NUVEEN INVESTMENT TRUST, 497, 1997-11-07

NUVEEN INVESTMENT TRUST
497, 1997-11-07

Previous: TIB FINANCIAL CORP, 10-Q, 1997-11-07

Next: STERILE RECOVERIES INC, 10-Q, 1997-11-07

<PAGE>

NUVEEN

Growth and Income Funds
Prospectus October 31, 1997

Three value-driven
strategies for building
capital while
moderating risk

Growth and Income Stock Fund

[PHOTO-COUPLE READING]

Balanced Stock and Bond Fund

[PHOTO-FAMILY OUTDOORS]

Balanced Municipal and Stock Fund

[PHOTO-COUPLE WALKING ON BEACH]
<PAGE>

We have used the icons
below throughout this
prospectus to make it
easy for you to find the
type of information
you need.

Investment Strategy

Risks

Fees, Charges
and Expenses

Shareholder
Instructions

Performance and
Current Portfolio
Information

Table of Contents

Section 1 The Funds

This section provides you with an overview of the funds including
investment objectives, portfolio holdings, and historical performance
information.

Summary of Fund Expenses 5
.........................................
Financial Highlights 8
.........................................
Growth and Income Stock Fund 10
.........................................
Balanced Stock and Bond Fund 12
.........................................
Balanced Municipal and Stock Fund 14
.........................................

Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and
risk management strategies.

Who Manages the Funds 16
.........................................
What Securities We Invest in 17
.........................................
How We Select Investments 18
.........................................
What the Risks Are 19
.........................................
How We Manage Risk 20
.........................................
Management Fees 22
.........................................

Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or
out of your account.

How to Choose a Share Class 23
.........................................
How to Reduce Your Sales Charge 25
.........................................
How to Buy Shares 25
.........................................
Systematic Investing 26
.........................................
Special Services 27
.........................................
How to Sell Shares 28
.........................................

Section 4 General Information
This section summarizes the funds' distribution policies and other
general fund information.

Distributions and Taxes 29
.........................................
Distributions and Service Plans 30
.........................................
Net Asset Value 30
.........................................
Organization of the Funds 31
.........................................
Fund Service Providers 31
.........................................

<PAGE>

Prospectus October 31, 1997

Building Capital While Moderating Risk

Individuals who plan to rely primarily on their investments for financial
security are often concerned about maintaining a comfortable standard of living.
For these investors, a growth and income mutual fund is often an appropriate
investment. These funds generally invest in stocks of established, well-known
companies that offer attractive long-term growth potential but also pay regular
dividend income. Some growth and income funds also invest a portion of their
assets in fixed-income securities. This strategy can provide additional current
income and may also reduce overall portfolio volatility and stabilize returns
during unfavorable markets. As a result, growth and income mutual funds can
offer investors the balance of long-term growth, current income and capital
preservation potential they are seeking to help them maintain their lifestyle
over time.

For those who seek suitable growth and income funds for their portfolios, Nuveen
offers the Nuveen Growth and Income Stock Fund, Nuveen Balanced Stock and Bond
Fund and Nuveen Balanced Municipal and Stock Fund, each with a different balance
of long-term growth, current income and capital preservation potential.

A Tradition of Disciplined Investing

Since our founding in 1898, John Nuveen & Co. Incorporated has specialized in
investments designed for people who plan to rely on their portfolios as a
principal source of their ongoing financial security. A cornerstone of our
investment philosophy has been a commitment to disciplined, long-term investment
strategies that seek to provide consistent performance over time with moderated
risk. We emphasize quality securities carefully chosen through in-depth
research, and we monitor those securities closely over time to help ensure that
they meet our exacting standards. More than 1.3 million investors today entrust
Nuveen to help them maintain over time the lifestyle they currently enjoy.

Learn More About the Nuveen Growth and Income Funds

This prospectus contains information you should know before you invest in any of
the Nuveen Growth and Income Funds. Please keep it for future reference. You can
find more detailed information about the Nuveen Investment Trust and each of its
funds in the current Statement of Additional Information (SAI) which has been
filed electronically with the Securities and Exchange Commission and is legally
a part of this prospectus. The Commission maintains a Web site
(http://www.sec.gov) where you can obtain all information about the fund filed
electronically with the Commission.

If you have questions about investing in any of these funds, or if you want a
free copy of the Statement of Additional Information, write to the Nuveen Mutual
Funds, 333 West Wacker Drive, Chicago, IL 60606, or call Nuveen toll-free at
(800) 621-7227.

Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.

- ------------------------------
|NOT | May lose value | | 3
|FDIC- | No bank guarantee |
|INSURED | |
- ------------------------------

<PAGE>

The Funds
Section 1

Your personal investment circumstances, along with the advice of your personal
financial adviser, will determine which of the Nuveen Growth and Income Funds
you should consider. This section provides you with an overview of the funds
that can help you evaluate which one might be appropriate for your needs.

4 | Section 1 The Funds
<PAGE>

Summary of Fund Expenses

The following tables will help you understand all the expenses and fees
you would bear directly or indirectly as a fund shareholder.

Shareholder Transaction Expenses/1/

1. As a percent of offering price. Authorized Dealers and other firms may
charge additional fees for shareholder transactions or for advisory
services. Please see their materials for details.

2. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."

3. Reduced sales charges apply to purchases of $50,000 or more. See "How You
Can Buy and Sell Shares."

4. As a percentage of lesser of purchase price or redemption proceeds.

5. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."

6. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth, and 1% during the sixth year.

7. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.

Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund

Share Class A B C R2
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases 5.25%/3/ None None None
..............................................................................................................
Maximum Sales Charge Imposed on
Reinvested Dividends None None None None
..............................................................................................................
Exchange Fees None None None None
..............................................................................................................
Deferred Sales Charge/4/ None/5/ 5%/6/ 1%/7/ None
..............................................................................................................
</TABLE>

Annual Fund Operating Expenses/1/

1. As a percent of average daily net assets. Amounts shown are for the fiscal
year ended 6/30/97 and may differ in subsequent years.

2. Class A, Class B and Class C shares are subject to an annual service fee of
.25% of the average daily net assets to compensate Authorized Dearlers for
continuing account services. In addition, Class B and Class C shares are
subject to annual distribution fees of .75% of the average daily net assets
to reimburse Nuveen for costs in connection with the sale of fund shares.
Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Growth and Income Stock Fund

Share Class A B C R
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Management Fees .83% .83% .83% .83%
..............................................................................................................
Rule 12b-1 Fees/2/ .25 1.00 1.00 --
..............................................................................................................
Other .20 .20 .20 .64
- --------------------------------------------------------------------------------------------------------------
Total (Gross) 1.28% 2.03% 2.03% 1.47%
..............................................................................................................
Waivers/Reimbursements/3/ (.08) (.08) (.08) (.52)
- --------------------------------------------------------------------------------------------------------------
Total (Net) 1.20% 1.95% 1.95% .95%
..............................................................................................................

</TABLE>
Section 1 The Funds | 5

<PAGE>

Summary of Fund Expenses
Annual Fund Operating Expenses/1/ (cont'd)

3. The fund manager is voluntarily waiving fees and reimbursing expenses in
order to prevent total expenses (excluding any distribution or service fees
and extraordinary expenses) from exceeding .95%, .85% and .85%, respectively,
of the average daily net asset value of each class of shares for the Growth
and Income Stock Fund, the Balanced Stock and Bond Fund and the Balanced
Municipal and Stock Fund, If the fund manager modifies this waiver, your
expenses could increase.

<S> <C> <C> <C> <C>
Balanced Stock and Bond Fund
Share Class A B C R
- --------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75% 0.75%
..............................................................................................................
Rule 12b-1 Fees/2/ 0.25 1.00 1.00 --
..............................................................................................................
Other 0.71 0.74 0.56 1.54
- --------------------------------------------------------------------------------------------------------------
Total (Gross) 1.71% 2.49% 2.31% 2.29%
..............................................................................................................
Waivers/Reimbursements/3/ (0.61) (0.64) (0.46) (1.44)
- --------------------------------------------------------------------------------------------------------------
Total (Net) 1.10% 1.85% 1.85% 0.85%
..............................................................................................................

Balanced Municipal and Stock Fund

Share Class A B C R
- --------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75% 0.75%
..............................................................................................................
Rule 12b-1 Fees/2/ 0.25 1.00 1.00 --
..............................................................................................................
Other 0.58 0.47 0.54 1.30
- --------------------------------------------------------------------------------------------------------------
Total (Gross) 1.58% 2.22% 2.29% 2.05%
..............................................................................................................
Waivers/Reimbursements/3/ (0.48) (0.37) (0.44) (1.20)
- --------------------------------------------------------------------------------------------------------------
Total (Net) 1.10% 1.85% 1.85% 0.85%
..............................................................................................................

</TABLE>

6 | Section 1 The Funds

<PAGE>

1. Assumes redemption at the end of each holding period. If redemption had
occurred instead prior to the end of each holding period, your expense might be
higher. If you did not redeem Class B shares at the end of each holding period,
your expenses for the 1-, 3-, 5-, and 10-year holding periods would have been,
respectively, $20, $61, $105 and $208 for the Growth and Income Stock Fund and
$19, $58, $100 and $197 for both the Balanced Stock and Bond Fund and Balanced
Municipal and Stock Fund. Class B shares convert to Class A shares after eight
years.

The following examples illustrate the ongoing expenses on a hypothetical
$1,000 investment based on the Annual Fund Operating Expenses shown previously,
an annual total return of 5% and reinvestment of all dividends. These examples
also assume that each fund's annual operating expenses remain constant
throughout a holding period. These examples do not represent actual past or
future fund expenses, which may be greater or less than those assumed. Moreover,
a fund's actual rate of return may be greater or less than the hypothetical 5%
return assumed.

Growth and Income Stock Fund

Holding Period 1 year 3 years 5 years 10 years
___________________________________________________________________________

Class A $64 $89 $115 $190
- ---------------------------------------------------------------------------
Class B/1/ $59 $93 $116 $208
- ---------------------------------------------------------------------------
Class C/1/ $20 $61 $105 $227
- ---------------------------------------------------------------------------
Class R $10 $30 $ 53 $117
- ---------------------------------------------------------------------------

Balanced Stock and Bond Fund

Holding Period 1 year 3 years 5 years 10 years
___________________________________________________________________________

Class A $63 $86 $110 $179
- ---------------------------------------------------------------------------
Class B/1/ $58 $90 $111 $197
- ---------------------------------------------------------------------------
Class C/1/ $19 $58 $100 $217
- ---------------------------------------------------------------------------
Class R $ 9 $27 $ 47 $105
- ---------------------------------------------------------------------------

Balanced Municipal and Stock Fund

Holding Period 1 year 3 years 5 years 10 years
___________________________________________________________________________

Section 1 The Funds | 7
<PAGE>

Financial Highlights

The following fund financial highlights are excerpted from each fund's latest
annual report which has been audited by Arthur Andersen LLP, the fund's
independent auditors. You may find more information about a fund's performance
in its annual report. For a free copy of a fund's latest annual and/or
semi-annual reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
Growth and Income Stock Fund Class A Class B Class C Class R
Inception Date 8/96 8/96 8/96 8/96
<S> <C> <C> <C> <C>
Fiscal year ending June 30, 1997/(a)*/ 1997/(a)*/ 1997/(a)*/ 1997/(a)*/

Investment Operations and Distributions
- ----------------------------------------------------------------------------------------------------------------------
Beginning net asset value $ 17.96 $ 17.97 $ 17.97 $ 17.96
......................................................................................................................
Net investment income (b) .30 .21 .21 .30
......................................................................................................................
Net realized and unrealized gain (loss) from investments 6.18 6.13 6.11 6.24
......................................................................................................................
Dividends from net investment income (.20) (.08) (.08) (.25)
......................................................................................................................
Distributions from capital gains (.23) (.23) (.23) (.23)
- ----------------------------------------------------------------------------------------------------------------------
Ending net asset value $ 24.01 $ 24.00 $ 23.98 $ 24.02
......................................................................................................................
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------
Total return (c) 36.30% 35.37% 35.26% 36.65%
......................................................................................................................
Ending net assets (thousands) $616,209 $ 10,664 $ 3,630 $ 15,647
......................................................................................................................
Ratio of expenses to average net assets (b) 1.20%** 1.95%** 1.95%** .95%**
......................................................................................................................
Ratio of net investment income to average net assets (b) 1.53%** 1.03%** 1.04%** 1.56%**
......................................................................................................................
Portfolio turnover rate 110% 110% 110% 110%
......................................................................................................................
Average commission rate paid (d) $ .0322 $ .0322 $ .0322 $ .0322
......................................................................................................................

Balanced Stock and Bond Fund Class A Class B Class C Class R
Inception Date 8/96 8/96 8/96 8/96

Fiscal year ending June 30, 1997/(a)/ 1997/(a)/ 1997/(a)/ 1997/(a)/

Investment Operations and Distributions
- ----------------------------------------------------------------------------------------------------------------------
Beginning net asset value $ 20.00 $ 20.00 $ 20.00 $ 20.00
......................................................................................................................
Net investment income (b) .70 .46 .53 .61
......................................................................................................................
Net realized and unrealized gain (loss) from investments 3.66 3.75 3.68 3.80
......................................................................................................................
Dividends from net investment income (.42) (.27) (.27) (.47)
......................................................................................................................
Distributions from capital gains (.10) (.10) (.10) (.10)
- ----------------------------------------------------------------------------------------------------------------------
Ending net asset value $ 23.84 $ 23.84 $ 23.84 $ 23.84
......................................................................................................................
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------
Total return (c) 22.04% 21.26% 21.26% 22.31%
......................................................................................................................
Ending net assets (thousands) $ 56,686 $ 646 $ 980 $ 6,052
......................................................................................................................
Ratio of expenses to average net assets (b) 1.10%** 1.85%** 1.85%** .85%**
......................................................................................................................
Ratio of net investment income to average net assets (b) 3.39%** 2.23%** 2.53%** 3.12%**
......................................................................................................................
Portfolio turnover rate 52% 52% 52% 52%
......................................................................................................................
Average commission rate paid (d) $ .0244 $ .0244 $ .0244 $ .0244
......................................................................................................................
See footnotes on page 9
</TABLE>
8 | Section 1 The Funds
<PAGE>

Balanced Municipal and Stock Fund Class A Class B Class C Class R
Inception Date 8/96 8/96 8/96 8/96

Fiscal year ending June 30, 1997(a) 1997(a) 1997(a) 1997(a)
Investment Operations and Distributions
Beginning net asset value $ 20.00 $ 20.00 $ 20.00 $ 20.00
- --------------------------------------------------------------------------------------------------------------
Net investment income (b) .56 .40 .40 .61
..............................................................................................................
Net realized and unrealized gain (loss) from investments 3.02 3.04 3.03 3.03
..............................................................................................................
Dividends from net investment income (.42) (.28) (.28) (.48)
..............................................................................................................
Distributions from capital gains (.05) (.05) (.05) (.05)
- --------------------------------------------------------------------------------------------------------------
Ending net asset value $ 23.11 $ 23.11 $ 23.10 $ 23.11
..............................................................................................................
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------
Total return (c) 18.05% 17.32% 17.27% 18.38%
..............................................................................................................
Ending net assets (thousands) $ 79,952 $ 2,051 $ 1,559 $ 6,963
..............................................................................................................
Ratio of expenses to average net assets (b) 1.10%** 1.85%** 1.85%** .85%**
..............................................................................................................
Ratio of net investment income to average net assets (b) 2.79%** 1.99%** 1.97%** 3.16%**
..............................................................................................................
Portfolio turnover rate 32% 32% 32% 32%
..............................................................................................................
Average commission rate paid (d) $ .0244 $ .0244 $ .0244 $ .0244
..............................................................................................................

* All per share amounts reflect a December 18, 1996, stock split of 1.113830,
1.112700, 1.112700 and 1.113806 shares, respectively, for each share of Class
A, B, C and R.

** Annualized

(a) From commencement of class operations as noted through June 30, 1997.

(b) After waiver of certain management fees or reimbursement of expenses by
Nuveen Institutional Advisory Corp.

(d) Average commission rate paid on equity portfolio transactions. Commissions
paid are included in the cost of the securities.

Section 1 The Funds 9
</TABLE>

9
<PAGE>

(LOGO)
Growth and Income Stock Fund (as of 6/30/97)

How the Fund Has Performed

<TABLE>
<CAPTION>
Highlights

Total Net Assets $ 646.2 million
.....................................................................
Share Class A B C R
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 8/96 8/96 8/96 8/96
.....................................................................
NAV $24.01 $24.00 $23.98 $24.02
.....................................................................
Latest Quarterly Dividend $.1153 $.0733 $.0733 $.1294
.....................................................................
</TABLE>

<TABLE>
<CAPTION>
Yields

Share Class A(NAV) A(Offer) B C R
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distribution Rate 1.92% 1.82% 1.22% 1.22% 2.15%
.......................................................................
SEC 30-Day Yield .91% .87% .18% .18% 1.16%
.......................................................................

Total Return/1/

Share Class A (NAV) A (Offer) B C R
- ------------------------------------------------------------------------
Since Inception 36.30% 29.14% 35.37% 35.26% 36.65%
........................................................................
</TABLE>

1. Class A Shares have a 5.25% maximum sales charge. Class B Shares have a
declining CDSC that begins at 5% for redemptions within six years of
purchase. Class C Shares have a 1% CDSC for redemptions within one year.
Neither CDSC is reflected in the total returns.

How the Portfolio Manager Has Performed

Nuveen has selected Institutional Capital Corporation to manage the fund's
portfolio. The portfolio manager is an institutional investment management firm
with over 27 years of experience and approximately $10 billion in assets under
management. For more information, see "Who Manages the Funds" on page 16.

Growth of a $10,000 Investment 1/77-6/97

[LINE GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
Portfolio Manager Composite $196,553 S & P 500 $182,367 Lipper Growth & Income Index $162,409 CPI $27,524
------------------------------------ ------------------ ------------------------------------- -----------
<S> <C> <C> <C> <C>
1977 10,000 10,000 10,000 10,000
1982 14,679 14,750 16,306 16,150
1987 32,786 36,504 39,198 18,996
1992 79,135 74,582 70,743 23,700
1997 196,553 182,367 162,409 27,524
</TABLE>

Portfolio Manager Composite Returns

<TABLE>
<CAPTION>
Average Annual Total Returns
.........................................
<S> <C> <C> <C> <C>
1-Year 5-Year 10-Year 20-Year
- ------------------------------------------------------
On Offer 28.96% 19.15% 15.83% 16.09%
......................................................
On NAV 36.11% 20.44% 16.46% 16.41%
......................................................
</TABLE>

The chart and table above present the performance of Institutional Capital's
Discretionary Equity Composite, which represents all its individually managed
accounts (totalling $3.7 billion) that have substantially the same investment
objectives and policies as the fund. These accounts are not subject to all of
the same investment restrictions, investment inflows and outflows, and
distribution requirements as the fund, which may affect fund performance. We
assumed that an investor paid a maximum Class A sales charge of 5.25% and
deducted from the Composite's gross-of-fee returns the Class A gross operating
expenses of 1.28% for the fund's most recent fiscal year. The chart would be
different for a Class B, C or R investment because of their different sales
charges and operating expenses. The Lipper growth and Income Index represents
the average annualized returns of the 30 largest funds in the Lipper Growth and
Income Fund Category. Index returns assume reinvestment of all dividends but
do not include any brokerage commissions, sales charges or other fees. This
chart does not represent past of future performance of the fund.

10 | Section 1 The Funds

<PAGE>

How the Fund Is Invested

Portfolio Allocation/1/

[PIE CHART APPEARS HERE]

Stocks 90%

Cash 10%
Equivalents

Industry Diversification/1/

Transportation 11%
...............................................
Defense 9%
...............................................
Telephone 9%
...............................................
Entertainment 8%
...............................................
Pharmaceuticals 8%
...............................................
Automotive 6%
...............................................
Banks 5%
...............................................
Chemicals 5%
...............................................
Computer Systems 5%
...............................................
Other 34%
...............................................

Top 10 Stock Holdings/1/

Philips Electronics NV ADR 4.8%
...............................................
NYNEX Corp. 3.5%
...............................................
Raytheon Corp. 3.4%
...............................................
Ford Motor Co. 3.4%
...............................................
International Business Machines Corp. 3.3%
...............................................
Rhone-Poulenc SA ADR 3.2%
...............................................
Allstate Corp. 3.1%
...............................................
Boeing Co. 3.0%
...............................................
General Motors Corp. 3.0%
...............................................
Burlington Northern Santa Fe 3.0%
...............................................
/1/ Holdings will vary.

Stock Portfolio Statistics

Beta .89
...............................................
Average Market Capitalization $25 billion
...............................................
Average Trailing 12 Mos. P/E 18.5
...............................................

Investment Objective

The Growth and Income Stock Fund seeks to provide over time a superior total
return from a diversified portfolio consisting primarily of equity securities of
domestic companies with market capitalization of at least $500 million. The fund
may not realize its objective.

How the Fund Pursues Its Objective

The portfolio manager invests primarily in a diversified portfolio of stocks of
established, well-known domestic companies with at least $500 million in market
capitalization. We concentrate on stocks we believe are selling for less than
their intrinsic worth, trying to identify those with a catalyst -- for example,
a management change or an improved industry outlook -- that will unlock the
stock's unrecognized value. We generally buy only those 40 to 50 stocks with 15%
to 25% price appreciation potential over the next 18 months.

Our target investment mix is 90% stocks and 10% cash equivalents. Under normal
market conditions, we may invest up to 35% of the fund's assets in cash
equivalents and short-term fixed-income securities in order to reduce volatility
and preserve capital. For a more detailed discussion of our investment strategy,
please see "How We Manage Your Money" beginning on page 16.

Is This Fund Right For You?

This fund may be an appropriate investment if you are:

. seeking long-term growth potential from a value-driven strategy;
. concerned about moderating the risks associated with stock investing;
. more comfortable with a focus on established, well-known companies;
. investing to meet long-term financial goals.

You should not invest in this fund if you are:

. unwilling to accept share price fluctuation, including the possibility
of sharp price declines;
. investing to meet short-term financial goals.

Section 1 The Funds | 11

11
<PAGE>
(Logo) Balanced Stock and Bond Fund (as of 6/30/97)

How the Fund Has Performed

Highlights

Total Net Assets $ 64.4 million
............................................................................
<S> <C> <C> <C> <C>
Share Class A B C R
- -----------------------------------------------------------------------------
Inception Date 8/96 8/96 8/96 8/96
- -----------------------------------------------------------------------------
NAV $23.84 $23.84 $23.84 $23.84
.............................................................................
Latest Quarterly Dividend $.1244 $.0814 $.0814 $.1388
.............................................................................
</TABLE>

Yields

Share Class A(NAV) A(Offer) B C R
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distribution Rate 2.09% 1.98% 1.37% 1.37% 2.33%
.............................................................................
SEC 30-Day Yield 3.10% 2.94% 2.31% 2.35% 3.36%
.............................................................................
</TABLE>

Total Return/1/

Share Class A (NAV) A(offer) B C R
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since Inception 22.04% 15.63% 21.26% 21.26% 22.31%
.............................................................................
</TABLE>
/1/ Class A Shares have a 5.25% maximum sales charge. Class B Shares have a
declining CDSC that begins at 5% for redemptions within six years of
purchase. Class C Shares have a 1% CDSC for redemptions within one year.
Neither CDSC is reflected in the total returns.

How the Portfolio Manager Has Performed

Growth of a $10,000 Investment 1/77-6/97

[LINE GRAPH APPEARS HERE]

Portfolio Lipper
Manager Balanced
Composite Index CPI

Portfolio Manager Composite Returns
Average Annual Total Returns
......................................
<S> <C> <C> <C> <C>
1-Year 5-Year 10-Year 20-Year
- -----------------------------------------------------------------------------
On Offer 16.95% 13.33% 12.77% 14.29%
.............................................................................
On NAV 23.43% 14.56% 13.38% 14.60%
.............................................................................
</TABLE>

The chart and table above present the performance of Institutional Capital's
Balanced Composite, which represents all its individually managed accounts
(totalling $811 million) that have substantially the same investment objectives
and policies as the fund. These accounts are not subject to all of the same
investment restrictions, investment inflows and outflows, and distribution
requirements as the fund, which may affect fund performance. We assumed that an
investor paid a maximum Class A sales charge of 5.25% and we deducted from the
Composite's gross-of-fee returns the Class A gross operating expenses of 1.71%
for the fund's most recent fiscal year. The chart would be different for a Class
B, C or R investment because of their different sales charges and operating
expenses. The Lipper Balanced Fund Index represents the average annualized
returns of the 30 largest funds in the Lipper Balanced Category. Index returns
assume reinvestment of all dividends but do not include any brokerage
commissions, sales charges or other fees. This chart does not represent past or
future performance of the fund.

12 | Section 1 The Funds
|
|

<PAGE>

How the Fund Is Invested

Portfolio Allocation

[PIE CHART APPEARS HERE]

Stocks 44%

Taxable
Bonds 48%

Cash 8%
Equivalents

Industry Diversification (Stocks)/1/

Defense 10%
- ---------------------------------------------------
Telephone 9%
- ---------------------------------------------------
Pharmaceuticals 8%
- ---------------------------------------------------
Automotive 7%
- ---------------------------------------------------
Electronics 7%
- ---------------------------------------------------
Transportation 7%
- ---------------------------------------------------
Banks 5%
- ---------------------------------------------------
Chemicals 5%
- ---------------------------------------------------
Computer Systems 5%
- ---------------------------------------------------
Services/Misc. 5%
- ---------------------------------------------------
Other 32%
- ---------------------------------------------------

Top 5 Stock Holdings/1/

Philips Electronics NV ADR 5.1%
- ---------------------------------------------------
NYNEX Corp. 3.7%
- ---------------------------------------------------
Raytheon Corp. 3.6%
- ---------------------------------------------------
Ford Motor Co. 3.6%
- ---------------------------------------------------
Allstate Corp. 3.3%
- ---------------------------------------------------

1. As a percentage of the funds stock holdings. Holdings will vary.

Credit Quality (Bonds)

U.S. Treasury Bonds 100%
- ---------------------------------------------------

Portfolio Statistics

Average Market Capitalization (Stocks) $25 billion
- ---------------------------------------------------
Average Trailing 12 Mos. P/E (Stocks) 18.5
- ---------------------------------------------------
Weighted Average Duration (Bonds) 44 years
- ---------------------------------------------------
Weighted Average Maturity (Bonds) 6.0 years
- ---------------------------------------------------

Investment Objective

The Balanced Stock and Bond Fund seeks to provide over time an attractive total
return from a diversified portfolio of equity securities, taxable fixed-income
securities and cash equivalents by emphasizing capital appreciation in favorable
markets and capital preservation in adverse markets. The fund may not realize
its objective.

How the Fund Pursues Its Objective

The portfolio manager purchases a diversified portfolio of stocks primarily of
established, well-known domestic companies with at least $500 million in market
capitalization. We concentrate on stocks we believe are selling for less than
their intrinsic worth, trying to identify those with a catalyst -- for example,
a management change or an improved industry outlook -- that will unlock the
stock's unrecognized value. We generally buy only those 40 to 50 stocks with 15%
to 25% price appreciation potential over the next 18 months.

We seek reduced risk, capital preservation potential and current income by
balancing our stock investments with bonds. The bonds we purchase are primarily
U.S. Treasury bonds with maturities from one to 15 years, but from time to time
we may also purchase investment-grade corporate bonds if market conditions
warrant.

Our target investment mix is 55% stocks, 40% taxable bonds and 5% cash
equivalents, which we may adjust over time within defined ranges. For a more
detailed discussion of our investment strategy, please see "How We Manage Your
Money" beginning on page 16.

Is This Fund Right for You?

This fund may be an appropriate investment if you are:

. seeking long-term growth potential from a value-driven strategy;
. looking for a substantial measure of downside protection;
. more comfortable with a focus on established, well-known companies;
. seeking the convenience of a balanced portfolio in a single investment;
. investing to meet long-term financial goals.

You should not invest in this fund if you are:

. unwilling to accept share price fluctuation;
. investing to meet short-term financial goals.

Section 1 The Funds | 13

<PAGE>

[LOGO] Balanced Municipal and Stock Fund (as of 6/30/97)

Highlights

Total Net Assets $90.5 million
..................................................................
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 8/96 8/96 8/96 8/96
- ------------------------------------------------------------------
NAV $23.11 $23.11 $23.10 $23.11
..................................................................
Latest Monthly
Tax-free Dividend $.0455 $.0320 $.0320 $.0500
..................................................................

Yields

Share Class A(NAV) A(Offer) B C R
- ------------------------------------------------------------------
Distribution Rate 2.36% 2.24% 1.66% 1.66% 2.60%
..................................................................
SEC 30-Day Yield 2.81% 2.66% 2.00% 1.99% 3.06%
..................................................................

Total Return/1/

Share Class A(NAV) A(Offer) B C R
- ------------------------------------------------------------------
Since Inception 18.05% 11.86% 17.32% 17.27% 18.38%
..................................................................
</TABLE>

Monthly Tax-Free Dividends (per Class A share)

[BAR CHART APPEARS HERE]

Fund Class Me Date Div Factor
<S> <C> <C> <C>
1997
NBMS A January 0.043
NBMS A February 0.043
NBMS A March 0.0455
NBMS A April 0.0455
NBMS A May 0.0455
NBMS A June 0.0455

</TABLE>

An Innovative approach to Balanced Investing

Nuveen manages the fund's municipal investments and has selected Institutional
Capital Corporation to manage the fund's equity investments. Institutional
Capital is an institutional investment management firm with over 27 years of
experience and approximately $10 billion in assets under management. For more
information, see "Who Manages the Funds" on page 16.

The fund pursues an innovative balanced investment approach that seeks to
provide attractive after-tax returns and growth potential over time. Unlike
traditional balanced funds which invest in a combination of stocks and taxable
bonds, the Balanced Municipal and Stock Fund invests in a strategic mix of
stocks and municipal bonds. For investors in higher tax brackets, this strategy
over time may be expected to provide higher after-tax returns with less risk
than a comparable combination of stocks and taxable bonds.

14 Section 1 The Funds
<PAGE>

How the Fund Is Invested

Portfolio Allocation

[PIE CHART APPEARS HERE]

Stocks 35%

Municipal Bonds 60%

Cash Equivalents 5%

Industry Diversification (Stocks)/1/

Defense 10%
- ---------------------------------------------------
Telephone 9%
- ---------------------------------------------------
Pharmaceuticals 8%
- ---------------------------------------------------
Electronics 7%
- ---------------------------------------------------
Transportation 7%
- ---------------------------------------------------
Automotive 6%
- ---------------------------------------------------
Services 6%
- ---------------------------------------------------
Banks 5%
- ---------------------------------------------------
Chemicals 5%
- ---------------------------------------------------
Computer Systems 5%
- ---------------------------------------------------
Other 32%
- ---------------------------------------------------

Top 5 Stock Holdings/1/

Philips Electronics NV ADR 4.71%
- ---------------------------------------------------
NYNEX Corp. 3.60%
- ---------------------------------------------------
Raytheon Corp. 3.50%
- ---------------------------------------------------
Ford Motor Co. 3.50%
- ---------------------------------------------------
International Business Machines Corp. 3.40%
- ---------------------------------------------------

1. As a percentage of the fund's stock holdings. Holdings will vary.

Credit Quality (Bonds)/2/

AAA 62%
- ---------------------------------------------------
AA 10%
- ---------------------------------------------------
A 5%
- ---------------------------------------------------
BBB 23%
- ---------------------------------------------------

2. As a percentage of the fund's bond holdings. Holdings will vary.

Portfolio Statistics

Average Market Capitalization (Stocks) $25 billion
- ---------------------------------------------------
Average Trailing 12 mos. P/E (Stocks) 18.5
- ---------------------------------------------------
Weighted Average Duration (Bonds) 6.9 years
- ---------------------------------------------------
Weighted Average Maturity (Bonds) 12.6 years
- ---------------------------------------------------

Investment Objective

The Balanced Municipal and Stock Fund seeks to provide over time an attractive
after-tax total return through a combination of federally tax-exempt income and
capital appreciation with capital preservation in adverse markets. The fund may
not realize its objective.

How the Fund Pursues Its Objective

We invest the majority of fund assets in investment-grade quality municipal
bonds. We concentrate on municipal bonds with favorable characteristics we
believe are not yet recognized by the market, trying to identify those higher-
yielding and undervalued bonds with intermediate characteristics that we believe
offer the best balance of current tax-free income and capital preservation
potential.

We invest the balance of fund assets primarily in established, well-known
domestic companies with at least $500 million in market capitalization. We
concentrate on stocks we believe are selling for less than their intrinsic
worth, trying to identify those with a catalyst--for example, a management
change or an improved industry outlook--that will unlock the stock's
unrecognized value. We generally buy only those 40 to 50 stocks with 15% to 25%
price appreciation potential over the next 18 months.

Our target investment mix is 60% municipal bonds, 35% stocks, and 5% cash
equivalents, which we may adjust over time within defined ranges. For a more
detailed discussion of our investment strategy, please see "How We Manage Your
Money" beginning on page 16.

Is This Fund Right for You?

This fund may be an appropriate investment if you are:

. an investor in a higher tax bracket seeking attractive after-tax returns
from a value-driven strategy;
. looking for a substantial measure of downside protection;
. seeking to reduce the taxes on your investment returns;
. seeking the convenience of a balanced portfolio in
a single investment;
. investing to meet long-term financial goals.

You should not invest in this fund if you are:

. investing in a tax-deferred account;
. unwilling to accept share price fluctuation;
. investing to meet short-term financial goals.

Section 1 The Funds | 15

<PAGE>
Section 2 How We Manage Your Money

To help you understand the funds better, this section includes a detailed
discussion of our investment and risk management strategies. For a more complete
discussion of these matters, please consult the Statement of Additional
Information.

Who Manages the Funds

Nuveen Institutional Advisory Corp. (NIAC), 333 West Wacker Drive, Chicago, IL
60606, has overall responsibility for management of the funds. NIAC oversees the
management of the funds' portfolios, manages the funds' business affairs and
provides day-to-day administrative services. The funds' Board of Trustees has
general supervisory responsibility for the funds and supervises NIAC's duties.

NIAC is a wholly owned subsidiary of John Nuveen & Co. Incorporated (Nuveen),
which is the sponsor and principal underwriter of the funds' shares and has
sponsored or underwritten more than $60 billion of investment company
securities. Nuveen is a subsidiary of The John Nuveen Company, which is
approximately 78% owned by The St. Paul Companies, Inc. St. Paul is located in
St. Paul, MN, and is principally engaged in providing property-liability
insurance through subsidiaries.

NIAC has selected Institutional Capital Corporation, 225 West Wacker Drive,
Chicago, IL 60606, as subadviser to manage the investment portfolios of the
Growth and Income Stock Fund and the Balanced Stock and Bond Fund, and the
equity investments of the Balanced Municipal and Stock Fund. Institutional
Capital's investment management strategy and operating policies are set through
a team approach, with all its investment professionals contributing.
Institutional Capital currently maintains a staff of 12 investment
professionals. Mr. Robert H. Lyon, president, owns shares representing 51% of
its voting rights. In addition, The John Nuveen Company owns preferred shares of
Institutional Capital, which are convertible after several years into a 20%
common stock interest.

NIAC manages the municipal investments of the Balanced Municipal and Stock Fund.
Overall investment management strategy and operating policies for the fund's
municipal investments are set by Nuveen's Investment Policy Committee. This
committee is comprised of executive officers and portfolio managers and meets
regularly to review economic conditions, the outlook for financial markets in
general and the status of the municipal markets in particular. Daniel F.
Solender has responsibility for the day-to-day management of the fund's
municipal investments. Mr. Solender has been an assistant vice president of NIAC
since September 1997 and manager of the fund's municipal investments since the
fund's inception. Mr. Solender is also an assistant vice president and
previously was an assistant portfolio manager of Nuveen Advisory Corp., another
investment subsidiary of Nuveen. Mr. Solender currently manages investments for
ten Nuveen-sponsored investment companies.

16 | Section 2 How We Manage Your Money
<PAGE>

What Securities We Invest In

Each fund's investment objective may not be changed without shareholder
approval. The following investment policies may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this prospectus
or the Statement of Additional Information.

Equity Securities

Eligible equity securities include common stocks; preferred stocks; warrants to
purchase common stocks or preferred stocks; securities convertible into common
or preferred stocks, such as convertible bonds and debentures; dollar-
denominated securities of foreign companies (limited to 20% of net assets) and
other securities with equity characteristics. Any convertible bonds and
debentures must be rated investment grade (one of the four highest ratings by
Moody's Investors Service, Standard & Poor's, Duff & Phelps or Fitch Investors
Service) when purchased. Foreign securities involve additional risks not present
with domestic investments, including currency risks.

Taxable Fixed-Income Securities

Eligible taxable fixed-income securities are U.S. Treasury and other investment-
grade fixed-income securities with maturities of one to 15 years. We focus on
U.S. Treasury securities but may purchase other fixed-income securities from
time to time if market conditions warrant. Investment-grade securities are those
rated in the four highest categories by Moody's Investors Service, Standard &
Poor's, Duff & Phelps, or Fitch Investors Service when purchased.

Municipal Obligations
States, local governments and municipalities issue municipal bonds to raise
money for various public purposes such as building public facilities,
refinancing outstanding obligations and financing general operating expenses. A
municipality may issue general obligation bonds which are secured by its taxing
power, or it may issue revenue bonds which are payable from the revenues of a
particular project or a special excise tax.

The Balanced Municipal and Stock Fund will invest all of its municipal assets in
investment-grade quality municipal bonds. Investment-grade quality municipal
bonds are rated in one of the four highest ratings assigned by Moody's Investors
Service or Standard & Poor's when we purchase them, or are unrated but judged by
NIAC to have comparable credit and quality characteristics to those rated
municipal bonds. We will not invest more than 20% of the fund's municipal
investments in this type of unrated municipal obligation. These policies can
only be changed by shareholder vote.

The Balanced Municipal and Stock Fund will invest at least 80% of its municipal
assets in investment-grade quality municipal bonds with effective remaining
maturities of no more than 15 years. This policy will not limit the stated or
nominal maturities of the municipal bonds in which the fund invests. The
effective remaining maturity of a municipal bond may be shorter than its stated
maturity for a variety of reasons, including the bond's call features, its
stated or expected payment schedule or other

Section 2 How We Manage Your Money | 17
<PAGE>

terms or conditions that may cause the bond to have the risk of price
fluctuations of an otherwise comparable but shorter-term bond.

Short-Term Investments

The funds may invest in short-term investments including U.S. government
securities, quality commercial paper or similar fixed-income securities with
remaining maturities of one year or less. The Balanced Municipal and Stock Fund
intends to invest in taxable short-term investments only in the event that
suitable tax-exempt short-term investments are not available at reasonable
prices and yields. For more information on short-term investments, see the
Statement of Additional Information.

Delayed Delivery Transactions

We may buy or sell securities on a when-issued or delayed-delivery basis, paying
for or taking delivery of the securities at a later date, normally within 15 to
45 days of the trade. Such transactions involve an element of risk because the
value of the security to be purchased may decline before the settlement date.

How We Select Investments

We adhere to disciplined, value-driven investment strategies whose aim is to
provide consistent, attractive performance over time with moderated risk. We
emphasize quality securities carefully chosen through in-depth research and
follow those securities closely over time to assess whether they continue to
meet our purchase rationale.

Equity Securities

Institutional Capital selects stocks from a universe of approximately 450 large
and midsize companies. Proprietary quantitative valuation models determine which
of these stocks currently appear to be selling for less than their intrinsic
worth. Based on a qualitative assessment of each company's prospects, we then
look for a catalyst that we believe will unlock the stock's unrecognized value.
A catalyst may be as simple as a management change or as complex as a
fundamentally improved industry outlook. Generally, we choose only the 40 to 50
most attractive stocks with a 15% to 25% price appreciation potential over the
next 18 months for the equity portion of each fund's investment portfolio.

Taxable Fixed-Income Securities

Institutional Capital selects taxable fixed-income securities for the Balanced
Stock and Bond Fund based on its general outlook for the fixed-income markets as
well as a detailed analysis of expected yield curve changes. We use proprietary
quantitative models and qualitative assessment of top-down economic and market
factors to develop an outlook on interest rates. We then analyze the current
shape of the yield curve as well as expected changes under different scenarios.
We select the specific mix of maturities that offer the best balance of current
income and capital preservation potential in light of current and expected
market conditions.

Municipal Obligations for the Balanced Municipal and Stock Fund

NIAC selects municipal obligations for the Balanced Municipal and Stock Fund
based upon its assessment of a bond's relative value in terms of current yield,
price, credit quality and future prospects. NIAC is

18 | Section 2 How We Manage Your Money
<PAGE>

supported by Nuveen's award-winning team of specialized research analysts who
review municipal securities available for purchase, monitor the continued
creditworthiness of Nuveen's municipal investments, and analyze economic,
political and demographic trends affecting the municipal markets. We utilize
these resources to identify municipal obligations with favorable characteristics
we believe are not yet recognized by the market. We then select those higher-
yielding and undervalued municipal obligations that we believe represent the
most attractive values.

Portfolio Turnover

The three funds anticipate that their annual equity portfolio turnover rate will
be between 100% and 125% under normal market conditions, and will generally not
exceed 150%. The Balanced Municipal and Stock Fund expects annual municipal
portfolio turnover to be significantly less than 75%. The Balanced Stock and
Bond Fund anticipates that its annual bond portfolio turnover rate will
generally not exceed 75%. A turnover rate of 100% would occur, for example, if
the fund sold and replaced securities valued at 100% of its net assets within
one year.

What the Risks Are

Risk is inherent in all investing. Investing in a mutual fund -- even the most
conservative -- involves risk, including the risk that you may receive little or
no return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in these funds. Because of these
and other risks, you should consider an investment in any of these funds to be a
long-term investment that will provide the best results when held over a number
of years.

Market risk: the risk that the market value of a stock may change rapidly and
unpredictably, causing a security to be worth less than its original price. The
equity markets tend to have periods of generally rising prices and periods of
generally falling prices.

Interest rate risk: the risk that bonds will decline in value because of changes
in interest rates. Generally, bonds will increase in value when interest rates
decline and decrease when interest rates rise.

Credit risk: the risk that an issuer of a bond is unable to meet its obligation
to make interest and principal payments.

Inflation risk: the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the fund's assets can decline as can the value
of the fund's distributions.

Correlation risk: Although the prices of equity and fixed-income securities
often rise and fall at different times so that a fall in the price of one is
offset by a rise in the price of the other, in a down market the prices of these
securities can also fall in tandem.

Section 2 How We Manage Your Money | 19
<PAGE>

How We Manage Risk

We use time-tested risk management strategies designed to help protect your
capital during periods of market uncertainty or weakness: broad portfolio
diversification, a rigorous sell discipline and defined portfolio allocation
ranges. The Balanced Stock and Bond Fund and the Balanced Municipal and Stock
Fund also invest in quality bonds whose steady income and relative price
stability can help reduce volatility and stabilize returns in down markets.
While we use these strategies to control or reduce risk, there is no assurance
that we will succeed.

Portfolio Allocation Ranges

Each fund follows a disciplined asset allocation methodology that keeps your
portfolio mix within a defined range over time as market conditions change. The
funds have established the following operating ranges for each asset class:

Growth and Income Balanced Stock Balanced Municipal
Stock Fund and Bond Fund and Stock Fund
<S> <C> <C> <C>
Stocks 65-100% 40-70% 30-50%
.............................................................................
Bonds -- 25-55% 50-70%
.............................................................................
Cash Equivalents 0-35% 0-20% 0-10%
.............................................................................
</TABLE>

A fund's Board of Trustees may change the target investment mix and operating
ranges for each asset class without shareholder approval. The Balanced Municipal
and Stock Fund will not set the minimum allowable allocation for municipal bonds
below 50%.

Investment Limitations

The funds have adopted certain investment limitations (based on total assets)
that cannot be changed without shareholder approval and are designed to limit
your investment risk and maintain portfolio diversification. Each fund may not
have more than:

. 5% in securities in any one issuer, or 10% of the voting securities of that
issuer (except for U.S. government securities or for 25% of the fund's
total assets);

. 33 1/3% in borrowing;

. 33 1/3% in loans of its portfolio securities;

. 25% in any one industry (except U.S. government securities and, in the case
of the Balanced Municipal and Stock Fund, municipal securities backed by
governmental users).

In addition, the funds have adopted certain other investment limitations that
may be changed by the fund's Board of Trustees without shareholder approval.
Each fund may not have more than:

. 5% of its net assets in warrants, unseasoned companies and in short sales
against the box;

. 30% of its net assets in futures contracts;

. 5% of its net assets in initial margin deposits and premiums on futures
contracts;

. 15% of its net assets in illiquid securities.

Please see the Statement of Additional Information for a more detailed
discussion of investment limitations.

20 | Section 2 How We Manage Your Money
<PAGE>

Hedging and Other Defensive Investment Strategies

We may invest up to 100% of a fund's assets in cash equivalents and short-term
investments as a temporary defensive measure in response to adverse market
conditions, or to keep cash on hand fully invested. During these periods, the
proportion of a fund's assets invested in an asset category may fall outside its
allowable range.

We may also use various investment strategies designed to limit the risk of
price fluctuations and to preserve capital. These hedging strategies include
using financial futures contracts, options on financial futures, or stock index
options. The ability of a fund to benefit from options and futures is largely
dependent on our ability to use such strategies successfully. The fund could
lose money on futures transactions or an option can expire worthless.

Portfolio Manager Performance in Down Markets

Over the past 20 years, there have been four periods in which the S&P 500
declined by more than 10%. In each of these periods, Institutional Capital's
Discretionary Equity Composite and Balanced Composite provided superior capital
protection when compared with the overall market and, respectively, the Lipper
Growth and Income Fund and Balanced Fund peer groups. These Composites reflect
the portfolio manager's employment of the strategies described previously in
managing the Growth and Income Stock Fund and the Balanced Stock and Bond Fund.
Of course, past performance does not guarantee future results, and the following
charts reflect the composite performance of individually-managed accounts and
not actual fund results. Please see the discussion under "How the Portfolio
Manager Has Performed" on pages 10 and 12, respectively, for a detailed
discussion of portfolio manager composite returns and the index returns to which
they are compared.

Portfolio Manager Down-Market Performance

[BAR GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
Growth and Income Fund Investment Strategy
1/77-3/78 4/81-6/82 10/87-12/77 7/90-9/90
<S> <C> <C> <C> <C>
Portfolio Manager Discretionary
Equity Composite -1.67% +0.91% -10.10% -7.82%
Lipper G&I Fund Index -6.78% -9.35% -19.85% -13.45%
S&P 500 -11.76% -13.47% -22.63% -13.78%
</TABLE>

[BAR GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
Balanced Stock and Bond Fund Investment Strategy
1/77-3/78 4/81-6/82 10/87-12/77 7/90-9/90
<S> <C> <C> <C> <C>
Portfolio Manager
Balanced Composite -2.83% +3.26% -9.42% -6.90%
Lipper Balanced Fund Index -2.99% -0.67% -13.26% -8.09%
S&P 500 -11.76% -13.47% -22.63% -13.78%
</TABLE>

Section 2 How We Manage Your Money | 21

<PAGE>

Management Fees

Fund Management Fee

For the fund management services and facilities furnished by NIAC, the funds
have agreed to pay an annual fund management fee according to the following
schedule:

<TABLE>
<CAPTION>
Average Daily Growth and Income Balanced Stock Balanced Municipal
Net Asset Value Stock Fund and Bond Fund and Stock Fund
<S> <C> <C> <C>
For the first $125 million .8500 of 1% .7500 of 1% .7500 of 1%
..........................................................................................
For the next $125 million .8375 of 1% .7375 of 1% .7375 of 1%
..........................................................................................
For the next $250 million .8250 of 1% .7250 of 1% .7250 of 1%
..........................................................................................
For the next $500 million .8125 of 1% .7125 of 1% .7125 of 1%
..........................................................................................
For the next $1 billion .8000 of 1% .7000 of 1% .7000 of 1%
..........................................................................................
For assets over $2 billion .7750 of 1% .6750 of 1% .6750 of 1%
..........................................................................................
</TABLE>

Portfolio Management Fee

Out of the fund management fee, NIAC pays Institutional Capital a portfolio
management fee based on the average daily market value of all the Nuveen-
sponsored investment products for which it serves as the portfolio manager. NIAC
pays Institutional Capital separate portfolio management fees for the equity and
fixed-income portions of the funds' assets, if applicable, according to the
following schedule:

<TABLE>
<CAPTION>
Assets of All the Nuveen-Sponsored
Investment Products Managed by Equity Portfolio Fixed-Income Portfolio
Institutional Capital Management Fee Management Fee
<S> <C> <C>
For the first $500 million .35% of 1% .20% of 1%
..................................................................................
For the next $500 million .30% of 1% .15% of 1%
..................................................................................
For assets over $1 billion .25% of 1% .12% of 1%
..................................................................................
</TABLE>

The equity and fixed-income portfolio management fees are each paid on a
specified proportion of fund net assets. The specified proportions for the
equity portfolio management fees are currently 100%, 55% and 35%, respectively,
for the Growth and Income Stock Fund, Balanced Stock and Bond Fund and Balanced
Municipal and Stock Fund. The specified proportion for the fixed-income
portfolio management fee is currently 45% for the Balanced Stock and Bond Fund.

Each fund pays for its own operating expenses such as custodial, transfer agent,
accounting and legal fees; interest charges; brokerage commissions; daily
securities pricing; distribution and service fees; organizational expenses;
extraordinary expenses and any other expenses that are not covered under any
sub-advisory agreements. Each fund also pays a portion of the Nuveen Investment
Trust's general administrative expenses allocated in proportion to the net
assets of each fund. All fees and expenses are accrued daily and deducted before
payment of dividends to investors.

22 | Section 2 How We Manage Your Money

<PAGE>

Section 3 How You Can Buy and Sell Shares

You can choose from four classes of fund shares, each with a different
combination of sales charges, fees, eligibility requirements and other features.
Your financial adviser can help you determine which class is best for you. We
offer a number of features for your convenience. Please see the Statement of
Additional Information for further details.

How to Choose a Share Class

In deciding whether to purchase Class A, Class B, Class C or Class R shares, you
should consider:

. the amount of your purchase;

. any current holdings of fund shares;

. how long you expect to hold the shares;

. the amount of any up-front sales charge;

. whether a contingent deferred sales charge (CDSC) would apply upon redemption;

. the amount of any distribution or service fees that you may incur while you
own the shares;

. whether you will be reinvesting income or capital gain distributions in
additional shares;

. whether you qualify for a sales charge waiver or reduction.

For a summary of the charges and expenses for each class, please see the Summary
of Fund Expenses on page 5.

Class A Shares

You can buy Class A shares at net asset value per share plus an up-front sales
charge. You may qualify for a reduced sales charge, or the sales charge may be
waived, as described in "How to Reduce Your Sales Charge." Class A shares are
also subject to an annual service fee of .25% which compensates your financial
adviser for providing ongoing service to you. The up-front Class A sales charge
is as follows:

Section 3 How You Can Buy and Sell Shares | 23
<PAGE>

<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 5.25% 5.54% 5.00%
.........................................................................................................
$50,000 but less than $100,000 4.25% 4.44% 4.00%
.........................................................................................................
$100,000 but less than $250,000 3.50% 3.63% 3.25%
.........................................................................................................
$250,000 but less than $500,000 2.75% 2.83% 2.50%
.........................................................................................................
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
.........................................................................................................
$1,000,000 and over -- -- 1.00%*
.........................................................................................................
</TABLE>

*You can buy $1 million or more of Class A shares at net asset value without an
up-front sales charge. Nuveen pays Authorized Dealers of record on these share
purchases a sales commission of 1.00% of the first $2.5 million, plus .50% of
the next $2.5 million, plus .25% of the amount over $5.0 million. If you redeem
your shares within 18 months of purchase, you may have to pay a CDSC of 1% of
either your purchase price or your redemption proceeds, whichever is lower. You
do not have to pay this CDSC if your financial adviser has made arrangements
with Nuveen and agrees to waive the commission.

Class B Shares

You can buy Class B shares at net asset value per share without any up-front
sales charge so that the full amount of your purchase is invested in the fund.
However, you will pay annual distribution and service fees of 1% of average
daily assets. The annual .25% service fee compensates your financial adviser for
providing ongoing service to you. The annual .75% distribution fee compensates
Nuveen for paying your financial adviser a 3.75% up-front sales commission.
Nuveen also advances the first year's service fee. If you sell your shares
within six years of purchase, you will have to pay a CDSC based on either your
purchase price or what you sell your shares for, whichever amount is lower,
according to the following schedule. You do not pay a CDSC on any Class B shares
you purchase by reinvesting dividends.

Class B shares automatically convert to Class A shares eight years after you buy
them so that the distribution fees you pay over the life of your investment are
limited. You will continue to pay an annual service fee on any converted Class B
shares.

Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6

CDSC 5% 4% 4% 3% 2% 1%
...............................................................

Class C Shares

You can buy Class C shares at net asset value per share without any up-front
sales charge so that the full amount of your purchase is invested in the fund.
However, you will pay annual distribution and service fees of 1%. The annual
.25% service fee compensates your financial adviser for providing ongoing
service to you. The annual .75% distribution fee reimburses Nuveen for paying
your financial adviser an ongoing sales commission. Nuveen advances the first
year's service and distribution fees. If you sell your shares within 12 months
of purchase, you may have to pay a 1% CDSC based on either your purchase price
or what you sell your shares for, whichever amount is lower.

24 | Section 3 How You Can Buy and Sell Shares
<PAGE>

Class R Shares

Under limited circumstances, you may purchase Class R Shares at their net asset
value on the day of purchase. In order to qualify, you must be eligible under
one of the programs described in "How to Reduce Your Sales Charge" (below) or
meet certain other purchase size criteria. Class R Shares are not subject to
sales charges or ongoing service or distribution fees. Class R shares have lower
ongoing expenses than Class A shares.

How to Reduce Your Sales Charge

We offer a number of ways to reduce or eliminate the up-front sales charge on
Class A shares or to qualify to purchase Class R shares.

Class A Sales Charge
Reductions

. Rights of accumulation

. Letter of intent

. Group purchase

Class A Sales Charge
Waivers

. Nuveen Unit Trust
reinvestment

. Purchases using
redemptions from
unrelated funds

. Retirement plans

. Certain employees
of Nuveen or
authorized dealers

. Bank trust departments

Class R. Eligibility

. Certain employees
of Nuveen or
authorized dealers

. Bank trust departments

In addition, Class A shares at net asset value and Class R shares may be
purchased through registered investment advisers, certified financial planners
and registered broker-dealers who charge asset-based or comprehensive "wrap"
fees for their services. Please refer to the Statement of Additional Information
for detailed program descriptions and eligibility requirements. Additional
information is available from your financial adviser or by calling (800) 621-
7227. Your financial adviser can also help you prepare any necessary application
forms. You or your financial adviser must notify Nuveen at the time of each
purchase if you are eligible for any of these programs. The funds may modify or
discontinue these programs at any time.

How to Buy Shares

You may open an account with $3,000 per fund share class ($1,000 for an IRA
account) and make additional investments at any time with as little as $50.
There is no minimum if you are reinvesting Nuveen unit trust distributions. The
share price you pay will depend on when Nuveen receives your order. Orders
received before the close of trading on a business day will receive that day's
closing share price, otherwise you will receive the next business day's price. A
business day is any day the New York Stock Exchange is open for business and
usually ends at 4 p.m. New York time when the Exchange closes.

Section 3 How You Can Buy and Sell Shares | 25
<PAGE>

Through a Financial Adviser

You may buy shares through your financial adviser, who can handle all the
details for you, including opening a new account. Financial advisers can also
help you review your financial needs and formulate long-term investment goals
and objectives. In addition, financial advisers generally can help you develop a
customized financial plan, select investments and monitor and review your
portfolio on an ongoing basis to help assure your investments continue to meet
your needs as circumstances change. Financial advisers are paid either from fund
sales charges and fees or by charging you a separate fee in lieu of a sales
charge for ongoing investment advice and services. If you do not have a
financial adviser, call (800) 621-7227 and Nuveen can refer you to one in your
area.

By Mail

You may open an account and buy shares by mail by completing the enclosed
application and mailing it along with your check to: Nuveen Mutual Funds, c/o
Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330.

Systematic Investing

Once you have established a fund account, systematic investing allows you to
make regular investments through automatic deductions from your bank account
(simply complete the appropriate section of the account application form) or
directly from your paycheck. To invest directly from your paycheck, contact your
financial adviser or call Nuveen at (800) 621-7227. Systematic investing may
also make you eligible for reduced sales charges.

One of the benefits of systematic investing is dollar cost averaging. Because
you regularly invest a fixed amount of money over a period of years regardless
of the share price, you buy more shares when the price is low and fewer shares
when the price is high. As a result, the average share price you pay should be
less than the average share price of fund shares over the same period. To be
effective, dollar cost averaging requires that you invest over a long period of
time, and does not assure that you will profit.

Systematic Investment Plan

You can make regular investments of $50 or more per month by authorizing us to
draw preauthorized checks on your bank account. You can stop the withdrawals at
any time. There is no charge for this plan.

Payroll Direct Deposit Plan

You can, with your employer's consent, make regular investments of $25 or more
per pay period (meeting the monthly minimum of $50) by authorizing your employer
to deduct this amount automatically from your paycheck. You can stop the
deductions at any time. There is no charge for this plan.

26 | Section 3 How You Can Buy and Sell Shares
<PAGE>

Special Services

To help make your investing with us easy and efficient, we offer you the
following services at no extra cost.

Exchanging Shares

You may exchange fund shares for the same class of another Nuveen mutual fund
available in your state. Your exchange must meet the minimum purchase
requirements of the fund into which you are exchanging. You may not exchange
Class B shares for shares of a Nuveen money market fund. Because an exchange is
treated for tax purposes as a concurrent sale and purchase, you should consult
your tax adviser about the tax consequences of any contemplated exchange.

The exchange privilege is not intended to allow you to use a fund for short-term
trading. Because excessive exchanges may interfere with portfolio management,
raise fund operating expenses or otherwise have an adverse effect on other
shareholders, each fund reserves the right to revise or suspend the exchange
privilege, limit the amount or number of exchanges, or reject any exchange.

Reinstatement Privilege

If you redeem fund shares, you may reinvest all or part of your redemption
proceeds up to one year later without incurring any additional charges. You may
only reinvest into the same share class you redeemed. If you paid a CDSC, we
will refund your CDSC and reinstate your holding period. You may use this
reinstatement privilege only once for any redemption.

Fund Direct

You may link your fund account to your bank account and transfer money
electronically between these accounts and perform a variety of account
transactions, including buying shares by telephone and investing through a
Systematic Investment Plan. You may also have dividends, distributions,
redemption payments or Systematic Withdrawal Plan payments sent directly to your
bank account.

Your financial adviser can help you complete the forms for these services, or
you can call Nuveen at (800) 621-7227 for copies of the necessary forms.

Section 3 How You Can Buy and Sell Shares | 27
<PAGE>

An Important Note About Involuntary Redemption

From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days' written
notice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
Nuveen unit trust reinvestment account. You will not be assessed a CDSC on an
involuntary redemption.

How to Sell Shares

You may use one of the following ways to sell (redeem) your shares on any day
the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your properly completed redemption request.
Your redemption request must be received before the close of trading for you to
receive that day's price. While the funds do not charge a redemption fee, you
may be assessed a CDSC, if applicable.

Through Your Financial Adviser

You may sell your shares through your financial adviser who can prepare the
necessary documentation. Your financial adviser may charge for this.

By Telephone

If you have authorized telephone redemption privileges, you can redeem your
shares by telephone up to $50,000. You may not redeem by telephone shares held
in certificate form. Checks will be issued only to the shareholder of record and
mailed to the address of record. If you have established electronic funds
transfer privileges, you may have redemption proceeds transferred electronically
to your bank account. We will normally mail your check the next business day.
Nuveen and Shareholder Services, Inc. will be liable for losses resulting from
unauthorized telephone redemptions only if they do not follow reasonable
procedures designed to verify the identity of the caller. You should immediately
verify your trade confirmations when you receive them.

By Mail

You can sell your shares at any time by sending a written request to the
appropriate fund, c/o Shareholder Services, Inc., P.O. Box 5330, Denver, CO
80217-5330. Your request must include the following information:

. The fund's name;

. Your name and account number;

. The dollar or share amount you wish to redeem;

. The signature of each owner exactly as it appears on the
account;

. The name of the person to whom you want your redemption
proceeds paid (if other than to the shareholder of record);

. The address where you want your redemption proceeds sent (if
other than the address of record);

. Any certificates you have for the shares; and

. Any required signature guarantees.

We will normally mail your check the next business day, but in no event more
than seven days after we receive your request. Guaranteed signatures are
required if you are redeeming more than $50,000, you want the check payable to
someone other than the shareholder of record or you want the check sent to
another address (or the address of record has been changed within the last 60
days). Signature guarantees must be obtained from a bank, brokerage firm or
other financial intermediary that is a member of an approved Medallion Guarantee
Program or that is otherwise approved by a fund. A notary public cannot provide
a signature guarantee.

28 | Section 3 How You Can Buy and Sell Shares
<PAGE>

Section 4 General Information

To help you understand the tax implications of investing in the funds, this
section includes important details about how the funds make distributions to
shareholders. We discuss some other fund policies, as well.

Distributions and Taxes

Each fund intends to operate as a "Regulated Investment Company" under
Subchapter M of the Internal Revenue Service Code, and therefore will not be
liable for federal income taxes to the extent its earnings are distributed on a
timely basis. Dividends from a fund's long-term capital gains are taxable as
capital gains, while dividends from short-term capital gains and net investment
income are generally taxable as ordinary income. Because the Balanced Municipal
and Stock Fund invests in municipal bonds, certain dividends you receive will be
exempt from regular federal income tax. All or a portion of these dividends,
however, may be subject to state and local taxes or to the federal alternative
minimum tax (AMT). The tax status of your dividends from any of these funds is
not affected by whether you reinvest your dividends or receive them in cash. If
you receive social security benefits, you should be aware that any tax-free
income is taken into account in calculating the amount of these benefits that
may be subject to federal income tax. Tax laws are subject to change, so we urge
you to consult your tax adviser about your particular tax situation and how it
might be affected by current tax law.

Payment and Reinvestment Options

The funds automatically reinvest your dividends in additional fund shares unless
you request otherwise. You may request to have your dividends paid to you by
check, deposited directly into your bank account, paid to a third party, sent to
an address other than your address of record or reinvested in shares of another
Nuveen mutual fund. For further information, contact your financial adviser or
call Nuveen at (800) 621-7227.

Tax Reporting

Early in each year, you will receive a statement detailing the amount and nature
of all dividends and capital gains, including any percentage of your fund
dividends attributable to municipal obligations, that you were paid during the
prior year. You will receive this statement from the firm where you purchased
your fund shares if you hold your investment in street name. Nuveen will send
you this statement if you hold your shares in registered form.

Buying or Selling Shares Close to a Record Date

Buying fund shares shortly before the record date for a taxable dividend is
commonly known as "buying the dividend." The entire dividend may be taxable to
you even though a portion of the dividend effectively represents

Section 4 General Information | 29
<PAGE>

a return of your purchase price. Similarly, if you sell or exchange fund shares
shortly before the record date for a tax-exempt dividend, a portion of the price
you receive may be treated as a taxable capital gain even though it reflects
tax-free income earned but not yet distributed by the fund.

Distribution Schedule
Tax-Free Dividends Taxable Dividends Capital Gains

<S> <C> <C> <C>
Growth and Income Stock Fund None Quarterly December
.........................................................................................
Balanced Stock and Bond Fund None Quarterly December
.........................................................................................
Balanced Municipal and Stock Fund Monthly December December
.........................................................................................
</TABLE>

Please note that if you do not furnish us with your correct Social Security
number or employer identification number, federal law requires us to withhold
federal income tax from your distributions and redemption proceeds at a rate of
31%.

Distribution and Service Plans

John Nuveen and Co. Incorporated serves as the selling agent and distributor of
the funds' shares. In this capacity, Nuveen manages the offering of the funds'
shares and is responsible for all sales and promotional activities. In order to
reimburse Nuveen for its costs in connection with these activities, including
compensation paid to authorized dealers, each fund has adopted a distribution
and service plan under Rule 12b-1 under the Investment Company Act of 1940. (See
"How to Choose a Share Class" on page 23 for a description of the distribution
and service fees paid under this plan.)

Nuveen receives the distribution fee for Class B and Class C shares primarily
for providing compensation to Authorized Dealers, including Nuveen, in
connection with the distribution of shares. Nuveen uses the service fee for
Class A, Class B, and Class C shares to compensate Authorized Dealers, including
Nuveen, for providing account services to shareholders. These services may
include establishing and maintaining shareholder accounts, answering shareholder
inquiries, and providing other personal services to shareholders. These fees
also compensate Nuveen for other expenses, including printing and distributing
prospectuses to persons other than shareholders, the expenses of preparing,
printing, and distributing advertising and sales literature and reports to
shareholders used in connection with the sale of shares.

Net Asset Value

The funds' net asset value per share is determined as of the close of trading
(normally 4:00 p.m. eastern time) on each day the New York Stock Exchange is
open for business. Net asset value is calculated for each class by taking the
fair value of the class' total assets, including interest or dividends accrued
but not yet collected, less all liabilities, and dividing by the total number of
shares outstanding. The result, rounded to the nearest cent, is the net asset
value per share. All valuations are subject to review by the funds' Board of
Trustees or its delegate.

30 | Section 4 General Information
<PAGE>

In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are valued
at market value. Common stocks and other equity securities are valued at the
last sales price that day. Securities not listed on a national securities
exchange or Nasdaq are valued at the most recent bid prices. The prices of
municipal bonds are provided by a pricing service and based on the mean between
the bid and asked price. When price quotes are not readily available (which is
usually the case for municipal securities), the pricing service establishes fair
market value based on prices of comparable municipal bonds.

Organization of the Funds

Each fund is a series of the Nuveen Investment Trust, an open-end diversified
management investment company under the Investment Company Act of 1940. The
trust was organized as a Massachusetts business trust on May 6, 1996. The trust
is authorized to issue an unlimited number of shares in one or more series or
"funds," which may be divided into classes of shares. Each fund is divided into
four classes of shares designated as Class A, Class B, Class C and Class R. Each
class of shares represents an interest in the same portfolio of investments of
the fund, and each class of shares has equal rights as to voting, redemption,
dividends, and liquidation. Each class, however, bears different expenses,
including different distribution and service fees, and each has exclusive voting
rights with respect to its distribution or service plan, if any. These
differences will cause net income per share, dividends per share and net asset
value per share to vary among classes. The Board of Trustees of the trust has
the right to establish additional series and classes of shares in the future, to
change those series or classes, and to determine the preferences, voting powers,
rights and privileges for each.

The trust is not required and does not intend to hold annual meetings of
shareholders. Shareholders owning more than 10% of the outstanding shares of a
fund have the right to call a special meeting to remove trustees or for any
other purpose.

Fund Service Provider

The custodian of the assets of the funds is The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004-2413. Chase also provides certain accounting services
to the funds. The funds' transfer, shareholder services and dividend paying
agent, Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330,
performs bookkeeping, data processing and administrative services for the
maintenance of shareholder accounts.

Section 4 General Information | 31
<PAGE>

Nuveen Family of Mutual Funds

Nuveen offers a variety of funds designed
to help you reach your financial goals.
The funds below are grouped by
investment objectives.

Growth and Income Funds

Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund

Municipal Bond Funds

National Funds
Long-term

Insured Long-term

Intermediate-term

Limited-term

State Funds
Alabama Kentucky/3/ New York/1/

Arizona Louisiana North Carolina

California/1/ Maryland Ohio

Colorado Massachusetts/1/ Pennsylvania

Connecticut Michigan South Carolina

Florida/2/ Missouri Tennessee

Georgia New Jersey/2/ Virginia

Kansas New Mexico Wisconsin

NUVEEN

John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286

(800) 621-7227
www.nuveen.com

1. Long-term and insured long-term portfolios.
2. Long-term and intermediate-term portfolios.
3. Long-term and limited-term portfolios.

EPR-1-10/97

32
<PAGE>

Statement of Additional Information
October 31, 1997
Nuveen Investment Trust
333 West Wacker Drive
Chicago, Illinois 60606

NUVEEN GROWTH AND INCOME STOCK FUND
NUVEEN BALANCED STOCK AND BOND FUND
NUVEEN BALANCED MUNICIPAL AND STOCK FUND
NUVEEN BALANCED CALIFORNIA MUNICIPAL AND STOCK FUND

This Statement of Additional Information is not a prospectus. A prospectus may
be obtained from certain securities representatives, banks and other financial
institutions that have entered into sales agreements with John Nuveen & Co. In-
corporated, or from the Fund, c/o John Nuveen & Co. Incorporated, 333 West
Wacker Drive, Chicago, Illinois 60606 or by calling (800) 621-7227. This State-
ment of Additional Information relates to, and should be read in conjunction
with, as to each Fund the Prospectus for that Fund. The Prospectus for the
Funds (other than the Nuveen Balanced California Municipal and Stock Fund) is
dated October 31, 1997, and the Prospectus for the Nuveen Balanced California
Municipal and Stock Fund is not yet effective.

<TABLE>
<S> <C>
Table of Contents Page
- ------------------------------------------------------------------------------
General Information B-2
- ------------------------------------------------------------------------------
Investment Policies and Restrictions B-2
- ------------------------------------------------------------------------------
Investment Policies and Techniques B-5
- ------------------------------------------------------------------------------
Management B-31
- ------------------------------------------------------------------------------
Fund Manager and Portfolio Manager B-38
- ------------------------------------------------------------------------------
Portfolio Transactions B-39
- ------------------------------------------------------------------------------
Net Asset Value B-41
- ------------------------------------------------------------------------------
Tax Matters B-42
- ------------------------------------------------------------------------------
Performance Information B-49
- ------------------------------------------------------------------------------
Additional Information on the Purchase and Redemption of Fund Shares and
Shareholder Programs B-55
- ------------------------------------------------------------------------------
Distribution and Service Plans B-71
- ------------------------------------------------------------------------------
Independent Public Accountants and Custodian B-73
- ------------------------------------------------------------------------------
Financial Statements B-73
- ------------------------------------------------------------------------------
General Trust Information B-73
- ------------------------------------------------------------------------------
Appendix A--Ratings of Investments A-1
- ------------------------------------------------------------------------------
</TABLE>
The audited financial statements for each Fund's most recent fiscal year appear
in the Funds' Annual Reports. The Annual Reports accompany this Statement of
Additional Information.
<PAGE>

GENERAL INFORMATION

Nuveen Growth and Income Stock Fund ("Growth/Income Fund"), Nuveen Balanced
Stock and Bond Fund ("Stock/Bond Fund"), Nuveen Balanced Municipal and Stock
Fund ("Muni/Stock Fund") and Nuveen Balanced California Municipal and Stock
Fund ("California Muni/Stock Fund,") (individually a "Fund" and collectively
the "Funds") are series of the Nuveen Investment Trust (the "Trust"), an open-
end diversified management series investment company. Each series of the Trust
represents shares of beneficial interest in a separate portfolio of securities
and other assets, with its own objectives and policies. Currently, four series
of the Trust are authorized and outstanding.

Certain matters under the Investment Company Act of 1940 which must be submit-
ted to a vote of the holders of the outstanding voting securities of a series
company shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding voting securities of each se-
ries affected by such matter.

INVESTMENT POLICIES AND RESTRICTIONS

INVESTMENT RESTRICTIONS
The investment objective and certain fundamental investment policies of each
Fund are described in the Prospectus for that Fund. A Fund, as a fundamental
policy, may not, without the approval of the holders of a majority of the
shares of the Fund:

(1) With respect to 75% of its total assets, purchase the securities of any is-
suer (except securities issued or guaranteed by the United States government or
any agency or instrumentality thereof) if, as a result, (i) more than 5% of the
Fund's total assets would be invested in securities of that issuer, or (ii) the
Fund would hold more than 10% of the outstanding voting securities of that is-
suer.

(2) Borrow money, except that the Fund may (i) borrow money from banks for tem-
porary or emergency purposes (but not for leverage or the purchase of invest-
ments) and (ii) engage in other transactions permissible under the Investment
Company Act of 1940 that may involve a borrowing (such as, investing in When-
Issued Securities or certain futures and options), provided that the combina-
tion of (i) and (ii) shall not exceed 33 1/3% of the value of the Fund's total
assets (including the amount borrowed), less the Fund's liabilities (other than
borrowings). This limitation shall not apply to the California Muni/Stock Fund.
Instead, the California Muni/Stock Fund shall not borrow money except from
banks for temporary or emergency purposes and not for investment purposes and
then only in an amount not exceeding (i) 10% of the value of its total assets
at the time of borrowing or (ii) one-third of the value of the Fund's total as-
sets including the amount borrowed, in order to meet redemption requests which
might otherwise require the untimely disposition of securities.

(3) Act as an underwriter of another issuer's securities, except to the extent
that the Fund may be deemed to be an underwriter within the meaning of the Se-
curities Act of 1933 in connection with the purchase and sale of portfolio se-
curities.

B-2
<PAGE>

(4) Make loans to other persons, except through (i) the purchase of debt secu-
rities permissible under the Fund's investment policies, (ii) repurchase agree-
ments, or (iii) the lending of portfolio securities, provided that no such loan
of portfolio securities may be made by the Fund if, as a result, the aggregate
of such loans would exceed 33 1/3% of the value of the Fund's total assets.

(5) Purchase or sell physical commodities unless acquired as a result of owner-
ship of securities or other instruments (but this shall not prevent the Fund
from purchasing or selling options, futures contracts, or other derivative in-
struments, or from investing in securities or other instruments backed by phys-
ical commodities).

(6) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prohibit the Fund from pur-
chasing or selling securities or other instruments backed by real estate or of
issuers engaged in real estate activities).

(7) Issue senior securities, except as permitted under the Investment Company
Act of 1940.

(8) Purchase the securities of any issuer if, as a result, 25% or more of the
Fund's total assets would be invested in the securities of issuers whose prin-
cipal business activities are in the same industry (except that this restric-
tion shall not be applicable to securities issued or guaranteed by the U.S.
government or any agency or instrumentality thereof and, in the case of the
Muni/Stock Fund and the California Muni/Stock Fund, to Municipal Obligations
and California Municipal Obligations (as applicable), other than those Munici-
pal Obligations and California Municipal Obligations backed only by the assets
and revenues of non-governmental users).

If a percentage restriction is adhered to at the time of investment, a later
increase in percentage resulting from a change in market value of the invest-
ment or the total assets will not constitute a violation of that restriction.

For the purpose of applying the limitation set forth in restriction (1) above
to Municipal Obligations or California Municipal Obligations (collectively,
"Municipal Securities"), an issuer shall be deemed the sole issuer of a secu-
rity when its assets and revenues are separate from other governmental entities
and its securities are backed only by its assets and revenues. Similarly, in
the case of a non-governmental user, such as an industrial corporation or a
privately owned or operated hospital, if the security is backed only by the as-
sets and revenues of the non-governmental user, then such non-governmental user
would be deemed to be the sole issuer. Where a security is also backed by the
enforceable obligation of a superior or unrelated governmental or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity. Where a
security is guaranteed by a governmental entity or some other facility, such as
a bank guarantee or letter of credit, such a guarantee or letter of credit
would be considered a separate security and would be treated as an issue of
such government, other entity or bank. When a Municipal Security is insured by
bond insurance, it shall not be considered a security that is issued or guaran-
teed by the insurer; instead, the issuer of such Municipal Security will be de-
termined in accordance with the principles set forth above. The foregoing re-
strictions do not limit the percentage of the assets of the Muni/Stock Fund or

B-3
<PAGE>

the California Muni/Stock Fund that may be invested in Municipal Obligations or
California Municipal Obligations, respectively, insured by any given insurer.

The foregoing fundamental investment policies, together with the investment ob-
jective of each of the Growth/Income Fund, the Stock/Bond Fund, the Muni/Stock
Fund, and California Muni/Stock Fund and certain other policies specifically
identified in the prospectus, cannot be changed without approval by holders of
a "majority of the Fund's outstanding voting shares." As defined in the Invest-
ment Company Act of 1940, this means the vote of (i) 67% or more of the Fund's
shares present at a meeting, if the holders of more than 50% of the Fund's
shares are present or represented by proxy, or (ii) more than 50% of the Fund's
shares, whichever is less.

In addition to the foregoing fundamental investment policies, each Fund is also
subject to the following non-fundamental restrictions and policies, which may
be changed by the Board of Trustees. A Fund may not:

(1) Sell securities short, unless the Fund owns or has the right to obtain se-
curities equivalent in kind and amount to the securities sold short at no added
cost, and provided that transactions in options, futures contracts, options on
futures contracts, or other derivative instruments are not deemed to constitute
selling securities short.

(2) Purchase securities on margin, except that the Fund may obtain such short-
term credits as are necessary for the clearance of transactions; and provided
that margin deposits in connection with futures contracts, options on futures
contracts, or other derivative instruments shall not constitute purchasing se-
curities on margin.

(3) Pledge, mortgage or hypothecate any assets owned by the Fund except as may
be necessary in connection with permissible borrowings or investments and then
such pledging, mortgaging, or hypothecating may not exceed 33 1/3% of the
Fund's total assets at the time of the borrowing or investment. This limita-
tion, shall not apply to the California Muni/Bond Fund. With respect to this
Fund, the Fund may not pledge, mortgage or hypothecate its assets, except that,
to secure permissible borrowings described above, it may pledge securities hav-
ing a market value at the time of pledge not exceeding 10% of the value of such
Fund's total assets.

(4) Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political subdivisions there-
of) if, as a result, more than 5% of its net assets would be invested in the
securities of issuers that, including predecessors or unconditional guarantors,
have a record of less than three years of continuous operation. This policy
does not apply to securities of pooled investment vehicles or mortgage or as-
set-backed securities. This limitation does not apply to the California
Muni/Stock Fund.

(5) Purchase securities of open-end or closed-end investment companies except
in compliance with the Investment Company Act of 1940 and applicable state law.

B-4
<PAGE>

(6) Enter into futures contracts or related options if more than 30% of the
Fund's net assets would be represented by futures contracts or more than 5% of
the Fund's net assets would be committed to initial margin deposits and premi-
ums on futures contracts and related options.

(7) Invest in direct interests in oil, gas or other mineral exploration pro-
grams or leases; however, the Fund may invest in the securities of issuers that
engage in these activities.

(8) Purchase securities when borrowings exceed 5% of its total assets. If due
to market fluctuations or other reasons, the value of the Fund's assets falls
below 300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its invest-
ments at a time when it may be disadvantageous to do so.

(9) Each Fund may not invest in illiquid securities if, as a result of such in-
vestment, more than 15% of the Fund's net assets would be invested in illiquid
securities.

INVESTMENT POLICIES AND TECHNIQUES

The following information supplements the discussion of the Funds' investment
objectives, policies, and techniques that are described in the Prospectus for
each Fund.

INVESTMENT IN MUNICIPAL OBLIGATIONS

Portfolio Investments
Except to the extent the Muni/Stock Fund and the California Muni/Stock Fund in-
vest in temporary investments as described below, all of the Muni/Stock Fund's
investments in Municipal Obligations and the California Muni/Stock Fund's in-
vestments in California Municipal Obligations will be comprised of tax-exempt
Municipal Obligations or California Municipal Obligations, as the case may be,
that are either (1) rated at the time of purchase within the four highest
grades (Baa or BBB or better) by Moody's Investors Service, Inc. ("Moody's"),
by Standard & Poor's Ratings Group ("S&P") or in the case of the California
Muni/Bond Fund, by Fitch Investors Service, Inc. ("Fitch") or (2) unrated but
which, in the opinion of the NIAC, have credit characteristics equivalent to,
and will be of comparable quality to, Municipal Obligations or California Mu-
nicipal Obligations, as the case may be, so rated; provided, however, that not
more than 20% of the Muni/Stock Fund's investments in Municipal Obligations or
the California Muni/Stock Fund's investments in California Municipal Obliga-
tions, may be in such unrated bonds. The foregoing policies are fundamental
policies of the Muni/Stock Fund but are non-fundamental policies of the Cali-
fornia Muni/Stock Fund. Municipal Securities rated Baa or BBB are considered
"investment grade" securities; Municipal Securities rated Baa are considered
medium grade obligations which lack outstanding investment characteristics and
in fact have speculative characteristics as well, while Municipal Securities
rated BBB are regarded as having an adequate capacity to pay principal and in-
terest. Municipal Securities rated AAA in which the Fund may invest may have
been so rated on the basis of the existence of insurance guaranteeing the
timely payment, when due, of all principal and interest. A general description
of Moody's, S&P's and Fitch's ratings is set forth in Appendix A hereto.

B-5
<PAGE>

The ratings of Moody's, S&P and Fitch represent their opinions as to the qual-
ity of the Municipal Securities they rate. It should be emphasized, however,
that ratings are general and are not absolute standards of quality. Conse-
quently, Municipal Securities with the same maturity, coupon and rating may
have different yields while obligations of the same maturity and coupon with
different ratings may have the same yield.

The foregoing policies as to rating of investments in securities will apply
only at the time of the purchase of a security, and the Fund will not be re-
quired to dispose of securities in the event Moody's, S&P or Fitch downgrades
its assessment of the credit characteristics of a particular issuer.

The municipal portfolio manager of the Muni/Stock Fund and the California
Muni/Stock Fund pursues a value oriented approach for selecting municipal se-
curities by seeking to identify underrated or undervalued Municipal Securities
(i.e., Municipal Obligations with respect to the Muni/Stock Fund and Califor-
nia Municipal Obligations with respect to the California Muni/Stock Fund). Un-
derrated Municipal Securities are those whose ratings do not, in Nuveen Insti-
tutional Advisory Corp.'s ("NIAC") opinion, reflect their true value. Such Mu-
nicipal Securities may be underrated because of the time that has elapsed
since their rating was assigned or reviewed, or because of positive factors
that may not have been fully taken into account by rating agencies, or for
other similar reasons. Municipal Securities that are undervalued or that rep-
resent undervalued municipal market sectors are Municipal Securities that, in
NIAC's opinion, are worth more than the value assigned to them in the market-
place. Municipal Securities of particular types or purposes (e.g., hospital
bonds, industrial revenue bonds or bonds issued by a particular municipal is-
suer) may be undervalued because there is a temporary excess of supply in that
market sector, or because of a general decline in the market price of Munici-
pal Securities of the market sector for reasons that do not apply to the par-
ticular Municipal Securities that are considered undervalued. The Muni/Stock
Fund's investment in underrated or undervalued Municipal Obligations and the
California Muni/Stock Fund's investment in underrated or undervalued Califor-
nia Municipal Obligations, will be based on NIAC's belief that their prices
should ultimately reflect their true value.

The Funds have not established any limit on the percentage of their respective
portfolio of investments in Municipal Securities that may be invested in Mu-
nicipal Obligations or California Municipal Obligations, as the case may be,
subject to the alternative minimum tax provisions of Federal tax law. Conse-
quently, a substantial portion of the current income produced by the Funds may
be includable in alternative minimum taxable income. Special considerations
apply to corporate investors. See "Tax Matters."

Also included within the general category of Municipal Obligations described
in the Muni/Stock Fund Prospectus and California Municipal Obligations in the
California Muni/Stock Fund Prospectus are participations in lease obligations
or installment purchase contract obligations (hereinafter collectively called
"Municipal Lease Obligations") of municipal authorities or entities. Although
a Municipal Lease Obligation does not constitute a general obligation of the
municipality for which the municipality's taxing power is pledged, a Municipal
Lease Obligation is ordinarily backed by the municipality's covenant to budget
for, appropriate and make the payments due under the Municipal Lease Obliga-
tion. However, certain Municipal Lease Obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless

B-6
<PAGE>

money is appropriated for such purpose on a yearly basis. In the case of a
"non-appropriation" lease, the Fund's ability to recover under the lease in
the event of non-appropriation or default will be limited solely to the repos-
session of the leased property, without recourse to the general credit of the
lessee, and disposition or releasing of the property might prove difficult.
The Muni/Stock Fund will seek to minimize these risks by not investing more
than 20% of the assets allocated to investments in Municipal Obligations in
Municipal Lease Obligations that contain "non-appropriation" clauses, and by
only investing in those "non-appropriation" Municipal Lease Obligations where
(1) the nature of the leased equipment or property is such that its ownership
or use is essential to a governmental function of the municipality, (2) appro-
priate covenants will be obtained from the municipal obligor prohibiting the
substitution or purchase of similar equipment if lease payments are not appro-
priated, (3) the lease obligor has maintained good market acceptability in the
past, and (4) the investment is of a size that will be attractive to institu-
tional investors. The California Muni/Stock Fund will seek to minimize the
special risks associated with "non-appropriation" lease obligations by invest-
ing only in those non-appropriation leases where NIAC has determined that the
issuer has a strong incentive to continue making appropriations and timely
payment until the security's maturity.

During temporary defensive periods (e.g., times when, in NIAC's opinion, the
ability of a Fund to meet its long-term investment objectives and preserve the
asset value of a Fund may be adversely affected by significant adverse market,
economic, political, or other circumstances), and in order to keep cash on
hand fully invested, a Fund may invest any percentage of its assets in tempo-
rary investments. Temporary investments may be either tax-exempt or taxable.
To the extent the Muni/Stock Fund and the California Muni/Stock Fund invest in
taxable temporary investments, the Funds will not at such times be in a posi-
tion to achieve that portion of the Funds' investment objective of seeking in-
come exempt from federal income tax (or federal and California state income
taxes in the case of the California Muni/Stock Fund). For further information,
see "Short-Term Investments" below.

Obligations of issuers of Municipal Securities are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the obliga-
tions of such issuers may become subject to the laws enacted in the future by
Congress, state legislatures or referenda extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon municipalities to levy taxes. There is also the
possibility that, as a result of legislation or other conditions, the power or
ability of any issuer to pay, when due, the principal of and interest on its
Municipal Obligations or California Municipal Obligations may be materially
affected.

SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL OBLIGATIONS

As described in the California Muni/Stock Fund Prospectus, except to the
extent the Fund invests in temporary investments, the Fund will invest sub-
stantially all of its assets allocated to the fixed income portion of its
portfolio in California Municipal Obligations. The Fund is therefore suscepti-
ble to political, economic or regulatory factors affecting issuers of Califor-
nia Municipal Obligations.

B-7
<PAGE>

These include the possible adverse effects of certain California constitutional
amendments, legislative measures, voter initiatives and other matters that are
described below. The following information provides only a brief summary of the
complex factors affecting the financial situation in California (the "State")
and is derived from sources that are generally available to investors and are
believed to be accurate. No independent verification has been made of the accu-
racy or completeness of any of the following information. It is based in part
on information obtained from various State and local agencies in California or
contained in Official Statements for various California Municipal Obligations.

During the early 1990s, California experienced significant financial difficul-
ties, which reduced its credit standing, but the state's finances have improved
since 1994. The ratings of certain related debt of other issuers for which Cal-
ifornia has an outstanding lease purchase, guarantee or other contractual obli-
gation (such as for state-insured hospital beds) are generally linked directly
to California's rating. Should the financial condition of California deterio-
rate again, its credit ratings could be further reduced, and the market value
and marketability of all outstanding notes and bonds issued by California, its
public authorities or local governments could be adversely affected.

Economic Overview
California's economy is the largest among the 50 states and one of the largest
in the world. The State's population of more than 32 million represents over
12% of the total United States population and grew by 26% in the 1980s, more
than double the national rate. Population growth slowed to less than 1% annu-
ally in 1994 and 1995, but rose to 1.9% in 1996. During the early 1990s, net
population growth in the State was due to births and foreign immigration.

Total personal income in the State, at an estimated $810 billion in 1996, ac-
counts for almost 13% of all personal income in the nation. Total employment is
over 14 million, the majority of which is in the service, trade and manufactur-
ing sectors.

From mid-1990 to late 1993, the State suffered a recession with the worst eco-
nomic, fiscal and budget conditions since the 1930s. Construction, manufactur-
ing (especially aerospace), and financial services, among others, were all se-
verely affected, particularly in Southern California. Job losses were the worst
of any post-war recession. Employment levels stabilized by late 1993 and steady
job growth has occurred since early 1994. Pre-recession job levels are expected
to be reached in 1996. Unemployment, while remaining higher than the national
average, has come down substantially from its 10% peak to 6.5% in spring, 1997.
Economic indicators show a steady and strong recovery underway in California
since the start of 1994, particularly in export-related industries, services,
electronics, entertainment and tourism, although the residential housing sector
has been weaker than in prior recoveries. Any delay or reversal of the recovery
may create new shortfalls in State revenues.

Constitutional Limitations on Taxes, Other Charges and Appropriations
Limitation on Property Taxes. Certain California Municipal Obligations may be
obligations of issuers which rely in whole or in part, directly or indirectly,
on ad valorem property taxes as a source of revenue. The taxing powers of Cali-
fornia local governments and districts are limited by Article XIIIA of the Cal-
ifornia Constitution, enacted by the voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property

B-8
<PAGE>

and generally restricts the reassessment of property to 2% per year, except
upon new construction or change of ownership (subject to a number of exemp-
tions). Taxing entities may, however, raise ad valorem taxes above the 1%
limit to pay debt service on voter-approved bonded indebtedness.

Under Article XIIIA, the basic 1% ad valorem tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This sys-
tem has resulted in widely varying amounts of tax on similarly situated prop-
erties. Several lawsuits have been filed challenging the acquisition-based as-
sessment system of Proposition 13, but it was upheld by the U.S. Supreme Court
in 1992.

Article XIIIA prohibits local governments from raising revenues through ad va-
lorem property taxes above the 1% limit; it also requires voters of any gov-
ernment unit to give two-thirds approval to levy any "special tax." Court de-
cisions, however, allowed a non-voter approved levy of "general taxes" which
were not dedicated to a specific use.

Limitations on Other Taxes, Fees and Charges. On November 5, 1996, the voters
of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitu-
tion, which contain a number of provisions affecting the ability of local
agencies to levy and collect both existing and future taxes, assessments, fees
and charges.

Article XIIIC requires that all new or increased local taxes be submitted to
the electorate before they become effective. Taxes for general governmental
purposes require a majority vote, and taxes for specific purposes require a
two-thirds vote. Further, any general purpose tax which was imposed, extended
or increased without voter approval after December 31, 1994 must be approved
by a majority vote within two years.

Article XIIID contains several new provisions making it generally more diffi-
cult for local agencies to levy and maintain "assessments" for municipal serv-
ices and programs. Article XIIID also contains several new provisions affect-
ing "fees" and "charges", defined for purposes of Article XIIID to mean "any
levy other than an ad valorem tax, a special tax, or an assessment, imposed by
a [local government] upon a parcel or upon a person as an incident of property
ownership, including a user fee or charge for a property related service." All
new and existing property related fees and charges must conform to require-
ments prohibiting, among other things, fees and charges which generate reve-
nues exceeding the funds required to provide the property related service or
are used for unrelated purposes. There are new notice, hearing and protest
procedures for levying or increasing property related fees and charges, and,
except for fees or charges for sewer, water and refuse collection services (or
fees for electrical and gas service, which are not treated as "property relat-
ed" for purposes of Article XIIID), no property related fee or charge may be
imposed or increased without majority approval by the property owners subject
to the fee or charge or, at the option of the local agency, two-thirds voter
approval by the electorate residing in the affected area.

In addition to the provisions described above, Article XIIIC removes limita-
tions on the initiative power in matters of local taxes, assessments, fees and
charges. Consequently, local voters could, by future initiative, repeal, re-
duce or prohibit the future imposition or increase of any local tax, assess-
ment, fee or

B-9
<PAGE>

charge. It is unclear how this right of local initiative may be used in cases
where taxes or charges have been or will be specifically pledged to secure
debt issues.

The interpretation and application of Proposition 218 will ultimately be de-
termined by the courts with respect to a number of matters, and it is not pos-
sible at this time to predict with certainty the outcome of such determina-
tions. Proposition 218 is generally viewed as restricting the fiscal flexibil-
ity of local governments, and for this reason, some ratings of California cit-
ies and counties have been, and others may be, reduced.

Appropriations Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIIIB of the California Con-
stitution, enacted by the voters in 1979 and significantly amended by Proposi-
tions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits the
State or any covered local government from spending "appropriations subject to
limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from regu-
latory licenses, user charges or other fees, to the extent that such proceeds
exceed the cost of providing the product or service, but "proceeds of taxes"
exclude most State subventions to local governments. No limit is imposed on
appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond pro-
ceeds.

Among the expenditures not included in the Article XIIIB appropriations limit
are (1) the debt service cost of bonds issued or authorized prior to January
1, 1979, or subsequently authorized by the voters, (2) appropriations arising
from certain emergencies declared by the Governor, (3) appropriations for cer-
tain capital outlay projects, (4) appropriations by the State of post-1989 in-
creases in gasoline taxes and vehicle weight fees, and (5) appropriations made
in certain cases of emergency.

The appropriations limit for each year is adjusted annually to reflect changes
in cost of living and population, and any transfers of service responsibili-
ties between government units. The definitions for such adjustments were lib-
eralized in 1990 to follow more closely growth in the State's economy.

"Excess" revenues are measured over a two-year cycle. Local governments must
return any excess to taxpayers by rate reductions. The State must refund 50%
of any excess, with the other 50% paid to schools and community colleges. With
more liberal annual adjustment factors since 1988, and depressed revenues
since 1990 because of the recession, few governments are currently operating
near their spending limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limits for up to four
years. During Fiscal Year ("FY") 1986-87, State receipts from proceeds of
taxes exceeded its appropriations limit by $1.1 billion, which was returned to
taxpayers. Since that year, appropriations subject to limitation have been un-
der the State limit. State appropriations were $6.7 billion under the limit
for FY 1996-97.

Because of the complex nature of Articles XIIIA, XIIIB, XIIIC, and XIIID of
the California Constitution, the ambiguities and possible inconsistencies in
their terms, the impossibility of predicting future appropriations or changes
in population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
these Articles on California

B-10
<PAGE>

Municipal Obligations or on the ability of the State or local governments to
pay debt service on such California Municipal Obligations. It is not possible,
at the present time, to predict the outcome of any pending litigation with re-
spect to the ultimate scope, impact or constitutionality of these Articles, or
the impact of any such determinations upon State agencies or local govern-
ments, or upon their ability to pay debt service on their obligations. Further
initiatives or legislative changes in laws or the California Constitution may
also affect the ability of the State or local issuers to repay their obliga-
tions.

Obligations of the State of California
Under the California Constitution, debt service on outstanding general obliga-
tion bonds is the second charge to the General Fund after support of the pub-
lic school system and public institutions of higher education. As of August 1,
1997, the State had outstanding approximately $17.8 billion of long-term gen-
eral obligation bonds, plus $1.008 billion of general obligation commercial
paper which will be refunded by long-term bonds in the future, and $6.2 bil-
lion of lease-purchase debt supported by the State General Fund. The State
also had about $10.0 billion of authorized and unissued general obligation
bonds and lease-purchase debt. In FY 1996-97, debt service on general obliga-
tion bonds and lease-purchase debt was approximately 5.0% of General Fund rev-
enues.

Recent Financial Results
The principal sources of General Fund revenues in 1995-96 were the California
personal income tax (45% of total revenues), the sales tax (34%), bank and
corporation taxes (13%), and the gross premium tax on insurance (2%). The
State maintains a Special Fund for Economic Uncertainties (the "SFEU"), de-
rived from General Fund revenues, as a reserve to meet cash needs of the Gen-
eral Fund, but which is required to be replenished as soon as sufficient reve-
nues are available. Year-end balances in the SFEU are included for financial
reporting purposes in the General Fund balance. Because of the recession and
an accumulated budget deficit, no reserve was budgeted from 1992-93 to 1995-
96.

General. Throughout the 1980s, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for
many assistance programs to local governments, which were constrained by Prop-
osition 13 and other laws. The largest State program is assistance to local
public school districts. In 1988, an initiative (Proposition 98) was enacted
which (subject to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college districts a
minimum share of State General Fund revenues (currently about 35%).

Starting in mid-1990, the State has faced adverse economic, fiscal and budget
conditions. The 1990-1994 economic recession seriously affected State tax rev-
enues. It also caused increased expenditures for health and welfare programs.
The State is also facing a structural imbalance in its budget with the largest
programs supported by the General Fund (education, health, welfare and correc-
tions) growing at rates significantly higher than the growth rates for the
principal revenue sources of the General Fund. These structural concerns will
be exacerbated in coming years by the expected need to substantially increase
capital and operating funds for corrections as a result of a "Three Strikes"
law enacted in 1994.

Recent Budgets. As a result of the recession and the above factors, among oth-
ers, the State experienced substantial revenue shortfalls, and greater than
anticipated social service costs in the early 1990s. The State accumulated and
sustained a budget deficit in the budget reserve, the SFEU, approaching $2.8

B-11
<PAGE>

billion at its peak at June 30, 1993. The Legislature and Governor agreed on a
number of different steps to respond to the adverse financial conditions and
produce Budget Acts in the years 1991-92 to 1995-96 (although not all actions
were taken in each year):

. significant cuts in health and welfare program expenditures;

. transfers of program responsibilities and some funding sources from the
State to local governments, coupled with some reduction in mandates on
local government;

. transfer of about $3.6 billion in annual local property tax revenues
from cities, counties, redevelopment agencies and some other districts
to local school districts, thereby reducing state funding for schools;

. reduction in growth of support for higher education programs, coupled
with increases in student fees;

. revenue increases (particularly in the 1992-93 Fiscal Year budget), most
of which were for a short duration;

. increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare serv-
ices to undocumented aliens (although these efforts have produced much
less federal aid than the State Administration had requested); and

. various one-time adjustments and accounting changes (some of which have
been challenged in court).

The combination of stringent budget actions cutting State expenditures, and the
turnaround of the economy by late 1993, finally led to the restoration of posi-
tive financial results with revenues equaling or exceeding expenditures start-
ing in FY 1992-93. As a result, the accumulated budget deficit of $2.8 billion
was eliminated by June 30, 1997 when the State showed a positive balance of
about $408 million on a budgetary basis in the SFEU.

A consequence of the accumulated budget deficits in the early 1990s together
with other factors such as disbursement of funds to local school districts
"borrowed" from future fiscal years and hence not shown in the annual budget,
was to significantly reduce the State's cash resources available to pay its on-
going obligations. The State's cash condition became so serious that from late
spring 1992 until 1995, the State had to rely on issuance of short term notes
which matured in a subsequent fiscal year to finance its ongoing deficit, and
pay current obligations. For a two-month period in the summer of 1992, pending
adoption of the annual Budget Act, the State was forced to issue registered
warrants (IOUs) to some of its suppliers, employees, and other creditors. The
last of these deficit notes was repaid in April, 1996.

The 1995-96 and 1996-97 Budget Acts reflected significantly improved financial
conditions, as the State's economy recovered and tax revenues soared above pro-
jections. In both years, revenues were some $2 billion higher than initially
estimated. Most of the additional revenues were allocated to school funding, as
required by Proposition 98, and to make up shortfalls in federal aid for health
and welfare costs and costs of illegal aliens. The budgets for both these years
showed strong increases in funding for K-14 public education, including imple-
mentation of initiatives to reduce class sizes for lower elemen-

B-12
<PAGE>

tary grades to not more than 20 pupils. Higher education funding also in-
creased. Spending for health and welfare programs was kept in check, as previ-
ously-implemented cuts in benefit levels were retained.

The final results for FY 1996-97 showed General Fund revenues of $49.2 billion
and expenditures of $48.9 billion. The improved revenues allowed the repayment
of the last of the recession-induced budget deficits; the SFEU had a balance of
$408 million on a budgetary basis ($281 million on a cash basis) as of June 30,
1997, the first significant positive balance in the decade. In 1996-97, the
State implemented its regular cash flow borrowing program with the issuance of
$3.0 billion of Revenue Anticipation Notes which matured on June 30, 1997, and
did not require any external borrowing over the end of the fiscal year.

Fiscal Year 1997-98 Budget. With continued strong economic recovery and surging
tax receipts, the State entered the 1997-98 Fiscal Year in the strongest finan-
cial position in the decade. However, in May 1997, the California Supreme Court
ruled that the State had acted illegally in 1993 and 1994 by using a deferral
of payments to the Public Employees Retirement Fund to help balance earlier
budgets. In response to this court decision, the Governor ordered an immediate
repayment to the Retirement Fund of about $1.235 billion, which was made in
late July, 1997, and substantially "used up" the expected additional revenues
for the fiscal year.

On August 18, 1997, the Governor signed the 1997-98 Budget Act. The Budget Act
assumes General Fund revenues and transfers of $52.5 billion, and contains ex-
penditures of $52.8 billion. As a result, the budget reserve (SFEU) is reduced
to an estimated $112 million at June 30, 1998. The Budget Act also contains
$14.4 billion of Special Fund expenditures. Following enactment of the Budget
Act, the State plans to carry out its normal annual cash flow borrowing, total-
ing $3.0 billion to mature June 30, 1998.

The 1997-98 Budget Act provides another year of rapidly increasing funding for
K-14 public education. Total General Fund support will reach $5,150 per pupil,
more than 20% higher than the recession-period levels which were in effect as
late as FY 1993-94. The $1.75 billion in new funding will be spent on class
size reduction and other initiatives, as well as fully funding growth and cost
of living increases. Support for higher education units in the State also in-
creased by about 6 percent. Because of the pension payment, most other State
programs were funded at levels consistent with prior years, and several
initiatives had to be dropped. These included additional assistance to local
governments, state employee raises, and funding of a bond bank.

Part of the 1997-98 Budget Act was completion of State welfare reform legisla-
tion to implement the new federal law passed in 1996. The new State program,
called "CalWORKs," to become effective January 1, 1998, will emphasize programs
to bring aid recipients into the workforce. As required by federal law, new
time limits will be placed on receipt of welfare aid. Grant levels for 1997-98
remain at the reduced, prior years' levels.

Although, as noted, the 1997-98 Budget Act projects a budget reserve in the
SFEU of $112 million on June 30, 1998, the General Fund balance on that date
also reflects $1.25 billion of "loans" which the General Fund made to local
schools in the recession years, representing cash outlays above the mandatory
minimum funding level. Settlement of litigation over these transactions in July
1996 calls for

B-13
<PAGE>

repayment of these loans over the period ending in 2001-02, about equally split
between outlays from the General Fund and from school entitlements. The 1997-98
Budget Act contained a $200 million appropriation from the General Fund toward
this settlement.

Although the State's strong economy is producing record revenues to the State
government, the State's budget continues to be under stress from mandated
spending on education, a rising prison population, and social needs of a grow-
ing population with many immigrants. These factors which limit State spending
growth assurances that, if economic conditions weaken, or other factors inter-
cede, the State will not experience budget gaps in the future.

Bond Rating
The ratings on California's long-term general obligation bonds were reduced in
the early 1990's from "AAA" levels which had existed prior to the recession. In
1996, Fitch and Standard & Poor's raised their ratings of California's general
obligation bonds, which as of April 1997 were assigned ratings of "A+" from
Standard & Poor's, "A1" from Moody's and "A+" from Fitch.

There can be no assurance that such ratings will be maintained in the future.
It should be noted that the creditworthiness of obligations issued by local
California issuers may be unrelated to the creditworthiness of obligations is-
sued by the State of California, and that there is no obligation on the part of
the State to make payment on such local obligations in the event of default.

Legal Proceedings
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require
the State to make significant future expenditures or may substantially impair
revenues. Trial courts have recently entered tentative decisions or injunctions
which would overturn several parts of the state's recent budget compromises.
The matters covered by these lawsuits include reductions in welfare payments
and the use of certain cigarette tax funds for health costs. All of these cases
are subject to further proceedings and appeals, and if California eventually
loses, the final remedies may not have to be implemented in one year.

Other Issuers of California Municipal Obligations
Obligations of Other Issuers. There are a number of state agencies, instrumen-
talities and political subdivisions of the State that issue Municipal Obliga-
tions, some of which may be conduit revenue obligations payable from payments
from private borrowers. These entities are subject to various economic risks
and uncertainties, and the credit quality of the securities issued by them may
vary considerably from the credit quality of obligations backed by the full
faith and credit of the State.

State Assistance. Property tax revenues received by local governments declined
more than 50% following passage of Proposition 13. Subsequently, the California
Legislature enacted measures to provide for the redistribution of the State's
General Fund surplus to local agencies, the reallocation of certain State reve-
nues to local agencies and the assumption of certain governmental functions by
the State to assist municipal issuers to raise revenues. Total local assistance
from the State's General Fund was budgeted at approximately 75% of General Fund
expenditures in recent years, including the effect of implementing reductions
in certain aid programs. To reduce State General Fund support for school dis-
tricts, the 1992-

B-14
<PAGE>

93 and 1993-94 Budget Acts caused local governments to transfer $3.9 billion of
property tax revenues to school districts, representing loss of the post-Propo-
sition 13 "bailout" aid. Local governments have in return received greater rev-
enues and greater flexibility to operate health and welfare programs. While the
Governor initially proposed to grant new aid to local governments from the
State's improved fiscal condition in 1997-98, the decision to repay the State
pension fund eliminated these moneys.

To the extent the State should be constrained by its Article XIIIB appropria-
tions limit, or its obligation to conform to Proposition 98, or other fiscal
considerations, the absolute level, or the rate of growth, of State assistance
to local governments may continue to be reduced. Any such reductions in State
aid could compound the serious fiscal constraints already experienced by many
local governments, particularly counties. At least one rural county (Butte)
publicly announced that it might enter bankruptcy proceedings in August 1990,
although such plans were put off after the Governor approved legislation to
provide additional funds for the county. Other counties have also indicated
that their budgetary condition is extremely grave. Los Angeles County, the
largest in the State, was forced to make significant cuts in services and per-
sonnel, particularly in the health care system, in order to balance its budget
in FY 1995-96 and FY 1996-97. Los Angeles County's debt was downgraded by
Moody's and S&P in the summer of 1995. Orange County, which emerged from Fed-
eral Bankruptcy Court protection in June 1996, has significantly reduced county
services and personnel, and faces strict financial conditions following large
investment fund losses in 1994 which resulted in bankruptcy.

Counties and cities may face further budgetary pressures as a result of changes
in welfare and public assistance programs, which were enacted in August, 1997
in order to comply with the federal welfare reform law. Generally, counties
play a large role in the new system, and are given substantial flexibility to
develop and administer programs to bring aid recipients into the workforce.
Counties are also given financial incentives if either at the county or state-
wide level, the "Welfare-to-Work" programs exceed minimum targets; counties are
also subject to financial penalties for failure to meet such targets. Counties
remain responsible to provide "general assistance" for able-bodied indigents
who are ineligible for other welfare programs. The long-term financial impact
of the new CalWORKs system on local governments is still unknown.

Assessment Bonds. California Municipal Obligations which are assessment bonds
may be adversely affected by a general decline in real estate values or a slow-
down in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be devel-
oped within a few years after issuance. In the event of such reduction or slow-
down, such development may not occur or may be delayed, thereby increasing the
risk of a default on the bonds. Because the special assessments or taxes secur-
ing these bonds are not the personal liability of the owners of the property
assessed, the lien on the property is the only security for the bonds. More-
over, in most cases the issuer of these bonds is not required to make payments
on the bonds in the event of delinquency in the payment of assessments or tax-
es, except from amounts, if any, in a reserve fund established for the bonds.

California Long-Term Lease Obligations. Based on a series of court decisions,
certain California long-term lease obligations, though typically payable from
the general fund of the State or a municipality, are not considered "indebted-
ness" requiring voter approval. Such leases, however, are subject to "abate-

B-15
<PAGE>

ment" in the event the facility being leased is unavailable for beneficial use
and occupancy by the municipality during the term of the lease. Abatement is
not a default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the fa-
cility before the end of the period during which lease payments have been capi-
talized and uninsured casualty losses to the facility (e.g., due to earth-
quake). In the event abatement occurs with respect to a lease obligation, lease
payments may be interrupted (if all available insurance proceeds and reserves
are exhausted) and the certificates may not be paid when due. Litigation is
brought from time to time which challenges the constitutionality of such lease
arrangements.

Other Considerations
The repayment of industrial development securities secured by real property may
be affected by California laws limiting foreclosure rights of creditors. Secu-
rities backed by healthcare and hospital revenues may be affected by changes in
State regulations governing cost reimbursements to health care providers under
Medi-Cal (the State's Medicaid program), including risks related to the policy
of awarding exclusive contracts to certain hospitals.

Limitations on ad valorem property taxes may particularly affect "tax alloca-
tion" bonds issued by California redevelopment agencies. Such bonds are secured
solely by the increase in assessed valuation of a redevelopment project area
after the start of redevelopment activity. In the event that assessed values in
the redevelopment project decline (e.g., because of a major natural disaster
such as an earthquake), the tax increment revenue may be insufficient to make
principal and interest payments on these bonds. Both Moody's and S&P suspended
ratings on California tax allocation bonds after the enactment of Articles
XIIIA and XIIIB, and only resumed such ratings on a selective basis.

Proposition 87, approved by California voters in 1988, requires that all reve-
nues produced by a tax rate increase go directly to the taxing entity which in-
creased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when
taxes on property in the project area are increased to repay voter-approved
bonded indebtedness.

The effect of these various constitutional and statutory changes upon the abil-
ity of California municipal securities issuers to pay interest and principal on
their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not possible, at present, to predict the extent to which any such legisla-
tion will be enacted. Nor is it possible, at present, to determine the impact
of any such legislation on California Municipal Obligations in which the Fund
may invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.

B-16
<PAGE>

Substantially all of California is within an active geologic region subject to
major seismic activity. Northern California in 1989 and Southern California in
1994 experienced major earthquakes causing billions of dollars in damages. The
federal government provided more than $13 billion in aid for both earthquakes,
and neither event is expected to have any long-term negative economic impact.
Any California Municipal Obligation in the Fund could be affected by an inter-
ruption of revenues because of damaged facilities, or, consequently, income tax
deductions for casualty losses or property tax assessment reductions. Compensa-
tory financial assistance could be constrained by the inability of (i) an is-
suer to have obtained earthquake insurance coverage; (ii) an insurer to perform
on its contracts of insurance in the event of widespread losses; or (iii) the
federal or State government to appropriate sufficient funds within their re-
spective budget limitations.

SHORT-TERM INVESTMENTS

Short-Term Taxable Fixed Income Securities
The Growth/Income Fund may invest up to 35% of its total assets, and for tempo-
rary defensive purposes up to 100% of its total assets, in cash equivalents and
short-term taxable fixed income securities from issuers having a long-term rat-
ing of at least A or higher by S&P, Moody's or Fitch, or A- or higher by Duff &
Phelps, Inc. ("D&P") and having a maturity of one year or less. The Stock/Bond
Fund may invest up to 20% of its total assets, and for temporary defensive pur-
poses up to 100% of its total assets, in cash equivalents and short-term tax-
able fixed income securities from issuers having a long-term rating of at least
A or higher by S&P, Moody's or Fitch, or A- or higher by D&P and having a matu-
rity of one year or less. For temporary defensive purposes the Muni/Stock Fund
and the California Muni/Stock Fund may invest up to 100% of their respective
total assets in cash equivalents and short-term taxable fixed income securi-
ties, although the Funds intend to invest in taxable temporary investments only
in the event that suitable tax-exempt temporary investments are not available
at reasonable prices and yields. Short-term taxable fixed income securities are
defined to include, without limitation, the following:

(1) Each Fund may invest in U.S. government securities, including bills, notes
and bonds differing as to maturity and rates of interest, which are either is-
sued or guaranteed by the U.S. Treasury or by U.S. government agencies or in-
strumentalities. U.S. government agency securities include securities issued by
(a) the Federal Housing Administration, Farmers Home Administration, Export-Im-
port Bank of the United States, Small Business Administration, and the Govern-
ment National Mortgage Association, whose securities are supported by the full
faith and credit of the United States; (b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks, and the Tennessee Valley Authority, whose securities
are supported by the right of the agency to borrow from the U.S. Treasury; (c)
the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain obliga-
tions of the agency or instrumentality; and (d) the Student Loan Marketing As-
sociation, whose securities are supported only by its credit. While the U.S.
government provides financial support to such U.S. government-sponsored agen-
cies or instrumentalities, no assurance can be given that it always will do so
since it is not so obligated by law. The U.S. government, its agencies, and in-
strumentalities do not guarantee the market value of their securities, and con-
sequently, the value of such securities may fluctuate. The Muni/Stock Fund and
the California Muni/Stock Fund may only

B-17
<PAGE>

invest in government securities with maturities of less than one year or that
have a variable or floating rate of interest.

(2) Each Fund may invest in certificates of deposit issued against funds depos-
ited in a bank or savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are normally ne-
gotiable. If such certificates of deposit are non-negotiable, they will be con-
sidered illiquid securities and be subject to the Fund's 15% restriction on in-
vestments in illiquid securities. Pursuant to the certificate of deposit, the
issuer agrees to pay the amount deposited plus interest to the bearer of the
certificate on the date specified thereon. Under current FDIC regulations, the
maximum insurance payable as to any one certificate of deposit is $100,000;
therefore, certificates of deposit purchased by the Fund may not be fully in-
sured. The Muni/Stock Fund and the California Muni/Stock Fund may only invest
in certificates of deposit issued by U.S. banks with at least $1 billion in as-
sets.

(3) The Growth/Income Fund and the Stock/Bond Fund may invest in bankers' ac-
ceptances which are short-term credit instruments used to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect, uncondi-
tionally guarantees to pay the face value of the instrument on its maturity
date. The acceptance may then be held by the accepting bank as an asset or it
may be sold in the secondary market at the going rate of interest for a spe-
cific maturity.

(4) Each Fund may invest in repurchase agreements which involve purchases of
debt securities. In such an action, at the time the Fund purchases the securi-
ty, it simultaneously agrees to resell and redeliver the security to the sell-
er, who also simultaneously agrees to buy back the security at a fixed price
and time. This assures a predetermined yield for the Fund during its holding
period since the resale price is always greater than the purchase price and re-
flects an agreed-upon market rate. Such actions afford an opportunity for the
Fund to invest temporarily available cash. The Fund may enter into repurchase
agreements only with respect to obligations of the U.S. government, its agen-
cies or instrumentalities; certificates of deposit; or bankers acceptances in
which the Fund may invest. Repurchase agreements may be considered loans to the
seller, collateralized by the underlying securities. The risk to the Fund is
limited to the ability of the seller to pay the agreed-upon sum on the repur-
chase date; in the event of default, the repurchase agreement provides that the
affected Fund is entitled to sell the underlying collateral. If the value of
the collateral declines after the agreement is entered into, however, and if
the seller defaults under a repurchase agreement when the value of the under-
lying collateral is less than the repurchase price, the Fund could incur a loss
of both principal and interest. The portfolio manager monitors the value of the
collateral at the time the action is entered into and at all times during the
term of the repurchase agreement. The portfolio manager does so in an effort to
determine that the value of the collateral always equals or exceeds the agreed-
upon repurchase price to be paid to the Fund. If the seller were to be subject
to a federal bankruptcy proceeding, the ability of a Fund to liquidate the col-
lateral could be delayed or impaired because of certain provisions of the bank-
ruptcy laws.

(5) The Growth/Income Fund may invest in bank time deposits, which are monies
kept on deposit with banks or savings and loan associations for a stated period
of time at a fixed rate of interest. There may be

B-18
<PAGE>

penalties for the early withdrawal of such time deposits, in which case the
yields of these investments will be reduced.

(6) Each Fund may invest in commercial paper, which are short-term unsecured
promissory notes, including variable rate master demand notes issued by corpo-
rations to finance their current operations. Master demand notes are direct
lending arrangements between the Fund and a corporation. There is no secondary
market for the notes. However, they are redeemable by the Fund at any time. The
portfolio manager will consider the financial condition of the corporation
(e.g., earning power, cash flow, and other liquidity ratios) and will continu-
ously monitor the corporation's ability to meet all of its financial obliga-
tions, because the Fund's liquidity might be impaired if the corporation were
unable to pay principal and interest on demand. The Growth/Income Fund and the
Stock/Bond Fund may only invest in commercial paper rated A-1 or better by S&P,
Prime-1 or higher by Moody's, Duff 2 or higher by D&P or Fitch 2 or higher by
Fitch. The Muni/Stock Fund and the California Muni/Stock Fund may only invest
in commercial paper, corporate notes, corporate bonds or corporate debentures
that are rated within the highest grade by Moody's or S&P and which mature
within one year of the date of purchase or carry a variable or floating rate of
interest.

Short-Term Tax-Exempt Fixed Income Securities
During certain temporary periods, in order to keep cash on hand fully invested
or a defensive measure in response to prevailing market conditions, the
Muni/Stock Fund and California Muni/Stock Fund may invest up to 100% of their
respective total assets as "temporary investments" in cash equivalent and
short-term fixed income securities that are either taxable or tax-exempt. The
short-term taxable fixed income securities are described above. Short-term tax-
exempt fixed income securities are securities that are exempt from regular fed-
eral income tax and mature within three years or less from the date of issu-
ance. Short-term tax-exempt fixed income securities are defined to include,
without limitation, the following:

Bond Anticipation Notes (BANs) are usually general obligations of state and lo-
cal governmental issuers which are sold to obtain interim financing for pro-
jects that will eventually be funded through the sale of long-term debt obliga-
tions or bonds. The ability of an issuer to meet its obligations on its BANs is
primarily dependent on the issuer's access to the long-term municipal bond mar-
ket and the likelihood that the proceeds of such bond sales will be used to pay
the principal and interest on the BANs.

Tax Anticipation Notes (TANs) are issued by state and local governments to fi-
nance the current operations of such governments. Repayment is generally to be
derived from specific future tax revenues. Tax anticipation notes are usually
general obligations of the issuer. A weakness in an issuer's capacity to raise
taxes due to, among other things, a decline in its tax base or a rise in delin-
quencies, could adversely affect the issuer's ability to meet its obligations
on outstanding TANs.

Revenue Anticipation Notes (RANs) are issued by governments or governmental
bodies with the expectation that future revenues from a designated source will
be used to repay the notes. In general, they also constitute general obliga-
tions of the issuer. A decline in the receipt of projected revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when re-

B-19
<PAGE>

ceived, be used to meet other obligations could affect the ability of the is-
suer to pay the principal and interest on RANs.

Construction Loan Notes are issued to provide construction financing for spe-
cific projects. Frequently, these notes are redeemed with funds obtained from
the Federal Housing Administration.

Bank Notes are notes issued by local government bodies and agencies as those
described above to commercial banks as evidence of borrowings. The purposes
for which the notes are issued are varied but they are frequently issued to
meet short-term working capital or capital-project needs. These notes may have
risks similar to the risks associated with TANs and RANs.

Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities and
their agencies. Payment of principal and interest on issues of municipal paper
may be made from various sources, to the extent the funds are available there-
from. Maturities of municipal paper generally will be shorter than the maturi-
ties of TANs, BANs or RANs. There is a limited secondary market for issues of
municipal paper.

Certain Municipal Obligations and California Municipal Obligations may carry
variable or floating rates of interest whereby the rate of interest is not
fixed but varies with changes in specified market rates or indices, such as a
bank prime rate or a tax-exempt money market index.

While the various types of notes described above as a group represent the ma-
jor portion of the tax-exempt note market, other types of notes are occasion-
ally available in the marketplace and the Funds may invest in such other types
of notes to the extent permitted under their respective investment objective,
policies and limitations. Such notes may be issued for different purposes and
may be secured differently from those mentioned above.

EQUITY SECURITIES

Under normal market conditions, the Funds will invest the assets allocated to
equity investments primarily in equity securities of domestic companies with
market capitalizations of at least $500 million ("Equity Securities"). Equity
Securities include, but are not limited to, common stocks, preferred stocks,
warrants to purchase common stocks or preferred stocks, securities convertible
into common or preferred stocks, such as convertible bonds and debentures, and
other securities with equity characteristics. The Growth/Income Fund, under
normal market conditions, will invest at least 65% of its total assets in Eq-
uity Securities which do not include warrants or rights to purchase common
stock. Through its investment strategy the Growth/Income Fund seeks to provide
higher returns over time than the S&P 500 with an equal or lower level of
risk.

Convertible bonds and debentures must be rated Baa or higher by Moody's or BBB
or higher by S&P, D&P or Fitch. Bonds rated Baa or BBB, although considered
investment grade, have speculative characteristics and may be subject to
greater fluctuations in value than higher-rated bonds.

B-20
<PAGE>

In addition, the Funds may invest in dollar-denominated equity securities of
foreign issuers, including American Depository Receipts ("ADRs") as described
in "Foreign Securities" below.

HEDGING STRATEGIES

General Description of Hedging Strategies
Each Fund may engage in hedging activities. NIAC or Institutional Capital Cor-
poration ("ICAP") may cause a Fund to utilize a variety of financial instru-
ments, including options, futures contracts (sometimes referred to as
"futures") and options on futures contracts to attempt to hedge the Fund's
holdings.

Hedging instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that the Fund owns or
intends to acquire. Hedging instruments on stock indices, in contrast, gener-
ally are used to hedge against price movements in broad equity market sectors
in which the Fund has invested or expects to invest. The use of hedging instru-
ments is subject to applicable regulations of the Securities and Exchange Com-
mission (the "SEC"), the several options and futures exchanges upon which they
are traded, the Commodity Futures Trading Commission (the "CFTC") and various
state regulatory authorities. In addition, the Fund's ability to use hedging
instruments will be limited by tax considerations.

General Limitations on Futures and Options Transactions
The Trust has filed a notice of eligibility for exclusion from the definition
of the term "commodity pool operator" with the CFTC and the National Futures
Association, which regulate trading in the futures markets. Pursuant to Section
4.5 of the regulations under the Commodity Exchange Act (the "CEA"), the notice
of eligibility for a Fund includes the representation that the Fund will use
futures contracts and related options solely for bona fide hedging purposes
within the meaning of CFTC regulations. A Fund will not enter into futures and
options transactions if the sum of the initial margin deposits and premiums
paid for unexpired options exceeds 5% of a Fund's total assets. In addition, a
Fund will not enter into futures contracts and options transactions if more
than 30% of its net assets would be committed to such instruments.

The foregoing limitations are not fundamental policies of a Fund and may be
changed without shareholder approval as regulatory agencies permit. Various ex-
changes and regulatory authorities have undertaken reviews of options and
futures trading in light of market volatility. Among the possible actions that
have been presented are proposals to adopt new or more stringent daily price
fluctuation limits for futures and options transactions and proposals to in-
crease the margin requirements for various types of futures transactions.

Asset Coverage for Futures and Options Positions
Each Fund will comply with the regulatory requirements of the SEC and the CFTC
with respect to coverage of options and futures positions by registered invest-
ment companies and, if the guidelines so require, will set aside cash, U.S.
government securities, high grade liquid debt securities and/or other liquid
assets permitted by the SEC and CFTC in a segregated custodial account in the
amount pre-

B-21
<PAGE>

scribed. Securities held in a segregated account cannot be sold while the
futures or options position is outstanding, unless replaced with other permis-
sible assets, and will be marked-to-market daily.

Stock Index Options
Each Fund may (i) purchase stock index options for any purpose, (ii) sell stock
index options in order to close out existing positions, and/or (iii) write cov-
ered options on stock indexes for hedging purposes. Stock index options are put
options and call options on various stock indexes. In most respects, they are
identical to listed options on common stocks. The primary difference between
stock options and index options occurs when index options are exercised. In the
case of stock options, the underlying security, common stock, is delivered.
However, upon the exercise of an index option, settlement does not occur by de-
livery of the securities comprising the index. The option holder who exercises
the index option receives an amount of cash if the closing level of the stock
index upon which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. This amount
of cash is equal to the difference between the closing price of the stock index
and the exercise price of the option expressed in dollars times a specified
multiple.

A stock index fluctuates with changes in the market values of the stock in-
cluded in the index. For example, some stock index options are based on a broad
market index, such as the Standard & Poor's 500 or the Value Line Composite In-
dex or a narrower market index, such as the Standard & Poor's 100. Indexes may
also be based on an industry or market segment, such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index. Options on stock indexes
are currently traded on the following exchanges: the Chicago Board of Options
Exchange, the New York Stock Exchange, the American Stock Exchange, the Pacific
Stock Exchange, and the Philadelphia Stock Exchange.

A Fund's use of stock index options is subject to certain risks. Successful use
by the Funds of options on stock indexes will be subject to the ability of ICAP
to correctly predict movements in the directions of the stock market. This re-
quires different skills and techniques than predicting changes in the prices of
individual securities. In addition, a Fund's ability to effectively hedge all
or a portion of the securities in its portfolio, in anticipation of or during a
market decline through transactions in put options on stock indexes, depends on
the degree to which price movements in the underlying index correlate with the
price movements of the securities held by a Fund. Inasmuch as a Fund's securi-
ties will not duplicate the components of an index, the correlation will not be
perfect. Consequently, each Fund will bear the risk that the prices of its se-
curities being hedged will not move in the same amount as the prices of its put
options on the stock indexes. It is also possible that there may be a negative
correlation between the index and a Fund's securities which would result in a
loss on both such securities and the options on stock indexes acquired by the
Fund.

The hours of trading for options may not conform to the hours during which the
underlying securities are traded. To the extent that the options markets close
before the markets for the underlying securities, significant price and rate
movements can take place in the underlying markets that cannot be reflected in
the options markets. The purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The purchase of stock index
options involves the risk that the premium and transaction costs paid by a

B-22
<PAGE>

Fund in purchasing an option will be lost as a result of unanticipated move-
ments in prices of the securities comprising the stock index on which the op-
tion is based.

Certain Considerations Regarding Options
There is no assurance that a liquid secondary market on an options exchange
will exist for any particular option, or at any particular time, and for some
options no secondary market on an exchange or elsewhere may exist. If a Fund is
unable to close out a call option on securities that it has written before the
option is exercised, the Fund may be required to purchase the optioned securi-
ties in order to satisfy its obligation under the option to deliver such secu-
rities. If a Fund is unable to effect a closing sale transaction with respect
to options on securities that it has purchased, it would have to exercise the
option in order to realize any profit and would incur transaction costs upon
the purchase and sale of the underlying securities.

The writing and purchasing of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. Imperfect correlation between the
options and securities markets may detract from the effectiveness of attempted
hedging. Options transactions may result in significantly higher transaction
costs and portfolio turnover for the Funds.

Federal Income Tax Treatment of Options
Certain option transactions have special federal income tax results for the
Funds. Expiration of a call option written by a Fund will result in short-term
capital gain. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the security covering the call option and, in determining
such gain or loss, the option premium will be included in the proceeds of the
sale.

If a Fund writes options, or purchases puts that are subject to the loss defer-
ral rules of Section 1092 of the Internal Revenue Code of 1986, as amended (the
"Code"), any losses on such options transactions, to the extent they do not ex-
ceed the unrecognized gains on the securities covering the options, may be sub-
ject to deferral until the securities covering the options have been sold.

In the case of transactions involving "nonequity options," as defined in Code
Section 1256, the Funds will treat any gain or loss arising from the lapse,
closing out or exercise of such positions as 60% long-term and 40% short-term
capital gain or loss as required by Section 1256 of the Code. In addition, such
positions must be marked-to-market as of the last business day of the year, and
gain or loss must be recognized for federal income tax purposes in accordance
with the 60%/40% rule discussed above even though the position has not been
terminated. A "nonequity option" includes an option with respect to any group
of stocks or a stock index if there is in effect a designation by the CFTC of a
contract market for a contract based on such group of stocks or indexes. For
example, options involving stock indexes such as the S&P 500 Index would be
"nonequity options" within the meaning of Code Section 1256.

Futures Contracts
Each Fund may enter into futures contracts (hereinafter referred to as
"Futures" or "Futures Contracts"), including index Futures as a hedge against
movements in the equity markets, in order to establish more definitely the ef-
fective return on securities held or intended to be acquired by the Funds or
for other

B-23
<PAGE>

purposes permissible under the CEA. Each Fund's hedging may include sales of
Futures as an offset against the effect of expected declines in stock prices
and purchases of Futures as an offset against the effect of expected increases
in stock prices. The Funds will not enter into Futures Contracts which are pro-
hibited under the CEA and will, to the extent required by regulatory authori-
ties, enter only into Futures Contracts that are traded on national futures ex-
changes and are standardized as to maturity date and underlying financial in-
strument. The principal interest rate Futures exchanges in the United States
are the Board of Trade of the City of Chicago and the Chicago Mercantile Ex-
change. Futures exchanges and trading are regulated under the CEA by the CFTC.

An index Futures Contract is an agreement pursuant to which the parties agree
to take or make delivery of an amount of cash equal to the difference between
the value of the index at the close of the last trading day of the contract and
the price at which the index Futures Contract was originally written. Transac-
tion costs are incurred when a Futures Contract is bought or sold and margin
deposits must be maintained. A Futures Contract may be satisfied by delivery or
purchase, as the case may be, of the instrument or by payment of the change in
the cash value of the index. More commonly, Futures Contracts are closed out
prior to delivery by entering into an offsetting transaction in a matching
Futures Contract. Although the value of an index might be a function of the
value of certain specified securities, no physical delivery of those securities
is made. If the offsetting purchase price is less than the original sale price,
a gain will be realized; if it is more, a loss will be realized. Conversely, if
the offsetting sale price is more than the original purchase price, a gain will
be realized; if it is less, a loss will be realized. The transaction costs must
also be included in these calculations. There can be no assurance, however,
that the Funds will be able to enter into an offsetting transaction with re-
spect to a particular Futures Contract at a particular time. If the Funds are
not able to enter into an offsetting transaction, the Funds will continue to be
required to maintain the margin deposits on the Futures Contract.

Margin is the amount of funds that must be deposited by each Fund with its cus-
todian in a segregated account in the name of the futures commission merchant
in order to initiate Futures trading and to maintain the Fund's open positions
in Futures Contracts. A margin deposit is intended to ensure the Fund's perfor-
mance of the Futures Contract. The margin required for a particular Futures
Contract is set by the exchange on which the Futures Contract is traded and may
be significantly modified from time to time by the exchange during the term of
the Futures Contract. Futures Contracts are customarily purchased and sold on
margins that may range upward from less than 5% of the value of the Futures
Contract being traded.

If the price of an open Futures Contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if
the value of a position increases because of favorable price changes in the
Futures Contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund. In computing daily net asset value,
each Fund will mark to market the current value of its open Futures Contracts.
The Funds expect to earn interest income on their margin deposits.

B-24
<PAGE>

Because of the low margin deposits required, Futures trading involves an ex-
tremely high degree of leverage. As a result, a relatively small price movement
in a Futures Contract may result in immediate and substantial loss, as well as
gain, to the investor. For example, if at the time of purchase, 10% of the
value of the Futures Contract is deposited as margin, a subsequent 10% decrease
in the value of the Futures Contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the Futures Contract were closed out. Thus, a pur-
chase or sale of a Futures Contract may result in losses in excess of the
amount initially invested in the Futures Contract. However, a Fund would pre-
sumably have sustained comparable losses if, instead of the Futures Contract,
it had invested in the underlying financial instrument and sold it after the
decline.

Most United States Futures exchanges limit the amount of fluctuation permitted
in Futures Contract prices during a single trading day. The day limit estab-
lishes the maximum amount that the price of a Futures Contract may vary either
up or down from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular type of Futures
Contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures Contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of Futures positions and sub-
jecting some Futures traders to substantial losses.

There can be no assurance that a liquid market will exist at a time when the
Funds seek to close out a Futures position. The Funds would continue to be re-
quired to meet margin requirements until the position is closed, possibly re-
sulting in a decline in the Funds' net asset value. In addition, many of the
contracts discussed above are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an active second-
ary market will develop or continue to exist.

A public market exists in Futures Contracts covering a number of indexes, in-
cluding, but not limited to, the Standard & Poor's 500 Index, the Standard &
Poor's 100 Index, the NASDAQ 100 Index, the Value Line Composite Index and the
New York Stock Exchange Composite Index.

Options on Futures
Each Fund may also purchase or write put and call options on Futures Contracts
and enter into closing transactions with respect to such options to terminate
an existing position. A futures option gives the holder the right, in return of
the premium paid, to assume a long position (call) or short position (put) in a
Futures Contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the holder acquires a long position in
the Futures Contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. Prior to exercise or expira-
tion, a futures option may be closed out by an offsetting purchase or sale of a
futures option of the same series.

The Funds may use options on Futures Contracts in connection with hedging
strategies. Generally, these strategies would be applied under the same market
and market sector conditions in which the Funds use put and call options on se-
curities or indexes. The purchase of put options on Futures Contracts is analo-
gous to the purchase of puts on securities or indexes so as to hedge the Funds'
securities holdings

B-25
<PAGE>

against the risk of declining market prices. The writing of a call option or
the purchasing of a put option on a Futures Contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon ex-
ercise of the Futures Contract. If the futures price at expiration of a written
call option is below the exercise price, the Fund will retain the full amount
of the option premium which provides a partial hedge against any decline that
may have occurred in the Fund's holdings of securities. If the futures price
when the option is exercised is above the exercise price, however, the Fund
will incur a loss, which may be offset, in whole or in part, by the increase in
the value of the securities held by the Fund that were being hedged. Writing a
put option or purchasing a call option on a Futures Contract serves as a par-
tial hedge against an increase in the value of the securities the Fund intends
to acquire.

As with investments in Futures Contracts, each Fund is required to deposit and
maintain margin with respect to put and call options on Futures Contracts writ-
ten by it. Such margin deposits will vary depending on the nature of the under-
lying Futures Contract (and the related initial margin requirements), the cur-
rent market value of the option, and other futures positions held by the Fund.
The Funds will set aside in a segregated account at the Funds' custodian liquid
assets, such as cash, U.S. government securities or other high grade liquid
debt obligations equal in value to the amount due on the underlying obligation.
Such segregated assets will be marked-to-market daily, and additional assets
will be placed in the segregated account whenever the total value of the segre-
gated account falls below the amount due on the underlying obligation.

The risks associated with the use of options on Futures Contracts include the
risk that a Fund may close out its position as a writer of an option only if a
liquid secondary market exists for such options, which cannot be assured. The
Funds' successful use of options on Futures Contracts depends on ICAP's ability
to correctly predict the movement in prices of Futures Contracts and the under-
lying instruments, which may prove to be incorrect. In addition, there may be
imperfect correlation between the instruments being hedged and the Futures Con-
tract subject to the option. For additional information, see "Futures Con-
tracts."

Federal Income Tax Treatment of Futures Contracts
For federal income tax purposes, each Fund is required to recognize as income
for each taxable year its net unrealized gains and losses on Futures Contracts
as of the end of the year, as well as gains and losses actually realized during
the year. Except for transactions in Futures Contracts that are classified as
part of a "mixed straddle" under Code Section 1256, any gain or loss recognized
with respect to a Futures Contract is considered to be 60% long-term capital
gain or loss and 40% short-term capital gain or loss, without regard to the
holding period of the Futures Contract. In the case of a Futures transaction
not classified as a "mixed straddle," the recognition of losses may be required
to be deferred to a later taxable year.

Sales of Futures Contracts that are intended to hedge against a change in the
value of securities held by a Fund may affect the holding period of such secu-
rities and, consequently, the nature of the gain or loss on such securities
upon disposition.

The Funds will distribute to shareholders annually any net capital gains which
have been recognized for federal income tax purposes (including unrealized
gains at the end of the Funds' fiscal year) on Futures

B-26
<PAGE>

transactions. Such distributions will be combined with distributions of capi-
tal gains realized on the Funds' other investments and shareholders will be
advised of the nature of the payments.

OTHER INVESTMENT POLICIES AND TECHNIQUES

Illiquid Securities
Each Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). For purposes of this restriction, illiquid securities in-
clude, but are not limited to, restricted securities (securities the disposi-
tion of which is restricted under the federal securities laws), securities
that may only be resold pursuant to Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"), but that are deemed to be illiquid;
and repurchase agreements with maturities in excess of seven days. However,
the Fund will not acquire illiquid securities if, as a result, such securities
would comprise more than 15% of the value of the Fund's net assets. The Board
of Trustees or its delegate has the ultimate authority to determine, to the
extent permissible under the federal securities laws, which securities are
liquid or illiquid for purposes of this 15% limitation. The Board of Trustees
has delegated to ICAP the day-to-day determination of the illiquidity of any
equity or taxable fixed-income security and to NIAC as to any municipal secu-
rity, although it has retained oversight and ultimate responsibility for such
determinations. Although no definitive liquidity criteria are used, the Board
of Trustees has directed ICAP and NIAC to look to such factors as (i) the na-
ture of the market for a security (including the institutional private resale
market; the frequency of trades and quotes for the security; the number of
dealers willing to purchase or sell the security; and the amount of time nor-
mally needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer), (ii) the terms of certain securities or other in-
struments allowing for the disposition to a third party or the issuer thereof
(e.g., certain repurchase obligations and demand instruments), and (iii) other
permissible relevant factors.

Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in ef-
fect under the Securities Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Fund might obtain a less favorable price than that which pre-
vailed when it decided to sell. Illiquid securities will be priced at fair
value as determined in good faith by the Board of Trustees or its delegate.
If, through the appreciation of illiquid securities or the depreciation of
liquid securities, the Fund should be in a position where more than 15% of the
value of its net assets are invested in illiquid securities, including re-
stricted securities which are not readily marketable, the affected Fund will
take such steps as is deemed advisable, if any, to protect liquidity.

Short Sales Against the Box
When ICAP believes that the price of a particular security held by a Fund may
decline, it may make "short sales against the box" to hedge the unrealized
gain on such security. Selling short against the box involves selling a secu-
rity which the Fund owns for delivery at a specified date in the future. The
Fund will limit its transactions in short sales against the box to 5% of its
net assets. In addition, the Fund will limit its transactions such that the
value of the securities of any issuer in which it is short will not

B-27
<PAGE>

exceed the lesser of 2% of the value of the Fund's net assets or 2% of the se-
curities of any class of the issuer. If, for example, the Fund bought 100
shares of ABC at $40 per share in January and the price appreciates to $50 in
March, the Fund might "sell short" the 100 shares at $50 for delivery the fol-
lowing July. Thereafter, if the price of the stock declines to $45, it will re-
alize the full $1,000 gain rather than the $500 gain it would have received had
it sold the stock in the market. On the other hand, if the price appreciates to
$55 per share, the Fund would be required to sell at $50 and thus receive a
$1,000 gain rather than the $1,500 gain it would have received had it sold the
stock in the market. The Fund may also be required to pay a premium for short
sales which would partially offset any gain.

Warrants
Each Fund may invest in warrants if, after giving effect thereto, not more than
5% of its net assets will be invested in warrants other than warrants acquired
in units or attached to other securities. Of such 5%, not more than 2% of its
assets at the time of purchase may be invested in warrants that are not listed
on the New York Stock Exchange or the American Stock Exchange. Investing in
warrants is purely speculative in that they have no voting rights, pay no divi-
dends, and have no rights with respect to the assets of the corporation issuing
them. Warrants basically are options to purchase equity securities at a spe-
cific price for a specific period of time. They do not represent ownership of
the securities but only the right to buy them. Warrants are issued by the is-
suer of the security, which may be purchased on their exercise. The prices of
warrants do not necessarily parallel the prices of the underlying securities.

When-Issued Securities
Each Fund may from time to time purchase securities on a "when-issued" basis.
The price of securities purchased on a when-issued basis is fixed at the time
the commitment to purchase is made, but delivery and payment for the securities
take place at a later date. Normally, the settlement date occurs within 45 days
of the purchase. During the period between the purchase and settlement, no pay-
ment is made by a Fund to the issuer and no interest is accrued on debt securi-
ties or dividend income is earned on equity securities. Forward commitments in-
volve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition to the risk of decline
in value of the Fund's other assets. While when-issued securities may be sold
prior to the settlement date, the Fund intends to purchase such securities with
the purpose of actually acquiring them. At the time the Fund makes the commit-
ment to purchase a security on a when-issued basis, it will record the transac-
tion and reflect the value of the security in determining its net asset value.
The Funds do not believe that net asset value will be adversely affected by
purchases of securities on a when-issued basis.

Each Fund will maintain cash, U.S. government securities and high grade liquid
debt securities equal in value to commitments for when-issued securities. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date. When the time comes to pay for when-issued securities,
each Fund will meet its obligations from then available cash flow, sale of the
securities held in the separate account (described above) sale of other securi-
ties or, although it would not normally expect to do so, from the sale of the
when-issued securities themselves (which may have a market value greater or
less than each Fund's payment obligation).

B-28
<PAGE>

Unseasoned Companies
Each Fund (other than the California Muni/Stock Fund) may not invest more than
5% of its net assets in unseasoned issuers. While smaller companies generally
have potential for rapid growth, they often involve higher risks because they
lack the management experience, financial resources, product diversification,
and competitive strengths of larger corporations. Also, in many instances, the
securities of smaller companies are traded only over-the-counter or on regional
securities exchanges, and the frequency and volume of their trading is substan-
tially less than is typical of larger companies. Therefore, the securities of
smaller companies may be subject to wider price fluctuations. When making large
sales, the Fund may have to sell portfolio holdings of small companies at dis-
counts from quoted prices or may have to make a series of smaller sales over an
extended period of time due to the trading volume in smaller company securi-
ties.

Foreign Securities
Each Fund may invest up to 20% of its net assets in foreign securities denomi-
nated in U.S. dollars. Investments in securities of foreign issuers involve
risks in addition to the usual risks inherent in domestic investments, includ-
ing currency risks. The value of a foreign security in U.S. dollars tends to
decrease when the value of the U.S. dollar rises against the foreign currency
in which the security is denominated and tends to increase when the value of
the U.S. dollar falls against such currency.

Foreign securities are affected by the fact that in many countries there is
less publicly available information about issuers than is available in the re-
ports and ratings published about companies in the U.S. and companies may not
be subject to uniform accounting, auditing and financial reporting standards.
Other risks inherent in foreign investments include expropriation; confiscatory
taxation; withholding taxes on dividends and interest; less extensive regula-
tion of foreign brokers, securities markets and issuers; diplomatic develop-
ments; and political or social instability. Foreign economies may differ favor-
ably or unfavorably from the U.S. economy in various respects, and many foreign
securities are less liquid and their prices tend to be more volatile than com-
parable U.S. securities. From time to time, foreign securities may be difficult
to liquidate rapidly without adverse price effects.

Foreign securities include American Depository Receipts ("ADRs"). ADRs are re-
ceipts typically issued by a U.S. bank or trust company evidencing ownership of
the underlying foreign security and denominated in U.S. dollars. ADRs do not
eliminate all the risk inherent in investing in foreign issuers, such as
changes in foreign currency exchange rates. However, by investing in ADRs
rather than directly in foreign issuers' stock, the Fund avoids currency risks
during the settlement period. Some ADRs may not be sponsored by the issuer.

Lending of Portfolio Securities
Each Fund may lend its portfolio securities, up to 33 1/3% of its total assets,
to broker-dealers or institutional investors. The loans will be secured contin-
uously by collateral at least equal to the value of the securities lent by
"marking to market" daily. A Fund will continue to receive the equivalent of
the interest or dividends paid by the issuer of the securities lent and will
retain the right to call, upon notice, the lent securities. A Fund may also re-
ceive interest on the investment of the collateral or a fee from the borrower
as compensation for the loan. As with other extensions of credit, there are
risks of

B-29
<PAGE>

delay in recovery or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to firms
deemed by the portfolio manager to be of good standing.

Portfolio Turnover
Under normal market conditions, the Stock/Bond Fund, Muni/Stock Fund and the
California Muni/Stock Fund expect annual bond portfolio turnover to be signifi-
cantly less than 75%. However, the rate of municipal turnover will not be a
limiting factor if it is desirable for the Muni/Stock Fund and the California
Muni/Stock Fund to sell or purchase Municipal Obligations.

The Muni/Stock Fund, California Muni/Stock Fund and Stock/Bond Fund anticipate
that their annual equity portfolio turnover rate will be between 100% and 125%
under normal market conditions, and will generally not exceed 150%. A turnover
rate of 100% would occur, for example, if a Fund sold and replaced securities
valued at 100% of its net assets within one year.

The Growth/Income Fund anticipates that its annual portfolio turnover rate will
be between 100% and 125% under normal market conditions, and will generally not
exceed 150%. In the event a Fund were to have a turnover rate of 100% or more
in any year, it would result in the payment by the Fund of increased brokerage
costs and could result in the payment by shareholders of increased taxes on re-
alized investment gains. In addition to the foregoing, the Muni/Stock Fund and
the California Muni/Stock Fund may be required to purchase or sell Municipal
Obligations and Equity Securities pursuant to a required reallocation of assets
and the anticipated portfolio turnover rates set forth above are made without
regard to such a reallocation of assets.

The portfolio turnover rates for the Growth/Income Fund, Stock/Bond Fund and
Muni/Stock Fund for the fiscal year ended June 30, 1997 were 110%, 52% and 32%,
respectively.

B-30
<PAGE>

MANAGEMENT

The management of the Trust, including general supervision of the duties per-
formed for the Fund under the Management Agreement, is the responsibility of
its Board of Trustees. The number of trustees of the Trust is currently set at
seven, three of whom are "interested persons" (as the term "interested persons"
is defined in the Investment Company Act of 1940) and four of whom are "disin-
terested persons." The names and business addresses of the trustees and offi-
cers of the Trust and their principal occupations and other affiliations during
the past five years are set forth below, with those trustees who are "inter-
ested persons" of the Trust indicated by an asterisk.

<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
POSITION AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH TRUST DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------
<C> <C> <C> <S>
Anthony T. Dean* 52 Chairman and Trustee President (since July
333 West Wacker Drive 1996) and Director,
Chicago, IL 60606 formerly Executive Vice
President, of The John
Nuveen Company (from
March 1992 to July 1996)
and of John Nuveen & Co.
Incorporated; Director
and President (since July
1996), formerly Executive
Vice President (from May
1994 to July 1996) of
Nuveen Institutional
Advisory Corp. and Nuveen
Advisory Corp.

- -------------------------------------------------------------------------------
Timothy R. Schwertfeger* 48 President and Trustee Chairman (since July
333 West Wacker Drive 1996) and Director,
Chicago, IL 60606 formerly Executive Vice
President, of The John
Nuveen Company (from
March 1992 to July 1996)
and of John Nuveen & Co.
Incorporated; Director
and Chairman (since July
1996), formerly Executive
Vice President (from May
1994 to July 1996) of
Nuveen Institutional
Advisory Corp and Nuveen
Advisory Corp.

- -------------------------------------------------------------------------------
Robert H. Lyon* 47 Trustee President and a Director
225 West Wacker Drive of the ICAP Funds Inc.
Chicago, IL 60606 (since its inception in
December 1994);
President, Chief
Investment Officer, and a
Director of ICAP.

- -------------------------------------------------------------------------------
James E. Bacon 66 Trustee Business consultant;
114 W. 47th St. retired.
New York, NY 10036

- -------------------------------------------------------------------------------
William L. Kissick 65 Trustee Professor, School of
University of Pennsylvania Medicine and the Wharton
224 NEB/2L School of Management and
Philadelphia, PA 19104 Chairman, Leonard Davis
Institute of Health
Economics, University of
Pennsylvania.

- -------------------------------------------------------------------------------
Thomas E. Leafstrand 65 Trustee Retired, previously Vice
412 W. Franklin President in charge of
Wheaton, IL 60187 Municipal Underwriting
and Dealer Sales at The
Northern Trust Company.

- -------------------------------------------------------------------------------
Sheila W. Wellington 65 Trustee President (since 1993) of
250 Park Avenue Catalyst (a not-for-
New York, NY 10003 profit organization
focusing on women's
leadership development in
business and the
professions).
</TABLE>

- --------------------------------------------------------------------------------

B-31
<PAGE>

<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
POSITION AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH TRUST DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------
<C> <C> <C> <S>
Bruce P. Bedford 57 Executive Vice President Executive Vice President of
333 West Wacker Drive John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp. (since January 1997);
prior thereto, Chairman and
CEO of Flagship Resources
Inc. and Flagship Financial
Inc. and the Flagship
funds.

- -------------------------------------------------------------------------------
Kathleen M. Flanagan 50 Vice President Vice President of John
333 West Wacker Drive Nuveen & Co. Incorporated;
Chicago, IL 60606 Vice President (since June
1996) of Nuveen Advisory
Corp. and Nuveen
Institutional Advisory
Corp.

- -------------------------------------------------------------------------------
Anna R. Kucinskis 50 Vice President Vice President of John
333 West Wacker Drive Nuveen & Co. Incorporated.
Chicago, IL 60606

- -------------------------------------------------------------------------------
Larry W. Martin 46 Vice President and Vice President, Assistant
333 West Wacker Drive Assistant Secretary Secretary and Assistant
Chicago, IL 60606 General Counsel of John
Nuveen & Co. Incorporated;
Vice President (since May
1993) and Assistant
Secretary of Nuveen
Advisory Corp; Vice
President (since May 1993)
and Assistant Secretary of
Nuveen Institutional
Advisory Corp.; Assistant
Secretary of The John
Nuveen Company (since
February 1993).

- -------------------------------------------------------------------------------
O. Walter Renfftlen 58 Vice President and Vice President and
333 West Wacker Drive Controller Controller of The John
Chicago, IL 60606 Nuveen Company, John Nuveen
& Co. Incorporated, Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.

- -------------------------------------------------------------------------------
Ronald E. Toupin, Jr. 39 Vice President Vice President of Nuveen
333 West Wacker Drive Institutional Advisory
Chicago, IL 60606 Corp.

- -------------------------------------------------------------------------------
H. William Stabenow 63 Vice President and Vice President and
333 West Wacker Drive Treasurer Treasurer of The John
Chicago, IL 60606 Nuveen Company, John Nuveen
& Co. Incorporated, Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.

- -------------------------------------------------------------------------------
Gifford R. Zimmerman 41 Vice President and Vice President, Assistant
333 West Wacker Drive Assistant Secretary Secretary and Associate
Chicago, IL 60606 General Counsel, previously
Assistant General Counsel
of John Nuveen & Co.
Incorporated; Vice
President (since May 1993)
and Assistant Secretary of
Nuveen Advisory Corp.; Vice
President (since May 1993)
and Assistant Secretary of
Nuveen Institutional
Advisory Corp.
</TABLE>

- --------------------------------------------------------------------------------

Anthony T. Dean, Thomas E. Leafstrand and Timothy R. Schwertfeger serve as mem-
bers of the Executive Committee of the Board of Trustees. The Executive Commit-
tee, which meets between regular meetings of the Board of Trustees, is autho-
rized to exercise all of the powers of the Board of Trustees.

Mr. Dean and Mr. Schwertfeger are also directors or trustees, as the case may
be, of 95 Nuveen open-end funds and closed-end funds advised by Nuveen Advisory
Corp.

B-32
<PAGE>

The other trustees of the Trust (other than Mr. Lyon) are also trustees of five
closed-end funds advised by NIAC. Mr. Lyon is also a director of ICAP and ICAP
Funds, Inc.

The following table sets forth compensation paid by the Trust to each of the
trustees who are not designated "interested persons" for the one year period
from the Trust's inception (August 7, 1996) to August 6, 1997 and the total
compensation that the Nuveen Funds paid to such trustees during the one year
period, July 1, 1996 through June 30, 1997. The Trust has no retirement or pen-
sion plans. The officers and trustees affiliated with Nuveen serve without any
compensation from the Trust.

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM TRUST
AGGREGATE AND FUND
COMPENSATION COMPLEX
FROM THE PAID TO
NAME OF TRUSTEE TRUST* TRUSTEES**
---------------------------------------------- ------------ ------------
<S> <C> <C>
James E. Bacon................................ $ 9,983.00 $ 28,000.00
William L. Kissick............................ $ 9,500.00 $ 28,000.00
Thomas E. Leafstrand.......................... $10,806.00 $ 29,800.00
Sheila W. Wellington.......................... $ 9,500.00 $ 28,000.00
---------- -----------
Total....................................... 39,789.00 113,800.00
========== ===========
</TABLE>
- --------
*Based on the compensation paid to the independent trustees for the one year
period, August 7, 1996 through August 6, 1997 for services to the Trust.
**Based on the compensation paid to the independent trustees for the one year
period, July 1, 1996 through June 30, 1997 for services to the Trust and
five closed-end funds advised by NIAC.

Each trustee who is not affiliated with NIAC or ICAP receives a $20,000 annual
retainer for serving as a director or trustee of all funds for which NIAC
serves as investment adviser or manager and a $1,000 fee per day plus expenses
for attendance at all meetings held on a day on which a regularly scheduled
Board meeting is held, a $500 fee per day plus expenses for attendance in per-
son or a $500 fee per day plus expenses for attendance by telephone at a meet-
ing held on a day on which no regular Board meeting is held and a $100 fee per
day plus expenses for attendance in person or by telephone at a meeting of the
Executive Committee held solely to declare dividends. The annual retainer, fees
and expenses are allocated among the funds for which NIAC serves as investment
adviser or manager on the basis of relative net asset sizes. The Trust requires
no employees other than its officers, all of whom are compensated by NIAC or
Nuveen.

As of September 26, 1997, the officers and directors of each Fund, in the ag-
gregate, own less than 1% of the shares of the Fund.

B-33
<PAGE>

The following table sets forth the percentage ownership of each person, who, as
of September 26, 1997, owns of record, or is known by Registrant to own of rec-
ord or beneficially 5% or more of any class of a Fund's shares.

<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Growth and Income
Stock Fund Richard J. Franke 15.91
Class R Shares............. 400 N. Michigan Ave. Ste. 300
Chicago, IL 60611-4130
The John Nuveen Company 22.64
Attn: Ron Holler
333 W. Wacker Dr.
Chicago, IL 60606-1220
American Express Trust Co. 25.74
UA Jul 01 89
FBD Amer Exp. Trust Ret. Ser. Pl.
c/o Nancy Jendro
PO Box 534
Minneapolis, MN 55440-0534
Donald E. Sveen TR 5.89
UA Jun 08 95
Donald E. Sveen 1995 Trust
1749 South Naperville Rd.
Suite C
Wheaton, IL 60187
Class A Shares............. Smith Barney Inc. 15.71
00112011509
388 Greenwich Street
New York, NY 10013-2375
Merrill Lynch, Pierce, Fenner & Smith 21.44
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
Class B Shares............. NFSC FEBO # C1B-064360 5.31
Lila J. Xing
60 West 68th St Apt. 6D
New York, NY 10023
Smith Barney Inc 9.64
00154563919
388 Greenwich Street
New York, NY 10013
</TABLE>

B-34
<PAGE>

<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith 26.65
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
PaineWebber for the benefit of 5.85
William P. Bushnell TTEE
UAD 5/2/85 FBO
William P. Bushnell Trust 47.45
P.O. Box 435
Largo, FL 33779-D435
Class C Shares............. Smith Barney Inc. 9.37
00119962073
388 Greenwich Street
New York, NY 10013
Merrill Lynch, Pierce, Fenner & Smith 58.12
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
Nuveen Balanced Stock and
Bond Fund The John Nuveen Company 97.11
Class R Shares............. Attn: Ron Holler
333 W. Wacker Dr.
Chicago, IL 60606-1220
Class A Shares............. NFSC FEBO # CL5-411205 5.10
NFSC/FMTC IRA Rollover
FBO S. Joseph Dibitetto
2719 Meadow Ct.
N. Bellmore, NY 11710
Smith Barney Inc. 12.69
D0138507876
388 Greenwich Street
New York, NY 10013
Merrill Lynch, Pierce, Fenner & Smith 23.28
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
</TABLE>

B-35
<PAGE>

<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Class B Shares............. Merrill Lynch, Pierce, Fenner & Smith 37.54
For the benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
PaineWebber For the benefit of 31.98
William P. Bushnell, TTEE
UAD 5/2/85 FBO
William P. Bushnell Trust
P.O. Box 435
Largo, FL 33779-0435
Class C Shares............. Merrill Lynch, Pierce, Fenner & Smith 77.68
for the Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
Nuveen Balanced Municipal
and Stock Fund The John Nuveen Company 93.06
Class R Shares............. Attn: Ron Holler
333 W. Wacker Dr
Chicago, IL 60606-1220
Class A Shares............. Smith Barney Inc. 18.43
00121740906
386 Greenwich Street
New York, NY 10013
Merrill Lynch, Pierce, Fenner & Smith 30.48
for the Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
Class B Shares............. Smith Barney Inc. 10.44
00112725273
388 Greenwich Street
New York, NY 10013
Merrill Lynch, Pierce, Fenner & Smith 34.87
for the Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
</TABLE>

B-36
<PAGE>

<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Class C Shares.............. NFSC FEBO # CM5-113387 9.43
Dominick Pastorello
Elvira Pastorello
84 Raymond Lane
Wilton, CT 06897
Smith Barney Inc. 8.32
00163602788
388 Greenwich Street
New York, NY 10013
Merrill Lynch, Pierce, Fenner & Smith 23.48
for the Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
Prudential Securities Inc., FBO 6.88
John M. Johnson
Jeanette B. Johnson Co-Trustees
The Johnson Rev Tr
UA DTD 09/24/79
Lake Village, AR 71653-9512
Linda Jan Jolly & 11.37
Elaine Hoder TR
UA 08/05/96
Linda Jan Jolly Revocable Trust
412 E. Miami Ave.
McAlester, OK 74501-6422
</TABLE>

B-37
<PAGE>

FUND MANAGER AND PORTFOLIO MANAGER

Fund Manager
NIAC acts as the manager of each Fund, with responsibility for the overall
management of each Fund. Its address is 333 West Wacker Drive, Chicago, Illi-
nois 60606. For the Growth/Income Fund and the Stock/Bond Fund, NIAC has en-
tered into a Sub-Advisory Agreement with ICAP under which ICAP, subject to
NIAC's supervision, manages the Fund's investment portfolio. For the
Muni/Stock Fund and the California Muni/Stock Fund, NIAC has entered into a
Sub-Advisory Agreement with ICAP under which ICAP, subject to NIAC's supervi-
sion, manages the Fund's equity investments. NIAC is also responsible for man-
aging the Fund's business affairs and providing day-to-day administrative
services to the Fund. For additional information regarding the management
services performed by NIAC and ICAP, see "Who Manages the Funds" in the Pro-
spectus.

NIAC is a wholly-owned subsidiary of Nuveen, which is also the principal un-
derwriter of the Fund's shares. Nuveen is sponsor of the Nuveen Tax-Free Unit
Trust and Nuveen Unit Trust, registered unit investment trusts, is the princi-
pal underwriter for the Nuveen Mutual Funds, and has served as co-managing un-
derwriter for the shares of the Nuveen Exchange-Traded Funds. Over 1,000,000
individuals have invested to date in Nuveen's funds and trusts. Founded in
1898, Nuveen is a subsidiary of The John Nuveen Company which, in turn, is ap-
proximately 78% owned by The St. Paul Companies, Inc. ("St. Paul"). St. Paul
is located in St. Paul, Minnesota, and is principally engaged in providing
property-liability insurance through subsidiaries.

For the fund management services and facilities furnished by NIAC, each of the
Funds has agreed to pay an annual management fee at rates set forth in the
Prospectus under "Management Fees." In addition, NIAC agreed to waive all or a
portion of its management fee or reimburse certain expenses of the Fund for
the year ended July 31, 1997 in order to prevent total operating expenses (ex-
cluding distribution or service fees, and extraordinary expenses) from exceed-
ing .85% (.95% for the Growth/Income Fund) of the average daily net asset
value of any class of shares of the Fund. Accordingly, for the period from in-
ception (August 7, 1996) through the fiscal year ended June 30, 1997, the
Growth/Income Fund, Stock/Bond Fund, and Muni/Stock Fund paid management fees
net of expense reimbursements of $2,202,100, $0, and $10,679, respectively.
During this same period, NIAC waived fees and reimbursed expenses of $283,295,
$125,664, and $131,924 to the Growth/Income Fund, Stock/Bond Fund, and
Muni/Stock Fund, respectively.

Sub-Adviser
ICAP was founded in 1970 and is located at 225 West Wacker Drive, Suite 2400,
Chicago, IL 60606. Under the Sub-Advisory Agreement for each Fund, ICAP is
compensated by NIAC for its investment advisory services with respect to all
or a portion of each Fund's assets at the rates set forth in the Fund's Pro-
spectus under "Management Fees." Under a Sub-Advisory Agreement with NIAC,
ICAP manages the investment portfolios of the Growth/Income Fund and the
Stock/Bond Fund, and the equity portion of the Muni/Stock Fund's investment
portfolio. ICAP's investment management strategy and operating policies are
set through a team approach, with all ICAP investment professionals contribut-
ing. ICAP currently maintains a staff of 12 investment professionals. Each of
the investment officers and other professionals of ICAP has developed an ex-
pertise in at least one functional investment area,

B-38
<PAGE>

including equity research, strategy, fixed income analysis, quantitative re-
search, technical research and trading. A key element in the decision-making
process is a formal investment committee meeting generally held each business
day and attended by all professionals. These meetings also provide for the on-
going 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 ver-
ify their continued appropriateness. Investment recommendations are presented
to the committee for decisions.

With regard to Fund assets subject to the Sub-Advisory Agreement, ICAP provides
continuous advice and recommendations concerning the Fund's investments, and is
responsible for selecting the broker/ dealers who execute the portfolio trans-
actions. ICAP also serves as investment adviser to the ICAP Funds, Inc. and to
pension and profit-sharing plans, and other institutional and private invest-
ors. As of September 30, 1997, ICAP had approximately $10 billion under manage-
ment. Mr. Robert H. Lyon, President of ICAP, owns shares representing 51% of
the voting rights of ICAP. For the period from the Funds' inception (August 7,
1996) to the fiscal year ended June 30, 1997, NIAC paid ICAP for its services
to the Growth/Income Fund, Stock/Bond Fund, and Muni/Stock Fund, $1,020,894,
$33,128, and $19,194, respectively.

As of the close of the fiscal year ended June 30, 1997, Growth/Income Fund held
$7,346,462 of the securities of Morgan Stanley, Dean Witter, Discover & Co., a
regular broker or dealer (as defined in Rule 10b-1 under the Investment Company
Act) of the Fund.

PORTFOLIO TRANSACTIONS

NIAC (with respect to transactions in Municipal Obligations and California Mu-
nicipal Obligations) and ICAP (with respect to other transactions) are respon-
sible for decisions to buy and sell securities for the Funds and for the place-
ment of the Funds' securities business, the negotiation of the commissions to
be paid on brokered transactions, the prices for principal trades in securi-
ties, and the allocation of portfolio brokerage and principal business. It is
the policy of both NIAC and ICAP to seek the best execution at the best secu-
rity price available with respect to each transaction, and with respect to bro-
kered transactions, in light of the overall quality of brokerage and research
services provided to the respective adviser and its advisees. The best price to
the Funds means the best net price without regard to the mix between purchase
or sale price and commission, if any. Purchases may be made from underwriters,
dealers, and, on occasion, the issuers. Commissions will be paid on the Funds'
futures and options transactions, if any. The purchase price of portfolio secu-
rities purchased from an underwriter or dealer may include underwriting commis-
sions and dealer spreads. The Funds may pay mark-ups on principal transactions.
In selecting broker-dealers and in negotiating commissions, the portfolio man-
ager considers the firm's reliability, the quality of its execution services on
a continuing basis and its financial condition. Brokerage will not be allocated
based on the sale of a Fund's shares. NIAC expects that all transactions in Mu-
nicipal Obligations and California Municipal Obligations will be effected on a
principal (as opposed to an agency) basis and, accordingly, does not expect to
pay any brokerage commissions on such transactions.

B-39
<PAGE>

Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)") permits
an investment adviser, under certain circumstances, to cause an account to pay
a broker or dealer who supplies brokerage and research services a commission
for effecting a transaction in excess of the amount of commission another bro-
ker or dealer would have charged for effecting the transaction. Brokerage and
research services include (a) furnishing advice as to the value of securities,
the advisability of investing, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b) fur-
nishing analyses and reports concerning issuers, industries, securities, eco-
nomic factors and trends, portfolio strategy, and the performance of accounts;
and (c) effecting securities transactions and performing functions incidental
thereto (such as clearance, settlement, and custody).

In selecting brokers, ICAP considers investment and market information and
other research, such as economic, securities and performance measurement re-
search, provided by such brokers, and the quality and reliability of brokerage
services, including execution capability, performance, and financial responsi-
bility. Accordingly, the commissions charged by any such broker may be greater
than the amount another firm might charge if ICAP determines in good faith
that the amount of such commissions is reasonable in relation to the value of
the research information and brokerage services provided by such broker to
ICAP or the Funds. ICAP believes that the research information received in
this manner provides the Funds with benefits by supplementing the research
otherwise available to the Funds. The Management Agreement and the Sub-Advi-
sory Agreement provide that such higher commissions will not be paid by the
Funds unless the applicable adviser determines in good faith that the amount
is reasonable in relation to the services provided. The investment advisory
fees paid by the Funds to NIAC under the Management Agreement or the
subadvisory fees paid by NIAC to ICAP under the Sub-Advisory Agreement are not
reduced as a result of receipt by either NIAC or ICAP of research services.

NIAC and ICAP each place portfolio transactions for other advisory accounts
managed by them. Research services furnished by firms through which the Funds
effect their securities transactions may be used by NIAC and/or ICAP in ser-
vicing all of its accounts; not all of such services may be used by NIAC
and/or ICAP in connection with the Funds. NIAC and ICAP believe it is not pos-
sible to measure separately the benefits from research services to each of the
accounts (including the Funds) managed by them. Because the volume and nature
of the trading activities of the accounts are not uniform, the amount of com-
missions in excess of those charged by another broker paid by each account for
brokerage and research services will vary. However, NIAC and ICAP believe such
costs to the Funds will not be disproportionate to the benefits received by
the Funds on a continuing basis. NIAC and ICAP seek to allocate portfolio
transactions equitably whenever concurrent decisions are made to purchase or
sell securities by the Funds and another advisory account. In some cases, this
procedure could have an adverse effect on the price or the amount of securi-
ties available to the Funds. In making such allocations between the Fund and
other advisory accounts, the main factors considered by NIAC and ICAP are the
respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment and
the size of investment commitments generally held.

For the period from inception (August 7, 1996) through the fiscal year ended
June 30, 1997, the Growth/Income Fund, Stock/Bond Fund, and the Muni/Stock
Fund paid $724,507.90, $17,862.76, and $19,613.70, respectively, in brokerage
commissions. During the fiscal year ended June 30, 1997, the Growth/Income
Fund, Stock/Bond Fund and Muni/Stock Fund paid to brokers as commissions in
return

B-40
<PAGE>

for research services $403,560.66, $4,866.36, and $5,302.30, respectively, and
the aggregate amount of those transactions per Fund on which such commissions
were paid was, $1,906,101,422, $80,997,256 and $97,311,621, respectively.

Under the Investment Company Act of 1940, a Fund may not purchase portfolio se-
curities from any underwriting syndicate of which Nuveen is a member except un-
der certain limited conditions set forth in Rule 10f-3. The Rule sets forth re-
quirements relating to, among other things, the terms of a security purchased
by the Fund, the amount of securities that may be purchased in any one issue
and the assets of the Fund that may be invested in a particular issue. In addi-
tion, purchases of securities made pursuant to the terms of the Rule must be
approved at least quarterly by the Board of Trustees, including a majority of
the trustees who are not interested persons of the Trust.

NET ASSET VALUE

Each Fund's net asset value per share is determined separately for each class
of those Fund's shares as of the close of trading (normally 4:00 p.m. eastern
time) on each day the New York Stock Exchange (the "Exchange") is open for
business. The Exchange is not open for trading on New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The net asset value per share of a class of shares of a
Fund will be computed by dividing the value of the Fund's assets attributable
to the class, less the liabilities attributable to the class, by the number of
shares of the class outstanding. A Fund's net asset value may not be calculated
on days during which the Fund receives no orders to purchase shares and no
shares are tendered for redemption. Net asset value is calculated by taking the
fair value of a Fund's total assets, including interest or dividends accrued
but not yet collected, less all liabilities, and dividing by the total number
of shares outstanding. The result, rounded to the nearest cent, is the net as-
set value per share. In determining net asset value, expenses are accrued and
applied daily and securities and other assets for which market quotations are
available are valued at market value. Common stocks and other equity-type secu-
rities are valued at the last sales price on the national securities exchange
or Nasdaq on which such securities are primarily traded; however, securities
traded on a national securities exchange or Nasdaq for which there were no
transactions on a given day or securities not listed on a national securities
exchange or Nasdaq are valued at the most recent bid prices. Municipal obliga-
tions are valued by a pricing service that values portfolio securities at the
mean between the quoted bid and asked prices or the yield equivalent when quo-
tations are readily available. Securities for which quotations are not readily
available (which are expected to constitute a majority of the Municipal Obliga-
tions held by a Fund) are valued at fair value as determined by the pricing
service using methods that include consideration of the following: yields or
prices of municipal bonds of comparable quality, type of issue, coupon, matu-
rity and rating; indications as to value from securities dealers; and general
market conditions. The pricing service may employ electronic data processing
techniques and/or a matrix system to determine valuations. Debt securities hav-
ing remaining maturities of 60 days or less when purchased are valued by the
amortized cost method when the Board of Trustees determines that the fair mar-
ket value of such securities is their amortized cost. Under this method of val-
uation, a security is initially valued at its acquisition cost, and thereafter
amortization of any discount or premium is assumed each day, regardless of the
impact of fluctuating interest rates on the market value of the security. Re-
gardless of the method employed to value a particular security, all valuations
are subject to review by a Fund's Board of Trustees or its delegate who may

B-41
<PAGE>

determine the appropriate value of a security whenever the value as calculated
is significantly different from the previous day's calculated value.

TAX MATTERS

FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the advice
of Chapman and Cutler, counsel to the Trust.

As described in the Prospectuses, each of the Funds intends to qualify under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") for
tax treatment as a regulated investment company. In order to qualify as a regu-
lated investment company, a Fund (i) must elect to be treated as a regulated
investment company and (ii) for each taxable year thereafter must satisfy cer-
tain requirements relating to the source of its income, diversification of its
assets, and distributions of its income to shareholders. First, the Fund must
derive at least 90% of its annual gross income (including tax-exempt interest)
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities, foreign currencies or
other income (including but not limited to gains from options, futures, or for-
ward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "90% gross income test"). Second, the Fund
must diversify its holdings so that, at the close of each quarter of its tax-
able year, (i) at least 50% of the value of its total assets is comprised of
cash, cash items, United States Government securities, securities of other reg-
ulated investment companies and other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the value of the Fund's to-
tal assets and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of the Fund's total assets
is invested in the securities of any one issuer (other than United States Gov-
ernment securities and securities of other regulated investment companies) or
two or more issuers controlled by a Fund and engaged in the same, similar or
related trades or businesses.

As a regulated investment company, a Fund will not be subject to federal income
tax in any taxable year for which it distributes at least 90% of the sum of (i)
its "investment company taxable income" (without regard to its net capital
gain, i.e., the excess of its net long-term capital gain over its short-term
capital loss) and (ii) its net tax-exempt interest (the excess of its gross
tax-exempt interest income over certain disallowed deductions). In addition, to
the extent the Fund timely distributes to shareholders at least 98% of its tax-
able income (including any net capital gain), it will not be subject to the 4%
excise tax on certain undistributed income of "regulated investment companies."
The Fund intends to make timely distributions in compliance with these require-
ments and consequently it is anticipated that they generally will not be re-
quired to pay the excise tax. A Fund may retain for investment its net capital
gain. However, if the Fund retains any net capital gain or any investment com-
pany taxable income, it will be subject to federal income tax at regular corpo-
rate rates on the amount retained. If the Fund retains any net capital gain,
such Fund may designate the retained amount as undistributed capital gains in a
notice to its shareholders who, if subject to federal income tax on long-term
capital gains, (i) will be required to include in income for federal income tax
purposes, as long-term capital gain, their shares of such undistributed amount,
and (ii) will be entitled to credit their proportionate shares of the tax paid
by such Fund against their federal income tax liabilities if any, and to claim
refunds to the extent

B-42
<PAGE>

the credit exceeds such liabilities. For federal income tax purposes, the tax
basis of shares owned by a shareholder of the Fund will be increased by an
amount equal under current law to 65% of the amount of undistributed net capi-
tal gains included in the shareholder's gross income. Each Fund intends to
distribute at least annually to its shareholders all or substantially all of
its investment company taxable income, net tax-exempt interest and net capital
gain.

Treasury regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain, to elect (unless it
has made a taxable year election for excise tax purposes as discussed below)
to treat all or part of any net capital loss, any net long-term capital loss
or any net foreign currency loss incurred after October 31 as if they had been
incurred in the succeeding year.

If any of the Funds engage in hedging transactions involving financial futures
and options, these transactions will be subject to special tax rules, the ef-
fect of which may be to accelerate income to a Fund, defer a Fund's losses,
cause adjustments in the holding periods of a Fund's securities, convert long-
term capital gains into short-term capital gains and convert short-term capi-
tal losses into long-term capital losses. These rules could therefore affect
the amount, timing and character of distributions to shareholders.

Prior to purchasing shares in one of the Funds, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect
of reducing the per share net asset value by the per share amount of the divi-
dend or distribution and will be subject to federal income tax to the extent
it is a distribution of ordinary income or capital gain.

In any taxable year of a Fund, distributions from the Fund, other than distri-
butions which are designated as capital gains dividends (or exempt interest
dividends, in the case of Muni/Stock Fund and the California Muni/Stock Fund),
will to the extent of the earnings and profits on such Fund, constitute divi-
dends for Federal income tax purposes which are taxable as ordinary income to
shareholders. To the extent that distributions to a shareholder in any year
exceed the Fund's current and accumulated earnings and profits, they will be
treated as a return of capital and will reduce the shareholder's basis in his
or her shares and, to the extent that they exceed his or her basis, will be
treated as gain from the sale of such shares as discussed below. It should be
noted that certain legislative proposals have been made which could affect the
calculation of basis for shareholders holding securities that are substan-
tially identical to the Fund's securities. Distributions of the Fund's net
capital gain which are properly designated as capital gain dividends by the
Fund will be taxable to the shareholders as long-term capital gain, regardless
of the length of time the shares have been held by a shareholder. Distribu-
tions will be taxed in the manner described (i.e., as ordinary income, long-
term capital gain, return of capital or exempt-interest dividends) even if re-
invested in additional shares of a Fund.

Although dividends generally will be treated as distributed when paid, divi-
dends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the follow-
ing January, will be treated as having been distributed by each Fund (and re-
ceived by the shareholders) on December 31 of the year such dividends are de-
clared.

B-43
<PAGE>

The redemption or exchange of the shares of a Fund normally will result in
capital gain or loss to the shareholders. Generally, a shareholder's gain or
loss will be long-term gain or loss if the shares have been held for more than
one year. Present law taxes both long- and short-term capital gains of corpo-
rations at the rates applicable to ordinary income. For taxpayers other than
corporations, net capital gains (which are defined as net long-term capital
gain over net short-term capital loss for the taxable year) are subject to a
maximum marginal stated tax rate of either 28% or 20%, depending upon the
holding period of the capital assets. In particular, net capital gain, exclud-
ing net gain from property held more than one year but not more than 18 months
and gain on certain other assets, is subject to a maximum marginal stated tax
rate of 20% (10% in the case of certain taxpayers in the lowest tax bracket).
Net capital gain that is not taxed at the maximum marginal stated tax rate of
20% (or 10%) as described in the preceding sentence, is generally subject to a
maximum marginal stated tax rate of 28%. The date on which a share is acquired
(i.e., the "trade date") is excluded for purposes of determining the holding
period of the share. It should be noted that legislative proposals are intro-
duced from time to time that affect tax rates and could affect relative dif-
ferences at which ordinary income and capital gains are taxed.

In addition, please note that capital gains may be recharacterized as ordinary
income in the case of certain financial transactions that are considered "con-
version transactions" effective for transactions entered into after April 30,
1993. Shareholders and prospective investors should consult with their tax ad-
visers regarding the potential effect of this provision on their investment in
shares of a Fund.

Under the Code, certain miscellaneous itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses, will be
deductible by individuals only to the extent they exceed 2% of adjusted gross
income. Miscellaneous itemized deductions subject to this limitation under
present law do not include expenses incurred by the Fund as long as the shares
of the Fund are held by or for 500 or more persons at all times during the
taxable year or another exception is met. In the event the shares of the Fund
are held by fewer than 500 persons, additional taxable income may be realized
by the individual (and other non-corporate) shareholders in excess of the dis-
tributions received from the Fund.

All or a portion of a sales load paid in purchasing shares of a Fund cannot be
taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of a Fund or another fund are subsequently acquired without payment of
a sales load or with the payment of a reduced sales load pursuant to the rein-
vestment or exchange privilege. Any disregarded portion of such load will re-
sult in an increase in the shareholder's tax basis in the shares subsequently
acquired. Moreover, losses recognized by a shareholder on the redemption or
exchange of shares of a Fund held for six months or less are disallowed to the
extent of any distribution of exempt-interest dividends received with respect
to such shares and, if not disallowed, such losses are treated as long-term
capital losses to the extent of any distributions of long-term capital gains
made with respect to such shares. In addition, no loss will be allowed on the
redemption or exchange of shares of a Fund if the shareholder purchases other
shares of such Fund (whether through reinvestment of distributions or other-
wise) or the shareholder acquires or enters into a contract or option to ac-
quire securities that are substantially identical to shares of a Fund within a
period of 61 days beginning 30 days before and ending 30 days after such re-
demption or exchange. If disallowed, the loss will be reflected in an adjust-
ment to the basis of the shares acquired.

B-44
<PAGE>

If in any year a Fund should fail to qualify under Subchapter M for tax treat-
ment as a regulated investment company, the Fund would incur a regular corpo-
rate federal income tax upon its income for that year (other than interest in-
come from Municipal Obligations and California Municipal Obligations), and
distributions to its shareholders would be taxable to shareholders as ordinary
dividend income for federal income tax purposes to the extent of the Fund's
available earnings and profits.

The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares
who have not furnished to the Funds their correct taxpayer identification num-
ber (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.

Shareholders who are non-resident aliens are subject to U.S. withholding taxes
on ordinary income dividends at a rate of 30% or such lower rate as prescribed
by an applicable tax treaty.

A corporate shareholder may be entitled to a 70% dividends received deduction
with respect to any portion of such shareholder's ordinary income dividends
which are attributable to dividends received by a Fund on certain Equity Secu-
rities (other than corporate shareholders, such as "S" corporations, which are
not eligible for the deduction because of their special characteristics and
other than for purposes of special taxes such as the accumulated earnings tax
and the personal holding corporation tax). A Fund will designate the portion
of any taxable dividend which is eligible for this deduction. However, a cor-
porate shareholder should be aware that Sections 246 and 246A of the Code im-
pose additional limitations on the eligibility of dividends for the 70% divi-
dends received deduction. These limitations include a requirement that stock
(and therefore Shares of a Fund) must generally be held at least 46 days (as
determined under, and during the period specified in, Section 246(c) of the
Code). Regulations have been issued which address special rules that must be
considered in determining whether the 46 day holding requirement is met. More-
over, the allowable percentage of the deduction will generally be reduced from
70% if a corporate shareholder owns Shares of the Fund the financing of which
is directly attributable to indebtedness incurred by such corporation. It
should be noted that various legislative proposals that would affect the divi-
dends received deduction have been introduced. To the extent dividends re-
ceived by a Fund are attributable to foreign corporations, a corporate share-
holder will not be entitled to the dividends received deduction with respect
to its share of such foreign dividends since the dividends received deduction
is generally available only with respect to dividends paid by domestic corpo-
rations. It should be noted that payments to a Fund of dividends on Equity Se-
curities that are attributable to foreign corporations may be subject to for-
eign withholding taxes. Corporate shareholders should consult with their tax
advisers with respect to the limitations on, and possible modifications to,
the dividends received deduction.

Nuveen Balanced Municipal and Stock Fund and Nuveen Balanced California
Municipal and Stock Fund Tax Matters
In addition to the matters discussed above, the Muni/Stock Fund and the Cali-
fornia Muni/Stock Fund intend to qualify to pay "exempt-interest" dividends as
defined under the Code. Under the Code, at the close of each quarter of its
taxable year, if at least 50% of the value of the Fund's total assets consists
of obligations described in Code Section 103(a)) ("Municipal Securities")
(i.e., Municipal Obligations in the case of the Muni/Stock Fund and California
Municipal Obligations in the case of the California

B-45
<PAGE>

Muni/Stock Fund), the Fund shall be qualified to pay exempt-interest dividends
to its Shareholders. Exempt-interest dividends are dividends or any part
thereof (other than a capital gain dividend) paid by the Fund which are at-
tributable to interest on Municipal Securities (net of expenses and any bond
premium amortization with respect to Municipal Securities) to the extent such
interest is excludible from gross income under Section 103 of the Code and are
so designated by the Fund. Exempt-interest dividends will be excluded from
gross income of the owners of the shares for federal income tax purposes, ex-
cept in the case of certain substantial users as described below. Such exempt-
interest dividends may be taken into account in determining the federal alter-
native minimum tax, as described below. Insurance proceeds received by the
Muni/Stock Fund or California Muni/Stock Fund under any insurance policies in
respect of scheduled interest payments on defaulted Municipal Securities, as
described herein, may be taken into account in determining the amount of ex-
empt-interest dividends provided that, at the time such policies are pur-
chased, the amounts paid for such policies are reasonable, customary and con-
sistent with the reasonable expectation that the respective issuer of the Mu-
nicipal Securities, rather than the insurer, will pay debt service on the Mu-
nicipal Securities; in the case of non-appropriation by a political subdivi-
sion, however, there can be no assurance that payments made by the insurer
representing interest on such "non-appropriation" Municipal Lease Obligations
may be taken into account in determining the amount of exempt-interest divi-
dends. If a Fund purchases a Municipal Security at a market discount, any gain
realized by the Fund upon sale or redemption of the Municipal Security will be
treated as taxable interest income to the extent such gain does not exceed the
market discount, and any gain realized in excess of the market discount gener-
ally will be treated as capital gain. The Funds will be required by the Code
to allocate their respective expenses proportionately between their tax-exempt
income and taxable income (excluding net realized long-term capital gains).
Distributions to shareholders by the Funds of net income received, if any,
from taxable dividends, market discount on Municipal Securities treated as in-
terest and net short-term capital gains, if any, realized by the Funds will be
taxable to shareholders as ordinary income. Distributions of net realized
long-term capital gains, if any, are taxable as long-term capital gains, as
discussed above.

In general, market discount is the amount (if any) by which the stated redemp-
tion price at maturity exceeds the Fund's purchase price (except to the extent
that such difference, if any, is attributable to original issue discount not
yet accrued), subject to a statutory de minimis rule. Accretion of market dis-
count is taxable as ordinary income. Market discount that accretes while the
Fund holds a Municipal Security would be recognized as ordinary income by the
Fund when principal payments are received on the Municipal Security, upon sale
or at redemption (including early redemption) or at the Fund's election, as
such market discount accrues. Market discount income recognized by the Fund
will result in taxable dividends to the shareholders.

For purposes of computing the alternative minimum tax for individuals and cor-
porations and the Superfund tax for corporations, interest on certain private
activity bonds (which includes most industrial and housing bonds) issued on or
after August 8, 1986 is included as a preference item. The Funds will annually
supply their shareholders with a report indicating the percentage of the re-
spective Fund's income attributable to Municipal Securities that is treated as
a tax preference item for purposes of the federal alternative minimum tax.
Moreover, for corporations, the alternative minimum taxable income is in-
creased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on

B-46
<PAGE>

all Municipal Securities, and therefore all exempt-interest dividends received
from the Fund, are included in calculating adjusted current earnings. Under
current Code provisions, the Superfund Tax does not apply to tax years begin-
ning on or after January 1, 1996. Legislative proposals have been made that
would extend the Superfund Tax.

Individuals whose "modified income" exceeds a base amount will be subject to
federal income tax on up to one-half of their social security benefits. Modi-
fied income currently includes adjusted gross income, one-half of social secu-
rity benefits and tax-exempt interest, including exempt-interest dividends from
the Funds. In addition, individuals whose modified income exceeds certain base
amounts are required to include in gross income up to 85% of their social secu-
rity benefits.

The interest on private activity bonds in most instances is not federally tax-
exempt to a person who is a "substantial user" of a facility financed by such
bonds or a "related person" of such "substantial user." As a result, the Funds
may not be an appropriate investment for shareholders who are considered either
a "substantial user" or a "related person" within the meaning of the Code. In
general, a "substantial user" of a facility includes a "non-exempt person who
regularly uses a part of such facility in his trade or business." "Related per-
sons" are in general defined to include persons among whom there exists a rela-
tionship, either by family or business, which would result in a disallowance of
losses in transactions among them under various provisions of the Code (or if
they are members of the same controlled group of corporations under the Code),
including a partnership and each of its partners (and their spouses and minor
children), an S corporation and each of its shareholders (and their spouses and
minor children) and various combinations of these relationships. The foregoing
is not a complete statement of all of the provisions of the Code relating to
the definitions of "substantial user" and "related person." For additional in-
formation, investors should consult their tax advisers before investing in the
Fund.

The Code provides that interest on indebtedness incurred or continued to pur-
chase or carry shares of a fund that distributes exempt-interest dividends is
not deductible for Federal income tax purposes. Under rules used by the IRS for
determining when borrowed funds are considered used for the purpose of purchas-
ing or carrying particular assets, the purchase or ownership of shares may be
considered to have been made with borrowed funds even though such funds are not
directly traceable to the purchase or ownership of shares.

The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
federal income taxation of the Funds and their shareholders and relates only to
the federal income tax status of the Fund and to tax treatment of distributions
by the Fund to United States shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or adminis-
trative action, and any such change may be retroactive with respect to Fund
transactions. Shareholders are advised to consult their own tax advisers for
more detailed information concerning the federal taxation of the Funds and the
income tax consequences to their shareholders, as well as with respect to for-
eign, state and local tax consequences of ownership of Fund shares.

B-47
<PAGE>

NUVEEN BALANCED MUNICIPAL AND STOCK FUND AND NUVEEN CALIFORNIA BALANCED
MUNICIPAL AND STOCK FUND DISTRIBUTIONS

The Muni/Stock Fund and California Muni/Stock Fund will pay monthly tax-exempt
income dividends to shareholders at a level rate that reflects the past and
projected net tax-exempt income of the Funds and that results, over time, in
the distribution of substantially all of the Funds' net tax-exempt income. To
maintain a more stable monthly distribution, these Funds may from time to time
distribute less than the entire amount of net tax-exempt income earned in a
particular period. This undistributed net tax-exempt income would be available
to supplement future distributions, which might otherwise have been reduced by
a decrease in the Funds' monthly net income due to fluctuations in investment
income or expenses. As a result, the tax-exempt income distributions paid by a
Fund for any particular monthly period may be more or less than the amount of
net tax-exempt income actually earned by the Fund during such period. Undis-
tributed net tax-exempt income is included in a Fund's net asset value and,
correspondingly, distributions from previously undistributed net tax-exempt
income are deducted from such Fund's net asset value. It is not expected that
this dividend policy will impact the management of a Fund's portfolio.

CALIFORNIA STATE TAX MATTERS

The following is a general, abbreviated summary of certain provisions of the
applicable California tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the Califor-
nia Muni/Stock Fund. This summary does not address the taxation of other
shareholders nor does it discuss any local taxes that may be applicable. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to transactions of the Cali-
fornia Muni/Stock Fund.

The following is based on the assumptions that the California Muni/Stock Fund
will qualify under Subchapter M of the Code as a regulated investment company,
that it will satisfy the conditions which will cause distributions of the Cal-
ifornia Muni/Stock Fund attributable to California Municipal Obligations to
qualify as exempt-interest dividends to shareholders, and that they will dis-
tribute all interest and dividends they receive to the California Muni/Stock
Fund's shareholders.

The California Muni/Stock Fund will not be subject to the California corporate
franchise tax. The California Muni/Stock Fund will be subject to the Califor-
nia corporate income tax only if it has a sufficient nexus with California. If
it is subject to the California corporate income tax, it does not expect to
pay a material amount of such tax.

Distributions by the California Muni/Stock Fund that are attributable to in-
terest on any obligation of California and its political subdivisions or to
interest on obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the California personal income tax. All other distributions,
including distributions attributable to capital gains, will be subject to the
California personal income tax.

B-48
<PAGE>

All distributions of California Muni/Stock Fund to corporate shareholders, re-
gardless of source, will be subject to the California corporate franchise tax.

Gain on the sale, exchange, or other disposition of shares of the California
Muni/Stock Fund will be subject to the California personal income and corporate
franchise taxes.

Shares of the California Fund may be subject to the California estate tax if
held by a California decedent at the time of death.

Shareholders are advised to consult with their own tax advisers for more de-
tailed information concerning California tax matters.

PERFORMANCE INFORMATION

Each Fund may quote its yield, distribution rate, beta, average annual total
return or cumulative total return in reports to shareholders, sales literature
and advertisements each of which will be calculated separately for each class
of shares.

In accordance with a standardized method prescribed by rules of the Securities
and Exchange Commission ("SEC"), yield is computed by dividing the net invest-
ment income per share earned during the specified one month or 30-day period by
the maximum offering price per share on the last day of the period, according
to the following formula:

Yield=2[(a-b +1)/6/ -1]
cd

In the above formula, a = dividends and interest earned during the period; b =
expenses accrued for the period (net of reimbursements); c = the average daily
number of shares outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share on the last day of the
period. In the case of Class A shares, the maximum offering price includes the
current maximum front-end sales charge of 5.25%.

In computing yield, the Funds follow certain standardized accounting practices
specified by SEC rules. These practices are not necessarily consistent with
those that the Funds use to prepare their annual and interim financial state-
ments in conformity with generally accepted accounting principles. Thus, yield
may not equal the income paid to shareholders or the income reported in a
Fund's financial statements.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------------
YIELD
-------------------------------
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Growth and Income Stock Fund.............. 0.87% 0.18% 0.18% 1.16%
Balanced Stock and Bond Fund.............. 2.94% 2.31% 2.35% 3.36%
Balanced Municipal and Stock Fund......... 2.66% 2.00% 1.99% 3.06%
</TABLE>

B-49
<PAGE>

The Funds may from time to time in their advertising and sales materials report
a quotation of their current distribution rate. The distribution rate repre-
sents a measure of dividends distributed for a specified period. Distribution
rate is computed by taking the most recent dividend per share, multiplying it
as needed to annualize it, and dividing by the appropriate price per share
(e.g., net asset value for purchases to be made without a load such as rein-
vestments from Nuveen UITs, or the maximum public offering price). The distri-
bution rate differs from yield and total return and therefore is not intended
to be a complete measure of performance. Distribution rate may sometimes differ
from yield because a Fund may be paying out more than it is earning and because
it may not include the effect of amortization of bond premiums to the extent
such premiums arise after the bonds were purchased.

The distribution rates as of the period quoted, based on the maximum public of-
fering price then in effect for the Funds, and assuming the imposition of the
maximum sales charge for Class A Shares of 5.25%, were as follows:

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------------
DISTRIBUTION RATES
-------------------------------
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Growth and Income Stock Fund.............. 1.82% 1.22% 1.22% 2.15%
Balanced Stock and Bond Fund.............. 1.98% 1.37% 1.37% 2.33%
Balanced Municipal and Stock Fund......... 2.24% 1.66% 1.66% 2.60%
</TABLE>

A Fund may from time to time in its advertising and sales literature quote its
beta. Beta is a standardized measure of a security's risk (variability of re-
turns) relative to the overall market, i.e. the proportion of the variation in
the security's returns that can be explained by the variation in the return of
the overall market. For example, a security with a beta of 0.85 is expected to
have returns that are 85% as variable as overall market returns. Conversely, a
security with a beta of 1.25 is expected to have returns that are 125% as
varaible as overall market returns. The beta of the overall market is by defi-
nition 1.00.

The formula for beta is given by:

Beta = S A * B / C

where

A = (Xi - X), i=1,..., N
B = (Yi - Y), i=1,..., N
C = S (Xi - X)/2/, i=1,..., N
Xi = Security Return in period i
Yi = Market Return in period i
X = Average of all observations Xi
Y = Average of all observations Yi
N = Number of observations in the measurement period

The beta for the Growth/Income Fund on June 30, 1997 was 0.89. The beta equals
the weighted average of the betas for each stock in the Fund's investment port-
folio. The beta for each stock in the

B-50
<PAGE>

Fund's portfolio was calculated based on weekly returns for the two-year pe-
riod ending June 30, 1997 and using the S&P 500 Index as the market benchmark.

All total return figures assume the reinvestment of all dividends and measure
the net investment income generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the underlying investments in a
Fund over a specified period of time. Average annual total return figures are
annualized and therefore represent the average annual percentage change over
the specified period. Cumulative total return figures are not annualized and
represent the aggregate percentage or dollar value change over a stated period
of time. Average annual total return and cumulative total return are based
upon the historical results of a Fund and are not necessarily representative
of the future performance of a Fund.

The average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation as-
sumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.

Calculation of cumulative total return is not subject to a prescribed formula.
Cumulative total return for a specific period is calculated by first taking a
hypothetical initial investment in Fund shares on the first day of the period,
deducting (in some cases) the maximum sales charge, and computing the "redeem-
able value" of that investment at the end of the period. The cumulative total
return percentage is then determined by subtracting the initial investment
from the redeemable value and dividing the remainder by the initial investment
and expressing the result as a percentage. The calculation assumes that all
income and capital gains distributions by a Fund have been reinvested at net
asset value on the reinvestment dates during the period. Cumulative total re-
turn may also be shown as the increased dollar value of the hypothetical in-
vestment over the period. Cumulative total return calculations that do not in-
clude the effect of the sales charge would be reduced if such charge were in-
cluded. Average annual and cumulative total returns may also be presented in
advertising and sales literature without the inclusion of sales charges.

From time to time, each Fund may compare its risk-adjusted performance with
other investments that may provide different levels of risk and return. For
example, a Fund may compare its risk level, as measured by the variability of
its periodic returns, or its RISK-ADJUSTED TOTAL RETURN, with those of other
funds or groups of funds. Risk-adjusted total return would be calculated by
adjusting each investment's total return to account for the risk level of the
investment.

The risk level for a class of shares of a Fund, and any of the other invest-
ments used for comparison, would be evaluated by measuring the variability of
the investment's return, as indicated by the standard deviation of the invest-
ment's monthly returns over a specified measurement period (e.g., two years).
An

B-51
<PAGE>

investment with a higher standard deviation of monthly returns would indicate
that a fund had greater price variability, and therefore greater risk, than an
investment with a lower standard deviation.

THE RISK-ADJUSTED TOTAL RETURN for a class of shares of a Fund and for other
investments over a specified period would be evaluated by dividing (a) the re-
mainder of the investment's annualized two-year total return, minus the
annualized total return of an investment in Treasury bill securities (essen-
tially a risk-free return) over that period, by (b) the standard deviation of
the investment's monthly returns for the period. This ratio is sometimes re-
ferred to as the "Sharpe measure" of return. An investment with a higher Sharpe
measure would be regarded as producing a higher return for the amount of risk
assumed during the measurement period than an investment with a lower Sharpe
measure.

Class A Shares of each Fund are sold at net asset value plus a current maximum
sales charge of 5.25% of the offering price. This current maximum sales charge
will typically be used for purposes of calculating performance figures. Returns
and net asset value of each class of shares of the Funds will fluctuate. Fac-
tors affecting the performance of the Funds include general market conditions,
operating expenses and investment management. Any additional fees charged by a
securities representative or other financial services firm would reduce returns
described in this section. Shares of the Funds are redeemable at net asset val-
ue, which may be more or less than original cost.

In reports or other communications to shareholders or in advertising and sales
literature, a Fund may also compare its performance or the performance of its
portfolio manager with that of, or reflect the performance of: (1) the Consumer
Price Index; (2) equity mutual funds or mutual fund indexes as reported by
Lipper Analytical Services, Inc. ("Lipper"), Morningstar, Inc. ("Morningstar"),
Wiesenberger Investment Companies Service ("Wiesenberger") and CDA Investment
Technologies, Inc. ("CDA") or similar independent services which monitor the
performance of mutual funds, or other industry or financial publications such
as Barron's, Changing Times, Forbes and Money Magazine; and/or (3) the S&P 500
Index or other unmanaged indices reported by Lehman Brothers. Performance com-
parisons by these indexes, services or publications may rank mutual funds over
different periods of time by means of aggregate, average, year-by-year, or
other types of total return and performance figures. Any given performance quo-
tation or performance comparison should not be considered as representative of
the performance of the Funds for any future period.

There are differences and similarities between the investments which the Funds
may purchase and the investments measured by the indexes and reporting services
which are described herein. The Consumer Price Index is generally considered to
be a measure of inflation. Lipper, Morningstar, Wiesenberger and CDA are widely
recognized mutual fund reporting services whose performance calculations are
based upon changes in net asset value with all dividends reinvested and which
do not include the effect of any sales charges.

Each Fund may also from time to time in its advertising and sales literature
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank certifi-
cates of deposit (CDs) or money market funds or indices that represent these
types of investments. U.S. Government bonds are long-term investments backed by
the full faith and credit of the U.S. Government. Bank CDs are generally short-
term, FDIC-insured investments, which pay fixed

B-52
<PAGE>

principal and interest but are subject to fluctuating rollover rates. Money
market funds are short-term investments with stable net asset values, fluctuat-
ing yields and special features enhancing liquidity.

Nuveen Growth and Income Stock Fund
The Fund commenced operations on August 7, 1996. The table below represents the
investment returns for the specified periods on the Fund's Class A, Class B,
Class C and Class R shares. The total return figures for Class A shares are
shown both with and without the effect of the maximum sales charge. The total
return figures for the Class B and Class C shares include the effect of the ap-
plicable Contingent Deferred Sales Charge ("CDSC").

<TABLE>
<CAPTION>
NUVEEN GROWTH AND INCOME STOCK
FUND
---------------------------
CUMULATIVE
-------------------
8/7/96
1/1/97- (INCEPTION)
6/30/97 -6/30/97
------- -----------
<S> <C> <C>
Class ANAV 19.74% 36.30%
Class APOP 13.45% 29.14%
Class B+ 14.24% 30.37%
Class C++ 18.14% 34.26%
Class R 19.94% 36.65%
</TABLE>
- --------
+The total return figures for Class B shares take into account a 5.00% CDSC.
++The total return figures for Class C shares take into account a 1.00% CDSC.

The table below presents annual investment returns for the ICAP Discretionary
Equity Composite between December 31, 1987 and December 31, 1996 and the return
for the first half of 1997. The ICAP Discretionary Equity Composite represents
the composite performance of the 40 managed accounts totalling approximately
$2.4 billion for which ICAP serves as investment adviser and that have the same
investment objectives and policies as the Fund.

<TABLE>
<CAPTION>
1/1/97- ANNUAL TOTAL RETURNS FOR THE YEAR ENDING DECEMBER 31,
6/30/97 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ICAP Discretionary Eq-
uity Composite (Gross). 20.58 26.44 38.16 1.95 16.58 7.38 33.63 1.47 33.54 9.37 29.08
ICAP Discretionary Eq-
uity Composite (Net)... 19.92 25.01 36.63 0.74 15.24 6.12 32.15 0.26 32.05 8.09 27.63
S&P 500................. 20.62 22.96 37.43 1.31 9.99 7.67 30.55 (3.17) 31.49 16.81 5.23
Lipper Growth and Income
Index.................. 15.93 20.69 31.17 (0.41) 14.62 9.64 27.75 (5.99) 23.74 18.35 2.63
</TABLE>

B-53
<PAGE>

Nuveen Balanced Stock and Bond Fund
The Fund commenced operations on August 7, 1996. The table below represents the
investment returns for the specified periods on the Fund's Class A, Class B,
Class C and Class R shares. The total return figures for Class A shares are
shown both with and without the effect of the maximum sales charge. The total
return figures for the Class B and Class C shares include the effect of the ap-
plicable CDSC.

<TABLE>
<CAPTION>
NUVEEN BALANCED STOCK AND BOND FUND
---------------------------------------------------------------------------
CUMULATIVE
-------------------
8/7/96
1/1/97- (INCEPTION)
6/30/97 -6/30/97
------- -----------
<S> <C> <C>
Class ANAV............................................ 10.91% 22.04%
Class APOP............................................ 5.09% 15.63%
Class B+.............................................. 5.55% 16.26%
Class C++............................................. 9.55% 20.26%
Class R............................................... 11.05% 22.31%
</TABLE>
- --------
+The total return figures for Class B shares take into account a 5.00% CDSC.
++The total return figures for Class C shares take into account a 1.00% CDSC.

The table below presents annual investment returns for the ICAP Balanced Com-
posite between December 31, 1987 and December 31, 1996 and the return for the
first half of 1997. The ICAP Balanced Composite represents the composite per-
formance of the eight managed accounts totalling approximately $370 million for
which ICAP serves as investment adviser and that have the same investment ob-
jectives and policies as the Fund.

<TABLE>
<CAPTION>
1/1/97- ANNUAL TOTAL RETURNS FOR THE YEAR ENDING DECEMBER 31,
6/30/97 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ICAP Balanced Composite
(Gross)................ 12.25 17.52 29.09 0.21 13.81 7.34 31.04 2.69 31.14 8.57 27.52
ICAP Balanced Composite
(Net).................. 11.67 16.29 27.76 (0.89) 12.61 6.18 29.70 1.57 29.80 7.40 26.20
Balanced Fund Index..... 10.59 12.32 24.40 (0.30) 9.07 7.33 21.51 3.99 21.09 10.95 5.74
Lipper Balanced Index... 11.19 13.01 24.88 (2.04) 11.94 7.47 25.84 0.65 19.70 11.18 4.15
</TABLE>

The gross performance results of the ICAP Discretionary Equity Composite and
the ICAP Balanced Composite reflect the investment performance of the respec-
tive composites before deduction of any investment advisory fees or other ex-
penses. The net performance results of the ICAP Discretionary Equity Composite
and the ICAP Balanced Composite reflect the deduction of the annual operating
expenses for the most recent fiscal year (without waivers or reimbursements)
for Class A shares of the Growth/Income Fund and the Stock/Bond Fund, respec-
tively, as summarized in the Summary of Fund Expenses section of the Prospectus
and may be compared to the performance of the indices referenced below. The
performance information above of the ICAP Discretionary Equity Composite and
ICAP Balanced Composite should not be interpreted as indicative of future per-
formance of a fund. Standard & Poor's 500 Composite Stock Price Index (the "S&P
500") is a widely recognized, unmanaged index of common stock prices. S&P 500
returns assume reinvestment of all dividends paid by the stocks included in the
index, but do not include brokerage commissions or other fees an investor would
incur by investing in the portfolio of stocks comprising the index. The Lipper
Growth and Income Index represents the composite returns of the 30 largest
funds comprising the Lipper Growth and Income Objective and assumes reinvest-
ment of

B-54
<PAGE>

all fund dividends and distributions. The Balanced Fund Index represents the
investment performance of an unmanaged index comprised 55% of the S&P 500 and
45% of the Lehman Brothers Intermediate Treasury Index (the "Lehman Index").
The Lehman Index is an unmanaged index of all public obligations of the U.S.
Treasury, U.S. Government agencies, quasi-federal corporations and corporate
debt guaranteed by the U.S. Government with maturities between one and ten
years and an outstanding par value of at least $100 million. The Lipper Bal-
anced Index represents the composite returns of the 30 largest funds comprising
the Lipper Balanced Objective and assumes reinvestment of all fund dividends
and distributions.

Nuveen Balanced Municipal and Stock Fund
The Fund commenced investment operations on August 7, 1996. The table below
represents the investment returns for the periods specified on the Fund's Class
A, Class B, Class C and Class R shares. The total return figures for Class A
shares are shown both with and without the effect of the maximum sales charge.
The total return figures for the Class B and Class C shares include the effect
of the applicable CDSC.

<TABLE>
<CAPTION>
NUVEEN BALANCED
MUNICIPAL AND STOCK FUND
--------------------------------
CUMULATIVE
-------------------
8/7/96
1/1/97- (INCEPTION)
6/30/97 -6/30/97
------- -----------
<S> <C> <C>
Class ANAV 9.61% 18.05%
Class APOP 3.86% 11.86%
Class B+ 4.26% 12.32%
Class C++ 8.22% 16.27%
Class R 9.84% 18.38%
</TABLE>
- --------
+The total return figures for Class B shares take into account a 5.00% CDSC.
++The total return figures for Class C shares take into account a 1.00% CDSC.

Total returns reflect past performance and are not predictive of future re-
sults.

ADDITIONAL INFORMATION ON THE PURCHASE AND
REDEMPTION OF FUND SHARES AND SHAREHOLDER PROGRAMS

As described in the Prospectuses, the Funds provide you with alternative ways
of purchasing Fund shares based upon your individual investment needs and pref-
erences.

Each class of shares of a Fund represents an interest in the same portfolio of
investments. Each class of shares is identical in all respects except that each
class bears its own class expenses, including distribution and administration
expenses, and each class has exclusive voting rights with respect to any dis-
tribution or service plan applicable to its shares. As a result of the differ-
ences in the expenses borne by each class of shares, net income per share, div-
idends per share and net asset value per share will vary among a Fund's classes
of shares. There are no conversion, preemptive or other subscription rights,
except that Class B shares automatically convert into Class A shares as de-
scribed in the Prospectus.

B-55
<PAGE>

Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include distri-
bution and service fees.

INITIAL AND SUBSEQUENT PURCHASES OF SHARES

You may buy Fund shares through Authorized Dealers or by calling or directing
your financial adviser to call Nuveen toll-free at 800-621-7227. You may pay
for your purchase by Federal Reserve draft or by check made payable to "[Your
Fund], Class [A], [B], [C], [R]," delivered to the financial adviser through
whom the investment is to be made for forwarding to the Funds' shareholder
services agent, SSI. When making your initial investment, you must also furnish
the information necessary to establish your Fund account by completing and en-
closing with your payment the application form attached to the Prospectus (the
"Application Form"). After your initial investment, you may make subsequent
purchases at any time by forwarding to your financial adviser or SSI a check,
in the amount of your purchase, made payable to "[Your Fund], Class [A], [B],
[C], [R]," and indicating on the check your account number. All payments need
to be in U.S. dollars and should be sent directly to SSI at its address listed
on the back cover of the Prospectus. A check drawn on a foreign bank or payable
other than to the order of your Fund generally will not be acceptable. You may
also wire Federal Funds directly to SSI, but you may be charged a fee for this.
For instructions on how to make Fund purchases by wire transfer, call Nuveen
toll-free at 800-621-7227.

Purchase Price
The price at which you purchase a class of Fund shares is based on the next
calculation of the net asset value for that share class after the order is
placed. The net asset value per share of each share class is determined as of
the close of trading (normally 4:00 p.m. Eastern Time) on each day the New York
Stock Exchange is open for business. See "Net Asset Value," for a description
of how net asset value is calculated.

Minimum Investment Requirements
The minimum initial investment is $3,000 per fund share class ($1,000 for an
Individual Retirement Account), and may be lower for accounts opened through
fee-based programs for which the program sponsor has established a single mas-
ter account with the fund's transfer agent and performs all sub-accounting
services related to that account. Additional purchases may be in amounts of $50
or more. These minimums may be changed at any time by a Fund. There are excep-
tions to these minimums for shareholders who qualify under reinvestment pro-
grams.

SYSTEMATIC INVESTMENT PROGRAMS

Each Fund offers you several opportunities to capture the benefits of "dollar
cost averaging" through systematic investment programs. In a regularly followed
dollar cost averaging program, you would purchase more shares when Fund share
prices are lower and fewer shares when Fund share prices are higher,

B-56
<PAGE>

so that the average price paid for Fund shares is less than the average price
of the Fund shares over the same time period. Dollar cost averaging does not
assure profits or protect against losses in a steadily declining market. Since
dollar cost averaging involves continuous investment regardless of fluctuating
price levels, you should consider your financial ability to continue investing
in declining as well as rising markets before deciding to invest in this way.
Each Fund offers two different types of systematic investment programs:

SYSTEMATIC INVESTMENT PLAN

Once you have established a Fund account, you may make regular investments in
an amount of $50 or more each month by authorizing SSI to draw preauthorized
checks on your bank account. There is no obligation to continue payments and
you may terminate your participation at any time at your discretion. No charge
in addition to the applicable sales charge is made in connection with this
Plan, and there is no cost to your Fund. To obtain an application form for the
Systematic Investment Plan, check the applicable box on the Application Form or
call Nuveen toll-free at 800-621-7227.

PAYROLL DIRECT DEPOSIT PLAN

Once you have established a Fund account, you may, with your employer's con-
sent, make regular investments in Fund shares of $25 or more per pay period
(meeting the monthly minimum of $50) by authorizing your employer to deduct
this amount automatically from your paycheck. There is no obligation to con-
tinue payments and you may terminate your participation at any time at your
discretion. No charge in addition to the applicable sales charge is made for
this Plan, and there is no cost to your Fund. To obtain an application form for
the Payroll Direct Deposit Plan, check the applicable box on the Application
Form or call Nuveen toll-free at 800-621-7227.

CLASS A SHARES

You may purchase Class A Shares at a public offering price equal to the appli-
cable net asset value per share plus an up-front sales charge imposed at the
time of purchase as set forth in the Prospectus. You may qualify for a reduced
sales charge, or the sales charge may be waived in its entirety, as described
below. Class A Shares are also subject to an annual service fee of .25%. See
"Distribution and Service Plans."

Each Fund receives the entire net asset value of all Class A Shares that are
sold. Nuveen retains the full applicable sales charge from which it pays the
uniform reallowances shown in the Prospectus to Authorized Dealers.

Certain commercial banks may make Class A Shares of the Funds available to
their customers on an agency basis. Pursuant to the agreements between Nuveen
and these banks, some or all of the sales charge paid by a bank customer in
connection with a purchase of Class A Shares may be retained by or

B-57
<PAGE>

paid to the bank. Certain banks and other financial institutions may be re-
quired to register as securities dealers in certain states.

REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES AND CLASS R
SHARE PURCHASE AVAILABILITY

Rights of Accumulation
You may qualify for a reduced sales charge on a purchase of Class A Shares of
any Fund if the amount of your purchase, when added to the value that day of
all of your prior purchases of shares of any Fund or of another Nuveen Mutual
Fund, or units of a Nuveen unit trust, on which an up-front sales charge or on-
going distribution fee is imposed, or is normally imposed, falls within the
amounts stated in the Class A sales charges and commissions table in "How to
Choose a Share Class" in the Prospectus. You or your financial adviser must no-
tify Nuveen or the Fund's transfer agent of any cumulative discount whenever
you plan to purchase Class A Shares of a Fund that you wish to qualify for a
reduced sales charge.

Letter of Intent
You may qualify for a reduced sales charge on a purchase of Class A Shares of
any Fund if you plan to purchase Class A Shares of Nuveen Mutual Funds over the
next 13 months and the total amount of your purchases would, if purchased at
one time, qualify you for one of the reduced sales charges shown in the Class A
sales charges and commissions table in "How to Choose a Share Class" in the
Prospectus. In order to take advantage of this option, you must complete the
applicable section of the Application Form or sign and deliver either to an Au-
thorized Dealer or to the Fund's transfer agent a written Letter of Intent in a
form acceptable to Nuveen. A Letter of Intent states that you intend, but are
not obligated, to purchase over the next 13 months a stated total amount of
Class A shares that would qualify you for a reduced sales charge shown above.
You may count shares of a Nuveen Mutual Fund that you already own on which you
paid an up-front sales charge or an ongoing distribution fee and any Class B
and Class C Shares of a Nuveen Mutual Fund that you purchase over the next 13
months towards completion of your investment program, but you will receive a
reduced sales charge only on new Class A Shares you purchase with a sales
charge over the 13 months. You cannot count towards completion of your invest-
ment program Class A Shares that you purchase without a sales charge through
investment of distributions from a Nuveen Mutual Fund or a Nuveen unit trust,
or otherwise.

By establishing a Letter of Intent, you agree that your first purchase of Class
A Shares of a Fund following execution of the Letter of Intent will be at least
5% of the total amount of your intended purchases. You further agree that
shares representing 5% of the total amount of your intended purchases will be
held in escrow pending completion of these purchases. All dividends and capital
gains distributions on Class A Shares held in escrow will be credited to your
account. If total purchases, less redemptions, prior to the expiration of the
13 month period equal or exceed the amount specified in your Letter of Intent,
the Class A Shares held in escrow will be transferred to your account. If the
total purchases, less redemptions, exceed the amount specified in your Letter
of Intent and thereby qualify for a lower sales charge than the sales charge
specified in your Letter of Intent, you will receive this lower sales charge
retroactively, and the difference between it and the higher sales charge paid
will be used to purchase additional Class A Shares on your behalf. If the total
purchases, less redemptions, are less than

B-58
<PAGE>

the amount specified, you must pay Nuveen an amount equal to the difference
between the amounts paid for these purchases and the amounts which would have
been paid if the higher sales charge had been applied. If you do not pay the
additional amount within 20 days after written request by Nuveen or your fi-
nancial adviser, Nuveen will redeem an appropriate number of your escrowed
Class A Shares to meet the required payment. By establishing a Letter of In-
tent, you irrevocably appoint Nuveen as attorney to give instructions to re-
deem any or all of your escrowed shares, with full power of substitution in
the premises.

You or your financial adviser must notify Nuveen or the Fund's transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.

Reinvestment of Nuveen Unit Trust Distributions
You may purchase Class A Shares without an up-front sales charge by reinvest-
ment of distributions from any of the various unit trusts sponsored by Nuveen.
There is no initial or subsequent minimum investment requirement for such re-
investment purchases.

Group Purchase Programs
If you are a member of a qualified group, you may purchase Class A Shares of
any Fund or of another Nuveen Mutual Fund at the reduced sales charge applica-
ble to the group's purchases taken as a whole. A "qualified group" is one
which has previously been in existence, has a purpose other than investment,
has ten or more participating members, has agreed to include Fund sales publi-
cations in mailings to members and has agreed to comply with certain adminis-
trative requirements relating to its group purchases.

Under any group purchase program, the minimum initial investment in Class A
Shares of any particular Fund or portfolio for each participant in the program
is $3,000 and the minimum monthly investment in Class A Shares of any particu-
lar Fund or portfolio by each participant is $50. No certificate will be is-
sued for any participant's account. All dividends and other distributions by a
Fund will be reinvested in additional Class A Shares of the same Fund. No par-
ticipant may utilize a systematic withdrawal program.

To establish a group purchase program, both the group itself and each partici-
pant must fill out application materials, which the group administrator may
obtain from the group's financial adviser, by calling Nuveen toll-free at
(800) 621-7227.

Reinvestment of Redemption Proceeds from Unaffiliated Funds
You may also purchase Class A Shares at net asset value without a sales charge
if the purchase takes place through an Authorized Dealer and represents the
reinvestment of the proceeds of the redemption of shares of one or more regis-
tered investment companies not affiliated with Nuveen. You must provide appro-
priate documentation that the redemption occurred not more than one year prior
to the reinvestment of the proceeds in Class A Shares, and that you either
paid an up-front sales charge or were subject to a contingent deferred sales
charge in respect of the redemption of such shares of such other investment
company.

B-59
<PAGE>

Class A Sales Charge Waiver Eligibility
Class A Shares of a Fund may be purchased at net asset value without a sales
charge by the following categories of investors:

. investors purchasing $1,000,000 or more;

. officers, trustees and former trustees of the Trust;

. bona fide, full-time and retired employees of Nuveen or ICAP, any parent
company of Nuveen, and subsidiaries thereof, or their immediate family
members;

. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;

. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates or their
immediate family members;

. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;

. investors purchasing on a periodic fee, asset-based fee or no transac-
tion fee basis through a broker-dealer sponsored mutual fund purchase
program;

. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their serv-
ices; and

. with respect to the Growth/Income and the Stock/Bond Fund, any eligible
employer-sponsored qualified defined contribution retirement plan. Eli-
gible plans are those with at least 200 employees and which either (a)
make an initial purchase of one or more Nuveen mutual funds aggregating
$1 million or more; or (b) execute a Letter of Intent to purchase in the
aggregate $1 million or more of fund shares. Nuveen will pay Authorized
Dealers a sales commission on such purchases equal to 1% of the first
$2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any
amount purchased over $5.0 million. For this category of investors a
contingent deferred sales charge of 1% will be assessed on redemptions
within 18 months of purchase, unless waived. The CDSC will be waived for
(i) partial or complete redemptions in connection with a distribution
without penalty under Section 72(t) of the Code from a retirement plan
(a) upon attaining age 59 1/2; (b) as part of a series of substantially
equal periodic payments; or (c) upon separation from service and attain-
ing age 55; (ii) partial or complete redemptions in connection with a
qualifying loan or hardship withdrawal; (iii) complete redemptions in
connection with termination of employment, plan termination or transfer
to another employer's plan or IRA; (iv) partial or complete redemptions
in connection with death or disability; (v) redemptions resulting from
the return of an excess contribution; (vi) involuntary redemptions
caused by operation of law; (vii) redemptions not exceeding 12% per year
of the value of an account; and (viii) redemptions in connection with
payment of account or plan fees.

Any Class A Shares purchased pursuant to a special sales charge waiver must be
acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by

B-60
<PAGE>

the Funds. You or your financial adviser must notify Nuveen or the Fund's
transfer agent whenever you make a purchase of Class A Shares of any Fund that
you wish to be covered under these special sales charge waivers.

Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment com-
pany. All purchases under the special sales charge waivers will be subject to
minimum purchase requirements as established by the Funds.

In determining the amount of your purchases of Class A Shares of any Fund that
may qualify for a reduced sales charge, the following purchases may be com-
bined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their immedi-
ate family members (i.e., their spouses, parents, children, grandparents,
grandchildren, parents-in-law, sons-and daughters-in-law, siblings, a sibling's
spouse, and a spouse's siblings); or (3) all purchases made through a group
purchase program as described above.

Class R Share Purchase Eligibility
Class R Shares are available for purchases of $1 million or more and for pur-
chases using dividends and capital gains distributions on Class R Shares. Class
R Shares also are available for the following categories of investors:

. officers, trustees and former trustees of the Trust;

. bona fide, full-time and retired employees of Nuveen or ICAP, any parent
company of Nuveen, and subsidiaries thereof, or their immediate family
members;

. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;

. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates, or their
immediate family members;

. investors purchasing on a periodic fee, asset-based fee or no transac-
tion fee basis through a broker-dealer sponsored mutual fund purchase
program;

. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their serv-
ices.

In addition, purchasers of Nuveen unit investment trusts may reinvest their
distributions from such unit investment trusts in Class R Shares, if, before
September 6, 1994, such purchasers had elected to reinvest distributions in
Nuveen Fund shares (before June 13, 1995 for Nuveen Municipal Bond Fund
shares). Shareholders may exchange their Class R Shares of any Nuveen Fund into
Class R Shares of any other Nuveen Fund. You may also exchange Class R Shares
of the Fund for Class A Shares without a

B-61
<PAGE>

sales charge if the current net asset value of your Class R Shares is at least
$3,000 (or you already own Class A Shares).

The reduced sales charge programs may be modified or discontinued by the Funds
at any time.

If you are eligible to purchase either Class R Shares or Class A Shares without
a sales charge at net asset value, you should be aware of the differences be-
tween these two classes of shares. Class A Shares are subject to an annual
service fee to compensate Authorized Dealers for providing you with ongoing ac-
count services. Class R Shares are not subject to a distribution or service fee
and, consequently, holders of Class R Shares may not receive the sale types or
levels of services from Authorized Dealers. In choosing between Class A Shares
and Class R Shares, you should weigh the benefits of the services to be pro-
vided by Authorized Dealers against the annual service fee imposed upon the
Class A Shares.

CLASS B SHARES

You may purchase Class B Shares at a public offering price equal to the appli-
cable net asset value per share without any up-front sales charge. Since Class
B Shares are sold without an initial sales charge, the full amount of your pur-
chase payment will be invested in Class B Shares. Class B Shares are subject to
an annual distribution fee to compensate Nuveen for its costs in connection
with the sale of Class B shares, and are also subject to an annual service fee
to compensate Authorized Dealers for providing you with ongoing financial ad-
vice and other account services.

You may be subject to a CDSC if you redeem your Class B shares prior to the end
of the sixth year after purchase. See "Reduction or Elimination of Contingent
Deferred Sales Charge" below. Nuveen compensates Authorized Dealers for sales
of Class B Shares at the time of sale at the rate of 4.00% of the amount of
Class B Shares purchased, which represents a sales commission of 3.75% plus an
advance on the first year's annual service fee of .25%.

Class B Shares acquired through the reinvestment of dividends are not subject
to a CDSC. Any CDSC will be imposed on the lower of the redeemed shares' cost
or net asset value at the time of redemption.

Class B Shares will automatically convert to Class A Shares eight years after
purchase. The purpose of the conversion is to limit the distribution fees you
pay over the life of your investment. All conversions will be done at net asset
value without the imposition of any sales load, fee, or other charge, so that
the value of each shareholder's account immediately before conversion will be
the same as the value of the account immediately after conversion. Class B
Shares acquired through reinvestment of distributions will convert into Class A
Shares based on the date of the initial purchase to which such shares relate.
For this purpose, Class B Shares acquired through reinvestment of distributions
will be attributed to particular purchases of Class B Shares in accordance with
such procedures as the Board of Trustees may determine from time to time. Class
B Shares that are converted to Class A Shares will remain subject to an annual
service fee that is identical in amount for both Class B Shares and Class A
Shares. Since net asset value per share of the Class B Shares and the Class A
Shares may differ at the time of conversion, a shareholder may receive more or
fewer Class A Shares than the number of Class B Shares converted. Any

B-62
<PAGE>

conversion of Class B Shares into Class A Shares will be subject to the contin-
uing availability of an opinion of counsel or a private letter ruling from the
Internal Revenue Service to the effect that the conversion of shares would not
constitute a taxable event under federal income tax law. Conversion of Class B
Shares into Class A Shares might be suspended if such an opinion or ruling were
no longer available.

CLASS C SHARES

You may purchase Class C Shares at a public offering price equal to the appli-
cable net asset value per share without any up-front sales charge. Class C
Shares are subject to an annual distribution fee of .75% to compensate Nuveen
for its costs in connection with the sale of Class C Shares. Class C Shares are
also subject to an annual service fee of .25% to compensate Authorized Dealers
for providing you with on-going financial advice and other account services.
Nuveen compensates Authorized Dealers for sales of Class C Shares at the time
of the sale at a rate of 1% of the amount of Class C Shares purchased, which
represents a sales commission of .75% plus an advance on the first year's an-
nual service fee of .25%. See "Distribution and Service Plans."

Redemptions of Class C Shares within 12 months of purchase may be subject to a
CDSC of 1% of the lower of the purchase price or redemption proceeds. Because
Class C Shares do not convert to Class A Shares and continue to pay an annual
distribution fee indefinitely, Class C Shares should normally not be purchased
by an investor who expects to hold shares for significantly longer than eight
years.

REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

Class A Shares are normally redeemed at net asset value, without any CDSC. How-
ever, in the case of Class A Shares purchased at net asset value because the
purchase amount equaled or exceeded $1 million where the Authorized Dealer did
not waive the sales commission, a CDSC of 1% is imposed on any redemption
within 18 months of purchase. In the case of Class B Shares redeemed within six
years of purchase, a CDSC is imposed, beginning at 5% for redemptions within
the first year, declining to 4% for redemptions within years two and three, and
declining by 1% each year thereafter until disappearing after the sixth year.
Class C Shares are redeemed at net asset value, without any CDSC, except that a
CDSC of 1% is imposed upon redemption of Class C Shares that are redeemed
within 12 months of purchase.

In determining whether a CDSC is payable, a Fund will first redeem shares not
subject to any charge, or that represent an increase in the value of a Fund ac-
count due to capital appreciation, and then will redeem shares held for the
longest period, unless the shareholder specifies another order. No CDSC is
charged on shares purchased as a result of automatic reinvestment of dividends
or capital gains paid. In addition, no CDSC will be charged on exchanges of
shares into another Nuveen Mutual Fund or Nuveen money market fund. You may not
exchange Class B Shares for shares of a Nuveen money market fund. The holding
period is calculated on a monthly basis and begins the first day of the month
in which the order for investment is received. The CDSC is calculated based on
the lower of the redeemed shares' cost

B-63
<PAGE>

or net asset value at the time of the redemption and is deducted from the re-
demption proceeds. Nuveen receives the amount of any CDSC shareholders pay. If
Class A or Class C shares subject to a CDSC are exchanged for shares of a
Nuveen money market fund, the CDSC would be imposed on the subsequent redemp-
tion of those money market fund shares, and the period during which the share-
holder holds the money market fund shares would be counted in determining the
remaining duration of the CDSC. The Fund may elect not to so count the period
during which the shareholder held the money market fund shares, in which event
the amount of any applicable CDSC would be reduced in accordance with applica-
ble SEC rules by the amount of any 12b-1 plan payments to which those money
market funds shares may be subject.

The CDSC may be waived or reduced under the following six special circumstanc-
es: 1) redemptions within one year following the death or disability, as de-
fined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, of
a shareholder; 2) in whole or in part for redemptions of shares by sharehold-
ers with accounts in excess of specified breakpoints that correspond to the
breakpoints under which the up-front sales charge on Class A Shares is reduced
pursuant to Rule 22d-1 under the Act; 3) redemptions of shares purchased under
circumstances or by a category of investors for which Class A Shares could be
purchased at net asset value without a sales charge; 4) in connection with the
exercise of a reinstatement privilege whereby the proceeds of a redemption of
a Fund's shares subject to a sales charge are reinvested in shares of certain
Funds within a specified number of days; 5) in connection with the exercise of
a Fund's right to redeem all shares in an account that does not maintain a
certain minimum balance or that the Board of Trustees has determined may have
material adverse consequences to the shareholders of such Fund; and 6) redemp-
tions made pursuant to a Fund's systematic withdrawal plan, up to 12% annually
of the original investment amount. If a Fund waives or reduces the CDSC, such
waiver or reduction would be uniformly applied to all Fund shares in the par-
ticular category. In waiving or reducing a CDSC, the Funds will comply with
the requirements of Rule 22d-1 of the Investment Company Act of 1940, as
amended.

SHAREHOLDER PROGRAMS

Exchange Privilege
You may exchange shares of a class of any of the Funds for shares of the same
class of any other Nuveen Mutual Fund with reciprocal exchange privileges, at
net asset value without a sales charge, by sending a written request to the
Fund, c/o Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330.
Similarly, Class A, Class B, Class C and Class R Shares of other Nuveen Mutual
Funds may be exchanged for the same class of shares of a Fund at net asset
value without a sales charge. Exchanges of shares from any Nuveen money market
fund will be made into Class A Shares, Class B Shares, Class C Shares or Class
R Shares (if eligible) of a Fund at the public offering price. If, however, a
sales charge has previously been paid on the investment represented by the ex-
changed shares (i.e., the shares to be exchanged were originally issued in ex-
change for shares on which a sales charge was paid), the exchange of shares
from a Nuveen money market fund will be made into shares of a Fund at net as-
set value. Class A Shares, Class C Shares or Class R Shares may be exchanged
for shares of any Nuveen money market fund, but Class B Shares may not be ex-
changed for shares of a Nuveen money market fund.

B-64
<PAGE>

If you exchange shares subject to a CDSC, no CDSC will be charged at the time
of the exchange. However, if you subsequently redeem the shares acquired
through the exchange, the redemption may be subject to a CDSC, depending on
when you purchased your original shares and the CDSC schedule of the fund from
which you exchanged your shares.

The shares to be purchased must be offered in your state of residence and you
must have held the shares you are exchanging for at least 15 days. The total
value of exchanged shares must at least equal the minimum investment require-
ment of the Nuveen Mutual Fund being purchased. For federal income tax purpos-
es, any exchange constitutes a sale and purchase of shares and may result in
capital gain or loss. Before making any exchange, you should obtain the Pro-
spectus for the Nuveen Mutual Fund you are purchasing and read it carefully. If
the registration of the account for the Fund you are purchasing is not exactly
the same as that of the fund account from which the exchange is made, written
instructions from all holders of the account from which the exchange is being
made must be received, with signatures guaranteed by a member of an approved
Medallion Guarantee Program or in such other manner as may be acceptable to the
Fund. Your may also exchange shares by telephone if you authorize telephone ex-
changes by checking the applicable box on the Application Form or by calling
Nuveen toll-free at 800-621-7227 to obtain an authorization form. The exchange
privilege may be modified or discontinued by a Fund at any time.

The exchange privilege is not intended to permit a Fund to be used as a vehicle
for short-term trading. Excessive exchange activity may interfere with portfo-
lio management, raise expenses, and otherwise have an adverse effect on all
shareholders. In order to limit excessive exchange activity and in other cir-
cumstances where Fund management believes doing so would be in the best inter-
est of the Fund, each Fund reserves the right to revise or terminate the ex-
change privilege, or limit the amount or number of exchanges or reject any ex-
change. Shareholders would be notified of any such action to the extent re-
quired by law.

Reinstatement Privilege
If you redeemed Class A, Class B or Class C Shares of a Fund or any other
Nuveen Mutual Fund that were subject to a sales charge or a CDSC, you have up
to one year to reinvest all or part of the full amount of the redemption in the
same class of shares of the Fund at net asset value. This reinstatement privi-
lege can be exercised only once for any redemption, and reinvestment will be
made at the net asset value next calculated after reinstatement of the appro-
priate class of Fund shares. If you reinstate shares that were subject to a
CDSC, your holding period as of the redemption date also will be reinstated for
purposes of calculating a CDSC. The federal income tax consequences of any cap-
ital gain realized on a redemption will not be affected by reinstatement, but a
capital loss may be disallowed in whole or in part depending on the timing, the
amount of the reinvestment and the fund from which the redemption occurred.

Fund Direct
You can use Fund Direct to link your fund account to your account at a bank or
other financial institution. Fund Direct enables you to transfer money elec-
tronically between these accounts and perform a variety of account transac-
tions. These include purchasing shares by telephone, investing through a Sys-
tematic Investment Plan, and sending dividends, distributions, redemption pay-
ments or Systematic

B-65
<PAGE>

Withdrawal Plan payments directly to your bank account. Please refer to the Ap-
plication Form for details, or call SSI at 800-621-7227 for more information.

Fund Direct privileges may be requested via an application you obtain by call-
ing 800-621-7227. Fund Direct privileges will apply to each shareholder listed
in the registration on your account as well as to your Authorized Dealer repre-
sentative of record unless and until SSI receives written instructions termi-
nating or changing those privileges. After you establish Fund Direct for your
account, any change of bank account information must be made by signature-guar-
anteed instructions to SSI signed by all shareholders who own the account.

Purchases may be made by telephone only after your account has been estab-
lished. To purchase shares in amounts up to $250,000 through a telephone repre-
sentative, call SSI at 800-621-7227. The purchase payment will be debited from
your bank account.

REDEMPTION

You may redeem shares by sending a written request for redemption directly to
your Fund, c/o Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-
5330, accompanied by duly endorsed certificates, if issued. Requests for re-
demption and share certificates, if issued, must be signed by each shareholder
and, if the redemption proceeds exceed $50,000 or are payable other than to the
shareholder of record at the address of record (which address may not have
changed in the preceding 60 days), the signature must be guaranteed by a member
of an approved Medallion Guarantee Program or in such other manner as may be
acceptable to the Fund. You will receive payment based on the net asset value
per share next determined after receipt by the Fund of a properly executed re-
demption request in proper form. A check for the redemption proceeds will be
mailed to you within seven days after receipt of your redemption request. For
accounts registered in the name of a broker-dealer, payment will be forwarded
within three business days. However, if any shares to be redeemed were pur-
chased by check within 15 days prior to the date the redemption request is re-
ceived, the Fund will not mail the redemption proceeds until the check received
for the purchase of shares has cleared, which may take up to 15 days.

Telephone and Electronic Redemptions
If you have authorized telephone redemption and your account address has not
changed within the last 60 days, you can redeem shares that are held in non-
certificate form and that are worth $50,000 or less by calling Nuveen at 800-
621-7227. While you or anyone authorized by you may make telephone redemption
requests, redemption checks will be issued only in the name of the shareholder
of record and will be mailed to the address of record. If your telephone re-
quest is received prior to 4:00 p.m. eastern time, the redemption check will
normally be mailed the next business day. For requests received after 4:00 p.m.
eastern time, the redemption will be effected at 4:00 p.m. eastern time the
following business day and the check will normally be mailed on the second
business day after the request.

If you have authorized electronic fund redemption or established Fund Direct
privileges, you can take advantage of the following expedited redemption proce-
dures to redeem shares held in non-certificate form that are worth at least
$1,000. You may make electronic fund redemption requests through a

B-66
<PAGE>

phone representative or Fund Direct redemption requests by calling Nuveen at
800-621-7227. If a redemption request is received by 4:00 p.m. eastern time,
the redemption will be made as of 4:00 p.m. that day. If the redemption request
is received after 4:00 p.m. eastern time, the redemption will be made as of
4:00 p.m. the following business day. Proceeds of electronic fund redemptions
will normally be wired on the second business day following the redemption, but
may be delayed one additional business day if the Federal Reserve Bank of Bos-
ton or the Federal Reserve Bank of New York is closed on the day redemption
proceeds would ordinarily be wired. The Fund reserves the right to charge a fee
for electronic fund redemption. Proceeds of redemptions through Fund Direct
will normally be wired to your Fund Direct bank account on the second or third
business day after the redemption.

Before you may redeem shares electronically by phone or through Fund Direct,
you need to complete the telephone redemption authorization section of the Ap-
plication Form or the Fund Direct application form and return it to Nuveen or
SSI. If you did not authorize telephone redemption when you opened your ac-
count, you may obtain a telephone redemption authorization form by writing your
Fund or by calling Nuveen toll-free at 800-621-7227. Proceeds from electronic
share redemptions will be transferred by Federal Reserve wire only to the com-
mercial bank account specified by the shareholder on the Application Form. You
need to send a written request to Nuveen or SSI in order to establish multiple
accounts, or to change the account or accounts designated to receive redemption
proceeds. These requests must be signed by each account owner with signatures
guaranteed by a member of an approved Medallion Guarantee Program or in such
other manner as may be acceptable to a Fund. Further documentation may be re-
quired from corporations, executors, trustees or personal representatives.

For the convenience of shareholders, each Fund has authorized Nuveen as its
agent to accept orders from financial advisers by wire or telephone for the re-
demption of Fund shares. The redemption price is the first net asset value of
the appropriate share class determined following receipt of an order placed by
the financial adviser. Each Fund makes payment for the redeemed shares to the
securities representatives who placed the order promptly upon presentation of
required documents with signatures guaranteed as described above. Neither the
Fund nor Nuveen charges any redemption fees other than any CDSC as described
above. However, your financial adviser may charge you for serving as agent in
the redemption of shares.

Each Fund reserves the right to refuse telephone redemptions and, at its op-
tion, may limit the timing, amount or frequency of these redemptions. Telephone
redemption procedures may be modified or terminated at any time, on 30 days'
notice, by a Fund. A Fund, SSI and Nuveen will not be liable for following tel-
ephone instructions reasonably believed to be genuine. Each Fund employs proce-
dures reasonably designed to confirm that telephone instructions are genuine.
These procedures include recording all telephone instructions and requiring up
to three forms of identification prior to acting upon a caller's instructions.
If a Fund does not follow reasonable procedures for protecting shareholders
against loss on telephone transactions, it may be liable for any losses due to
unauthorized or fraudulent telephone instructions.

B-67
<PAGE>

Systematic Withdrawal Plan.
If you own Fund shares currently worth at least $10,000, you may establish a
Systematic Withdrawal Plan by completing an application form for the Plan. You
may obtain an application form by checking the applicable box on the Applica-
tion Form or by calling Nuveen toll-free at 800-621-7227.

The Plan permits you to request periodic withdrawals on a monthly, quarterly,
semi-annual or annual basis in an amount of $50 or more. Depending upon the
size of the withdrawals requested under the Plan and fluctuations in the net
asset value of Fund shares, these withdrawals may reduce or even exhaust your
account.

The purchase of Class A Shares, other than through reinvestment, while you are
participating in the Systematic Withdrawal Plan with respect to Class A Shares
will usually be disadvantageous because you will be paying a sales charge on
any Class A Shares you purchase at the same time you are redeeming shares. Sim-
ilarly, use of the Systematic Withdrawal Plan for Class B Shares held for less
than six years or Class C Shares held for less than 12 months may be disadvan-
tageous because the newly-purchased Class B or Class C Shares will be subject
to the CDSC.

Suspension of Right of Redemption
A Fund may suspend the right of redemption of Fund shares or delay payment more
than seven days (a) during any period when the New York Stock Exchange is
closed (other than customary weekend and holiday closings), (b) when trading in
the markets the Fund normally utilizes is restricted, or an emergency exists as
determined by the Securities and Exchange Commission so that trading of the
Fund's investments or determination of its net asset value is not reasonably
practicable, or (c) for any other periods that the Securities and Exchange Com-
mission by order may permit for protection of Fund shareholders.

Involuntary Redemption
A Fund may, from time to time, establish a minimum total investment for Fund
shareholders, and each Fund reserves the right to redeem your shares if your
investment is less than the minimum after giving you at least 30 days' notice.
If any minimum total investment is established, and if your account is below
the minimum, you will be allowed 30 days following the notice in which to pur-
chase sufficient shares to meet the minimum. So long as a Fund continues to of-
fer shares at net asset value to holders of Nuveen Unit Trusts who are invest-
ing their Nuveen Unit Trust distributions, no minimum total investment will be
established for those investors.

GENERAL MATTERS

The Funds may encourage registered representatives and their firms to help ap-
portion their assets among bonds, stocks and cash, and may seek to participate
in programs that recommend a portion of their assets be invested in equity se-
curities, equity and debt securities, or equity and municipal securities.

Upon notice to all Authorized Dealers, Nuveen may reallow to Authorized Dealers
electing to participate up to the full applicable Class A Share up-front sales
charge during periods and for transactions

B-68
<PAGE>

specified in the notice. The reallowances made during these periods may be
based upon attainment of minimum sales levels.

In addition to the types of compensation to dealers to promote sales of fund
shares that are described in the prospectus, Nuveen may from time to time make
additional reallowances only to certain authorized dealers who sell or are ex-
pected to sell certain minimum amounts of shares of the Nuveen Mutual Funds and
Nuveen Unit Trusts during specified time periods. Promotional support may in-
clude providing sales literature to and holding informational or educational
programs for the benefit of such Authorized Dealers' representatives, seminars
for the public, and advertising and sales campaigns. Nuveen may reimburse a
participating Authorized Dealer for up to one-half of specified media costs in-
curred in the placement of advertisements which jointly feature the Authorized
Dealer and Nuveen Funds and Nuveen Unit Trusts.

Such reimbursement will be based on the number of its financial advisers who
have sold Nuveen Fund shares and Nuveen Unit Trust units during the prior cal-
endar year according to an established schedule. Any such support or reimburse-
ment would be provided by Nuveen out of its own assets, and not out of the as-
sets of the Funds, and will not change the price an investor pays for shares or
the amount that a Fund will receive from such a sale. The staff of the Securi-
ties and Exchange Commission takes the position that dealers who receive 90% or
more of the applicable sales charge may be deemed underwriters under the Secu-
rities Act of 1933, as amended.

To help advisers and investors better understand and most efficiently use the
Funds to reach their investment goals, the Funds may advertise and create spe-
cific investment programs and systems. For example, this may include informa-
tion on how to use the Funds to accumulate assets for future education needs or
periodic payments such as insurance premiums. The Funds may produce software,
electronic information sites, or additional sales literature to promote the ad-
vantages of using the Funds to meet these and other specific investor needs.

Exchanges of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares avail-
able for public purchase. Shares of the Nuveen money market funds may be pur-
chased on days on which the Federal Reserve Bank of Boston is normally open for
business. In addition to the holidays observed by the Fund, the Nuveen money
market funds observe and will not make fund shares available for purchase on
the following holidays: Martin Luther King's Birthday, Columbus Day and Veter-
ans Day.

In addition, you may exchange Class R Shares of any Fund for Class A Shares of
the same Fund without a sales charge if the current net asset value of those
Class R Shares is at least $3,000 or you already own Class A Shares of that
Fund.

Shares will be registered in the name of the investor or the investor's finan-
cial adviser. A change in registration or transfer of shares held in the name
of a financial adviser may only be made by an order in good form from the fi-
nancial adviser acting on the investor's behalf. Share certificates will only
be issued upon written request to the Funds' transfer agent. No share certifi-
cates will be issued for fractional shares.

B-69
<PAGE>

For more information on the procedure for purchasing shares of a Fund and on
the special purchase programs available thereunder, see "How to Buy Shares"
and "Systematic Investing" in the Prospectus.

If you choose to invest in a Fund, an account will be opened and maintained
for you by SSI, the Funds' shareholder services agent. Share certificates will
be issued to you only upon written request to SSI, and no certificates will be
issued for fractional shares. Each Fund reserves the right to reject any pur-
chase order and to waive or increase minimum investment requirements. A change
in registration or transfer of shares held in the name of your financial ad-
viser's firm can only be made by an order in good form from the financial ad-
viser acting on your behalf.

Authorized Dealers are encouraged to open single master accounts. However,
some Authorized Dealers may wish to use SSI's sub-accounting system to mini-
mize their internal recordkeeping requirements. An Authorized Dealer or other
investor requesting shareholder servicing or accounting other than the master
account or sub-accounting service offered by SSI will be required to enter
into a separate agreement with another agent for these services for a fee that
will depend upon the level of services to be provided.

The Shares are offered continuously. However, subject to the rules and regula-
tions of the Securities and Exchange Commission, each Fund reserves the right
to suspend the continuous offering of it shares at any time, but no suspension
shall affect your right of redemption.

Nuveen serves as the principal underwriter of the shares of the Funds pursuant
to a "best efforts" arrangement as provided by a distribution agreement with
the Trust ("Distribution Agreement"). Pursuant to the Distribution Agreement,
the Trust appointed Nuveen to be its agent for the distribution of the Funds'
shares on a continuous offering basis. Nuveen sells shares to or through bro-
kers, dealers, banks or other qualified financial intermediaries (collectively
referred to as "Dealers"), or others, in a manner consistent with the then ef-
fective registration statement of the Trust. Pursuant to the Distribution
Agreement, Nuveen, at its own expense, finances certain activities incident to
the sale and distribution of the Funds' shares, including printing and dis-
tributing of prospectuses and statements of additional information to other
than existing shareholders, the printing and distributing of sales literature,
advertising and payment of compensation and giving of concessions to dealers.
Nuveen receives for its services the excess, if any, of the sales price of a
Fund's shares less the net asset value of those shares, and reallows a major-
ity or all of such amounts to the Dealers who sold the shares; Nuveen may act
as such a Dealer. Nuveen also receives compensation pursuant to a distribution
plan adopted by the Trust pursuant to Rule 12b-1 and described herein under
"Distribution and Service Plans." Nuveen receives any CDSCs imposed on redemp-
tions of Shares, but any amounts as to which a reinstatement privilege is not
exercised are set off against and reduce amounts otherwise payable to Nuveen
pursuant to the distribution plan.

B-70
<PAGE>

The following table sets forth the aggregate amount of underwriting commissions
with respect to the sale of Fund shares, the amount thereof retained by Nuveen
and the compensation on redemptions and repurchases received by Nuveen for each
of the Funds for the fiscal year ended June 30, 1997. All figures are to the
nearest thousand.

<TABLE>
<CAPTION>
AMOUNT OF
COMPENSATION
AMOUNT ON
AMOUNT OF RETAINED REDEMPTIONS
UNDERWRITING BY AND
COMMISSIONS NUVEEN REPURCHASES
------------ -------- ------------
<S> <C> <C> <C>
Nuveen Growth and Income Stock Fund.......... $679 $-- $206
Nuveen Balanced Stock and Bond Fund.......... $ 27 $ 1 $ 2
Nuveen Balanced Municipal and Stock Fund..... $ 55 $ 9 $ 17
</TABLE>

DISTRIBUTION AND SERVICE PLANS

Each Fund has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the In-
vestment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will all be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.

The distribution fee applicable to Class B Shares and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses in-
curred in connection with the distribution of such Shares. These expenses in-
clude payments to Authorized Dealers, including Nuveen, who are brokers of rec-
ord with respect to the Shares, as well as, without limitation, expenses of
printing and distributing prospectuses to persons other than shareholders of
the Fund, expenses of preparing, printing and distributing advertising and
sales literature and reports to shareholders used in connection with the sale
of such Shares, certain other expenses associated with the distribution of such
Shares, and any distribution-related expenses that may be authorized from time
to time by the Board of Trustees.

The service fee applicable to Class A Shares, Class B Shares and Class C Shares
under each Fund's Plan will be payable to Authorized Dealers in connection with
the provision of ongoing account services to shareholders. These services may
include establishing and maintaining shareholder accounts, answering share-
holder inquiries and providing other personal services to shareholders.

Each Fund may spend up to .25 of 1% per year of the average daily net assets of
Class A Shares as a service fee under the Plan as applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
each of the Class B Shares and Class C Shares as a distribution fee which con-
stitutes an asset-based sales charge whose purpose is the same as an up-front
sales charge and up to .25 of 1% per year of the average daily net assets of
each of the Class B Shares and Class C Shares as a service fee under the Plan
as applicable to such classes.

For the period from inception (August 7, 1996) to the fiscal year ended June
30, 1997, the Growth/ Income Fund, the Stock/Bond Fund and the Muni/Stock Fund
paid 12b-1 fees pursuant to their respec-

B-71
<PAGE>

tive 12b-1 Plan in the amounts set forth in the table below. For this period,
all of the 12b-1 service fees on Class A Shares were paid out as compensation
to Authorized Dealers for providing services to shareholders relating to their
investments. All 12b-1 distribution and service fees on Class B and Class C
Shares were retained by the Distributor as compensation for commissions ad-
vanced to Authorized Dealers.

<TABLE>
<CAPTION>
12B-1
FEES
PAID BY
THE FUND
FROM
8/7/96-
6/30/97
--------
<S> <C>
Nuveen Growth and Income Stock Fund
Class A............................................................. $721,457
Class B............................................................. $ 16,725
Class C............................................................. $ 6,701
--------
Total............................................................. $744,883
Nuveen Balanced Stock and Bond Fund
Class A............................................................. $ 22,683
Class B............................................................. $ 292
Class C............................................................. $ 772
--------
Total............................................................. $ 23,747
Nuveen Balanced Municipal and Stock Fund
Class A............................................................. $ 33,029
Class B............................................................. $ 818
Class C............................................................. $ 458
--------
Total............................................................. $ 34,305
</TABLE>

Under each Fund's Plan, the Fund will report quarterly to the Board of Trustees
for its review all amounts expended per class of shares under the Plan. The
Plan may be terminated at any time with respect to any class of shares, without
the payment of any penalty, by a vote of a majority of the Trustees who are not
"interested persons" and who have no direct or indirect financial interest in
the Plan or by vote of a majority of the outstanding voting securities of such
class. The Plan may be renewed from year to year if approved by a vote of the
Board of Trustees and a vote of the non-interested Trustees who have no direct
or indirect financial interest in the Plan cast in person at a meeting called
for the purpose of voting on the Plan. The Plan may be continued only if the
trustees who vote to approve such continuance conclude, in the exercise of rea-
sonable business judgment and in light of their fiduciary duties under applica-
ble law, that there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders. The Plan may not be amended to increase materially
the cost which a class of shares may bear under the Plan without the approval
of the shareholders of the affected class, and any other material amendments of
the Plan must be approved by the non-interested trustees by a vote cast in per-
son at a meeting called for the purpose of considering such amendments. During
the continuance of the Plan, the selection and nomination of the non-interested
trustees of the Trust will be committed to the discretion of the non-interested
trustees then in office.

B-72
<PAGE>

INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN

Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago, Illinois 60603 have been selected as auditors for the Trust. In addi-
tion to audit services, Arthur Andersen LLP will provide consultation and as-
sistance on accounting, internal control, tax and related matters. The finan-
cial statements included in this Statement of Additional Information have been
audited by Arthur Andersen LLP as indicated in their report with respect there-
to, and are included in reliance upon the authority of said firm as experts in
giving said report.

The custodian of the assets of the Funds is The Chase Manhattan Bank, 4 New
York Plaza, New York, New York 10004. The custodian performs custodial, fund
accounting and portfolio accounting services.

FINANCIAL STATEMENTS

The audited financial statements for each Fund's most recent fiscal year appear
in the Funds' Annual Reports and are incorporated herein by reference. The An-
nual Reports accompany this Statement of Additional Information.

GENERAL TRUST INFORMATION

Each Fund is a series of the Trust. The Trust is an open-end diversified man-
agement investment company under the Investment Company Act of 1940. The Trust
was organized as a Massachusetts business trust on May 6, 1996. The Board of
Trustees of the Trust is authorized to issue an unlimited number of shares in
one or more series or "Funds," which may be divided into classes of shares.
Currently, there are three series authorized and outstanding, each of which is
divided into four classes of shares designated as Class A Shares, Class B
Shares, Class C Shares and Class R Shares. Each class of shares represents an
interest in the same portfolio of investments of the Fund. Each class of shares
has equal rights as to voting, redemption, dividends and liquidation, except
that each bears different class expenses, including different distribution and
service fees, and each has exclusive voting rights with respect to any distri-
bution or service plan applicable to its shares. There are no conversion, pre-
emptive or other subscription rights, except that Class B Shares automatically
convert into Class A Shares, as described herein. The Board of Trustees of the
Trust has the right to establish additional series and classes of shares in the
future, to change those series or classes and to determine the preferences,
voting powers, rights and privileges thereof.

The Trust is not required and does not intend to hold annual meetings of share-
holders. Shareholders owning more than 10% of the outstanding shares of a Fund
have the right to call a special meeting to remove Trustees or for any other
purpose.

Under Massachusetts law applicable to Massachusetts business trusts, sharehold-
ers of such a trust may, under certain circumstances, be held personally liable
as partners for its obligations. However, the Declaration of Trust of the Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or

B-73
<PAGE>

instrument entered into or executed by the Trust or the Trustees. The Funds'
Declaration of Trust further provides for indemnification out of the assets and
property of the Trust for all losses and expenses of any shareholder held per-
sonally liable for the obligations of the Trust. Thus, the risk of a share-
holder incurring financial loss on account of shareholder liability is limited
to circumstances in which both inadequate insurance existed and the Trust or
Fund itself was unable to meet its obligations. The Trust believes the likeli-
hood of the occurrence of these circumstances is remote.

B-74
<PAGE>

APPENDIX A--RATINGS OF INVESTMENTS

STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable Standard
& Poor's Ratings Group ("S&P") rating symbols and their meanings (as published
by S&P) follows:

LONG TERM DEBT

An S&P corporate or municipal debt rating is a current assessment of the cred-
itworthiness of an obligor with respect to a specific obligation. This assess-
ment may take into consideration obligors such as guarantors, insurers, or
lessees.

The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a partic-
ular investor.

The ratings are based on current information furnished by the issuer or ob-
tained by S&P from other sources it considers reliable. S&P does not perform an
audit in connection with any rating and may, on occasion, rely on unaudited fi-
nancial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.

INVESTMENT GRADE
AAA Debt rated "AAA' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

AA Debt rated "AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small de-
gree.

A Debt rated "A' has a strong capacity to pay interest and repay princi-
pal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.

BBB
Debt rated "BBB' is regarded as having an adequate capacity to pay in-
terest and repay principal. Whereas it normally exhibits adequate pro-
tection parameters, adverse economic conditions or changing circum-
stances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than in higher rated
categories.

<PAGE>

SPECULATIVE GRADE RATING
Debt rated "BB', "B', "CCC', "CC' and "C' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. "BB' indicates the least degree of speculation and "C' the highest.
While such debt will likely have some quality and protective characteristics
these are outweighed by major uncertainties or major exposures to adverse con-
ditions.

BB Debt rated "BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and princi-
pal payments. The "BB' rating category is also used for debt subordi-
nated to senior debt that is assigned an actual or implied "BBB-' rat-
ing.

B Debt rated "B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal.

The "B' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB' or "BB-' rating.

CCC Debt rated "CCC' has a currently identifiable vulnerability to de-
fault, and is dependent upon favorable business, financial, and eco-
nomic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.

The "CCC' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "B' or "B-' rating.

CC The rating "CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC' debt rating.

C The rating "C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-' debt rating. The
"C' rating may be used to cover a situation where a bankruptcy peti-
tion has been filed, but debt service payments are continued.

CI The rating "CI' is reserved for income bonds on which no interest is
being paid.

D Debt rated "D' is in payment default. The "D' rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
"D' rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.

PLUS (+) OR MINUS (-): The ratings from "AA' to "CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

PROVISIONAL RATINGS: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
comple-

A-2
<PAGE>

tion of the project, makes no comment on the likelihood of, or the risk of de-
fault upon failure of, such completion. The investor should exercise judgment
with respect to such likelihood and risk.

L The letter "L' indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit col-
lateral is federally insured by the Federal Savings & Loan Insurance
Corp. or the Federal Deposit Insurance Corp.* and interest is ade-
quately collateralized. In the case of certificates of deposit the
letter "L' indicates that the deposit, combined with other deposits
being held in the same right and capacity will be honored for princi-
pal and accrued pre-default interest up to the federal insurance lim-
its within 30 days after closing of the insured institution or, in the
event that the deposit is assumed by a successor insured institution,
upon maturity.

NR Indicates no rating has been requested, that there is insufficient in-
formation on which to base a rating, or that S&P does not rate a par-
ticular type of obligation as a matter of policy.

*Continuance of the rating is contingent upon S&P's receipt of an executed copy
of the escrow agreement or closing documentation confirming investments and
cash flow.

COMMERCIAL PAPER

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.

Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:

A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is satis-
factory. However, the relative degree of safety is not as high as for
issues designated "A-1."

A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.

B Issues rated "B" are regarded as having only speculative capacity for
timely payment.

C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.

A-3
<PAGE>

A commercial rating is not a recommendation to purchase, sell, or hold a secu-
rity inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on occa-
sion, rely on unaudited financial information. The ratings may be changed, sus-
pended, or withdrawn as a result of changes in or unavailability of such infor-
mation or based on other circumstances.

VALUE LINE--FINANCIAL STRENGTH RATING (A++, A+, A, B++, B+, B, C++, C+, C)--The
financial strength of each of the more than 1,600 companies in the VS II data
base is rated relative to all the others. The ratings range from A++ to C in
nine steps. (For screening purposes, think of an A rating as "greater than" a
B). Companies that have the best relative financial strength are given an A++
rating, indicating an ability to weather hard times better than the vast major-
ity of other companies. Those who don't quite merit the top rating are given an
A+ grade, and so on. A rating as low as C++ is considered satisfactory. A rat-
ing of C+ is well below average, and C is reserved for companies with very se-
rious financial problems. The ratings are based upon a computer analysis of a
number of key variables that determine (a) financial leverage, (b) business
risk, and (c) company size, plus the judgment of Value Line's analysts and se-
nior editors regarding factors that cannot be quantified across-the-board for
all companies. The primary variables that are indexed and studied include eq-
uity coverage of debt, equity coverage of intangibles, "quick ratio", account-
ing methods, variability of return, fixed charge coverage, stock price stabili-
ty, and company size.

MOODY'S INVESTORS SERVICE, INC.--A brief description of the applicable Moody's
Investors Service, Inc. ("Moody's") rating symbols and their meanings (as pub-
lished by Moody's) follows:

LONG TERM DEBT

Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally re-
ferred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.

Aa Bonds which are rated Aa are judged to be of high quality by all stan-
dards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks ap-
pear somewhat larger than in Aaa securities.

A Bonds which are rated A possess may favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.

A-4
<PAGE>

Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristi-
cally unrealiable over any great length of time. Such bonds lack out-
standing investment characteristics and in fact have speculative char-
acteristics as well.

Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protec-
tion of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of the desir-
able investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.

Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.

Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds, and is-
sues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

Con( . . . )
Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination
of basis of condition.

NOTE:Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the sym-
bols Aa1, A1, Baa1, Ba1, and B1.

COMMERCIAL PAPER

Issuers rated PRIME-1 (or related supporting institutions) have a superior ca-
pacity for repayment of senior short-term promissory obligations. Prime-1 re-
payment capacity will often be evidenced by many of the following characteris-
tics:

--Leading market positions in well-established industries.

--High rates of return on funds employed.

--Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

--Well-established access to a range of financial markets and assured
sources of alternate liquidity.

A-5
<PAGE>

Issuers rated PRIME-2 (or related supporting institutions) have a strong capac-
ity for repayment of senior short-term promissory obligations. This will nor-
mally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated PRIME-3 (or related supporting institutions) have an acceptable
capacity for repayment of senior short-term promissory obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial lever-
age. Adequate alternate liquidity is maintained.

Issuers rated NOT PRIME do not fall within any of the Prime rating categories.

DUFF & PHELPS, INC.--A brief description of the applicable Duff & Phelps, Inc.
("D&P") ratings symbols and their meanings (as published by D&P) follows:

LONG TERM DEBT

These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
which may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition, gov-
ernment action, regulation, technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination.

Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by sev-
eral factors including relative weightings of the different security classes in
the capital structure, the overall credit strength of the issuer, and the na-
ture of covenant protection.

The Credit Rating Committee formally reviews all ratings once per quarter (more
frequently, if nec- essary). Ratings of "BBB-' and higher fall within the defi-
nition of investment grade securities, as defined by bank and insurance super-
visory authorities. Structured finance issues, including real estate, asset-
backed and mortgage-backed financings, use this same rating scale. Duff &
Phelps Credit Rating claims paying ability ratings of insurance companies use
the same scale with minor modification in the definitions. Thus, an investor
can compare the credit quality of investment alternatives across industries and
structural types. A "Cash Flow Rating" (as noted for specific ratings) ad-
dresses the likelihood that aggregate principal and interest will equal or ex-
ceed the rated amount under appropriate stress conditions.

A-6
<PAGE>

RATING SCALEDEFINITION
- -------------------------------------------------------------------------------

AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.

- -------------------------------------------------------------------------------

AA+ High credit quality. Protection factors are strong. Risk is mod-
AA est, but may vary slightly from time to time because of economic
AA- conditions.

- -------------------------------------------------------------------------------

A+ Protection factors are average but adequate. However, risk factors
A are more variable and greater in periods of economic stress.
A-

- -------------------------------------------------------------------------------

BBB+ Below average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during
BBB- economic cycles.

- -------------------------------------------------------------------------------

BB+ Below investment grade but deemed likely to meet obligations when
BB due. Present or prospective financial protection factors fluctuate
BB- according to industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.

- -------------------------------------------------------------------------------

B+ Below investment grade and possessing risk that obligations will
B not be met when due. Financial protection factors will fluctuate
B- widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating
grade.

- -------------------------------------------------------------------------------

CCC Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substan-
tial with unfavorable economic/industry conditions, and/or with
unfavorable company developments.

- -------------------------------------------------------------------------------

DD Defaulted debt obligations. Issuer failed to meet scheduled prin-
cipal and/or interest payments.
DP Preferred stock with dividend arrearages.

- -------------------------------------------------------------------------------

SHORT-TERM DEBT RATINGS

Duff & Phelps' short-term ratings are consistent with the rating criteria used
by money market participants. The ratings apply to all obligations with matu-
rities of under one year, including commercial paper, the uninsured portion of
certificates of deposit, unsecured bank loans, master notes, bankers accept-
ances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.

A-7
<PAGE>

Emphasis is placed on liquidity which is defined as not only cash from opera-
tions, but also access to alternative sources of funds including trade credit,
bank lines, and the capital markets. An important consideration is the level of
an obligor's reliance on short-term funds on an ongoing basis.

The distinguishing feature of Duff & Phelps Credit Ratings' short-term ratings
is the refinement of the traditional "1' category. The majority of short-term
debt issuers carry the highest rating, yet quality differences exist within
that tier. As a consequence, Duff & Phelps Credit Rating has incorporated gra-
dations of "1+' (one plus) and "1-' (one minus) to assist investors in recog-
nizing those differences.

These ratings are recognized by the SEC for broker-dealer requirements, specif-
ically capital computation guidelines. These ratings meet Department of Labor
ERISA guidelines governing pension and profit sharing investments. State regu-
lators also recognize the ratings of Duff & Phelps Credit Rating for insurance
company investment portfolios.

RATING SCALE:
DEFINITION

HIGH GRADE
D-1+ Highest certainty of timely payment. Short-term liquidity, includ-
ing internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-
free U.S. Treasury short-term obligations.

D-1 Very high certainty of timely payment. Liquidity factors are ex-
cellent and supported by good fundamental protection factors. Risk
factors are minor.

D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.

GOOD GRADE
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.

SATISFACTORY GRADE
D-3 Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.

NON-INVESTMENT GRADE
D-4 Speculative investment characteristics. Liquidity is not suffi-
cient to insured against disruption in debt service. Operating
factors and market access may be subject to a high degree of vari-
ation.

DEFAULT
D-5
Issuer failed to meet scheduled principal and/or interest pay-
ments.

FITCH INVESTORS SERVICE, INC.--A brief description of the applicable Fitch In-
vestors Service, Inc. ("Fitch") ratings symbols and meanings (as published by
Fitch) follows:

A-8
<PAGE>

LONG TERM DEBT

Fitch investment grade bond ratings provide a guide to investors in determining
the credit risk associated with a particular security. The ratings represent
Fitch's assessment of the issuer's ability to meet the obligations of a spe-
cific debt issue or class of debt in a timely manner.

The rating takes into consideration special features of the issue, its rela-
tionship to other obligations of the issuer, the current and prospective finan-
cial condition and operating performance of the issuer and any guarantor, as
well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided by in-
surance policies or financial guaranties unless otherwise indicated.

Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small differ-
ences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security. Rat-
ings do not comment on the adequacy of market price, the suitability of any se-
curity for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information. Rat-
ings may be changed, suspended, or withdrawn as a result of changes in, or the
unavailability of, information or for other reasons.

AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay inter-
est and repay principal, which is unlikely to be affected by reasona-
bly foreseeable events.

AA Bonds considered to be investment grade and of very high credit quali-
ty. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA'. Because
bonds rated in the "AAA' and "AA' categories are not significantly
vulnerable to foreseeable future developments, short-term debt of the
issuers is generally rated "F-1+'.

A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is consid-
ered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

BBB
Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these bonds and, therefore, impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.

A-9
<PAGE>

Fitch speculative grade bond ratings provide a guide to investors in determin-
ing the credit risk associated with a particular security. The ratings ("BB'
to "C') represent Fitch's assessment of the likelihood of timely payment of
principal and interest in accordance with the terms of obligation for bond is-
sues not in default. For defaulted bonds, the rating ("DDD' to "D') is an as-
sessment of the ultimate recovery value through reorganization or liquidation.

The rating takes into consideration special features of the issue, its rela-
tionship to other obligations of the issuer, the current and prospective fi-
nancial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the is-
suer's future financial strength.

Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories cannot fully reflect the differ-
ences in the degrees of credit risk.

BB Bonds are considered speculative. The obligor's ability to pay inter-
est and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identi-
fied which could assist the obligor in satisfying its debt service re-
quirements.

B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of con-
tinued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and eco-
nomic activity throughout the life of the issue.

CCC Bonds have certain identifiable characteristics which, if not reme-
died, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C Bonds are in imminent default in payment of interest or principal.

DDD, Bonds are in default on interest and/or principal payments. Such bonds
DD are extremely speculative and should be valued on the basis of their
AND Dultimate recovery value in liquidation or reorganization of the obli-
gor. "DDD' represents the highest potential for recovery of these
bonds, and "D' represents the lowest potential for recovery.

SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on de-
mand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.

The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.

A-10
<PAGE>

F-1+ EXCEPTIONALLY STRONG CREDIT QUALITY Issues assigned this rating are
regarded as having the strongest degree of assurance for timely pay-
ment.

F-1 VERY STRONG CREDIT QUALITY Issues assigned this rating reflect an as-
surance of timely payment only slightly less in degree than issues
rated "F-1+'.

F-2 GOOD CREDIT QUALITY Issues assigned this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not
as great as for issues assigned "F-1+' and "F-1' ratings.

F-3 FAIR CREDIT QUALITY Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is ade-
quate; however, near-term adverse changes could cause these securities
to be rated below investment grade.

F-S WEAK CREDIT QUALITY Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic con-
ditions.

D DEFAULT Issues assigned this rating are in actual or imminent payment
default.

LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.

A-11