Dear
Shareholders
WE ARE VERY PLEASED TO REPORT THAT 1997 WAS another excellent year for the Company.
We especially are gratified that our strong performance this past year was achieved during a period in which industry-wide sales of municipal bond products — our historical base — remained in net redemptions for most of the year, and at a time when we are making substantial long-term investments to broaden our business. Our investments reflect the substantial growth in the retail investment management industry that we expect to last well into the next century.
CONTINUED STRATEGIC EVOLUTION
The results for the year can be traced to the ongoing implementation since early 1996 of our new strategic focus. More than ever before, Nuveen is now clearly positioned to provide financial advisers with the products, tools and services to help accomplished investors sustain the financial security and quality of life they have created for themselves and their families.
While it is gratifying that we already are seeing positive results from this strategy, we know we're just at the beginning of what will be a multi-year, multi-stage process. This transformation is designed to be a series of deliberate and well-planned steps that produce meaningful progress over time.
By carefully evolving our strategic focus, we are leveraging the Nuveen brand name and the valuable relationships we enjoy with financial advisers and investors. In particular, we are developing products and services that benefit what soon will become the fastest growing group of investors in the country — those between 55 and 64 years old. Over the next 15 years, this age group is expected to grow as much as four times as fast as the overall U.S. population. As investors move into this stage of life, they will naturally become more committed to preserving their financial security.
Nuveen already enjoys strong name recognition and a reputation among financial advisers and investors for quality investments that moderate risk. Enlarging our target market to include investors in an important transitional stage prior to retirement is a natural expansion of the services that we provide to financial advisers and their clients. At the same time, we will maintain our long-standing commitment to serving those near or in retirement and preserving the traditional values and investment philosophy that are at the core of our business.
During 1997, we introduced several new products and services that meet the needs of risk-sensitive investors for a balance among continued asset growth, dependable income and capital preservation. These offerings now incorporate value-oriented equities, blue chip growth stocks, corporate debt, government securities and municipal bonds in a variety of funds, trusts and individual account management programs. Importantly, all of our investments are managed with a strong orientation toward risk moderation and tax reduction.
A TEAM OF PREMIER INVESTMENT ADVISERS
A key element of our strategy is to provide advisers and investors with access to expert, seasoned investment managers for each different asset class and type of investment we offer. During 1997 we made significant additions to this team of premier investment advisers, including:
Flagship Resources — Nuveen completed its purchase of this mutual fund and individual account manager early in 1997. By combining with Flagship, we broadened our array of quality state-specific municipal bond funds and added intermediate- and limited-term national municipal funds.
Rittenhouse Financial Services — In September, we were pleased to welcome Rittenhouse Financial Services to our team. Primarily through financial advisers, Rittenhouse now manages approximately $10 billion in equity and balanced accounts for individual investors and institutions. Based in Radnor, PA, a Philadelphia suburb, Rittenhouse follows a time-tested growth stock strategy that centers on identifying blue chip companies that are financially strong, global industry leaders and have demonstrated consistent and predictable growth in earnings and dividends. This approach provides an attractive way to participate in the growth potential of the equity markets with reduced risk. Rittenhouse employs a low turnover style that matches Nuveen's long-standing tax-efficient investment philosophy.
Early in 1998, we introduced the Nuveen Rittenhouse Growth Fund, the first mutual fund providing advisers and investors with direct access to Rittenhouse management. Rittenhouse has achieved an excellent record of strong performance with moderated risk since its founding almost 20 years ago. Their model equity portfolio, using the same management style that is employed by our new growth fund, achieved a total return of more than 36% in 1997, compared with 33% for the S&P 500 and 28% for the Lipper Growth Fund Index.
In addition to these new partners, our other premier investment advisers continued to perform well in 1997:
Institutional Capital Corporation — During the first six months of 1997 we completed the introductory offering of the Nuveen Growth and Income Stock Fund and made the initial offerings of the Nuveen Balanced Stock and Bond Fund and the Nuveen Balanced Municipal and Stock Fund. These funds are sub-advised by Institutional Capital, one of the best core value managers in the industry. All three funds have performed very well, providing attractive returns with less day-to-day price fluctuation than the overall market. The Growth and Income Stock Fund achieved a total return of 27.5% in 1997, compared with 26.6% for the Morningstar Large-Cap Value Category and 27% for the Lipper Growth and Income Fund Index. Total assets for the three funds now stand at more than $1 billion in just their first year.
Nuveen Advisory Corporation — Our core municipal bond management team now manages more than $35 billion in exchange-traded funds and municipal bond mutual funds. Nuveen Advisory's prudent, value investing style continues to provide attractive returns and stable tax-free dividends with moderated risk.
A FIRM-WIDE COMMITMENT
The same strategy of expanding our target markets and providing a more comprehensive array of products and services to our clients is driving the development of other areas of our firm as well. In our investment banking division, we are organizing to build upon the relationships we've developed over the years to offer institutional asset management services.
Our research department also is evolving to offer perspectives on financial planning, taxes and investment strategies, and to provide tools to help advisers and their clients manage their money in a tax efficient and risk sensitive manner. In customer service, we continue to make significant commitments to expanding our capabilities. In 1998 we will combine the transfer agency and shareholder servicing operations of all of our funds and trusts with Chase Manhattan Bank.
CREATING VALUE FOR SHAREHOLDERS
As we manage our way through this evolution, we are balancing long-term investments in our business with a commitment to generating current value for shareholders of The John Nuveen Company. Last year, our pre-tax return on equity equaled 45%, a sign of continued healthy margins and careful expense control. Our after-tax return on equity was 27% — better than our 25% average over the past 25 years.
We're gratified to see that the market is beginning to recognize the value of our strategy, and our ability to maintain strong performance even as we invest in our future. In 1997, our own stock provided a total return of more than 35%, outpacing the S&P 500.
The year just past provides a good example of our balancing the use of capital between growth initiatives and returns to shareholders. During 1997, we made two significant acquisitions, and at the same time, raised our quarterly dividend and continued significant share repurchases.
PREPARED FOR OUR SECOND CENTURY
In 1998 we will complete our 100th year of operations. As we cross this threshold into our second century, we are convinced that, as our business evolves, our core values — high-quality products and services tailored to the special needs of our customers, thorough research, disciplined investment management, strong cost control and balanced deployment of capital — will remain paramount and be the cornerstones of our continued success.
We look forward to the coming years with enthusiasm and confidence.
Timothy R. Schwertfeger
Chairman and Chief Executive Officer
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Anthony T. Dean
President and Chief Operating Officer
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For more complete information on Nuveen investments, including charges and expenses, please view a prospectus by clicking on the Prospectus button at the bottom of this screen. Please read it carefully before you invest or send money. The content of this site, including but not limited to the text and images herein and their arrangement, are Copyright ©1998 by John Nuveen & Co. Incorporated. All rights reserved.
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