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NUVEEN
Mutual Funds
June 1, 1998
As Updated June 15, 1998
PROSPECTUS
A portfolio of quality European companies for investors seeking long-term growth
potential and international diversification.
[PHOTO APPEARS HERE]
European Value Fund
Managed by Institutional Capital Corporation,
Nuveen's Premier Adviser/SM/ for value investing.
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We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
[LOGO APPEARS HERE] Investment Strategy
[LOGO APPEARS HERE] Risks
[LOGO APPEARS HERE] Fees, Charges and Expenses
[LOGO APPEARS HERE] Shareholder Instructions
[LOGO APPEARS HERE] Performance and Current Portfolio Information
Table of Contents
Section 1 The Fund
This section provides you with an overview of the fund including its investment
objective, portfolio holdings, and historical performance information.
<TABLE>
<CAPTION>
<S> <C>
Summary of Fund Expenses 6
How The Portfolio Manager Has Performed 8
Investment Objective 9
How the Fund Pursues Its Objective 9
Is This Fund Right For You? 9
</TABLE>
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
<TABLE>
<CAPTION>
<S> <C>
Who Manages the Fund 10
What Securities We Invest In 10
How We Select Investments 11
What the Risks Are 12
How We Manage Risk 13
Management Fees 14
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C>
How to Choose a Share Class 16
How to Reduce Your Sales Charge 18
How to Buy Shares 18
Systematic Investing 19
Systematic Withdrawal Plan 19
Special Services 20
How to Sell Shares 20
</TABLE>
Section 4 General Information
This section summarizes the fund's distribution policies and other general fund
information.
<TABLE>
<CAPTION>
<S> <C>
Distribution and Taxes 22
Distribution and Service Plans 23
Net Asset Value 23
Organization of the Fund 24
Fund Service Providers 24
</TABLE>
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Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission, nor has the Securities
and Exchange Commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
NOT May lose value
FDIC- No bank guarantee
INSURED
Nuveen European Value Fund
Prospectus June 1, 1998
As Updated June 15, 1998
Investment Opportunities in the New Europe
The European Economic Monetary Union (EMU) is a significant economic event that
is expected to create a new international business environment. Many analysts
believe the EMU will revolutionize financial markets and provide enhanced
investment opportunities by reducing currency risk, fostering lower interest
rates and increasing cross-border trading, competition, corporate mergers and
restructurings.
The Nuveen European Value Fund seeks to provide a superior total return with
moderated risk by investing in a diversified portfolio consisting primarily of
American Depository Receipts (ADRs) of established, well-known European
companies. The portfolio manager concentrates on stocks that 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.
The Fund's portfolio manager is Institutional Capital Corporation, Nuveen's
Premier Adviser(SM) for value investing. Institutional Capital has over 28 years
of investment management experience and approximately $12 billion in assets
under management.
Diversification is a Key to Building a Better Portfolio
A diversified portfolio that includes several different asset classes can serve
to significantly reduce your overall investment risk. Particularly if your
investment portfolio presently includes mostly U.S. stocks and bonds,
diversifying your portfolio to include international stocks can enable you to
pursue attractive returns while substantially reducing your investment risk over
the long term. The Nuveen European Value Fund, with its diversified portfolio of
established, well-known European companies, may be an appropriate way for you to
add international stocks, with their risk reduction and return benefits, to your
portfolio.
3
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Growth and Income Funds in a Well-Balanced Portfolio
Many investors find that mutual funds with a growth and income focus, such as
the Nuveen European Value Fund, can provide a balance of long-term growth
potential to help build wealth over time, complemented by current income to help
reduce price fluctuation. Growth and income 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. You should consider
Nuveen's growth and income funds, each of which seek attractive returns and
moderated risk, for the core of your investment portfolio. Because the Nuveen
European Value Fund is subject to the risks of foreign securities and limits its
investments to one region of the world, the fund should be used as part of a
diversified, well-balanced portfolio.
Serving Investors for Generations
Since 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. Today we offer a range of equity, balanced
and fixed-income mutual funds, each with a wide range of share class purchase
options, designed to suit the unique circumstances and financial planning needs
of accomplished investors. More than 1.3 million investors have entrusted Nuveen
to help them invest prudently to build and sustain wealth.
This prospectus contains information you should know before you invest in the
Nuveen European Value Fund. Please keep it for future reference. You can find
more detailed information about the fund, a part of the Nuveen Investment Trust,
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 the fund, or if you want a free copy of
the Statement of Additional Information, write to Nuveen Mutual Funds, 333
West Wacker Drive, Chicago, IL 60606, or call Nuveen toll-free at
(800) 621-7227.
4
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The Fund
Section 1
Your individual investment circumstances, along with the advice of your personal
financial adviser, will determine whether you should consider an investment in
the European Value Fund. This section provides you with an overview of the fund
that can help you evaluate whether it might be appropriate for your needs.
Section 1 The Fund 5
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[LOGO] 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.
The percentages shown are estimated for the current fiscal year.
Actual fees and expenses may be greater or less than those shown.
An example of how the expenses work follows these tables.
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Shareholder Transaction Expenses/1/
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European Value Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Share Class A B C R/2/
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Maximum Sales Charge Imposed on Purchases 5.75%/3/ None None None
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Maximum Sales Charge Imposed on
Reinvested Dividends None None None None
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Exchange Fees None None None None
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Deferred Sales Charge/4/ None/5/ 5%/6/ 1%/7/ None
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</TABLE>
1. 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. As a percent of offering price. 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.
6 Section 1 The Fund
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Annual Fund Operating Expenses/1/
1. As a percent of average daily net assets.
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 Dealers 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.
3. The fund manager has voluntarily agreed to waive fees and reimburse expenses
through July 31, 1999 in order to prevent total expenses (excluding any
distribution or service fees and extraordinary expenses) on an annualized
basis from exceeding 1.30% of the average daily net asset value of each class
of shares. If the fund manager modifies this waiver, your expenses could
increase.
<TABLE>
<CAPTION>
European Value Fund
<S> <C> <C> <C> <C>
Share Class A B C R
============================================================
Management Fees 0.95% 0.95% 0.95% 0.95%
- ------------------------------------------------------------
Rule 12b-1 Fees/2/ 0.25 1.00 1.00 --
- ------------------------------------------------------------
Other 0.80 0.80 0.80 0.80
============================================================
Total (Gross) 2.00% 2.75% 2.75% 1.75%
- ------------------------------------------------------------
Waivers/Reimbursements/3/ (0.45) (0.45) (0.45) (0.45)
============================================================
Total (Net) 1.55% 2.30% 2.30% 1.30%
- ------------------------------------------------------------
</TABLE>
Examples
1. Assumes that the shareholder redeemed at the end of each holding period and
the following contingent deferred sales charges were applied: 4% (1 year) and
3% (3 years). If instead the shareholder had redeemed prior to the end of
each holding period, the expenses would have been as follows: $72 (1 year)
and $113 (3 years).
2. Assumes that the shareholder redeemed at the end of the first year and the
contingent deferred sales charge was not applicable for any of the periods
shown. If instead the shareholder had redeemed prior to the end of the first
year, the expenses would have been $33.
The following example illustrates the ongoing expenses on a hypothetical $1,000
investment based on the Annual Fund Operating Expenses shown above, an
annual total return of 5% and reinvestment of all dividends. This example also
assumes that the fund's annual operating expenses remain constant throughout a
holding period. This example does not represent actual past or future fund
expenses, which may be greater or less than those assumed. Moreover, the fund's
actual rate of return may be greater or less than the hypothetical 5% return
assumed.
<TABLE>
<CAPTION>
European Value Fund
Holding Period 1 year 3 years
======================================
<S> <C> <C>
Class A $72 $104
- --------------------------------------
Class B/1/ $63 $103
- --------------------------------------
Class C/2/ $23 $ 72
- --------------------------------------
Class R $13 $ 41
- --------------------------------------
</TABLE>
Section 1 The Fund 7
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Nuveen European Value Fund (as of June 1, 1998)
<TABLE>
<CAPTION>
Highlights
Total Net Assets $2.97 million
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<S> <C> <C> <C> <C>
Share Class A B C R
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Inception Date 5/98 5/98 5/98 5/98
- --------------------------------------------------------------------------------
NAV $19.77 $19.77 $19.77 $19.77
- --------------------------------------------------------------------------------
</TABLE>
How the Portfolio Manager Has Performed
The fund's portfolio manager is Institutional Capital Corporation, Nuveen's
Premier Adviser(SM) for value investing. The portfolio manager is an
institutional investment management firm with more than 27 years of experience
and over $12 billion in assets under management. For more information, see "Who
Manages the Fund" on page 10.
Growth of a $10,000 Investment 1/97 - 3/98
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Portfolio Manager Lipper European
Composite Fund Index
--------- ----------
<S> <C> <C>
Dec-96 $ 9,425.00 $10,000.00
Jan-97 $ 9,664.71 $10,099.00
Feb-97 $ 9,896.02 $10,250.49
Mar-97 $10,028.95 $10,490.35
Apr-97 $10,345.20 $10,357.12
May-97 $10,762.46 $10,767.26
Jun-97 $11,373.05 $11,274.40
Jul-97 $11,869.29 $11,604.74
Aug-97 $11,460.20 $11,037.27
Sep-97 $12,542.42 $12,030.62
Oct-97 $12,196.67 $11,527.74
Nov-97 $12,193.42 $11,614.20
Dec-97 $12,119.44 $11,888.29
Jan-98 $12,539.58 $12,331.72
Feb-98 $13,473.36 $13,347.86
Mar-98 $14,653.18 $14,358.29
</TABLE>
Portfolio Manager Composite Returns
<TABLE>
<CAPTION>
Average Annual Total
Returns (as of 3/31/98)
-----------------------------------
<S> <C> <C>
Since Composite
1-Year Inception (12/31/96)
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On Offer 21.19% 35.50%
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On NAV 28.59% 42.07%
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Lipper European Fund Index 24.19% 33.54%
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MSCI Europe Index 18.88% 37.97%
- --------------------------------------------------------------------------------
</TABLE>
The chart and table above present the performance of Institutional Capital's
Euro Select Composite, which includes all assets (comprising a single account
totaling approximately $26.3 million as of March 31, 1998) that have
substantially the same investment objective and policies as the fund. The
Composite's account may experience different investment inflows and outflows
than the fund and is not subject to all of the restrictions of the Investment
Company Act of 1940 and the Internal Revenue Code that apply to the fund, which
could adversely affect fund performance. We assumed a $10,000 initial investment
($9,425, net of the 5.75% sales charge) in Class A shares, the share class with
the highest initial sales charge. Investment returns reflect Composite gross-of-
fee returns, net of estimated Class A gross operating expenses (without
reimbursement) of 2.00% for the fund's first full fiscal year. Class B, C or R
investment results would differ due to differing sales charges and operating
expenses. The Lipper European Fund Index is a managed index that represents the
average annualized returns of the 30 largest funds in the Lipper European Region
Fund category. The MSCI Europe Index is an unmanaged index comprised of a
capitalization-weighted sampling of the companies listed on the stock exchanges
of 14 European countries. Index returns reflect total returns and assume
reinvestment of dividends but do not include any brokerage commissions, sales
charges or other fees. The chart and table are not indicative of future fund
performance.
8 Section 1 The Fund
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How the Fund Is Invested
Portfolio Allocation /1/
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
Stocks 97%
Cash and Cash Equivalents 3%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Country Allocation /1/
Netherlands 23.9%
France 20.3%
Germany 17.8%
UK 17.5%
Switzerland 8.8%
Finland 4.4%
Italy 4.2%
Sweden 3.1%
Top 10 Stock Holdings /1/
Philips Electronics NV ADR 8.1%
Elf Aquitaine ADR 6.9%
Hoechst AG ADR 4.4%
Vivendi ADR 4.4%
Tomkins PLC ADR 4.3%
ING Groep NV ADR 4.3%
Bayerische Vereinsbank AG ADR 4.3%
Novartis AG ADR 4.3%
RWE Aktiengesellschaft ADR 4.3%
AXA UAP ADR 4.3%
</TABLE>
/1/ Holdings will vary.
<TABLE>
<CAPTION>
Stock Portfolio Statistics
<S> <C>
Average Market Capitalization $33 billion
Average Trailing 12 Mos. P/E 21.0
</TABLE>
Investment Objective
The Nuveen European Value Fund seeks to provide over time a superior total
return (income plus capital appreciation) with moderated risk. 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 European companies with at least $1 billion 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 20 to 30 stocks with a 15% to
25% price appreciation potential over the next 18 months.
Our target investment mix is 90% European equity securities and 10% cash
equivalents. Under normal market conditions, we will invest at least 65% of the
fund's total assets in European equity securities, predominantly U.S.-traded
ADRs, and we may invest up to 35% of the fund 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 10.
Is This Fund Right For You?
This fund may be an appropriate investment if you are:
. seeking to invest in European equity securities;
. want to pursue the high potential returns of foreign stocks using a
value-oriented investment strategy;
. want to diversify your otherwise U.S.-oriented equity portfolio.
You should not invest in this fund if you are:
. unwilling to accept share price fluctuation, including the possibility of
sharp price declines;
. unwilling to accept the risks of foreign investment;
. investing to meet short-term financial goals.
Section 1 The Fund 9
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Section 2 How We Manage Your Money
To help you understand the fund 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 Fund
Nuveen Institutional Advisory Corp. (NIAC), 333 West Wacker Drive, Chicago, IL
60606, has overall responsibility for management of the fund. NIAC oversees the
management of the fund's portfolio, manages the fund's business affairs and
provides day-to-day administrative services. The fund's Board of Trustees has
general supervisory responsibility for the fund 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 fund's 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 fund's investment portfolio. 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.
What Securities We Invest In
The 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. For more information about the securities
that we invest in, see the Statement of Additional Information.
European Investments
The fund invests primarily in a diversified portfolio of stocks of established,
well-known companies with at least $1 billion in market capitalization that are
domiciled or have their principal activities in Europe. The domicile or the
location of the principal activities of a company will be the country (1) under
whose laws the company is organized, (2) in which the principal trading market
for the equity securities issued by the company is located, or (3) in which the
company has over half its assets or derives half its revenues.
The fund may invest in a variety of European securities, including American
Depositary Receipts (ADRs) and other types of depositary receipts; equity
securities of European companies that may or may not be publicly traded in the
U.S.; Eurodollar convertibles; fixed-income securities of European companies
that may or may not be publicly traded in the U.S.; and debt obligations issued
or guaranteed by European governments, their agencies, authorities or
instrumentalities. All foreign investments involve certain risks in addition to
those associated with U.S. investments (see "What the Risks Are-Foreign
investment risk" on page 12).
10 Section 2 How We Manage Your Money
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Equity Securities
Eligible equity securities include common stocks; preferred stocks; warrants to
purchase common stocks or preferred stocks; securities convertible into common
or preferred stocks, such as convertible bonds and debentures; and other
securities with equity characteristics. 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.
Short-Term Investments
The fund 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.
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, and no income would be
received, before the settlement date.
How We Select Investments
We adhere to a disciplined, value-driven investment strategy 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.
We select stocks from the universe of large- and mid-size European 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 20 to 30 most attractive stocks with a
15% to 25% price appreciation potential over the next 18 months.
The fund anticipates that its annual portfolio turnover rate will be between
100% and 150% under normal market conditions, and will generally not exceed
200%. 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. Funds with
higher turnover rates generally pay higher brokerage commissions, and their
shareholders may pay higher taxes on realized investment gains.
Section 2 How We Manage Your Money 11
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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 the fund. Because of these
and other risks, you should consider an investment in this fund 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.
Foreign investment risk: There are certain risks associated with foreign
investing in addition to the usual risks inherent in U.S. investing. Such risks
include political or economic instability, difficulty in predicting
international trade patterns, lack of publicly available information about
foreign companies, changes in foreign currency exchange rates, and the
possibility of adverse changes in investment or exchange control regulations.
For a more detailed discussion of the risks associated with foreign investing,
see the Statement of Additional Information.
Correlation risk: The U.S. and European equity markets often rise and fall at
different times or by different amounts due to economic or other developments
particular to a given country. This phenomenon would tend to lower the overall
price volatility of a portfolio that included both U.S. and European stocks.
Sometimes, however, global trends will cause the U.S. and European markets to
move in the same direction, reducing or eliminating the risk reduction benefit
of international investing.
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 "real" (or "inflation adjusted") value of the fund's
assets can decline as can the real value of the fund's distributions.
How We Manage Risk
We use time-tested risk management strategies designed to help protect your
capital during periods of market uncertainty or weakness: portfolio
diversification, a rigorous sell discipline and defined portfolio allocation
ranges. While we use these strategies to control or reduce risk, there is no
assurance that we will succeed.
Emphasis on American Depositary Receipts (ADRs)
The fund buys equity securities of European companies primarily in the form of
sponsored ADRs that are traded in U.S. securities markets. Sponsored and
exchange-traded ADRs must comply with U.S. Generally Accepted Accounting
Principles and the reporting and disclosure requirements of the Securities and
Exchange Commission. Furthermore, such ADRs settle within three days through the
U.S. clearance system and are not subject to risks caused by the complicated and
varied settlement standards that exist for many foreign securities exchanges or
to currency risk during a transtion's settlement period.
12 Section 2 How We Manage Your Money
<PAGE>
Portfolio Allocation Ranges
The fund follows a disciplined asset allocation methodology that keeps your
portfolio mix within a defined range over time as market conditions change. The
fund will invest between 65% and 100% of its assets in stocks and between 0% and
35% of its assets in cash equivalents. The fund's Board of Trustees may change
the target investment mix and operating ranges for each asset class without
shareholder approval.
Investment Limitations
The fund has 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. The 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).
In addition, the fund has adopted certain other investment limitations that may
be changed by the fund's Board of Trustees without shareholder approval. The
fund may not have more than:
. 5% of its net assets in warrants, non-investment grade fixed-income
securities and 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.
Hedging and Other Defensive Investment Strategies
We may invest up to 100% of the 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 the 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. To protect against foreign currency exchange rate risk, the fund may
enter into foreign currency hedging transactions, including forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currency futures contracts. The ability of the 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.
Section 2 How We Manage Your Money 13
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Management Fees
Fund Management Fee
For the fund management services and facilities furnished by NIAC, the fund has
agreed to pay an annual fund management fee according to the following schedule,
calculated as a percentage of average daily net assets:
<TABLE>
<CAPTION>
Average Daily Net Asset Value Portfolio Management Fee
<S> <C>
For the first $125 million .9500 of 1%
................................................................................
For the next $125 million .9375 of 1%
................................................................................
For the next $250 million .9250 of 1%
................................................................................
For the next $500 million .9125 of 1%
................................................................................
For the next $1 billion .9000 of 1%
................................................................................
For assets over $2 billion .8750 of 1%
................................................................................
</TABLE>
The fund manager has voluntarily agreed to waive fees and reimburse expenses
through July 31, 1999 to prevent total expenses (excluding any distribution or
service fees and extraordinary expenses) on an annualized basis from exceeding
1.30% of the average daily net asset value of each class of shares.
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,
according to the following base schedule:
<TABLE>
<CAPTION>
Assets of All the Nuveen-Sponsored Investment
Products Managed by Institutional Capital Portfolio Management Fee
<S> <C>
For the first $500 million .35 of 1%
................................................................................
For the next $500 million .30 of 1%
................................................................................
For assets over $1 billion .25 of 1%
................................................................................
</TABLE>
In addition, NIAC has agreed to pay Institutional Capital a supplemental
management fee until assets in the aggregate in this fund and another European
fund subadvised by Institutional Capital reach $50 million. When this level is
reached, the aggregate amount of the supplemental fee paid by NIAC will be
credited back to NIAC through a temporary reduction in fees.
The 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
advisory or sub-advisory agreements. The fund also pays a portion of the Nuveen
Investment Trust's general administrative expenses allocated in proportion to
its net assets. All fees and expenses are accrued daily and deducted before
payment of dividends to investors.
14 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 6.
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:
<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/1/
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
- ---------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.50% 4.71% 4.00%
- ---------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.75% 3.90% 3.25%
- ---------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.75% 2.83% 2.50%
- ---------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
- ---------------------------------------------------------------------------------------------------------
$1,000,000 and over -- -- 1.00%/2/
- ---------------------------------------------------------------------------------------------------------
</TABLE>
1. Between July 1, 1998 and September 30, 1998, Nuveen will reallow the entire
Class A sales charge as a sales commission to Authorized Dealers who agree to
jointly develop marketing and promotional support programs in connection with
the introduction of the fund.
2. 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
Section 3 How You Can Buy and Sell Shares 15
<PAGE>
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 net 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 4.00% up-front sales
commission, which includes an advance of the first year's service fee. If you
sell your shares within six years of purchase, you will 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.
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.
16 | Section 3 How You Can Buy and Sell Shares
<PAGE>
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 fund 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 a
traditional/Roth IRA account; $500 for an Education 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.
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.
Section 3 How You Can Buy and Sell Shares | 17
<PAGE>
By Mail
Prior to August 10, 1998, 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. On or after August 10, 1998, mail your application to Chase Global
Funds Services Company, P.O. Box 5186, New York, New York 10274-5186. For more
information, see "Fund Service Providers" on page 23.
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.
Systematic Withdrawal Plan
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly, semi-annually, or annually, and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Fund Direct" below), paid to a third party, or sent payable to you at an
address other than your address of record. You must complete the appropriate
section of the account application or Account Update Form to participate in the
fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concurrent
purchases of Class A, B or C shares because you may unnecessarily pay a sales
charge or CDSC on these purchases.
18 | 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 into an identically registered account 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 the 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.
- --------------------------------------------------------------------------------
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 fund does not charge a redemption fee, you
may be assessed a CDSC, if applicable.
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the fund
will first redeem any shares that are not subject to a CDSC or that represent an
increase in the value of your fund account due to capital appreciation, and then
redeem the shares you have owned for the longest period of time, unless you ask
the fund to redeem your shares in a different order. No CDSC is imposed on
shares you buy through the reinvestment of dividends and capital gains. The
holding period is calculated on a monthly basis and begins on the first day of
the month in which you
Section 3 How You Can Buy and Sell Shares 19
<PAGE>
buy shares. When you redeem shares subject to a CDSC, the CDSC is calculated on
the lower of your purchase price or redemption proceeds, deducted from your
redemption proceeds, and paid to Nuveen. The CDSC may be waived under certain
special circumstances as described in the Statement of Additional Information.
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. (as of August 10, 1998, Chase Global Funds
Services Company), the fund's transfer agent, 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
Prior to August 10, 1998, you can sell your shares at any time by sending a
written request to the Nuveen European Value Fund, c/o Shareholder Services,
Inc., P.O. Box 5330, Denver, CO 80217-5330. On or after August 10, 1998, send
your request to Chase Global Funds Services Company, P.O. Box 5186, New York,
New York 10274-5186. For more information, see "Fund Service Providers" on page
23. 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 the fund. A notary public cannot
provide a signature guarantee.
An Important Note About Involuntary Redemption
From time to time, the fund may establish minimum account size requirements. The
fund reserves the right to liquidate your account upon 30 days' written notice
if the value of your account falls below an established minimum. The fund
presently has 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.
20 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 fund, this
section includes important details about how the fund makes distributions to
shareholders. We discuss some other fund policies, as well.
Distributions and Taxes
The fund intends to operate as a "Regulated Investment Company" under Subchapter
M of the Internal Revenue Code, and therefore will not be liable for federal
income taxes to the extent its earnings are distributed on a timely basis.
Dividends from the fund's long-term capital gains are taxable as capital gains,
while dividends from short-term capital gains and net investment income are
generally taxable as ordinary income. The tax status of your dividends from the
fund is not affected by whether you reinvest your dividends or receive them in
cash. 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.
Foreign Income Tax Considerations
Investment income that the fund receives from its foreign investments may be
subject to foreign income taxes, which generally will reduce the fund's
distributions. However, the U.S. has entered into tax treaties with many foreign
countries that may entitle you to certain tax benefits.
Payment and Reinvestment Options
The fund pays income dividends quarterly and any capital gains once a year in
December. The fund automatically reinvests 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 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 a return of
your purchase price. The fund usually distributes taxable dividends quarterly
and capital gains, if any, each December.
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%.
Section 4 General Information 21
<PAGE>
Distribution and Service Plans
John Nuveen & Co. Incorporated serves as the selling agent and distributor of
the fund's shares. In this capacity, Nuveen manages the offering of the fund's
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, the 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 16 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 and 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 fund's 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 fund's Board of
Trustees or its delegate.
In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are valued
at market value. Common stocks and other equity securities are valued at the
last sales price that day. Securities not listed on a national securities
exchange or Nasdaq are valued at the most recent bid prices. When price quotes
are not readily available, the pricing service establishes fair market value
based on prices of comparable securities.
22 Section 4 General Information
<PAGE>
Organization of the Fund
The fund is a series of the Nuveen Investment Trust, an open-end diversified
management investment company under the Investment Company Act of 1940. The
other series of the trust are offered under a separate prospectus. 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 the
fund have the right to call a special meeting to remove trustees or for any
other purpose.
Fund Service Providers
The custodian of the assets of the fund is The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004-2413. Chase also provides certain accounting services
to the fund. The fund's transfer, shareholder services and dividend paying
agent, Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330 (until
August 10, 1998) and Chase Global Funds Services Company, P.O. Box 5186, New
York, New York 10274-5186 (on and after August 10, 1998), performs bookkeeping,
data processing and administrative services for the maintenance of shareholder
accounts.
NIAC, Institutional Capital, Shareholder Services, and Chase each rely on
computer systems to manage the fund's investments, process shareholder
transactions and provide shareholder account maintenance. Because of the way
computers historically have stored dates, some of these systems currently may
not be able to correctly process activity occurring in the year 2000. NIAC is
working with the trust's service providers to adapt their systems to address
this "year 2000 issue." NIAC and the trust expect, but there can be no absolute
assurance, that the necessary work will be completed on a timely basis.
Section 4 General Information 23
<PAGE>
Nuveen Family of Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objective.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Tax-Free Income
National Municipal Bond Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona
California/1/
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky/2/
Louisiana
Maryland
Massachusetts/1/
Michigan
Missouri
New Jersey
New Mexico
New York/1/
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
1. Long-term and insured long-term portfolios.
2. Long-term and limited-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606-1286
(800)621-7227
www.nuveen.com
<PAGE>
Statement of Additional Information
June 1, 1998
As Updated June 15, 1998
Nuveen Investment Trust
333 West Wacker Drive
Chicago, Illinois 60606
NUVEEN EUROPEAN VALUE 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, the Prospectus for the Fund. The Prospectus for the Fund is dated June 1,
1998, as updated June 15, 1998.
<TABLE>
<S> <C>
Table of Contents Page
- ------------------------------------------------------------------------------
General Information B-2
- ------------------------------------------------------------------------------
Investment Policies and Restrictions B-2
- ------------------------------------------------------------------------------
Investment Policies and Techniques B-4
- ------------------------------------------------------------------------------
Management B-18
- ------------------------------------------------------------------------------
Trust Manager and Fund Manager B-22
- ------------------------------------------------------------------------------
Portfolio Transactions B-23
- ------------------------------------------------------------------------------
Net Asset Value B-24
- ------------------------------------------------------------------------------
Tax Matters B-25
- ------------------------------------------------------------------------------
Performance Information B-30
- ------------------------------------------------------------------------------
Additional Information on the Purchase And Redemption of Fund Shares and
Shareholder Programs B-34
- ------------------------------------------------------------------------------
Distribution and Service Plans B-49
- ------------------------------------------------------------------------------
Independent Public Accountants and Custodian B-50
- ------------------------------------------------------------------------------
General Trust Information B-51
- ------------------------------------------------------------------------------
Appendix A--Ratings of Investments A-1
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
GENERAL INFORMATION
The Nuveen European Value Fund (the "Fund") is a series of the Nuveen Invest-
ment 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 the
Fund are described in the Prospectus for the Fund. The Fund, as a fundamental
policy, may not, without the approval of the holders of a majority of the
shares of the Fund:
(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 obtaining such short-
term credits as are necessary for the clearance of transactions, engaging in
delayed- delivery transactions, or purchasing certain futures and options),
provided that the combination 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).
(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.
(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).
B-2
<PAGE>
(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).
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.
The foregoing fundamental investment policies, together with the investment ob-
jective of the 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 Investment Company Act of
1940, this means the vote of (i) 67% or more of the Fund's shares present at a
meeting, if the holders of more than 50% of the Fund's shares are present or
represented by proxy, or (ii) more than 50% of the Fund's shares, whichever is
less.
In addition to the foregoing fundamental investment policies, the Fund is also
subject to the following non-fundamental restrictions and policies, which may
be changed by the Board of Trustees. The 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.
(4) Purchase securities of open-end or closed-end investment companies except
in compliance with the Investment Company Act of 1940 and applicable state law.
(5) 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.
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(6) 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.
(7) 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.
(8) Invest in illiquid securities if, as a result of such investment, more than
15% of the Fund's net assets would be invested in illiquid securities.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's investment
objective, policies, and techniques that are described in the Prospectus for
the Fund.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Short-Term Taxable Fixed Income Securities
The Fund may invest up to 35% of its total assets, and for temporary defensive
purposes or to keep cash on hand fully invested up to 100% of its total assets,
in cash equivalents and short-term taxable fixed income securities from issuers
having a long-term rating of at least A or higher by S&P, Moody's or Fitch, or
A- or higher by Duff & Phelps, Inc. ("D&P"), or determined by the portfolio
manager to be of comparable quality, and having a maturity of one year or less.
Short-term taxable fixed income securities are defined to include, without lim-
itation, the following:
(1) The Fund may invest in U.S. government securities, including bills, notes
and bonds differing as to maturity and rates of interest, which are either is-
sued or guaranteed by the U.S. Treasury or by U.S. government agencies or in-
strumentalities. U.S. government agency securities include securities issued by
(a) the Federal Housing Administration, Farmers Home Administration, Export-Im-
port Bank of the United States, Small Business Administration, and the Govern-
ment National Mortgage Association, whose securities are supported by the full
faith and credit of the United States; (b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks, and the Tennessee Valley Authority, whose securities
are supported by the right of the agency to borrow from the U.S. Treasury; (c)
the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain obliga-
tions of the agency or instrumentality; and (d) the Student Loan Marketing As-
sociation, whose securities are supported only by its credit. While the U.S.
government provides financial support to such U.S. government-sponsored agen-
cies or instrumentalities, no assurance can be given that it always will do so
since it is not so obligated by law. The U.S. government, its agencies, and in-
strumentalities do not guarantee the market value of their securities, and con-
sequently, the value of such securities may fluctuate. In addition, the Fund
may invest in sovereign debt obligations of foreign countries. A sovereign
debtor's willingness or ability to repay principal and interest in a timely
manner may be affected by a number of factors, including its cash flow situa-
tion, the extent of its foreign reserves, the availability of sufficient for-
eign exchange on the date a payment is due, the relative
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size of the debt service burden to the economy as a whole, the sovereign debt-
or's policy toward principal international lenders and the political
constraints to which it may be subject.
(2) The 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.
(3) The Fund may invest in bankers' acceptances, which are short-term credit
instruments used to finance commercial transactions. Generally, an acceptance
is a time draft drawn on a bank by an exporter or an importer to obtain a
stated amount of funds to pay for specific merchandise. The draft is then "ac-
cepted" by a bank that, in effect, unconditionally guarantees to pay the face
value of the instrument on its maturity date. The acceptance may then be held
by the accepting bank as an asset or it may be sold in the secondary market at
the going rate of interest for a specific maturity.
(4) The 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 the Fund to liquidate the
collateral could be delayed or impaired because of certain provisions of the
bankruptcy laws.
(5) The 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 penalties for the early withdrawal of such
time deposits, in which case the yields of these investments will be reduced.
(6) The 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 second-
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ary market for the notes. However, they are redeemable by the Fund at any
time. The portfolio manager will consider the financial condition of the cor-
poration (e.g., earning power, cash flow, and other liquidity ratios) and will
continuously monitor the corporation's ability to meet all of its financial
obligations, because the Fund's liquidity might be impaired if the corporation
were unable to pay principal and interest on demand. The Fund may only invest
in commercial paper rated A-2 or better by S&P, Prime-2 or higher by Moody's,
Duff 2 or higher by D&P or Fitch 2 or higher by Fitch, or unrated commercial
paper which is, in the opinion of the Fund manager, of comparable quality.
Foreign Investments
Indirect Foreign Investment--Depositary Receipts. The Fund may invest in for-
eign securities by purchasing depositary receipts, including American Deposi-
tary Receipts ("ADRs"), European Depository Receipts ("EDRs"), or Global De-
positary Receipts ("GDRs"), or other securities representing indirect owner-
ship interests in the securities of foreign issuers. Generally, ADRs, in reg-
istered form, are denominated in U.S. dollars and are designed for use in the
U.S. securities markets, while EDRs and GDRs, in bearer form, may be denomi-
nated in other currencies and are designed for use in European and other mar-
kets. For purposes of the Fund's investment policies, ADRs, EDRs, and GDRs are
deemed to have the same classification as the underlying securities they rep-
resent, except that ADRs, EDRs, and GDRs shall be treated as indirect foreign
investments. Thus, an ADR, EDR, or GDR representing ownership of common stock
will be treated as common stock. ADRs, EDRs, and GDRs do not eliminate all of
the risks associated with directly investing in the securities of foreign is-
suers.
Other types of depositary receipts include American Depositary Shares
("ADSs"), Global Depositary Certificates ("GDCs"), and International Deposi-
tary Receipts ("IDRs"). ADSs are shares issued under a deposit agreement rep-
resenting the underlying ordinary shares that trade in the issuer's home mar-
ket. An ADR, described above, is a certificate that represents a number of
ADSs. GDCs and IDRs are typically issued by a foreign bank or trust company,
although they may sometimes also be issued by a U.S. bank or trust company.
GDCs and IDRs are depositary receipts that evidence ownership of underlying
securities issued by either a foreign or a U.S. corporation.
Depositary receipts may be available through "sponsored" or "unsponsored" fa-
cilities. A sponsored facility is established jointly by a depositary and the
issuer of the security underlying the receipt. An unsponsored facility may be
established by a depositary without participation by the issuer of the secu-
rity underlying the receipt. There are greater risks associated with holding
unsponsored depositary receipts. For example, if the Fund holds an unsponsored
depositary receipt, it will generally bear all of the costs of establishing
the unsponsored facility. In addition, the depositary of an unsponsored facil-
ity frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securi-
ties.
Direct Foreign Investments. The Fund may invest directly in the securities of
foreign issuers. In considering whether to invest in the securities of a for-
eign company, the Fund manager considers such factors as the characteristics
of the particular company, differences between economic trends, and the per-
formance of securities markets within the U.S. and those within other coun-
tries. The Fund manager also considers
B-6
<PAGE>
factors relating to the general economic, governmental, and social conditions
of the country or countries where the company is located.
The Fund may purchase debt obligations issued or guaranteed by governments
(including states, provinces or municipalities) of countries other than the
United States, or by their agencies, authorities, or instrumentalities. The
Fund also may purchase debt obligations issued or guaranteed by supranational
entities organized or supported by several national governments, such as the
International Bank for Reconstruction and Development (the "World Bank"), the
Inter-American Development Bank, the Asian Development Bank, and the European
Investment Bank. In addition, the Fund may purchase debt obligations of for-
eign corporations or financial institutions, such as Yankee bonds (dollar-de-
nominated bonds sold in the United States by non-U.S. issuers), Samurai bonds
(yen-denominated bonds sold in Japan by non-Japanese issuers), and Euro bonds
(bonds not issued in the country (and possibly not the currency of the coun-
try) of the issuer).
The Fund's investments will be allocated among securities denominated in the
currencies of a number of foreign countries and, within each such country,
among different types of debt securities. The percentage of assets invested in
securities of a particular country or denominated in a particular currency
will vary in accordance with the Fund manager's assessment of the country's
gross domestic product, purchasing power parity and market capitalization and
the relationship of a country's currency to the United States dollar. Funda-
mental economic strength, credit quality and interest rate trends will be the
principal factors considered by the Fund manager in determining whether to in-
crease or decrease the emphasis placed upon a particular type of security
within the Fund.
Securities transactions conducted outside the U.S. may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other instru-
ments. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and the margin require-
ments than in the U.S., and (v) lower trading volume and liquidity.
The Fund may invest in Eurodollar convertibles. Eurodollar convertibles are
fixed-income securities of a foreign issuer that are issued in U.S. dollars
outside the U.S. and are convertible into or exchangeable for specified equity
securities.
Foreign Currency Transactions. The Fund may engage in foreign currency forward
contracts, options, and futures transactions. The Fund will enter into foreign
currency transactions for hedging and other permissible risk management pur-
poses only. Foreign currency futures and options contracts are traded in the
U.S. on regulated exchanges such as the Chicago Mercantile Exchange, the Mid-
America Commodities Exchange, and the Philadelphia Stock Exchange. If the Fund
invests in a currency futures or options contract, it must make a margin de-
posit to secure performance of such contract. With respect to investments in
currency futures contracts, the Fund may also be required to make a variation
margin deposit because the value of futures contracts fluctuates from purchase
to maturity. In addition, the Fund may segregate assets to cover its futures
contracts obligations.
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<PAGE>
(1) Currency Risks. The exchange rates between the U. S. dollar and foreign
currencies depend upon such factors as supply and demand in the currency ex-
change markets, international balances of payments, governmental intervention,
speculation, and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its holdings
of foreign currencies to U.S. dollars daily. The Fund may incur conversion
costs when it converts its holdings to another currency. Foreign exchange
dealers may realize a profit on the difference between the price at which the
Fund buys and sells currencies. The Fund will engage in foreign currency ex-
change transactions in connection with its portfolio investments. The Fund
will conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency ex-
change market or through forward contracts to purchase or sell foreign con-
tracts.
(2) Forward Foreign Currency Exchange Contracts. The Fund may enter into for-
ward currency exchange contracts. Forward foreign currency exchange contracts
may limit potential gains that could result from a positive change in such
currency relationships. The Fund manager believes that it is important to have
the flexibility to enter into forward foreign currency exchange contracts
whenever it determines that it is in the Fund's best interest to do so. The
Fund will not speculate in foreign currency exchange.
The Fund will not enter into forward currency exchange contracts or maintain a
net exposure in such contracts that it would be obligated to deliver an amount
of foreign currency in excess of the value of its portfolio securities or
other assets denominated in that currency or, in the case of a "cross-hedge,"
denominated in a currency or currencies that the Fund manager believes will
tend to be closely correlated with that currency with regard to price move-
ments. Generally, the Fund will not enter into a forward foreign currency ex-
change contract with a term longer than one year.
(3) Foreign Currency Options. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price on a specified date or during the option period. The owner of a
call option has the right, but not the obligation, to buy the currency. Con-
versely, the owner of a put option has the right, but not the obligation, to
sell the currency. When the option is exercised, the seller (i.e., writer) of
the option is obligated to fulfill the terms of the sold option. However, ei-
ther the seller or the buyer may, in the secondary market, close its position
during the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on a foreign currency gener-
ally rises in value if the underlying currency depreciates in value. Although
purchasing a foreign currency option can protect the Fund against an adverse
movement in the value of a foreign currency, the option will not limit the
movement in the value of such currency. For example, if the Fund held securi-
ties denominated in a foreign currency that was appreciating and had purchased
a foreign currency put to hedge against a decline in the value of the curren-
cy, the Fund would not have to exercise its put option. Likewise, if the Fund
entered into a contract to purchase a security denominated in foreign currency
and, in conjunction with that purchase, purchased a foreign currency call op-
tion to hedge against a rise in value of the currency, and if the value of the
currency instead depreciated between the date of purchase and the settlement
date, the Fund would not have to exercise its call. Instead, the Fund could
acquire in the spot market the amount of foreign currency needed for settle-
ment.
(4) Special Risks Associated with Foreign Currency Options. Buyers and sellers
of foreign currency options are subject to the same risks that apply to op-
tions generally. In addition, there are certain risks associated
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with foreign currency options. The markets in foreign currency options are rel-
atively new, and the Fund's ability to establish and close out positions on
such options is subject to the maintenance of a liquid secondary market. Al-
though the Fund will not purchase or write such options unless and until, in
the opinion of the Fund manager, the market for them has developed sufficiently
to ensure that the risks in connection with such options are not greater than
the risks in connection with the underlying currency, there can be no assurance
that a liquid secondary market will exist for a particular option at any spe-
cific time.
In addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally. The value of a
foreign currency option depends upon the value of the underlying currency rela-
tive to the U. S. dollar. As a result, the price of the option position may
vary with changes in the value of either or both currencies and may have no re-
lationship to the investment merits of a foreign security. Because foreign cur-
rency transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million) for the under-
lying foreign currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign curren-
cies or any regulatory requirements that quotations available through dealers
or other market sources be firm or revised on a timely basis. Available quota-
tion information is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the ex-
tent that the U. S. options markets are closed while the markets for the under-
lying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets
until they reopen.
(5) Foreign Currency Futures Transactions. By using foreign currency futures
contracts and options on such contracts, the Fund may be able to achieve many
of the same objectives as it would through the use of forward foreign currency
exchange contracts. The Fund may be able to achieve these objectives possibly
more effectively and at a lower cost by using futures transactions instead of
forward foreign currency exchange contracts.
(6) Special Risks Associated with Foreign Currency Futures Contracts and Re-
lated Options. Buyers and sellers of foreign currency futures contacts are sub-
ject to the same risks that apply to the use of futures generally. In addition,
there are risks associated with foreign currency futures contracts and their
use as a hedging device similar to those associated with options on currencies,
as described above.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Fund
will not purchase or write options on foreign currency futures contracts unless
and until, in the opinion of its Fund manager, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying for-
eign currency futures contracts. Compared to the purchase or sale of foreign
currency futures contracts, the purchase of call or put options on futures con-
tracts involves less potential risk to the Fund
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because the maximum amount at risk is the premium paid for the option (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss, such as when
there is no movement in the price of the underlying currency or futures con-
tract.
HEDGING STRATEGIES
General Description of Hedging Strategies
The Fund may engage in hedging activities. NIAC or Institutional Capital Corpo-
ration ("Institutional Capital") may cause the Fund to utilize a variety of fi-
nancial instruments, 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 the 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. The Fund will not enter into futures
and options transactions if the sum of the initial margin deposits and premiums
paid for unexpired options exceeds 5% of the Fund's total assets. In addition,
the 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 the 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
The 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
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require, will set aside cash, U.S. government securities, high grade liquid
debt securities and/or other liquid assets permitted by the SEC and CFTC in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or options position is out-
standing, unless replaced with other permissible assets, and will be marked-to-
market daily.
Stock Index Options
The 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.
The Fund's use of stock index options is subject to certain risks. Successful
use by the Fund of options on stock indexes will be subject to the ability of
Institutional Capital to correctly predict movements in the direction of the
stock market. This requires different skills and techniques than predicting
changes in the prices of individual securities. In addition, the 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 under-
lying index correlate with the price movements of the securities held by the
Fund. Inasmuch as the Fund's securities will not duplicate the components of an
index, the correlation will not be perfect. Consequently, the Fund will bear
the risk that the prices of its securities being hedged will not move in the
same amount as the prices of its put options on the stock indexes. It is also
possible that there may be a negative correlation between the index and the
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.
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<PAGE>
The purchase of stock index options involves the risk that the premium and
transaction costs paid by the Fund in purchasing an option will be lost as a
result of unanticipated movements in prices of the securities comprising the
stock index on which the option is based.
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 the 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 se-
curities in order to satisfy its obligation under the option to deliver such
securities. If the Fund is unable to effect a closing sale transaction with re-
spect 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 Fund.
Federal Income Tax Treatment of Options
Certain option transactions have special federal income tax results for the
Fund. Expiration of a call option written by the 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 the Fund writes options, or purchases puts that are subject to the loss de-
ferral 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 exceed the unrecognized gains on the securities covering the options, may
be subject 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 Fund 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
The 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
B-12
<PAGE>
definitely the effective return on securities held or intended to be acquired
by the Fund or for other purposes permissible under the CEA. The Fund's hedging
may include sales of Futures as an offset against the effect of expected de-
clines in stock prices and purchases of Futures as an offset against the effect
of expected increases in stock prices. The Fund will not enter into Futures
Contracts which are prohibited under the CEA and will, to the extent required
by regulatory authorities, enter only into Futures Contracts that are traded on
national futures exchanges and are standardized as to maturity date and under-
lying financial instrument. The principal interest rate Futures exchanges in
the United States are the Board of Trade of the City of Chicago and the Chicago
Mercantile Exchange. Futures exchanges and trading are regulated under the CEA
by the CFTC.
An 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 Fund will be able to enter into an offsetting transaction with respect
to a particular Futures Contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue to be required
to maintain the margin deposits on the Futures Contract.
Margin is the amount of funds that must be deposited by the 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, the
Fund will mark to market the current value of its open Futures Contracts. The
Fund expects to earn interest income on its margin deposits.
B-13
<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, the 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
Fund seeks to close out a Futures position. The Fund would continue to be re-
quired to meet margin requirements until the position is closed, possibly re-
sulting in a decline in the Fund's 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
The 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 Fund may use options on Futures Contracts in connection with hedging strat-
egies. Generally, these strategies would be applied under the same market and
market sector conditions in which the Fund uses put and call options on securi-
ties or indexes. The purchase of put options on Futures Contracts is analogous
to the purchase of puts on securities or indexes so as to hedge the Fund's se-
curities holdings
B-14
<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, the 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 Fund will set aside in a segregated account at the Fund's custodian liquid
assets, such as cash, U.S. government securities or other high grade liquid
debt obligations equal in value to the amount due on the underlying obligation.
Such segregated assets will be marked-to-market daily, and additional assets
will be placed in the segregated account whenever the total value of the segre-
gated account falls below the amount due on the underlying obligation.
The risks associated with the use of options on Futures Contracts include the
risk that the 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
Fund's successful use of options on Futures Contracts depends on Institutional
Capital's ability to correctly predict the movement in prices of Futures Con-
tracts and the underlying instruments, which may prove to be incorrect. In ad-
dition, there may be imperfect correlation between the instruments being hedged
and the Futures Contract subject to the option. For additional information, see
"Futures Contracts."
Federal Income Tax Treatment of Futures Contracts
For federal income tax purposes, the 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 the Fund may affect the holding period of such se-
curities and, consequently, the nature of the gain or loss on such securities
upon disposition.
B-15
<PAGE>
The Fund will distribute to shareholders annually any net capital gains which
have been recognized for federal income tax purposes (including unrealized
gains at the end of the Fund's fiscal year) on Futures transactions. Such dis-
tributions will be combined with distributions of capital gains realized on the
Fund's other investments and shareholders will be advised of the nature of the
payments.
OTHER INVESTMENT POLICIES AND TECHNIQUES
Delayed-Delivery Transactions
The Fund may from time to time purchase securities on a "when-issued" or other
delayed-delivery basis. The price of securities purchased in such transactions
is fixed at the time the commitment to purchase is made, but delivery and pay-
ment for the securities take place at a later date. Normally, the settlement
date occurs within 45 days of the purchase. During the period between the pur-
chase and settlement, no payment is made by the Fund to the issuer and no in-
terest is accrued on debt securities or dividend income is earned on equity se-
curities. Delayed-delivery commitments involve 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 securities purchased in delayed-delivery transactions 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 commitment
to purchase a security in a delayed-delivery transaction, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Fund does not believe that net asset value will be adversely af-
fected by purchases of securities in delayed-delivery transactions.
The Fund will maintain in a segregated account cash, U.S. government securi-
ties, and high grade liquid debt securities equal in value to commitments for
delayed-delivery securities. Such segregated securities will mature or, if nec-
essary, be sold on or before the settlement date. When the time comes to pay
for delayed-delivery securities, the Fund will meet its obligations from then-
available cash flow, sale of the securities held in the segregated account de-
scribed above, sale of other securities, or, although it would not normally ex-
pect to do so, from the sale of the delayed-delivery securities themselves
(which may have a market value greater or less than the Fund's payment obliga-
tion).
Illiquid Securities
The Fund may invest in illiquid securities (i.e., securities that are not read-
ily marketable). For purposes of this restriction, illiquid securities include,
but are not limited to, restricted securities (securities the disposition of
which is restricted under the federal securities laws), securities that may
only be resold pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"), but that are deemed to be illiquid; and repur-
chase agreements with maturities in excess of seven days. However, 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 dele-
gated to Institutional Capital the day-to-day determination of the illiquidity
of any equity or taxable fixed-income security, although it has retained over-
sight and ultimate responsibility for such determinations. Although no defini-
tive liquidity criteria are used, the Board of Trustees has directed Institu-
tional Capital and NIAC to
B-16
<PAGE>
look to such factors as (i) the nature of the market for a security (including
the institutional private resale market; the frequency of trades and quotes for
the security; the number of dealers willing to purchase or sell the security;
and the amount of time normally needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer), (ii) the terms of certain
securities or other instruments allowing for the disposition to a third party
or the issuer thereof (e.g., certain repurchase obligations and demand instru-
ments), 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 state-
ment. If, during such a period, adverse market conditions were to develop, the
Fund might obtain a less favorable price than that which prevailed when it de-
cided to sell. Illiquid securities will be priced at fair value as determined
in good faith by the Board of Trustees or its delegate. If, through the appre-
ciation of illiquid securities or the depreciation of liquid securities, the
Fund should be in a position where more than 15% of the value of its net assets
are invested in illiquid securities, including restricted securities which are
not readily marketable, the affected Fund will take such steps as is deemed ad-
visable, if any, to protect liquidity.
Short Sales Against the Box
When Institutional Capital believes that the price of a particular security
held by the Fund may decline, it may make "short sales against the box" to
hedge the unrealized gain on such security. Selling short against the box in-
volves selling a security 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 exceed the lesser of 2% of the value of the Fund's net assets or 2% of the
securities 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
The 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
B-17
<PAGE>
only the right to buy them. Warrants are issued by the issuer of the security,
which may be purchased on their exercise. The prices of warrants do not neces-
sarily parallel the prices of the underlying securities.
Lending of Portfolio Securities
The 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. The 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. The Fund may also
receive interest on the investment of the collateral or a fee from the borrower
as compensation for the loan. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will be made only
to firms deemed by the portfolio manager to be of good standing.
Portfolio Turnover
The Fund anticipates that its annual portfolio turnover rate will be between
100% and 150% under normal market conditions, and generally will not exceed
200%. 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. In the
event the 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 realized investment
gains.
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* 53 Chairman and Trustee President (since July 1996) and
333 West Wacker Drive Director, formerly Executive
Chicago, IL 60606 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.;
President and Director (since
January 1997) of Nuveen Asset
Management, Inc.; Chairman and
Director (since 1997) of
Rittenhouse Financial Services,
Inc.
</TABLE>
- --------------------------------------------------------------------------------
B-18
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
POSITION AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH TRUST DURING PAST FIVE YEARS
- ---------------------------------------------------------------------------------
<C> <C> <C> <S>
Timothy R. Schwertfeger* 49 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.; Chairman and
Director (since January
1997) of Nuveen Asset
Management, Inc.;
Director (since 1996) of
Institutional Capital
Corporation.
- ---------------------------------------------------------------------------------
Robert H. Lyon* 48 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
Institutional Capital.
- ---------------------------------------------------------------------------------
James E. Bacon 67 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 66 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 66 Trustee President (since 1993)
250 Park Avenue of Catalyst (a not-for-
New York, NY 10003 profit organization
focusing on women's
leadership development
in business and the
professions).
- ---------------------------------------------------------------------------------
Bruce P. Bedford 58 Executive Vice President Executive Vice President
333 West Wacker Drive of 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.
- ---------------------------------------------------------------------------------
Alan G. Berkshire 37 Vice President and Vice President and
333 West Wacker Drive Assistant Secretary General Counsel (since
Chicago, IL 60606 September 1997) and
Secretary (since May
1998) of The John Nuveen
Company, John Nuveen &
Co. Incorporated, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp., prior
thereto, Partner in the
law firm of Kirkland &
Ellis.
- ---------------------------------------------------------------------------------
Lorna C. Ferguson 53 Vice President Vice President of John
333 West Wacker Drive Nuveen & Co.
Chicago, IL 60606 Incorporated; Vice
President (since January
1998) of Nuveen Advisory
Corp. and Nuveen
Institutional Advisory
Corp.
</TABLE>
- --------------------------------------------------------------------------------
B-19
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
POSITION AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH TRUST DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
<C> <C> <C> <S>
Kathleen M. Flanagan 51 Vice President Vice President of The
333 West Wacker Drive John Nuveen Company and
Chicago, IL 60606 John Nuveen & Co.
Incorporated; Vice
President (since June
1996) of Nuveen Advisory
Corp. and Nuveen
Institutional Advisory
Corp.
- --------------------------------------------------------------------------------
Stephen D. Foy 44 Vice President and Vice President of John
333 West Wacker Drive Controller Nuveen & Co.
Chicago, IL 60606 Incorporated
- --------------------------------------------------------------------------------
Larry W. Martin 46 Vice President and Vice President,
333 West Wacker Drive Assistant Secretary Assistant Secretary and
Chicago, IL 60606 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.; Assistant
Secretary of The John
Nuveen Company (since
February 1993).
- --------------------------------------------------------------------------------
Stuart W. Rogers 42 Vice President Vice President of John
333 West Wacker Drive Nuveen & Co.
Chicago, IL 60606 Incorporated
- --------------------------------------------------------------------------------
H. William Stabenow 63 Vice President and Treasurer Vice President and
333 West Wacker Drive Treasurer 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.
- --------------------------------------------------------------------------------
William S. Swanson 32 Vice President Vice President of John
333 West Wacker Drive Nuveen & Co.
Chicago, IL 60606 Incorporated (since
October 1997), prior
thereto, Assistant Vice
President (since
September 1996);
formerly Associate of
John Nuveen & Co.
Incorporated
- --------------------------------------------------------------------------------
Gifford R. Zimmerman 41 Vice President and Vice President,
333 West Wacker Drive Secretary Assistant Secretary and
Chicago, IL 60606 Associate 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 94 Nuveen open-end funds and closed-end funds advised by Nuveen Advisory
Corp.
B-20
<PAGE>
The other trustees of the Trust (other than Mr. Lyon) are also trustees of nine
open-end and closed-end funds advised by NIAC. Mr. Lyon is also a director of
Institutional Capital and ICAP Funds, Inc.
The following table sets forth compensation estimated to be paid by the Fund to
each of the trustees who are not designated "interested persons" during the
Trust's fiscal year ending June 30, 1998. The Trust has no retirement or pen-
sion plans. The officers and trustees affiliate with Nuveen serve without any
compensation from the Trust.
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMPENSATION
AGGREGATE FROM FUND AND FUND
COMPENSATION COMPLEX
NAME OF TRUSTEE FROM THE FUND* PAID TO TRUSTEES**
--------------- -------------- ------------------
<S> <C> <C>
James E. Bacon........................ $ 357 $ 30,000
William L. Kissick.................... 357 29,000
Thomas E. Leafstrand.................. 369 31,700
Sheila W. Wellington.................. 357 29,000
------ --------
Total............................... $1,440 $119,700
====== ========
</TABLE>
* The Fund only recently commenced operations and has not yet completed its
first full fiscal year. The estimated compensation to be paid by the Fund to
independent trustees for the current fiscal year is a pro rata portion of
the total compensation to be paid by the Fund and the Fund Complex to the
independent trustees based upon the estimated relative net asset value of
the Fund as compared to the Fund Complex.
** Based on the compensation paid to the independent trustees for the twelve
months ended March 31, 1998 for services to nine open-end and closed-end
funds advised by NIAC.
Each trustee who is not affiliated with NIAC or Institutional Capital 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 atten-
dance in person or a $500 fee per day plus expenses for attendance by telephone
at a meeting held on a day on which no regular Board meeting is held 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 retain-
er, 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 compen-
sated by NIAC or Nuveen.
NIAC intends to invest $3,000,000 in the fund subsequent to the effective date
of this Statement of Additional Information. Therefore, NIAC will control the
fund because it will own 100% of the outstanding voting securities of the fund
until other shareholders invest in the fund. NIAC will be deemed to control the
fund so long as it owns more than 25% of the fund's voting securities.
B-21
<PAGE>
TRUST MANAGER AND FUND MANAGER
Trust Manager
Nuveen Institutional Advisory Corp. ("NIAC") acts as the manager of the Trust,
with responsibility for the overall management of the Fund. Its address is 333
West Wacker Drive, Chicago, Illinois 60606. For the Fund, NIAC has entered into
a Sub-Advisory Agreement with Institutional Capital under which Institutional
Capital, subject to NIAC's supervision, manages the Fund's investment portfo-
lio. NIAC is also responsible for managing the Fund's business affairs and pro-
viding day-to-day administrative services to the Fund. For additional informa-
tion regarding the management services performed by NIAC and Institutional Cap-
ital, see "Who Manages the Fund" in the Prospectus.
NIAC is a wholly-owned subsidiary of Nuveen, which is also the principal under-
writer of the Fund's shares. Nuveen is sponsor of the Nuveen Tax-Free Unit
Trust and Nuveen Unit Trust, registered unit investment trusts, and is the
principal underwriter for the Nuveen Mutual Funds, and has served as co-manag-
ing underwriter 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 approximately 78% owned by The St. Paul Companies, Inc. ("St. Paul").
St. Paul is located in St. Paul, Minnesota, and is principally engaged in pro-
viding property-liability insurance through subsidiaries.
For the fund management services and facilities furnished by NIAC, the Fund has
agreed to pay an annual management fee at rates set forth in the Prospectus un-
der "Management Fees." In addition, NIAC has agreed to waive all or a portion
of its management fee or reimburse certain expenses of the Fund through July
31, 1999 to prevent total expenses (excluding any distribution or service fees
and extraordinary expenses) on an annualized basis from exceeding 1.30% of the
average daily net asset value of each class of shares.
Sub-Adviser (Fund Manager)
Institutional Capital Corporation ("Institutional Capital") was founded in 1970
and is located at 225 West Wacker Drive, Suite 2400, Chicago, IL 60606. Under
the Sub-Advisory Agreement for the Fund, Institutional Capital is compensated
by NIAC for its investment advisory services with respect to all or a portion
of the Fund's assets at the rates set forth in the Fund's Prospectus under
"Management Fees." Under a Sub-Advisory Agreement with NIAC, Institutional Cap-
ital manages the investment portfolio of the Fund. Institutional Capital's in-
vestment management strategy and operating policies are set through a team ap-
proach, with all Institutional Capital investment professionals contributing.
Institutional Capital currently maintains a staff of 12 investment profession-
als. Each of the investment officers and other professionals of Institutional
Capital has developed an expertise in at least one functional investment area,
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 Institutional Capital's investment positions. Pertinent infor-
mation from outside sources is shared and incorporated into the investment out-
look. The investment strategy, asset sectors, and individual security holdings
are reviewed to verify their continued appropriateness. Investment recommenda-
tions are presented to the committee for decisions.
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With regard to Fund assets subject to the Sub-Advisory Agreement, Institu-
tional Capital provides continuous advice and recommendations concerning the
Fund's investments, and is responsible for selecting the broker/dealers who
execute the portfolio transactions. Institutional Capital also serves as in-
vestment adviser to the ICAP Funds, Inc. and to pension and profit-sharing
plans, and other institutional and private investors. As of December 31, 1997,
Institutional Capital had approximately $12 billion under management. Mr. Rob-
ert H. Lyon, President of Institutional Capital, owns shares representing 51%
of the voting rights of Institutional Capital.
PORTFOLIO TRANSACTIONS
Institutional Capital is responsible for decisions to buy and sell securities
for the Fund and for the placement of the Fund's securities business, the ne-
gotiation of the commissions to be paid on brokered transactions, the prices
for principal trades in securities, and the allocation of portfolio brokerage
and principal business. It is the policy of Institutional Capital to seek the
best execution at the best security price available with respect to each
transaction, and with respect to brokered transactions, in light of the over-
all quality of brokerage and research services provided to the respective ad-
viser and its advisees. The best price to the Fund 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 Fund's futures and options transac-
tions, if any. The purchase price of portfolio securities purchased from an
underwriter or dealer may include underwriting commissions and dealer spreads.
The Fund may pay mark-ups on principal transactions. In selecting broker-deal-
ers and in negotiating commissions, the portfolio manager 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
the Fund's shares.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)") permits
an investment adviser, under certain circumstances, to cause an account to pay
a broker or dealer who supplies brokerage and 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, Institutional Capital considers investment and market
information and other research, such as economic, securities and performance
measurement research, provided by such brokers, and the quality and reliabil-
ity of brokerage services, including execution capability, performance, and
financial responsibility. Accordingly, the commissions charged by any such
broker may be greater than the amount another firm might charge if Institu-
tional Capital 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 Institutional Capital or the Fund. Insti-
tutional Capital believes that the research information received in this man-
ner provides the Fund with benefits by supplementing the
B-23
<PAGE>
research otherwise available to the Fund. The Management Agreement and the Sub-
Advisory Agreement provide that such higher commissions will not be paid by the
Fund unless the applicable adviser determines in good faith that the amount is
reasonable in relation to the services provided. The investment advisory fees
paid by the Fund to NIAC under the Management Agreement or the subadvisory fees
paid by NIAC to Institutional Capital under the Sub-Advisory Agreement are not
reduced as a result of receipt by either NIAC or Institutional Capital of re-
search services.
Institutional Capital places portfolio transactions for other advisory accounts
managed by it. Research services furnished by firms through which the Fund ef-
fects its securities transactions may be used by
Institutional Capital in servicing all of its accounts; not all of such serv-
ices may be used by Institutional Capital in connection with the Fund. Institu-
tional Capital believes it is not possible to measure separately the benefits
from research services to each of the accounts (including the Fund) managed by
it. Because the volume and nature of the trading activities of the accounts are
not uniform, the amount of commissions in excess of those charged by another
broker paid by each account for brokerage and research services will vary. How-
ever, Institutional Capital believes such costs to the Fund will not be dispro-
portionate to the benefits received by the Fund on a continuing basis. Institu-
tional Capital seeks to allocate portfolio transactions equitably whenever con-
current decisions are made to purchase or sell securities by the Fund and an-
other advisory account. In some cases, this procedure could have an adverse ef-
fect on the price or the amount of securities available to the Fund. In making
such allocations between the Fund and other advisory accounts, the main factors
considered by Institutional Capital 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.
Under the Investment Company Act of 1940, the Fund may not purchase portfolio
securities from any underwriting syndicate of which Nuveen is a member except
under certain limited conditions set forth in Rule 10f-3. The Rule sets forth
requirements 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
The Fund's net asset value per share is determined separately for each class of
the 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 the 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. The 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 the Fund's total assets, including interest or dividends accrued but
not yet collected, less all liabilities, and dividing by the total number
B-24
<PAGE>
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 se-
curities are valued at the last sales price on the national securities ex-
change or Nasdaq on which such securities are primarily traded; however, secu-
rities 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 securi-
ties exchange or Nasdaq are valued at the most recent bid prices. Securities
for which quotations are not readily available are valued at fair value as de-
termined by the pricing service using methods that include consideration of
the following: yields or prices of securities of comparable quality, type of
issue, coupon, maturity and rating; indications as to value from securities
dealers; and general market conditions. The pricing service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. Debt securities having 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 market value of such securities is their amortized
cost. Under this method of valuation, 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. Regardless of the method employed to value a
particular security, all valuations are subject to review by the Fund's Board of
Trustees or its delegate who may 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 ad-
vice of Chapman and Cutler, counsel to the Trust.
As described in the Prospectus, the Fund intends to qualify under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code") for tax treat-
ment as a regulated investment company. In order to qualify as a regulated in-
vestment company, the Fund (i) must elect to be treated as a regulated invest-
ment company and (ii) for each taxable year thereafter must satisfy certain
requirements relating to the source of its income, diversification of its as-
sets, 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
forward 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
taxable year, (i) at least 50% of the value of its total assets is comprised
of cash, cash items, United States Government securities, securities of other
regulated investment companies and other securities limited in respect of any
one issuer to an amount not greater in value than 5% of the value of the
Fund's total assets and to not more than 10% of the outstanding voting securi-
ties of such issuer, and (ii) not more than 25% of the value of the Fund's to-
tal assets is invested in the securities of any one issuer (other than United
States Government securities and securities of other regulated investment com-
panies) or two or more issuers controlled by the Fund and engaged in the same,
similar or related trades or businesses.
B-25
<PAGE>
As a regulated investment company, the Fund will not be subject to federal in-
come tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (without regard to its net capi-
tal gain, i.e., the excess of its net long-term capital gain over its short-
term capital loss) and (ii) its net tax-exempt interest (the excess of its
gross tax-exempt interest income over certain disallowed deductions). In addi-
tion, to the extent the Fund timely distributes to shareholders at least 98% of
its taxable income (including any net capital gain), it will not be subject to
the 4% excise tax on certain undistributed income of "regulated investment com-
panies." The Fund intends to make timely distributions in compliance with these
requirements and consequently it is anticipated that they generally will not be
required to pay the excise tax. The Fund may retain for investment its net
capital gain. However, if the Fund retains any net capital gain or any
investment company taxable income, it will be subject to federal income tax at
regular corporate rates on the amount retained. If the Fund retains any net
capital gain, the Fund may designate the retained amount as undistributed
capital gains in a notice to its shareholders who, if subject to federal income
tax on long-term capital gains, (i) will be required to include in income for
federal income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their federal income tax liabilities
if any, and to claim refunds to the extent the credit exceeds such liabilities.
For federal income tax purposes, the tax basis of shares owned by a shareholder
of the Fund will be in-creased by an amount equal under current law to 65% of
the amount of undistributed net capital gains included in the shareholder's
gross income. The 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 in-
curred in the succeeding year.
If the Fund engages in hedging transactions involving financial futures and op-
tions, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to the Fund, defer the Fund's losses, cause
adjustments in the holding periods of the Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Prior to purchasing shares in the Fund, the impact of dividends or distribu-
tions 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 reduc-
ing the per share net asset value by the per share amount of the dividend 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 the Fund, distributions from the Fund, other than dis-
tributions which are designated as capital gains dividends, will to the extent
of the earnings and profits on the Fund, constitute
B-26
<PAGE>
dividends 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 the 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 the Fund (and re-
ceived by the shareholders) on December 31 of the year such dividends are de-
clared.
The redemption or exchange of the shares of the 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 the 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
B-27
<PAGE>
realized by the individual (and other non-corporate) shareholders in excess of
the distributions received from the Fund.
All or a portion of a sales load paid in purchasing shares of the Fund cannot
be taken into account for purposes of determining gain or loss on the redemp-
tion or exchange of such shares within 90 days after their purchase to the ex-
tent shares of the Fund or another fund are subsequently acquired without pay-
ment of a sales load or with the payment of a reduced sales load pursuant to
the reinvestment or exchange privilege. Any disregarded portion of such load
will result in an increase in the shareholder's tax basis in the shares subse-
quently acquired. Moreover, losses recognized by a shareholder on the
redemption or exchange of shares of the Fund held for six months or less are
disallowed to the extent of any distribution of exempt-interest dividends re-
ceived 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 the Fund if the
shareholder purchases other shares of the Fund (whether through reinvestment
of distributions or otherwise) or the shareholder acquires or enters into a
contract or option to acquire securities that are substantially identical to
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after such redemption or exchange. If disallowed, the loss will
be reflected in an adjustment to the basis of the shares acquired.
If in any year the Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year, and distributions
to its shareholders would be taxable to shareholders as ordinary dividend in-
come for federal income tax purposes to the extent of the Fund's available
earnings and profits.
The Fund is required in certain circumstances to withhold 31% of taxable divi-
dends and certain other payments paid to non-corporate holders of shares who
have not furnished to the Fund their correct taxpayer identification number
(in the case of individuals, their social security number) and certain certi-
fications, 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 the Fund on certain Equity Se-
curities (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). The Fund will designate the
portion of any taxable dividend which is eligible for this deduction. However,
a corporate shareholder should be aware that Sections 246 and 246A of the Code
impose additional limitations on the eligibility of dividends for the 70% div-
idends received deduction. These limitations include a requirement that stock
(and therefore Shares of the 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
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<PAGE>
reduced from 70% if a corporate shareholder owns Shares of the Fund the financ-
ing of which is directly attributable to indebtedness incurred by such corpora-
tion. It should be noted that various legislative proposals that would affect
the dividends received deduction have been introduced. To the extent dividends
received by the Fund are attributable to foreign corporations, a corporate
shareholder will not be entitled to the dividends received deduction with re-
spect to its share of such foreign dividends since the dividends received de-
duction is generally available only with respect to dividends paid by domestic
corporations. It should be noted that payments to the Fund of dividends on Eq-
uity Securities that are attributable to foreign corporations may be subject to
foreign withholding taxes. Corporate shareholders should consult with their tax
advisers with respect to the limitations on, and possible modifications to, the
dividends received deduction.
Foreign exchange gains and losses realized by the Fund in connection with cer-
tain transactions that involve foreign currency-denominated debt securities,
certain foreign currency options, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency are
subject to Section 988 of the Code, which generally causes such gains and
losses to be treated as ordinary income and losses and may affect the amount,
timing and character of distributions to shareholders. For example, if the Fund
sold a foreign stock or bond and part of the gain or loss on the sale was at-
tributable to an increase or decrease in the value of a foreign currency, then
the currency gain or loss may be treated as ordinary income or loss. If such
transactions result in higher net ordinary income, the dividends paid by the
Fund will be increased; if such transactions result in lower net ordinary in-
come, a portion of dividends paid could be classified as a return of capital.
The Fund may qualify for and make an election permitted under the "pass
through" provisions of Section 853 of the Internal Revenue Code, which allows a
regulated investment company to elect to have its foreign tax credit taken by
its shareholders instead of on its own tax return. To be eligible for this
credit, more than 50% of the value of the Fund's total assets at the close of
its taxable year must consist of stock of other securities in foreign corpora-
tions, and the Fund must have distributed at least 90% of its taxable income.
If the Fund makes this election, it may not take any foreign tax credit and may
not take a deduction for foreign taxes paid. However, the Fund is allowed to
include the amount of foreign taxes paid in a taxable year in its dividends
paid deduction. Each shareholder would then include in his gross income, and
treat as paid by him, his proportionate share of the foreign taxes paid by the
Fund.
If the U.S. government were to impose any restrictions, through taxation or
other means, on foreign investments by U.S. investors such as those to be made
through the Fund, the Board of Trustees of the Fund will promptly review the
policies of the Fund to determine whether significant changes in its invest-
ments are appropriate.
Non-U.S. investors not engaged in a U.S. trade or business with which their in-
vestment in the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above and in the
Prospectus. Such investors may be subject to nonresident alien withholding tax
at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts
treated as ordinary dividends from the Fund and, unless an effective IRS Form
W-8 or authorized substitute for Form W-8
B-29
<PAGE>
is on file, to 31% backup withholding on certain other payments from the Fund.
Non-U.S. investors should consult their tax advisers regarding such treatment
and the application of foreign taxes to an investment in the Fund.
PERFORMANCE INFORMATION
The 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, accord-
ing to the following formula:
a-b
Yield=2[(--- +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 Fund follows certain standardized accounting practices
specified by SEC rules. These practices are not necessarily consistent with
those that the Fund uses to prepare its annual and interim financial state-
ments in conformity with generally accepted accounting principles. Thus, yield
may not equal the income paid to shareholders or the income reported in the
Fund's financial statements.
The Fund may from time to time in its advertising and sales materials report a
quotation of its current distribution rate. The distribution rate represents a
measure of dividends distributed for a specified period. Distribution rate is
computed by taking the most recent dividend per share, multiplying it as
needed to annualize it, and dividing by the appropriate price per share (e.g.,
net asset value for purchases to be made without a load such as reinvestments
from Nuveen UITs, or the maximum public offering price). The distribution rate
differs from yield and total return and therefore is not intended to be a com-
plete measure of performance. Distribution rate may sometimes differ from
yield because the 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 Fund may from time to time in its advertising and sales literature quote
its beta. Beta is a standardized measure of a security's risk (variability of
returns) relative to the overall market, i.e., the proportion
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<PAGE>
of the variation in the security's returns that can be explained by the varia-
tion 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 re-
turns that are 125% as variable as overall market returns. The beta of the
overall market is by definition 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
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 the
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 the Fund and are not necessarily representative
of the future performance of the 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
B-31
<PAGE>
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 distribu-
tions by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Cumulative total return may also be shown as the in-
creased dollar value of the hypothetical investment over the period. Cumulative
total return calculations that do not include the effect of the sales charge
would be reduced if such charge were included. 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, the Fund may compare its risk-adjusted performance with
other investments that may provide different levels of risk and return. For ex-
ample, the 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 ad-
justing each investment's total return to account for the risk level of the in-
vestment.
The risk level for a class of shares of the 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 investment with a higher standard deviation of monthly returns would indi-
cate that the Fund had greater price variability, and therefore greater risk,
than an investment with a lower standard deviation.
The risk-adjusted total return for a class of shares of the 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 the Fund are sold at net asset value plus a current maximum
sales charge of 5.75% of the offering price. This current maximum sales charge
will typically be used for purposes of calculating performance figures. Returns
and net asset value of each class of shares of the Fund will fluctuate. Factors
affecting the performance of the Fund include general market conditions, oper-
ating expenses and investment management. Any additional fees charged by a se-
curities representative or other financial services firm would reduce returns
described in this section. Shares of the Fund are redeemable at net asset val-
ue, which may be more or less than original cost.
In reports and other communications to shareholders or in advertising and sales
literature, the Fund may also present economic statistics obtained from govern-
mental agencies or industry or financial publications comparing Europe or coun-
tries participating in European Monetary Union to the U.S. Additionally, the
Fund may discuss certain economic and financial trends existing in Europe in
order to illustrate the general investment opportunities there. The Fund may
present historical performance of certain European countries, as reported by
Morgan Stanley Capital International, or other independent data providers, as a
way to show the opportunities provided by European countries. The Fund may also
B-32
<PAGE>
show the historical performance of certain European equity market indicies to
compare against other international equity market indices and to show how
maintaining investments in both European stocks and U.S. stocks may moderate
risk. This data is obtained from independent services such as Morgan Stanley
Capital International and Ibbotson Associates, Inc.
In reports or other communications to shareholders or in advertising and sales
literature, the 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 re-
ported by Lipper Analytical Services, Inc. ("Lipper"), Morningstar, Inc.
("Morningstar"), Wiesenberger Investment Companies Service ("Wiesenberger")
and CDA Investment Technologies, Inc. ("CDA") or similar independent services
which monitor the performance of mutual funds, or other industry or financial
publications such as Barron's, Changing Times, Forbes and Money Magazine;
and/or (3) the S&P
500 Index or other unmanaged indices reported by Lehman Brothers. Performance
comparisons by these indexes, services or publications may rank mutual funds
over different periods of time by means of aggregate, average, year-by-year,
or other types of total return and performance figures. Any given performance
quotation or performance comparison should not be considered as representative
of the performance of the Fund for any future period.
There are differences and similarities between the investments which the Fund
may purchase and the investments measured by the indexes and reporting serv-
ices which are described herein. The Consumer Price Index is generally consid-
ered to be a measure of inflation. Lipper, Morningstar, Wiesenberger and CDA
are widely recognized mutual fund reporting services whose performance calcu-
lations are based upon changes in net asset value with all dividends rein-
vested and which do not include the effect of any sales charges.
The Fund may also from time to time in its advertising and sales literature
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank certifi-
cates of deposit (CDs) or money market funds or indices that represent these
types of investments. U.S. Government bonds are long-term investments backed
by the full faith and credit of the U.S. Government. Bank CDs are generally
short-term, FDIC-insured investments, which pay fixed principal and interest
but are subject to fluctuating rollover rates. Money market funds are short-
term investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
The table below presents the annual investment returns for the Institutional
Capital Euro Select Composite for the one-year period ended on March 31, 1998
and since inception. The Institutional Capital Euro Select Composite (compris-
ing a single account totaling approximately $26.3 million as of March 31,
1998) includes all assets managed by Institutional Capital that have substan-
tially the same investment objective and policies as the Fund.
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS (AS OF 3/31/98)
------------------------------------
SINCE COMPOSITE
INCEPTION
1-YEAR (12/31/96)
------ ---------------
<S> <C> <C>
Institutional Capital European Composite
(Gross)....................................... 48.97% 45.13%
Institutional Capital European Composite (Net). 46.11% 42.34%
Lipper European Fund Index..................... 36.84% 33.54%
MSCI Europe Index.............................. 42.44% 37.97%
</TABLE>
B-33
<PAGE>
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES AND
SHAREHOLDER PROGRAMS
As described in the Prospectus, the Fund provides you with alternative ways of
purchasing Fund shares based upon your individual investment needs and prefer-
ences.
Each class of shares of the 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 administra-
tion expenses, and each class has exclusive voting rights with respect to any
distribution or service plan applicable to its shares. As a result of the dif-
ferences in the expenses borne by each class of shares, net income per share,
dividends per share and net asset value per share will vary among the 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
described in the Prospectus.
Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include distri-
bution and service fees.
The expenses to be borne by specific classes of shares may include (i) transfer
agency fees attributable to a specific class of shares, (ii) printing and post-
age expenses related to preparing and distributing materials such as share-
holder reports, prospectuses and proxy statements to current shareholders of a
specific class of shares, (iii) Securities and Exchange Commission ("SEC") and
state securities registration fees incurred by a specific class of shares, (iv)
the expense of administrative personnel and services required to support the
shareholders of a specific class of shares, (v) litigation or other legal ex-
penses relating to a specific class of shares, (vi) directors' fees or expenses
incurred as a result of issues relating to a specific class of shares, (vii)
accounting expenses relating to a specific class of shares and (viii) any addi-
tional incremental expenses subsequently identified and determined to be prop-
erly allocated to one or more classes of shares.
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 "Nuveen
European Value Fund, Class [A], [B], [C], [R]," delivered to the financial ad-
viser through whom the investment is to be made for forwarding to the Fund's
shareholder services agent, Shareholder Services, Inc. ("SSI") (as of August
10, 1998, Chase Global Funds Services Company ("Chase")). When making your ini-
tial investment, you must also furnish the information necessary to establish
your Fund account by completing and enclosing 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 (as of August 10, 1998, Chase) a check, in the amount
of your purchase, made payable to "Nuveen European Value 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 (as of August 10,
1998, Chase) 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 the Fund gener-
ally will not be acceptable. You may also wire Federal Funds directly to SSI
(as of August
B-34
<PAGE>
10, 1998, Chase), 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 the Fund.
There are exceptions to these minimums for shareholders who qualify under rein-
vestment programs.
SYSTEMATIC INVESTMENT PROGRAMS
The 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, 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 de-
clining as well as rising markets before deciding to invest in this way. The
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 (as of August 10, 1998,
Chase) to draw preauthorized checks on your bank account. There is no obliga-
tion 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.
B-35
<PAGE>
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." Set forth below is an example of the method
of computing the offering price of the Class A shares of the Fund. The example
assumes a purchase on the date that the Fund commenced operations of Class A
shares from the Fund aggregating less than $50,000 subject to the schedule of
sales charges set forth in the Prospectus at a price based upon the net asset
value of the Class A shares.
<TABLE>
<S> <C>
Net Asset Value per share....................................... $20.00
Per Share Sales Charge--5.75% of public offering price (6.10% of
net asset value per share)..................................... 1.22
Per Share Offering Price to the Public.......................... $21.22
</TABLE>
The 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 Fund 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 connec-
tion with a purchase of Class A Shares may be retained by or paid to the bank.
Certain banks and other financial institutions may be required to 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
the Fund if the amount of your purchase, when added to the value that day of
all of your prior purchases of shares of the Fund, of another Nuveen Mutual
Fund or of a Nuveen exchange-traded fund, or units of a Nuveen unit trust, on
which an up-front sales charge or ongoing distribution fee is imposed, or is
normally imposed, falls
B-36
<PAGE>
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 notify Nuveen or the Fund's transfer agent of any cumulative discount
whenever you plan to purchase Class A Shares of the Fund that you wish to qual-
ify for a reduced sales charge.
Letter of Intent
You may qualify for a reduced sales charge on a purchase of Class A Shares of
the 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 the 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 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 financial adviser, Nuveen will redeem an ap-
propriate number of your escrowed Class A Shares to meet the required payment.
By establishing a Letter of Intent, you irrevocably appoint Nuveen as attorney
to give instructions to redeem 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.
B-37
<PAGE>
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
the 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 the Fund or portfolio for each participant in the program is $3,000
and the minimum monthly investment in Class A Shares of the Fund or portfolio
by each participant is $50. No certificate will be issued for any
participant's account. All dividends and other distributions by the Fund will
be reinvested in additional Class A Shares of the Fund. No participant may
utilize a systematic withdrawal program.
To establish a group purchase program, both the group itself and each partici-
pant must fill out 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.
Elimination of Sales Charge on Class A Shares
Class A Shares of the 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 Institutional
Capital, 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;
B-38
<PAGE>
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transac-
tion fee basis through a broker-dealer sponsored mutual fund purchase
program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their serv-
ices; and
. any eligible employer-sponsored qualified defined contribution retire-
ment plan. Eligible plans are those with at least 25 employees and which
either (a) make an initial purchase of one or more Nuveen mutual funds
aggregating $500,000 or more; or (b) execute a Letter of Intent to pur-
chase in the aggregate $500,000 or more of fund shares. Nuveen will pay
Authorized Dealers a sales commission on such purchases equal to 1% of
the first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25%
of any amount purchased over $5.0 million. For this category of investors a
contingent deferred sales charge of 1% will be assessed on redemptions
within 18 months of purchase, unless waived.
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 the Fund. You or your finan-
cial adviser must notify Nuveen or the Fund's transfer agent whenever you make
a purchase of Class A Shares of the Fund that you wish to be covered under
these special sales charge waivers.
Class A Shares of the Fund may be issued at net asset value without a sales
charge in connection with the acquisition by the Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Fund.
In determining the amount of your purchases of Class A Shares of the 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 sib-
ling's spouse, and a spouse's siblings); or (3) all purchases made through a
group purchase program as described above.
B-39
<PAGE>
CLASS R SHARE PURCHASE ELIGIBILITY
Class R Shares are available for purchases of $2.5 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 and their immediate
family members or trustees/directors of any fund sponsored by Nuveen,
any parent company of Nuveen and subsidiaries thereof and their immedi-
ate family members;
. bona fide, full-time and retired employees of Nuveen or Institutional
Capital, 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.
Any shares purchased by investors falling within any of the first four catego-
ries listed above must be acquired for investment purposes and on the condition
that they will not be transferred or resold except through redemption by the
Fund.
In addition, purchasers of Nuveen 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 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 Fund
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
B-40
<PAGE>
choosing between Class A Shares and Class R Shares, you should weigh the bene-
fits of the services to be provided 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 conver-
sion of Class B Shares into Class A Shares will be subject to the continuing
availability of an opinion of counsel or a private letter ruling from the In-
ternal 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.
B-41
<PAGE>
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 paying your financial adviser an ongoing sales commission. 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 pur-
chased, which represents an advance of the first year's distribution fee of
.75% plus an advance on the first year's service fee of .25%. See "Distribu-
tion 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.
However, 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, the Fund will first redeem shares
not subject to any charge, or that represent an increase in the value of a
Fund account 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 calcu-
lated based on the lower of the redeemed shares' cost or net asset value at
the time of the redemption and is deducted from the redemption proceeds.
Nuveen receives the amount of any CDSC shareholders pay. If Class A 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 redemption of those money
market fund shares, and the period during which the shareholder holds the
money market fund shares would be counted in determining the remaining dura-
tion 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-
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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 circumstances: (i) in
the event of total disability (as evidenced by a determination by the federal
Social Security Administration) of the shareholder (including a registered
joint owner) occurring after the purchase of the shares being redeemed; (ii)
in the event of the death of the shareholder (including a registered joint
owner); (iii) for redemptions made pursuant to a systematic withdrawal plan,
up to 12% annually of the current market value; (iv) involuntary redemptions
caused by operation of law; (v) redemptions in connection with a payment of
account or plan fees; (vi) redemptions in connection with the exercise of a
reinstatement privilege whereby the proceeds of a redemption of the Fund's
shares subject to a sales charge are reinvested in shares of certain Funds
within a specified number of days; and (vii) redemptions in connection with
the exercise of the Fund's right to redeem all shares in an account that does
not maintain a certain minimum balance or that the applicable board has deter-
mined may have material adverse consequences to the shareholders of the Fund.
In addition, the CDSC will be waived in connection with the following redemp-
tions of shares held by an employer-sponsored qualified defined contribution
retirement plan: (i) partial or complete redemptions in connection with a dis-
tribution without penalty under Section 72(t) of the Internal Revenue Code
("Code") from a retirement plan: (a) upon attaining age 59 1/2, (b) as part of
a series of substantially equal periodic payments, or (c) upon separation from
service and attaining age 55; (ii) partial or complete redemptions in connec-
tion with a qualifying loan or hardship withdrawal; (iii) complete redemptions
in connection with termination of employment, plan termination or transfer to
another employer's plan or IRA; and (iv) redemptions resulting from the return
of an excess contribution. The CDSC will also be waived in connection with the
following redemptions of shares held in an IRA account: (i) for redemptions
made pursuant to an IRA systematic withdrawal based on the shareholder's life
expectancy including, but not limited to, substantially equal periodic pay-
ments described in Code Section 72(t)(A)(iv) prior to age 59; and (ii) for re-
demptions to satisfy required minimum distributions after age 70 from an IRA
account (with the maximum amount subject to this waiver being based only upon
the shareholder's Nuveen IRA accounts).
SHAREHOLDER PROGRAMS
Exchange Privilege
Prior to August 10, 1998, you may exchange shares of a class of the Fund for
shares of the same class of any other Nuveen Mutual Fund with reciprocal ex-
change 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. On or after August 10, 1998, mail your request to Chase
Global Fund Services Company, P.O. Box 5186, New York, New York 10274-5186.
Similarly, Class A, Class B, Class C and Class R Shares of other Nuveen Mutual
Funds may be exchanged for the same class of shares of the 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 the Fund at the public offering price. If, however,
a sales charge has previously been paid on the investment represented by the
exchanged shares (i.e., the shares to be exchanged were originally issued in
exchange for
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<PAGE>
shares on which a sales charge was paid), the exchange of shares from a Nuveen
money market fund will be made into shares of the Fund at net asset 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 exchanged for
shares of a Nuveen money market fund.
If you exchange shares subject to a CDSC, no CDSC will be charged at the time
of the exchange. However, if you subsequently redeem the shares acquired
through the exchange, the redemption may be subject to a CDSC, depending on
when you purchased your original shares and the CDSC schedule of the fund from
which you exchanged your shares.
The shares to be purchased must be offered in your state of residence and you
must have held the shares you are exchanging for at least 15 days. The total
value of exchanged shares must at least equal the minimum investment require-
ment of the Nuveen Mutual Fund being purchased. For federal income tax purpos-
es, any exchange constitutes a sale and purchase of shares and may result in
capital gain or loss. Before making any exchange, you should obtain the Pro-
spectus for the Nuveen Mutual Fund you are purchasing and read it carefully. If
the registration of the account for the Fund you are purchasing is not exactly
the same as that of the fund account from which the exchange is made, written
instructions from all holders of the account from which the exchange is being
made must be received, with signatures guaranteed by a member of an approved
Medallion Guarantee Program or in such other manner as may be acceptable to the
Fund. You may also exchange shares by telephone if you authorize telephone ex-
changes by checking the applicable box on the Application Form or by calling
Nuveen toll-free at 800-621-7227 to obtain an authorization form. The exchange
privilege may be modified or discontinued by the Fund at any time.
The exchange privilege is not intended to permit the Fund to be used as a vehi-
cle for short-term trading. Excessive exchange activity may interfere with
portfolio management, raise expenses, and otherwise have an adverse effect on
all shareholders. In order to limit excessive exchange activity and in other
circumstances where Fund management believes doing so would be in the best
interest of the Fund, the Fund reserves the right to revise or terminate the
exchange privilege, or limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to the extent
required by law.
Reinstatement Privilege
If you redeemed Class A, Class B or Class C Shares of the 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.
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<PAGE>
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 Withdrawal Plan payments directly to your bank account.
Please refer to the Application Form for details, or call SSI (as of August 10,
1998, Chase) 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 (as of August 10, 1998, Chase) re-
ceives written instructions terminating or changing those privileges. After you
establish Fund Direct for your account, any change of bank account information
must be made by signature-guaranteed instructions to SSI (as of August 10,
1998, Chase) 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 (as of August 10, 1998, Chase) at 800-621-7227. The pur-
chase payment will be debited from your bank account.
REDEMPTION
Prior to August 10, 1998, you may redeem shares by sending a written request
for redemption directly to the Fund, c/o Shareholder Services, Inc., P.O. Box
5330, Denver, CO 80217-5330, accompanied by duly endorsed certificates, if is-
sued. On or after August 10, 1998, mail your redemption request to Chase Global
Fund Services Company, P.O. Box 5186, New York, New York 10274-5186. Requests
for redemption and share certificates, if issued, must be signed by each share-
holder 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 exe-
cuted redemption request in proper form. A check for the redemption proceeds
will be mailed to you within seven days after receipt of your redemption re-
quest. 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 purchased by check within 15 days prior to the date the redemption request
is received, the Fund will not mail the redemption proceeds until the check re-
ceived 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
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<PAGE>
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 nor-
mally 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 phone repre-
sentative 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 de-
layed one additional business day if the Federal Reserve Bank of Boston 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 af-
ter 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 (as of August 10, 1998, Chase). If you did not authorize telephone redemp-
tion when you opened your account, you may obtain a telephone redemption autho-
rization form by writing the 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 commercial bank account specified by the shareholder
on the Application Form. You need to send a written request to Nuveen or SSI
(as of August 10, 1998, Chase) 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 the Fund. Further documentation may be required from cor-
porations, executors, trustees or personal representatives.
For the convenience of shareholders, the 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. The 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.
The Fund reserves the right to refuse telephone redemptions and, at its option,
may limit the timing, amount or frequency of these redemptions. Telephone re-
demption procedures may be modified or terminated at any time, on 30 days' no-
tice, by the Fund. The Fund, SSI (as of August 10, 1998, Chase) and Nuveen will
not be liable for following telephone instructions reasonably believed to be
genuine. The Fund employs procedures reasonably designed to confirm that tele-
phone instructions are genuine. These
B-46
<PAGE>
procedures include recording all telephone instructions and requiring up to
three forms of identification prior to acting upon a caller's instructions. If
the 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.
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.
Similarly, 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 dis-
advantageous because the newly-purchased Class B or Class C Shares will be
subject to the CDSC.
Suspension of Right of Redemption
The 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 ex-
ists 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 rea-
sonably practicable, or (c) for any other periods that the Securities and Ex-
change Commission by order may permit for protection of Fund shareholders.
Involuntary Redemption
The Fund may, from time to time, establish a minimum total investment for Fund
shareholders, and the 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 the Fund continues to
offer shares at net asset value to holders of Nuveen Unit Trusts who are in-
vesting their Nuveen Unit Trust distributions, no minimum total investment
will be established for those investors.
B-47
<PAGE>
GENERAL MATTERS
The Fund may encourage registered representatives and their firms to help ap-
portion their assets among bonds, stocks and cash, and may seek to participate
in programs that recommend a portion of their assets be invested in equity se-
curities, equity and debt securities, or equity and municipal securities.
Upon notice to all Authorized Dealers, Nuveen may reallow to Authorized Dealers
electing to participate up to the full applicable Class A Share up-front sales
charge during periods and for transactions specified in the notice. The
reallowances made during these periods may be based upon attainment of minimum
sales levels.
In addition to the types of compensation to dealers to promote sales of fund
shares that are described in the 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 Fund, and will not change the price an investor pays for shares or
the amount that the Fund will receive from such a sale. The staff of the Secu-
rities and Exchange Commission takes the position that dealers who receive 90%
or more of the applicable sales charge may be deemed underwriters under the Se-
curities Act of 1933, as amended.
To help advisers and investors better understand and most efficiently use the
Fund to reach their investment goals, the Fund may advertise and create spe-
cific investment programs and systems. For example, this may include informa-
tion on how to use the Fund to accumulate assets for future education needs or
periodic payments such as insurance premiums. The Fund may produce software,
electronic information sites, or additional sales literature to promote the ad-
vantages of using the Fund to meet these and other specific investor needs.
Exchanges of shares of the Fund for shares of a Nuveen money market fund may be
made on days when both Fund calculate a net asset value and make shares avail-
able for public purchase. Shares of the Nuveen money market Fund may be pur-
chased on days on which the Federal Reserve Bank of Boston is normally open for
business. In addition to the holidays observed by the Fund, the Nuveen money
market Fund observe and will not make fund shares available for purchase on the
following holidays: Martin Luther King's Birthday, Columbus Day and Veterans'
Day.
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<PAGE>
In addition, you may exchange Class R Shares of the Fund for Class A Shares of
the 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 the 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 Fund's transfer agent. No share certifi-
cates will be issued for fractional shares.
For more information on the procedure for purchasing shares of the 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 the Fund, an account will be opened and maintained
for you by SSI (as of August 10, 1998, Chase), the Fund's shareholder services
agent. Share certificates will be issued to you only upon written request to
SSI (as of August 10, 1998, Chase), and no certificates will be issued for
fractional shares. The Fund reserves the right to reject any purchase order
and to waive or increase minimum investment requirements. A change in regis-
tration or transfer of shares held in the name of your financial adviser's
firm can only be made by an order in good form from the financial adviser act-
ing on your behalf.
Authorized Dealers are encouraged to open single master accounts. However,
some Authorized Dealers may wish to use SSI's (as of August 10, 1998, Chase's)
sub-accounting system to minimize their internal recordkeeping requirements.
An Authorized Dealer or other investor requesting shareholder servicing or ac-
counting other than the master account or sub-accounting service offered by
SSI (as of August 10, 1998, Chase) 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, the 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 Fund 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 Fund's
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 Fund's 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 the
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 pursu-
B-49
<PAGE>
ant to Rule 12b-1 and described herein under "Distribution and Service Plans."
Nuveen receives any CDSCs imposed on redemptions of Shares, but any amounts as
to which a reinstatement privilege is not exercised are set off against and re-
duce amounts otherwise payable to Nuveen pursuant to the distribution plan.
DISTRIBUTION AND SERVICE PLANS
The 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 the
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 the 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.
The 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.
The 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.
Under the Fund's Plan, the Fund will report quarterly to the Board of Trustees
for its review all amounts expended per class of shares under the Plan. The
Plan may be terminated at any time with respect to any class of shares, without
the payment of any penalty, by a vote of a majority of the
Trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding vot-
ing securities of such class. The Plan may be renewed from year to year if ap-
proved by a vote of the Board of Trustees and a vote of the non-interested
Trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued only if the trustees who vote to approve such continuance con-
clude, in the exercise of reasonable business judgment and in light of their
fiduciary duties under applicable law, that there is a reasonable likelihood
that the Plan will benefit the
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<PAGE>
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.
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 custodian of the assets of the Fund is The Chase Manhattan Bank, 4 New York
Plaza, New York, New York 10004. The custodian performs custodial, fund ac-
counting and portfolio accounting services.
GENERAL TRUST INFORMATION
The Fund is a series of the Trust. The Trust is an open-end diversified manage-
ment 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 Trust-
ees of the Trust is authorized to issue an unlimited number of shares in one or
more series or "Fund," which may be divided into classes of shares. Currently,
there are four series authorized and outstanding, each of which is divided into
four classes of shares designated as Class A Shares, Class B Shares, Class C
Shares and Class R Shares. Each class of shares represents an interest in the
same portfolio of investments of 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 distribution or
service plan applicable to its shares. There are no conversion, preemptive or
other subscription rights, except that Class B Shares automatically convert
into Class A Shares, as described herein. The Board of Trustees of the Trust
has the right to establish additional series and classes of shares in the fu-
ture, to change those series or classes and to determine the preferences, vot-
ing 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 the
Fund have the right to call a special meeting to remove Trustees or for any
other purpose.
Under Massachusetts law applicable to Massachusetts business trusts, sharehold-
ers of such a trust may, under certain circumstances, be held personally liable
as partners for its obligations. However, the Declaration of Trust of the Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or
the Trustees. The Fund's Declaration of Trust
B-51
<PAGE>
further provides for indemnification out of the assets and property of the
Trust for all losses and expenses of any shareholder held personally liable for
the obligations of the Trust. Thus, the risk of a shareholder incurring finan-
cial 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 likelihood of the occurrence of
these circumstances is remote.
B-52
<PAGE>
APPENDIX A--RATINGS OF INVESTMENTS
STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable Stan-
dard & Poor's Ratings Group ("S&P") rating symbols and their meanings (as pub-
lished 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 par-
ticular 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
financial 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.
MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rat-
ing. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
--Amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note).
--Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
NOTE RATING SYMBOLS ARE AS FOLLOWS:
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some vulnera-
bility to adverse financial and economic changes over the term of the
notes.
SP-3
Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a security in-
asmuch as it does not comment as to market price or suitability for a particu-
lar 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 occasion,
rely on unaudited financial 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.
*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.
A-3
<PAGE>
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 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.
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
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.
A-4
<PAGE>
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
financial 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.
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.
A-5
<PAGE>
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
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. The investor should exercise judg-
ment 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.
A-6
<PAGE>
MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rat-
ing. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
--Amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note).
--Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
NOTE RATING SYMBOLS ARE AS FOLLOWS:
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some vulnera-
bility to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a security in-
asmuch as it does not comment as to market price or suitability for a particu-
lar 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 occasion,
rely on unaudited financial 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.
*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-7
<PAGE>
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 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.
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.
Moody's bond rating symbols may contain numerical modifiers of a ge-
neric rating classification. The modifier 1 indicates that the bond
ranks at the high end of its category; the
A-8
<PAGE>
modifier 2 indicates a mid-range ranking, and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristi-
cally unreliable over any great length of time. Such bonds lack out-
standing investment characteristics and in fact have speculative char-
acteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protec-
tion of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desir-
able investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and is-
sues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Con(...)
Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination
of basis of condition.
Note:Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the sym-
bols Aa1, A1, Baa1, Ba1, and B1.
MUNICIPAL SHORT-TERM LOANS
MIG 1/VMIG 1
This designation denotes best quality. There is present
strong protection by established cash flows, superior liquid-
ity support or demonstrated broad based access to the market
for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins or protection
are ample although not so large as in the preceding group.
A-9
<PAGE>
MIG 3/VMIG 3 This designation denotes favorable quality. All security ele-
ments are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well-established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection com-
monly regarded as required of an investment security is pres-
ent and although not distinctly or predominantly speculative,
there is specific risk.
COMMERCIAL PAPER
Issuers rated Prime-1 (or related supporting institutions) have a superior ca-
pacity for repayment of senior short-term promissory obligations. Prime-1 re-
payment capacity will often be evidenced by many of the following characteris-
tics:
--Leading market positions in well-established industries.
--High rates of return on Fund employed.
--Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong capac-
ity for repayment of senior short-term promissory obligations. This will nor-
mally be evidenced by many of the characteristics cited 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 eco-
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<PAGE>
nomic and financial characteristics of each industry and each issuer. Impor-
tant considerations are vulnerability to economic cycles as well as risks re-
lated to such factors as competition, government action, regulation, techno-
logical 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
several factors including relative weightings of the different security clas-
ses in the capital structure, the overall credit strength of the issuer, and
the nature of covenant protection.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary). Ratings of "BBB-' and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities. Structured finance issues, including real estate, as-
set-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.
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
AA are more variable and greater in periods of economic stress.
AA-
- -------------------------------------------------------------------------------
BBB+ Below average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during
BBB- economic cycles.
- -------------------------------------------------------------------------------
B+ Below investment grade but deemed likely to meet obligations when
B due. Present or prospective financial protection factors fluctuate
B- according to industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.
- -------------------------------------------------------------------------------
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<PAGE>
CCC Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate
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.
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.
Emphasis is placed on liquidity which is defined as not only cash from opera-
tions, but also access to alternative sources of Fund including trade credit,
bank lines, and the capital markets. An important consideration is the level
of an obligor's reliance on short-term Fund 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, spe-
cifically capital computation guidelines. These ratings meet Department of La-
bor ERISA guidelines governing pension and profit sharing investments. State
regulators also recognize the ratings of Duff & Phelps Credit Rating for in-
surance 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 Fund, is outstanding, and safety is just below risk-
free U.S. Treasury short-term obligations.
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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:
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.
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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
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. 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 sig-
nificantly 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 quali-
ty. The obligor's ability to pay interest and repay principal is
considered 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 condi-
tions 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 invest-
ment grade is higher than for bonds with higher ratings.
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 prin-
cipal and interest in accordance with the terms of obligation for bond issues
not in default. For defaulted bonds, the rating ("DDD' to "D') is an assessment
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 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.
Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories cannot fully reflect the differences
in the degrees of credit risk.
BB
Bonds are considered speculative. The obligor's ability to pay in-
terest and repay principal may be affected over time by adverse
economic changes. However, business and
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financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability
of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not rem-
edied, may lead to default. The ability to meet obligations re-
quires 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
DD bonds are extremely speculative and should be valued on the basis
and D of their ultimate recovery value in liquidation or reorganization
of the obligor. "DDD' represents the highest potential for recov-
ery 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.
F-1+ EXCEPTIONALLY STRONG CREDIT QUALITY Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
F-1 VERY STRONG CREDIT QUALITY Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than is-
sues rated "F-1+'.
F-2 GOOD CREDIT QUALITY Issues assigned this rating have a satisfac-
tory 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 characteris-
tics suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these se-
curities to be rated below investment grade.
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