested to date in Nuveen's tax-exempt funds and defined portfolios.
Founded in 1898, Nuveen is a majority-owned subsidiary of The John Nuveen
Company, which, in turn, is approximately 78% owned by The St. Paul Companies,
Inc., 385 Washington Street, St. Paul, Minnesota 55102, a management company of
St. Paul, Minnesota, principally engaged in providing property-liability
insurance through subsidiaries.
The names, addresses and principal occupations of the principal executive
officers and directors of the Adviser are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Timothy R. Schwertfeger Chairman of the Board and
Chairman of the Board and Director, John Nuveen & Co.
Director Incorporated
(Principal Executive Officer)
333 W. Wacker Drive
Chicago, Illinois 60606
Anthony T. Dean President and Director, John
President and Director Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
John P. Amboian Executive Vice President, John
Executive Vice President Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
</TABLE>
7
<PAGE> 14
In addition, the following individuals who are executive officers of the Fund
are also officers of the Adviser: Alan G. Berkshire; Michael S. Davern; Lorna C.
Ferguson; William M. Fitzgerald; J. Thomas Futrell; Richard A. Huber; Steven J.
Krupa; Larry W. Martin; Edward F. Neild, IV; Stephen S. Peterson; Thomas C.
Spalding, Jr.; H. William Stabenow; and Gifford R. Zimmerman.
Proposal 2 requires the affirmative vote of a "majority of the outstanding
voting securities" of the Fund.
If the New Advisory Agreement is approved by shareholders, IT WILL BECOME
EFFECTIVE AT THE CLOSE OF BUSINESS ON . Because this Proposal is closely
related to the other proposals being presented at this meeting, the
effectiveness of the New Advisory Agreement, including the fee increase, is
contingent upon the approval of Proposals 1 and 3 (with respect to both
classes). However, if the Reorganization (as discussed in Proposal 4) is
approved, NIAC will serve as the adviser under the New Advisory Agreement.
THE BOARD, INCLUDING A MAJORITY OF THE DIRECTORS WHO ARE NOT
"INTERESTED PERSONS" OF THE CORPORATION OR THE ADVISER, UNANIMOUSLY VOTED TO
APPROVE THE NEW ADVISORY AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS
OF THE FUND VOTE "FOR" PROPOSAL 2
PROPOSAL 3 APPROVAL OF RULE 12B-1 PLAN
INTRODUCTION
As way of background, Rule 12b-1, adopted by the SEC under the 1940 Act, governs
the adoption of distribution plans by investment companies. The rule provides,
among other things, that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended to result in
the sale of its shares except pursuant to a written plan, (the "Plan") adopted
in accordance with the rule, that contains certain provisions that have been
approved by the investment company's board of directors and its shareholders. We
have unanimously approved a proposed new 12b-1 Plan (the "New Plan"). The New
Plan is discussed below and the Fund's existing 12b-1 plan is compared to the
New Plan. On August 28, 1998, the Board, including all of the independent
directors, voted to approve the New Plan and directed that it be submitted to
the Class A and Class C shareholders of the Fund at the Meeting along with a
recommendation that each shareholder approve such 12b-1 Plan. A form of the New
Plan is attached for your review as Exhibit B.
WE RECOMMEND THAT YOU VOTE "FOR" PROPOSAL 3
THE NEW PLAN
The Fund is currently authorized to compensate Nuveen, as distributor of the
Class A and Class C shares of the Fund pursuant to a Plan of Distribution and
Service Pursuant to Rule 12b-1 dated January 30, 1997, as amended on July 23,
1998 (the "Existing Plan"). The New Plan is identical to the Existing Plan other
than the compensation arrangement.
Nuveen's annual compensation under the New Plan will be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CLASS SERVICE FEE DISTRIBUTION FEE TOTAL 12B-1 FEE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
A .25% of the average daily net None .25%
assets
C .25% of the average daily net .75% of the average daily net 1.00%
assets assets
</TABLE>
The service fee payable to Nuveen primarily compensates authorized dealers,
including Nuveen, in connection with the provision of ongoing account services
to shareholders, as further discussed below. The distribution fee primarily
reimburses Nuveen for providing compensation to authorized dealers, including
Nuveen, either at the time of sale or on an ongoing basis. The above-noted
compensation will be accrued daily and paid monthly. These fees may be in
addition to fees paid to Nuveen or to other authorized dealers and brokers for
providing other services to shareholders of the Fund.
The services for which authorized dealers will be compensated include, but are
not limited to, maintaining account records for shareholders who beneficially
own shares; answering inquiries relating to shareholders' accounts, the policies
of the Fund and the performance of their investment; providing assistance and
handling the transmission of funds in connection with the purchase, redemption
and exchange orders for shares; providing assistance in connection with changing
account
8
<PAGE> 15
setups and enrolling in various optional fund services; producing and
disseminating shareholder communications or servicing materials; the ordinary or
capital expenses, such as equipment, rent, fixtures, salaries, bonuses,
reporting and recordkeeping and third party consultancy or similar expenses,
relating to any activity for which payment is authorized by the Board; and the
financing of any other activity for which payment is authorized by the Board.
The New Plan will be in effect until August 1, 1999 and may continue thereafter
from year to year for a class if specifically approved at least annually by vote
of a majority of the outstanding voting securities of that class, as previously
defined, or by us, including, in either event, the vote of a majority of the
"non-interested" directors, cast in person at a meeting called for such purpose.
THE EXISTING PLAN
As noted above, the Fund is currently authorized to compensate Nuveen, as
distributor of the Class A and Class C shares of the Fund, pursuant to the
Existing Plan. Nuveen's compensation under the Existing Plan is:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CLASS SERVICE FEE DISTRIBUTION FEE TOTAL 12B-1 FEE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
A .20% of the average daily net None .20%
assets
C .20% of the average daily net .55% of the average daily net .75%
assets assets
</TABLE>
Under the Existing Plan, for the fiscal year ended June 30, 1998, the Fund paid
the following amount of fees:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% OF AVERAGE NET
$ AMOUNT OF FEES ASSETS DURING
CLASS PAID PERIOD
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
A 40,415 .20%
C 42,528 .75%
</TABLE>
The Existing Plan authorizes the Fund to pay for certain distribution and
promotion expenses related to marketing Fund shares. The Existing Plan for Class
A and Class C shares was approved by shareholders on December 20, 1996, last
amended on July 23, 1998, last approved by the Board of Directors on July 23,
1998 and continued until August 1, 1999. The plan in effect prior to the
Existing Plan provided for total annual 12b-1 fees for Class A shares of .40%
and for Class C shares of .95%.
BOARD DETERMINATION
In approving the New Plan, we determined, as with the Existing Plan, that there
is a reasonable likelihood that the New Plan would benefit you and the Fund. In
doing so, we considered several factors, including that the New Plan would (i)
facilitate distribution of the Fund's shares, (ii) help maintain and improve the
attractiveness of the Fund and its ability to sell shares through authorized
dealers by conforming the Fund's 12b-1 fees to those of Nuveen's other taxable
funds and make them comparable to those of other non-Nuveen mutual funds with
similar investment objectives and policies and (iii) permit possible
administrative and operating efficiencies through increased Fund size.
After considering these factors, we unanimously voted to approve the New Plan
and to submit it to shareholders for approval.
If approved by the shareholders, the New Plan will become effective on the date
of the Reorganization described below, subject to approval of Proposal 4. If,
however, the Reorganization is not approved, the New Plan will become effective
at the close of business on . The effectiveness of the New Plan is
contingent, in either event, upon the approval of both Proposals 1 and 2.
THE BOARD, INCLUDING A MAJORITY OF THE DIRECTORS WHO ARE NOT "INTERESTED
PERSONS" OF THE CORPORATION OR THE ADVISER, UNANIMOUSLY VOTED TO APPROVE THE NEW
PLAN AND RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE "FOR" THE NEW PLAN
9
<PAGE> 16
PROPOSAL 4
REORGANIZATION OF THE FUND
INTRODUCTION
The Corporation is organized as a corporation under the laws of the State of
Maryland. On August 28, 1998, we unanimously approved an Agreement and Plan of
Reorganization (the "Reorganization Agreement") in the form attached hereto as
Exhibit C. The Reorganization Agreement provides for the Reorganization of the
Fund, as a series of the Corporation, into a new series designated Nuveen
Dividend and Growth Fund of Nuveen Investment Trust IV ("NIT IV"), a
newly-organized Massachusetts business trust. NIT IV was organized for the
purpose of succeeding to the business of the Fund.
The purpose of the Reorganization is to further integrate the Fund into the
Nuveen family of mutual funds in a structure that provides for uniformity,
including uniformity of corporate organization and charter documents. The Fund's
current adviser, Nuveen Advisory, believes that the standardization of documents
and operational policies will help to promote operational efficiencies, to
allocate work flows more effectively and to allow for future changes, which
should benefit the Fund through cost efficiencies that may lower the Fund's
operating costs. The Reorganization is a cost saving measure that will not
change the Fund's portfolio management personnel, its investment objectives and
policies or create any tax consequences for either the Fund or its shareholders.
WE RECOMMEND THAT YOU VOTE "FOR" PROPOSAL 4.
The Reorganization Agreement sets forth the steps of the Reorganization as
described below:
- - the Fund will transfer all of its assets to the New Fund in exchange for the
New Fund assuming all of the liabilities and duties of the Fund;
- - the New Fund will issue to the Fund the number of shares of the New Fund equal
to the number of and value of shares of each class of shares of the Fund;
- - as the sole shareholder of the New Fund, the Fund will
(i) approve a proposed new investment advisory agreement between the New Fund
and NIAC, substantially in the form of the New Advisory Agreement on the
terms as described under Proposal 2 (if Proposal 2 is approved by
shareholders);
(ii) approve a proposed new Rule 12b-1 Plan on behalf of the New Fund on the
terms as described under Proposal 3 (if Proposal 3 is approved by
shareholders);
(iii) ratify the election of the trustees of NIT IV (if Proposal 5 is approved
by shareholders); and
(iv) ratify the selection of the New Fund's auditors.
- - the Fund will distribute to you the number of shares of the New Fund
(including fractional shares) equal in number and value to the class of shares
of the Fund held by you; and
- - the Fund will terminate and the Corporation will subsequently be dissolved.
The investment objectives and policies of the New Fund will be identical to the
investment objectives and policies of the Fund, as further discussed in
Proposals 1 and 6. If this Proposal is approved at the scheduled shareholder
meeting, the effective time of the Reorganization is currently expected to take
place a short time later.
CERTAIN COMPARATIVE INFORMATION ON THE CORPORATION AND NIT IV
As a Massachusetts business trust, NIT IV's operations are governed by its
declaration of trust ("Declaration of Trust") and By-laws and by Massachusetts
law, rather than by the Articles of Incorporation, as amended and By-laws, as
amended and restated (the "By-laws") of the Corporation and Maryland law.
Set forth below is a summary of certain differences between the two forms of
organization and governing corporate documents. You may obtain copes of the
Declaration of Trust and the By-laws of NIT IV and the Fund's Articles of
Incorporation and By-laws, without charge, upon written request to the Secretary
of the Fund. The Corporation, the Fund and NIT IV are each subject to the 1940
Act and the rules and regulations thereunder.
10
<PAGE> 17
NIT IV. NIT IV was organized as a Massachusetts business trust on August 20,
1998 for the purpose of succeeding to the business of the Fund.
Shares. The shares of beneficial interest of NIT IV (and each series thereof)
are transferable shares, $.01 par value. NIT IV can issue an unlimited number of
shares of beneficial interest with varying par value. Each share of any series
of NIT IV represents an equal proportionate interest in the assets owned by, and
the liabilities of, that series and shall not extend to the assets of NIT IV
separately. As such, each share of a series of NIT IV is entitled to dividends
and distributions when and as declared by the Board of Trustees. Under the
Articles of Incorporation of the Corporation, the Corporation is currently
authorized to issue up to 600,000,000 shares, $.001 par value per share, which
are divided into five portfolio classes, including the Fund which is the sole
portfolio in existence. The Fund has 200,000,000 authorized shares. The
Corporation's Board of Directors, with or without approval by the shareholders,
may classify and reclassify shares into series and classes and may increase or
decrease the number of authorized shares but not below the number of shares then
outstanding.
Classes of Shares. The Fund is authorized to offer five classes of shares:
Flagship Utility Income Fund Portfolio Stock and Flagship Utility Income
Portfolio Stock Class A; Class B; Class C; and Class R. Currently, the Fund only
offers Class A and Class C shares. It is anticipated that the New Fund will
initially offer Class A, Class B, Class C and Class R shares.
Shareholder Voting Rights. Under the Maryland General Corporation Law (the
"Maryland Code"), a Maryland corporation registered under the 1940 Act is not
required to hold annual meetings unless so required by the 1940 Act. Under
Massachusetts law, NIT IV is not required to hold annual shareholder meetings.
Under the Declaration of Trust and the 1940 Act, however, shareholder meetings
are required to be called for various purposes, such as electing or removing
trustees of NIT IV (although trustees may be elected to fill vacancies or be
removed by the Board of Trustees without a vote of shareholders, subject to
certain restrictions in the 1940 Act), changing fundamental investment policies,
approving or disapproving an investment advisory contract, and ratifying or
rejecting a selection of different auditors. Any matter submitted to a vote of
the NIT IV shareholders is voted by series unless otherwise required by the 1940
Act or as determined by the Board of Trustees.
The Maryland Code and the By-laws of the Corporation provide that a meeting of
shareholders shall be called upon the written request of shareholders
representing 25% of the outstanding shares of the Corporation. The Declaration
of Trust provides that a meeting of shareholders shall be called upon the
written request of the holders of at least 10% of the outstanding shares of NIT
IV, if shareholders of all series are required to vote in the aggregate, or of
any series, if shareholders of such series are entitled to vote by series.
The Declaration of Trust provides that the trustees shall set in the By-laws the
quorum required for the transaction of business by shareholders, provided that
at least 30% of the shares entitled to be voted on a matter shall be necessary
to constitute a quorum. Currently, a quorum for the Fund is a majority of the
shares entitled to be voted. Thus, a meeting of shareholders of NIT IV could
take place even if less than a majority of the shares were represented at the
meeting. Some matters under the Declaration of Trust requiring approval by a
majority or greater percentage of the shares entitled to vote would not be
affected by this provision, nor would matters that under the 1940 Act require
the vote of a "majority" of the outstanding shares (as defined in the 1940 Act).
Under the Declaration of Trust, each trustee of NIT IV serves until the next
meeting of shareholders, if any, called for the purpose of re-electing trustees
or electing successors to such trustees and until the election and qualification
of his successor, or until he sooner dies, resigns, becomes incapacitated or is
removed for cause by a vote of shareholders of NIT IV holding not less than
two-thirds of the shares then outstanding or by a vote of two-thirds of the
trustees then in office.
Liability of Shareholders. Under Massachusetts law, shareholders of a
Massachusetts business trust could, under certain theoretical circumstances, be
held personally liable for the obligations of NIT IV. However, the Declaration
of Trust disclaims shareholder liability for acts or obligations of NIT IV, and
NIT IV disclaims shareholder liability for acts or obligations of NIT IV, and
requires that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by NIT IV or the trustees. Moreover, the
Declaration of Trust provides for indemnification out of NIT IV property for all
losses and expenses of any shareholder held personally liable for the obligation
of NIT IV and NIT IV shall upon the request of the shareholder or former
shareholder assume the defense of any claim made against the shareholder for any
act or obligation of NIT IV and satisfy any judgement. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
considered by NIT IV to be remote, since it is limited to circumstances in which
the disclaimer is
11
<PAGE> 18
inoperative and NIT IV itself is unable to meet its obligations. As owners of a
Maryland corporation, Fund shareholders have no personal liability for the
Fund's acts or obligations, except that a shareholder may be liable to the
extent that: (i) the purchase price of his shares has not been received by the
Fund in the amount or manner required by Maryland law; (ii) he knowingly
receives a dividend or distribution made contrary to Maryland law; or (iii) with
his knowledge, the consideration to him from the Fund upon redemption of his
shares was paid in violation of Maryland law.
Liability of Directors and Trustees. Under the Declaration of Trust, the
trustees are personally liable only for willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of reckless disregard
of their obligations and duties as trustees and not for errors of judgment or
mistakes of fact or law. Under the Declaration of Trust, trustees and officers
will be indemnified against liabilities and expenses incurred in connection with
the defense or disposition of any proceeding in which they are involved by
reason of their position with NIT IV, except that they are not indemnified
against liabilities or expenses arising from conduct adjudicated to constitute
willful misfeasance, bad faith, gross negligence or reckless disregard of their
duties or with respect to any matter as to which the trustee shall have been
adjudicated not to have acted in good faith in the reasonable belief that the
action was in the best interests of NIT IV. NIT IV may also advance money for
these expenses, provided that the trustee or officer undertakes to repay NIT IV
if his conduct is later adjudicated to preclude indemnification and certain
other conditions are met.
Maryland law provides that the Corporation may indemnify any director or officer
made a party to a proceeding as a result of his status as such unless it is
established that (i) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and committed in bad faith or was
the result of active and deliberate dishonesty, (ii) the director or officer
actually received an improper personal benefit or (iii) in the case of any
criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. Maryland law permits the Fund to advance
expenses to a director or officer if the Corporation has received (i) a written
affirmation by the director or officer of his good faith belief that
indemnification is warranted under the law and (ii) a written undertaking to
repay the amount of the indemnification if it is determined that the
indemnification is not warranted.
Involuntary Redemption. The Declaration of Trust permits the Board of Trustees
to authorize NIT IV to redeem shares in an account if at any time the shares in
the account do not have at least a minimum value set by the Board of Trustees.
The Declaration of Trust also authorizes NIT IV to redeem shares under certain
other circumstances as may be specified by the Board of Trustees, which
circumstances are not inconsistent with the 1940 Act. NIT IV currently does not
intend to redeem shares involuntarily.
This discussion is only a summary of certain of the differences between (i) NIT
IV, its Declaration of Trust and By-laws and Massachusetts law, and (ii) the
Corporation, its Articles of Incorporation and By-laws and Maryland law. It is
not a complete list of differences. You may refer to the provisions of the
Articles of Incorporation, as amended and restated, Corporation By-laws and
Maryland law, and the Declaration of Trust, Trust By-laws and Massachusetts law
for a more thorough comparison.
APPRAISAL RIGHTS
As a shareholder of the Fund, you will not have appraisal rights in connection
with the Reorganization.
EXPENSES
The Fund will bear the costs of the Reorganization, but we believe that these
costs will be more than offset by the cost efficiencies that the Reorganization
is expected to create.
FEDERAL INCOME TAX CONSEQUENCES
It is anticipated that the transactions contemplated by the Reorganization
Agreement will be tax-fee for federal income tax purposes. The Corporation, on
behalf of the Fund, has received an opinion of Bell, Boyd & Lloyd, special
counsel to the Corporation, that under the Internal Revenue Code of 1986, as
amended, the Reorganization will not give rise to the recognition of income,
deductions, gain or loss for federal income tax purposes to the Fund, NIT IV, or
the shareholders of the Fund. A shareholder's adjusted basis for tax purposes in
shares of NIT IV after the Reorganization will be the same as the shareholder's
adjusted basis for tax purposes in the shares of the Fund immediately before the
Reorganization. The
12
<PAGE> 19
holding period of the shares of NIT IV received by the shareholders of the Fund
will include the holding period of shares of the Fund exchanged therefor,
provided that at the time of the exchange the shares were held as capital
assets.
AUTHORIZATION TO APPROVE INVESTMENT ADVISORY AGREEMENT
Approval of Investment Advisory Agreement. By voting in favor of the
Reorganization, and assuming Proposal 2 is approved, shareholders of the Fund
will be authorizing the Fund, in its capacity as sole shareholder of the New
Fund, to approve a proposed investment advisory agreement between the New Fund
and NIAC in the form of the New Advisory Agreement.
Please refer to the discussion contained in Proposal 2 relating to the terms of
the New Advisory Agreement, including the fee increase, and the reasons for our
decision to approve the New Advisory Agreement. A form of the New Advisory
Agreement is attached hereto as Exhibit A.
NIAC and Nuveen Advisory. NIAC, like the Fund's current adviser Nuveen
Advisory, is a wholly-owned subsidiary of John Nuveen & Co. Incorporated,
located at 333 W. Wacker Drive, Chicago, Illinois 60606. A further discussion of
Nuveen's business activities is included in Proposal 2 under the heading
"Information about the Adviser." Nuveen Advisory and NIAC are functionally
equivalent entities and the substitution of NIAC as the investment adviser for
the New Fund under the New Advisory Agreement represents a technical change in
the named adviser only, rather than a substantive change in the investment
advisory services provided to the New Fund from those provided to the Fund. The
change in the adviser entity will be transparent to you because the same Nuveen
Advisory employees who are currently managing and supporting the Fund will
continue to do so, subject to normal personnel turnover, for the New Fund in
their capacity as NIAC employees. In fact, the sole purpose for the change in
the entity providing advisory services to the New Fund is to maintain
consistency within the Nuveen family of funds regarding the types of funds for
which each Adviser serves as investment adviser upon completion of the
Reorganization. In addition, because NIAC has been appointed as the investment
adviser to a separate fund (which is designated to be offered as part of a
variable annuity product) substantially similar to the Fund under its proposed
investment policies as described in Proposal 1, the Board of Trustees of the New
Fund (as set forth in Proposal 5) is familiar with the general investment style
and approach that will be used to manage the New Fund.
The Board of Directors, including a majority of the directors who are not
interested persons of the Corporation, Nuveen Advisory or NIAC, determined that
it is appropriate and in the best interests of the Fund and its shareholders for
NIAC to act as the investment adviser for the New Fund if the Reorganization is
approved, particularly in light of the fact that the change in adviser entity
will be transparent to you, as a shareholder of the New Fund. As noted above,
the same individuals who manage the Fund will continue to manage the New Fund,
subject to normal personnel turnover, in their capacity as NIAC employees.
Please refer to the discussion in Proposal 2 under the heading "Factors
Considered by the Board of Directors" for a further discussion of the reasons
for our decision to approve the fee increase and the terms of the New Advisory
Agreement.
The names, addresses and principal occupations of the principal executive
officers and directors of NIAC are identical to those of Nuveen Advisory and are
listed in Proposal 2 under the heading "Information About the Adviser."
In addition, the following individuals who are executive officers of the Fund
are also officers of NIAC: Alan G. Berkshire; Michael S. Davern; Lorna C.
Ferguson; William M. Fitzgerald; J. Thomas Futrell; Richard A. Huber; Steven J.
Krupa; Larry W. Martin; Edward F. Neild, IV; Stephen S. Peterson; Thomas C.
Spalding, Jr.; H. William Stabenow; and Gifford R. Zimmerman.
APPROVAL TO ADOPT NEW 12B-1 PLAN
By voting in favor of the Reorganization, assuming that the shareholders approve
Proposal 3, shareholders of the Fund will be authorizing the Fund, in its
capacity as initial sole shareholder of the New Fund, to adopt a new 12b-1 plan,
a complete discussion of which is included at Proposal 3.
RATIFICATION OF THE ELECTION OF TRUSTEES
By voting in favor of the Reorganization, assuming that the shareholders
approval Proposal 5, shareholders of the Fund will be authorizing the Fund, in
its capacity as initial sole shareholder of the New Fund, to ratify the election
of the trustees.
13
<PAGE> 20
SELECTION OF NEW FUND'S AUDITORS
By voting in favor of the Reorganization, shareholders of the Fund will be
authorizing the Fund, in its capacity as initial sole shareholder of the New
Fund, to select Arthur Andersen LLP as auditors for the New Fund for the fiscal
year ending June 30, 1999. Arthur Andersen LLP currently serves as auditors of
the Fund. Arthur Andersen LLP has no direct or indirect financial interest in
the Fund or the New Fund except as auditors and independent accountants. [A
representative of Arthur Andersen LLP is expected to be present at the Meeting
and will be available to respond to any appropriate questions raised at the
Meeting and to make a statement if he or she wishes.]
BOARD RECOMMENDATION
We have determined that the transactions contemplated by the Reorganization
Agreement are advisable and in the best interests of the Fund's shareholders.
If shareholders do not approve the Reorganization, the Fund will continue in
business as a series of the Corporation. The Reorganization is contingent upon
the approval of Proposals 1, 2 and 3 (with respect to both classes) and 5.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE
REORGANIZATION BY VOTING "FOR" PROPOSAL 4
PROPOSAL 5 RATIFICATION OF THE SELECTION OF THE BOARD OF TRUSTEES OF NIT IV
The affairs of NIT IV are managed by a Board of Trustees rather than a Board of
Directors as under Maryland law. Five individuals have been appointed to serve
as trustees of NIT IV. Of these individuals, only Mr. Dean serves on the Board
of the Fund. All of the individuals named below serve as trustees of other funds
within the Nuveen family of funds. The following tables shows each individual
who is standing for election, his/her age, and the principal occupation or
employment during the last five years.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEAR
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Anthony T. Dean* 53 President (since July 1996) and Director,
333 W. Wacker Drive formerly Executive Vice President, of The John
Chicago, IL 60606 Nuveen Company (from March 1992 to July 1996)
and of John Nuveen & Co. Incorporated; Director
(Chairman) and President (since July 1996), formerly
Executive Vice President (from May 1994 to July
1996) of Nuveen Institutional Advisory Corp. and
Nuveen Advisory Corp.
James E. Bacon 67 Business consultants; a Director of Lone Star
333 W. Wacker Drive Industries, Inc. (cement); previously Director
Chicago, IL 60606 and Executive Vice President of U.S. Trust
Corporation and Trustee of United States Trust
Company of New York
William L.Kissick 66 Professor, School of Medicine and the Wharton
333 W. Wacker Drive School of Management and Chairman, Leonard Davis
Chicago, IL 60606 Institute of Health, Economics, University of
Pennsylvania
Thomas E. Leafstrand 66 Retired, previously Vice President in charge of
333 W. Wacker Drive Municipal Underwriting and Dealer Sales at the
Chicago,IL 60606 Northern Trust Company
Sheila W. Wellington 66 President of Catalyst (a not-for-profit
333 W. Wacker Drive organization focusing on women's leadership
Chicago, IL 60606 development in business and the professions)
</TABLE>
* Trustees who would be "interested persons" of NIT IV as defined in the 1940
Act.
None of the trustees beneficially own shares of the Fund.
14
<PAGE> 21
Mr. Dean serves as a director and trustee, as the case may be, of 103 open-end
funds and closed-end funds advised by NIAC and Nuveen Advisory. Messrs. Bacon
and Leafstrand and Ms. Wellington serve as board members of 20 open-end funds
and closed-end funds advised by NIAC.
Each trustee who is not affiliated with NIAC receives a $20,000 annual retainer
for serving as a director or trustee for all funds for which NIAC serves as
investment adviser, a $1,000 fee per day plus expenses for attendance at all
meetings held on a day on which a regularly scheduled Board meeting is held and
a $500 fee per day plus expenses for attendance in person or by telephone at a
meeting of the Executive Committee, as described below, held solely to declare
dividends. 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 size. Trustees and officers who are "interested persons" receive no
compensation from NIT IV or the New Fund for their services.
If the Reorganization is approved, it is expected that Messrs. Bacon, Kissick,
Leafstrand and Ms. Wellington will serve on the Audit Committee that is
responsible for reviewing work and any recommendations of NIT IV's independent
auditors. Messrs. Dean and Leafstrand will serve as members of the Executive
Committee that is authorized to exercise all of the powers of the Board and
Messrs. Bacon, Kissick and Leafstrand and Ms. Wellington will serve on the
Nominating Committee that is responsible for identifying and recommending
individuals to be nominated for election as independent trustees.
The table below shows, for each individual named above as an independent trustee
of NIT IV, the total compensation that all existing funds advised by NIAC
accrued for each independent trustee during the period ended June 30, 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TOTAL COMPENSATION FROM
THE FUND COMPLEX PAID TO
TRUSTEE TRUSTEE
- --------------------------------------------------------------------------------------
<S> <C>
James E. Bacon $29,000
William L. Kissick $28,000
Thomas E. Leafstrand $30,600
Sheila W. Wellington $28,000
</TABLE>
The effectiveness of Proposal 5 is contingent upon the approval of Proposals 1,
2, 3 (with respect to both classes) and 4.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS RATIFY THE SELECTION OF
THE TRUSTEES BY VOTING "FOR" PROPOSAL 5
PROPOSAL 6 CHANGES TO OTHER FUNDAMENTAL POLICIES
We have proposed that certain other fundamental investment restrictions of the
Fund be revised. The primary purpose of these proposals, unless otherwise
stated, is to revise the Fund's fundamental operating policies to conform them
to those that are currently standard for most funds managed by the Adviser. The
Adviser believes that this standardization will increase operating efficiencies
which may result in lower expenses. Set forth below are Proposals 6(A) through
6(L). You will have an opportunity to vote on each Proposal separately, and if
approved they will become the fundamental investment policies of the Fund, and
the New Fund, as described under Proposal 4. WE AND NUVEEN ADVISORY DO NOT
BELIEVE THAT THESE CHANGES WILL RESULT IN ANY MATERIAL CHANGES TO THE FUND'S
OPERATIONS OR ITS ABILITY TO ACHIEVE ITS INVESTMENT OBJECTIVE.
WE RECOMMEND THAT YOU VOTE "FOR" PROPOSALS 6(A) THROUGH 6(L)
PROPOSAL 6(A) -- DIVERSIFICATION
We have proposed that the following be a fundamental investment restriction of
the Fund.
The Fund, as a fundamental policy, may not, without the approval of the
holders of a majority of the shares of the Fund, with respect to 75% of its
total assets, 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 the Fund's
total assets would be invested in securities of that issuer, or (ii) the
Fund would hold more than 10% of the outstanding voting securities of that
issuer.
15
<PAGE> 22
The current investment restriction on diversification and the proposed
fundamental investment restriction are substantially similar.
PROPOSAL 6(B) -- BORROWING
We have proposed that the following be a fundamental investment restriction of
the Fund.
The Fund, as a fundamental policy, may not, without the approval of the
holders of a majority of the shares of the 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)
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 options), provided that the
combination of (i) and (ii) shall not exceed 33 1/3% of the liabilities
(other than borrowings).
The current investment restriction on borrowings and the proposed fundamental
investment restriction are similar. The salient differences are that if Proposal
6(B) is approved, the Fund will be permitted to borrow up to one-third of the
value of the Fund's total assets (including the amount borrowed), less the
Fund's liabilities (rather than the 25% limit in the current restriction), and
the Proposal does not include a component relating to the issuance of senior
securities, which is addressed in a separate fundamental policy discussed in
Proposal 6(C) below. If the Proposal is adopted, we will adopt a nonfundamental
policy (that is not subject to shareholder approval) that provides that the Fund
will not purchase securities when borrowings exceed 5% of its total assets and
that if due to market fluctuations or other reasons, the value of a Fund's
assets falls below 300% of its borrowings, the Fund will reduce its borrowings
within 3 business days.
PROPOSAL 6(C) -- SENIOR SECURITIES
We have proposed that the following be a fundamental investment restriction of
the Fund.
The Fund, as a fundamental policy, may not, without the approval of the
holders of a majority of the shares of the Fund, issue senior securities,
except as permitted under the Investment Company Act of 1940.
The Fund's current fundamental investment restriction regarding issuing
securities senior to the Fund's shares is substantially similar to the proposed
fundamental investment restriction described above.
PROPOSAL 6(D) -- UNDERWRITING
We have proposed that the following be a fundamental investment restriction of
the Fund.
The Fund, as a fundamental policy, may not, without the approval of the
holders of a majority of the shares of the Fund, act as an underwriter of
another issuer's securities, except to the extent that the Fund may be
deemed to be an underwriter within the meaning of the Securities Act of
1933 in connection with the purchase and sale of portfolio securities.
The Fund's current fundamental investment restriction regarding underwriting
securities is similar to the proposed fundamental investment restriction
described above. The salient difference is that the Proposal does not address
the treatment of illiquid securities, which is addressed in a separate
nonfundamental policy discussed in Proposal 6(L) below. The Fund's current
restriction provides that the Fund may not act as an underwriter of securities
except to the extent that in connection with the purchase and sale of portfolio
securities it may be deemed to be an underwriter.
PROPOSAL 6(E) -- REAL ESTATE
We have proposed that the following be a fundamental investment restriction of
the Fund.
The Fund, as a fundamental policy, may not, without the approval of the
holders of a majority of the shares of the Fund, purchase or sell real
estate unless acquired as a result of ownership of securities or other
instruments (but this shall not prohibit the Fund from purchasing or
selling securities or other instruments backed by real estate or issuers
engaged in real estate activities).
The Fund's current fundamental investment restriction regarding investing
in real estate is similar to the proposed fundamental investment
restriction described above. The salient differences are that the Proposal
does not include a
16
<PAGE> 23
component relating to commodities, which is addressed in a separate
fundamental policy discussed in Proposal 6(F) below, or to real estate
investment trust securities. The Fund's current restriction provides that
the Fund may not purchase or sell real estate, real estate mortgage loans
or real estate investment trust securities.
PROPOSAL 6(F) -- COMMODITIES
We have proposed that the following be a fundamental investment restriction of
the Fund.
The Fund, as a fundamental policy, may not, without the approval of holders
of a majority of the shares of the Fund, purchase or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from purchasing or selling
options, futures contracts, or other derivative instruments, or from
investing in securities or other instruments backed by physical
commodities).
The Fund's current fundamental investment restriction regarding investing in
commodities, commodity contracts or oil and gas interests is similar to the
proposed fundamental investment restriction described above. The Fund's current
restriction provides that the Fund may not purchase or sell commodities,
commodity contracts, except for bona fide hedging purposes, or oil and gas
interests.
PROPOSAL 6(G) -- LOANS
We have proposed that the following be a fundamental investment restriction of
the Fund.
The Fund, as a fundamental policy, may not, without the approval of holders
of a majority of the shares of the Fund, make loans to other persons,
except through (i) the purchase of debt securities permissible under the
Fund's investment policies, (ii) repurchase agreements, or (iii) the
lending of portfolio securities, provided that no such loan of portfolio
securities may be made by the Fund if, as a result, the aggregate of such
loans would exceed 33 1/3% of the value of the Fund's total assets.
The Fund's current fundamental investment restriction regarding making loans is
similar to the proposed fundamental investment restriction described above. The
Fund's current restriction provides that the Fund may not make loans, except to
the extent the purchase of debt obligations (including repurchase agreements) in
accordance with the Fund's current investment objectives and polices are
considered loans.
PROPOSAL 6(H) -- INVESTMENT COMPANIES
We have proposed that the following be deleted as a fundamental investment
restriction of the Fund.
The Fund, as a fundamental policy, may not, without the approval of holders
of a majority of the shares of the Fund, acquire securities of other
investment companies (other than in connection with the acquisitions of
such companies).
If Proposal 6(H) is approved, the fundamental policies of the Fund will no
longer restrict the Fund from acquiring securities of other investment companies
as described above and we will adopt a nonfundamental policy that restricts the
purchase of securities of open-end or closed-end investment companies except in
compliance with the 1940 Act or any exemptive relief obtained thereunder.
PROPOSAL 6(I) -- SHORT SALES AND MARGIN PURCHASES
We have proposed that the following be deleted as a fundamental investment
restriction of the Fund.
The Fund, as a fundamental policy, may not, without the approval of holders
of a majority of the shares of the Fund, purchase securities on margin,
make short sales of securities or maintain a net short position.
If Proposal 6(I) is approved, the fundamental policies of the Fund will no
longer restrict the Fund from acquiring securities on margin or making short
sales as described above and we will adopt a nonfundamental policy that
restricts the sale of securities short, unless the Fund owns or has the right to
obtain securities 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. However, because the nonfundamental policy
does not address purchases of securities on margin, the Fund will be permitted
to purchase securities on margin as permitted by applicable law.
17
<PAGE> 24
PROPOSAL 6(J) -- AFFILIATE PURCHASES
We have proposed that the following be deleted as a fundamental investment
restriction of the Fund.
The Fund, as a fundamental policy, may not, without the approval of holders
of a majority of the shares of the Fund, purchase or retain securities of
any issuer any of whose officers, directors, or security holders is a
director or officer of the Fund or of its investment adviser if or so long
as the directors and officers of the Fund and of its investment adviser
together own beneficially more than 5% of any class of securities of such
issuer.
If Proposal 6(J) is approved, the fundamental policies of the Fund will no
longer prohibit the Fund from acquiring securities of an issuer affiliated with
the Fund's directors or the Adviser's officer and directors. The primary reason
for the Proposal is that, as a result of the passage of the National Securities
Markets Improvement Act of 1996, the Fund is no longer required to adhere to the
policy which previously was mandated by state law. The above-noted policy was
intended to prevent conflicts of interest in the management of mutual funds. In
doing so, however, the policy focused on fund investments rather than
investments by fund officers and directors. We and the Adviser believe that the
Fund's Code of Ethics, which was adopted in accordance with the rules of the
Securities and Exchange Commission (the "SEC"), is the best way to prevent the
occurrence of conflicts of interest.
PROPOSAL 6(K) -- PLEDGES
We have proposed that the following be deleted as a fundamental investment
restriction of the Fund.
The Fund, as a fundamental policy, may not, without the approval of holders
of a majority of the shares of the Fund, mortgage, pledge, or hypothecate
any assets except in an amount up to 50% of the value of the Fund's net
assets taken at cost, and only to secure borrowings permitted by clause [3]
above.
If Proposal 6(K) is approved, the fundamental policies of the Fund will no
longer provide that the Fund is restricted from mortgaging, pledging or
hypothecating any assets subject to restrictions noted above. The primary reason
for the Proposal is that, as a result of the passage of the National Securities
Markets Improvement Act of 1996, the Fund is no longer required to adhere to the
policy which previously was mandated by state law. However, the Fund is subject
to the borrowing limitations set forth in the 1940 Act and as described in
Proposal 6(B).
PROPOSAL 6(L) -- ILLIQUID SECURITIES
The Board has proposed that the following be deleted as a fundamental investment
restriction of the Fund.
The Fund, as a fundamental policy, may not, without the approval of holders
of a majority of the shares of the Fund, invest more than 10% of the Fund's
assets, as determined at the time of investment, in securities that are
subject to restrictions on disposition under the Securities Act of 1933 or
for which market quotations are not readily available, including repurchase
agreements having more than seven days to maturity.
If Proposal 6(L) is approved, the Fund will no longer have a fundamental policy
restricting it from acquiring more than 10% of its assets in illiquid
securities, we will, however, adopt a nonfundamental policy that restricts the
Fund's investment in illiquid securities if, as a result of such investment,
more than 15% of the Fund's net assets would be invested in illiquid securities.
The above-noted 15% limitation is mandated by the SEC.
BOARD RECOMMENDATION
We have determined that the changes in the Fund's fundamental policies as
described in Proposals 6(A) through 6(L) are advisable and in the best interests
of the Fund's shareholders.
If both the Reorganization (Proposal 4) and the changes to the fundamental
investment policies are approved, the changes, as approved, will become
effective immediately prior to the Reorganization. If, however, the
Reorganization is not approved, the changes to the fundamental investment
policies, will become effective shortly after shareholder approval as is
practicable.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE CHANGES IN
THE FUND'S FUNDAMENTAL POLICIES BY VOTING "FOR" PROPOSALS 6(A) THROUGH 6(L)
18
<PAGE> 25
OTHER INFORMATION
SHARE OWNERSHIP
As of September 1, 1998, (i) no director or officer of the Fund beneficially
owned any shares of the Fund, (ii) the directors and executive officers as a
group did not beneficially own any shares of the Fund and (iii) no person known
to the Corporation owned beneficially more than 5% of the shares of any class of
the Fund.
This proxy statement is being sent to you by the Board of Directors of the
Corporation for voting at the special meeting and at any and all adjournments of
that meeting. This proxy statement was first mailed to shareholders on or about
October 5, 1998.
VOTING REQUIREMENTS
You have the right to cast one vote for each share you own, on each matter
submitted to a vote of the shareholders at the meeting; no shares have
cumulative voting rights. Some of the proposals at this meeting require a higher
percentage of shares voting in favor to be approved than other proposals. In
addition, some of the proposals are interrelated, so that a proposal might not
be implemented if another proposal is not approved. The following chart shows
the required votes and whether there are other proposals that have to be
approved in order for a proposal to be implemented.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PROPOSAL VOTE REQUIRED TO APPROVE DEPENDS ON OTHER PROPOSALS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Eliminating policy on The lesser of (i) 67% of the For Proposal 1 to be
concentrating in utility shares of the Fund present at implemented, Proposals 2 and 3
industry the meeting, if more than 50% must also be approved.
of the outstanding shares of
the Fund are present in person
or by proxy or (ii) more than
50% of the outstanding shares
of the Fund.
2. Approving a new advisory The lesser of (i) 67% of the For Proposal 2 to be
agreement shares of the Fund present at implemented, Proposals 1 and 3
the meeting, if more than 50% must also be approved.
of the outstanding shares of
the Fund are present in person
or by proxy or (ii) more than
50% of the outstanding shares
of the Fund.
3. Approving a new 12b-1 plan (the The lesser of (i) 67% of the For Proposal 3 to be
Class A and Class C shares shares of the Fund present at implemented, Proposals 1 and 2
voting separately) the meeting, if more than 50% must also be approved.
of the outstanding shares of
the Fund are present in person
or by proxy or (ii) more than
50% of the outstanding shares
of the Fund.
4. Approving the Reorganization Two-thirds of the outstanding For Proposal 4 to be
shares of the Fund implemented, Proposals 1, 2, 3
and 5 must also be approved.
5. Ratifying the election of a majority of the votes cast For Proposal 5 to be
trustees to the new board implemented, Proposals 1, 2, 3
and 4 must also be approved.
6. Changing investment policies The lesser of (i) 67% of the Not dependent on approval of
(each voted on separately) shares of the Fund present at other Proposals.
the meeting, if more than 50%
of the outstanding shares of
the Fund are present in person
or by proxy or (ii) more than
50% of the outstanding shares
of the Fund.
</TABLE>
If you properly sign and date your proxy and return it on time, your shares will
be voted as you instruct on your proxy card, and as the persons named in the
proxy determine on any other business that comes before the meeting. If you
properly sign and return your proxy card, but don't mark any instructions on it,
your shares will be voted FOR each Proposal. You may
19
<PAGE> 26
revoke your proxy at any time before it is voted by filing with the Fund a
written notice of revocation, by delivering another properly signed proxy
bearing a later date, or by attending the meeting and voting in person.
RECORD DATE
The Board of Directors has fixed the close of business on September 15, 1998 as
the record date for determining holders of the Fund's shares entitled to notice
of and to vote at the Meeting. At the close of business on the Record Date,
there were issued and outstanding shares of Class A common stock of the
Fund and shares of Class C common stock of the Fund.
REPORTS TO SHAREHOLDERS
Each shareholder has received the Fund's annual report to shareholders for the
fiscal year ended June 30, 1998. If you would like another copy of the annual
report, please write to the Fund at 333 West Wacker Drive, Chicago, Illinois
60606 or telephone 1-800- 257-8787. The report will be sent to you without
charge.
QUORUM AND ADJOURNMENT
A quorum of shareholders is required to take action at the Meeting. At least a
majority of the shares of each class entitled to vote at the Meeting,
represented in person or by proxy, will constitute a quorum of shareholders at
the Meeting. The inspectors of election will determine whether or not a quorum
is present at the Meeting. If, by the time scheduled for the Meeting, a quorum
of shareholders of the Fund is not present or if a quorum is present but not
enough votes in favor of a Proposal have been received to approve it, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further soliciting of proxies from shareholders of the Fund. Any
adjournment will require the affirmative vote of a majority of shares of the
Fund present (in person or by proxy) at the session of the meeting to be
adjourned. The persons named as proxies will vote in favor of adjournment if
they determine that such adjournment and additional solicitation are reasonable
and in the interest of the Fund's shareholders.
ABSTENTIONS AND BROKER NON-VOTES
In tallying shareholder votes, abstentions and "broker non-votes" (i.e., shares
held by brokers or nominees as to which (i) instructions have not been received
from the beneficial owners or persons entitled to vote and (ii) the broker or
nominee does not have discretionary voting power on a particular matter) will be
counted for purposes of determining whether a quorum is present for purposes of
convening the Meeting. On all Proposals, broker non-votes will be considered to
be both present at the Meeting and issued and outstanding and, as a result, for
all Proposals other than Proposal 5, will have the effect of being counted as
voted against the Proposal. On Proposal 5, broker non-votes and abstentions will
have no effect.
COSTS OF THE PROXY SOLICITATION
The cost of preparing, printing and mailing these proxy materials, and all other
costs in connection with the solicitation of proxies, will be paid by the Fund.
Additional solicitation may be made by letter, telephone or telegraph by
officers of the Fund, by officers or employees of the Fund's principal
underwriter, John Nuveen & Co. Incorporated or the Fund's investment adviser,
Nuveen Advisory Corp., or by dealers and their representatives. D.F. King & Co.,
Inc. has been engaged to assist in the solicitation of proxies for estimated
fees of $2,000 plus reasonable expenses.
PROPOSALS OF SHAREHOLDERS
Pursuant to the Maryland Code, the Articles of Incorporation and the By-laws of
the Fund and to Massachusetts law, the Declaration of Trust and By-laws of the
Trust, neither the Corporation nor NIT IV is required to hold an annual meeting
unless the 1940 Act requires a meeting for the election of directors. Meetings
of the shareholders will be held when and as determined necessary by the Board
of Directors or Trustees, as the case may be, of the Corporation or NIT IV and
in accordance with the 1940 Act. Since the Corporation and NIT IV do not hold
annual meetings of shareholders, the anticipated date of the next meeting cannot
be provided. If you want to submit a proposal for presentation at a meeting of
shareholders, you should send the proposal to the offices of the Fund, 333 W.
Wacker Drive, Chicago, Illinois 60606, Attention: Secretary.
20
<PAGE> 27
OTHER BUSINESS
The Board is not aware of any matters that will be presented for action at the
Meeting other than the matters set forth herein. Should any other matters
requiring a vote of shareholders arise, the proxy in the accompanying form will
confer upon the person or persons entitled to vote the shares represented by
such proxy the discretionary authority to vote matters in accordance with their
best judgment.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
For the Board of Directors
Gifford R. Zimmerman
Secretary
21
<PAGE> 28
EXHIBIT A
MANAGEMENT AGREEMENT
BETWEEN
FLAGSHIP ADMIRAL FUNDS INC.
(ON BEHALF OF ITS SERIES FLAGSHIP UTILITY INCOME FUND)
AND
NUVEEN ADVISORY CORP.
FLAGSHIP ADMIRAL FUNDS INC., a Maryland corporation registered under the
Investment Company Act of 1940 ("1940 Act") as an open-end diversified
management series investment company ("Corporation"), hereby appoints NUVEEN
ADVISORY CORP., a Delaware corporation registered under the Investment Advisers
Act of 1940 as an investment adviser, of Chicago, Illinois ("Manager"), to
furnish investment advisory and management services and certain administrative
services with respect to the portion of its assets represented by the shares of
beneficial interest issued in the series listed in Schedule A hereto, as such
schedule may be amended from time to time (each such series hereinafter referred
to as "Fund"). Corporation and Manager hereby agree that:
1. Investment Management Services. Manager shall manage the investment
operations of Corporation and each Fund, subject to the terms of this
Agreement and to the supervision and control of Corporation's Board of
Directors ("Directors"). Manager agrees to perform, or arrange for the
performance of, the following services with respect to each Fund:
(a) to obtain and evaluate such information relating to economies,
industries, businesses, securities and commodities markets, and
individual securities, commodities and indices as it may deem
necessary or useful in discharging its responsibilities
hereunder;
(b) to formulate and maintain a continuous investment program in a
manner consistent with and subject to (i) Corporation's articles
of incorporation and by-laws; (ii) the Fund's investment
objectives, policies, and restrictions as set forth in written
documents furnished by the Corporation to Manager; (iii) all
securities, commodities, and tax laws and regulations applicable
to the Fund and Corporation; and (iv) any other written limits or
directions furnished by the Directors to Manager;
(c) unless otherwise directed by the Directors, to determine from
time to time securities, commodities, interests or other
investments to be purchased, sold, retained or lent by the Fund,
and to implement those decisions, including the selection of
entities with or through which such purchases, sales or loans are
to be effected;
(d) to use reasonable efforts to manage the Fund so that it will
qualify as a regulated investment company under subchapter M of
the Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in which voting rights,
rights to consent to Corporation or Fund action, and any other
rights pertaining to Corporation or the Fund shall be exercised;
(f) to make available to Corporation promptly upon request all of the
Fund's records and ledgers and any reports or information
reasonably requested by the Corporation; and
(g) to the extent required by law, to furnish to regulatory
authorities any information or reports relating to the services
provided pursuant to this Agreement.
Except as otherwise instructed from time to time by the Corporation, with
respect to execution of transactions for Corporation on behalf of a Fund,
Manager shall place, or arrange for the placement of, all orders for purchases,
sales, or loans with issuers, brokers, dealers or other counterparts or agents
selected by Manager. In connection with the selection of all such parties for
the placement of all such orders, Manager shall attempt to obtain most favorable
execution and price, but may nevertheless in its sole discretion as a secondary
factor, purchase and sell portfolio securities from and to brokers and dealers
who provide Manager with statistical, research and other information, analysis,
advice, and similar services. In recognition of such services or brokerage
services provided by a broker or dealer, Manager is hereby authorized to pay
such
A-1
<PAGE> 29
broker or dealer a commission or spread in excess of that which might be charged
by another broker or dealer for the same transaction if the Manager determines
in good faith that the commission or spread is reasonable in relation to the
value of the services so provided.
Corporation hereby authorizes any entity or person associated with Manager that
is a member of a national securities exchange to effect any transaction on the
exchange for the account of a Fund to the extent permitted by and in accordance
with Section 11(a) of the Securities Exchange Act or 1934 and Rule 11a2-2(T)
thereunder. Corporation hereby consents to the retention by such entity or
person of compensation for such transactions in accordance with Rule
11a-2-2(T)(a)(iv).
Manager may, where it deems to be advisable, aggregate orders for its other
customers together with any securities of the same type to be sold or purchased
for Corporation or one or more Funds in order to obtain best execution or lower
brokerage commissions. In such event, Manager shall allocate the shares so
purchased or sold, as well as the expenses incurred in the transaction, in a
manner it considers to be equitable and fair and consistent with its fiduciary
obligations to Corporation, the Funds, and Manager's other customers.
Manager shall for all purposes be deemed to be an independent contractor and not
an agent of Corporation and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent Corporation in any way.
2. Administrative Services. Subject to the terms of this Agreement and
to the supervision and control of the Directors, Manager shall provide
to the Corporation facilities, equipment, statistical and research
data, clerical, accounting and bookkeeping services, internal auditing
and legal services, and personnel to carry out all management services
required for operation of the business and affairs of the Funds other
than those services to be performed by the Corporation's Distributor
pursuant to the Distribution Agreement, those services to be performed
by the Corporation's Custodian pursuant to the Custody Agreement,
those services to be performed by the Corporation's Transfer Agent
pursuant to the Transfer Agency Agreement, those services to be
provided by the Corporation's Custodian pursuant to the Accounting
Agreement and those services normally performed by the Corporation's
counsel and auditors.
3. Use of Affiliated Companies and Subcontractors. In connection with
the services to be provided by Manager under this Agreement, Manager
may, to the extent it deems appropriate, and subject to compliance
with the requirements of applicable laws and regulations, make use of
(i) its affiliated companies and their directors, Directors, officers,
and employees and (ii) subcontractors selected by Manager, provided
that Manager shall supervise and remain fully responsible for the
services of all such third parties in accordance with and to the
extent provided by this Agreement. All costs and expenses associated
with services provided by any such third parties shall be borne by
Manager or such parties.
4. Expenses Borne by Corporation. Except to the extent expressly assumed
by Manager herein or under a separate agreement between Corporation
and Manager and except to the extent required by law to be paid by
Manager, Manager shall not be obligated to pay any costs or expenses
incidental to the organization, operations or business of the
Corporation. Without limitation, such costs and expenses shall include
but not be limited to:
(a) all charges of depositories, custodians and other agencies for
the safekeeping and servicing of its cash, securities, and other
property;
(b) all charges for equipment or services used for obtaining price
quotations or for communication between Manager or Corporation
and the custodian, transfer agent or any other agent selected by
Corporation;
(c) all charges for and accounting services provided to Corporation
by Manager, or any other provider of such services;
(d) all charges for services of Corporation's independent auditors
and for services to Corporation by legal counsel;
(e) all compensation of Directors, other than those affiliated with
Manager, all expenses incurred in connection with their services
to Corporation, and all expenses of meetings of the Directors or
committees thereof;
(f) all expenses incidental to holding meetings of holders of shares
in the Corporation ("Shareholders"), including printing and of
supplying each record-date Shareholder with notice and proxy
solicitation material, and all other proxy solicitation expense;
A-2
<PAGE> 30
(g) all expenses of printing of annual or more frequent revisions of
Corporation prospectus(es) and of supplying each then-existing
Shareholder with a copy of a revised prospectus;
(h) all expenses related to preparing and transmitting certificates
representing Corporation shares;
(i) all expenses of bond and insurance coverage required by law or
deemed advisable by the Board of Directors;
(j) all brokers' commissions and other normal charges incident to
the purchase, sale, or lending of portfolio securities;
(k) all taxes and governmental fees payable to Federal, state or
other governmental agencies, domestic or foreign, including all
stamp or other transfer taxes;
(l) all expenses of registering and maintaining the registration of
Corporation under the 1940 Act and, to the extent no exemption
is available, expenses of registering Corporation's shares under
the 1933 Act, of qualifying and maintaining qualification of
Corporation and of Corporation's shares for sale under
securities laws of various states or other jurisdictions and of
registration and qualification of Corporation under all other
laws applicable to Corporation or its business activities;
(m) all interest on indebtedness, if any, incurred by Corporation or
a Fund; and
(n) all fees, dues and other expenses incurred by Corporation in
connection with membership of Corporation in any trade
association or other investment company organization.
5. Allocation of Expenses Borne by Corporation. Any expenses borne by
Corporation that are attributable solely to the organization,
operation or business of a Fund shall be paid solely out of Fund
assets. Any expense borne by Corporation which is not solely
attributable to a Fund, nor solely to any other series of shares of
Corporation, shall be apportioned in such manner as Manager determines
is fair and appropriate, or as otherwise specified by the Board of
Directors.
6. Expenses Borne by Manager. Manager at its own expense shall furnish
all executive and other personnel, office space, and office facilities
required to render the investment management and administrative
services set forth in this Agreement.
In the event that Manager pays or assumes any expenses of Corporation or a Fund
not required to be paid or assumed by Manager under this Agreement, Manager
shall not be obligated hereby to pay or assume the same or similar expense in
the future; provided that nothing contained herein shall be deemed to relieve
Manager of any obligation to Corporation or a Fund under any separate agreement
or arrangement between the parties.
7. Management Fee. For the services rendered, facilities provided, and
charges assumed and paid by Manager hereunder, Corporation shall pay
to Manager out of the assets of each Fund fees at the annual rate for
such Fund as set forth in Schedule B to this Agreement. For each Fund,
the management fee shall accrue on each calendar day, and shall be
payable monthly on the first business day of the next succeeding
calendar month. The daily fee accrual shall be computed by multiplying
the fraction of one divided by the number of days in the calendar year
by the applicable annual rate of fee, and multiplying this product by
the net assets of the Fund, determined in the manner established by
the Board of Directors, as of the close of business on the last
preceding business day on which the Fund's net asset value was
determined.
8. State Expense Limitation. If for any fiscal year of a Fund, its
aggregate operating expenses ("Aggregate Operating Expenses") exceed
the applicable percentage expense limit imposed under the securities
law and regulations of any state in which shares of the Fund are
qualified for sale (the "State Expense Limit"), the Manager shall pay
such Fund the amount of such excess. For purposes of this State
Expense Limit, Aggregate Operating Expenses shall (a) include (i) any
fees or expenses reimbursements payable to Manager pursuant to this
Agreement and (ii) to the extent the Fund invests all or a portion of
its assets in another investment company registered under the 1940
Act, the pro rata portion of that company's operating expenses
allocated to the Fund, and (iii) any compensation payable to Manager
pursuant to any separate agreement relating to the Fund's
administration, but (b) exclude any interest, taxes, brokerage
commissions, and other normal charges incident to the purchase, sale
or loan of securities, commodity interests or other investments held
by the Fund, litigation and
A-3
<PAGE> 31
indemnification expense, and other extraordinary expenses not incurred
in the ordinary course of business. Except as otherwise agreed to by
the parties or unless otherwise required by the law or regulation of
any state, any reimbursement by Manager to a Fund under this section
shall not exceed the management fee payable to Manager by the Fund
under this Agreement.
Any payment to a Fund by Manager hereunder shall be made monthly, by annualizing
the Aggregate Operating Expenses for each month as of the last day of the month.
An adjustment for payments made during any fiscal year of the Fund shall be made
on or before the last day of the first month following such fiscal year of the
Fund if the Annual Operating Expenses for such fiscal year (i) do not exceed the
State Expense Limitation or (ii) for such fiscal year there is no applicable
State Expense Limit.
9. Retention of Sub-Adviser. Subject to obtaining the initial and
periodic approvals required under Section 15 of the 1940 Act, Manager
may retain one or more sub-advisers at Manager's own cost and expense
for the purpose of furnishing one or more of the services described in
Section 1 hereof with respect to Corporation or one or more Funds.
Retention of a sub-adviser shall in no way reduce the responsibilities
or obligations of Manager under this Agreement, and Manager shall be
responsible to Corporation and its Funds for all acts or omissions of
any sub-adviser in connection with the performance or Manager's duties
hereunder.
10. Non-Exclusivity. The services of Manager to Corporation hereunder are
not to be deemed exclusive and Manager shall be free to render similar
services to others.
11. Standard of Care. The Manager shall not be liable for any loss
sustained by reason of the purchase, sale or retention of any
security, whether or not such purchase, sale or retention shall have
been based upon the investigation and research made by any other
individual, firm or corporation, if such recommendation shall have
been selected with due care and in good faith, except loss resulting
from willful misfeasance, bad faith, or gross negligence on the part
of the Manager in the performance of its obligations and duties, or by
reason of its reckless disregard of its obligations and duties under
this Agreement.
12. Amendment. This Agreement may not be amended as to the Corporation or
any Fund without the affirmative votes (a) of a majority of the Board
of Directors, including a majority of those Directors who are not
"interested persons" of Corporation or of Manager, voting in person at
a meeting called for the purpose of voting on such approval, and (b)
of a "majority of the outstanding shares" of Corporation or, with
respect to any amendment affecting an individual Fund, a "majority of
the outstanding shares" of that Fund. The terms "interested persons"
and "vote of a majority of the outstanding shares" shall be construed
in accordance with their respective definitions in the 1940 Act and,
with respect to the latter term, in accordance with Rule 18f-2 under
the 1940 Act.
13. Effective Date and Termination. This Agreement shall become effective
as to any Fund as of the effective date for that Fund specified in
Schedule A hereto. This Agreement may be terminated at any time,
without payment of any penalty, as to any Fund by the Board of
Directors of Corporation, or by a vote of a majority of the
outstanding shares of that fund, upon at least sixty (60) days'
written notice to Manager. This Agreement may be terminated by Manager
at any time upon at least sixty (60) days' written notice to
Corporation. This Agreement shall terminate automatically in the event
of its "assignment" (as defined in the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in effect with
respect to any Fund for an initial period of two (2) years from the
effective date applicable to that Fund specified in Schedule A and
thereafter from year to year only so long as such continuance is
specifically approved with respect to that Fund at least annually (a)
by a majority of those Directors who are not interested persons of
Corporation or of Manager, voting in person at a meeting called for
the purpose of voting on such approval, and (b) by either the Board of
Directors of Corporation or by a "vote of a majority of the
outstanding shares" of the Fund.
14. Ownership of Records; Interparty Reporting. All records required to
be maintained and preserved by Corporation pursuant to the provisions
of rules or regulations of the Securities and Exchange Commission
under Section 31(a) of the 1940 Act or other applicable laws or
regulations which are maintained and preserved by Manager on behalf of
Corporation and any other records the parties mutually agree shall be
maintained by Manager on behalf of Corporation are the property of
Corporation and shall be surrendered by Manager promptly on request by
Corporation; provided that Manager may at its own expense make and
retain copies of any such records.
A-4
<PAGE> 32
Corporation shall furnish or otherwise make available to Manager such copies of
the financial statements, proxy statements, reports, and other information
relating to the business and affairs of each Shareholder in a Fund as Manager
may, at any time or from time to time, reasonably require in order to discharge
its obligations under this Agreement.
Manager shall prepare and furnish to Corporation as to each Fund statistical
data and other information in such form and at such intervals as Corporation may
reasonably request.
15. Non-Liability of Directors and Shareholders. Any obligation of Corporation
hereunder shall be binding only upon the assets of Corporation (or the
applicable Fund thereof) and shall not be binding upon any Director,
officer, employee, agent or Shareholder of Corporation. Neither the
authorization of any action by the Directors or Shareholders of Corporation
nor the execution of this Agreement on behalf of Corporation shall impose
any liability upon any Director or any Shareholder.
16. Use of Manager's Name. Corporation may use the name "Flagship Admiral
Funds Inc." and the Fund names listed in Schedule A or any other name
derived from the name "Nuveen" only for so long as this Agreement or any
extension, renewal, or amendment hereof remains in effect, including any
similar agreement with any organization which shall have succeeded to the
business of Manager as investment adviser. At such time as this Agreement
or any extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, Corporation will cease to use any
name derived from the name "Flagship" or otherwise connected with Manager,
or with any organization which shall have succeeded to Manager's business
as investment adviser.
17. References and Headings. In this Agreement and in any such amendment,
references to this Agreement and all expressions such as "herein,"
"hereof," and "hereunder" shall be deemed to refer to this Agreement as
amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction, or effect of this Agreement.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
Dated:
- ---------------------------, 1998
FLAGSHIP ADMIRAL FUNDS INC.
BY
--------------------------------------
ATTEST
- ---------------------------------------------
NUVEEN ADVISORY CORP.
BY
--------------------------------------
ATTEST
- ---------------------------------------------
A-5
<PAGE> 33
FLAGSHIP ADMIRAL FUNDS INC.
MANAGEMENT AGREEMENT
SCHEDULE A
The Funds of the Corporation currently subject to this Agreement and the
effective date of each are as follows:
<TABLE>
<CAPTION>
FUND EFFECTIVE DATE INITIAL TERM
<S> <C> <C>
Flagship Utility Income Fund --------------------------- Until
-----------------------
</TABLE>
A-6
<PAGE> 34
FLAGSHIP ADMIRAL FUNDS INC.
MANAGEMENT AGREEMENT
SCHEDULE B
Compensation pursuant to Section 7 of this Agreement shall be calculated with
respect to each Fund in accordance with the following schedule applicable to the
average daily net assets of the Fund:
FLAGSHIP UTILITY INCOME FUND
<TABLE>
<S> <C>
Average Daily Net Asset Value Fund Management Fee
For the first $125 million .7500 of 1%
For the next $125 million .7375 of 1%
For the next $250 million .7250 of 1%
For the next $500 million .7125 of 1%
For the next $1 billion .7000 of 1%
For assets over $2 billion .6750 of 1%
</TABLE>
A-7
<PAGE> 35
EXHIBIT B
FLAGSHIP ADMIRAL FUNDS INC.
PLAN OF DISTRIBUTION AND SERVICE
PURSUANT TO RULE 12B-1
WHEREAS, Flagship Admiral Funds Inc., a Maryland corporation (the
"Corporation"), engages in business as an open-end management investment company
and is registered under the Investment Company Act of 1940, as amended (the "Act
");
WHEREAS, the Corporation is authorized to and may or does issue shares of
beneficial interest in separate series, with the shares of each such series
representing the interests in a separate portfolio of securities and other
assets (the Corporation's series together with all other such series
subsequently established by the Corporation being referred to herein as a
"Fund");
WHEREAS, the Corporation has outstanding the Fund set forth on Exhibit A;
WHEREAS, the Corporation employs John Nuveen & Co. Incorporated (the
"Distributor") as distributor of the shares of the Fund (the "Shares") pursuant
to a Distribution Agreement dated as of January 1, 1998;
WHEREAS, the Fund is authorized to issue Shares in four different classes
("Classes"): Class A, Class B, Class C and Class R.
WHEREAS, the Corporation desires to adopt, a new Plan of Distribution and
Service pursuant to Rule 12b-1 under the Act ("Rule 12b-1"), and the Board of
Directors of the Corporation has determined that there is a reasonable
likelihood that adoption of this Plan of Distribution and Service will benefit
the Fund and its shareholders;
WHEREAS, the Corporation, on behalf of its Fund has adopted a Multiple Class
Plan Pursuant to Rule 18f-3 (the "Rule 18f-3 Plan") to enable the various
Classes of Shares to be granted different rights and privileges and to bear
different expenses, and has an effective registration statement on file with the
SEC containing a Prospectus describing such Classes of Shares;
WHEREAS, as described in the Rule 18f-3 Plan, the purchase of Class A Shares is
generally subject to an up-front sales charge, as set forth in the Corporations
Prospectus and Statement of Additional Information, and the purchase of Class B
and Class C Shares will not be subject to an up-front sales charge, but in lieu
thereof the Class B Shares will be subject to an asset-based distribution fee
(and a declining contingent deferred sales charge) and Class C Shares will be
subject to an asset-based distribution fee (and a one-year contingent deferred
sales charge), as described in the Prospectus for the Shares; and
WHEREAS, Shares representing an investment in Class B will automatically convert
to Class A Shares 8 years after the investment, as described in the Prospectus
for the Shares;
Now, Therefore, the Fund hereby adopts, and the Distributor hereby agrees to the
terms of, this Plan of Distribution and Service (the "Plan") in accordance with
Rule 12b-1, on the following terms and conditions:
1. (a) The Fund is authorized to compensate the Distributor for services
performed and expenses incurred by the Distributor in connection with
the distribution of Shares of Class A, Class B and Class C of the Fund
and the servicing of accounts holding such Shares.
(b) The amount of such compensation paid during any one year shall consist
(i) with respect to Class A Shares of a Service Fee not to
exceed .25% of average daily net assets of the Class A
Shares of the Fund;
(ii) with respect to Class B Shares of a Service Fee not to
exceed .25% of average daily net assets of the Class B
Shares of the Fund, plus a Distribution Fee not to exceed
.75% of average daily net assets of the Class B Shares of
the Fund; and
(iii) with respect to Class C Shares of a Service Fee not to
exceed .25% of average daily net assets of the Class C
Shares of the Fund, plus a Distribution Fee not to exceed
.75% of average daily net assets of the Class C Shares of
the Fund.
B-1
<PAGE> 36
Such compensation shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board of Directors may
determine.
(c) With respect to Class A Shares, the Distributor shall pay any
Service Fees it receives under the Plan for which a particular
underwriter, dealer, broker, bank or selling entity having a
Dealer Agreement in effect ("Authorized Dealer", which may
include the Distributor) is the dealer of record to such
Authorized Dealers to compensate such organizations for providing
services to shareholders relating to their investment. The
Distributor may retain any Service Fees not so paid.
(d) With respect to the Class B Shares, the Distributor:
(i) shall retain the Distribution Fee to compensate it for
costs associated with the distribution of the Class B
Shares, including the payment of broker commissions to
Authorized Dealers (which may include the Distributor) who
were the dealer of record with respect to the purchase of
those shares; and
(ii) shall pay any Service Fees it receives under the Plan for
which a particular Authorized Dealer is the dealer of
record (which may include the Distributor) to such
Authorized Dealers to compensate such organizations for
providing services to shareholders relating to their
investment; provided, however, that the Distributor shall
be entitled to retain, for the first year after purchase of
the Class B Shares, the Service Fee to the extent that it
may have pre-paid the Service Fee for that period to the
Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not
so paid.
(e) With respect to the Class C Shares, the Distributor:
(i) shall pay the Distribution Fee it receives under the Plan
with respect to Class C Shares for which a particular
Authorized Dealer is the dealer of record (which may
include the Distributor) to such Authorized Dealers to
compensate such organizations in connection with such share
sales; provided, however, that the Distributor shall be
entitled to retain, for the first year after purchase of
the Class C Shares, the Distribution Fee to the extent that
it may have pre-paid the Distribution Fee for that period
to the Authorized Dealer of record; and
(ii) shall pay any Service Fees it receives under the Plan for
which a particular Authorized Dealer is the dealer of
record (which may include the Distributor) to such
Authorized Dealers to compensate such organizations for
providing services to shareholders relating to their
investment; provided, however, that the Distributor shall
be entitled to retain, for the first year after purchase of
the Class B Shares, the Service Fee to the extent that it
may have pre-paid the Service Fee for that period to the
Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not
so paid.
(f) Services for which such Authorized Dealers may receive Service
Fee payments include any or all of the following: maintaining
account records for shareholders who beneficially own Shares;
answering inquiries relating to the shareholders' accounts, the
policies of the Fund and the performance of their investment;
providing assistance and handling transmission of funds in
connection with purchase, redemption and exchange orders for
Shares; providing assistance in connection with changing account
setups and enrolling in various optional fund services;
producing and disseminating shareholder communications or
servicing materials; the ordinary or capital expenses, such as
equipment, rent, fixtures, salaries, bonuses, reporting and
recordkeeping and third party consultancy or similar expenses,
relating to any activity for which payment is authorized by the
Board; and the financing of any other activity for which payment
is authorized by the Board.
(g) Payments of Distribution or Service Fees to any organization as
of any quarter-end will not exceed the appropriate amount based
on the annual percentages set forth in subparagraphs b(i), (ii)
and (iii) above, based on average net assets of accounts for
which such organization appeared on the records of the Fund
and/or its transfer agent as the organization of record during
the preceding quarter.
B-2
<PAGE> 37
2. This Plan shall not take effect until the Plan, together with any related
agreement(s), has been approved with respect to the affected Fund and Class
thereof by votes of a majority of both (a) the Board of Directors of the
Corporation, and (b) those Directors of the Corporation who are not
"interested persons" of the Corporation (as defined in the Act) and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Rule 12b-1 Directors") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related Agreement(s).
3. This Plan shall remain in effect until August 1, 1999, and shall continue in
effect thereafter so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph
2.
4. The Distributor shall provide to the Board of Directors of the Corporation
and the Board shall review, at least quarterly, a written report of
distribution- and service-related activities, Distribution Fees, Service
Fees, and the purposes for which such activities were performed and expenses
incurred.
5. This Plan may be terminated as to the Fund or as to a given Class A, Class B
or Class C of the Fund at any time by vote of a majority of the Rule 12b-1
Directors or by vote of a majority (as defined in the Act) of the
outstanding voting Shares of the applicable Fund or Class.
6. This Plan may not be amended to increase materially the amount of
compensation payable by the Fund with respect to Class A, Class B or Class C
Shares under paragraph 1 hereof unless such amendment is approved by a vote
of at least a majority (as defined in the Act) of the outstanding voting
Shares of that Class of Shares of the Fund. No material amendment to the
Plan shall be made unless approved in the manner provided in paragraph 2
hereof.
7. While this Plan is in effect, the selection and nomination of the Directors
who are not interested persons (as defined in the Act) of the Corporation
shall be committed to the discretion of the Directors who are not such
interested persons.
8. The Corporation shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period
of not less than six years from the date of the Plan, any such agreement or
any such report, as the case may be, the first two years in an easily
accessible place.
B-3
<PAGE> 38
EXHIBIT A
TO PLAN OF DISTRIBUTION AND SERVICE PURSUANT TO RULE 12B-1
FLAGSHIP ADMIRAL FUNDS INC.:
Flagship Utility Income Fund
B-4
<PAGE> 39
EXHIBIT C
AGREEMENT AND PLAN OF REORGANIZATION
FLAGSHIP ADMIRAL FUNDS INC.
FLAGSHIP UTILITY INCOME FUND
FLAGSHIP ADMIRAL FUNDS INC., a Maryland corporation (the "Corporation"), on
behalf of its sole series Flagship Utility Income Fund (the "Fund"), and NUVEEN
INVESTMENT TRUST IV, a Massachusetts business trust ("the Trust"), on behalf of
its series Nuveen Dividend and Growth Fund ("New Fund"), agree upon the
following plan of reorganization:
1. SUCCESSION OF THE CORPORATION BY THE TRUST; DISTRIBUTION OF SHARES OF THE
NEW FUND
The Corporation shall transfer to the Trust, on behalf of the Fund, all of the
assets of the Fund, in exchange for which the New Fund shall simultaneously
assume all of the liabilities of the Fund, and the New Fund shall issue to the
Fund shares of the New Fund equal in number and net asset value of each class to
the number and net asset value of shares of the same class (including fractional
shares) of the Fund then outstanding. The Fund shall promptly distribute to its
shareholders the number of shares of the New Fund (including fractional shares)
equal in number and net asset value of each class to the number and net asset
value of shares (including any fractional shares) of the Fund of the same class
then owned by the shareholder, in exchange for and cancellation of the
shareholder's shares of the Fund (which series of actions is referred to
hereafter as the "Reorganization"). The Fund will then terminate its operations
and the Corporation will subsequently be dissolved.
2. SHAREHOLDER ACCOUNTS; SHARE CERTIFICATES
The distribution to the shareholders of the Fund shall be accomplished by
establishing an account on the share records of the New Fund in the name of each
registered shareholder of the Fund, and crediting that account with a number of
shares of each class of the New Fund equal to the number of shares (including
any fractional shares) of the Fund of the same class owned of record by the
shareholder at the time of the distribution. Outstanding certificates
representing shares of the Fund shall thereafter represent an equal number of
shares of the New Fund.
3. DISSOLUTION OF THE CORPORATION AND FUND
Promptly after the closing of the Reorganization, the Corporation, and each
series thereof, shall terminate its operations. Subsequently, the Corporation
shall be dissolved.
4. CLOSING
The Reorganization shall take place on , 1998 at 5:00 p.m.,
Chicago time, at the offices of John Nuveen & Co. Incorporated, 333 West Wacker
Drive, Chicago, Illinois or at such other date, time or place as may be agreed
upon by the parties.
5. CONDITIONS TO CLOSING
The obligations of the parties to consummate the Reorganization shall be subject
to the following conditions:
a. A post-effective amendment to the registration statement on Form N-1A of
the Corporation shall have been filed by the Trust with the Securities
and Exchange Commission (the "SEC"), by which amendment the Trust shall
have assumed the registration statement as its own, and the registration
statement, so amended, shall have become effective, and no stop-order
suspending the effectiveness of the registration statement shall have
been issued and no proceeding for that purpose shall have been initiated
or threatened by the SEC (other than any such stop-order, proceeding or
threatened proceeding which shall have been withdrawn or terminated);
b. The SEC shall not have issued an unfavorable advisory report under
Section 25(b) of the Investment Company Act of 1940 nor instituted any
proceeding seeking to enjoin consummation of the Reorganization under
Section 25(c) of the Investment Company Act of 1940;
C-1
<PAGE> 40
c. The Corporation and the Trust shall have received an opinion of Bell,
Boyd & Lloyd, Chicago, Illinois, to the effect that the Reorganization
qualifies as a "reorganization" under Section 368 of the Internal
Revenue Code of 1986, as amended, and the Reorganization of the Fund
into the New Fund will not give rise to the recognition of income,
deductions, gain or loss for federal income tax purposes to the
Corporation, the Fund, the Trust, the New Fund, or the shareholders of
the Fund; and
d. The Reorganization has been approved by shareholders of the Fund.
e. The Corporation and the Trust will execute and file articles of transfer
with respect to the transactions contemplated hereby with the Department
of Assessments and Taxation of the State of Maryland.
6. REPRESENTATIONS
The Corporation and/or the Trust represent as follows:
a. The Corporation and the Trust are duly organized and existing in good
standing under the laws of the state of Maryland and the Commonwealth of
Massachusetts, respectively;
b. The Corporation and the Trust are each empowered under applicable laws
to enter into and perform this agreement; and
c. The New Fund intends (i) to continue the investment business of the
Fund, (ii) to maintain the investment objectives of the Fund to seek
current income and long-term growth of capital and capital appreciation
as a secondary objective, (iii) to market the New Fund to a group of
investors that includes the universe of investors to which the Fund is
marketed. The New Fund has no plan or intention to sell the investment
assets of the Fund except in the ordinary course of business to provide
funds to satisfy redemptions or as a result of portfolio management
decisions. The initial portfolio manager of the New Fund will be the
current Portfolio manager of the Fund.
7. AMENDMENTS OR TERMINATION
This agreement may be amended at any time, and may be terminated at any time
before the closing of the Reorganization, either before or after this agreement
and plan of reorganization has been approved by shareholders of the Fund, by
agreement of the Corporation and the Trust, provided that no amendment shall
have a material adverse effect upon the interests of shareholders of the Fund.
In any case, this agreement and plan of reorganization may be terminated by
either the Corporation or the Trust if the Reorganization has not occurred by
the close of business on .
8. DECLARATION OF TRUST
A copy of the Trust's agreement and declaration of trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this agreement is executed on behalf of the trustees of the Trust as the
trustees of the Trust and not individually and that the obligations under this
instrument are not binding upon any of the trustees, officers or shareholders of
the Trust, individually, but binding only upon the assets and property of the
New Fund.
9. FURTHER ACTIONS AND ASSURANCES
At any time after the closing of the Reorganization, the Corporation acting
through its officers, or if then dissolved through its last officers, shall
execute and deliver to the Trust such additional instruments of transfer or
other written assurances as the Trust may reasonably request in order to vest in
the Trust, acting on behalf of the New Fund, title to the assets transferred by
the Fund under this agreement.
C-2
<PAGE> 41
10. GOVERNING LAW
This agreement shall be construed in accordance with applicable federal law and
the laws of the State of Illinois, except as to the provisions of Section 7
hereof which shall be construed in accordance with the laws of the Commonwealth
of Massachusetts.
Dated , 1998
---------------------------
FLAGSHIP ADMIRAL FUNDS INC.,
on behalf of its series Flagship
Utility
Income Fund
BY
--------------------------------------
Title
--------------------------------------
ATTEST:
--------------------------------------
Secretary
NUVEEN INVESTMENT TRUST IV,
on behalf of its series Nuveen
Dividend and
Growth Fund
BY
--------------------------------------
Title
--------------------------------------
ATTEST:
--------------------------------------
Secretary
C-3
<PAGE> 42
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF THE
FLAGSHIP UTILITY INCOME FUND TO BE HELD ON NOVEMBER 12, 1998
The undersigned hereby appoints Timothy R. Schwertfeger, Anthony T. Dean, Alan
G. Berkshire and Gifford R. Zimmerman, and each of them with full powers of
substitution, Proxies for the undersigned to represent and vote the shares of
the undersigned at the Special Meeting of Shareholders of the Flagship Utility
Income Fund to be held on November 12, 1998, or any adjournment or adjournments
thereof as indicated on the reverse side.
The shares to which this Proxy relates will be voted as specified. If no
specification is made, such shares will be voted FOR the proposals set forth on
this Proxy, and in the discretion of the Proxies in accordance with their best
judgement on any other business that may properly come before the meeting.
Date: , 1998
------------------------------------------------------------------------
Signature(s)
NOTE: Please sign exactly as your name appears on this Proxy. If
signing for estates, trusts or corporations, title or capacity should be
stated. If shares are held jointly, each holder should sign.
<PAGE> 43
Please vote by filling in the appropriate box below. If you do not mark any
boxes, your Proxy will be voted FOR the proposals set forth below.
<TABLE>
<CAPTION>
Proposal FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Approval of changes to one of the Fund's [ ] [ ] [ ]
fundamental policies allowing the Fund to
broaden its investments so that the Fund
will no longer concentrate its portfolio in
the utilities industry.
2. Approval of a new advisory agreement. [ ] [ ] [ ]
3. Approval of a new Rule 12b-1 Plan. [ ] [ ] [ ]
4. Approval of a tax-free reorganization of the [ ] [ ] [ ]
Fund into a new fund called Nuveen
Dividend and Growth Fund, a series of
Nuveen Investment Trust IV ("NIT IV").
5. Ratify the election of trustees to the Board FOR ALL WITHHOLD
of Trustees of NIT IV. Nominees: James AUTHORITY
E. Bacon, Anthony T. Dean, William L, [ ] to vote for all
Kissick, Thomas B. Leafstrand and Sheila nominees [ ]
W. Wellington except as
indicated at
left
To withhold authority to vote for one or
more individual nominees, print his or
name (or names) on the line below. [ ]
________________________________________
6. Approval of changes to several of the FOR ALL AGAINST ABSTAIN
Fund's other fundamental policies to Except as ALL ALL
conform them to the policies of the other marked
Nuveen mutual funds. below
[ ]
[ ] [ ]
(A) Diversification (E) Real Estate (I) Short Sales and Margin
Purchases
(B) Borrowing (F) Commodities (J) Affiliated Purchases
(C) Senior Securities (G) Loans (K) Pledges
(D) Underwriting (H) Investment Companies (L) Illiquid Securities
To vote against one or more proposed
changes, write the sub-proposal letter or
letters on the line below.
______________________________________
PLEASE SIGN AND DATE ON REVERSE SIDE
</TABLE>
