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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number 1-11123
THE JOHN NUVEEN COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 36-3817266
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 312-917-7700
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
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Class A Common Stock, $.01 par value New York Stock Exchange
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None.
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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The aggregate market value of the outstanding Common Stock held by
non-affiliates of the Registrant on March 20, 1997 was $141,912,726.38.
The number of shares of the Registrant's Common Stock outstanding at March
20, 1997, was 32,922,031 consisting of 7,319,327 shares of Class A Common
Stock, $.01 par value, and 25,602,704 shares of Class B Common Stock, $.01 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1996 Annual Report to Shareholders are
incorporated by reference into Parts II and IV of this report. Portions of
Registrant's 1997 Proxy Statement relating to the annual meeting of
stockholders to be held May 9, 1997 are incorporated by reference into Parts I
and III of this report.
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
The John Nuveen Company (together with its subsidiaries, the "Company"),
through its wholly-owned subsidiaries--John Nuveen & Co. Incorporated ("Nuveen
& Co."), Nuveen Advisory Corp. ("Nuveen Advisory") and Nuveen Institutional
Advisory Corp. ("Nuveen Institutional Advisory")--specializes in the
sponsorship, marketing and management of investment products, and in municipal
and corporate investment banking services. The Company sponsors investment
products ("Investment Products"), including unit investment trusts ("UITs"),
mutual funds and money market funds ("Money Market Funds") (together, "Mutual
Funds"), and closed-end funds that issue common stock traded on stock exchanges
in the United States and, in some cases, also issue preferred stock
("MuniPreferred(R) Stock") ("Exchange-Traded Funds").
The Company's principal businesses consist of sponsoring and providing
investment advisory, administrative and distribution services to the Mutual
Funds and Exchange-Traded Funds (together, the "Funds" or "Nuveen Funds"),
providing investment management services for individual and institutional
investment accounts ("Managed Accounts"), sponsoring and distributing UITs and
monitoring their portfolios, underwriting and trading municipal bonds, and
providing other municipal and corporate finance investment banking services.
The Company is the successor to a business formed in 1898 by Mr. John
Nuveen to serve as an underwriter and trader of municipal bonds. This core
business was augmented in 1961 when the Company developed and introduced its
first tax-free UIT, which is a fixed portfolio of municipal securities selected
and purchased by the Company and deposited in a trust. The Company introduced
its first tax-free Mutual Fund in 1976 (the year in which Congress first
permitted management investment companies investing in municipal securities to
pay dividends that retain their tax-exempt character), its first tax-free Money
Market Fund in 1981, and its first tax-free Exchange-Traded Fund in 1987. The
Company began providing individual managed account services to investors in
early 1995 and sponsored its first stock Mutual Fund during December, 1996.
On January 2, 1997, the Company completed the acquisition of Flagship
Resources Inc. ("Flagship") and its wholly owned subsidiaries, Flagship
Financial Inc., a registered investment adviser under the Investment Advisers
Act of 1940, and Flagship Funds Inc., a registered broker-dealer under the
Securities Exchange Act of 1934. At December 31, 1996, Flagship managed over
$4.2 billion in predominantly tax-exempt open-end mutual funds and
approximately $400 million in managed accounts for individual investors.
Upon the completion of the acquisition of Flagship Resources Inc.,
Flagship Financial Inc. became a wholly owned subsidiary of the Company and
changed its name to Nuveen Asset Management Inc. ("Nuveen Asset"). Nuveen
Asset is primarily responsible for providing private investment management
services for individual and institutional managed accounts with both balanced
portfolios of equity and municipal securities and portfolios invested
exclusively in municipal securities.
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The Company was incorporated in the State of Delaware on March 23, 1992 as
a wholly-owned subsidiary of The St. Paul Companies, Inc. ("St. Paul"). Nuveen
& Co., the predecessor of the Company, had been a wholly-owned subsidiary of
St. Paul since 1974. On May 19, 1992, St. Paul sold in a public offering a
portion of its ownership interest in the Company. As of the date of this
report, St. Paul owned approximately 78% of the outstanding voting securities
of the Company.
THE NUVEEN MANAGED FUNDS
OVERVIEW
At December 31, 1996, substantially all of the Funds managed by the
Company were invested in portfolios of tax-exempt municipal bonds. While the
investment objectives of these Funds vary, each has as a primary objective to
provide as high a level of current interest income exempt from regular federal
(and in some cases, state and local) income tax as is consistent with
preservation of capital, and each has historically invested substantially all
of its assets in a diversified portfolio of municipal bonds which are rated
within the four highest investment grades .
Taxable Mutual Funds include Funds which may invest in equity and other
taxable securities as well as tax-exempt securities. The Nuveen Growth and
Income Stock Fund, first introduced during 1996 through a special offering to
current Nuveen and Flagship fund stockholders and to current Nuveen unit trust
holders in late 1996, seeks to provide over time a superior return from a
diversified portfolio consisting primarily of equity securities of domestic
companies with market capitalizations of at least $500 million. The Company
intends to market and distribute other taxable mutual funds during 1997
including a balanced municipal bond and stock fund and a balanced stock and
bond fund.
The Mutual Funds continually offer to sell and redeem their shares at
prices based on the daily net asset values of their portfolios. The Mutual
Funds are actively managed and include tax-free insured and uninsured
nationally-diversified and state-specific portfolios, growth and balanced
taxable portfolios, and several Money Market Funds. Money Market Funds are
tax-free Mutual Funds that invest solely in short-term, liquid and relatively
low-risk securities and seek to maintain a stable net asset value of $1 per
share.
The Exchange-Traded Funds invest exclusively in tax-free investment
portfolios which are also actively-managed; these funds, however do not
continually offer to sell and redeem their shares. Rather, daily liquidity is
provided by the ability to trade the shares of these funds on the national
securities exchanges, at a price that may be above or below the share's net
asset value. Like the Mutual Funds, the Exchange-Traded Funds include insured
and uninsured national and single-state funds. Most of the Exchange-Traded
Funds have a "leveraged" capital structure; these funds issue MuniPreferred
Stock that pay dividends at rates based on short-term tax-free interest rates,
while the capital raised by the sale of the MuniPreferred Stock is invested by
the funds in longer-term municipal securities. So long as the return provided
by these longer-term investments, net of expenses, exceeds the current dividend
rate on the preferred stock, investors in the common stock of leveraged funds
realize a higher rate of return than if the fund were not leveraged. Leverage
results, however, in greater volatility of the net asset value of shares of
common stock of leveraged funds and possibly in their market value as well. In
addition, fluctuations in the preferred stock dividend rate will affect the
return to holders of common stock. To the extent that the dividend rate on the
preferred stock increases (e.g., in the event of a rise in short-term interest
rates), the rate of return to fund common shareholders will be reduced. If the
preferred stock
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dividend rate were to exceed the rate of return on the investment portfolio,
holders of common stock would realize a lower rate of dividend return than if
the fund were not leveraged.
The Exchange-Traded Funds also include a managed fund containing bonds
with intermediate characteristics (the "Select Maturities Fund"), and the
Select Portfolios (the "Portfolios"), a series of investment portfolios which
are managed for stability of income and, unlike the other Nuveen
Exchange-Traded Funds, have a limited life and provide for a liquidating
distribution of assets to investors upon reaching a fixed termination date.
The common shares of most of the Exchange-Traded Funds are listed on the
New York Stock Exchange; the shares of the remaining Funds are listed on the
American Stock Exchange. The common shares of the Exchange-Traded Funds trade
in the open market at a price that is influenced by several factors including
supply and demand, net asset value and yield. Common shares of the
Exchange-Traded Funds may trade at a premium or a discount to net asset value
although during most of 1996 such shares traded more frequently at a discount
to net asset value. The Board of Directors of each Exchange-Traded Fund has
determined that, at least annually, it will consider action that might be taken
to reduce or eliminate any sustained material discount to net asset value at
which such shares may be trading. This action may include the repurchase of
such shares in the open market or in private transactions, the making of a
tender offer for such shares at net asset value, or a proposal to the
shareholders to convert the Fund to an open-end investment company. The
consequence of any such action, if taken, could be a reduction in both the
aggregate net assets of the Exchange-Traded Funds and in the management fee
paid by such Funds to Nuveen Advisory or Nuveen Institutional Advisory.
The Nuveen Funds include five Money Market Funds. Although under no legal
obligation to do so, in the past some money market fund managers, including the
Company, have voluntarily, and at their own expense, taken action to protect
the value of fund assets when portfolio bond credit or related financial
guarantees have deteriorated. These actions have included, in the case of
several money market fund sponsors, purchasing securities from the fund
portfolio at par, and in the case of the Company, arranging for supplemental
credit and liquidity enhancements in order to preserve the value of the fund's
investment. Although the Company is under no obligation to do so,
circumstances may arise in the future in which the Company may determine to
take similar action; such action could involve substantial expense to the
Company.
The Money Market Funds managed by the Company have obtained commitments
(each, a "Commitment") from MBIA Insurance Corporation ("MBIA") with respect to
certain designated bonds held by the Money Market Funds for which credit
support is furnished by banks ("Approved Banks") approved by MBIA under its
established credit approval standards. Under the terms of a Commitment, if
Nuveen Advisory were to determine that certain adverse circumstances relating
to the financial condition of an Approved Bank had occurred, it could cause
MBIA to issue a "while-in-fund" insurance policy covering the underlying bonds;
after time and subject to further terms and conditions, the adviser could
obtain from MBIA an "insured-to-maturity" insurance policy as to the covered
bonds. Each type of insurance policy would insure payment of interest on the
bonds and payment of principal at maturity. Although such insurance would not
guarantee the market value of the bonds or the value of the Money Market Funds'
shares, the Company believes that the ability to obtain insurance for such
bonds under such adverse circumstances would enable the Money Market Funds to
hold or dispose of such bonds at a price at or near their par value.
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ASSETS UNDER MANAGEMENT
At December 31, 1996, there were 19 Mutual Funds including 3 investing in
taxable securities, 5 Money Market Funds, and 57 Exchange-Traded Funds. The
following table shows net assets under management at December 31 of the past
three years.
NUVEEN MANAGED FUNDS AND ACCOUNTS
NET ASSETS UNDER MANAGEMENT
(IN MILLIONS)
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<CAPTION>
December 31,
--------------------------
1996 1995 1994
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Managed Funds:
Mutual Funds -Tax-Free.................... $5,434 $5,457 $4,731
Mutual Funds -Taxable...................... 496 - -
Exchange-Traded Funds.................... 25,434 25,784 23,731
Money Market Funds........................ 1,004 1,113 1,242
Managed Accounts............................... 823 688 343
------- ------- --------
Total $33,191 $33,042 $30,047
======= ======= ========
</TABLE>
Substantially all of the net assets of the taxable Mutual Funds are
comprised of shares of the Nuveen Growth and Income Stock Fund offered in
December, 1996.
During 1996, 6 Exchange Traded Funds were merged into 3 funds. During
1995, 17 Exchange Traded Funds were merged into 7 funds. During 1994, 24
Exchange Traded Funds were merged into 10 funds. These combinations result in
reduced expenses and increased trading liquidity for fund shareholders.
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ADVISORY FEES
Nuveen Advisory and Nuveen Institutional Advisory provide investment
management services to the Funds and the Portfolios, pursuant to investment
management agreements, and receive fees based on each Fund's average daily net
assets or on a combination of the average daily net assets and gross interest
income. Institutional Capital Corporation ("ICAP") performs portfolio
management services on behalf of the equity Mutual Funds pursuant to a
sub-advisory agreement with Nuveen Institutional Advisory. The following table
shows management fees for the past three years.
NUVEEN MANAGED FUNDS AND ACCOUNTS
INVESTMENT ADVISORY FEES
(IN THOUSANDS)
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<CAPTION>
Year Ended December 31,
----------------------------
1996 1995 1994
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MUTUAL FUNDS:
Management fees ............................... $26,123 $24,809 $23,535
Less: Reimbursed expenses .............. (629) (897) (396)
-------- -------- --------
Net management fees .................... 25,494 23,912 23,139
-------- -------- --------
EXCHANGE-TRADED FUNDS:
Management fees ............................... 155,173 153,777 152,078
-------- -------- --------
MONEY MARKET FUNDS:
Management fees ............................... 4,925 5,359 6,843
Less: Reimbursed expenses .............. (495) (336) (420)
-------- -------- --------
Net management fees .................... 4,430 5,023 6,423
-------- -------- --------
MANAGED ACCOUNTS:
Management fees ............................... 748 423 278
-------- -------- --------
Total $185,845 $183,135 $181,918
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The Company's management fee schedules currently provide for maximum fees
ranging from .40 of 1% to .50 of 1% of net asset value annually in the case of
the Money Market Funds, .50 of 1% to .55 of 1% in the case of the tax-free
Mutual Funds and .75 of 1% to .85 of 1% in the case of the taxable Mutual
Funds. Maximum fees in the case of the Exchange-Traded Funds are .65 of 1%,
except that with respect to the Select Maturities Fund, the fee is .50 of 1%,
and with respect to the Portfolios, the investment management agreements
provide for annual management fees ranging from .25 of 1% to .30 of 1%. In
each case, the management fee schedules provide for reductions in the fee rate
at greater asset levels.
The Company pays ICAP, the sub-adviser for the Nuveen Growth and Income
Stock Fund, a portfolio management fee for sub-advisory services at a maximum
rate of .35 of 1% of the average daily net assets of the fund. In connection
with the two balanced funds, expected to be introduced in early 1997, the
Company will pay ICAP for sub-advisory services a maximum fee of .35 of 1% with
respect to the average daily balance of equity investments in the funds and a
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maximum fee of .20 of 1% with respect to the average daily balance of taxable
fixed-income investments in the funds.
INVESTMENT MANAGEMENT AGREEMENTS
Each Fund has entered into an investment management agreement with Nuveen
Advisory or, in the case of the Portfolios and the taxable Mutual Funds, with
Nuveen Institutional Advisory (each, an "Adviser"). Although the specific
terms of each such agreement vary, the basic terms of the agreements are
similar. Pursuant to the agreements, the Adviser provides overall management
services to each of the Funds, subject to the supervision of each Fund's Board
of Directors and in accordance with each Fund's fundamental investment
objectives and policies. The investment management agreements are approved by
Fund shareholders and their continuance must be approved annually by the
directors of the respective Funds, including a majority of the directors who
are not "interested persons" of the Adviser, as defined in the Investment
Company Act. Amendments to such agreements must be approved by Fund
shareholders. Each agreement may be terminated without penalty by either party
upon 60 days' written notice, and terminates automatically upon its assignment
(as defined in the Investment Company Act and the Investment Advisers Act).
Such an "assignment" will take place in the event of a change in control of the
Adviser. Under the Investment Company Act, a change in control of the Adviser
would be deemed to occur in the event of certain changes in the ownership of
the Company's voting stock. If a termination of the investment management
agreements should occur for any reason, there can be no assurance that the
Funds would renew their investment management agreements with the Adviser.
Each Fund bears all expenses associated with its operation and the
issuance and, in the case of the Money Market and Mutual Funds, redemption of
its securities, except for the compensation of directors and officers of the
Fund who are employed by the Company and/or the Adviser. Some investment
management agreements provide that, to the extent certain enumerated expenses
exceed a specified percentage of a Fund's or a Portfolio's average net assets
for a given year, the Adviser will absorb such excess through a reduction in
the management fee and, if necessary, pay such expenses so that the
year-to-date net expense will not exceed the specified percentage. In
addition, the Company may waive all or a portion of its advisory fee to a Fund,
and reimburse expenses, for competitive reasons. During 1996, the expense
ratios specified under these arrangements ranged from .45% for certain of the
Money Market Funds, to .75% for certain of the tax-free long-term Mutual Funds,
to .975% for long-term tax-free Mutual Funds whose portfolio bonds are insured
by a third party insurer. Expense limits on the taxable mutual fund sponsored
during 1996 were .95% of the funds' average net assets. The Company
reimbursed expenses aggregating $1,124,000 during the year ended December 31,
1996. Although the Company expects these costs to increase in the future in
order for the Company's products to remain competitive in the market, it does
not expect such increases will have a material effect on the results of its
operations.
PORTFOLIO MANAGEMENT AND RESEARCH
Each Adviser is responsible for the execution of the investment policy of
the various Funds it advises. Investment decisions for each Fund are made by
the portfolio manager responsible for such Fund. The Company has a very low
turnover rate for its portfolio managers, and the majority of the Company's
portfolio managers have devoted most of their professional careers to municipal
securities within the Nuveen organization, including experience in financial
analysis, research and surveillance, institutional and broker-dealer sales,
securities trading, and competitive and negotiated underwriting. To support
these managers, the Company maintains a research
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department devoted to municipal securities. The Company's principal method of
securities evaluation is through fundamental research and valuation analysis.
The Research Department conducts original market and issuer research, utilizing
such sources as independent inspection of market and issuer activities,
issuer-prepared information and publicly available information. In conducting
its analyses, the Research Department also utilizes a proprietary analytical
system, and commercially available data bases and analytical services.
With respect to the taxable Mutual Funds, the Company has entered into a
sub-advisory agreement with ICAP, a Chicago based institutional money manager,
to perform portfolio advisory services for the equity and taxable portion of
the portfolios. ICAP employs a value-oriented approach to selecting securities
for the investment portfolios. Investment decisions are made through a team
approach, with all of the ICAP investment professionals contributing to the
process. Each of the investment officers and other investment professionals at
ICAP have developed an expertise in at least one functional investment area,
including equity research, strategy, fixed income analysis, quantitative
research, technical research, and trading. A key element in the decision
making process is a formal investment committee meeting held on a general basis
and attended by all the investment professionals. These meetings also provide
for ongoing review of ICAP's investment positions. Pertinent information from
outside sources is shared and incorporated into the investment outlook. The
investment strategy, asset sectors, and individual security holdings are
reviewed to verify their continued appropriateness. Investment recommendations
are presented to the committee for decisions. ICAP has managed separate
private accounts since 1971.
UNIT INVESTMENT TRUSTS
OVERVIEW
The Company is a major sponsor of tax-free unit investment trusts. Each
UIT consists of a fixed portfolio of municipal bonds selected and purchased by
the Company and deposited in a trust. The trustee of the UITs is not affiliated
with the Company. Units of undivided beneficial interest in the portfolio of
municipal bonds are sold to investors at a price equal to the per unit market
price of the bonds deposited in the trust plus a sales charge. Following the
date of deposit, the Company's Research Department regularly monitors the bonds
in the portfolio. UIT portfolios are not actively traded; once the initial
portfolio is deposited, bonds can be sold only for the purpose of raising cash
to pay for units that have been redeemed or sold pursuant to the Company's
monitoring program; the proceeds of any bond sales must be distributed to unit
holders. No new bonds may be added, and bonds may be exchanged or substituted
only under extremely limited circumstances.
The Company created and introduced its first municipal bond UIT in 1961,
and since that date has deposited and sold units of more than 4,500 different
trusts with an aggregate principal value of approximately $37 billion. The
Company sponsors nationally diversified and single-state trusts, uninsured
trusts, trusts whose portfolio bonds are insured by a third party insurer, and
trusts of varying average portfolio maturities. At December 31, 1996, the
Company had 3,500 trusts outstanding with an aggregate market value of $13.6
billion.
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UIT SALES AND UIT REVENUES
The following table shows the Company's UIT sales and revenues during each
of the last three years:
UIT SALES AND REVENUES
(IN THOUSANDS)
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<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
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<S> <C> <C> <C>
UIT SALES (PAR VALUE):
Primary UITs ........................................ $812,813 $943,829 $1,065,656
Secondary UITs .................................... 150,326 148,859 168,862
---------- ----------- -----------
Total $963,139 $1,092,688 $1,234,518
========== =========== ===========
UIT REVENUES:
Distribution revenues:
Primary UITs ..................................... $10,740 $12,633 $13,449
Secondary UITs ................................. 2,010 1,565 1,576
---------- ----------- -----------
12,750 14,198 15,025
---------- ----------- -----------
Positioning profits (losses):
Municipal bonds deposited into UITs... 1,851 1,929 1,334
Primary and secondary UITs ............... (2,042) 3,052 (9,571)
---------- ----------- -----------
(191) 4,981 (8,237)
---------- ----------- -----------
Total $12,559 $19,179 $6,788
========== =========== ===========
</TABLE>
Units of the Company's UITs are sold to the public with a sales charge.
The Company's UIT revenues include the sales charge, less an applicable
concession to dealers for the placement of UIT units based on the public
offering price of the units sold.
The Company realizes profits or incurs losses to the extent that the
market price of bonds deposited in a trust exceeds or is less than the original
cost of the bonds to the Company. After the date of deposit, the Company is
the holder of all of the units of the particular trust series and will realize
profit or incur loss depending on whether the public offering price of units
increases or decreases before the units are sold. In connection with the
accumulation of bonds for deposit into newly created UITs, the Company attempts
to manage its exposure to interest rate fluctuations by, among other practices,
coordinating inventory levels to the rate of sale of various types of UITs, and
scheduling accumulation of bonds for future trusts and the deposit of future
trusts so as to meet anticipated demand.
All sales of UIT units during 1996 were comprised of trusts invested
exclusively in tax-exempt municipal securities. During 1997, the Company
expects to expand the UIT product line to include trusts investing in taxable
securities.
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MARKET MAKING
The Company maintains a secondary market in units of the UITs that it
sponsors, buying units at a price equal to their redemption value (equal to the
per unit "bid" side market price of the bonds in the trust) and selling them to
other dealers and financial intermediaries at a price equal to the per unit
"bid" side market price of the bonds in the trust plus a sales charge less a
dealer concession. The Company, like any other unitholder, can also tender
units it holds to the UIT trustee for redemption at their redemption value.
MARKETING AND DISTRIBUTION OF INVESTMENT PRODUCTS
DISTRIBUTION
The Company markets its Funds and UITs through registered representatives
("Registered Representatives") associated with unaffiliated national and
regional broker-dealers, commercial banks and thrifts, broker-dealer affiliates
of insurance agencies and independent insurance dealers, and financial
planners, accountants, tax consultants and advisers associated with registered
broker-dealer firms ("Retail Distribution Firms"). The Company's distribution
strategy is to maximize the liquidity and distribution potential of its Funds
and UITs by maintaining strong relationships with a broad array of Registered
Representatives. The Company has well-established relationships with
Registered Representatives in Retail Distribution Firms throughout the country.
Sales through Registered Representatives associated with any single Retail
Distribution Firm did not account for as much as 5% of the Company's
consolidated revenues in 1996.
The Company currently has relationships with more than 100,000 Registered
Representatives at almost 4,000 Retail Distribution Firms. These Registered
Representatives participate in the Company's marketing programs to different
degrees, depending upon: their interests in distributing investments provided
by the Company; their perception of the relative attractiveness of the Nuveen
Funds and UITs; the profiles of their customers and their customers' needs; and
the conditions prevalent in financial markets. Registered Representatives may
reduce or eliminate involvement in any Nuveen marketing activity at any time,
or may elect to emphasize the investment products of competing sponsors, or the
proprietary products of their own firm. Registered Representatives may receive
compensation incentives to sell their firm's investment products or may choose
to recommend to their customers investment products sponsored by firms other
than the Company based on such considerations as investment performance, types
and amount of distribution compensation, sales assistance and administrative
service payments, and level and quality of customer service. In addition, the
ability of Registered Representatives to distribute the Company's Mutual Funds
is subject to the continuation of a selling agreement between their firm and
the Company that is terminable by either party upon 60 days' notice and does
not obligate the Retail Distribution Firm to sell any specific amount of Funds.
The Company currently has such selling agreements related to the Mutual Funds
with over 2,000 Retail Distribution Firms.
Shares of the Money Market Funds are sold to the public without sales
charges. However, each Money Market Fund (except the Nuveen Tax-Exempt Money
Market Fund, which is marketed primarily to institutions) has a plan adopted in
accordance with Rule 12b-1 under the Investment Company Act (each, a "Plan")
pursuant to which distributors of the Fund's shares are compensated for costs
associated with distribution and administrative services they perform. For the
year ended December 31, 1996, approximately $750,000 in Plan fees were paid to
distributors
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of the Money Market Funds. Slightly more than half of such amount was paid by
the Company and the remainder was paid by the Money Market Funds.
All of the long-term Mutual Funds have adopted a Flexible Sales Charge
Program which provides investors with alternative ways of purchasing Fund
shares based upon their individual needs and preferences. Class A shares may
be purchased at a price equal to the Fund's net asset value plus an up front
sales charge which is calculated as a percentage of the public offering price.
At the maximum sales charge level, approximately 90% to 95% of the sales charge
is typically reallowed as concessions to Retail Distribution Firms. From time
to time, the Company may reallow all of the sales charge to Retail Distribution
Firms or waive the sales charge and advance a sales commission to such Firms in
connection with marketing programs or special promotions. Additionally,
purchases of Class A shares which equal or exceed $1 million may be made
without an up front sales charge, but are subject to a Contingent Deferred
Sales Charge of 1% for shares redeemed within 18 months or longer. In order to
compensate Retail Distribution Firms for Class A share sales which are $1
million or greater, the Company advances a 1% sales commission at the time of
sale. Class A shares are also subject to an annual Rule 12b-1 service fee,
which is used to compensate securities dealers for providing ongoing financial
advice and other services. Commencing in February 1997, Class B shares may be
purchased at a price equal to the Fund's net asset value without an up front
sales charge. Class B shares are subject to an annual Rule 12b-1 distribution
fee to compensate the Company for costs incurred in connection with the sale of
such shares, an annual Rule 12b-1 service fee for the ongoing services of
securities dealers and a Contingent Deferred Sales Charge, ranging from 5% to
1%, for shares redeemed within a period of 6 years. The Company compensates
Retail Distribution Firms for sales of Class B shares at the time of sale at
the rate of 4% of the amount of Class B shares sold, which represents a sales
commission plus an advance of the first year's annual Rule 12b-1 service fee.
Class C shares may be purchased without any up front sales charges at a price
equal to the Fund's net asset value but are subject to an annual Rule 12b-1
distribution fee designed to compensate securities dealers over time for the
sale of the Fund shares, an annual Rule 12b-1 service fee used to compensate
securities dealers for providing continuing financial advice and other services
and a 1% Contingent Deferred Sales Charge for shares redeemed within 12 months
of purchase. In addition, beginning in February 1997, the Company will advance
a 1% sales commission to Retail Distribution Firms at the time of sale and in
return, will receive the first year's Rule 12b-1 distribution fee and Rule
12b-1 service fee. Class R shares are available for purchase at a price equal
to the Fund's net asset value only under certain limited circumstances.
Shares of the Exchange-Traded Funds are sold to the public in offerings
that are underwritten by a syndication group. During the year ended December
31, 1996 no such offerings were made.
The typical sales charge for Nuveen UITs is 4.9% of the public offering
price (5.152% of the net amount invested), with reduced sales charges for
purchases of $50,000 or more. The dealer concession is $3.20 per unit (a unit
represents $100 par value of bonds in a trust) at the maximum sales charge
level. The sales charges for UITs in the secondary market are established
based on the number of years remaining to maturity for each bond in the UIT.
The market for the sale of tax-free unit investment trusts is relatively
concentrated, with only a few sponsors accounting for a majority of total
sales. Based upon the information available, the Company believes it had a
leading market share in this market in each of the last three years. The
markets for mutual funds and money market funds are highly fragmented, with
many participating sponsors. Based upon the information available, the Company
believes that it had
10
<PAGE> 13
less than a 5% share of the market with respect to net sales of tax-free mutual
funds and money market funds in each of the last three years.
RELATIONS WITH DISTRIBUTORS
The Company employs approximately 80 wholesalers and sales assistants who
are supported by the Company's marketing department. Wholesalers work closely
with individual Registered Representatives to develop their businesses. The
Company's wholesalers regularly visit distributors of the Company's Investment
Products to provide product information, explain new products and discuss ideas
to respond to particular investor concerns. The Company provides individual
Registered Representatives with daily prices, weekly, monthly and quarterly
sales bulletins, monthly product statistical and performance updates, product
education programs and training seminars, and promotional programs coordinated
with its advertising campaigns. In addition, the Company regularly coordinates
its marketing and promotional efforts with individual Registered
Representatives.
ADVERTISING AND PRODUCT PROMOTION
To generate investor and Registered Representative interest and
understanding of its Investment Products, the Company augments its marketing
efforts through magazine and newspaper advertising, targeted direct mail and
telemarketing sales programs and sponsorship of certain sports and civic
activities including the Nuveen Tour (the preeminent men's over-35 professional
tennis circuit), the U.S. National Senior Sports Organization (U.S. Senior
Olympics) and the Chicago Lyric Opera radio broadcasts. For the year ended
December 31, 1996, the Company expended $12.6 million on advertising and
promotional efforts.
INVESTMENT BANKING
The Company, through its Municipal Securities Division, underwrites and
distributes municipal bonds, trades municipal bonds in the secondary market and
serves as remarketing agent for variable rate bonds. Virtually all of its
underwritings are for governmental and not-for-profit entities and
substantially all of its sales are to institutional investors including
casualty insurance companies, managed municipal bond funds, sponsors of unit
investment trusts (including the Company), bank portfolios, trust departments
and other dealers. The constituent departments of the Division responsible for
these activities include Investment Banking, Trading and Commitments, and
Institutional Sales. Included in Investment Banking is a business unit,
Health Care Mergers and Acquisitions, which furnishes strategic financial
advisory services to health care corporations. In addition, Investment Banking
may, on occasion, act as financial advisor, broker or underwriter to municipal
or other not-for-profit issuers with respect to transactions in interest rate
swaps, forward transactions or other investment agreements.
The principal sources of revenue of the Municipal Securities Division
include underwriting profits and management fees derived from negotiated bond
underwritings, financial advisory fees, remarketing agent fees, and profits
from other principal transactions including secondary market trading and
furnishing investment securities to investment banking clients incidental to
their bond financing transactions.
During 1996 the Company served as manager, co-manager, or syndicate member
in connection with 82 underwritings, aggregating $4.3 billion par value.
11
<PAGE> 14
Revenues from the underwriting of municipal securities and fees from
financial advisory and remarketing activities are set forth in the following
table for each of the last three years.
INVESTMENT BANKING REVENUES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Underwriting Revenues $5,154 $5,489 $6,082
Merger and
Acquisition and
Other
Financial Advisory
Fees 4,318 3,383 4,322
Remarketing Fees 1,626 1,462 1,389
-------- -------- --------
Total $11,098 $10,334 $11,793
======== ======== ========
</TABLE>
The Company is remarketing agent with respect to 87 issues of Variable
Rate Demand Obligations ("VRDOs") representing an aggregate principal value of
$1.5 billion. VRDOs are municipal bonds issued with a longer term (typically
20-30 year) maturity, having variable rates of interest and options granted to
the holders to put the obligations to the issuers on seven days' notice and
receive payments of the full principal amounts. These obligations to pay are
secured by letters of credit typically issued by commercial banks.
Periodically the remarketing agents, pursuant to agreements with the issuers,
reset the interest rates at a level that the remarketing agent anticipates will
permit them, as agents, to remarket at par any VRDOs with respect to which a
notice of put has been received. Although remarketing agents, including the
Company, are only obligated to use their best efforts in locating purchasers
for the VRDOs, they frequently purchase VRDOs for resale to other buyers within
a few days. During the period that the Company holds any VRDOs, it has, like
any holder, the unconditional right secured by the letter of credit to put the
obligation to the issuer and receive payment of the full principal amount.
During temporary periods of imbalance between supply and demand for VRDOs, the
Company may hold substantial amounts of such obligations for resale. The
Company has come to expect such imbalances at year-end and, to a lesser extent,
at each calendar quarter-end.
12
<PAGE> 15
INVENTORY POSITIONS
The Company regularly purchases and holds for resale municipal securities
and UIT units. Inventory positions are recorded at market value and unrealized
gains and losses are reported in the Company's operating results. The level of
inventory maintained by the Company will fluctuate daily and is dependent upon
the need to maintain municipal inventory for future UITs, and the need to
maintain UIT inventory to support ongoing sales.
The market value of the Company's inventory at December 31 for each of the
last three years and the average daily inventory balances outstanding during
each year are set forth below:
INVENTORY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Average Daily Inventory
Inventory, at market value (par value)
on December 31, for year ended December 31,
----------------------------------- -------------------------------
1996 1995 1994 1996 1995 1994
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nuveen UITs $39,206 $39,069 $51,880 $43,121 $47,945 $44,565
============= ========= ========= ========= ========= =========
Municipal securities
Held for: $- $1,000 $- $4,597 $6,036 $6,849
Deposit in UITs 4,553 11,308 2,606 3,202 2,924 4,379
Resale ------------- --------- --------- --------- --------- ---------
Total Municipal securities $4,553 $12,308 $2,606 $7,799 $8,960 $11,228
============= ========= ========= ========= ========= =========
</TABLE>
JOINT VENTURE
In 1990, Nuveen Institutional Advisory and Duff & Phelps Investment
Management Co. (Duff & Phelps), a registered investment adviser and
wholly-owned subsidiary of Phoenix Duff & Phelps Corp. formed Nuveen/Duff &
Phelps Investment Advisors ("Nuveen/D&P"), an Illinois general partnership.
Nuveen/D&P was created to provide investment advisory services to qualified and
non-qualified public utility nuclear power plant decommissioning funds and/or
their trustees. In a transaction consummated on January 2, 1997, Duff & Phelps
acquired Nuveen Institutional Advisory's interest and rights in the partnership
with respect to all but three of the advisory accounts. The Company will
continue as sole adviser with respect to three advisory accounts with assets
valued at $153 million.
During 1995, the Company announced the alliance of Nuveen Institutional
Advisory with C.H. Dean & Associates ("Dean"), a registered investment adviser,
for purposes of providing private asset management services through
individually managed municipal and balanced equity-municipal portfolios. At
December 31, 1996 there were a total of 65 accounts with assets totaling $59.1
million.
13
<PAGE> 16
EMPLOYEES
At December 31, 1996, the Company had 506 full-time employees. Employees
are compensated with a combination of salary, cash bonus and fringe benefits.
In addition, the Company has sought to retain its key and senior employees
through competitive compensation arrangements which include awards of the
Company's Class A shares in the form of restricted stock and stock options.
COMPETITION
The Company is subject to substantial competition in all aspects of its
business. The Registered Representatives that distribute the Company's
Investment Products also distribute numerous competing products, often
including products sponsored by the Retail Distribution Firms where they are
employed. In recent years, competition among securities firms has adversely
affected the profitability associated with the underwriting of municipal
securities. There are relatively few barriers to entry by new investment
management firms. Investment products are sold to the public by broker-dealers,
banks, insurance companies and others, and many competing investment product
sponsors offer a broader array of investment products. Many of these
institutions have substantially greater resources than the Company. The
Company competes with other providers of products primarily on the basis of the
range of products offered, the investment performance of such products, quality
of service, fees charged, the level and type of broker compensation, the manner
in which such products are marketed and distributed, and the services provided
to investors.
REGULATION
Nuveen & Co. is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is subject to regulation by the Securities and
Exchange Commission (the "Commission"), the NASD Regulation, Inc., the
Municipal Securities Rulemaking Board and other federal and state agencies and
self-regulatory organizations. Nuveen & Co. is subject to the Commission's
Uniform Net Capital Rule, designed to enforce minimum standards regarding the
general financial condition and liquidity of a broker-dealer. Under certain
circumstances, this rule may limit the ability of the Company to make
withdrawals of capital and receive dividends from Nuveen & Co. Nuveen & Co.'s
regulatory net capital has consistently exceeded such minimum net capital
requirements. At December 31, 1996, Nuveen & Co. had aggregate net capital, as
defined, of approximately $142 million, which exceeded the regulatory minimum
by approximately $137 million. The securities industry is one of the most
highly regulated in the United States, and failure to comply with related laws
and regulations can result in the revocation of broker-dealer licenses, the
imposition of censures or fines and the suspension or expulsion from the
securities business of a firm, its officers or employees.
Each Adviser is registered with the Commission under the Investment
Advisers Act. Each Fund and UIT is registered with the Commission under the
Investment Company Act and each national Fund is qualified for sale (or not
required to be so qualified) in all states in the United States and the
District of Columbia; each single-state Fund is qualified for sale (or not
required to be so qualified) in the state for which it is named and other
designated states. Virtually all aspects of the Company's investment
management business are subject to various federal and state laws and
regulations. These laws and regulations are primarily intended to benefit the
investment
14
<PAGE> 17
product holder and generally grant supervisory agencies and bodies broad
administrative powers, including the power to limit or restrict the Company
from carrying on its investment management business in the event that it fails
to comply with such laws and regulations. In such event, the possible
sanctions which may be imposed include the suspension of individual employees,
limitations on the Company's engaging in the investment management business for
specified periods of time, the revocation of the Advisers' registrations as
investment advisers or other censures and fines.
The Company's officers, directors, and employees may, from time to time,
own securities which are also held by one or more of the Funds. The Company's
internal policies with respect to individual investments require prior
clearance of all transactions in municipal securities, securities of
Exchange-Traded Funds and securities of the Company, and reporting of all
securities transactions, and restrict certain transactions so as to avoid the
possibility of conflicts of interest.
ITEM 2. PROPERTIES
The Company, which is headquartered in Chicago, conducts its principal
operations through leased offices located there and in other United States
cities. The Company leases approximately 205,000 square feet of office space
across the country. Management believes that the Company's facilities are
adequate to serve its currently anticipated business needs.
ITEM 3. LEGAL PROCEEDINGS
As previously reported most recently in the Form 10-Q report for the third
quarter of 1996, litigation is currently pending in federal district court in
Chicago and a similar lawsuit (dismissed in December, 1996) was pending in
state court in Hennepin County, Minnesota, (collectively the "Litigation)
against Nuveen & Co., Nuveen Advisory, current and former directors of two of
the Nuveen exchange-traded investment companies, Nuveen Municipal Value Fund,
Inc. (NUV) and Nuveen Premium Income Municipal Fund, Inc. (NPI) (the "Funds"),
inside counsel to Nuveen & Co. (collectively the "Nuveen Defendants") and the
Funds' outside legal counsel making various allegations with respect to the
Funds' January, 1994 rights offerings.
As previously reported, on November 4, 1996, a Memorandum of Understanding
was signed on behalf of the plaintiffs by their counsel and on behalf of the
Nuveen Defendants by their counsel, pursuant to which the above litigation
would be settled contingent on agreement by the parties on settlement
documentation, approval by the Court of that final settlement documentation,
resolution of related claims involving the Funds' former outside counsel, and
certain other contingencies. A similar agreement was reached between
plaintiffs and the Funds' outside counsel. The settlement, which in no way
constitutes an admission of liability by any defendant, will be paid one half
each by the insurer for the Funds' former outside counsel and by the insurer
for the Nuveen Defendants. In February, 1997, the Court preliminarily approved
the settlement and related documentation and scheduled a hearing on June 3,
1997 to determine whether to grant final approval of the settlement. Notice of
the settlement will be provided to shareholders of the Funds. The settlement
provides that the settlement funds will be paid primarily to the Funds'
shareholders allegedly injured by the rights offering. A portion of the
settlement amounts will be paid to the Funds as reimbursement of their expenses
and the Funds will also receive amounts unclaimed by shareholders.
15
<PAGE> 18
As previously reported in the Form 10-Q for the third quarter of 1996, a
lawsuit brought in June, 1996 in federal district court in Boston by certain
shareholders is currently pending against Nuveen & Co., Nuveen Advisory, six
Nuveen investment companies and two of the Funds' former directors seeking
unspecified damages, an injunction and other relief. The suit also seeks
certification of a defendant class consisting of all Nuveen-managed leveraged
funds. The complaint is filed on behalf of a purported class of present and
former shareholders of all Nuveen leveraged investment companies, including the
Funds, which allegedly engaged in certain practices which plaintiffs allege
violated various provisions of the Investment Company Act of 1940 and common
law. Plaintiffs allege among other things, breaches of fiduciary duty and
various misrepresentations and omissions in disclosures in connection with the
use and maintenance of leverage through the issuance and periodic auctioning of
preferred stock and the payment of management and brokerage fees to Nuveen
Advisory and Nuveen & Co. The defendants are vigorously contesting this action
and have filed motions to dismiss the entire action as well as motions to
transfer which are pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter
ended December 31, 1996.
EXECUTIVE OFFICERS AND OTHER KEY OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers and other key
officers of the Company as of December 31, 1996, except for Bruce P. Bedford
who was elected Executive Vice President in February, 1997, are set forth
below. Executive officers and other key officers of the Company serve at the
discretion of the Board of Directors. Unless otherwise indicated in the
following descriptions, each of the following executive officers and other key
officers has held his current position with the Company or its predecessor for
more than the past five years.
<TABLE>
<S> <C> <C>
Name Age Principal Position
----------------------- --- -----------------------------------------------
Executive Officers
-----------------------
Timothy R. Schwertfeger 47 Chairman, Chief Executive Officer and Director
Anthony T. Dean 51 President, Chief Operating Officer and Director
John P. Amboian 35 Executive Vice President, Chief Financial
Officer and Secretary
Bruce P. Bedford 56 Executive Vice President
Other Key Officers
-----------------------
William Adams IV 41 Vice President and Manager of Adviser Services
</TABLE>
Robert B. Kuppenheimer 50 Vice President and Manager of Nuveen California
Investment Management Services
<TABLE>
<S> <C> <C>
Paul C. Williams 51 Vice President and Manager, Investment Strategies
& Research
O. Walter Renfftlen 57 Vice President and Controller
</TABLE>
All executive officers and other key officers of the Company are elected
for a one-year term. There are no family relationships between any of the
Registrant's executive officers, other key officers and directors, and there
are no arrangements or understandings between any of these
16
<PAGE> 19
executive officers and other key officers, and any other person pursuant to
which the executive officer and other key officer was selected as an officer.
Descriptions of the business experience for the past five years of Messrs.
Schwertfeger and Dean appear on page 6 of the Registrant's 1997 Proxy Statement
relating to the annual meeting of shareholders to be held on May 9, 1997 (the
"1997 Proxy Statement") and are incorporated herein by reference.
Mr. Amboian has been Secretary of the Company since February 1997 and
Executive Vice President and Chief Financial Officer of the Company since June
1995; prior thereto, he served as Senior Vice President Finance, Strategic
Planning and Systems & Chief Financial Officer for Miller Brewing Company from
June 1993 to May 1995 and from August 1984 to May 1993 he served in several
financial positions for Kraft Foods, Inc., including Vice President, Financial
Planning and Analysis, and Treasurer.
Mr. Bedford has been Executive Vice President of the Company since
February 1997; prior thereto he served as Chairman, Chief Executive Officer and
Director of Flagship Resources, Inc., Flagship Funds, Inc., Flagship Financial
Inc. and the Flagship funds from October 1984 until December 1996.
Mr. Adams has been Vice President of the Company since March 1994. He
joined Nuveen & Co. in 1982 as an associate investment banker and was promoted
to Assistant Vice President in 1985. In 1988 Mr. Adams was named Vice
President and Manager of Product Development, and from July 1992 to May 1994,
he acted as Vice President and Manager of Business Development-Western Region.
In May 1994, Mr. Adams was appointed Vice President and Manager of Nuveen &
Co.'s Corporate Marketing Department and in February 1997, Mr. Adams was named
Vice President and Manager of Adviser Services.
Mr. Kuppenheimer has been Vice President of the Company since December
1992 and was named Vice President and Manager Nuveen California Investment
Management Services in February 1997. He has been Vice President of Nuveen &
Co. since 1979 and has been Vice President and Manager of Nuveen & Co's.
Investment Management Services for the State of California since 1995 and prior
thereto, National Sales Manager since 1986. Mr. Kuppenheimer joined Nuveen &
Co. in 1976 as an Assistant Vice President and Manager of Insurance Industry
Products.
Mr. Williams has been Vice President of the Company since 1992. He joined
Nuveen & Co. in 1971 and was promoted to Vice President in 1978. He managed
the General Municipal Financial Group in the Municipal Securities Department
from 1983 to 1990 and chaired Nuveen & Co.'s New Product Committee from 1987 to
1992. Mr. Williams headed Nuveen & Co.'s Corporate Planning and Research
Department from 1991 to 1994, the Municipal Securities Department during 1994
and currently heads Nuveen & Co.'s Investment Strategies and Research.
Mr. Renfftlen has been Vice President and Controller of the Company since
1992, and of Nuveen & Co. since he joined the firm in 1975. He has also served
as Vice President and Controller of Nuveen Advisory, each of the Nuveen Funds,
and Nuveen Institutional Advisory since their inception. Mr. Renfftlen is a
Certified Public Accountant.
17
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is contained in footnote 10 on page 29
of the Registrant's 1996 Annual Report to Shareholders (the "1996 Annual
Report") and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The "Five Year Financial Summary" section on page 31 of the 1996 Annual
Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section on pages 13 through 18 of the 1996 Annual Report
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data on pages 19 through 29 of
the 1996 Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The "Nominees for Directors" subsection and the "Nominees for Class B
Directors" subsection in the "Election of Directors" section on pages 6 and 7
of the 1997 Proxy Statement are incorporated herein by reference. Information
regarding the Registrant's executive officers and other key officers is
included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The "Executive Compensation", "Retirement Plans" and "Employment
Agreements" sections on pages 9 through 15 (except for the "Compensation
Committee Report on Executive Compensation" subsection on pages 12 and 13), and
the "Compensation of Directors" subsection in the "Election of Directors"
section on page 8, of the 1997 Proxy Statement are incorporated herein by
reference.
18
<PAGE> 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The "Beneficial Ownership of the Company's Common Stock" section on pages
2 through 4 of the 1997 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FILED DOCUMENTS. The following documents are filed as part of this
report:
<TABLE>
<S> <C>
1. Financial Statements: Page
- -----------------------------------------------------------------
Consolidated Balance Sheets - December 31, 1996 and 1995 *
Consolidated Statements of Income - Years ended
December 31, 1996, 1995 and 1994 *
Consolidated Statement of Changes in Stockholders' Equity -
December 31, 1996, 1995 and 1994 *
Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994 *
Notes to Consolidated Financial Statements *
</TABLE>
______________________
* Incorporated by reference to the 1996 Annual Report, which,
except as specifically incorporated by reference in this Form 10-K,
shall not be deemed to be filed with the Commission.
2. Financial Statement Schedules: None
All schedules are omitted because they are not required, are not
applicable or the information is otherwise shown in the financial statements
or notes thereto.
19
<PAGE> 22
3. Exhibits:
See Exhibit Index on pages E-1 through E-3 hereof.
The following management contracts and compensatory plans and arrangements
have previously been filed as Exhibits 10.1 through 10.7 to the Company's
1992 Form 10-K filed on March 30, 1993 and are incorporated herein by
reference:
Nuveen 1992 Special Incentive Plan
Form of Employment Agreement with Executive Officers
Annual Cash Bonus Plan
Excess Benefit Retirement Plan
Deferred Bonus Plan
The following management contacts and compensatory plans and arrangements
have previously been filed as Exhibits 10.4 and 10.5 to the Company's 1994
Form 10-K filed on March 29, 1995 and are herein incorporated by
reference:
Employees' Profit Sharing Plan
Employees' Retirement Plan
(b) REPORTS ON FORM 8-K.
A Report on Form 8-K was filed with the Securities and Exchange Commission
on July 22, 1996.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 26, 1997.
THE JOHN NUVEEN COMPANY
By___________________________
John P. Amboian
Executive Vice President,
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 26, 1997.
<TABLE>
<CAPTION>
Signature Title
- ----------------------------------- --------------------------------------
<S> <C>
Timothy R. Schwertfeger Chairman, Chief Executive Officer and
Director (Principal Executive Officer)
Anthony T. Dean President, Chief Operating Officer and
Director
Willard L. Boyd Director
Andrew I. Douglass Director
W. John Driscoll Director
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
Signature Title
- ----------------------------------- --------------------------------------------
<C> <C>
Duane R. Kullberg Director
Douglas W. Leatherdale Director
*
Patrick A. Thiele Director
John P. Amboian Executive Vice President and
Chief Financial Officer
(Principal Accounting and Financial Officer)
*By
Larry W. Martin
As Attorney-in-Fact for each
of the persons indicated
</TABLE>
22
<PAGE> 25
23
<PAGE> 26
EXHIBIT INDEX
to
ANNUAL REPORT ON FORM 10-K
for the
FISCAL YEAR ENDED DECEMBER 31, 1996
Copies of the documents listed below which are identified with an asterisk (*)
have heretofore been filed with the Commission as exhibits to registration
statements or reports filed with the Commission and are incorporated herein by
reference and made a part hereof; the exhibit number and location of each
document so filed and incorporated herein by reference are set forth opposite
each such exhibit. Exhibits not so identified are filed herewith.
<TABLE>
<CAPTION>
Page No. of
Exhibit in
Sequential
Exhibit Exhibit No. Numbering
Designation Exhibit and Location System
- ----------- ---------------------- -------------------- -----------
<S> <C> <C> <C>
* 3.1 Restated Certificate Exhibit 3.1 to
of Incorporation of Registration
The John Nuveen Statement on Form
Company S-1 filed on April
2, 1992, File No.
33-46922 (the "S-1
Registration
Statement")
* 3.2 Amended and Restated Exhibit 3.2 to the
By-Laws of The John Company's Form 10-K
Nuveen Company for year ended
December 31, 1993
filed on March 29,
1994 (the "1993
Form 10-K")
*10.1 Nuveen 1992 Special Exhibit 10.1 to
Incentive Plan Company's Form 10-K
for the year ended
December 31, 1992
filed on March 30,
1993 (the "1992
Form 10-K")
*10.1(a) Nuveen 1996 Equity Exhibit 4.2 to
Incentive Award Company's Form
Plan S-8 filed on July
10, 1996
*10.2 Form of Employment Exhibit 10.2 to
Agreements with top Pre-effective
five executive Amendment No. 1
officers
*10.3 Annual Cash Bonus Plan Exhibit 10.3 to
1992 Form 10-K
</TABLE>
E-1
<PAGE> 27
PAGE NO. OF
EXHIBIT IN
<TABLE> SEQUENTIAL
EXHIBT EXHIBIT NO. NUMBERING
DESIGNATION EXHIBIT AND LOCATION SYSTEM
- ----------- ------- ------------ -----------
<S> <C> <C>
10.3(a) Executive Officer --
Award Plan
*10.4 Amended and Restated Exhibit 10.4 to
Profit Sharing Plan 1994 Form 10-K
10.4(a) John Nuveen & Co. --
Incorporated
Employee's Profit
Sharing Plan
*10.5 Amended and Restated Exhibit 10.5 to
Retirement Plan 1994 Form 10-K
*10.6 Excess Benefit Exhibit 10.6 to the
Retirement Plan S-1 Registration
Statement
*10.7 Deferred Bonus Plan Exhibit 10.7 to the
S-1 Registration
Statement
*10.8(a) Lease dated August Exhibit 10.8 to the
10, 1984 between S-1 Registration
333 Wacker Drive Statement
Venture and John
Nuveen & Co.
Incorporated, as
amended
*10.8(b) Amendment dated Exhibit 10.8(b) to
January 1, 1993 to 1992 Form 10-K
lease between 333
Wacker Drive
Venture and John
Nuveen & Co.,
Incorporated
**10.9 Investment Exhibit 10.9 to
Management Pre-effective
Agreements between Amendment No. 1 and
Nuveen Advisory Exhibits 10.9 to
Corp. and each both the 1992 and
Nuveen Fund 1993 Forms 10-K
**10.10 Investment Exhibit 10.10 to
Management Pre-effective
Agreement between Amendment No. 1 and
Nuveen Exhibits 10.10 to
Institutional both the 1992 and
Advisory Corp. and 1993 Forms 10-K
each Nuveen Select
Tax-Free Income
Portfolio
10.10(a) Management --
Agreement between
Nuveen Investment
Trust and Nuveen
Institutional
Advisory Corp.
10.10(b) Investment --
Sub-Advisory Agreement
between Nuveen
Institutional Advisory
Corp. and Institutional
Capital Corp.
*10.11 Removed due to
sale of General
Partnership Portion
</TABLE>
E-2
<PAGE> 28
<TABLE>
<S> <C> <C>
*10.11(a) Joint Venture Exhibit 10.11 (a)
Advisory and to 1995 Form 10-K
Administration
Agreement dated
September 29, 1995
between Nuveen
Institutional
Advisory Corp. and
C.H. Dean &
Associates, Inc.
*10.12 Tax Sharing Exhibit 10.13 to
Agreement between S-1 Registration
The St. Paul Statement
Companies, Inc. and
John Nuveen & Co.
Incorporated
*10.13 Registration Rights Exhibit 10.13 to
Agreement between 1992 Form 10-K
The John Nuveen
Company and The St.
Paul Companies,
Inc.
*10.14 Indemnity Agreement Exhibit 10.14 to
between The St. 1992 Form 10-K
Paul Companies,
Inc. and The John
Nuveen Company
13 Annual Report to --
Shareholders for
the fiscal year
ended December 31,
1996
*21 List of Exhibit 22 to the
Subsidiaries of The S-1 Registration
John Nuveen Company Statement
23 Consent of --
Independent Auditor
24.1 Powers of Attorney --
24.2 Certified Copy of --
Resolutions of
Board of Directors
Authorizing
Signatures
27 Financial Data --
Schedule
</TABLE>
* Previously filed; incorporated herein by reference.
** Previously filed, other than Form of Renewal of Investment Management
Agreement, which are filed herewith.
E-3
<PAGE> 1
EXHIBIT 10.3(A)
NUVEEN EXECUTIVE OFFICER PERFORMANCE PLAN
1. Purpose. The purpose of the Nuveen Executive Officer Performance Plan
(the "Plan") is to promote the growth and financial success of The John Nuveen
Company (the "Company") and its Subsidiaries, by attracting, retaining and
motivating executive officers through performance-related incentives.
2. Definitions. The following terms shall have the meanings set forth
below:
"Award" shall mean the total cash bonus award to be distributed to
a Participant with respect to a Plan Year.
"Board of Directors" shall mean the Board of Directors of
the Company.
"Cause" shall mean (i) the willful engaging by the
Participant in conduct which the Participant knows, or has
substantial reason to believe, is illegal to the extent of a
felony violation (or the equivalent seriousness under laws other
than those of the United States) and which has effects on the
Company or the Participant materially injurious to the Company;
(ii) any act or acts of serious dishonesty or gross misconduct
which result in material damage to the Company or its business or
reputation or which the Board of Directors reasonably determines
do materially and adversely affect the value, reliability or
performance of the Participant to the Company; (iii) the willful
and continued failure by the Participant to perform his or her
duties to the Company (which may include any sustained and
unexcused absence of the Participant from the performance of such
duties, which absence has not been certified in writing as due to
physical or mental illness or Disability), after a written demand
for performance has been delivered to the Participant by the
Board of Directors identifying the manner in which the
Participant has failed to substantially perform his or her
duties. For purposes of the proviso of the preceding sentence:
(i) no act or failure to act on the Participant's part shall be
considered "willful" unless done, or omitted to be done, in bad
faith and without reasonable
<PAGE> 2
belief that such action or omission was in, or not opposed to,
the best interests of the Company; (ii) any act or failure to act
by the Participant based upon authority given pursuant to a
resolution duly adopted by the Board of Directors of the Company
or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, in good
faith and in the best interests of the Company; and (iii)
notwithstanding the foregoing, the Participant shall not be
deemed to have been terminated with Cause unless and until there
shall have been delivered to the Participant a copy of a
resolution duly adopted by the affirmative vote of a majority of
the entire Board of Directors of the Company at a meeting of the
Board called and held after such reasonable notice to the
Participant and at which the Participant has had an opportunity,
together with his or her other counsel, to be heard before such
Board, finding that in the good faith opinion of such Board, the
Participant was guilty of the conduct set forth above and
specifying the particulars thereof in detail.
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<PAGE> 3
"Change in Control" shall mean any of the following:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of voting securities of the Company where
such acquisition causes such Person to own 20% or more of
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not be
deemed to result in a Change in Control: (A) any
acquisition directly from the Company, (B) any acquisition
by the Company, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (D)
any acquisition by any corporation pursuant to a
transaction that complies with clauses (A), (B) and (C) of
subsection (iii) below; and provided, further, that if any
Person's beneficial ownership of the Outstanding Company
Voting Securities reaches or exceeds 20% as a result of a
transaction described in clause (A) or (B) above, and such
Person subsequently acquires beneficial ownership of
additional voting securities of the Company, such
subsequent acquisition shall be treated as an acquisition
that causes such Person to own 20% or more of the
Outstanding Company Voting Securities; or
(ii) individuals who, as of the effective date
hereof, constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) The approval by the shareholders of the Company
of (x) a reorganization, merger or consolidation, or sale
or other disposition of all or substantially all of the
assets of the Company or (y) the acquisition of assets or
stock of another corporation in exchange for voting
securities of the Company ("Business Combination") or, if
consummation of such Business Combination is subject, at
the time of such approval by shareholders, to the consent
of any government or governmental agency, the obtaining of
such consent (either explicitly or implicitly by
consummation); excluding, however, such a Business
Combination pursuant to which (A) all or substantially all
of the individuals and entities who were the beneficial
owners of the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding
voting securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation that as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Voting
Securities, (B) no Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially
owns, directly or indirectly, (except to the extent that
such ownership existed prior to the Business Combination)
an amount of, respectively, the then outstanding shares of
common stock of the corporation resulting from such
Business Combination or the combined voting power of the
then outstanding voting securities of such
E-3
<PAGE> 4
corporation representing the greater of (1) 20% thereof or
(2) a percentage thereof equal to or greater than the
percentage thereof held after such transaction by the
persons who were the owners of the Company's Class B stock
prior to such transaction; and (C) at least a majority of
the members of the board of directors of the corporation
resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing
for such Business Combination; or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, unless a majority of the Incumbent
Board determines otherwise, no Change in Control shall be deemed
to have occurred with respect to a particular Participant if the
Change in Control results from actions or events in which such
Participant is a participant in a capacity other than solely as
an officer, employee or director of the Company.
"Committee" shall mean the Compensation Committee of the
Board of Directors, the members of which are selected by and
serve at the pleasure of the Board of Directors; provided,
however, that the Committee shall at all times consist solely of
not fewer than two directors, each of whom is an "outside
director" within the meaning of Section 162(m) of the Internal
Revenue Code.
"Constructive Termination" shall mean any of the following,
without the written consent of the Participant: (i) a
substantial adverse change in the Participant's position,
authority, responsibilities or titles; (ii) a requirement that
the Participant retire before reaching age 65; or (iii) a
material reduction in the Participant's base salary, incentive
compensation opportunities, or other employee benefits; or (iv)
in the case of an officer-director, a requirement that the
Participant relocate to an office or location other than that at
which he is based at the beginning of the Plan Year A
Participant shall be considered to have terminated his or her
employment as a result of Constructive Termination only if he or
she gives notice thereof within 90 days after the occurrence of
an event described in the preceding sentence and the Company has
not cured the condition within 60 days of its receipt of such
notice.
"Deferred Bonus Plan" shall mean the Nuveen Deferred Bonus
Plan.
E-4
<PAGE> 5
"Disability" shall mean the inability of a Participant to
perform the services normally rendered to the Company or the
Subsidiary that employs him or her, due to a physical or mental
impairment that can be expected to be of either permanent or
indefinite duration, as determined by the Committee, and which
results in the Participant's inability to perform his or her
normal duties to the Company or such Subsidiary.
"Formula Pool" shall mean, for each Plan Year, (i) 2.5
percent of the excess of (A) the Company's Pre-Bonus, Pre-Tax Net
Operating Income for the Plan Year over (B) the amount that
represents a twelve percent return on beginning equity capital,
times (ii) the number of Participants eligible for Awards under
the Plan for the Plan Year; provided, that the Formula Pool is a
maximum amount available for Awards to Participants and the
aggregate amount of the Awards may be less than the amount of the
Formula Pool, as set forth in Section 6 hereof, and provided
further, that the Formula Pool for any Plan Year may not exceed
25 percent of the Company's Pre-Bonus, Pre-Tax Net Operating
Income for the Plan Year.
"Nuveen Equity Incentive Plans" shall mean the Nuveen 1996
Equity Plan and the Nuveen 1992 Special Incentive Plan.
"Nuveen 1996 Equity Plan" shall mean the Nuveen 1996 Equity
Incentive Award Plan.
"Participant" shall have the meaning given in Section 4.
"Plan Year" shall mean the fiscal year of the Company.
"Pre-Bonus, Pre-Tax Net Operating Income" for any Plan Year
shall mean the consolidated pre-tax net operating income of the
Company for such year, before deduction of (i) Awards under the
Plan, (ii) awards under the Nuveen Annual Incentive Award Plan,
and (iii) expenses associated with
E-5
<PAGE> 6
the grant, vesting and payment of awards under the Nuveen Equity
Incentive Plans (including, without limitation, the vesting of
shares of Restricted Stock, the payment of dividends on
Restricted Stock (other than Deferred Restricted Stock) and of
Dividend Equivalents on Deferred Restricted Stock, as such terms
are defined in the Nuveen Equity Incentive Plans). In addition
to the foregoing, Pre-Bonus, Pre-Tax Net Operating Income shall
also (a) exclude, unless the Compensation Committee determines
otherwise with respect to any Plan Year, amortization of the cost
of intangible assets (for any Plan Year or with respect to any
particular transaction the Compensation Committee may determine
to include all or a portion of such cost); and (b) include,
unless the Compensation Committee determines otherwise with
respect to any Plan Year, extraordinary items of income (as that
term is used under generally accepted accounting practices) and
other unusual or non-recurring items of income which are
identified as such and quantified in the footnotes to the
financial statements or MD&A section of the Annual Report. Ifthe
accounting rules or principles to which the Company is subject
are changed, or if the Company elects to change its method of
accounting so as to materially change, in the judgment of the
Committee, the manner in which Pre-Bonus, Pre-Tax Net Operating
Income is determined, the Committee may make such adjustments as
it deems advisable in order to arrive at substantially the same
Formula Pool as would have been derived if the accounting rules,
principles or methods had not so changed.
"Retirement" shall mean the retirement of a Participant from
the employment of the Company or a Subsidiary at (i) such
Participant's normal retirement date upon reaching age 65, or
(ii) such Participant's early retirement either (A) upon having
reached that age, which, when added to his or her years of
continuous service (as such term is defined under the Nuveen
Employees' Retirement Plan or any successor thereto) is equal to
or greater than 90, or (B) with the approval of the Committee.
"Section 162(m)" shall mean Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations
thereunder.
E-6
<PAGE> 7
"Subsidiary" shall mean any corporation 50% or more of the
voting power of which is owned, directly or indirectly, by the
Company.
"Termination of Employment" shall mean a cessation of the
employee-employer relationship between a Participant and an Employer
(other than by reason of transfer of the employee to another
Employer), or the consummation of a transaction whereby a
Participant's Employer (other than the Company) ceases to be a
Nuveen Subsidiary (such consummation, a "Disaffiliation
Transaction"). The employment of a Participant who is on an
approved leave of absence in excess of two years shall be considered
terminated as of the commencement of such leave for all purposes of
the Plan.
3. Administration. The Plan shall be administered by the Committee.
Any action of the Committee with respect to the administration of the Plan
shall be taken pursuant to the unanimous vote of its members. Subject to
the express provisions of the Plan, the Committee shall have authority to:
(a) construe and interpret the Plan, define the terms used herein,
prescribe, amend and rescind rules and regulations relating to the
administration of the Plan and make all other determinations necessary
or advisable for the administration of the Plan;
(b) select individuals for participation in the Plan;
(c) subject to the provisions of Sections 5 and 6 hereof,
determine the size of the Awards to be made under the Plan; and
(d) appoint and authorize officers of the Company or other persons
to assist in the execution and administration of the Plan (other than
the interpretation of the Plan and the adoption of rules governing its
execution and administration).
E-7
<PAGE> 8
Notwithstanding any other provision of the Plan, the Committee shall not
have the power to increase the amount of the Formula Pool or the amount of
any Participant's Award above the amount determined in accordance with
Sections 5 and 6 hereof, or to take any other action that would cause Awards
hereunder not to qualify as performance-based compensation for purposes of
Section 162(m).
4. Participation. The Committee shall designate as Participants in the
Plan for each Plan Year not less than five executive officers of the Company
and/or the Subsidiaries, which designations shall be made not more than 90
days after the beginning of the Plan Year.
5. Maximum Amount Available for Awards. The maximum amount which may
be paid as Awards for any Plan Year shall be the amount of the Formula Pool
for the Plan Year.
6. Determination of Awards. The amount of the Formula Pool shall be
computed promptly after the end of the Plan Year in accordance with the
terms and provisions of the Plan and regulations established by the
Committee, and when so computed shall be certified as accurate by the
Committee. Each Participant shall be entitled to receive an Award for the
Plan Year equal to the amount of the Formula Pool divided by the number of
Participants in the Plan for that Plan Year; provided, the Committee may
provide at the time of a grant under the Nuveen 1996 Equity Plan that the
amount of a Participant's Award under the Plan for one or more plan years
will be reduced by the "fair value" of such grant (determined in accordance
with procedures established by the Committee at the time of the grant under
the Nuveen 1996 Equity Plan); and provided, further, that the Committee may,
at the time an Award is made or at any time before an Award is payable in
full (or would be so payable but for deferral thereof under the Deferred
Bonus Plan) but before the occurrence of a Change in Control, in its sole
discretion and taking into consideration such factors as it deems
appropriate, reduce the amount of the Award of any Participant other than
the Company's Chief Executive Officer and Chief Operating Officer below such
amount. The amount by which any Award is so reduced shall not be paid to
any other Participant but shall be added to the bonus pool under the Nuveen
Annual Incentive Award Plan.
7. Payment of Awards. (a) Except as provided in the next sentence, no
Award shall be payable to a Participant unless he or she is employed by the
Company or a Subsidiary on the last day of the applicable Plan Year.
Notwithstanding the foregoing, if a Participant's employment is terminated
as a result of the Participant's
E-8
<PAGE> 9
death, Disability or Retirement, by the Company or a Subsidiary without
Cause, by the Participant as a result of Constructive Termination, or as a
result of a Disaffiliation Transaction, the Participant (or the
Participant's estate) shall be entitled to receive an Award for the Plan
Year in which such termination occurs in an amount equal to the product of
(i) the Award he or she would have received (for this purpose only assumed
to be the same percentage of the Formula Pool for the Plan Year as his or
her Award for the prior year represented of the Formula Pool for the prior
year), had there been no such termination of employment, times (ii) a
fraction, the numerator of which is the number of days in the Plan Year
before such termination of employment and the denominator of which is the
number of days in the Plan Year. Such Award shall be payable at the same
time as other Awards are paid for the Plan Year.
(b) Awards determined by the Committee to be payable under the Plan
for a Plan Year shall be paid in full in cash as soon as practicableafter
the close of the applicable Plan Year; provided, that any Participant
selected to participate in the Deferred Bonus Plan may elect to defer all or
any portion of his Award for any Plan Year in accordance with the terms of
the Deferred Bonus Plan.
8. Change in Control. Notwithstanding any other provision of the Plan,
upon a Change in Control, the amount of the Formula Pool shall be determined
and Awards shall be paid as if the date of the Change of Control were the
last day of the Plan Year during which such Change of Control occurs, with
the Formula Pool being determined prior to any expenses directly related to
such change in Control and by adjusting the 12% return on equity factor
proportionately to reflect the length of such truncated Plan Year. After
the actual end of the Plan Year during which such Change of Control occurs
(determined without regard to the preceding sentence), the amount of the
Formula Pool shall be determined based upon the entire Plan Year, and any
excess of the Awards payable based on the redetermined Formula Pool over the
amounts paid pursuant to the preceding sentence shall be paid in accordance
with the Plan (but if the redetermined Formula Pool is less than the Formula
Pool determined pursuant to the preceding sentence, the Awards payable
pursuant to the preceding sentence shall not be reduced or subject to being
returned).
9. Amendment; Termination. The Plan may be amended or terminated by a
majority vote of the Board of Directors at any time; provided, that no such
amendment or termination shall have the effect of increasing the Award that
would otherwise be payable to a Participant without approval of
shareholders, and provide further, that
E-9
<PAGE> 10
no such amendment or termination shall adversely affect the rights of any
Participant for any Plan Year that begins before such amendment or
termination is adopted by the Board of Directors.
10. Effective Date. The Plan shall be effective as of the first day of
the Company's 1996 fiscal year, provided that it is approved by the
shareholders of the Company at their annual meeting in 1996.
E-10
<PAGE> 1
EXHIBIT 10.4(a)
JOHN NUVEEN & CO. INCORPORATED
EMPLOYEES' PROFIT-SHARING PLAN
(As Amended and Restated Effective January 1, 1997)
<PAGE> 2
<TABLE>
<S> <C> <C>
ARTICLE I. NAME, CHARACTER AND PURPOSE OF PLAN ........................................ 1
1.1. Name ....................................................................... 1
1.2. History .................................................................... 1
1.3. Qualified Plan ............................................................. 1
1.4. Application ................................................................ 1
ARTICLE II. DEFINITIONS ................................................................ 1
ARTICLE III. PARTICIPATION .............................................................. 7
3.1. Dates of Participation ..................................................... 7
3.2. Rollover Amount ............................................................ 8
ARTICLE IV. EMPLOYER PROFIT SHARING CONTRIBUTIONS ...................................... 8
4.1. Profit Sharing Contribution Formula ........................................ 8
4.2. Statements ................................................................. 9
4.3. Allocation of Employer Profit Sharing Contribution ......................... 9
ARTICLE V. PARTICIPANT ELECTIVE DEFERRALS ............................................. 9
5.1. Elective Deferral Agreement ................................................ 9
5.2. Deduction of Elective Deferral Contributions ............................... 9
5.3. Change in Rate of Elective Deferral Contributions .......................... 9
5.4. Suspension of Elective Deferral Contributions .............................. 10
5.5. Nonforfeitability of Elective Deferral Contributions ....................... 10
5.6. Annual Limit on Elective Deferral Contributions ............................ 10
5.7. Elective Deferral Contributions Discrimination Limitation .................. 10
5.8. Calculation of Income or Loss on Excess Deferrals .......................... 11
ARTICLE VI. EMPLOYER MATCHING CONTRIBUTIONS ............................................ 11
6.1. Employer Matching Contributions ............................................ 11
6.2. Employer Matching Contributions Nondiscrimination Limitation ............... 11
6.3. Calculation of Income or Loss on Excess Contributions ...................... 12
ARTICLE VII. ACCOUNTING; LIMITS ON ANNUAL ADDITIONS ..................................... 12
7.1. Separate Accounts .......................................................... 12
7.2. Allocation of Remainders ................................................... 12
7.3. Statement of Account ....................................................... 12
7.4. Distributions .............................................................. 12
7.5. Adjustments ................................................................ 13
7.6. Yearly Limitations on Total Additions to Participant's Accounts ............ 13
ARTICLE VIII. VESTING AND TERMINATION .................................................... 14
8.1. Vested Interest ............................................................ 14
8.2. Vesting at Normal Retirement Age ........................................... 14
8.3. Vesting on Death or Permanent Disability ................................... 14
8.4. Determination of Remainders; Restoration of Remainders Upon
Reemployment................................................................ 14
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C> <C>
ARTICLE IX. DISTRIBUTION OF BENEFITS ......................................... 15
9.1. Time and Manner of Distribution .................................. 15
9.2. Loans ............................................................ 16
9.3. Designation of Beneficiaries ..................................... 16
9.4. Missing Participants ............................................. 16
9.5. Direct Rollovers ................................................. 17
ARTICLE X. ADMINISTRATION ................................................... 18
10.1. Allocation of Responsibility Among Fiduciaries ................... 18
10.2. Committee ........................................................ 18
10.3. Duties and Powers of Committee ................................... 18
10.4. Administration of Trust Fund ..................................... 20
10.5. Procedures of Committee .......................................... 20
10.6. Allocation and Delegation of Administrative Responsibilities ..... 20
10.7. Indemnification of Committee ..................................... 20
10.8. Compensation and Expenses ........................................ 20
10.9. Records .......................................................... 21
10.10. Claims Procedure ................................................. 21
ARTICLE XI. THE TRUST FUND AND ITS ADMINISTRATION ............................ 21
11.1. The Trust Fund ................................................... 21
11.2. Designation of Investments by Participants ....................... 21
11.3. Trustee .......................................................... 22
ARTICLE XII. MISCELLANEOUS .................................................... 22
12.1. Information to be Furnished by the Employer ...................... 22
12.2. Information to be Furnished by Participants ...................... 23
12.3. Interests Not Transferable ....................................... 23
12.4. Facility of Payment .............................................. 23
12.5. Absence of Guaranty .............................................. 23
12.6. Employment Rights ................................................ 23
12.7. Evidence ......................................................... 23
12.8. Waiver of Notice ................................................. 23
12.9. Gender and Number ................................................ 23
12.10. Action by Nuveen ................................................. 23
12.11. Courts ........................................................... 23
12.12. Successors, etc. ................................................. 24
12.13. Qualified Domestic Relations Orders .............................. 24
ARTICLE XIII. ADOPTION, AMENDMENT OR TERMINATION ............................... 24
13.1. Adoption ......................................................... 24
13.2. Amendment ........................................................ 24
13.3. Termination ...................................................... 25
13.4. Vesting and Distribution on Termination .......................... 25
13.5. Notice of Amendment or Termination ............................... 25
13.6. Merger or Consolidation of Plan .................................. 25
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S><C>
ARTICLE XIV. NOTICE ......................................................................... 26
ARTICLE XV. TOP-HEAVY PROVISIONS ............................................................ 26
15.1. Requirements in Plan Years in which Plan is Top-Heavy ............................. 26
</TABLE>
-iii-
<PAGE> 5
JOHN NUVEEN & CO. INCORPORATED
EMPLOYEES' PROFIT-SHARING PLAN
------------------------------
(As Amended and Restated Effective January 1, 1997)
ARTICLE I.
NAME, CHARACTER AND PURPOSE OF PLAN
-----------------------------------
1.1 Name. This document is an amendment, restatement and
continuation of the "John Nuveen & Co. Incorporated Employees' Profit-Sharing
Plan", effective as of January 1, 1997 (except as otherwise indicated within
this document), under which the Employer will share profits with Employees by
making contributions from its profits to the Trust for the exclusive benefit of
Participants or their Beneficiaries. Effective January 1, 1997, this Plan was
amended and restated to add a Code Section 401(k) cash or deferred
arrangement.
1.2 History. The Plan is successor to the John Nuveen & Co.
Incorporated Profit-Sharing Trust, which was created under date of December 22,
1941, amended July l, l970 and December 3l, l974 and succeeded to the John
Nuveen Pension Fund established in l936. At all times since, it has been
administered continuously.
1.3 Qualified Plan. The Plan and Trust have been amended and
restated to conform with the requirements of the Internal Revenue Code of 1986,
as amended, so that the Plan will be a qualified Plan and the Trust will
constitute a qualified trust within the meaning of Code Sections 401(a) and
501(a), respectively.
1.4 Application. The provisions of the amended and restated Plan
shall apply only to Employees who terminate employment on or after the
Restatement Date and their Beneficiaries. The rights and benefits, if any, of
a former Employee or his or her Beneficiary who are or will be receiving
benefits under the Plan shall be determined in accordance with the prior
provisions of the Plan in effect on the date his or her employment terminated.
ARTICLE II.
DEFINITIONS
-----------
2.1 "Accounts" means all the accounts maintained for a particular
Participant, including, as applicable, the Employer Profit Sharing Contribution
Account, the Elective Deferral Contribution Account, the Employer Matching
Contribution Account and the Rollover Account.
2.2 "Actual Contribution Percentage" means, with respect to each
Employee who is eligible to participate under Section 3.1, the percentage
represented by the Employer Matching Contributions on behalf of the Employee
for the Plan Year divided by the Compensation received by the Employee for the
Plan Year. However, Employer Matching Contributions that
<PAGE> 6
are taken into account under Section 2.3 shall not be included in the
computation of the Actual Contribution Percentage. The Plan Administrator may
elect for each Plan Year to treat Elective Deferral Contributions allocated to
a Participant as Employer Matching Contributions in computing the Actual
Contribution Percentage.
2.3. "Actual Deferral Percentage" means, with respect to each Employee
who is eligible to participate under Section 3.1, the percentage represented by
his or her Elective Deferral Contributions for the Plan Year divided by the
Compensation received by the Employee for the Plan Year. The Plan
Administrator may elect for each Plan Year to treat any portion of that Plan
Year's Employer Matching Contributions that may be treated as "qualified
matching contributions" under Code Section 401(k) allocated to a Participant as
Employer Matching Contributions in computing the Actual Deferral Percentage.
2.4. "Beneficiary" means any person designated by a Participant pursuant
to Section 9.3 to receive benefits under the Plan in the event of his or
her death.
2.5. "Break in Service" means a Plan Year for which an Employee or
Participant is credited with fewer than 501 Hours of Employment. Solely for
purposes of determining whether a Break in Service has occurred, a Participant
will be treated as completing up to, but not more than, 501 Hours of Employment
during a period in which the Participant was on a leave of absence caused by
pregnancy, birth of a child, adoption of a child, or care for a child during
the period immediately following the birth or adoption of the child. The total
Hours of Employment used to determine whether a Break in Service for such leave
has occurred shall not exceed 50l. Hours of Employment so used shall apply to
the year in which the permitted leave began if necessary to prevent a Break in
Service, or, if the Participant completed more than 500 Hours of Employment in
such year, then the Hours of Employment shall apply to the following year.
2.6. "Code" means the Internal Revenue Code of l986, as amended.
2.7. "Committee" means the Profit Sharing Committee appointed by
Nuveen's Board of Directors.
2.8. "Compensation" means base compensation received from an Employer
for a Plan Year which is treated as wages on Form W-2 for federal income tax
purposes, plus amounts contributed by an Employer which are not included in
income under Code Section 125, but excluding bonuses, overtime, incentive pay,
reimbursements and expense allowances, fringe benefits, monthly expenses, and
other deferred compensation and welfare benefits. Not more than $150,000 (as
adjusted under Code Section 401(a)(17)(B)) of Compensation shall be taken into
account for any Participant in any Plan Year.
2.9. "Elective Deferral Agreement" means an agreement between a
Participant and his or her Employer described in Section 5.1.
2.10. "Elective Deferral Contribution Account" means the account
maintained for the Participant's Elective Deferral Contributions, as adjusted
under Article VII for earnings, losses, changes in market value, fees, expenses
and distributions, if any.
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2.11 "Elective Deferral Contributions" means amounts contributed to the
Plan on behalf of a Participant under his/her Elective Deferral Agreement and
Article V. Elective Deferral Contributions are intended to qualify as "salary
reduction" contributions under Code Section 401(k).
2.12 "Employee" means any employee of an Employer, other than a "leased
employee" as defined in Code Section 414(n)(2) and the Regulations thereunder.
2.13 "Employer" means, as the context requires, either jointly or
severally, John Nuveen & Co. Incorporated or its successors, and each
Related Business which has become a party to this Plan, as determined by the
Board of Directors of John Nuveen & Co. Incorporated.
2.14 "Employer Matching Contribution Account" means the account
maintained for the Employer Matching Contributions made on the Participant's
behalf under Section 6.1, as adjusted under Article VII for earnings, losses,
changes in market value, fees, expenses, and distributions, if any.
2.15 "Employer Matching Contributions" means the contributions made
by an Employer under Section 6.1.
2.16 "Employer Profit Sharing Contribution Account" means the account
maintained for the Employer Profit Sharing Contributions made on the
Participant's behalf under Section 7.1, as adjusted under Article VII for
earnings, losses, changes in market value, fees, expenses and distributions, if
any.
2.17 "Employer Profit Sharing Contributions" means the contributions
made by an Employer under Section 7.1.
2.18 "Fiduciaries" means the Board of Directors of Nuveen, the
Committee, and the Trustee, and any other "fiduciary" within the meaning of
ERISA, but only with respect to the specific responsibilities of each for Plan
and Trust administration, as described and allocated in Section 10.l.
2.19 "5% Owner" means a Participant who is a more-than-5% shareholder
of an Employer which is a corporation, or a person with a more-than-5%
capital or profits interest in an Employer which is not a corporation. A
Participant's ownership in an Employer will be determined under the rules of
Code Section 318.
2.20 "415 Compensation" means a Participant's compensation, as
determined under Income Tax Regulations Section 1.415-2(d) and,
effective after December 31, 1997, shall include salary deferrals to Code
Section 401(k) plans and salary reduction contributions to Code Section 125
plans.
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<PAGE> 8
2.21. "Highly Compensated Employee" means any Employee who:
(a) was a 5% Owner at any time during the current or prior Plan Year;
or
(b) for the preceding Plan Year:
(i) had 415 Compensation from the Employer of more than $80,000
(as adjusted under Code Section 414(q)); and
(ii) if the Employer elects for the preceding Plan Year, was in
the top-paid group of Employees for the preceding Plan Year.
An Employee is in the top-paid group of Employees for any year if such
Employee is in the group consisting of the top 20% of Employees (ranked by 415
Compensation).
2.22. "Hour of Employment" means each hour for which an Employee is
paid or entitled to payment by an Employer for performance of duties or on
account of a period during which no duties are performed due to vacation,
holiday, illness, incapacity, paid layoff, jury duty, military duty or other
leave of absence authorized by an Employer under its standard personnel
practices, administered in a uniform and nondiscriminatory manner, and each
hour for which back pay is either awarded or agreed to by the Employer.
Special rules for crediting Hours of Employment during a period in which the
Employee performs no services for the Employer are found in 29 C.F.R. Section
2530.200b-2(b) and (c) issued by the United States Department of Labor, which
are herein incorporated by reference. Hours of Employment shall be credited to
an Employee with respect to the employment periods to which they relate, rather
than to the periods in which payment is actually made. Hours of Employment
shall be credited to an Employee on the basis of semi-monthly payroll periods;
an Employee will be credited for 95 Hours of Employment for each semi-monthly
payroll period for which the Employee would be required to be credited with at
least one Hour of Employment under 29 C.F.R. Section 2530.200b-2(b) and (c)
described above.
2.23 "Net Income Before Tax" means net income or loss of the Employer
as computed by its accounting staff and subsequently verified by the
Employer's certified public accountants before providing for contributions
under this Plan and before providing for federal income taxes.
2.24 "Nuveen" means John Nuveen & Co. Incorporated, a Delaware
corporation.
2.25 "Participant" means any Employee who is participating in the
Plan under the provisions of Section 3.l.
2.26 "Plan" means the John Nuveen & Co. Incorporated Employees' Profit
Sharing Plan, as set forth by this document or as subsequently amended.
2.27 "Plan Year" means the calendar year.
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<PAGE> 9
2.28 "Remainder" means the non-vested portion of the account of any
Participant who has incurred a Break in Service and terminated employment with
the Employer.
2.29 "Related Business" means any corporation, partnership,
proprietorship or other entity which, along with an Employer, is a member of a
"controlled group of corporations", a group of trades of businesses (whether or
not incorporated) under common control or an "affiliated service group", as
described in Section 414(b), 414(c) or 414(m), respectively, or the Code, or
which is required to be aggregated with an Employer under Regulations issued
under Code Section 414(o).
2.30 "Restatement Date" means January l, l997.
2.31 "Rollover Account" means the account maintained for amounts rolled
over or transferred to the Plan from another qualified plan under Section 3.2,
after adjustments for earnings, losses, changes in market value, fees, expenses
and distributions, if any.
2.32 "Rollover Amount" means any amount received by an Employee or
Participant which is described in Code Section 402(c)(4), 403(a)(4) or
408(d)(3).
2.33 "Service" shall be computed as follows:
(a) For purposes of eligibility to participate under Article III, an
Employee shall be credited with a year of Service if he is credited
with at least 1,000 Hours of Employment in an "eligibility
computation period". An Employee's initial eligibility computation
period is the one-year period beginning on the date he is first
credited with an Hour of Employment. If needed, an Employee's
subsequent eligibility computation periods are Plan Years,
beginning with the Plan Year which begins during his or her initial
eligibility computation period. If a former Participant described
in paragraph (c) is reemployed, his or her initial eligibility
computation period will begin on the first date following his or
her reemployment when he is credited with an Hour of Service.
(b) For purposes of vesting under Article VIII, a Participant shall be
credited with a Year of Service if he is credited with at least
1,000 Hours of Employment in a Plan Year, including Plan Years
before he became a Participant.
(c) If a Participant who has fewer than three Years of Service
terminates employment and then has five or more consecutive Breaks
in Service, such former Participant will forfeit all prior Service
under paragraphs (a) and (b).
(d) If a Participant who has at least three Years of Service terminates
employment and is reemployed as an Employee before having five
consecutive Breaks in Service, his or her prior Service under
paragraphs (a) and (b) will be restored as of his or her
reemployment date.
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<PAGE> 10
(e) For all purposes of this Section 2.33, Service shall be calculated
using all Hours of Employment performed for the Employer and any
Related Business.
2.34 "Settlement Date" means the date as of which distribution of a
Participant's account shall be made or begin. A Participant's Settlement Date
will occur as soon as practicable after his or her termination of employment
(for any reason), but in no event later than the April 1 following the end of
the Plan Year in which his or her termination of employment occurred, unless
the Participant elects to defer his or her Settlement Date under Section
9.1(b). Effective January 1, 1997, any Participant who is actively employed by
an Employer and who has begun receiving payment of their Accounts pursuant to
the required minimum distribution rules under Code Section 401(a)(9) as in
effect prior to January 1, 1997, may elect to suspend his/her distributions
until their termination of employment.
2.35. Top-Heavy Plan Definitions:
(a)
(i) "Top-Heavy Plan" or "Top-Heavy" shall refer to the Plan
if, as of any Determination Date, the aggregate of the
accrued benefits of Key Employees who are Participants under
the Plan (including accrued benefits under any other Plan
aggregated with the Plan under the following subparagraph)
exceeds 60% of the aggregate of the accounts of all Employees
under the Plan, as determined in accordance with the
provisions of Code Section 4l6(g). For this purpose,
Employees and Key Employees shall include only such
individuals who received compensation from the Employer at
any time during the five-year period ending on the
Determination Date.
(ii) The determination of whether the Plan is Top-Heavy shall be
made after aggregating all other tax-qualified plans of the
Employer in which a Key Employee participates or which enable
any such tax-qualified plan to satisfy the requirements of
Code Sections 401(a)(4) and 410, to the extent such
aggregation is required by Code Section 416(g)(2) (together
with the Plan, the "required aggregation group"), and after
aggregating any other such plan of the Employer which may be
taken into account under the permissive aggregation rules of
Code Section 416(g)(2)(a)(ii) if such permissive aggregation
thereby eliminates the Top-Heavy status of any plan within
such permissive aggregation group. In determining the
accrued benefit of any Employee under any defined benefit
plan which is aggregated under this subparagraph, the accrual
method used shall be the actual accrual method used under all
such plans of the Employer.
(iii) The Plan is "Super Top-Heavy" if, as of the Determination
Date, the Plan would meet the test specified above for being
a Top-Heavy Plan if 90% were substituted for 60% in each
place it appears in this subsection.
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<PAGE> 11
(b) "Determination Date" means, for purposes of determining whether
the Plan is Top-Heavy for a particular Plan Year, the last day
of the preceding Plan Year.
(c) "Key Employee" means any Participant in the Plan (including a
Beneficiary of such Participant) who at any time during the Plan
Year or any of the four preceding Plan Years is:
(i) An officer of the Employer who receives as annual
compensation more than 50% of the dollar limit under Code
Section 415(b)(l)(A) (but in no event shall more than 50
Employees or, if less, the greater of three or l0% of all
Employees be taken into account under this paragraph (i) as
Key Employees);
(ii) One of the ten Employees owning (or considered as owning
within the meaning of Code Section 318) both more than a 1/2
of 1% interest in the value and the largest percentage
interests in the Employer, provided that such Employee also
had compensation for that Plan Year exceeding the maximum
dollar limitation under Code Section 415(c)(l)(A) in effect
for the calendar year in which the Determination Date falls;
(iii) An Employee owning (or considered as owning within the
meaning of Code Section 318) more than 5% of the outstanding
stock of the Employer or stock possessing more than 5% of the
total combined voting power of all stock of the Employer; or
(iv) An Employee who receives as annual compensation from the
Employer more than $l50,000 and who would be described in
paragraph (iii) of this Section if "l%" were substituted for
"5%."
For purposes of applying Code Section 318 to the provisions
of this subsection (c), Code Section 318(a)(2)(c) shall be
applied by substituting "5%" for "50%". In addition, Code
Section 414(b), (c) and (m) shall not apply for purposes of
determining top-ten ownership or ownership percentage in the
Employer under this subsection (c).
(d) "Non-Key Employee" means any Employee (including a Beneficiary of
such Employee, if that Beneficiary is a Participant) who is not a
Key Employee.
2.36 "Trust Fund" or "Trust" means the fund presently held by the
Trustee to which all contributions pursuant to this Plan will be made and out
of which all benefits payable pursuant to this Plan will be provided, and shall
include all contributions by the Employer and Participants and all investments
thereof and accumulated earnings thereon.
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<PAGE> 12
ARTICLE III
PARTICIPATION
3.1 Dates of Participation.
(a) Each Employee on the Restatement Date who was a Participant will
continue to be a Participant after the Restatement Date, provided
he continues to be an Employee.
(b) Each Employee who was not a Participant on the Restatement Date
will become a Participant hereunder on the first to occur of the
following:
(i) the first anniversary of the date the Employee commenced
employment with the Employer, provided that, as of that date
he has reached age 2l and completed a year of Service as
defined in Section 2.33(a); or
(ii) the January 1 or July 1 coincident with or next following the
date when the Employee has reached age 21 and completed a
year of Service as defined in Section 2.33(a).
(c) A Participant's status as such shall cease upon his or her
termination of employment with the Employer; provided, however,
that for purposes of Article IX, the term "Participant" shall
include any former Participant who has not received all payments to
which he is entitled under the Plan.
(d) A former Participant who is reemployed as an Employee by the
Employer will become a Participant again subject to the following
rules:
(i) a former Participant whose Service is forfeited under
Section 2.33(c) will, upon reemployment by the Employer, be
treated as a new Employee and must satisfy Section 3.1(b)
again;
(ii) any other former Participant will become a Participant again
as of the date he is reemployed by the Employer.
3.2 Rollover Amount. Any Employee who becomes a Participant pursuant to
Section 3.l may file a written application with the Committee requesting that
the Trustee accept a Rollover Amount from such Participant. The Committee, in
its sole discretion, shall determine whether the amount in question is a
Rollover Amount and whether the Participant shall be permitted to contribute it
to the Trust. Any written application filed pursuant to this Section shall set
forth the amount of such Rollover Amount and a statement, satisfactory to the
Committee, that such contribution constitutes a Rollover Amount, and the
Committee may request such other information as is necessary to implement this
Section. Rollover Amounts shall be accepted in cash only. In the event the
Committee permits a Participant to contribute a Rollover Amount,
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<PAGE> 13
such Rollover Amount shall become part of the Trust Fund and shall be
maintained in a separate fully vested Rollover Account.
ARTICLE IV.
EMPLOYER PROFIT SHARING CONTRIBUTIONS
4.1 Profit Sharing Contribution Formula. Subject to all rights herein
reserved to it with respect to alteration, amendment, interruption or
discontinuance of the Plan, Nuveen will pay to the Trustee, as of the last day
of each Plan Year and not later than the time prescribed by law for filing its
federal income tax return for such Plan Year (including extensions thereof), a
Profit Sharing Contribution out of such year's current profits. The amount of
this Profit Sharing Contribution shall be equal to two percent of the total
compensation, including overtime allowances, bonuses and any other additional
payments and benefits, paid all Participants during such Plan Year, who were
Employees as of the last day of the Plan Year, or such other amount as the
Board of Directors of Nuveen or the Executive Committee of such Board of
Directors may determine prior to the time prescribed by law for filing Nuveen's
federal income tax return for such Plan Year, but not in excess of the maximum
amount which, if paid as a profit sharing payment hereunder, would be allowable
to Nuveen as an income tax deduction for such Plan Year under the then
applicable provisions of the Code. In no event shall the amount of the Profit
Sharing Contribution be such as to reduce the "Net Income Before Tax" of Nuveen
from a profit to a loss position.
4.2 Statements. Nuveen shall at or before the time of making its Profit
Sharing Contribution for any Plan Year, or of filing its federal income tax
return for such year, deliver to the Committee and the Trustee a statement of
the amount of its Profit Sharing Contribution for such Plan Year, together with
a statement that such amount has been computed in accordance with Section 6.4
of the Plan by its accounting staff and has been subsequently verified by its
certified public accountants.
4.3 Allocation of Employer Profit Sharing Contribution. The Employer
Profit Sharing Contribution to the Trust for any Plan Year shall first be used
to make any special allocations required under Section 8.4(b) which could not
be made under Section 7.2 because these were insufficient Remainders; the
balance shall then be allocated among and credited to the separate Profit
Sharing Accounts of all Participants who were Employees as of the last day of
the Plan Year in that proportion which the Compensation paid a Participant
during the Plan Year (including Compensation paid during any part of that Plan
Year prior to the date when he became a Participant) bears to the total of such
Compensation paid by the Employer during the Plan Year to all Participants who
were Employees as of the last day of the Plan Year. Allocations of
contributions under this Section 4.3 shall be considered as having been made on
the last day of the applicable Plan Year regardless of the dates of actual
entries or receipt by the Trustee.
ARTICLE V.
PARTICIPANT ELECTIVE DEFERRALS
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<PAGE> 14
5.1 Elective Deferral Agreement. A Participant may elect to enter into
an Elective Deferral Agreement which shall be applicable to each payroll
period. The terms of any such Elective Deferral Agreement shall provide that
the Participant agrees to a reduction in Compensation equal to any whole
percentage from 1% to 6% of his or her Compensation [for each payroll period]
after the Deferral Agreement becomes effective.
5.2 Deduction of Elective Deferral Contributions. The Employer shall
deduct a Participant's Elective Deferral Contributions from the Compensation of
the Participant and as soon as practicable after the deduction is made, but in
no event later than the 15th business day of the month following the month in
which the deduction is made, shall contribute the sums so deducted to the
Trustee for investment as the Participant shall have directed as provided in
Section 7.1.
5.3 Change in Rate of Elective Deferral Contributions. Within the
limitations of Section 5.1, a Participant may change the percentage of his or
her Elective Deferral Contributions being made from his or her Compensation as
of the first day of the first payroll period beginning in any calendar quarter,
by submitting a form to the Committee at least 10 business days preceding the
date such change is to become effective, or by such other date as the Committee
shall designate.
5.4 Suspension of Elective Deferral Contributions. A Participant may
elect to suspend making Elective Deferral Contributions as of the first day of
the first payroll period next following the completion of the processing of the
Participant's request by submitting a form to the Committee at least 10
business days preceding the date such suspension is to become effective. Such
election can be revoked and Elective Deferral Contributions may resume as of
the first day of the first pay period beginning in any calendar quarter by
submitting a form to the Committee at least 10 business days preceding the date
contributions are to resume.
5.5 Nonforfeitability of Elective Deferral Contributions. All
Elective Deferral Contributions shall be fully vested and nonforfeitable at all
times.
5.6 Annual Limit on Elective Deferral Contributions. No Participant
shall be permitted to have Elective Deferral Contributions made under this Plan
or any other qualified plan maintained by the Employer during any calendar year
in excess of the dollar limitation contained in Code Section 402(g) in effect
at the beginning of such calendar year. The dollar amount of the limit under
Code Section 402(g) for 1997 is $9,500. Any Elective Deferral Contributions
made by the Employer on behalf of a Participant in excess of the adjusted Code
Section 402(g) limit for a calendar year, and the earnings attributable thereto
(as calculated under Section 6.3) shall be returned to the Participant no later
than the April 15 following the close of the calendar year in which such excess
Elective Deferral Contributions were made.
If a Participant would exceed the limitation of this Section 5.7 when
the amount the Participant elects to contribute to his or her Elective Deferral
Contribution Account is aggregated with the amounts deferred by the Participant
under other plans or arrangements described in Code Sections 401(k), 408(k),
403(b) or 501(c)(18), the Participant may request that the Committee distribute
the excess deferrals. Such excess deferrals and income or loss allocable
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<PAGE> 15
thereto (as calculated under Section 6.3) may be distributed no later than
April 15 of the calendar year following the calendar year in which any such
excess deferrals are contributed, to Participants who claim such allocable
deferral contributions for the preceding calendar year. The Participant's
claim shall be in writing, shall be submitted to the Committee no later than
March 15 of the calendar year following the calendar year in which any such
excess deferrals are contributed, shall specify the Participant's deferral
contribution amount for the preceding calendar year, and shall be accompanied
by the Participant's written statement that if such amounts are not
distributed, such deferral contributions, when added to amounts deferred under
other plans or arrangements described in Code Sections 401(k), 408(k), 403(b)
or 501(c)(18), exceed the limit imposed on the Participant in accordance with
the applicable provisions of the Code for the year in which the deferral
contributions occurred. To the extent the excess deferral arises under this
Plan, when combined with other plans of the Employer, the individual will be
deemed to have notified the Committee of the excess deferral and to have
requested distribution.
5.7 Elective Deferral Contributions Discrimination Limitation. The
Employer may decrease the maximum permissible Elective Deferral Contributions
for certain Participants as determined by the Employer each year, distribute
Elective Deferral Contributions (including any gain or loss thereon as
calculated under Section 6.3) made by certain Participants as it shall
determine within 2 1/2 months after the end of the Plan Year to which they
relate, and/or make additional Elective Deferral Contributions on behalf of
certain Participants to the extent necessary to meet either of the following
tests for any Plan Year:
(a) The average Actual Deferral Percentage of eligible Employees who
are Highly Compensated Employees is not more than 1.25 times the
average Actual Deferral Percentage for the prior year of all other
eligible Employees; or
(b) The excess of the average Actual Deferral Percentage of eligible
Employees who are Highly Compensated Employees over the average
Actual Deferral Percentage for the prior year of all other eligible
Employees is not more than two percentage points and the average
Actual Deferral Percentage of eligible Employees who are Highly
Compensated Employees is not more than two times the average Actual
Deferral Percentage for the prior year of all other eligible
Employees.
5.8 Calculation of Income or Loss on Excess Deferrals. The income or
loss allocable to the excess deferrals under Sections 5.6 and 5.7 shall be
calculated on a uniform basis under Regulation Section 1.401(k)-1(f)(4).
ARTICLE VI.
EMPLOYER MATCHING CONTRIBUTIONS
6.1 Employer Matching Contributions. The Employer shall make an
Employer Matching Contribution to the Trust on behalf of each Participant who
has elected to make Elective Deferral Contributions under the Plan equal to 50%
of each such Participant's Elective Deferral Contribution for the Plan Year.
[The Employer Matching Contribution may be changed
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<PAGE> 16
prospectively for any Plan Year by resolution of the Board of Directors of
Nuveen or the Executive Committee of such Board of Directors.]
6.2 Employer Matching Contributions Nondiscrimination Limitation. The
Employer may distribute the amount of vested Employer Matching Contributions
(including any gain or loss thereon as calculated under Section 6.3) made for
certain Participants as it shall determine each Plan Year within 2 1/2 months
following the close of the Plan Year to which they relate, and/or forfeit
unvested Employer Matching Contributions on behalf of certain Participants, to
the extent necessary to meet either of the following tests for any Plan Year:
(a) The average Actual Contribution Percentage of eligible Employees
who are Highly Compensated Employees is not more than 1.25 times
the average Actual Contribution Percentage for the prior year of
all other eligible Employees; or
(b) The excess of the average Actual Contribution Percentage of
eligible Employees who are Highly Compensated Employees over the
average Actual Contribution Percentage for the prior year of all
other eligible Employees is not more than two percentage points and
the average Actual Contribution Percentage of eligible Employees
who are Highly Compensated Employees is not more than two times the
average Actual Contribution Percentage for the prior year of all
other eligible Employees.
In the event an Employer Matching Contribution relates to an excess
deferral under Section 5.7, or an excess contribution under Section 5.6, the
Employer Matching Contribution and income allocable thereto shall be forfeited
and treated as Remainders. The income allocable to an Employer Matching
Contribution shall be determined in accordance with Section 6.3.
The Plan will be permitted to satisfy the Actual Contribution Percentage
test under this Section 6.2 by satisfying Section 6.2(b) and the Actual
Deferral Percentage test under Section 5.6 by satisfying Section 5.6(b) for any
Plan Year only to the extent permitted by law.
6.3 Calculation of Income or Loss on Excess Contributions. The income
or loss allocable to the excess contributions under Sections 6.2 and 7.6 shall
be calculated on a uniform basis under Regulation Section 1.401(k)-1(f)(4).
ARTICLE VII.
ACCOUNTING; LIMITS ON ANNUAL ADDITIONS
7.1 Separate Accounts. The Committee (or the Trustee upon the
direction of the Committee) will maintain one or more separate Accounts in the
name of each Participant (or former Participant who has not yet received all
payments due to him or her under the Plan) to reflect his or her participation
in the Trust. A separate Account maintained for any Participant shall not
represent any interest in a specific asset of the Trust, but merely a
proportionate interest in those investments held in common by the Trust in
which the Participant directed his or her
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<PAGE> 17
Account be invested. Earnings on any investment shall accrue proportionately
to those Accounts having an interest in such investment and shall be reinvested
by the Trustee, except as otherwise provided in the Trust, in the same
investment. As of each December 3l, the total of all Account balances shall
reflect the fair market value of the Trust Fund as of that date.
7.2. Allocation of Remainders. Any Remainders which are determined
during any Plan Year shall first be used to make special allocations under
Section 8.4(b); the balance, if any, shall then be allocated among and credited
to the Profit Sharing Accounts of all Participants who were Employees as of the
last day of the Plan Year in the same manner as if such Remainders were Profit
Sharing Contributions of the Employer for the Plan Year.
7.3. Statement of Account. As soon as practicable after the close of
each Plan Year, the Committee will deliver (or will direct the Trustee to
deliver) to each Participant a statement of his or her Account balance or
balances as of that date in such detail as the Committee may direct.
Participants may inspect the Trustee's records pertaining to their individual
Accounts.
7.4. Distributions. All payments or distributions made to or for the
benefit of a Participant or his or her Beneficiary will be charged against an
Account of the Participant or Beneficiary when paid or distributed.
7.5. Adjustments. Allocations of Remainders under Section 7.2 shall be
considered as having been made on the last day of the applicable Plan Year
regardless of the dates of actual entries or receipt by the Trustee.
7.6. Yearly Limitations on Total Additions to Participant's Accounts.
Notwithstanding any other provisions of the Plan, the total "additions" (as
defined below) to a Participant's Account for any Plan Year shall not exceed
the lesser of:
(a) $30,000, adjusted for each Plan Year to take into account any
adjustment provided under Code Section 415(d); or
(b) 25% of 415 Compensation paid to the Participant by the Employer in
that Plan Year.
For purposes of this Section, the term "addition" shall mean, with respect to
each Participant, for each Plan Year, (i) the sum of the Employer Matching
Contributions, Elective Deferral Contributions and Remainders made to the Plan
on his or her behalf, (ii) amounts allocated to an individual medical account
as defined in Code Section 414(c)(2) which is part of a pension or annuity plan
maintained by the Employer, and (iii) amounts derived from contributions paid
or accrued which are attributable to post-retirement medical benefits allocated
to the separate account of a key employee as defined in Code Section
419A(d)(3), under a welfare benefit fund as defined in Code Section 419(c),
maintained by the Employer. In applying the above limitation, all qualified
defined contribution plans maintained by the Employer shall be treated as one
qualified defined contribution plan. Furthermore, the Compensation limitation
referred to in (b) above will not apply for any contribution for medical
benefits (as defined in Code Sections
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<PAGE> 18
401(h) or 419A(f)(2)) which is otherwise treated as an "addition" under Code
Sections 415(l)(1) or 419A(d)(2).
If, as a result of a reasonable error in estimating a Participant's
Compensation, or as a result of a reasonable error in determining the amount of
Elective Deferral Contributions that may be made with respect to any
Participant under the limits of Code Section 415, or under other limited facts
and circumstances that the Internal Revenue Service finds justifiable, an
excess amount exists, Elective Deferral Contributions as adjusted for income or
loss pursuant to Section 6.3 shall be returned to the Participant to the extent
necessary to satisfy this Section 6.4. To the extent an excess amount still
exists or to the extent the Elective Deferral Contributions cannot be returned
to the Participant pursuant to the preceding sentence, the excess amount shall
be disposed of in one of the following methods. If the Participant is covered
by the Plan as of the end of the Plan Year, the excess amount in the
Participant's Accounts will be used to reduce Employer contributions for the
Participant in the next Plan Year and each succeeding Plan Year. If the
Participant is not covered by the Plan as of the end of the Plan Year, then the
excess amount will be held unallocated in a suspense account and allocated to
the Accounts of all other Participants in the Plan for the next Plan Year
before any other amounts are allocated for such next Plan Year.
ARTICLE VIII.
VESTING AND TERMINATION
8.1 Vested Interest.
(a) A Participant's Elective Deferral Contributions Account and
Rollover Account shall at all times be fully vested and
nonforfeitable.
(b) Subject to the provisions of this Article VIII, each
Participant's Vested Percentage and Non-Vested
Percentage in his or her Employer Profit Sharing Contribution
Account and Employer Matching Contribution Account will be
determined in accordance with the following schedule:
Years of Service Vested Percentage Non-Vested Percentage
---------------- ----------------- ---------------------
0-2 0% 100%
3 20% 80%
4 40% 60%
5 60% 40%
6 80% 20%
7 or more 100% 0%
8.2 Vesting at Normal Retirement Age. A Participant will become 100%
vested in his or her Accounts on the later of his or her 65th birthday or the
fifth anniversary of the date he
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became a Participant, if he is still an Employee on that date and had not
already become 100% vested.
8.3 Vesting on Death or Permanent Disability. If a Participant dies
or incurs a permanent disability, his or her entire Account or Accounts
shall become 100% vested as of the date of his or her death or permanent
disability. If in the opinion of the Employer, concurred in by the Committee,
a Participant is unable to perform the duties of his or her employment because
of physical or mental disability and a physician acceptable to the Committee
certifies that such disability is likely to be permanent, he will be considered
to have incurred a "permanent disability" for purposes of the Plan. Such
disability shall be deemed to commence on the date the physician's certificate
is received by the Committee.
8.4 Determination of Remainders; Restoration of Remainders Upon
Reemployment.
(a) If a Participant's vested percentage of his or her Employer Profit
Sharing Contribution Account and Employer Matching Contribution
Account at his or her termination of employment is less than 100%,
any non-vested amount in these Accounts which is not then payable
will be a Remainder as of the last day of the Plan Year during
which his or her termination of employment occurred.
(b) If any non-vested part of a Participant's Employer Profit Sharing
Contribution Account and Employer Matching Contribution Account
becomes a Remainder under subparagraph (a) and he becomes a
Participant again under Section 3.1(d) before he has five
consecutive Breaks in Service, he may, at any time while he is a
Participant and within five years of his or her rehire date, repay
(without interest) the vested amount which was paid to him or her
from his or her Employer Profit Sharing Contribution Account and
Employer Matching Contribution Account. If he makes such
repayment, the Committee will, as of the last day of the Plan Year
coincident or next following such repayment, make a special
allocation to these Accounts so that the dollar value of the
balance in these Accounts is the same as it was on the last day of
the Plan Year coincident with or next following his or her
termination of employment (unadjusted for any subsequent gains or
losses of the Trust's assets).
ARTICLE IX.
DISTRIBUTION OF BENEFITS
9.1 Time and Manner of Distribution.
(a) On each Participant's Settlement Date, that portion of his or her
separate Account or Accounts which is then vested shall be
distributed in accordance with the provisions of this Section 9.1.
Such vested portion, reduced by (i) any loans made to him or her by
the Trustee pursuant to Section 9.2 which are treated as
distributions pursuant to the Code and (ii) accrued interest on any
such loan that is unpaid, will be distributed to or for the benefit
of the Participant, or, in the event
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<PAGE> 20
of his or her death, to or for the benefit of his or her
Beneficiary. Distribution will be made in a cash lump sum if the
amount to be distributed is $3,500 or less and otherwise by any one
or any combination of the following methods as the Participant or
his or her Beneficiary, as applicable, shall consent to and direct:
(i) By payment in full of the amount credited to such
Participant's Account or Accounts at the time of his or her
Settlement Date, in cash with respect to any specific
security account involving less than $300, otherwise in cash
or in kind or any combination thereof. Any distribution of
assets in kind under the Plan shall be measured at the fair
market value of such assets on the date of distribution.
(ii) By periodic payments, not less frequently than quarterly,
beginning on the Participant's Settlement Date, of such
substantially equal amounts, based on the amount credited to
such Participant's Account or Accounts at the time such
payments commence, plus any earnings on the unpaid balance,
but subject to readjustment from time to time, as may be
determined to exhaust such Participant's interest over a
specified period elected by the Participant which cannot
exceed 10 years; and, if payments to the Participant had not
commenced as of his or her death, payments to the
Participant's Beneficiary may not extend beyond the life of
the Beneficiary or beyond the life expectancy of the
Beneficiary determined as of the Participant's death and
payments must commence no later than one year after the
Participant's death or, in the case of a surviving spouse
being the Beneficiary, no later than the date the Participant
would have attained age 70 l/2. In no event shall periodic
payments under this subparagraph be less than $25.
(b) Subject to Section 2.34, if the amount credited to a Participant's
Account(s) exceeds $3,500, he may elect to defer his or her
Settlement Date to any date which is not later than 60 days after
the close of the Plan Year in which occurs the latest of his or her
65th birthday, termination of employment with the Employer or tenth
anniversary of the date he became a Participant.
9.2. Loans. The Committee shall have the power to establish a program
for loans from the Plan to Participants. Any such program, when adopted, shall
constitute a part of this Plan, even though it is contained in a separate
written document. The Committee shall administer and interpret any such
Participant loan program so that it is consistent with Department of Labor
Regulations Section 2550.408b-1.
9.3. Designation of Beneficiaries. Each Participant shall designate
any person or persons as Beneficiary or Beneficiaries to whom his or her
separate Account or Accounts shall be paid in case of his or her death.
The designation of Beneficiaries shall be subject to the following:
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<PAGE> 21
(a) A Participant's designation of his or her Beneficiary or
Beneficiaries must be made by written instructions signed by him or
her and filed with the Committee and the Trustee before his or her
death. Any new designations so filed shall automatically revoke
all prior designations. A married Participant may name as
Beneficiary or Beneficiaries someone other than his or her spouse
only with the spouse's written, notarized consent.
(b) If a Participant dies without having a Beneficiary designation then
in force, or if all Beneficiaries designated by him or her shall
have died before him or her or before complete payment of his or
her interest, or if, for any reason, distribution cannot be made to
the Beneficiary, distribution shall be made in the following order:
(i) to the Participant's surviving spouse; (ii) surviving
children; (iii) surviving grandchildren; (iv) surviving parents;
(v) surviving brothers and sisters; or (vi) executors or
administrators. Any determination or direction made by the
Committee in good faith as to the rights or identity of any
Beneficiary shall be conclusive on all persons, and neither an
Employer, the Committee, nor an Employer's officers or employees
shall be liable to any person on account of any error in such
decision or determination. Any payment made in accordance with
this Section shall fully acquit and discharge the Committee, each
Employer, the Trustee, their officers and employees from all future
liability with respect to the amount so paid.
9.4 Missing Participants. In the event that the whereabouts of a
Participant who has become entitled to receive, or is receiving distributions
under the Trust cannot be determined by the Committee, they shall have the
right at any time after seven years from the date on which the Committee last
had contact with such Participant:
(a) To direct that the balance of his or her interest be distributed to
his or her Beneficiary or Beneficiaries, if then living; or
(b) In the event his or her Beneficiary or Beneficiaries cannot be
located, or such Employee failed to designate any Beneficiaries, to
retain the balance of such vested portion in accordance with the
Plan until disposition thereof is permitted under the Code, and
regulations thereunder or other applicable law.
9.5 Direct Rollovers. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a Distributee's election under this
Section, a Distributee may elect, at the time and in the manner prescribed in
the Committee, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a
Direct Rollover.
(a) Eligible Rollover Distribution. An Eligible Rollover Distribution
is any distribution of all or any portion of the balance to the
credit of the Distributee, except that an Eligible Rollover
Distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of
the Distributee or the joint
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<PAGE> 22
lives (or joint life expectancies) of the Distributee and the
Distributee's designated Beneficiary, or for a specified period of
ten years or more; any distribution to the extent such distribution
is required under Code Section 401(a)(9); and the portion of any
distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation
with respect to Employer securities).
(b) Eligible Retirement Plan. An Eligible Retirement Plan is an
individual retirement account described in Code Section 408(a), an
individual retirement annuity described in Code Section 408(b), an
annuity plan described in Code Section 403(a), or a qualified trust
described in Code Section 401(a), that accepts the Distributee's
Eligible Rollover Distribution. However, in the case of an
Eligible Rollover Distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual
retirement annuity.
(c) Distributee. A Distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse or
former spouse who is the alternate payee under a qualified domestic
relations order, as defined in Code Section 414(p), are
Distributees with regard to the interest of the spouse or former
spouse.
(d) Direct Rollover. A Direct Rollover is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
ARTICLE X.
ADMINISTRATION
10.1. Allocation of Responsibility Among Fiduciaries. The Fiduciaries
shall have only those specific powers, duties, responsibilities and obligations
as are specifically given them under this Plan. The Board of Directors of
Nuveen, or Executive Committee thereof, shall have the sole responsibility to
designate Profit-Sharing Contributions under Article IV, the sole authority to
appoint and remove the Trustee and Committee, and to amend or terminate, in
whole or in part, the Plan and the Trust. The Committee shall have such other
responsibility for the administration of this Plan as is specifically described
in the Plan and shall be the "administrator" under Section 3(16)(A) of ERISA
and the "plan administrator" under Code Section 414(g). The Trustee shall have
sole responsibility for the administration of the Trust and the management of
the assets under the Trust except to the extent that the Trustee is subject to
the direction of the Committee or Participants, as specifically provided in the
Plan and Trust. Each Fiduciary warrants that any directions given, information
furnished, or action taken by it shall be in accordance with the provisions of
the Plan and the Trust, as the case may be, authorizing or providing for such
direction, information or action. It is intended under the Plan and the Trust
that each Fiduciary shall be responsible for the proper exercise of its own
powers, duties, responsibilities and obligations under the Plan and the Trust
and shall not be responsible for any act or failure to act of another
Fiduciary.
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<PAGE> 23
10.2 Committee. The Committee shall consist of at least three and not
more than six members appointed by Nuveen. A member of the Committee may
resign by written notice to, or may be removed by, Nuveen, which shall appoint
a successor to fill any vacancy. While there is a vacancy in the membership of
the Committee, the remaining members of the Committee shall have the same
powers as the full membership until the vacancy has been filled. The Secretary
of Nuveen shall advise the Trustee in writing of the members of the Committee
and of any changes which may occur in the membership.
10.3 Duties and Powers of Committee. The Committee shall have such duties
and powers as may be necessary to discharge its duties hereunder, including,
but not by way of limitation, the following:
(a) to administer the Plan, including exclusive discretionary authority
to construe and interpret the Plan, decide all questions of
eligibility and the amount, manner and time of payment of any
benefits hereunder;
(b) to prescribe procedures and forms to be followed by Participants or
Beneficiaries in connection with Elective Deferral Contributions,
investment of Accounts, loans, designation of Beneficiaries,
applications for benefits and all other matters under the Plan;
(c) to prepare and distribute, in such manner as the Committee
determines to be appropriate, information explaining the Plan and
Trust;
(d) to receive from the Employer and from Participants such information
as shall be necessary for the proper administration of the Plan and
Trust;
(e) to furnish the Employer, upon request, such annual reports with
respect to the administration of the Plan as are reasonable and
appropriate;
(f) to receive, review and keep on file (as is deemed convenient or
proper) reports of the financial condition, receipts and
disbursements, assets, and Participant accounts of the Trust Fund;
(g) to exercise such authority and responsibility as is deemed
appropriate in order to comply with the reporting, disclosure and
registration requirements of the Employee Retirement Income
Security Act of l974 ("ERISA") and regulations issued thereunder;
(h) to appoint or employ individuals to assist in the administration of
the Plan and Trust and any other agents deemed advisable, including
legal counsel, and such clerical, medical, accounting, auditing,
actuarial and other services as may be required in carrying out the
provisions of the Plan;
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<PAGE> 24
(i) to retain any funds or property subject to any dispute without
liability for interest, and to decline to make payment or delivery
of any such funds or property until final adjudication or an
appropriate release is obtained;
(j) to compromise, contest, arbitrate or abandon claims or demands;
(k) to give proxies to vote stocks and other voting securities, to join
in or oppose (alone or jointly with others) voting trusts, mergers,
consolidations, foreclosures, reorganizations, liquidations or
other changes in the financial structure of any corporation, and to
exercise or sell stock subscription or conversion rights;
(l) to provide the Trustee with a list of the Participants for such
Plan Year, together with a statement of the calculation, made in
accordance with the provisions of the Plan hereof, of the portion
of such contribution and Remainders to be credited to each
Participant's account on the books of the Trustee; and
(m) to perform any and all other acts which the Committee deems
necessary or appropriate for the proper and advantageous
administration of the Plan and management, investment and
distribution of the Trust.
Except as provided in Sections 9.2 and this 10.3, the Committee shall have no
power to exercise discretion in the operation or administration of the Plan. A
member of the Committee shall not participate in any action on any matters
involving solely his or her own rights or benefits as a Participant under the
Plan and any such matters shall be determined by the other Committee members.
10.4 Administration of Trust Fund.
(a) The Committee shall direct the Trustee concerning investment of the
Trust Fund, subject to the direction of Participants under Section
11.2, and all payments which shall be made out of the Trust Fund
pursuant to the provisions of the Plan. Any direction to the
Trustee shall be in writing and signed by a majority of the
Committee or by a member so authorized by a majority of the
members.
(b) To the extent that Participants exercise discretion over the
investment of their Accounts under Section 11.2, no Fiduciary shall
be liable for any loss, or by reason of any breach which results
from such an exercise of discretion by the Participant.
10.5 Procedures of Committee. The Committee may act at a meeting or by
writing without a meeting, by the vote or assent of a majority of its members,
and may adopt such bylaws and regulations as are deemed desirable for the
conduct of its affairs and the administration of the Plan. Except as otherwise
provided in ERISA, a dissenting member who, within a reasonable time after he
has knowledge of any action or failure to act by the majority, registers his or
her dissent in writing delivered to the other members, shall not be responsible
for any such action or failure to act.
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<PAGE> 25
10.6 Allocation and Delegation of Administrative Responsibilities.
The Committee may, upon approval of a majority of the Committee, allocate among
the members of the Committee any of the administrative responsibilities under
the Plan or designate any other person, firm or corporation to carry out any of
the administrative responsibilities of the Committee under the Plan. Any such
allocation or designation shall be made pursuant to a written instrument
executed by a majority of the Committee.
10.7 Indemnification of Committee. Members of the Committee shall be
indemnified by Nuveen for all liability, joint or several, for their acts and
omissions and the acts and omissions of their agents and co-fiduciaries, in the
administration and operation of the Plan, and shall also be indemnified by
Nuveen against all costs and expenses reasonably incurred by them in connection
with the defense of any action, suit, or proceeding in which they may be made
defendants by reason of their being or having been Committee Members, whether
or not then serving as such, including the cost of reasonable settlements
(other than amounts paid to the Employer) made to avoid costs of litigation and
payment of any judgment or decree entered in such action, suit or proceeding.
Nuveen shall not, however, indemnify Committee members with respect to any act
finally adjudicated to have been caused by willful misconduct. The right of
indemnification shall not be exclusive of any other right to which a Committee
member may be legally entitled and it shall inure to the benefit of the legal
representatives of the Committee.
10.8 Compensation and Expenses. All taxes and all reasonable costs,
charges, and expenses incurred in the administration of the Plan, including
compensation to the Trustee as agreed between Nuveen and the Trustee and
compensation to the agents, attorneys, accountants and other persons employed
by the Trustee or the Committee, shall be paid by the Employer. Members of the
Committee shall not receive compensation for their services, but the Employer
shall reimburse them for any necessary expenses incurred in the discharge of
their duties.
10.9 Records. The Committee shall keep a record of all of its meetings
and shall keep such books of account, records and other data as may be
necessary or desirable in its judgment for the administration of the Plan.
10.10 Claims Procedure. The Committee shall make all determinations as
to the right of any person to a benefit. Any denial by the Committee of the
claim for benefits under the Plan by a Participant or Beneficiary shall be
stated in writing by the Committee and delivered or mailed to the Participant
or Beneficiary; and such notice shall set forth the specific reasons for the
denial, written in a manner that may be understood by the Participant or a
Beneficiary. In addition, the Committee shall afford a reasonable opportunity
to any Participant or Beneficiary whose claim for benefits has been denied for
a review of the decision denying the claim, provided that the Participant or
Beneficiary requests the review in writing, within 60 days after notification
of denial of the claim. A decision by the Committee shall be made within 60
days after receipt of the request for a review.
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ARTICLE XI
THE TRUST FUND AND ITS ADMINISTRATION
11.1 The Trust Fund. The Trust Fund shall be held by the Trustee and
invested and distributed by it pursuant to the direction of the Committee. In
no event shall any part of the Trust Fund be used for or diverted to purposes
other than for the exclusive benefit of Participants or their Beneficiaries,
provided that upon Nuveen's request, a contribution which was made by a mistake
of fact, or conditioned upon the initial qualification of the Plan or upon the
deductibility of the contribution under Code Section 404 shall be returned to
an Employer within one year after the payment of the contribution, the denial
of the qualification or the disallowance of the deduction (to the extent
disallowed), whichever is applicable.
11.2 Designation of Investments by Participants.
(a) The Committee shall periodically establish rules and regulations
for each Participant to direct the investment of his or her
Accounts among the following classes of securities, the specific
securities, or combination thereof, as specified by the Committee
or Nuveen for this purpose:
(i) Capital stock of IDS Cash Management Fund, Inc., Investors
Stock Fund, Inc., Investors Selective Fund, Inc. and IDS New
Dimensions Fund, Inc., which are open-end investment
companies sponsored and offered by Investors Diversified
Services, Inc.
(ii) Capital stock of any other open-end investment company
sponsored and offered by Investors Diversified Services,
Inc., as the Committee may from time to time designate.
(iii) Investment in the IDS Income Fund II, which is a combination
of money-market investments and guaranteed investment
contracts managed by American Express Trust Company.
(iv) Nuveen Growth and Income Stock Fund, which invests primarily
in equity securities of domestic companies with market
capitalization of at least $500 million;
(v) The Brinson Partners Non-U.S. Equity Fund, which invests
primarily in equity securities of non-U.S. issuers;
(vi) St. Paul Companies Stock Pooled Account, which will have
approximately 90% to 95% of its assets in common stock of The
St. Paul Companies and approximately 5% to 10% of its assets
in the American Express Trust Collective Cash Fund. The
American Express Trust Collective Cash Fund is similar to a
money market fund. The foregoing percentages may be
adjusted.
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<PAGE> 27
(vii) The John Nuveen Company Stock Pooled Account, which will have
approximately 90% to 95% of its assets in common stock of The
John Nuveen Company and approximately 5% to 10% of its assets
in the American Express Trust Collective Cash Fund. The
American Express Trust Collective Cash Fund is similar to a
money market fund. The foregoing percentages may be
adjusted.
Such designation shall be given by each Participant for the investment of the
then current contribution or for any changes in the Participant's investment
account at such time or times as the Committee may designate; provided,
however, that the Committee shall specify not less than four times during each
Plan Year with respect to which current contribution designations or investment
changes may be made. Earnings on any investment shall be automatically
reinvested by the Trustee in the same securities, except as otherwise provided
in the Trust.
(b) This Section shall be administered in accordance with ERISA Section
404(c) and the Regulations thereunder, and it is intended that
neither the Trustee, the Committee or an Employer shall be
responsible for any loss that relates to amounts invested at the
direction of a Participant, to the extent provided in ERISA Section
404(c); provided however that the Committee's may, at its option,
designate a default fund for contributions for which no Participant
direction has been given.
11.3 Trustee. The Trustee shall be American Express Trust Company
or its successor appointed by Nuveen. A successor Trustee may be a bank or
trust company in any state of the United States of America authorized to
administer trusts. The Trustee will act pursuant to the terms of its Trust
Agreement with Nuveen and of the Plan.
ARTICLE XII.
MISCELLANEOUS
12.1 Information to be Furnished by the Employer. The Employers shall
furnish the Committee and the Trustee such data and information as may be
required to administer and carry out the provisions of the Plan and Trust. The
records of the Employers as to a Participant's period or periods of employment,
termination of employment and the reason therefor, leave of absence,
re-employment and profit-sharing earnings will be conclusive on all persons
unless determined to the Committee's satisfaction to be incorrect.
12.2 Information to be Furnished by Participants. Participants and
their Beneficiaries must furnish to the Committee and the Trustee such
evidence, data or information as the Committee consider desirable to carry out
the Plan.
12.3 Interests Not Transferable. Except as to any debt owing to the
Trustee because of loans made pursuant to the Plan, and except as to the
payment of benefits in accordance with the applicable requirements of any
qualified domestic relations order as described in Section 12.13,
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the interests of Participants and their Beneficiaries under the Plan are not
subject to the claims of their creditors and cannot be transferred or
encumbered.
12.4. Facility of Payment. When, in the Committee's determination, a
Participant or Beneficiary is under a legal disability or is incapacitated in
any way so as to be unable to manage his or her financial affairs, the
Committee may direct the Trustee to make payments to the Participant or
Beneficiary or his or her legal representative, or to a relative or friend of
the Participant or Beneficiary for his or her benefit, or may direct the
Trustee to apply the payment for the benefit of the Participant or Beneficiary
in any way in which the Committee consider advisable.
12.5. Absence of Guaranty. The Committee, the Trustee and the
Employers do not in any way guarantee the Trust Fund from loss or depreciation.
No Employer guarantees any payment to any person under the Plan.
12.6. Employment Rights. The Plan does not constitute a contract of
employment, and participation in the Plan will not give any Employee the right
to be retained in the employ of an Employer or limit the right of an Employer to
discharge any Employee with or without cause.
12.7. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
12.8. Waiver of Notice. Any notice required under the Plan may be
waived by the person entitled to such notice.
12.9. Gender and Number. Where the context admits, words denoting men
include women, the plural includes the singular and the singular includes the
plural.
12.10. Action by Nuveen. Any action by Nuveen shall be by resolution
of its Board of Directors or the Executive Committee of its Board of Directors,
or by a person authorized by resolution of its Board of Directors or the
Executive Committee of its Board of Directors.
12.11. Courts. In case of any court proceedings involving the Trustee,
the Committee, an Employer or the Trust Fund, only the Trustee, the Committee
and Nuveen shall be necessary parties to the proceedings, and no other person
shall be entitled to notice of process. A final judgment entered in any such
proceedings shall be conclusive.
12.12. Successors, etc. The Plan shall be binding on all persons
entitled to benefits under the Plan and their respective heirs and legal
representatives, on the Employers and their successor and assigns, and on the
Trustee and the Committee and their respective successors.
12.13. Qualified Domestic Relations Orders. Notwithstanding any
provision in the Plan to the contrary, the Committee shall adopt rules and
procedures under the Plan to comply with the terms of any applicable
"qualified domestic relations order" (as defined by Code Section 414(p))
(a "QDRO"). The Accounts of any Participant subject to a QDRO shall be
adjusted to
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reflect any benefit assignment(s) or payment(s) made pursuant to such QDRO. If
a QDRO so provides, payment of benefits assigned to an alternate payee may be
made in a lump sum as soon as practicable after the date the Committee
determines that the domestic relations order satisfies the QDRO requirements,
even if the Participant is not then eligible for a distribution and has not
then attained earliest retirement age (as defined by Code Section 414(p)).
ARTICLE XIII.
ADOPTION, AMENDMENT OR TERMINATION
13.1 Adoption. A Related Business authorized by Nuveen to adopt the
Plan may do so by appropriate action which:
(a) Directs that the Related Business becomes a party to the Trust
Agreement;
(b) Specifies the date upon which the Plan becomes effective with
respect to the Employees of the Related Business; and
(c) Prescribes the period, if any, during which an Employee's
employment with the Related Business prior to the adoption of the
Plan by the Related Business shall be deemed Service for purposes
of the Plan.
13.2. Amendment. While Nuveen expects to continue the Plan, it must
necessarily reserve and does reserve the right, to amend the Plan from time to
time, except as follows:
(a) The duties and liabilities of the Trustee and the Committee under
the Plan cannot be changed substantially without their consent.
(b) No amendment shall serve to divest any Participant or his or her
Beneficiaries of any portion of his or her account or accounts
which has become vested in him or them, or revert in an Employer
any interest in the assets of the Trust Fund or any part thereof.
(c) No amendment shall serve to eliminate an optional form of payment
as to any account or accounts which has become vested in any
Participant prior to adoption of such amendment except for the
elimination of an optional form of payment permitted by the Code
and regulations promulgated thereunder.
13.3 Termination. The Plan will terminate with respect to an Employer
on the first to occur of the following:
(a) As to Participants employed by the Employer, the date the Plan is
terminated by the Employer if 30 days' advance written notice of
the termination is given to the Committee and the Trustee;
(b) The date that the Employer is judicially declared bankrupt or
insolvent;
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(c) The date that the Employer advises the Committee in writing that it
will no longer make any contributions under the Plan, except that
in such event the Committee may elect to have the Trust continue in
effect for the benefit of the Participants employed by the
Employer, in which event all powers vested in the Employer under
the Trust Agreement with respect to such Participants and their
Beneficiaries shall vest in the Committee; or
(d) The dissolution, merger, consolidation or reorganization of the
Employer, or the sale by the Employer of all or substantially all
of its assets, except that in any such event arrangements may be
made whereby the Plan will be continued by any successor to the
Employer or any purchaser of all or substantially all of the
Employer's assets, in which case the successor or purchaser will be
substituted for the Employer under the Plan.
13.4. Vesting and Distribution on Termination. If the Plan is
terminated or partially terminated as of any date other than December 3l, all
adjustments required as of any December 3l shall be made as of that date. On
termination or partial termination of the Plan, each affected Participant's or
Beneficiary's Account balance or balances (after all adjustments then required)
shall be fully vested and nonforfeitable and distributed to him or her by one
or more of the methods specified in Section 9.1 of the Plan, as the Committee
determine.
13.5 Notice of Amendment or Termination. Participants and their
Beneficiaries will be notified of an amendment or termination within a
reasonable time.
13.6 Merger or Consolidation of Plan. In the event of a merger or
consolidation with, or transfer of Plan assets or liabilities to, any other
plan, each Participant in the Plan would (if the Plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer which is
equal to or greater than the benefit he would have been entitled to receive
immediately prior to the merger, consolidation or transfer (if the Plan had
then terminated).
ARTICLE XIV.
NOTICE
When herein provided for, notice to be given to an Employer shall be
delivered to the President, Executive Vice President, or Secretary of Nuveen,
personally, at the office of Nuveen in Chicago, Illinois, or shall be sent by
registered mail addressed to the President of Nuveen. Notice when herein
provided to be given to an Employee or Beneficiary shall be given by either
delivering such notice personally to the Employee or Beneficiary or by sending
a notice by registered mail addressed to himor her at his or her address shown
on the records of his/her Employer. Notice given to the heirs, devices,
executors, administrators and personal representatives of an Employee or
Beneficiary shall be given by addressing a notice to the representatives of the
Employee or Beneficiary and mailing the same by registered mail to his or her
address shown on the records of his/her Employer. Any such notice given
pursuant hereto
-26-
<PAGE> 31
shall be binding upon the Employer, the Committee, the Trustee, and the
Employee or Beneficiary and his or her heirs, devices, and personal
representatives.
ARTICLE XV.
TOP-HEAVY PROVISIONS
15.1 Requirements in Plan Years in which Plan is Top-Heavy. The
Committee shall determine annually whether the Plan is Top-Heavy as of the
Determination Date for any Plan Year beginning after January l, l984.
Notwithstanding anything herein to the contrary, if the Plan is Top-Heavy as
determined pursuant to Code Section 4l6 for the Plan Year beginning after
January l, l984, then the Plan shall meet the following requirements for any
such Plan Year:
(a) Minimum Vesting Requirements. A Participant's vested interest in
his or her account shall be determined in accordance with the
following schedule and not in accordance with Section 6.l:
Years of Service Vested Percentage
----------------------- -----------------
less than 2 years 0%
2 years but less than 3 20%
3 years but less than 4 40%
4 years but less than 5 60%
5 years but less than 6 80%
6 years or more l00%
In the event that the Top-Heavy Plan ceases thereafter to be
Top-Heavy, each Participant's vested interest shall again be
determined under Section 6.1, provided that a Participant's vested
interest shall not be reduced thereby. To the extent required by
both Code Section 411(a)(l0) and Final Regulations of the
Department of the Treasury under Code Section 416, if the
determination of a Participant's vested interest is changed from
the use of Section 8.1 to the use of Section 15.1, or vice versa,
each Participant with at least three years of Service may elect to
continue to have his or her vested interest computed under the
formerly applied vesting schedule. Such a Participant shall make
the foregoing election no later than the last to occur of the
following:
(i) The date which is 60 days after the date on which the change
in vesting schedules is adopted;
(ii) The date which is 60 days after the date on which the change
in vesting schedules is effective; or
(iii) The date which is 60 days after the date on which the
Participant receives written notice of the change in vesting
schedules.
-27-
<PAGE> 32
(b) Minimum Contribution Requirements. It is intended that the
Employer will meet the minimum contribution requirements of Code
Sections 416(c) and (h) by providing a minimum contribution
(including Remainders allocable under Section 7.2) for such Plan
Year for each Participant who is a Non-Key Employee, in accordance
with whichever of the following paragraphs is applicable:
(i) If the Employer does not maintain a tax-qualified
defined-benefit pension plan, or if the Employer maintains
such a pension plan in which no Participant can participate,
the minimum contribution per Participant shall be 3% of the
Participant's compensation for that Fiscal year;
(ii) If the Employer maintains a tax-qualified defined-benefit
pension plan in which one or more Participants may
participate, and that pension plan is not Top-Heavy, the
minimum contribution per Participant shall be 3% of a
Participant's compensation for that Plan Year, or 4% of the
Participant's compensation for that Plan Year, provided (a)
that this Plan is not Super Top-Heavy, (b) that the increased
l% contribution is necessary to avoid the application of Code
Section 416(h)(l) (relating to the adjustment of the combined
plan contributions and benefits limitation which would
substitute l.0 for l.25 in the defined contribution and
benefit plan fractions under Code Section 4l5) and (c) that
such adjusted plan contributions and benefits limitation
would otherwise be exceeded if such increased minimum
contribution were not so increased; and
(iii) If the Employer maintains a tax-qualified defined-benefit
pension plan in which one or more Participants may
participate, and that pension plan is Top-Heavy, the minimum
contribution per Participant shall be 5% of the Participant's
compensation for that Plan Year; provided, however, that if
this Plan is not Super Top-Heavy, the minimum contribution
shall be increased to 7.5% if necessary to avoid the
application of Code Section 416(h)(l) (relating to the
adjustments to the combined plan contributions and benefits
limitation described in paragraph (ii) above) and if such
adjusted plan contributions and benefits limitation would
otherwise be exceeded if an increased minimum contribution is
not made.
The minimum contribution under this subsection shall be allocated
to Participants' accounts as provided in Section 4.3.
Notwithstanding anything in this subsection to the contrary, the
applicable minimum contribution required under this subsection
shall in no event exceed, in terms of a percentage of compensation
the contribution made for the Key Employee for whom such percentage
is highest for the Plan Year after taking into account
contributions or benefits under other tax-qualified plans in the
Plan's required aggregation group as provided pursuant to Code
Section 416(c)(2)(B)(iii). Furthermore, no minimum contribution
will be required under this subsection (or the minimum contribution
shall be reduced, as the case may be) for a Participant for any
Plan Year if the Employer maintains another tax-qualified defined
benefit or defined
-28-
<PAGE> 33
contribution plan under which a minimum benefit or contribution is
being accrued or made for such Plan Year in whole or in part for
the Participant in accordance with the foregoing paragraphs (ii)
and (iii).
(a) Maximum Annual Additions. For purposes of determining maximum
annual additions under Section 6.4, if the Plan does not meet the
requirements of Code Section 416(h)(2), the Defined Benefit Plan
Fraction and the Defined Contribution Plan Fraction shall be
determined in accordance with Code Section 415(e) and applicable
regulations prescribed by the Secretary of the Treasury as modified
by Code Section 416(h)(1) and any such applicable regulations.
Executed this 18th day of December, 1996
ATTEST: JOHN NUVEEN & CO. INCORPORATED
/s/ James J. Wesolowski By: /s/ Larry W. Martin
-------------------- ----------------------------
Secretary Larry W. Martin
Vice President
-29-
<PAGE> 1
EXHIBIT 10.9
FORM OF RENEWAL OF INVESTMENT MANAGEMENT AGREEMENTS
DATED MAY 7, 1996
BETWEEN THE FUNDS LISTED BELOW AND NUVEEN ADVISORY CORP.
Attached is a copy of a Form of Renewal of Investment Management Agreement,
dated May 7, 1996, by and between each of the funds listed below (which were
active as of December 31, 1996) and Nuveen Advisory Corp. Copies of
agreements, identical in nature except for the name of the fund, were entered
into by the following funds:
FUND NAME
Nuveen Premium Income Municipal Fund, Inc.
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Municipal Market Opportunity Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund, Inc.
Nuveen New Jersey Investment Quality Municipal Fund, Inc.
Nuveen Pennsylvania Investment Quality Municipal Fund
Nuveen Select Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen Florida Quality Income Municipal Fund, Inc.
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.
Nuveen Texas Quality Income Municipal Fund
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Premier Municipal Income Fund, Inc.
Nuveen Premier Insured Municipal Income Fund, Inc.
Nuveen Premium Income Municipal Fund 2, Inc.
Nuveen Arizona Premium Income Municipal Fund, Inc.
Nuveen Insured California Premium Income Municipal Fund, Inc.
Nuveen Insured Florida Premium Income Municipal Fund
Nuveen Michigan Premium Income Municipal Fund, Inc.
Nuveen Insured New York Premium Income Municipal Fund, Inc.
<PAGE> 2
FUND NAME (CON'T)
Nuveen New Jersey Premium Income Municipal Fund, Inc.
Nuveen Premium Income Municipal Fund 4, Inc.
Nuveen Insured California Premium Income Municipal Fund 2, Inc.
Nuveen Maryland Premium Income Municipal Fund
Nuveen Massachusetts Premium Income Municipal Fund
Nuveen Pennsylvania Premium Income Municipal Fund 2
Nuveen Virginia Premium Income Municipal Fund
Nuveen Washington Premium Income Municipal Fund
Nuveen Connecticut Premium Income Municipal Fund
Nuveen Georgia Premium Income Municipal Fund
Nuveen Missouri Premium Income Municipal Fund
Nuveen North Carolina Premium Income Municipal Fund
Nuveen California Premium Income Municipal Fund
Nuveen Insured Premium Income Municipal Fund 2
Nuveen Municipal Value Fund, Inc.
Nuveen California Municipal Value Fund, Inc.
Nuveen New York Municipal Value Fund, Inc.
Nuveen Municipal Income Fund, Inc.
Nuveen Select Maturities Municipal Fund
Pursuant to the instructions to Item 601 of Regulation S-K, the Registrant is
filing only the representative of the Renewal of Investment Management
Agreement by and between each of the above listed funds, as of December 31,
1996, and Nuveen Advisory Corp. Copies of the actual Renewal of Investment
Management Agreements by and between each of the above funds and Nuveen
Advisory Corp. have not been attached.
<PAGE> 3
EXHIBIT 10.9
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENTS
DATED May 7, 1996
BETWEEN THE FUNDS LISTED BELOW AND NUVEEN ADVISORY CORP.
Attached is a copy of a Form of Renewal of Investment Management Agreement,
dated May 7, 1996 by and between each of the funds listed below (which were
active as of December 31, 1996) and Nuveen Advisory Corp. Copies of
agreements, identical in nature except for the name of the fund, were entered
into by the following funds:
FUND NAME
Nuveen Municipal Bond Fund
Nuveen Tax-Exempt Money Market Fund, Inc.
Nuveen Tax-Free Reserves, Inc.
Nuveen California Tax-Free Fund, Inc.
Nuveen Tax-Free Bond Fund, Inc.
Nuveen Insured Tax-Free Bond Fund, Inc.
Nuveen Tax-Free Money Market Fund, Inc.
Nuveen Multistate Tax-Free Trust
Pursuant to the instructions to Item 601 of Regulation S-K, the Registrant is
filing only the representative of the Renewal of Investment Management
Agreement by and between each of the above listed funds, as of December 31,
1996, and Nuveen Institutional Advisory Corp. Copies of the actual Renewal of
Investment Management Agreements by and between each of the above funds and
Nuveen Advisory Corp. have not been attached.
<PAGE> 4
[NAME OF FUND]
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
This Agreement made this 7th day of May, 1996 by and between [Name of Fund]
(the "Fund"), and Nuveen Advisory Corp., a Delaware corporation
(the "Adviser");
WHEREAS, the parties hereto are the contracting parties under that certain
Investment Management Agreement (the "Agreement") pursuant to which the Adviser
furnishes investment management and other services to the Fund; and
WHEREAS, the Agreement terminates August 1, 1996 unless continued in the
manner required by the Investment Company Act of 1940; and
WHEREAS, the Board of Directors, at a meeting called for the purpose of
reviewing the Agreement, have approved the Agreement and its continuance until
August 1, 1997 in the manner required by the Investment Company Act of 1940.
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 1997 and ratify and confirm the Agreement in all respects.
[NAME OF FUND]
By:
----------------------
Vice President
ATTEST:
- -----------------------------
Assistant Secretary
NUVEEN ADVISORY CORP.
By:
----------------------
Vice President
ATTEST:
- -----------------------------
Assistant Secretary
<PAGE> 1
EXHIBIT 10.10
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENTS
DATED May 7, 1996
BETWEEN THE FUNDS LISTED BELOW AND NUVEEN INSTITUTIONAL ADVISORY CORP.
Attached is a copy of a Form of Renewal of Investment Management Agreement,
dated May 7, 1996, by and between each of the funds listed below (which were
active as of December 31, 1996) and Nuveen Institutional Advisory Corp. Copies
of agreements, identical in nature except for the name of the fund, were
entered into by the following funds:
FUND NAME
Nuveen Select Tax-Free Income Portfolio
Nuveen Select Tax Free Income Portfolio 2
Nuveen Insured California Select Tax-Free Income Portfolio
Nuveen Insured New York Select Tax-Free Income Portfolio
Nuveen Select Tax-Free Income Portfolio 3
Pursuant to the instructions to Item 601 of Regulation S-K, the Registrant is
filing only the representative of the Renewal of Investment Management
Agreement by and between each of the above listed funds, as of December 31,
1996, and Nuveen Institutional Advisory Corp. Copies of the actual Renewal of
Investment Management Agreements by and between each of the above funds and
Nuveen Advisory Corp. have not been attached.
<PAGE> 2
[NAME OF FUND]
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
This Agreement made this 7th day of May, 1996 by and between [Name
of Fund], a business trust (the "Fund"), and Nuveen Institutional Advisory
Corp., a Delaware corporation (the "Adviser");
WHEREAS, the parties hereto are the contracting parties under that certain
Investment Management Agreement (the "Agreement") pursuant to which the Adviser
furnishes investment management and other services to the Fund; and
WHEREAS, the Agreement terminates August 1, 1996 unless continued in the
manner required by the Investment Company Act of 1940; and
WHEREAS, the Board of Trustees, at a meeting called for the purpose of
reviewing the Agreement, have approved the Agreement and its continuance until
August 1, 1997 in the manner required by the Investment Company Act of 1940.
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 1997 and ratify and confirm the Agreement in all respects.
[NAME OF FUND]
By:
-------------------------
Vice President
ATTEST:
- --------------------------------
Assistant Secretary
NUVEEN INSTITUTIONAL
ADVISORY CORP.
By:
-------------------------
Vice President
ATTEST:
- --------------------------------
Assistant Secretary
<PAGE> 1
EXHIBIT 10.10(a)
Management Agreement
Between
Nuveen Investment Trust
and
Nuveen Institutional Advisory Corp.
NUVEEN INVESTMENT TRUST, a Massachusetts business trust registered under the
Investment Company Act of 1940 ("1940 Act") as an open-end diversified
management series investment company ("Trust"), hereby appoints NUVEEN
INSTITUTIONAL 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 each series listed in Schedule A
hereto, as such schedule may be amended from time to time (each such series
hereinafter referred to as "Fund"). Trust and Manager hereby agree that:
Investment Management Services. Manager shall manage the investment operations
of Trust and each Fund, subject to the terms of this Agreement and to the
supervision and control of Trust's Board of Trustees ("Trustees"). 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) Trust's agreement and
declaration of trust and by-laws; (ii) the Fund's investment
objectives, policies, and restrictions as set forth in written
documents furnished by the Trust to Manager; (iii) all securities,
commodities, and tax laws and regulations applicable to the Fund and
Trust; and (iv) any other written limits or directions furnished by
the Trustees to Manager;
(c) unless otherwise directed by the Trustees, 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 Trust or Fund action, and any other rights
pertaining to Trust or the Fund shall be exercised;
(f) to make available to Trust promptly upon request all of the Fund's
records and ledgers and any reports or information reasonably
requested by the Trust; 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 Trustees, with respect
to execution of transactions for Trust on behalf of a Fund, Manager shall
place, or arrange for the placement of, all orders for purchases, sales, or
loans
<PAGE> 2
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 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.
Trust 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. Trust 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 Trust 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 Trust, the Funds, and Manager's other customers.
Manager shall for all purposes be deemed to be an independent contractor and
not an agent of Trust and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent Trust in any way.
2. Administrative Services. Subject to the terms of this Agreement
and to the supervision and control of the Trustees, Manager shall
provide to the Trust 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 Trust's Distributor
pursuant to the Distribution Agreement, those services to be performed
by the Trust's Custodian pursuant to the Custody Agreement, those
services to be performed by the Trust's Transfer Agent pursuant to the
Transfer Agency Agreement, those services to be provided by the
Trust's Custodian pursuant to the Accounting Agreement and those
services normally performed by the Trust'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, trustees, 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 Trust. Except to the extent expressly assumed by
Manager herein or under a separate agreement between Trust 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 Trust. 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;
2
<PAGE> 3
(b) all charges for equipment or services used for obtaining
price quotations or for communication between Manager or Trust and the
custodian, transfer agent or any other agent selected by Trust;
(c) all charges for and accounting services provided to Trust by
Manager, or any other provider of such services;
(d) all charges for services of Trust's independent auditors and
for services to Trust by legal counsel;
(e) all compensation of Trustees, other than those affiliated with
Manager, all expenses incurred in connection with their services to Trust, and
all expenses of meetings of the Trustees or committees thereof;
(f) all expenses incidental to holding meetings of holders of units
of interest in the Trust ("Shareholders"), including printing and of supplying
each record-date Shareholder with notice and proxy solicitation material, and
all other proxy solicitation expense;
(g) all expenses of printing of annual or more frequent revisions of
Trust 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 Trust shares;
(i) all expenses of bond and insurance coverage required by law or
deemed advisable by the Board of Trustees;
(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
Trust under the 1940 Act and, to the extent no exemption is available, expenses
of registering Trust's shares under the 1933 Act, of qualifying and
maintaining qualification of Trust and of Trust's shares for sale under
securities laws of various states or other jurisdictions and of registration
and qualification of Trust under all other laws applicable to Trust or its
business activities;
(m) all interest on indebtedness, if any, incurred by Trust or a Fund;
and
(n) all fees, dues and other expenses incurred by Trust in connection
with membership of Trust in any trade association or other investment company
organization.
5. Allocation of Expenses Borne by Trust. Any expenses borne by Trust
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 Trust which
is not solely attributable to a Fund, nor solely to any other series of shares
of Trust, shall be apportioned in such manner as Manager determines is fair
and appropriate, or as otherwise specified by the Board of Trustees.
3
<PAGE> 4
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 Trust 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 Trust
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, Trust 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 Trustees, 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 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 Trust 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 Trust and its Funds for all acts or omissions of any
sub-adviser in connection with the performance or Manager's duties
hereunder.
4
<PAGE> 5
10. Non-Exclusivity. The services of Manager to Trust 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 Trust or any
Fund without the affirmative votes (a) of a majority of the Board of
Trustees, including a majority of those Trustees who are not
"interested persons" of Trust 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 Trust 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 Trustees of Trust, 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 Trust. 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 until
the end of the initial term 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 Trustees who are not
interested persons of Trust 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 Trustees of Trust 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 Trust 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 Trust and
any other records the parties mutually agree shall be maintained by
Manager on behalf of Trust are the property of Trust and shall be
surrendered by Manager promptly on request by Trust; provided that
Manager may at its own expense make and retain copies of any such
records.
Trust 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 Trust as to each Fund
statistical data and other information in such form and at such
intervals as Trust may reasonably request.
5
<PAGE> 6
15. Non-Liability of Trustees and Shareholders. Any obligation of
Trust hereunder shall be binding only upon the assets of Trust (or the
applicable Fund thereof) and shall not be binding upon any Trustee,
officer, employee, agent or Shareholder of Trust. Neither the
authorization of any action by the Trustees or Shareholders of Trust
nor the execution of this Agreement on behalf of Trust shall impose
any liability upon any Trustee or any Shareholder.
16. Use of Manager's Name. Trust may use the name "Nuveen
Investment Trust" 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, Trust will cease to use any name derived from the name
"Nuveen" 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: July 29, 1996
NUVEEN INVESTMENT TRUST
ATTEST BY /S/ JAMES J. WESOLOWSKI
-----------------------
/S/ GIFFORD R. ZIMMERMAN
- ------------------------- NUVEEN INSTITUTIONAL ADVISORY CORP.
ATTEST BY /S/ THOMAS C. SPALDING
----------------------
/s/ Larry W. Martin
- --------------------
6
<PAGE> 7
Nuveen Investment Trust
Management Agreement
Schedule A
The Funds of the Trust currently subject to this Agreement
and the effective date of each are as follows:
FUND EFFECTIVE DATE
Nuveen Growth and Income Stock Fund July 29, 1996
Nuveen Balanced Stock and Bond Fund July 29, 1996
Nuveen Balanced Municipal and Stock Fund July 29, 1996
A
<PAGE> 8
Nuveen Investment Trust
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:
Nuveen Growth and Income Stock Fund
AVERAGE DAILY NET ASSET VALUE FUND MANAGEMENT FEE
For the first $125 million .8500 of 1%
For the next $125 million .8375 of 1%
For the next $250 million .8250 of 1%
For the next $500 million .8125 of 1%
For the next $1 billion .8000 of 1%
For assets over $2 billion .7750 of 1%
Nuveen Balanced Stock and Bond Fund
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%
Nuveen Balanced Municipal and Stock Fund
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%
B
<PAGE> 1
EXHIBIT 10.10(B)
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 16th day of May, by and between Nuveen Institutional
Advisory Corp., a Delaware corporation and registered investment adviser
("Manager"), and Institutional Capital Corporation, a Delaware corporation and
registered investment adviser ("Sub-Adviser").
WHEREAS, Manager expects to be the investment manager for the Nuveen
Investment Trust (the "Fund"), an open-end diversified, management investment
company registered under the Investment Company Act of 1940, as amended ("1940
Act"), currently consisting of three separate series or portfolios including
the Nuveen Growth and Income Stock Fund, the Nuveen Balanced Stock and Bond
Fund and the Nuveen Balanced Municipal and Stock Fund (the "Initial
Portfolios"); and
WHEREAS, Manager desires to retain Sub-Adviser as its agent to furnish
investment advisory services for the Initial Portfolios, upon the terms and
conditions hereafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment. Manager hereby appoints Sub-Adviser to provide
certain sub-investment advisory services to the Initial Portfolios for
the period and on the terms set forth in this Agreement. Sub-Adviser
accepts such appointments and agrees to furnish the services herein set
forth for the compensation herein provided.
2. Additional Portfolios. In the event that the Fund establishes
one or more portfolios other than the Initial Portfolios, with respect to
which the Manager desires to engage the Sub-Adviser to render investment
advisory services hereunder, the Manager shall notify the Sub-Adviser of
such desire. If the Sub-Adviser is willing to render such services, it
shall notify the Manager in writing whereupon such portfolio or
portfolios shall become a Portfolio or Portfolios hereunder.
3. Services to be Performed. Subject always to the supervision of
Fund's Board of Trustees and the Manager, Sub-Adviser will furnish an
investment program in respect of, make investment decisions for, and
place all orders for the purchase and sale of securities for, the assets
designated in Schedule A hereto, as such schedule may be amended from
time to time, of the Initial Portfolios and other Portfolios hereunder,
all on behalf of such Portfolios. In the performance of its duties,
Sub-Adviser will satisfy its fiduciary duties to the Fund (as set forth
in Section 7, below), and will monitor the Portfolios' investments, and
will comply with the provisions of Fund's Declaration of Trust and
By-laws, as amended from time to time, and the stated investment
objectives, policies and restrictions of the Portfolios. Manager will
provide Sub-Adviser with current copies of the Fund's Declaration of
Trust, By-laws, prospectus and any amendments thereto, and any
objectives, policies or limitations not appearing therein as they may be
relevant to Sub-Adviser's performance under this Agreement. Sub-Adviser
and Manager will each make its officers and employees available to the
other from time to time at reasonable times to review investment policies
of the Portfolios and to consult with each other regarding the investment
affairs of the Portfolios. Sub-Adviser will report to the Board of
Trustees and to Manager with respect to the implementation of such
program.
<PAGE> 2
Sub-Adviser further agrees that it:
(a) will use the same degree of skill and care in providing such
services as it uses in providing services to fiduciary accounts for which
it has investment responsibilities;
(b) will conform to all applicable Rules and Regulations of the
Securities and Exchange Commission in all material respects and in
addition will conduct its activities under this Agreement in accordance
with any applicable regulations of any governmental authority pertaining
to its investment advisory activities;
(c) Sub-Adviser is authorized to select the brokers or dealers that
will execute the purchases and sales of portfolio securities for the
Portfolios and is directed to use its best efforts to obtain best
execution, which includes most favorable net results and execution of the
Fund's orders, taking into account all appropriate factors, including
price, dealer spread or commission, size and difficulty of the
transaction and research or other services provided. It is understood
that the Sub-Adviser will not be deemed to have acted unlawfully, or to
have breached a fiduciary duty to the Fund or in respect of any
Portfolio, or be in breach of any obligation owing to the Fund or in
respect of any Portfolio under this Agreement, or otherwise, solely by
reason of its having caused the Fund to pay a member of a securities
exchange, a broker or a dealer a commission for effecting a securities
transaction for the Fund in excess of the amount of commission another
member of an exchange, broker or dealer would have charged if the
Sub-Adviser determined in good faith that the commission paid was
reasonable in relation to the brokerage or research services provided by
such member, broker or dealer, viewed in terms of that particular
transaction or the Sub-Adviser's overall responsibilities with respect to
its accounts, including the Fund, as to which it exercises investment
discretion. In addition, if in the judgment of the Sub-Adviser, the Fund
would be benefited by supplemental services, the Sub-Adviser is
authorized to pay spreads or commissions to brokers or dealers furnishing
such services in excess of spreads or commissions which another broker or
dealer may charge for the same transaction, provided that the Sub-Adviser
determined in good faith that the commission or spread paid was
reasonable in relation to the services provided. The Sub-Adviser will
properly communicate to the officers and trustees of the Fund such
information relating to transactions for any Portfolio as they may
reasonably request. In no instance will portfolio securities be
purchased from or sold to the Manager, Sub-Adviser or any affiliated
person of either the Fund, Manager, or Sub-Adviser, except as may be
permitted under the 1940 Act;
(d) will report regularly to Manager and to the Board of Trustees
and will make appropriate persons available for the purpose of reviewing
with representatives of Manager and the Board of Trustees on a regular
basis at reasonable times the management of the Portfolios, including,
without limitation, review of the general investment strategies of the
Portfolios, the performance of the Portfolios in relation to standard
industry indices, interest rate considerations and general conditions
affecting the marketplace and will provide various other reports from
time to time as reasonably requested by Manager; and
(e) will prepare such books and records with respect to the
Portfolios' securities transactions as requested by the Manager and will
furnish Manager and Fund's Board of Trustees such periodic and special
reports as the Board or Manager may reasonably request.
4. Expenses. During the term of this Agreement, Sub-Adviser will
pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commission, if any) purchased for the Fund.
<PAGE> 3
5. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, Manager will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, at the end of
each calendar month, an equity or fixed income portfolio management fee
on the specified proportion of each Portfolio's average daily net asset
value set forth in Schedule A hereto, as such schedule may be amended
from time to time, at an annual rate as set forth below, which rate is
determined by reference to the average daily market value of the equity
and fixed income assets, respectively, of all Nuveen-sponsored investment
products for which Institutional Capital serves as portfolio manager,
applying the same proportions as set forth in Schedule A.
<TABLE>
<S> <C>
EQUITY ASSETS OF NUVEEN-SPONSORED
INVESTMENT PRODUCTS MANAGED BY
INSTITUTIONAL CAPITAL EQUITY MANAGEMENT FEE
For the first $500 million .35 of 1%
For the next $500 million .30 of 1%
For assets over $1 billion .25 of 1%
FIXED-INCOME ASSETS OF NUVEEN-SPONSORED
INVESTMENT PRODUCTS MANAGED BY
INSTITUTIONAL CAPITAL FIXED INCOME MANAGEMENT FEE
For the first $500 million .20 of 1%
For the next $500 million .15 of 1%
For assets over $1 billion .12 of 1%
</TABLE>
For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the
number of days that the Agreement is in effect during the month and year,
respectively.
6. Services to Others. Manager understands, and has advised Fund's
Board of Trustees, that Sub-Adviser now acts, or may in the future act,
as an investment adviser to fiduciary and other managed accounts, and as
investment adviser or sub-investment adviser to other investment
companies, provided that the Sub-Adviser conforms to the provisions of
the Joint Business Initiative Agreement, and further provided that
whenever the Fund and one or more other investment advisory clients of
Sub-Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in a manner believed by
Sub-Adviser to be equitable to each. Manager recognizes, and has advised
Fund's Board of Trustees, that in some cases this procedure may adversely
affect the size of the position that a Portfolio may obtain in a
particular security. It is further agreed that, on occasions when the
Sub-Adviser deems the purchase or sale of a security to be in the best
interests of the Fund as well as other accounts, it may, to the extent
permitted by applicable law, but will not be obligated to, aggregate the
securities to be so sold or purchased for the Fund with those to be sold
or purchased for other accounts in order to obtain favorable execution
and lower brokerage commissions. In addition, Manager understands, and
has advised Fund's Board of Trustees, that the persons employed by
Sub-Adviser to assist in Sub-Adviser's duties under this Agreement will
not devote their full time to such service and nothing contained in this
Agreement will be deemed to limit or restrict the right of Sub-Adviser or
any of its affiliates to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature. It is also
agreed that the Sub-Adviser may use any supplemental research obtained
for the benefit
<PAGE> 4
of the Fund in providing investment advice to its other investment
advisory accounts or for managing its own accounts.
7. Limitation of Liability. Manager will not take any action against
Sub-Adviser to hold Sub-Adviser liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with
the performance of Sub-Adviser's duties under this Agreement, except for
a loss resulting from Sub-Adviser's willful misfeasance, bad faith, or
gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement.
8. Cross-Indemnification. Each party to this Agreement
("Indemnitor") shall indemnify and hold the other party and its officers,
directors, employees, representatives, agents, and affiliates
(collectively, "Indemnitee") harmless as follows:
a. Duty to Indemnify. Each Indemnitee shall be indemnified
against any and all losses, liabilities, damages, expenses and
other costs (including, without limitation, Indemnitee's own
attorneys' and paralegals' fees and other litigation expenses)
suffered or incurred by Indemnitee arising out of or in connection
with any breach or violation of this Agreement, federal or state
statutes, rules or regulations, exchange or self-regulatory agency
rules and regulations, or common law that is attributable in whole
or, to the extent responsible, in part to Indemnitor's actions or
the actions of any person whom Indemnitor may supervise or
control, in any civil, criminal, administrative, arbitration,
mediation or other proceeding.
b. Notice of Claims. An Indemnitee asserting an indemnity
claim shall promptly notify Indemnitor in writing of the amount
and nature of the claim. Upon receipt of an indemnity claim, the
Indemnitor shall, within 30 days, fulfill any part of its
obligation then due under this Section or give Indemnitee a
written explanation for its denial of the claim. If any indemnity
claim is not denied, Indemnitor shall continue to fulfill its
indemnity obligations as and when they come due. The Indemnitee
shall be entitled at its expense to participate in the defense of
any claim, lawsuit, or proceedings. No claim asserted by a third
party for which indemnification from Indemnitor is sought shall be
settled without first obtaining the written consent of Indemnitor,
which consent shall not be unreasonably withheld.
9. Term; Termination; Amendment. This Agreement shall become
effective with respect to the Initial Portfolios on the same date as the
Management Agreement between the Fund and the Manager becomes effective;
provided that it has been approved by a vote of a majority of the
outstanding voting securities of each Portfolio in accordance with the
requirements of the 1940 Act and shall remain in full force for a period
ending two (2) years from such date unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year
to year thereafter with respect to each Portfolio, but only as long as
such continuance is specifically approved for each Portfolio at least
annually in the manner required by the 1940 Act and the rules and
regulations thereunder; provided, however, that if the continuation of
this Agreement is not approved for a Portfolio, the Sub-Adviser may
continue to serve in such capacity for such Portfolio in the manner and
to the extent permitted by the 1940 Act and the rules and regulations
thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any
penalty by the Manager on sixty (60) days' written notice to the
Sub-Adviser. This Agreement may also be terminated by the Fund with
respect to any Portfolio by action of the Board of Trustees or by a vote
of a majority of the
<PAGE> 5
outstanding voting securities of such Portfolio on sixty (60) days'
written notice to the Sub-Adviser by the Fund.
This Agreement may be terminated with respect to any Portfolio at
any time without the payment of any penalty by the Manager, the Board of
Trustees or by vote of a majority of the outstanding voting securities of
such Portfolio in the event that it shall have been established by a
court of competent jurisdiction that the Sub-Adviser or any officer or
director of the Sub-Adviser has taken any action which results in a
breach of the covenants of the Sub-Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the 1940 Act and
the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 5 earned prior to such termination.
This Agreement shall automatically terminate in the event the
Investment Management Agreement between the Manager and the Fund is
terminated, assigned or not renewed.
10. Notice. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at
such address as such other party may designate for the receipt of such
notice.
11. Limitations on Liability. All parties hereto are expressly put
on notice of the Fund's Agreement and Declaration of Trust and all
amendments thereto, all of which are on file with the Secretary of
Massachusetts, and the limitation of shareholder and trustee liability
contained therein. The obligations of the Fund entered in the name or on
behalf thereof by any of the Trustees, representatives or agents are made
not individually but only in such capacities and are not binding upon any
of the Trustees, officers, or shareholders of the Fund individually but
are binding upon only the assets and property of the Fund, and persons
dealing with the Fund must look solely to the assets of the Fund and
those assets belonging to the subject Portfolio, for the enforcement of
any claims.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
will not be affected thereby. This Agreement will be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors.
13. Applicable Law. This Agreement shall be construed in accordance
with applicable federal law and (except as to Section 11 hereof which
shall be construed in accordance with the laws of Massachusetts) the laws
of the State of Illinois.
<PAGE> 6
IN WITNESS WHEREOF, the Manager and the Sub-Adviser have caused this
Agreement to be executed as of the day and year first above written.
NUVEEN INSTITUTIONAL ADVISORY
CORP., a Delaware corporation
By: /s/ TIMOTHY R. SCHWERTFEGER
-------------------------------
Title: Executive Vice President
ATTEST:
/S/ JAMES J. WESOLOWSKI
- ------------------------
Title: Secretary
INSTITUTIONAL CAPITAL CORPORATION,
a Delaware corporation
By: /S/ ROBERT H. LYON
------------------
Title: President
ATTEST:
/S/ JOHN W. BOYD
- -----------------
Title: Secretary
<PAGE> 7
INVESTMENT SUB-ADVISORY AGREEMENT
Schedule A
Nuveen Growth and Income Stock Fund
- -----------------------------------
<TABLE>
<S> <C>
Assets for which Services are to be rendered pursuant to Section 3: All
Proportions applied under fee schedule pursuant to Section 5: 100% of all assets
under Equity
Management Fee
Nuveen Balanced Stock and Bond Fund
- -----------------------------------
Assets for which Services are to be rendered pursuant to Section 3: All
Proportions applied under fee schedule pursuant to Section 5: The percentage of
the Target
Investment mix
allocated by the
Fund Board of
Directors from time
to time to Equity
Securities under
Equity Management
Fee
All remaining assets
under Fixed Income
Management Fee
Nuveen Balanced Municipal Stock Fund
- ------------------------------------
Assets for which Services are to be rendered pursuant to Section 3: All Equity Securities
Proportions applied under fee schedule pursuant to Section 5: 40% of all assets
under Equity
Management Fee
</TABLE>
<PAGE> 1
EXHIBIT 13
96
THE JOHN NUVEEN COMPANY
1996 Annual Report
<PAGE> 2
Since our founding in 1898, The John Nuveen Company has been synonymous with
investments that withstand the
test of time. Starting as an investment bank specializing in municipal
securities, Nuveen played an important role in developing the market that has
become the primary source of capital for the growth and improvement of our
country's cities, counties and states.
Today, we offer a broad range of tax-free and taxable investments designed
for investors whose portfolios are
the principal source of their ongoing financial security,
as well as a wide array of municipal and corporate investment banking services.
Since 1961, more than 1,300,000 individuals have invested over $65 billion
in Nuveen funds and trusts through independent broker-dealers, banks, insurance
companies, accountants and financial planners.
The John Nuveen Company is listed on the New York Stock Exchange and
trades under the symbol "JNC."
<PAGE> 3
FINANCIAL HIGHLIGHTS
In thousands except per share data
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------
Revenues $221,212 $245,234 $220,301 $236,230 $232,347
Net income $ 59,440 $ 70,444 $ 58,211 $ 70,620 $ 72,529
Capital $211,169 $275,200 $285,932 $322,856 $271,894
Return on equity 33.6% 33.3% 21.2% 24.7% 22.5%
Primary earnings per share $ 1.58 $ 1.76 $ 1.52 $ 1.87 $ 1.98
- --------------------------------------------------------------------------------
</TABLE>
[BAR GRAPH]
<PAGE> 4
Dear Shareholder:
1996 was a year of challenge, transition and accomplishment.
Among the accomplishments, we are pleased to report a record year, with
net income of $72.5 million and primary earnings per share of $1.98. This is
the fourth time we've achieved record earnings in the past five years.
We also believe that, over time, 1996 will be viewed as the beginning of a
new era in the life of our Company. Last year we began the process of extending
our Company's focus from municipal bond specialization to that of meeting the
financial needs of higher net worth, preservation-oriented investors and their
advisers. This deliberate evolution provides a context for reviewing the
accomplishments of 1996 and a springboard for our activities in 1997 and
beyond.
CONTINUED MUNICIPAL
MARKET CHALLENGES
Perhaps foremost among the challenges we faced in 1996 was the continued lack
of need for new capital in the municipal market, where for the third year in a
row bond calls and maturities matched or exceeded new issue supply. This again
limited our opportunities for near-term municipal product sales.
<TABLE>
<S> <C> <C> <C>
-------------------------------------
IN BILLIONS
-------------------------------------
1994 1995 1996
New issue supply $ 164 $ 160 $ 183
Bond calls and
maturities $ 185 $ 175 $ 183
</TABLE> -------------------------------------
The municipal market itself was relatively
stable in 1996, especially when compared with the exceptional volatility of
1994 and 1995. By year end, long-term municipal bond yields were only 22 basis
points above where they started in January, outperforming Treasuries after the
flat tax debate receded from the Presidential campaign.
In this sluggish environment, investors continued to look to Nuveen for
security, conservative innovation, high service levels and consistent
performance. As one measure of investor satisfaction, Nuveen's municipal
exchange-traded funds at year end were trading on average at significantly
higher prices, relative to their net asset values, than other sponsors' funds.
This represented additional relative value for Nuveen fund shareholders in
excess of $650 million.
MANAGING TRANSITION
Going forward, a key element of our continued success will be our ability to
build upon our traditional strengths and past achievements while
FEBRUARY 1996
The Board elects Tim Schwertfeger and
Tony Dean to succeed Rich Franke and Don Sveen
as Chairman and President, respectively.
MAY 1996
Nuveen announces a strategic partnership
with Institutional Capital Corporation (ICAP)
to offer equity mutual funds.
2
The John Nuveen Company
<PAGE> 5
Timothy R. Schwertfeger
Chairman and
Chief Executive Officer
carefully managing to evolve our focus on the specific financial needs of
financial advisers and their Nuveen investors. This will be a disciplined
process, with significant progress measured from a longer-term, multi-year
perspective. It is a process that is already under way, as evidenced by several
important developments last year:
Senior Management Succession - Rich Franke and Don Sveen retired as
Chairman and President, respectively, at the end of June. Their combined 45
years as leaders of our Company leave a legacy of phenomenal growth, successful
new product introductions and outstanding profitability. Their contributions
to the firm cannot be measured simply in terms of revenues or book value. The
culture, business systems and financial foundations they put in place are
providing us with the ability to take advantage of the many market
opportunities that lie ahead.
Introduction of Equity Mutual Funds - In May, we announced plans to
introduce equity mutual funds. In December, we introduced the Nuveen Growth and
Income Stock Fund, our first equity mutual fund. This fund raised $470 million
during its initial six-week subscription period, and net assets now stand at
over $550 million. As we prepare this letter, we are in the process of
introducing two balanced mutual funds, one featuring equities and taxable bonds
and the other combining municipal bonds with equities. These funds represent a
critical strategic path for our firm as we look to expand the investments and
services designed to meet the needs of Nuveen investors and their advisers.
Alliance with Institutional Capital Corporation - Also in May, we
announced a strategic alliance with Institutional Capital Corporation (ICAP),
and made an equity investment in ICAP that is convertible after several years
into a 20% interest. As a result, Nuveen secured for its mutual fund investors
exclusive access to ICAP's outstanding equity management capabilities. With
more than $6 billion under management and a consistent, 27-year track record of
providing above-market returns with below-market volatility, ICAP provides
Nuveen investors with a conservative, preservation-oriented equity management
style that matches our own investment management philosophy.
Acquisition of Flagship Resources - In July, we announced that Nuveen and
Flagship Resources had agreed to merge and integrate the two firms' funds into
a single family. We also agreed to
JULY 1996
Nuveen and Flagship Resources
announce their plan to merge.
JULY 1996
Nuveen raises its quarterly dividend
17% and announces a 3.5 million
share buyback.
3
The John Nuveen Company
<PAGE> 6
Anthony T. Dean
President and
Chief Operating Officer
merge eight of our two firms' open-end municipal bond funds. The corporate
merger was completed in January 1997, with the fund mergers taking place on
February 1. The combination of our two firms will broaden our array of
municipal bond products, extend our penetration of this core market and provide
a platform for the continued development of our private asset management
business.
Taxable Unit Trusts - In December, we added the staff expertise needed to
introduce taxable fixed-income and equity unit investment trusts. We anticipate
these new trusts will be available later in 1997, allowing us to offer
investment opportunities in addition to our current line of municipal bond unit
trusts and expand our presence in a market where we have more than 35 years of
experience.
Through all of these initiatives, we remain dedicated to serving the
investment needs of those investors who rely on their current assets to supply
the foundation for their continued financial security. While these investors
can be any age, they often are approaching or in their retirement years. This
is an age group that is expected to grow more rapidly than the population as a
whole, and represents expanding opportunities for Nuveen to offer customized
products and services.
CREATING VALUE FOR SHAREHOLDERS
Even as we take these steps to grow and strengthen Nuveen, we understand the
need of our shareholders to realize returns on their investment in our Company.
Nuveen took two major steps in 1996 to achieve a balance between current
returns to shareholders and investment in continued growth. In July, the
Company raised its regular quarterly dividend by more than 17% to $0.21 per
share. Nuveen's total dividend payout in 1996 exceeded $27 million, or 38% of
net income.
We also announced in July a significant extension of our ongoing stock
repurchase program, intending to acquire up to 3.5 million shares, or nearly
10%, of our outstanding common stock. For the first time, both Class A and
Class B shares were identified for ratable purchase. This program was completed
prior to year end.
MAINTAINING PROFITABILITY WHILE BUILDING FOR THE FUTURE
Throughout 1996, our energies and resources were concentrated on a very
difficult combination of financial objectives: maintaining our profitability in
a period of limited near-term
DECEMBER 1996
The first Nuveen equity fund raises
$470 million during its initial
subscription period.
4
The John Nuveen Company
<PAGE> 7
opportunities in the municipal market, while beginning important investments in
our future. Our earnings grew by 2.7% through careful management of expenses,
as we continued to adjust our operating costs in response to market conditions.
We remain at the very top of the industry in the efficiency of our use of
human capital. We firmly believe that the caliber of our people creates our
competitive advantage. Net income per employee increased 8% in 1996 to an
all-time high of $141,000. We will be looking to our employees to extend our
firm's heritage as a market leader and innovator, to communicate the benefits
of our products and services to all of our clients and to continue to reward
our shareholders.
Today, our Company possesses one of our industry's strongest balance
sheets. This financial strength is a remarkable base from which to grow our
firm. It is also a resource to further enhance shareholder value through
possible strategic partnerships, acquisitions and share repurchase programs.
The dual context of challenge and transition makes last year's
accomplishments even more gratifying. Even though our new strategic
direction is a natural outgrowth of our history, its implementation will
continue to require a scope and pace of change that is quite rapid and
substantial. We have embarked on a journey that will be measured in years
rather than weeks or quarters, and for our investors one whose benefits should
endure for generations.
We are a strong Company, proud of our
history and determined to continue a solid record of success. We have creative
and dedicated employees who understand our central purpose and who are
committed to excel. Our record of accomplishment, the capabilities of our
people and the quality of our relationships with investors and their financial
advisers - these are the components of a strong and vibrant Company. Together,
they inspire us to pursue the wealth of opportunities the marketplace presents
us.
Timothy R. Schwertfeger
Chairman and Chief Executive Officer
Anthony T. Dean
President and Chief Operating Officer
5
The John Nuveen Company
<PAGE> 8
Preparing for Our
Second Century:
A Blueprint for Growth
Within the next two years, Nuveen will join a select group of companies that
have reached their 100th year of corporate existence. While these firms come in
all sizes and from every area of the economy, they all share several common
traits. They have engineered smooth and successful transitions to new
generations of management and customers. They have kept pace with the
significant social, technological and market evolutions that have occurred
over the past century.
And they have had the foresight, courage and ability to reinvent
themselves and redefine their missions and strategies when necessary to serve
the changing needs of their markets and customers.
In particular, this ability to recognize crossroads - to identify the
places where fundamental shifts in outlook and strategy are appropriate - often
distinguishes the most successful firms. Therefore, it is both symbolic and
fitting that as Nuveen readies itself to enter its second century, the
Company has recognized that it is standing at another key point in its history.
Since its inception in 1898, Nuveen has been firmly committed to providing
conservative investments to financial advisers and investors looking for
dependable income and preservation of capital, as well as sound financial
advice and underwriting services to those seeking financing for worthy public
purposes. These goals led Nuveen over the past century to become one of the
country's leading specialists in municipal bonds.
6
The John Nuveen Company
<PAGE> 9
For investors, Nuveen has always looked at municipal bonds as the means to
an end - a conservative, value-oriented investment that can help individuals
preserve hard-earned assets, generate income to maintain their current
lifestyles and continue in future years to enjoy and pass along the rewards
that flow from a lifetime of achievement.
This commitment to investors and their families growing out of our
municipal bond experience remains undiminished. It is the guiding principle in
all that the Company has accomplished and seeks to accomplish. And it now
points to several parallel paths.
As a result, Nuveen is continuing its evolution from concentrating on a
single asset class to concentrating on extending its expertise to serve the
investment needs of higher net worth, preservation-oriented investors and their
advisers.
To accomplish this, the firm is expanding its mix of conservatively
managed, value-oriented investments beyond our traditional concentration on
municipal bonds, to include equity and balanced mutual funds, and equity and
taxable bond unit trusts. At the same time, we also are introducing individual
managed account services.
PROVIDING ADDED VALUE
TO A GROWING MARKET
As Nuveen widens its focus to offer additional products and services that can
more comprehensively meet an expanded array of investor needs, defining the
target market for these activities becomes critically important. Nuveen is well
known and well respected among affluent investors who are in or nearing their
traditional retirement years. Today, about 75% of the 1.3 million individuals
owning Nuveen funds and trusts are currently retired or are now in the
transition period to their retirement years.
[BAR GRAPH]
Nuveen is evolving from a concentration on a single asset class to a
concentration on serving the investment needs of carefully targeted groups of
investors.
7
The John Nuveen Company
<PAGE> 10
[BAR GRAPH]
The age groups representing Nuveen's traditional investor base will continue to
grow at a pace well above the national average.
In itself, this group represents a large and growing market that often is
looking for the sound investment management and convenient services that are
already Nuveen hallmarks. The group of retired and transition-age investors
has been growing at twice the rate of the total investing public, and by the
year 2000 - just three years from now - this group of mature investors will be
growing at four to five times the rate of the overall U.S. investing public.
Nuveen investments and services are designed to appeal to the increasing
numbers of investors of any age who have reached the point in their lives where
they are looking to their portfolios as the primary source of their future
financial security. These investors share the same concerns as other Nuveen
investors for preservation of capital, dependable income and growth potential
to protect the future purchasing power of their assets.
Within these rapidly growing target markets, Nuveen already attracts those
with considerable amounts of assets to both invest and protect. Approximately
60% of all current Nuveen investors have investable assets ranging from
$200,000 to $1.0 million, and another 20% own investments in excess of $1.0
million.
8
The John Nuveen Company
<PAGE> 11
A SIGNIFICANT OPPORTUNITY
Average Holdings of Nuveen Investors
<TABLE>
<S> <S> <S>
Average investable assets: $764,000 100%
Average municipal assets: 143,000 19%
Average Nuveen assets: 42,000 5.5%
</TABLE>
Current Nuveen investors hold
considerable
potential
for future
product sales.
Not surprisingly, Nuveen investors and their financial advisers understand
the value of diversification to reduce risk. They also understand that taxes
play an important part in determining an investor's ultimate results - proving
that it's not what you earn, it's what you keep that counts(R). Among Nuveen
investors, Nuveen fund and trust investments currently represent about 5% of
their overall portfolios. This presents an outstanding opportunity for Nuveen
to increase penetration of this market by careful, deliberate extension of our
product and service offerings. Collectively, current Nuveen investors alone
own almost $1 trillion in investable assets.
Given Nuveen's traditionally strong relationships with those in, near and
beginning to think about retirement, the aging of the U.S. population over the
course of the next decade and beyond provides a tailor-made opportunity for
Nuveen to provide additional value-added investments to a knowledgeable and
familiar audience. Recent survey results among current Nuveen investors suggest
that they have more trust in Nuveen to produce superior performance from
conservative investments than they have in most of our leading competitors.
ADAPTING TO MEET
THE OPPORTUNITY
As investors reach or begin preparing for retirement, their investment goals
shift from the accumulation of capital to its preservation, transfer or use.
They look to achieve a balance between the occasionally conflicting objectives
of dependable current income, preservation of their hard-earned capital, the
capital growth needed to maintain the value of their assets and their
9
The John Nuveen Company
<PAGE> 12
lifestyles over time and the desire to transfer their wealth to their children
or to charities.
For many, this balance is getting harder and harder to achieve. The
proliferation of investment products, all designed to ease the burden, often
can result in a confusion of numbers, features and promises. This complexity is
coming at a time when the responsibility for achieving investment goals is
falling more and more squarely on the investors' own shoulders as corporations
shift from defined benefit to defined contribution plans and the government
debates privatization of the social security system.
This makes the role of the financial adviser critically important.
Nuveen's distribution relationships continue to be very strong, and now
encompass more than 85,000 brokers, 80,000 financial planners and 20,000 bank
representatives. We maintain strong relationships with approximately 4,000
firms, including national and regional wirehouses, discount brokers, banks,
savings & loans, insurance companies, accounting firms and sole proprietorships.
STRONG DISTRIBUTION RELATIONSHIPS
<TABLE>
<S> <C>
85,000 National and regional wirehouse brokers
80,000 Financial planners, accountants and agents
20,000 Bank representatives
4,000 Firms
</TABLE>
In working with this diverse distribution network, our objective is to
link our growth to the growth in assets of affluent, mature investors. To
accomplish this, Nuveen is already building upon its established strengths,
which include:
- Conservative investment management
- Municipal market expertise
Nuveen
maintains
strong
distribution
relationships
with a wide
array of
firms and
professional
financial
advisers.
10
The John Nuveen Company
<PAGE> 13
- - Breadth of distribution
- - Loyal investor base
- - High quality, highly motivated
employees
To this mix, the Company is expanding
its capabilities to include:
- - Specialized investment expertise
in selected asset classes
- - Expanded adviser and investor
service systems
- - Accelerated product development
- - Investment in new service technologies
IMPLEMENTING THE STRATEGY
Nuveen expects to integrate these current and expanded capabilities by focusing
on the most profitable aspects of our business. This leads us in several
directions, including extension of Nuveen's municipal product line to
strengthen our ability to serve this core market, and the introduction of
equity and balanced mutual funds. We'll be applying the talents and creative
energies of our employees to those activities that add the greatest value,
acquiring, developing and recruiting the new skills and talents we need and
outsourcing lower value-added activities.
This is the strategy underlying Nuveen's actions in 1996, and those the
Company plans to implement in 1997 and beyond. Over the next several years, as
we pursue another generation of opportunities for Nuveen, we hope to achieve a
larger share of the investable assets of our growing target market. If
successful, this should help us achieve our long-term revenue growth objectives
and maintain a 25% annual return on equity.
The next 100 years are sure to bring us many opportunities and challenges.
By focusing on the same attributes that have guided us through the past century
- - conservative investment principles, outstanding people, attention to
servicing customer needs and building shareholder value over time - Nuveen
stands ready to enter a new era.
11
The John Nuveen Company
<PAGE> 14
<TABLE>
<S> <C> <C>
FINANCIAL REVIEW CONTENTS
13 Management's Discussion and Analysis
19 Consolidated Balance Sheets
20 Consolidated Statements of Income
21 Consolidated Statements of Changes in Stockholders' Equity
22 Consolidated Statements of Cash Flows
23 Notes to Consolidated Financial Statements
30 Report of Independent Auditors
31 Five Year Financial Summary
</TABLE>
12
The John Nuveen Company
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - DECEMBER 31, 1996
DESCRIPTION OF THE BUSINESS
The Company's core businesses are asset management and the related credit
research and surveillance; the development, marketing and distribution of
investment products; and municipal and corporate investment banking services.
The profitability of each of these lines of business, and the volume of sales
of the Company's products, are directly affected by many variables, including
investor preferences for fixed-income, equity or other investments, municipal
bond new issue supply, current and expected changes in interest rate levels,
the rate of inflation and changes or expected changes in income tax rates and
laws.
MARKET OVERVIEW
Overall, the U.S. economy grew during 1996 with only a slight increase in the
level of inflation. Although economic indicators showed signs of more rapid
growth and higher inflation during early 1996, including high employment,
rising production costs and a strong housing market, these signs were
short-lived and the growth in the economy slowed during the second half of the
year.
In concert with the changes in the growth rate of the economy, interest
rates rose during the first half of 1996.
By the end of the year, however, the fixed-income markets experienced an
upswing in prices as interest rates declined, resulting in a net increase in
the yield of the Bond Buyer 20 municipal bond index of only 22 basis points
over the prior year end. The small increase in yields during 1996 is in sharp
contrast to the 127 basis point decline experienced in 1995. The U.S. stock
market continued to experience solid performance in 1996.
In general, equity mutual funds exhibited strong growth in 1996. Demand
for fixed-income funds lessened from the prior year as investors faced
uncertainty about the pace of growth in the economy, the potential for renewed
inflationary pressures and higher interest rates. Municipal bond funds
experienced moderate net outflows for the year before taking into account
reinvested dividends.
The movement of interest rate levels during 1996 and the prior two years
is shown in the accompanying graph.
[GRAPH]
Municipal bond new issue volume, which is comprised of new-money
financings, refunding transactions and issues that have an element of both new
money and refunding, was $183 billion in 1996 compared with $160 billion in
1995 and $164 billion in 1994. New-money financings by issuers were $126
billion, $112 billion and $116 billion for 1996, 1995 and 1994, respectively.
Refunding transactions, which are generally entered into for the purpose of
redeeming outstanding bond issues under conditions more favorable to the
issuer, such as lowering financing costs, totaled $43 billion in 1996 compared
with $34 billion in 1995 and $39 billion in 1994. The accompanying graph shows
new issue volume for the past three years:
[BAR GRAPH]
13
The John Nuveen Company
<PAGE> 16
The following table compares key operating information of the Company for
the respective twelve-month periods.
<TABLE>
<CAPTION>
NUVEEN OPERATING STATISTICS
- ------------------------------------------------------------------------------
IN MILLIONS EXCEPT PER SHARE AMOUNTS
- ------------------------------------------------------------------------------
DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues $ 232.3 $ 236.2 $ 220.3
Operating expenses 114.8 122.5 125.7
Pretax operating income 117.5 113.8 94.6
Net income 72.5 70.6 58.2
Primary earnings per share 1.98 1.87 1.52
Dividend per share 0.78 0.68 0.64
Book value per share 8.21 8.80 7.68
Consolidated stockholders' equity 271.9 322.9 285.9
Sales (net of redemptions) 1,584.0 1,565.0 1,393.0
Assets under management 33,191.0 33,042.0 30,047.0
- ------------------------------------------------------------------------------
</TABLE>
BUSINESS HIGHLIGHTS
- - The Company achieved a new record for reported net income and earnings per
share in 1996.
- - The change in gross revenues in 1996 when compared to 1995 reflects
significant positioning profits realized during 1995. In fiscal 1995, during
a period of sharply declining interest rates, the Company realized $5.0
million in positioning profits compared with small positioning losses in 1996
as interest rate levels increased slightly. This decline in revenues was
coupled with a decrease in distribution revenue earned on unit trust sales.
These decreases were partially offset by an increase in investment advisory
fees earned on managed funds and accounts and an increase in underwriting and
advisory fees earned by the investment banking group. The increase in gross
revenues in 1995 over 1994 was also predominantly caused by the realization
of positioning profits in 1995 compared to the positioning losses realized
in 1994 during a period of increasing interest rate levels.
- - Investment advisory fees increased in 1996 when compared with 1995 for all
of the Company's managed products with the exception of the money market
funds. The increase in fees was the result of higher average assets under
management due to net sales of mutual fund shares and managed accounts.
Advisory fees also increased in 1995 over 1994, primarily due to the
appreciation of the value of net assets under management.
- - The continued strength of the stock market, coupled with investors'
uncertainty over the direction of interest rates and tax reform legislation
during 1996 and 1995, led to a lower level of sales for fixed-income products
in the industry. Consistent with these trends, the Company experienced a
decline in the demand for tax-free unit trusts and funds and a resultant
decline in distribution revenue earned on these products for the twelve-month
periods ended December 31, 1996 and December 31, 1995 when compared with each
respective prior year period.
- - Operating expenses for 1996 decreased 6.3% when compared to the prior year,
primarily due to lower compensation and benefit costs. This decrease in
compensation and benefit costs resulted primarily from the reduction in
expense associated with the vesting of restricted stock granted by the
Company in 1992 and a decrease in the profit-sharing component of
compensation and benefits. Operating expenses also declined in 1995 from 1994
reflecting lower costs associated with the restricted stock grants and lower
advertising and marketing expenditures.
- - On January 2, 1997, the Company completed the acquisition of Flagship
Resources Inc., a municipal mutual fund sponsor and asset manager, for cash
and preferred stock with a total value of $63 million. Additional payments,
which are contingent on the significant future growth in the Company's tax-
free mutual funds, could amount to as much as $20 million over the next four
years. With the merging of Flagship and the Company's tax-free mutual fund
businesses, the Company will expand the range of conservative municipal
investments offered to investors. As a result of the merger, the Company now
offers open-end mutual funds, exchange-traded funds or unit trusts in 28
states, in addition to national funds and trusts. Effective February 1, 1997,
a unified pricing structure was implemented for all tax-free mutual funds
offering class A, B, C and R shares.
- - During the second quarter of 1996, the Company made an equity investment in
Institutional Capital
14
The John Nuveen Company
<PAGE> 17
Corporation (ICAP), an institutional equity manager, in the form of preferred
stock convertible after several years into a 20% common stock interest. ICAP
serves as sub-adviser to three new Nuveen equity funds.
On December 18, 1996, the Company successfully completed the first phase
of its introductory program for the new Nuveen Growth and Income Stock
Fund, an equity mutual fund, raising $470 million in assets. The
limited-time program was an exclusive offer available only to Nuveen and
Flagship investors allowing them to purchase shares of the new fund on a
load-waived basis. The second phase of the program, completed on January
31, 1997, raised an additional $30 million. The Company paid commissions
directly to selling firms for services provided to their clients in
connection with this offering.
During 1996, the Company repurchased a total of 3.75 million of its outstanding
common shares, comprised of 1.02 million Class A shares and 2.73 million Class
B shares. In February 1997, the Company's Board of Directors authorized the
purchase of an additional 3.5 million shares which will also be prorated
between Class A and Class B shares.
The following discussion and analysis contains important information that
should be helpful in evaluating the Company's results of operations and
financial condition, and should be read in conjunction with the consolidated
financial statements and related notes.
RESULTS OF OPERATIONS
Total investment advisory fee income earned during any fiscal year is directly
related to the weighted average market value of the assets managed by the
Company's two investment advisory subsidiaries, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp. Advisory fee income will increase with a
rise in the value of managed assets, either as a result of increases in the
value of portfolio investments, as occur during periods of decreasing interest
rates for fixed-income products, or as a result of additional net sales of the
Company's products. Sales may include shares of new funds or existing funds.
Fund shares may be sold either to new or existing shareholders, and sales may
include reinvestment of fund dividends. Shares may also be sold as a result of
reinvestment of distributions from unit trusts sponsored by the Company. Fee
income will decline when managed assets decline, as would occur when the value
of fund portfolio investments decrease in a rising interest-rate environment
for fixed-income products, or when open-end fund redemptions or managed account
withdrawals exceed sales.
Investment advisory fee income, net of expense reimbursements, is shown in
the following table for each of the last three years:
<TABLE>
<CAPTION>
NUVEEN MANAGED FUNDS AND ACCOUNTS
INVESTMENT ADVISORY FEES
- ---------------------------------------------------------------
IN THOUSANDS
- ---------------------------------------------------------------
DECEMBER 31, 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Managed funds:
Mutual funds $ 25,495 $ 23,912 $ 23,139
Exchange-traded funds 155,172 153,777 152,078
Money market funds 4,430 5,023 6,423
Managed accounts 748 423 278
- ---------------------------------------------------------------
Total $185,845 $183,135 $181,918
- ---------------------------------------------------------------
</TABLE>
Total advisory fees for 1996 steadily increased from 1995 and 1994. The
increase in fees for mutual funds resulted from the higher levels of average
assets under management during each year. The increase in fees earned on
exchange-traded funds primarily reflects the impact of the movement of interest
rates on the value of portfolio investments as there were no new exchange-
traded funds offered during any of those periods. Average money market net
assets under management continued to decrease over the three-year period due
to relatively low short-term interest rates, a strong equity market and strong
competition from sponsors of competing money market products.
The following table summarizes net assets under management:
NUVEEN MANAGED FUNDS AND ACCOUNTS
NET ASSETS UNDER MANAGEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------
IN MILLIONS
- --------------------------------------------------
DECEMBER 31, 1996 1995 1994
- --------------------------------------------------
<S> <C> <C> <C>
Managed funds:
Mutual funds--tax-free $ 5,434 $ 5,457 $ 4,731
Mutual funds--taxable 496 -- --
Exchange-traded funds 25,434 25,784 23,731
Money market funds 1,004 1,113 1,242
Managed accounts 823 688 343
- --------------------------------------------------
Total $33,191 $33,042 $30,047
- --------------------------------------------------
</TABLE>
15
The John Nuveen Company
<PAGE> 18
Demand for tax-free investment products is influenced by the level of and
relationship between taxable and tax-free interest rates, the relationship
between long-term and short-term rates and the expectations of market
participants concerning the direction of future interest-rate levels. In
concert with industry trends, sales of the Company's tax-free unit trusts and
mutual funds were lower during 1996 as compared to 1995 and 1994 primarily due
to the interest-rate environment during each period, investor concerns that
interest rates would continue to climb and continued competition from the
robust equity markets.
Sales of investment products are shown below:
<TABLE>
<CAPTION>
NUVEEN INVESTMENT PRODUCT SALES
- ------------------------------------------------------------
IN MILLIONS
- ------------------------------------------------------------
DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C>
Unit investment trusts $ 963 $1,093 $1,235
Managed funds:
Mutual funds-tax-free(1) 64 236 285
Mutual funds-taxable(1) 490 -- --
Exchange-traded funds(2) 38 19 470
Money market funds(3) (109) (129) (713)
Managed accounts 138 346 116
- ------------------------------------------------------------
Total $1,584 $1,565 $1,393
- ------------------------------------------------------------
</TABLE>
(1) Mutual fund sales, reinvestment of unit trust principal and income
distributions and mutual fund dividend reinvestments, and net exchanges,
less redemptions.
(2) 1996 and 1995 balance represents dividend reinvestments; 1994 includes
dividend reinvestment and $403 million raised in rights offerings.
(3) Money market fund sales, dividend reinvestments and net exchanges
less redemptions.
Substantially all of the sales of the recently introduced equity fund, the
Nuveen Growth and Income Stock Fund, were made during the month of December
when shares were first made available for purchase. Mutual fund sales include
the reinvestments of unit trust principal and
interest distributions and the reinvestment by mutual
fund shareholders of fund dividends. Shares issued by the exchange-traded funds
during both periods were limited
to reinvestment of fund dividends. Sales of managed accounts declined in 1996
from the levels in 1995.
The Company markets its investment products through a network of
registered representatives associated with unaffiliated firms including
broker-dealers, commercial banks, affiliates of insurance providers, financial
planners, accountants, consultants and financial advisers. Distribution
revenues include the portion of the sales charge the Company earns on unit
trust and mutual fund sales. Lower sales of tax-free unit trusts and mutual
funds during 1996 resulted in a 5% decrease in distribution revenues relative
to 1995.
The Company realizes positioning profits or losses from changes in the
market value of unit trust inventories and municipal bond inventories held for
future unit trust products. These market values are directly affected by the
movement of interest rates during the period beginning with the acquisition of
a municipal bond for a future unit trust and ending with the sale of that unit
trust. In a declining interest rate environment, the Company could realize
gains from carrying fixed-income securities in its inventory as it did in 1995
and, conversely, in a rising interest-rate environment, the Company could incur
losses, which occurred in 1994 and to a lesser extent in 1996. The Company
manages this interest-rate risk by controlling inventory levels for both
municipal bonds and unit trusts and by timing deposits of new unit trusts to
coincide closely with expected demand.
Investment banking revenues include both new issue underwriting profits
and fee income earned from various financial advisory activities. The Company
experienced an overall increase in investment banking revenues in 1996
primarily due to an increase in financial advisory and merger and acquisition
activity, partially offset by a decrease in underwriting activity when compared
to 1995.
Compensation and related benefits decreased during 1996 when compared to
1995 and 1994 due to the decrease in expense associated with equity awards
granted pursuant to the Company's 1992 Special Incentive Plan and a decrease in
the profit-sharing expense component of compensation and benefits. Expense
associated with the awards granted under the Special Incentive Plan was tied to
a vesting schedule, with the majority of the awards being fully vested in July
1995 and with substantially all awards being vested by July 1996; consequently,
the related expense decreased in the respective periods.
In February 1996, the Company's Board of Directors approved an
equity-based incentive compensation plan which shifts annual compensation paid
to key employees
16
The John Nuveen Company
<PAGE> 19
from a program that is exclusively cash-based to one that includes equity
awards in lieu of certain cash awards. The purposes of the plan are to enable
the Company to attract and retain exceptionally qualified officers and other
key employees upon whom the sustained growth and profitability of the Company
will depend in large measure, to provide added incentive for such individuals
to enhance the value of the Company for the benefit of its stockholders and to
strengthen even further the mutuality of interests between the key employees
and the Company's stockholders. The incentive plan, which was approved by
stockholders at the annual stockholders' meeting on July 9, 1996, reserves for
award an aggregate of 3.8 million shares of Class A common stock including up
to 950,000 shares which may be issued in the form of restricted stock grants.
The Company awarded 190,000 restricted shares of stock (including 160,000
shares deferred at the election of the recipients), and 1,464,000 options which
are subject to three- and four-year cliff vesting, and are exercisable at
prices equal to 100% and 120% of the market value on the date of issuance.
Overall this program decreased the profit-sharing expense component of
compensation expense.
CAPITAL RESOURCES, LIQUIDITY
AND FINANCIAL CONDITION
Management believes that its capital resources are more than adequate to
finance its daily operations. The Company's primary businesses are not capital
intensive and the Company has no current need to obtain long-term financing.
During 1996 and 1995, a large percentage of the Company's assets were comprised
of cash and cash equivalents, highly liquid temporary investments in variable
rate demand obligations (VRDOs) arising from remarketing activities and
short-term receivables, including amounts related to the Company's managed fund
advisory services. The financing requirements of the Company are almost
entirely satisfied from equity capital as reported in its consolidated balance
sheet. The Company, however, occasionally utilizes available lines of credit,
which exceed $400 million, to satisfy additional periodic short-term financing
requirements.
The Company is remarketing agent for various issuers of VRDOs with an
aggregate principal value in excess of $1.5 billion at December 31, 1996.
Although remarketing agents, including the Company, are only obligated to use
their best efforts in locating purchasers for the VRDOs, they frequently
repurchase VRDOs for resale to other buyers within a few days. During
temporary periods of imbalance between supply and demand for VRDOs, the Company
may hold larger balances of such obligations for resale. Substantially all
VRDOs for which the Company is remarketing agent are secured by letters of
credit obtained by the issuer from highly rated third-party providers,
including major commercial banks and insurance companies. At December 31,
1996, and December 31, 1995, the Company held $100 million and $198 million,
respectively, of VRDOs, which are classified in its consolidated balance sheets
as "Temporary investments arising from remarketing obligations." The Company's
average daily inventory of VRDOs was $18 million during 1996 and $36 million
during 1995.
At December 31, 1996, the Company held in its treasury 5,535,000 shares of
Class A common stock acquired in open market transactions as part of ongoing
stock repurchase programs. During 1996, the Board of Directors authorized the
purchase of 3.5 million shares. All of these shares, including 2.7 million
Class B shares which converted to Class A upon repurchase, were acquired during
1996 together with the remaining share balance from the 1995 repurchase
program. A total of 3,753,000 shares were repurchased during 1996, 667,000
shares during 1995 and 1,480,000 shares during 1994.
During the second quarter of 1996, the Company made an equity investment
in Institutional Capital Corporation (ICAP), an institutional equity manager,
in the form of preferred stock convertible after several years into a 20%
common stock interest. ICAP serves as sub-adviser to three new Nuveen equity
funds -- the Nuveen Growth and Income Stock Fund, the Nuveen Balanced Stock and
Bond Fund and the Nuveen Balanced Municipal Bond and Stock Fund.
17
The John Nuveen Company
<PAGE> 20
The first phase of the exclusive subscription privileges offering for the
Nuveen Growth and Income Stock Fund was completed on December 18, 1996. The
offering was successful in raising net assets of $470 million. The Company
compensated selling firms directly with a 2% commission on fund share sales in
addition to a selling fee payable to the dealer managers ranging from 0.75% to
0.80%.
On January 2, 1997, the Company completed the acquisition of Flagship
Resources, Inc. in exchange for
cash and convertible preferred stock with a total value of $63 million,
excluding contingent payments which could amount to an additional $20 million
over a four-year period.
The Company may invest in derivative financial instruments, defined as
futures, forwards, swaps or option contracts and other financial instruments
with similar characteristics, but did not purchase any such securities
in managing its operations during 1996 or 1995 and, therefore, had no exposure
to market risk from derivative financial instruments. The Company's investment
banking group did, on occasion, act as financial adviser, broker or underwriter
to municipal or other not-for-profit issuers with respect to transactions such
as interest rate swaps and forward delivery transactions. Also, the Company's
investment advisory subsidiaries did not invest in derivative securities, other
than high quality synthetic money market securities, for the funds and accounts
they manage.
John Nuveen & Co. Incorporated, the Company's wholly owned broker/dealer
subsidiary, is subject to the Securities and Exchange Commission Rule 15c3-1,
the "Uniform Net Capital Rule," which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net capital,
as these terms are defined, shall not exceed 15 to 1. At December 31, 1996, its
net capital ratio was .52 to 1 and its net capital was $142.0 million which is
$137.1 million in excess of the required net capital of $4.9 million.
INFLATION
The Company's assets are, to a large extent, liquid in nature and therefore
not significantly affected by inflation. However, inflation may result in
increases in the Company's expenses, such as employee compensation, advertising
and promotional costs and office occupancy costs. To the extent inflation, or
the expectation thereof, results in rising interest rates or has other adverse
effects upon the securities markets and on the value of financial instruments,
it may adversely affect the Company's financial condition and results of
operations. A substantial decline in the value of fixed-income investments
could adversely affect the net asset value of funds managed by the Company,
which in turn would result in a decline in investment advisory fee income.
18
The John Nuveen Company
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 6,348 $ 5,036
Securities purchased under agreements to resell 72,000 11,000
Temporary investments arising from remarketing obligations 99,835 198,285
U.S. government securities purchased for municipal bond escrow accounts -- 1,385
Investment in U.S. government securities, at fair value -- 60,039
Receivables:
Nuveen management investment companies 20,767 19,633
Brokers and dealers 428 283
Customers 5,141 8,828
Income taxes 568 --
Interest 909 2,694
Other 7,749 3,387
Securities owned (trading account), at market value:
Nuveen tax-exempt unit trusts 39,206 39,069
Tax-exempt bonds and notes 4,553 12,308
Deferred income tax asset, net 9,778 12,919
Furniture, equipment and leasehold improvements, at cost less accumulated depreciation
and amortization of $19,363 and $14,413, respectively 14,073 16,337
Other investments 52,094 8,308
Prepaid expenses and other assets 21,802 3,001
- -----------------------------------------------------------------------------------------------------------------
$ 355,251 $402,512
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold under agreements to repurchase $ -- $ 25,000
Security purchase obligations 2,227 7,174
Payables:
Brokers and dealers 1,326 767
Customers 165 524
Income taxes -- 4,355
Accrued compensation and other expenses 47,789 14,489
Deferred compensation 23,414 22,816
Other liabilities 8,436 4,531
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 83,357 79,656
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued -- --
Class A common stock, $.01 par value; 150,000,000 shares authorized,
issued 12,828,199 shares and 10,094,356 shares, respectively 128 101
Class B common stock, $.01 par value; 40,000,000 shares authorized,
issued 25,826,157 shares and 28,560,000 shares, respectively 259 286
Additional paid-in capital 50,649 50,122
Retained earnings 363,715 319,705
Unamortized cost of restricted stock awards (705) (1,611)
- -----------------------------------------------------------------------------------------------------------------
414,046 368,603
Less common stock held in treasury, at cost (5,535,122 and 1,978,829 shares, respectively) (142,152) (45,747)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 271,894 322,856
- -----------------------------------------------------------------------------------------------------------------
$ 355,251 $402,512
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated Financial statements.
19
The John Nuveen Company
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Investment advisory fees from assets under management $185,845 $183,135 $181,918
Underwriting and distribution of investment products 14,566 15,339 18,149
Positioning profits (losses) (191) 4,981 (8,237)
Investment banking 11,098 10,334 11,793
Interest 18,640 19,445 13,686
Other 2,389 2,996 2,992
- ------------------------------------------------------------------------------------------
Total revenues 232,347 236,230 220,301
- ------------------------------------------------------------------------------------------
Expenses:
Compensation and benefits 71,683 80,366 83,079
Advertising and promotional costs 12,641 12,677 16,151
Occupancy and equipment costs 11,948 11,668 10,811
Interest 2,325 2,641 2,493
Other operating expenses 16,248 15,108 13,132
- -----------------------------------------------------------------------------------------
Total expenses 114,845 122,460 125,666
- -----------------------------------------------------------------------------------------
Income before taxes 117,502 113,770 94,635
- -----------------------------------------------------------------------------------------
Income taxes:
Current 41,833 47,777 40,597
Deferred 3,140 (4,627) (4,173)
- -----------------------------------------------------------------------------------------
Total income taxes 44,973 43,150 36,424
- -----------------------------------------------------------------------------------------
Net income $ 72,529 $ 70,620 $ 58,211
- -----------------------------------------------------------------------------------------
Average common and common equivalent shares outstanding:
Primary 36,702 37,702 38,377
Fully diluted 36,889 37,831 38,488
- -----------------------------------------------------------------------------------------
Earnings per common share:
Primary $ 1.98 $ 1.87 $ 1.52
Fully diluted $ 1.97 $ 1.87 $ 1.51
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated Financial statements.
20
The John Nuveen Company
<PAGE> 23
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
IN THOUSANDS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Unamortized
Class A Class B Additional Cost of
Preferred Common Common Paid-In Retained Restricted Treasury
Stock Stock Stock Capital Earnings Stock Awards Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 $ -- $ 101 $ 286 $ 49,087 $241,613 $(15,887) $ -- $ 275,200
Net income -- -- -- -- 58,211 -- -- 58,211
Cash dividends paid -- -- -- -- (24,169) -- -- (24,169)
Amortization of restricted
stock awards -- -- -- -- -- 9,272 -- 9,272
Purchase of treasury stock -- -- -- -- -- -- (33,638) (33,638)
Exercise of stock options -- -- -- 676 (1,049) -- 1,319 946
Other -- -- -- 110 -- -- -- 110
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 -- 101 286 49,873 274,606 (6,615) (32,319) 285,932
Net income -- -- -- -- 70,620 -- -- 70,620
Cash dividends paid -- -- -- -- (25,116) -- -- (25,116)
Issuance of restricted
stock awards -- -- -- -- 36 (719) 683 --
Amortization of restricted
stock awards -- -- -- -- -- 5,723 -- 5,723
Purchase of treasury stock -- -- -- -- -- -- (16,182) (16,182)
Exercise of stock options -- -- -- -- (441) -- 2,071 1,630
Other -- -- -- 249 -- -- -- 249
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 -- 101 286 50,122 319,705 (1,611) (45,747) 322,856
Net income -- -- -- -- 72,529 -- -- 72,529
Cash dividends paid -- -- -- -- (27,579) -- -- (27,579)
Issuance of restricted
stock awards -- -- -- -- 55 (750) 695 --
Amortization of restricted
stock awards -- -- -- -- -- 1,656 -- 1,656
Purchase of treasury stock -- 27 (27) -- -- -- (101,074) (101,074)
Exercise of stock options -- -- -- -- (995) -- 3,974 2,979
Other -- -- -- 527 -- -- -- 527
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 $ -- $ 128 $ 259 $ 50,649 $363,715 $ (705) $(142,152) $ 271,894
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated Financial statements.
21
The John Nuveen Company
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
- ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 72,529 $ 70,620 $ 58,211
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Deferred income taxes 3,140 (4,627) (4,173)
Depreciation and amortization 5,052 4,598 3,944
Net (increase) decrease:
Accrued investment advisory fees (1,134) 1,321 2,276
Accrued interest receivable 1,281 (1,291) 557
Accounts receivable, other (4,401) 1,635 5,013
Net increase (decrease):
Current taxes payable (4,395) 4,414 (4,476)
Accrued compensation and other expenses 33,299 (1,064) 1,594
Net change in receivables and payables from/to brokers,
dealers, customers and other assets/other liabilities (10,489) (1,156) (3,079)
Amortization of restricted stock awards 1,656 5,723 9,272
Net (increase) decrease in assets:
Temporary investments arising from remarketing obligations 98,450 (104,740) (33,415)
U.S. government securities (escrow accounts) 1,385 (1,385) 175,695
Securities owned (trading account) 7,617 3,109 15,369
Net increase (decrease) in liabilities:
Security purchase obligations (4,947) (7,465) 9,141
Deferred compensation 598 3,513 1,456
Other -- -- 676
- ------------------------------------------------------------------------------------------------
Net cash provided from (used for) operating activities 199,641 (26,795) 238,061
- ------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from (payments on) securities sold under
agreements to repurchase (25,000) 25,000 (80,383)
Dividends paid (27,579) (25,116) (24,169)
Proceeds from stock options exercised 3,080 1,528 270
Acquisition of treasury stock (101,800) (16,355) (32,739)
- ------------------------------------------------------------------------------------------------
Net cash used for financing activities (151,299) (14,943) (137,021)
- ------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of U.S. Treasury securities (103,422) (126,854) (7,647)
Proceeds from maturity of U.S. Treasury securities 163,965 69,513 9,678
Purchases of office furniture and equipment (2,787) (3,321) (5,865)
Net (increase) decrease in other investments (43,786) (341) 3,016
- ------------------------------------------------------------------------------------------------
Net cash provided from (used for) investing activities 13,970 (61,003) (818)
- ------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 62,312 (102,741) 100,222
Cash and cash equivalents:
Beginning of year 16,036 118,777 18,555
- ------------------------------------------------------------------------------------------------
End of year $ 78,348 $ 16,036 $ 118,777
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated Financial statements.
22
The John Nuveen Company
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
General Information and Basis of Presentation
The consolidated financial statements include the accounts of The John Nuveen
Company (together with its subsidiaries, the "Company" or "Nuveen") and its
wholly owned subsidiaries, John Nuveen & Co. Incorporated ("Nuveen & Co."),
Nuveen Advisory Corp. ("Nuveen Advisory") and Nuveen Institutional Advisory
Corp. ("Nuveen Institutional Advisory"). The Company is majority owned by The
St. Paul Companies. All material intercompany accounts and transactions have
been eliminated in consolidation.
Nuveen & Co., a registered broker and dealer in securities under the
Securities Exchange Act of 1934, trades, underwrites and markets municipal
bonds, and is sponsor/underwriter of the Nuveen tax-exempt unit trusts (a
series of unit investment trusts) and Nuveen open-end and exchange-traded
(closed-end) management investment companies (funds). Nuveen Advisory and
Nuveen Institutional Advisory, registered investment advisers under the
Investment Advisers Act of 1940, provide investment advice to and administer
the business affairs of the Nuveen family of management investment companies.
Nuveen Institutional Advisory also provides investment management services for
individuals and institutional investors.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such estimates
may affect amounts reported in future periods.
Certain amounts in the prior year financial statements have been
reclassified to correspond to the 1996 presentation. These reclassifications
had no effect on net income or retained earnings as previously reported for
those years.
Securities Transactions
Securities transactions are recorded on a settlement date basis, which is
generally three business days after the trade date. Securities owned (trading
accounts) are valued at market value and realized and unrealized gains and
losses are reflected in income. Profits and losses are accrued on unsettled
securities transactions based on trade dates and, to the extent determinable,
on underwriting commitments, purchase and sale commitments of when-issued
securities, and delayed delivery contracts.
In connection with underwriting activities, contracts are entered into
with other brokers and dealers to jointly purchase and sell securities. When
the Company takes possession of a portion or all of the securities purchased
for such "joint accounts," it records as inventory its share of such securities.
In the normal course of business, the Company purchases municipal bonds,
unit investment trusts and, from time to time, U.S. government obligations. The
Company also invests funds not currently used in its operations in securities
purchased under agreements to resell. At December 31, 1996, the Company's
inventory of securities owned did not contain any significant concentrations of
credit risk relating to either individual issues or to issuers (or groups of
issuers) located in any state or region of the country.
Temporary Investments Arising from
Remarketing Obligations
The Company is remarketing agent for various issuers of variable rate demand
obligations (VRDOs) with an aggregate principal value in excess of $1.5 billion
at December 31, 1996. Although remarketing agents, including the Company, are
only obligated to use their best efforts in locating purchasers for the VRDOs,
they frequently purchase VRDOs for resale to other buyers within a few days.
During temporary periods
of imbalance between supply and demand for VRDOs, the Company may hold
substantial amounts of such obligations for resale. The Company has come to
expect such imbalances at year end and, to a lesser extent, at each calendar
quarter end. Substantially all VRDOs for which the Company is remarketing agent
are secured by letters of credit obtained by the issuer from highly rated third
party providers including major commercial banks and insurance companies. At
December 31, 1996, and 1995, the Company held VRDOs with a cost and market
value of $99.8 million and $198.3 million, respectively. In comparison, the
Company's average daily temporary investment in VRDOs was $17.9 million during
1996 and $35.8 million during 1995.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are treated as collateralized financing transactions
and are carried at the amounts at which such securities will be subsequently
resold or reacquired, including accrued interest. The Company's exposure to
credit risks associated with the nonperformance of counterparties in fulPlling
these contractual obligations can be directly impacted by market fluctuations
that may impair the counterparties' ability to satisfy their obligations. It is
the Company's policy to take possession of the securities underlying the
agreements to resell or enter into tri-party agreements which include
segregation of the collateral by
23
The John Nuveen Company
<PAGE> 26
an independent third party for the benefit of the Company. The Company monitors
the value of these securities daily and, if necessary, obtains additional
collateral to assure that the agreements are fully secured.
The Company utilizes resale agreements to invest capital not required to
fund daily operations. The level of such investments will fluctuate on a daily
basis as the Company commits capital to carry temporary investments in VRDOs
and inventory positions and to finance new issue municipal underwritings. Such
agreements typically mature on the day following the day in which the Company
enters into such agreements. Since these agreements are highly liquid
investments, readily convertible to cash, and mature in less than three months,
the Company includes these amounts in cash equivalents for cash flow purposes.
Other Investments
Other investments consists primarily of convertible preferred stock in a
privately held institutional equity manager and investments in certain Company
sponsored mutual funds. Such investments are carried at cost. The preferred
stock investment is not readily marketable and consequently, fair value cannot
be readily ascertained.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment, primarily computer equipment, are depreciated on a
straight-line basis over estimated useful lives ranging from three to ten
years. Leasehold improvements are amortized over the lesser of the economic
useful life of the improvement or the remaining term of the lease.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consists primarily of deferred commissions
and other direct related costs associated with the sale of The Nuveen Growth
and Income Stock Fund. Such costs will be amortized on a straight-line basis
over the lesser of three years or the period during which the shares of the
fund upon which the commissions were paid remain outstanding.
Security Purchase Obligations
As sponsor/underwriter of the Nuveen tax-exempt unit trusts, the Company enters
into trust agreements that obligate it to purchase certain municipal
when-issued bonds reported as security purchase obligations on the consolidated
balance sheets, and deliver such bonds together with any "regular way" bonds on
hand or receivable from brokers to the trustee. The commitments to deliver
these bonds are secured by irrevocable bank letters of credit drawn by the
Company in favor of the trustee. These letters of credit are collateralized by
securities owned by the Company. The liabilities reported in the consolidated
balance sheets are the amounts the Company is contractually obligated to pay at
the future settlement date of the purchase transactions, including interest
accrued through the balance sheet dates.
Derivative Financial Instruments
The Company may invest in derivative financial instruments, defined as futures,
forwards, swaps or option contracts and other financial instruments with
similar characteristics, but did not purchase any such securities in managing
its operations during 1996 or 1995 and therefore had no exposure
to market risk from derivative financial instruments. The Company's investment
banking group, however, acts as financial adviser, broker or underwriter to
municipal or other not-for-profit issuers with respect to transactions in
interest rate swaps, forward delivery transactions or other investment
agreements. Also, the Company's investment advisory subsidiaries did not invest
in derivative securities, other than high quality synthetic money market
securities for the funds and accounts they manage.
Incentive Plans
The Company accounts for restricted stock and options issued under its equity
incentive plans using the accounting methods prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and its related Interpretations.
Advertising and Promotional Costs
Advertising and promotional costs include amounts related to the marketing and
distribution of specific products offered by the Company as well as expenses
associated with promoting the brand name and Company image. The Company's
policy is to expense such costs as incurred.
Earnings per Common Share
Earnings per common share are computed based on the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares
include the dilutive effect of stock options awarded under the Company's equity
incentive plans.
Supplemental Cash Flow Information
The Company paid interest of $1.6 million in 1996, $1.4 million in 1995 and
$2.4 million in 1994.
2. INCOME TAXES
The provision for income taxes is different from that which would be computed
by applying the statutory federal
24
The John Nuveen Company
<PAGE> 27
income tax rate to income before taxes. The principal reasons for these
differences are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate applied
to income before taxes 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income
tax benefit 4.2 4.1 4.5
Tax-exempt interest income,
net of disallowed
interest expense (1.0) (1.4) (1.4)
Other, net .1 .2 .4
---------------------------------------------------
Effective tax rate 38.3% 37.9% 38.5%
</TABLE>
The tax effect of significant items that gives rise to the net deferred tax
asset recorded on the Company's consolidated
balance sheets are shown in the following table:
<TABLE>
<CAPTION>
IN THOUSANDS
- ------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Gross deferred tax asset:
Deferred compensation $11,043 $ 9,404
Accrued postretirement
benefit obligation 2,482 2,209
Unfunded accrued pension cost
(nonqualified plan) -- 1,217
Book amortization in excess of tax amortization 1,367 1,235
Other 624 647
- ------------------------------------------------------------------------------
Gross deferred tax asset 15,516 14,712
- ------------------------------------------------------------------------------
Gross deferred tax liability:
Deferred commissions and fund offering costs 4,840 --
Special Incentive Plan -- 296
Tax depreciation in excess of book depreciation 197 723
Prepaid pension costs (qualified plan) 511 436
State taxes -- 263
Other 190 75
- ------------------------------------------------------------------------------
Gross deferred tax liability 5,738 1,793
- ------------------------------------------------------------------------------
Net deferred tax asset $ 9,778 $12,919
- ------------------------------------------------------------------------------
</TABLE>
The future realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Management believes it is more likely than not
the Company will realize the benefits of these future tax deductions.
Not included in income tax expense for 1996, 1995 and 1994, are income tax
benefits of $527,000, $249,000 and $110,000, respectively, attributable to the
vesting of restricted stock and the exercise of stock options. Such amounts are
reported in the consolidated statements of changes in stockholders' equity.
Federal and state income taxes paid for the years ending December 31,
1996, 1995, and 1994, amounting to $46,664,000, $43,375,000 and $45,065,000,
respectively, include required payments on estimated taxable income
and final payments of prior year taxes required to be paid upon filing the final
federal and state tax returns, reduced
by refunds received, if any.
3. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into when-issued, delayed
delivery and underwriting commitments. Estimated profits and losses on those
commitments are reflected in the consolidated financial statements at year end.
Rent expense for office space and equipment was $5,919,000, $6,085,000 and
$5,965,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Minimum rental commitments for office space and equipment, including estimated
escalation for insurance, taxes, and maintenance for the years 1997 through
2003, the last year for which there is a commitment, are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
- -----------------------
Year Commitment
- -----------------------
<S> <C>
1997 $6,511
1998 6,455
1999 6,353
2000 1,834
2001 977
Thereafter 825
- -----------------------
</TABLE>
The Company and its subsidiaries are named as defendants in certain legal
actions having arisen in the ordinary course of business. In the opinion of
management, based on current knowledge and after discussions with legal
counsel, the outcome of such litigation will not have a material adverse effect
on the Company's financial condition, results
of operations or liquidity.
4. EMPLOYEE RETIREMENT AND INCENTIVE COMPENSATION PROGRAM
The Company has a noncontributory retirement plan covering substantially all
employees, including employees of its subsidiaries. Pension benefits are based
on years of service and the employee's average compensation during the highest
consecutive five years of the employee's last ten years of employment. The
Company's funding policy is to contribute annually at least the minimum amount
that can be deducted for federal income tax purposes.
The following table sets forth the components of the net pension expense
(benefit) as reflected in the consolidated statements of income:
25
The John Nuveen Company
<PAGE> 28
<TABLE>
<CAPTION>
IN THOUSANDS
-------------------------------------------------------
DECEMBER 31, 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the year $ 845 $ 750 $ 854
Interest cost on projected
benefit obligation 1,019 960 1,044
Actual return on plan assets (2,250) (3,626) 1,034
Net amortization 214 1,889 (2,912)
-------------------------------------------------------
Net pension expense (benefit) $ (172) $ (27) $ 20
-------------------------------------------------------
</TABLE>
The following table summarizes the funded status at December 31, 1996, and
1995. Prepaid pension cost is recorded in prepaid expenses and other assets on
the consolidated balance sheets.
IN THOUSANDS
<TABLE>
- -------------------------------------------------------------------------------------
<S> <C> <C>
DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------------
Plan assets at fair value, primarily common
stocks, U.S. government obligations and
corporate bonds $ 20,786 $ 21,259
- -------------------------------------------------------------------------------------
Actuarial present value of benefits for services
rendered to date:
Accumulated benefits based on salaries paid
to date:
Vested 9,698 11,160
Nonvested 535 648
- -------------------------------------------------------------------------------------
Accumulated benefit obligation 10,233 11,808
Additional benefits based on estimated
future salary levels 2,502 3,333
- -------------------------------------------------------------------------------------
Projected benefit obligation 12,735 15,141
- -------------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 8,051 6,118
Unrecognized net asset at
January 1, 1987, being recognized over 15 years (1,438) (1,729)
Unrecognized net gain from past experience (5,213) (3,150)
Unrecognized prior service cost (168) (180)
- -------------------------------------------------------------------------------------
Prepaid pension cost $ 1,232 $ 1,059
- -------------------------------------------------------------------------------------
</TABLE>
The funded status is determined using assumptions at the end of the year.
Pension cost is determined using assumptions at the beginning of the year.
Assumptions as of December 31 used to determine projected benePt obligations
and pension costs are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 73/4% 71/4% 8%
Rate of increase in compensation 51/2% 51/2% 6%
Expected rate of return on plan assets 81/2% 8% 8%
- ----------------------------------------------------------------
</TABLE>
The Company also maintains a noncontributory pension plan for certain employees
whose pension benefits exceed
the Section 415 limitations of the Internal Revenue Code. Pension benefits for
this plan follow the vesting provisions
of the funded plan. Funding is not made under this plan until benefits are paid.
The following table sets forth the components of net pension expense for
the unfunded plan as reflected in the consolidated statements of income:
<TABLE>
<CAPTION>
IN THOUSANDS
-----------------------------------------------------
DECEMBER 31, 1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the year $ 26 $ 26 $ 29
Interest cost on projected
benefit obligation 122 230 224
Net amortization 90 78 132
-----------------------------------------------------
Net pension expense $ 238 $ 334 $ 385
-----------------------------------------------------
</TABLE>
The following table reconciles the accumulated benefit obligation of the
unfunded plan at December 31, with the amounts included in accrued compensation
and other expenses in the Company's consolidated balance sheets:
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------
DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------
Actuarial present value of benefits
for services rendered to date:
Accumulated benefits
based on salaries paid to date,
all vested benefits $ 437 $3,072
Additional benefits
based on estimated future salary levels 40 251
- ----------------------------------------------------------------------------------
Projected benefit obligation 477 3,323
Unrecognized net (gain) loss from past experience (12) 554
Unrecognized prior service cost (270) (270)
Unrecognized net obligation
at January 1, 1987, being
recognized over 15 years (541) (653)
- ----------------------------------------------------------------------------------
Unfunded plan accrued (prepaid) pension cost $(346) $2,954
- ----------------------------------------------------------------------------------
</TABLE>
During 1996, the Company paid $3,769,000 in lump sum benefit payments to
retiring executives under the plan and recorded an additional $231,000 in net
pension expense related to the settlement of these unfunded obligations.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligations
were the same rates as disclosed under the funded pension plan.
The Company has a profit sharing plan that covers substantially all
employees, including employees of its subsidiaries. Amounts determinable under
the plan are contributed in part to a profit sharing trust qualified under the
Internal Revenue Code with the remainder paid as cash bonuses or equity awards.
The Company has a nonqualified deferred compensation program whereby
certain key employees can elect to defer receipt of all or a portion of their
cash bonus until retirement, termination, death or disability. The deferred
compensation liabilities incur interest expense at the prime rate.
26
The John Nuveen Company
<PAGE> 29
5. POSTRETIREMENT BENEFITS
OTHER THAN PENSION
The Company currently maintains plans providing certain life insurance and
health care benefits for retired employees and their eligible dependents. A
portion of the cost of these benefits is shared by the Company and the retiree.
The following table sets forth the components of the net postretirement
benefit expense as reflected in the consolidated statements of income:
<TABLE>
<CAPTION>
IN THOUSANDS
----------------------------------------------------------
DECEMBER 31, 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during
the year $ 339 $ 246 $ 295
Interest cost on accumulated benefit
obligation 344 335 332
Net amortization (2) (19) --
----------------------------------------------------------
Net postretirement benefit expense $ 681 $ 562 $ 627
----------------------------------------------------------
</TABLE>
The following table reconciles the accumulated postretirement benefit
obligation with amounts included in accrued compensation and other expenses in
the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
IN THOUSANDS
--------------------------------------------------------------
DECEMBER 31, 1996 1995
--------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees eligible for benefits $1,367 $1,320
Fully eligible active plan participants 935 845
Other active plan participants 2,746 3,139
--------------------------------------------------------------
Accumulated postretirement benefit obligation 5,048 5,304
Unrecognized net gain 926 57
--------------------------------------------------------------
Accrued postretirement benefit cost $5,974 $5,361
--------------------------------------------------------------
</TABLE>
The annual assumed rate of increase in the per capita cost of covered
medical benefits for pre-65 participants is 10.7% for 1996 and is assumed to
decrease to 5.5% by 2002 and remain at that level thereafter. The annual
assumed rate for post-65 participants is 8.4% for 1996 and is assumed to
decrease to 5.4% by 1999 and remain at that level thereafter.
Increasing the assumed health care cost trend rates by one percentage
point in each year would result in an increase in the Accumulated
Postretirement Benefit Obligation (APBO) as of December 31, 1996, of $956,000
and an increase in the aggregate of the service cost and interest cost for the
period ended December 31, 1996, of $161,469. A discount rate of 7.75% was used
to determine the APBO.
6. EQUITY INCENTIVE PLANS
The Company maintains two stock-based compensation programs, the Nuveen 1992
Special Incentive Plan (1992 Plan) and the Nuveen 1996 Equity Incentive Plan
(1996 Plan). The 1992 Plan was developed in connection with the Company's
public offering of stock and authorized the issuance of an aggregate of
5,980,000 shares of Class A common stock for the grant of equity awards,
including up to 2,340,000 shares of restricted common stock and deferred units.
Under the 1996 Plan, the Company has reserved for award an aggregate of
3,800,000 shares of Class A common stock, including up to 950,000 shares which
may be awarded in the form of restricted stock grants. Under both plans,
options may be awarded at exercise prices not less than 100% of the fair market
value of the stock on the grant date, and maximum option terms may not exceed
ten years.
In 1992, the Company awarded restricted common stock and deferred units,
all fully vested as of December 31, 1996, to certain employees pursuant to the
1992 Plan. During 1995, the Company awarded an additional 30,000 shares of
restricted stock, with a vesting schedule ranging from one to four and one-half
years, on terms substantially identical to the terms of the 1992 Plan. The
Company further awarded 190,000 restricted shares of stock (including 160,000
shares deferred at the election of the recipients) in February 1996 with a fair
value of $25 per share and a three year cliff vesting period, pursuant to the
1996 Plan. All awards are subject to restrictions on transferability, a risk of
forfeiture and certain other terms and conditions. The value of such awards is
reported as compensation expense over the shorter of the period beginning on
the date of grant and ending on the last vesting date, or the period in which
the related employee services are rendered. Recorded compensation cost for
these awards was $3.6 million, $7.3 million and $14.1 million for 1996, 1995
and 1994, respectively. The Company also awarded 78,000 shares of restricted
stock in January 1997, related to services provided during 1996. Accordingly,
compensation expense of $2.2 million relating to these awards has been recorded
as 1996 compensation expense. At December 31, 1996, 312,000 shares remain
available for future restricted stock awards under the 1996 Plan.
The Company also awarded certain employees options to purchase the
Company's Class A common stock at exercise prices equal to or greater than
the market price of the stock on the day the options were awarded. Options
awarded in 1992, under the 1992 Plan, vested fully on July 1, 1996 and remain
exercisable through May 27, 2002. During 1995, the Company awarded options for
50,000 shares of Class A common stock under the 1992 Plan. These options vest
in quarterly installments through October 1, 1999 and remain exercisable
through May 27, 2002. In 1996, pursuant to the
27
The John Nuveen Company
<PAGE> 30
1996 Plan, the Company awarded options for 1,464,000 shares which are subject
to three and four year cliff vesting and expire after ten years. In addition,
the Company awarded options with respect to 333,000 shares of common stock in
January 1997 to employees for services provided during 1996. In accordance with
APB 25, no compensation expense has been recognized for any of the stock options
awarded. There are 1,423,000 shares available for future option awards as of
December 31, 1996.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (FASB 123) requires disclosure of pro forma
information regarding net income and earnings per share as if the provisions of
the Statement had been applied and the Company accounted for its employee stock
option awards under the fair value method of the Statement. Accordingly, if the
Company's compensation cost for employee stock options awarded had been
determined in this manner, the Company's 1996 net income would have been reduced
by $1.5 million, or $.04 per primary and fully diluted earnings per share.
Furthermore, the Company's 1995 net income would have been reduced by $23,000,
or less than $.01 per primary and fully diluted earnings per share. For purposes
of pro forma disclosures, the estimated fair value of the options is amortized
to expense over the lesser of the options' vesting period or the related
employee service period. The fair value of stock option awards was estimated at
the date of grant using a Black-Scholes option pricing model with the following
assumptions for 1996 and 1995, respectively: weighted-average risk-free interest
rates of 6.0% and 5.9%; dividend yield of 3.06%; volatility factor of the
expected market price of the Company's common stock of 20%; and weighted-average
expected option lives of 7.8 and 7 years. FASB 123 only applies to those equity
instruments awarded in fiscal years that begin after December 15, 1994.
Consequently, the pro forma information and weighted average option fair values
do not include the effects of options awarded in 1992 under the 1992 Plan, and
accordingly may not be representative of the compensation cost to be expected in
future years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options may have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
A summary of the Company's stock option activity for the years ended
December 31, 1996, 1995 and 1994 is presented in the following table and
narrative:
- ---------------------------------------------------------
Weighted
Average
Exercise
Shares Price
- ---------------------------------------------------------
Options outstanding at
December 31, 1993 3,387,100 $18.00
Exercised (165,000) 18.00
- ---------------------------------------------------------
Options outstanding at
December 31, 1994 3,222,100 18.00
Awarded 50,000 24.00
Exercised (90,500) 18.00
Forfeited (15,000) 18.00
- ---------------------------------------------------------
Options outstanding at
December 31, 1995 3,166,600 18.09
Awarded 1,464,000 28.85
Exercised (165,500) 18.00
Forfeited (4,000) 18.00
- ---------------------------------------------------------
Options outstanding at
December 31, 1996 4,461,100 $21.63
- ---------------------------------------------------------
Options exercisable at:
December 31, 1994 1,968,000 $18.00
December 31, 1995 2,643,300 $18.01
December 31, 1996 2,963,900 $18.03
- ---------------------------------------------------------
Options awarded during 1996, with an exercise price equal to the market price of
the stock on the date of grant, have an exercise price of $25 and a fair value
of $5.69 per share. Options awarded during 1996, with an exercise price in
excess of the stock's grant date market value, have an exercise price of $30 and
a weighted-average fair value of $4.55 per share. The grant date fair value of
options awarded during 1995 is $5.65 per share. Exercise prices for options
outstanding as of December 31, 1996 ranged from $18 to $30 per share. The
weighted-average remaining contractual life of those options is 6.65 years.
7. COMMONSTOCK
A summary of common stock activity for the three year period ended December 31,
1996 follows:
28
The John Nuveen Company
<PAGE> 31
IN THOUSANDS
--------------------------------------------------------------
DECEMBER 31, 1996 1995 1994
--------------------------------------------------------------
Shares outstanding at
beginning of year 36,676 37,223 38,654
Shares issued under stock options
and other incentive plans 196 120 49
Shares acquired (3,753) (667) (1,480)
--------------------------------------------------------------
Shares outstanding at end of year 33,119 36,676 37,223
--------------------------------------------------------------
The Board of Directors authorized the purchase in the aggregate of 5.9 million
shares of common stock of the Company including 500,000 shares authorized in
1993, 1.3 million shares authorized in 1994, 600,000 shares authorized in 1995
and 3.5 million shares authorized in 1996. As of December 31, 1996, all stock
authorized pursuant to these stock repurchase programs had been acquired by the
Company.
Included in the 1996 program was the repurchase of 2.7 million Class B
shares which upon repurchase converted to Class A shares. In February 1997,
the Board authorized the purchase of up to 3.5 million common shares prorated
between Class A and Class B shares.
8. NET CAPITAL REQUIREMENT
Nuveen & Co. is subject to the Securities and Exchange Commission Rule 15c3-1,
the "Uniform Net Capital Rule," which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net capital,
as these terms are defined, shall not exceed 15 to 1. At December 31, 1996,
the Company's net capital ratio was 0.52 to 1 and its net capital was
$142,021,000 which is $137,123,000 in excess of the required net capital of
$4,898,000.
9. SUBSEQUENT EVENT
On January 2, 1997 the Company completed the acquisition of Flagship Resources
Inc. ("Flagship") and its wholly owned subsidiaries-Flagship Financial Inc., a
registered investment adviser under the Investment Advisors Act of 1940, and
Flagship Funds Inc., a registered broker/dealer under the Securities Exchange
Act of 1934-pursuant to an Agreement and Plan of Merger dated July 16, 1996
(the "Agreement"). As of December 31, 1996, Flagship managed over $4.6 billion
in assets and serviced over 100,000 investors and their financial advisers
through its mutual fund and private account management products.
The base purchase price paid at closing of $63 million consisted of $18
million cash and 1.8 million shares of 5% cumulative preferred stock valued at
$45 million. The preferred stock is convertible to 1,650,000 shares of the
Company's Class A common stock after two years. In addition to the base
purchase price, the Agreement provides for contingent payments of up to $20
million if certain agreed upon sales growth and profitability targets are
satisfied over the next four years. The Company will account for the
acquisition under the purchase method of accounting.
10. QUARTERLY RESULTS (UNAUDITED)
The following tables set forth selected quarterly financial information for each
quarter in the two year period ending December 31, 1996:
IN THOUSANDS, EXCEPT PER SHARE DATA 1996
------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------------------------------
[S] [C] [C] [C] [C]
Total revenues $57,059 $55,714 $58,614 $60,960
Net income 17,005 17,150 18,497 19,877
Per common share:
Net income .45 .46 .50 .57
Cash dividends .18 .18 .21 .21
Stock price range:
High 25 5/8 25 3/4 27 1/8 28 1/2
Low 23 7/8 23 7/8 23 7/8 26 1/4
------------------------------------------------------------------------
------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1995
------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------------------------------
Total revenues $57,011 $57,926 $58,873 $62,420
Net income 15,528 15,734 17,850 21,508
Per common share:
Net income .41 .42 .47 .57
Cash dividends .16 .16 .18 .18
Stock price range:
High 24 1/4 24 3/4 24 3/4 27 1/4
Low 22 3/4 20 3/4 22 1/2 23 1/2
-------------------------------------------------------------------------
The John Nuveen Company Class A common stock, representing approximately 22% of
the Company's issued and outstanding common stock at December 31, 1996, is
listed on the New York Stock Exchange under the symbol "JNC." Trading of the
Company's Class A common stock began on May 20, 1992. At December 31, 1996,
there were approximately 3,689 shareholders of record. There are no
restrictions on the Company's present ability to pay dividends on its common
stock.
29
The John Nuveen Company
<PAGE> 32
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
THE JOHN NUVEEN COMPANY:
We have audited the accompanying consolidated balance sheets of The John
Nuveen Company (the Company) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The John
Nuveen Company and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 14, 1997,
except as to the last sentence of Note 7,
which is as of February 10, 1997
30
The John Nuveen Company
<PAGE> 33
FIVE YEAR FINANCIAL SUMMARY
IN THOUSANDS, UNLESS OTHERWISE INDICATED
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------
INCOME STATEMENT DATA:
Revenues:
Investment advisory fees from
assets under management $185,845 $183,135 $181,918 $176,105 $147,019
Underwriting and distribution of
investment products 14,566 15,339 18,149 27,698 36,080
Positioning profits (losses) (191) 4,981 (8,237) 5,381 3,394
Investment banking 11,098 10,334 11,793 19,937 18,224
Interest 18,640 19,445 13,686 12,434 12,340
Other 2,389 2,996 2,992 3,679 4,155
- --------------------------------------------------------------------------------------------
Total revenues 232,347 236,230 220,301 245,234 221,212
- --------------------------------------------------------------------------------------------
Expenses:
Compensation and benefits 71,683 80,366 83,079 84,665 75,094
Advertising and promotional costs 12,641 12,677 16,151 24,360 24,494
All other 30,521 29,417 26,436 24,546 23,757
- --------------------------------------------------------------------------------------------
Total expenses 114,845 122,460 125,666 133,571 123,345
- --------------------------------------------------------------------------------------------
Income Before Taxes and Cumulative
Effect of Accounting Changes 117,502 113,770 94,635 111,663 97,867
Income taxes 44,973 43,150 36,424 41,219 35,294
- --------------------------------------------------------------------------------------------
Net income before cumulative effect
of accounting changes 72,529 70,620 58,211 70,444 62,573
Cumulative effect of
accounting changes -- -- -- -- 3,133
- --------------------------------------------------------------------------------------------
Net income $ 72,529 $ 70,620 $ 58,211 $ 70,444 $ 59,440
- --------------------------------------------------------------------------------------------
Earnings per common share:
Primary $ 1.98 $ 1.87 $ 1.52 $ 1.76 $ 1.58
Fully diluted $ 1.97 $ 1.87 $ 1.51 $ 1.76 $ 1.58
Return on equity 22.5% 24.7% 21.2% 33.3% 33.6%
Total dividends per share(1) $ .78 $ .68 $ .64 $ .56 $ .24
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets $355,251 $402,512 $348,847 $410,641 $294,148
Total liabilities 83,357 79,656 62,915 135,441 82,979
- --------------------------------------------------------------------------------------------
Stockholders' equity $271,894 $322,856 $285,932 $275,200 $211,169
- --------------------------------------------------------------------------------------------
NUVEEN MANAGED FUNDS AND ACCOUNTS
(IN MILLIONS):
Net Assets Under Management
Managed funds:
Mutual funds $ 5,930 $ 5,457 $ 4,731 $ 4,962 $ 3,767
Exchange-traded funds 25,434 25,784 23,731 25,805 20,851
Money market funds 1,004 1,113 1,242 1,954 2,634
Managed accounts 823 688 343 227 149
- --------------------------------------------------------------------------------------------
Total $ 33,191 $ 33,042 $ 30,047 $ 32,948 $ 27,401
- --------------------------------------------------------------------------------------------
Nuveen managed fund sales:
Mutual funds(2) $ 554 $ 236 $ 285 $ 1,039 $ 1,094
Exchange-traded funds and portfolios 38 19 470 3,962 4,162
Money market funds(2) (109) (129) (713) (680) (476)
Managed accounts 138 346 116 78 51
- --------------------------------------------------------------------------------------------
Total $ 621 $ 472 $ 158 $ 4,399 $ 4,831
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
NUVEEN UNIT INVESTMENT
TRUSTS (IN MILLIONS):
Market value outstanding $ 13,571 $ 15,517 $ 16,793 $ 20,019 $ 22,419
Total sales (par value) $ 963 $ 1,093 $ 1,235 $ 1,433 $ 1,923
- --------------------------------------------------------------------------------------------
</TABLE>
(1)Excluding payment of a $65 million special cash dividend to St. Paul Fire
and Marine Insurance Company in March 1992.
(2)Sales and dividend reinvestments less redemptions.
31
The John Nuveen Company
<PAGE> 34
THE JOHN NUVEEN COMPANY
BOARD OF DIRECTORS
(as of March 1, 1997)
Timothy R. Schwertfeger
Chairman and
Chief Executive Officer
Anthony T. Dean
President and
Chief Operating Officer
Willard L. Boyd
President Emeritus
Field Museum of Natural History
Andrew I. Douglass
Senior Vice President and
General Counsel
The St. Paul Companies
W. John Driscoll
Chairman/Retired
Rock Island Company
Duane R. Kullberg
Managing Partner/Chief
Executive Officer/Retired
Andersen Worldwide
Douglas W. Leatherdale
Chairman and
Chief Executive Officer
The St. Paul Companies
Patrick A. Thiele
President and Chief Executive Officer
Worldwide Insurance Operations
The St. Paul Companies
EXECUTIVE OFFICERS
(as of March 1, 1997)
Timothy R. Schwertfeger
Chairman and
Chief Executive Officer
Anthony T. Dean
President and
Chief Operating Officer
John P. Amboian
Executive Vice President,
Chief Financial Officer and
Secretary
Bruce P. Bedford
Executive Vice President
32
The John Nuveen Company
<PAGE> 35
SHAREHOLDER INFORMATION
Headquarters
The John Nuveen Company
333 West Wacker Drive
Chicago, IL 60606
312-917-7700
Transfer Agent and Registrar
The Bank of New York
Shareholder Relations
Church Street Station
P.O. Box 11258
New York, NY 10286-1258
1-800-524-4458
Stock Exchange Listing
New York Stock Exchange
trading symbol: JNC
Form 10-K
The annual report to the
Securities and Exchange
Commission on Form 10-K
for the fiscal year ended
December 31, 1996
will be provided upon
written request to:
Jeffrey Kratz
Investor Relations
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606
ANNUAL MEETING
The annual shareholder's meeting for The John Nuveen Company will be Friday,
May 9, 1997 at 10:30 am at The 410 Club, 410 North Michigan Avenue, Chicago, IL.
<PAGE> 36
[NUVEEN LOGO]
The John Nuveen Company
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE> 1
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
The John Nuveen Company:
We consent to incorporation by reference in the registration statement
(No. 33-46922) on Form S-8 of The John Nuveen Company of our reports
dated January 14, 1997 relating to the consolidated balance sheets of
The John Nuveen Company as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders'
equity, and cash flows and related financial statement schedules for
each of the years in the three-year period ended December 31, 1996,
which reports appear in or are incorporated by reference in the December
31, 1996 annual report on Form 10-K of The John Nuveen Company.
/s/KPMG Peat Marwick LLP
Chicago, Illinois
March 24, 1997
<PAGE> 1
EXHIBIT 24.1
THE JOHN NUVEEN COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The
John Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN
and LARRY W. MARTIN, and each of them (with full power to each of them
to act alone) his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and on his behalf
and in his name, place and stead, in any and all capacities, to execute
any such annual, periodic or special report pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, including any and
all amendments thereto, with all exhibits thereto, and any and all other
documents in connection therewith, and to file the same with the
Securities and Exchange Commission and any regulatory authority, federal
or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in
order to effectuate the same, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company
has hereunto set his hand this 12th day of March, 1997.
/s/Anthony T. Dean
----------------------------------
Anthony T. Dean
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 12th day of March, 1997, personally appeared before me, a
Notary Public in and for said County and State, the person named above
who is known to me to be the person whose name and signature is affixed
to the foregoing Power of Attorney and who acknowledged the same to be
his voluntary act and deed for the intent and purposes therein set
forth.
(SEAL) /s/Robin D. Freeman
----------------------------------
- --------------------------------- Notary Public
"Official Seal"
Robin D. Freeman
Notary Public, State of
Illinois
My Commission Expires: 10/31/99
- ---------------------------------
My Commission Expires: October 31, 1999
<PAGE> 2
THE JOHN NUVEEN COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The
John Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN
and LARRY W. MARTIN, and each of them (with full power to each of them
to act alone) his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and on his behalf
and in his name, place and stead, in any and all capacities, to execute
any such annual, periodic or special report pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, including any and
all amendments thereto, with all exhibits thereto, and any and all other
documents in connection therewith, and to file the same with the
Securities and Exchange Commission and any regulatory authority, federal
or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in
order to effectuate the same, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company
has hereunto set his hand this 20th day of March, 1997.
/s/Timothy R. Schwertfeger
----------------------------
Timothy R. Schwertfeger
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 20th day of March, 1997, personally appeared before me, a
Notary Public in and for said County and State, the person named above
who is known to me to be the person whose name and signature is affixed
to the foregoing Power of Attorney and who acknowledged the same to be
his voluntary act and deed for the intent and purposes therein set
forth.
(SEAL) /S/ Robin D. Freeman
----------------------------
Notary Public
- ---------------------------------
"Official Seal"
Robin D. Freeman
Notary Public, State of
Illinois
My Commission Expires: 10/31/99
- ---------------------------------
My Commission Expires: October 31, 1999
<PAGE> 3
THE JOHN NUVEEN COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The
John Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN
and LARRY W. MARTIN, and each of them (with full power to each of them
to act alone) his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and on his behalf
and in his name, place and stead, in any and all capacities, to execute
any such annual, periodic or special report pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, including any and
all amendments thereto, with all exhibits thereto, and any and all other
documents in connection therewith, and to file the same with the
Securities and Exchange Commission and any regulatory authority, federal
or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in
order to effectuate the same, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company
has hereunto set his hand this 13th day of March, 1997.
/s/ Willard L. Boyd
---------------------------
Willard L. Boyd
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 13th day of March, 1997, personally appeared before me, a
Notary Public in and for said County and State, the person named above
who is known to me to be the person whose name and signature is affixed
to the foregoing Power of Attorney and who acknowledged the same to be
his voluntary act and deed for the intent and purposes therein set
forth.
(SEAL) /S/ Patricia N. Phillips
---------------------------
Notary Public
My Commission Expires: November 8, 2000
<PAGE> 4
5
THE JOHN NUVEEN COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The
John Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN
and LARRY W. MARTIN, and each of them (with full power to each of them
to act alone) his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and on his behalf
and in his name, place and stead, in any and all capacities, to execute
any such annual, periodic or special report pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, including any and
all amendments thereto, with all exhibits thereto, and any and all other
documents in connection therewith, and to file the same with the
Securities and Exchange Commission and any regulatory authority, federal
or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in
order to effectuate the same, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company
has hereunto set his hand this 14th day of March, 1997.
/s/ Andrew I. Douglass
---------------------------
Andrew I. Douglass
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 14th day of March, 1997, personally appeared before me, a
Notary Public in and for said County and State, the person named above
who is known to me to be the person whose name and signature is affixed
to the foregoing Power of Attorney and who acknowledged the same to be
his voluntary act and deed for the intent and purposes therein set
forth.
(SEAL) /S/ Brenda L. Peterson
---------------------------
Notary Public
My Commission Expires: January 31, 2000
<PAGE> 5
THE JOHN NUVEEN COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The
John Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN
and LARRY W. MARTIN, and each of them (with full power to each of them
to act alone) his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and on his behalf
and in his name, place and stead, in any and all capacities, to execute
any such annual, periodic or special report pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, including any and
all amendments thereto, with all exhibits thereto, and any and all other
documents in connection therewith, and to file the same with the
Securities and Exchange Commission and any regulatory authority, federal
or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in
order to effectuate the same, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company
has hereunto set his hand this 13th day of March, 1997.
/s/W. John Driscoll
---------------------------
W. John Driscoll
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 13th day of March, 1997, personally appeared before me, a
Notary Public in and for said County and State, the person named above
who is known to me to be the person whose name and signature is affixed
to the foregoing Power of Attorney and who acknowledged the same to be
his voluntary act and deed for the intent and purposes therein set
forth.
(SEAL) /S/ Cheryl M. McNary
---------------------------
Notary Public
My Commission Expires: January 31, 2000
<PAGE> 6
THE JOHN NUVEEN COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The
John Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN
and LARRY W. MARTIN, and each of them (with full power to each of them
to act alone) his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and on his behalf
and in his name, place and stead, in any and all capacities, to execute
any such annual, periodic or special report pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, including any and
all amendments thereto, with all exhibits thereto, and any and all other
documents in connection therewith, and to file the same with the
Securities and Exchange Commission and any regulatory authority, federal
or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in
order to effectuate the same, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company
has hereunto set his hand this 14th day of March, 1997.
/s/Duane R. Kullberg
---------------------------
Duane R. Kullberg
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 14th day of March, 1997, personally appeared before me, a
Notary Public in and for said County and State, the person named above
who is known to me to be the person whose name and signature is affixed
to the foregoing Power of Attorney and who acknowledged the same to be
his voluntary act and deed for the intent and purposes therein set
forth.
(SEAL) /S/ Jill L. Reader
---------------------------
Notary Public
My Commission Expires: May 11, 1999
<PAGE> 7
THE JOHN NUVEEN COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The
John Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN
and LARRY W. MARTIN, and each of them (with full power to each of them
to act alone) his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and on his behalf
and in his name, place and stead, in any and all capacities, to execute
any such annual, periodic or special report pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, including any and
all amendments thereto, with all exhibits thereto, and any and all other
documents in connection therewith, and to file the same with the
Securities and Exchange Commission and any regulatory authority, federal
or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in
order to effectuate the same, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company
has hereunto set his hand this 13th day of March, 1997.
/s/Douglas W. Leatherdale
---------------------------
Douglas W. Leatherdale
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 13th day of March, 1997, personally appeared before me, a
Notary Public in and for said County and State, the person named above
who is known to me to be the person whose name and signature is affixed
to the foregoing Power of Attorney and who acknowledged the same to be
his voluntary act and deed for the intent and purposes therein set
forth.
(SEAL) /s/Robin D. Freeman
---------------------------
Notary Public
- ---------------------------------
"Official Seal"
Robin D. Freeman
Notary Public, State of
Illinois
My Commission Expires: 10/31/99
- ---------------------------------
My Commission Expires: October 31, 1999
<PAGE> 8
THE JOHN NUVEEN COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The
John Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN
and LARRY W. MARTIN, and each of them (with full power to each of them
to act alone) his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and on his behalf
and in his name, place and stead, in any and all capacities, to execute
any such annual, periodic or special report pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, including any and
all amendments thereto, with all exhibits thereto, and any and all other
documents in connection therewith, and to file the same with the
Securities and Exchange Commission and any regulatory authority, federal
or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in
order to effectuate the same, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company
has hereunto set his hand this 13th day of March, 1997.
/s/Patrick A. Thiele
---------------------------
Patrick A. Thiele
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 13th day of March, 1997, personally appeared before me, a
Notary Public in and for said County and State, the person named above
who is known to me to be the person whose name and signature is affixed
to the foregoing Power of Attorney and who acknowledged the same to be
his voluntary act and deed for the intent and purposes therein set
forth.
(SEAL) /S/ Robin D. Freeman
---------------------------
Notary Public
- ---------------------------------
"Official Seal"
Robin D. Freeman
Notary Public, State of
Illinois
My Commission Expires: 10/31/99
- ---------------------------------
My Commission Expires: October 31, 1999
<PAGE> 1
EXHIBIT 24.2
CERTIFIED COPY OF RESOLUTION
The undersigned, John P. Amboian, Secretary of The John Nuveen
Company, a Delaware corporation (the "Company"), does hereby certify:
1. That he is the duly elected, qualified and acting Secretary
of the Company, and has custody of the corporate records and is a
proper officer to make this certification.
2. That at a meeting of the Board of Directors of the Company
duly called, convened and held on February 10, 1997, at which a
quorum was present and voted throughout, the following resolution
was duly adopted by said board and said resolution has not been
amended, altered or repealed and remains in full force and effect
on the date hereof:
RESOLVED, that each member of the Board of Directors and any
officer of the Company who may be required to execute any such
annual, periodic or special report, or any amendment or
amendments thereto, be, and each of them hereby is, authorized
to execute a power of attorney appointing John P. Amboian,
and Larry W. Martin, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him on his behalf and in his name,
place and stead, in any and all capacities, to sign the report
and any and all amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or
could do in person, and ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done
by virtue thereof.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed and the seal of the Company to be hereunto appended this 26th
day of March, 1997.
(SEAL)
John P. Amboian
---------------------------------
John P. Amboian, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
NUVEEN COMPANY'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 78,348
<SECURITIES> 143,594
<RECEIVABLES> 35,562
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 267,280
<PP&E> 33,436
<DEPRECIATION> (19,363)
<TOTAL-ASSETS> 356,251
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 271,767
<TOTAL-LIABILITY-AND-EQUITY> 355,251
<SALES> 0
<TOTAL-REVENUES> 232,347
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 112,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,325
<INCOME-PRETAX> 117,503
<INCOME-TAX> 44,974
<INCOME-CONTINUING> 72,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,529
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.97
</TABLE>
