<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OR ABOUT NOVEMBER 25,
1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[_]
Registration No. 333-65269
Pre-Effective Amendment No.
1 [X]
---
Post-Effective Amendment No. [_]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
[_]
Registration No. 811-09037
Amendment No. 1 [X]
----------------
NUVEEN INVESTMENT TRUST III
(Exact Name of Registrant as Specified in Declaration of Trust)
333 West Wacker Drive, Chicago, 60606
Illinois (Zip Code)
(Address of Principal Executive
Offices)
Registrant's Telephone Number, Including Area Code: (312) 917-7700
Copies to:
Gifford R. Zimmerman--Vice President Eric F. Fess
and Chapman and Cutler
Secretary 111 W. Monroe
333 West Wacker Drive Chicago, Illinois 60603
Chicago, Illinois 60606
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering--December 1, 1998
It is proposed that this filing will become effective (check appropriate box):
[_]immediately upon filing pursuant to [_]on (date) pursuant to paragraph
paragraph (b) (a)(1)
[_]on (date) pursuant to paragraph (b) [_]75 days after filing pursuant to
[_]60 days after filing pursuant to paragraph (a)(2)
paragraph (a)(1) [_]on (date) pursuant to paragraph
(a)(2) of Rule 485.
If appropriate, check the following box:
[_]This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
CONTENTS
OF
REGISTRATION STATEMENT
This Registration Statement comprises the following papers and contents:
The Facing Sheet
Part A--Prospectus for Nuveen Income Fund (the "Fund").
Part B--Statement of Additional Information for the Fund
Part C--Other Information
Signatures
Index to Exhibits
Exhibits
<PAGE>
[Nuveen LOGO APPEARS HERE]
Mutual Funds
November 27, 1998
Prospectus
For investors seeking attractive current income and capital preservation.
Income Fund
[PHOTO APPEARS HERE]
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NOT FDIC-INSURED
May lose value
No bank guarantee
- -----------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
Table of Contents
Section 1 The Fund
This section provides you with an overview of the fund including investment
objectives and portfolio holdings.
Introduction 1
................................................................................
Nuveen Income Fund 2
................................................................................
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
Who Manages the Fund 4
................................................................................
Management Fees 5
................................................................................
What Securities We Invest In 5
................................................................................
How We Select Investments 6
................................................................................
What the Risks Are 7
................................................................................
How We Manage Risk 8
................................................................................
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of your
account.
How to Choose a Share Class 9
................................................................................
How to Reduce Your Sales Charge 11
................................................................................
How to Buy Shares 11
................................................................................
Systematic Investing 12
................................................................................
Systematic Withdrawal 13
................................................................................
Special Services 13
................................................................................
How to Sell Shares 14
................................................................................
Section 4 General Information
This section summarizes the fund's distribution policies and other general fund
information.
Distributions and Taxes 16
................................................................................
Distribution and Service Plan 17
................................................................................
Net Asset Value 18
................................................................................
Fund Service Providers 18
................................................................................
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
Investment Strategy
Risks
Fees, Charges and Expenses
Shareholder Instructions
Performance and Current Portfolio Information
<PAGE>
November 27, 1998
Section 1 The Fund
Nuveen Income Fund
Introduction
This prospectus is intended to provide important information to help you
evaluate whether the fund may be right for you. Please read it carefully before
investing and keep it for future reference.
Current Income and Capital Preservation
Many individuals investing for their future seek to build capital while
retaining a measure of capital protection. An effective way of pursuing this
goal is through a portfolio allocation of investment grade bonds which can
provide a consistent income stream and capital appreciation potential. Bonds
also can be added to stock portfolios as a way of diversifying and moderating
risk.
Investors seeking income, growth of income and capital and capital preservation
should consider the Nuveen Income Fund for their portfolio. The fund invests
primarily in intermediate-term, investment grade bonds with attractive current
yields and future appreciation potential.
Section 1 The Fund 1
<PAGE>
Nuveen Income Fund
Fund Overview
Investment Objective
The fund seeks to provide over time attractive current income and capital
preservation by investing primarily in a diversified portfolio of investment
grade quality fixed-income securities with intermediate effective maturities.
How the Fund Pursues Its Objective
The fund purchases primarily bonds with intermediate effective maturities that
are rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by
independent rating agencies, or in non-rated bonds if the fund's investment
adviser judges them to be of comparable quality. We may also buy non-investment
grade bonds and dollar-denominated bonds of foreign issuers, subject to certain
limitations.
We use a value-oriented strategy and look for higher-yielding and undervalued
bonds that offer the potential for above-average total returns.
What are the Risks of Investing in the Fund?
An investment in the fund is subject to interest rate risk and credit risk.
Interest rate risk is the risk that interest rates will rise, causing prices of
bonds in the fund to fall. Credit risk is the risk that an issuer of a bond in
the fund will default or be unable to pay principal and interest; lower rated
bonds generally carry greater credit risk. The fund's limited investments in
dollar-denominated foreign bonds are subject to the economic and financial risks
of foreign markets, which could reduce prices, increase volatility or reduce
liquidity. As with any mutual fund investment, loss of money is a risk of
investing.
We seek to reduce risk by limiting effective maturities, buying quality bonds
and diversifying the fund's investment portfolio geographically as well as
across different industry sectors.
Is This Fund Right for You?
The fund may be appropriate for you if you are seeking to:
. Earn regular monthly dividends;
. Preserve investment capital over time;
. Complement a portfolio of equity investments;
You should not invest in this fund if you are seeking to:
. Pursue a growth investment strategy;
. Avoid share price fluctuation.
The Benefits of Bond Funds
Bond funds often make sense as part of a long-term investment plan. Bond funds
can offer investors the potential for:
. Regular Income -- Bond funds can provide a source of regular income to
help cover ordinary living expenses.
. Capital Preservation -- The greater stability of bonds compared to
stocks over time can help investors preserve capital and maintain their
standard of living.
. Diversification -- For investors who also own stocks, bond funds can
help moderate overall portfolio risk by adding an element of
diversification and greater stability.
2 Section 1 The Fund
<PAGE>
What are the Costs of Investing?
Shareholder Transaction Expenses/1/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/2/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.75%/3/ None None None
................................................................................
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
................................................................................
Exchange Fees None None None None
................................................................................
Deferred Sales Charge/4/ None/3/ 5%/5/ 1%/6/ None
................................................................................
</TABLE>
Annual Fund Operating Expenses/7/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .60% .60% .60% .60%
................................................................................
12b-1 Distribution and Service Fees .25% 1.00% 1.00% --%
................................................................................
Other Expenses .80% .80% .80% .80%
- --------------------------------------------------------------------------------
Total Operating Expenses--Gross 1.65% 2.40% 2.40% 1.40%
................................................................................
Expense Waiver/Reimbursements .60% .60% .60% .60%
- --------------------------------------------------------------------------------
Total Operating Expenses--Net 1.05% 1.80% 1.80% .80%
- --------------------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you invest
$10,000 in the fund for the time periods indicated and then either redeem or do
not redeem your shares at the end of a period. The example assumes that your
investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $635 $ 636 $243 $143 $635 $243 $243 $143
................................................................................
3 Years $971 $1,060 $748 $443 $971 $748 $748 $443
................................................................................
</TABLE>
How the Fund Is Invested (as of 98)
Portfolio Statistics
Weighted Average Maturity years
.............................................................................
Weighted Average Duration years
.............................................................................
Weighted Average Credit Quality
.............................................................................
Number of Issues
.............................................................................
Credit Quality
AAA
.............................................................................
AA
.............................................................................
A
.............................................................................
BBB
.............................................................................
NR/Other
.............................................................................
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
[Category ( %)]
[Category ( %)]
[Other ( %)]
[Category ( %)]
[Category ( %)]
[Category ( %)]
1. As a percent of offering price unless otherwise noted. Authorized Dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
2. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
3. Reduced Class A sales charges apply to purchases of $50,000 or more. Certain
Class A purchases at net asset value of $1 million or more may bear a
contingent deferred sales charge (CDSC) if redeemed within 18 months of
purchase. See "How You Can Buy and Sell Shares."
4. As a percentage of lesser of purchase price or redemption proceeds.
5. Class B shares redeemed within six years of purchase bear 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.
6. Class C shares redeemed within one year of purchase bear a 1% CDSC.
7. 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. The percentages shown are based on estimated amounts for the
current fiscal year. The investment adviser has agreed to waive fees and
reimburse expenses through July 31, 1999 in order to prevent Total Operating
Expenses (excluding any distribution or service fees and extraordinary
expenses) from exceeding .80% of the average daily net asset value of any
class of fund shares. The table does not reflect organization expenses which
will be reimbursed by the adviser.
Section 1 The Fund 3
<PAGE>
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, serves as the investment adviser to the fund. In this capacity, NIAC is
responsible for the selection and on-going monitoring of the securities in the
fund's investment portfolio, managing the fund's business affairs and providing
certain clerical, bookkeeping and other administrative services. NIAC is a
wholly owned subsidiary of John Nuveen & Co. Incorporated (Nuveen). Founded in
1898, Nuveen has been synonymous with investments that withstand the test of
time. Today we offer a broad range of quality investments designed for
individuals seeking to build and sustain wealth. Nuveen 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 and its
affiliates have approximately $50 billion in assets under management.
Overall investment management strategy and operating policies for the fund are
set by Nuveen's Investment Policy Committee. This committee is comprised of the
principal executive officers and portfolio managers of NIAC and meets regularly
to review economic conditions, the outlook for the financial markets in general
and the status of the bond markets in particular. Day-to-day operation of the
fund and the execution of its specific investment strategies is the
responsibility of the portfolio managers, Edward F. Neild and Richard A. Huber.
Mr. Neild is Managing Director, Nuveen Investment Advisory Services, and has
overall supervisory responsibility for Nuveen's investment management
activities. A Chartered Financial Analyst, Mr. Neild is a Vice President of NIAC
and has been a Vice President of the fund since its inception. Mr. Huber is a
Vice President of NIAC and has been a Vice President of the fund since its
inception. Mr. Huber previously was a Vice President and portfolio manager of
Flagship Financial. Mr. Huber currently manages investments for six Nuveen-
sponsored investment companies.
4 Section 2 How We Manage Your Money
<PAGE>
Management Fees
For providing these services, NIAC is paid an annual fund management fee
according to the following schedule:
<TABLE>
<CAPTION>
Average Daily Net Asset Value Fund Fee
<S> <C>
For the first $125 million 0.6000%
............................................................................
For the next $125 million 0.5875%
............................................................................
For the next $250 million 0.5750%
............................................................................
For the next $500 million 0.5625%
............................................................................
For the next $1 billion 0.5500%
............................................................................
For assets over $2 billion 0.5250%
............................................................................
</TABLE>
The fund pays for its own operating expenses such as custodial, transfer agent,
accounting and legal fees; brokerage commissions; distribution and service
fees; and extraordinary expenses.
What Securities We Invest In
Taxable Bonds
The fund invests primarily (at least 65% of its net assets) in a diversified
portfolio of domestic investment grade quality bonds of varying maturities.
Investment grade quality bonds are fixed income securities that at the time of
purchase either are rated in the four highest (investment grade) categories by
Moody's Investors Service, Standard & Poor's, Duff & Phelps, or Fitch IBCA,
Inc., or are unrated but judged investment grade by NIAC. Fixed-income
securities include U.S. and foreign government bonds (including obligations of
their agencies and instrumentalities), corporate bonds (other than convertible
bonds), mortgage- and asset-backed securities, loan participations, and
comparable instruments. Fixed-income securities may have a fixed, variable, or
floating rate of interest.
The fund may also invest up to 35% of its net assets in a combination of (a)
fixed-income securities that are either rated B or higher by at least one of
the national rating agencies or unrated but judged to be comparable in quality
by NIAC; or (b) other securities that have predominantly fixed-income
characteristics, such as preferred stock or convertible bonds. Convertible bonds
must be rated at least BBB by Standard & Poor's, Duff & Phelps, or Fitch IBCA,
Inc., or Baa by Moody's Investors Service. Securities rated below investment
grade are commonly known as "high-yield," "high-risk" or "junk" bonds which
typically offer higher yields but involve greater risks, including the
possibility of default or bankruptcy, and increased market price volatility.
The fund will limit investment in securities of foreign issuers to 20% of its
net assets, and will invest only in U.S. dollar-denominated securities of
foreign issuers whose headquarters are located in a country that is a member of
the Organization for Economic Cooperation and Development (OECD). The OECD
consists of 29 countries sharing the principles of the market economy, pluralist
democracy and human rights. The OECD is composed of industrialized nations,
mostly from Europe and North America.
Section 2 How We Manage Your Money 5
<PAGE>
Short-term Investments
Under normal market conditions, the fund may invest up to 20% of its total
assets in short-term, high quality fixed-income securities and cash equivalents.
These securities include U.S. government securities, certificates of deposit,
bankers' acceptances, commercial paper rated A-1 or higher by S&P, Prime-1 or
higher by Moody's, Duff 2 or higher by Duff & Phelps or Fitch 2 or higher by
Fitch, repurchase agreements with respect to U.S. government obligations, and
similar fixed-income securities with remaining maturities of one year or less.
(See "How We Manage Risk -- Hedging and Other Defensive Investment Strategies.")
For more information on eligible short-term investments, see the Statement of
Additional Information.
Portfolio Maturity
The fund buys bonds with different maturities in pursuit of its investment
objective, but maintains under normal market conditions an investment portfolio
with an overall weighted average effective maturity of 5 to 10 years. A bond's
effective maturity may be significantly shorter than its stated maturity due to
certain features (such as puts, adjustable coupons, or a prepayment schedule or
expected prepayment rates, but not call provisions) that cause the bond to
experience the same price volatility as a shorter-maturity but otherwise
comparable bond.
How We Select Investments
NIAC follows a value-driven investment process to select bonds for the fund
based upon its assessment of a bond's relative value in terms of current yield,
price, credit quality and future prospects. NIAC is supported by Nuveen's team
of research analysts who review the bonds available for purchase, monitor the
continued creditworthiness of the fund's investments, and analyze economic,
political and demographic trends affecting the bond markets. We seek to identify
bonds with favorable characteristics we believe are not yet recognized by the
market. An example would be a bond in a strengthening industry sector or a bond
with improving credit quality, in each case providing an expected favorable
impact on future performance. We then select those higher-yielding and
undervalued bonds that we believe represent the most attractive values.
Portfolio Turnover
The fund buys and sells portfolio bonds in the normal course of its investment
activities. The proportion of the fund's investment portfolio that is sold and
replaced with new bonds during a year is known as the fund's portfolio turnover
rate. The fund intends to keep portfolio turnover relatively low in order to
reduce trading costs and the realization of taxable capital gains. The fund,
however, may make limited short-term trades to take advantage of market
opportunities or reduce market risk.
Delayed Delivery Transactions
The fund 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
6 Section 2 How We Manage Your Money
<PAGE>
element of risk because the value of the security to be purchased may decline
before the settlement date.
The fund's investment objective may not be changed without shareholder approval.
The above investment policies can be changed by the Board of Trustees without
shareholder approval unless otherwise noted in this prospectus or the Statement
of Additional Information.
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 the fund to be a long-term
investment.
Interest rate risk: Because the fund invests in bonds, the fund is subject to
interest rate risk. Interest rate risk is the risk that the value of the fund's
portfolio will decline because of rising market interest rates (bond prices move
in the opposite direction of interest rates). The longer the average maturity
(duration) of the fund's portfolio, the greater its interest rate risk. See
"What Securities We Invest In -- Portfolio Maturity."
Income risk: The fund is subject to income risk. Income risk is the risk that
the income from the fund's portfolio will decline because of falling market
interest rates. This can result when the fund invests the proceeds from new
share sales, or from matured or called bonds, at market interest rates that are
below the portfolio's current earnings rate.
Credit risk: The fund is subject to credit risk. Credit risk is the risk that an
issuer of a bond is unable to meet its obligation to make interest and principal
payments due to changing financial or market conditions. Generally, lower rated
bonds provide higher current income but are considered to carry greater credit
risk than higher rated bonds. The fund may invest up to 35% of its net assets in
bonds that either are rated B or BB, or are unrated but judged to be comparable
in quality by NIAC. In addition, Year 2000 issues may affect the ability of
issuers to meet their payment obligations to their bond holders, and may
adversely affect their credit ratings.
Inflation risk: Like all mutual funds, the fund is subject to inflation risk.
Inflation risk is the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the fund's assets can decline as can the
value of the fund's distributions.
Foreign investment risk: Bonds of foreign issuers (which must be dollar-
denominated and are limited to 20% of net assets) present risks beyond those of
domestic securities. Such risks include political or economic instability and
less publicly available information. Foreign bonds may be less liquid and have
more price volatility than domestic bonds.
Section 2 How We Manage Your Money 7
<PAGE>
How We Manage Risk
In pursuit of its investment objective, the fund assumes investment risk,
chiefly in the form of interest rate and credit risk. The fund limits this
investment risk generally by restricting the type and maturities of bonds they
purchase, and by diversifying their investment portfolios geographically as
well as across different industry sectors.
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 (except for U.S. Government securities or
for 25% of the fund's total assets);
. 25% in any one industry (except U.S. government securities).
Please see the Statement of Additional Information for a more detailed
discussion of investment limitations.
Hedging and Other Defensive Investment Strategies
The fund may invest up to 100% of its 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
weighted average effective maturity of the fund's investment portfolio may fall
below the defined range described under "What Securities We Invest In," and the
fund may not achieve its investment objective.
We may also use various investment strategies designed to hedge against changes
in the values of securities the fund owns or expects to purchase or to hedge
against interest rate changes. These hedging strategies include using financial
futures contracts, interest rate swaps, options on financial futures, or options
based on debt securities whose prices, in the opinion of the fund's investment
adviser, correlate with the prices of the fund's investments. 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. 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 50% of its total assets would be committed to such
instruments. The fund may not commit more than 25% of its assets to interest
rate swaps.
8 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 "What are
the Costs of Investing?".
Class A Shares
You can buy Class A shares at the offering price, which is the 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
<S> <C> <C> <C>
Less than $50,000 4.75% 4.96% 4.25%
...........................................................................................................
$50,000 but less than $100,000 4.50% 4.71% 4.00%
...........................................................................................................
$100,000 but less than $250,000 3.50% 3.63% 3.00%
...........................................................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
...........................................................................................................
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
...........................................................................................................
$1,000,000 and over --* -- .75%*
...........................................................................................................
</TABLE>
* You can buy $1 million or more of Class A shares at net asset value without an
up-front sales charge. Nuveen pays Authorized Dealers of record on these share
purchases a sales commission of .75% of the first $2.5 million, plus .50% of the
next $2.5 million, plus .25% of the amount over $5.0 million. If you redeem
your shares within 18 months of purchase, you may have to pay a CDSC of .75% of
either
Section 3 How You Can Buy and Sell Shares 9
<PAGE>
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 the net asset value per share without any up-front
sales charge so that the full amount of your purchase is invested in the fund.
However, you will pay annual distribution and service fees of 1% of average
daily assets. The annual .25% service fee compensates your financial adviser for
providing ongoing service to you. The annual .75% distribution fee compensates
Nuveen for paying your financial adviser a 4% 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.
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6
CDSC 5% 4% 4% 3% 2% 1%
......................................................................
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.
Class C Shares
You can buy Class C shares at the 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 the 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 the other classes.
10 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 Defined Portfolio reinvestment
. Purchases using redemptions from unrelated funds
. Retirement plans
. Certain employees and directors of Nuveen or employees of authorized dealers
. Bank trust departments
Class R Eligibility
. Certain employees and directors of Nuveen or employees of 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) 257-8787. 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 share class ($1,000 for a
Traditional/Roth IRA account; $500 for an Education IRA account; and $500 for
accounts opened through certain fee based programs) and make additional
investments at any time with as little as $50. There is no minimum if you are
reinvesting Nuveen Defined Portfolio 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 normally ends at
4 p.m. New York time.
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
Section 3 How You Can Buy and Sell Shares 11
<PAGE>
investment advice and services. If you do not have a financial adviser, call
(800) 257-8787 and Nuveen can refer you to one in your area.
By Mail
You may open an account and buy shares by mail by completing the enclosed
application and mailing it along with your check to: Nuveen Investor Services,
P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186.
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) 257-8787. Systematic investing may
also make you eligible for reduced sales charges.
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 5%, 6% or 7% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Years Invested Principal Compounded 5% Compounded 6% Compounded 7%
----- ------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
0 $ 3,000 $ 3,013 $ 3,015 $ 3,018
1 4,100 4,281 4,319 4,356
2 5,300 5,733 5,825 5,918
3 6,500 7,260 7,424 7,592
4 7,700 8,864 9,121 9,387
5 8,900 10,551 10,924 11,312
6 10,100 12,323 12,837 13,376
7 11,300 14,187 14,869 15,590
8 12,500 16,146 17,025 17,963
9 13,700 18,205 19,315 20,508
10 14,900 20,369 21,746 23,237
11 16,100 22,644 24,327 26,164
12 17,300 25,036 27,067 29,302
13 18,500 27,550 29,976 32,666
14 19,700 30,192 33,065 36,274
15 20,900 32,970 36,344 40,143
16 22,100 35,890 39,826 44,292
17 23,300 38,959 43,522 48,740
18 24,500 42,185 47,446 53,510
19 25,700 45,577 51,612 58,624
20 26,900 49,141 56,035 64,109
</TABLE>
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.
12 Section 3 How You Can Buy and Sell Shares
<PAGE>
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
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 "Special Services--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.
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 at any time
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. Because an exchange is treated for tax purposes as a concurrent
sale and purchase and any gain may be subject to tax, 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, the 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
Section 3 How You Can Buy and Sell Shares 13
<PAGE>
holding period. You may use this reinstatement privilege only once for any
redemption.
Fund Direct/SM/
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 withdrawals 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) 257-8787 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 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. 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
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.
14 Section 3 How You Can Buy and Sell Shares
<PAGE>
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
Defined Portfolio reinvestment account. You will not be assessed a CDSC on an
involuntary redemption.
By Mail
You can sell your shares at any time by sending a written request to the fund,
c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green Station, New York,
NY 10274-5186. 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. If you purchased your shares by
check, your redemption proceeds will not be mailed until your check is cleared.
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.
Section 3 How You Can Buy and Sell Shares 15
<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 pays dividends monthly and any taxable capital gains once a year in
December. The fund declares dividends monthly to shareholders of record as of
the ninth of each month, payable the first business day of the following
month.
Payment and Reinvestment Options
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) 257-8787.
Taxes and Tax Reporting
The fund intends to make distributions that may be taxed as ordinary income or
capital gains. 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 you pay on a given
capital gains distribution depends generally on how long the fund has held the
portfolio securities it sold. It does not depend on how long you have owned your
fund shares. The fund will distribute in December any capital gains realized
over the preceding year.
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. The tax status of your
dividends from the fund is not affected by whether you reinvest your dividends
or receive them in cash. The sale of shares in your account may produce a gain
or loss, and is a taxable event. For tax purposes, an exchange is the same as a
sale.
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.
16 Section 4 General Information
<PAGE>
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%.
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.
Distribution and Service Plan
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" for a description of the distribution and service
fees paid under this plan.)
Nuveen receives the distribution fee for Class B and Class C shares primarily
for providing compensation to Authorized Dealers, including Nuveen, in
connection with the distribution of shares. Nuveen uses the service fee for
Class A, Class B, and Class C shares to compensate Authorized Dealers, including
Nuveen, for providing account services to shareholders. These services may
include establishing and maintaining shareholder accounts, answering shareholder
inquiries, and providing other personal services to shareholders. These fees
also compensate Nuveen for other expenses, including printing and distributing
prospectuses to persons other than shareholders, the expenses of preparing,
printing, and distributing advertising and sales literature and reports to
shareholders used in connection with the sale of shares. Because these fees are
paid out of the fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
Section 4 General Information 17
<PAGE>
Net Asset Value
The price you pay for your shares is based on the fund's net asset value per
share which 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. The prices of fixed-income securities are provided by a pricing
service and based on the mean between the bid and asked price. When price quotes
are not readily available, the pricing service establishes fair market value
based on prices of comparable securities.
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, Chase Global Funds Services Company, P.O. Box 5186, Bowling Green
Station, New York, NY 10274-5186, performs bookkeeping, data processing and
administrative services for the maintenance of shareholder accounts.
NIAC and Chase Global Funds Services Company 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 fund's
service providers to adapt their systems to address this "Year 2000" issue. NIAC
and the fund expect, but there can be no absolute assurance, that the necessary
work will be completed on a timely basis.
18 Section 4 General Information
<PAGE>
[BLANK]
Section 4 General Information 19
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
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
Dividend and Growth Fund
Taxable Income
Income 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
Several additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this prospectus,
contains detailed information on the fund's policies and operation. Call Nuveen
at (800) 257-8787 to request a free copy of the SAI or for other fund
information.
You may also obtain this and other fund information directly from the Securities
and Exchange Commission (SEC). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at (800) SEC-0330
for room hours and operation. You may also request fund information by writing
to the SEC's Public Reference Section, Washington, D.C. 20549. The fund's
Investment Company file number is 811-09037.
[NUVEEN LOGO]
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
1. Long-term and insured long-term portfolios.
2. Long-term and limited-term portfolios.
EPR-1 11-98
<PAGE>
Statement of Additional Information
November 27, 1998
Nuveen Investment Trust III
333 West Wacker Drive
Chicago, Illinois 60606
NUVEEN INCOME FUND
This Statement of Additional Information is not a prospectus. A prospectus may
be obtained without charge from certain securities representatives, banks and
other financial institutions that have entered into sales agreements with John
Nuveen & Co. Incorporated, or from the Fund, by writing a written request to
the Fund, c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green Station,
New York, NY 10274-5186 or by calling 800-257-8787. This Statement of Addi-
tional Information relates to, and should be read in conjunction with the Pro-
spectus for the Nuveen Income Fund. The Prospectus for the Fund is dated Novem-
ber 27, 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-25
- ------------------------------------------------------------------------------
Fund Manager and Portfolio Manager B-28
- ------------------------------------------------------------------------------
Portfolio Transactions B-28
- ------------------------------------------------------------------------------
Net Asset Value B-30
- ------------------------------------------------------------------------------
Tax Matters B-30
- ------------------------------------------------------------------------------
Performance Information B-35
- ------------------------------------------------------------------------------
Additional Information on the Purchase and Redemption of Fund Shares and
Shareholder Programs B-38
- ------------------------------------------------------------------------------
Distribution and Service Plan B-54
- ------------------------------------------------------------------------------
Independent Public Accountants, Custodian and Transfer Agent B-55
- ------------------------------------------------------------------------------
Statement of Net Assets B-56
- ------------------------------------------------------------------------------
Report of Independent Public Accountants B-57
- ------------------------------------------------------------------------------
General Trust Information B-58
- ------------------------------------------------------------------------------
Appendix A--Ratings of Investments A-1
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
GENERAL INFORMATION
Nuveen Income Fund (the "Fund"), is an open-end diversified management invest-
ment company organized as a series of the Nuveen Investment Trust III (the
"Trust"). The Trust is an open-end diversified management series investment
company organized as a Massachusetts business trust on August 20, 1998. The
Fund is currently the only outstanding series of the Trust.
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 Fund's Prospectus. 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, more than 5% of the
Fund's total assets would be invested in securities of that issuer.
(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 short-term
credits as are necessary for the clearance of transactions, engaging in de-
layed-delivery transactions, or purchasing certain futures and options), pro-
vided 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,
B-2
<PAGE>
or other derivative instruments, or from investing in securities or other in-
struments backed by physical commodities).
(6) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prohibit the Fund from pur-
chasing or selling securities or other instruments backed by real estate or of
issuers engaged in real estate activities).
(7) Issue senior securities, except as permitted under the Investment Company
Act of 1940.
(8) Purchase the securities of any issuer if, as a result, 25% or more of the
Fund's total assets would be invested in the securities of issuers whose prin-
cipal business activities are in the same industry (except that this restric-
tion shall not be applicable to securities issued or guaranteed by the U.S.
government or any agency or instrumentality thereof).
Except for restriction (2), 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 investment or the total assets will not constitute a viola-
tion of that restriction.
The foregoing fundamental investment policies, together with the investment ob-
jective of the Fund, cannot be changed without approval by holders of a "major-
ity of the Fund's outstanding voting shares." As defined in the Investment Com-
pany 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 fundamental investment policies listed above, 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) Enter into futures contracts or related options if more than 50% of the
Fund's total assets would be represented by such instruments or more than 5% of
the Fund's total assets would be committed to initial margin deposits and pre-
miums on futures contracts and related options.
(3) 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.
B-3
<PAGE>
(4) 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.
(5) Purchase securities of companies for the purpose of exercising control.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's investment
objectives, policies, and techniques that are described in the Prospectus.
INVESTMENT IN FIXED-INCOME SECURITIES
As described in the Prospectus, the Fund invests primarily in a diversified
portfolio of investment grade quality, fixed-income securities with intermedi-
ate effective maturities. Investment grade quality securities are securities
which are rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and
Poor's Corporation ("S&P"), by Fitch Investors IBCA, Inc. ("Fitch"), or by Duff
& Phelps Inc. ("D&P") or are unrated fixed-income securities which, in the
opinion of Nuveen Institutional Advisory Corp. ("NIAC"), are of comparable
quality to bonds rated within the four highest grades by Moody's, S&P, Fitch,
or D&P. The Fund may also invest up to 35% of its net assets in a combination
of (a) fixed-income securities that are rated B or BB (below investment grade)
or in unrated securities, judged by NIAC to be of comparable quality; or (b)
other securities that have predominantly fixed-income characteristics, such as
preferred stock or convertible bonds. The Fund may also invest up to 20% of its
net assets in U.S. dollar-denominated fixed-income securities of foreign is-
suers whose headquarters are located in a country that is a member of the Or-
ganization for Economic Cooperation and Development. Lastly, the Fund may in-
vest in temporary investments as described below. See Appendix A for more in-
formation about ratings by Moody's, S&P, Fitch and D&P.
NIAC pursues a value oriented investment process for selecting securities by
seeking to identify securities whose current yields, prices, credit quality and
future prospects will provide, in NIAC's opinion, an attractive yield and fu-
ture appreciation potential. Securities that are undervalued or that represent
undervalued market sectors are securities that, in NIAC's opinion, are worth
more than the value assigned to them in the marketplace. Securities of particu-
lar types or purposes may be undervalued because there is a temporary excess of
supply in that market sector, or because of a general decline in the market
price of securities of the market sector for reasons that do not apply to the
particular securities that are considered undervalued. The Fund's investment in
undervalued securities will be based on NIAC's belief that their prices should
ultimately reflect their true value. In seeking undervalued securities, the
Fund may purchase underrated securities. Underrated securities are those whose
ratings do not, in NIAC's opinion, reflect their true value. Such securities
may be underrated because of the time that has elapsed since their rating was
assigned or reviewed, or because of positive factors that may not have been
fully taken into account by rating agencies, or for other similar reasons.
B-4
<PAGE>
In general, fixed-income securities include securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities ("U.S. Government secu-
rities"); corporate debt securities, including convertible securities (rated
BBB or better by S&P, D&P, or Fitch, or Baa or better by Moody's) and corporate
commercial paper; mortgage-backed and other asset-backed securities; inflation-
indexed bonds issued by both governments and corporations; structured notes,
including hybrid or "indexed" securities, and loan participations; delayed
funding loans and revolving credit facilities; bank certificates of deposit,
fixed time deposits and bankers' acceptances; repurchase agreements and reverse
repurchase agreements; debt securities issued by states or local governments
and their agencies, authorities and other instrumentalities; obligations of
foreign governments or their subdivisions, agencies and instrumentalities; ob-
ligations of international agencies or supranational entities; and similar in-
struments. Fixed income securities may have fixed, variable, or floating rates
of interest. The Fund may invest all of its assets in derivative instruments or
in mortgage- or asset-backed securities. The Fund may adhere to its investment
policy by entering into a series of purchase and sale contracts or utilizing
other investment techniques by which it may obtain market exposure to the secu-
rities in which it primarily invests. Some of the fixed income securities in
which the Fund may invest are described in further detail below.
Loan Participations
The Fund may invest in loan participations, which may have speculative charac-
teristics, when the portfolio manager believes such investments offer the pos-
sibility of long-term appreciation in value. Loan participations are interests
in floating or variable rate senior loans to U.S. corporations, partnerships,
and other entities that operate in a variety of industries and geographic re-
gions. An investment in loan participations carries a high degree of risk and
may have the consequence that interest payments with respect to such securities
may be reduced, deferred, suspended, or eliminated and may have the further
consequence that principal payments may likewise be reduced, deferred, sus-
pended or canceled, causing the loss of the entire amount of the investment. In
addition, most loan participations are illiquid. To the extent that loan par-
ticipations are deemed to be illiquid, they will be subject to the Fund's 15%
restriction on investments in illiquid securities.
Loans in which the Fund will purchase participation interests may pay interest
at rates which are periodically redetermined on the basis of a base lending
rate plus a premium. These base lending rates are generally the Prime Rate of-
fered by a major U.S. bank, the London Inter-Bank Offered Rate, the Certificate
of Deposit rate or other base lending rates used by commercial lenders. The
loans typically have the most senior position in a borrower's capital struc-
ture, although some loans may hold an equal ranking with other senior securi-
ties of the borrower. Although the loans generally are secured by specific col-
lateral, the Fund may invest in loans which are not secured by any collateral.
Uncollateralized loans pose a greater risk of nonpayment of interest or loss of
principal than do collateralized loans. The collateral underlying a collateral-
ized loan may consist of assets that may not be readily liquidated, and there
is no assurance that the liquidation of such assets would satisfy fully a bor-
rower's obligation under a loan. The
Fund is not subject to any restrictions with respect to the maturity of the
loans in which it purchases participation interests.
The loans in which the Fund will purchase participation interests generally are
not rated by nationally recognized statistical rating organizations. Ratings of
other securities issued by a borrower do not necessarily reflect adequately the
relative quality of a borrower's loans. Therefore, although the portfolio
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manager may consider such ratings in determining whether to invest in a partic-
ular loan, such ratings will not be the determinative factor in the portfolio
manager's analysis.
The loans are not readily marketable and may be subject to restrictions on re-
sale. Participation interests in the loans generally are not listed on any na-
tional securities exchange or automated quotation system and no regular market
has developed for such interests. Any secondary purchases and sales of loan
participations generally are conducted in private transactions between buyers
and sellers. Many of the loans in which the Fund expects to purchase interests
are of a relatively large principal amount and are held by a relatively large
number of owners which, in the portfolio manager's opinion, should enhance the
relative liquidity of such interests.
When acquiring a loan participation, the Fund will have a contractual relation-
ship only with the lender (typically an entity in the banking, finance or fi-
nancial services industries), not with the borrower. The Fund has the right to
receive payments of principal and interest to which it is entitled only from
the lender selling the loan participation and only upon receipt by such lender
of such payments from the borrower. In connection with purchasing loan partici-
pations, the Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement, nor any rights with respect to
any funds acquired by other lenders through set-off against the borrower, and
the Fund may not directly benefit from the collateral supporting the loan in
which it has purchased the loan participation. As a result, the Fund may assume
the credit risk of both the borrower and the lender selling the loan participa-
tion. In the event of insolvency of the lender selling a loan participation,
the Fund may be treated as a general creditor of such lender, and may not bene-
fit from any set-off between such lender and the borrower.
Non-Investment Grade Debt Securities ("Junk Bonds")
The Fund may invest in junk bonds. Junk bonds, while generally offering higher
yields than investment grade securities with similar maturities, involve
greater risks, including the possibility of default or bankruptcy. They are re-
garded as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal. The special risk considerations in connection
with investments in these securities are discussed below. Refer to the Appendix
of this Statement of Additional Information for a discussion of securities rat-
ings.
(1) Effect of Interest Rates and Economic Changes. The junk bond market is rel-
atively new and its growth has paralleled a long economic expansion. As a re-
sult, it is not clear how this market may withstand a prolonged recession or
economic downturn. Such an economic downturn could severely disrupt the market
for and adversely affect the value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. In addition, the mar-
ket values of junk bond securities tend to reflect individual corporate devel-
opments to a greater extent than do the market values of higher rated securi-
ties, which react primarily to fluctuations in the general level of interest
rates. Junk bond securities also tend to be more sensitive to economic condi-
tions than are higher rated securities. As a result, they generally involve
more credit risk than securities in the higher rated categories. During an eco-
nomic downturn or a sustained period of rising interest rates, highly leveraged
issuers of junk bond securities
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may experience financial stress and may not have sufficient revenues to meet
their payment obligations. The risk of loss due to default by an issuer of
these securities is significantly greater than by an
issuer of higher rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the issuer
of a junk bond security defaults, the Fund may incur additional expenses to
seek recovery. Periods of economic uncertainty and changes would also generally
result in increased volatility in the market prices of these securities and
thus in the Fund's net asset value.
As previously stated, the value of a junk bond security will generally decrease
in a rising interest rate market and, accordingly, so will the Fund's net asset
value. If a Fund experiences unexpected net redemptions in such a market, it
may be forced to liquidate a portion of its portfolio securities without regard
to their investment merits. Due to the limited liquidity of junk bond securi-
ties, the Fund may be forced to liquidate these securities at a substantial
discount. Any such liquidation would reduce the Fund's asset base over which
expenses could be allocated and could result in the reduced rate of return for
the Fund.
(2) Payment Expectations. Junk bond securities typically contain redemption,
call, or prepayment provisions that permit the issuer of securities containing
such provisions to redeem the securities at its discretion. During periods of
falling interest rates, issuers of these securities are likely to redeem or
prepay the securities and refinance them with debt securities with a lower in-
terest rate. To the extent an issuer is able to refinance the securities, or
otherwise redeem them, the Fund may have to replace the securities with lower
yielding securities, which could result in a lower return for the Portfolio.
(3) Credit Ratings. Credit ratings are issued by credit rating agencies and are
indicative of the rated securities' safety of principal and interest payments.
They do not, however, evaluate the market value risk of junk bond securities
and, therefore, may not fully reflect the true risks of such an investment. In
addition, credit rating agencies may not make timely changes in a rating to re-
flect changes in the economy or in the condition of the issuer that affect the
value of the security. Consequently, credit ratings are used only as a prelimi-
nary indicator of investment quality. Investments in junk bonds will depend
more upon NIAC's credit analysis than investments in investment grade debt se-
curities. NIAC employs its own credit research and analysis, which includes a
study of the issuer's existing debt, capital structure, ability to service
debts, pay dividends, sensitivity to economic conditions, operating history,
and current earnings trend. NIAC monitors the Fund's investments on an ongoing
basis and carefully evaluates whether to dispose of or to retain junk bond se-
curities whose credit ratings or credit quality may have changed.
(4) Liquidity and Valuation. The Fund may have difficulty disposing of certain
junk bond securities because there may be a thin trading market for such secu-
rities. Not all dealers maintain markets in all junk bond securities. As a re-
sult, there is no established retail secondary market for many of these securi-
ties. The Fund anticipates that such securities could be sold only to a limited
number of dealers or institutional investors. To the extent a secondary trading
market does exist, it is generally not as liquid as the secondary market for
higher rated securities. The lack of a liquid secondary market may have an ad-
verse impact on the market price of the security. The lack of a liquid second-
ary market for certain securities may also make it more difficult for the Fund
to obtain accurate market quotations for purposes of valuing its securities.
Market quotations are generally available on many junk bond issues only from a
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<PAGE>
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales. During periods of thin trading, the spread
between bid and asked prices is likely to increase significantly. In addition,
adverse publicity and investor perceptions, whether or not based on fundamen-
tal analysis, may decrease the value and liquidity of junk bond securities,
especially in a thinly traded market.
Pass-Through Securities
The Fund may invest in various fixed-income obligations backed by a pool of
mortgages or other assets. The pass-through securities in which the Fund may
invest are each described below.
(1) "Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal Na-
tional Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corpo-
ration (FHLMC), and by private entities. The payment of interest and principal
on securities issued by U.S. government agencies is guaranteed by the full
faith and credit of the U.S. government (in the case of GNMA securities) or
the issuer (in the case of FNMA and FHLMC securities). However, the guarantees
do not apply to the market prices and yields of these securities, which vary
with changes in interest rates. Mortgage-backed securities issued by private
entities are structured similarly to mortgage-backed securities issued by
GNMA, FNMA, and FHLMC. These securities and the underlying mortgages are not
guaranteed by government agencies. However, these securities generally are
structured with one or more types of credit enhancement by a third party.
Mortgage-backed securities permit borrowers to prepay their underlying mort-
gages. Prepayments by borrowers on underlying obligations can alter the effec-
tive maturity of these instruments.
(2) "Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mort-
gages, while privately issued CMOs may be backed by either government agency
mortgages or private mortgages. Payments of principal and interest are passed
through to each bond at varying schedules resulting in bonds with different
coupons, effective maturities, and sensitivities to interest rates. In fact,
some CMOs may be structured in a way that when interest rates change the im-
pact of changing prepayment rates on these securities' effective maturities is
magnified.
(3) "Commercial mortgage-backed securities" are backed by mortgages of commer-
cial property, such as hotels, office buildings, retail stores, hospitals, and
other commercial buildings. These securities may have a lower prepayment risk
than other mortgage-related securities because commercial mortgage loans gen-
erally prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying mort-
gage loans. Many of the risks of investing in commercial mortgage-backed secu-
rities reflect the risks of investing in the real estate securing the under-
lying mortgage loans, including the effects of local and other economic condi-
tions on real estate markets, the ability of tenants to make loan payments,
and the ability of a property to attract and retain tenants.
(4) "Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or partici-
pations in pools of leases. Credit support for these securities may be based
on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying
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<PAGE>
collateral, the credit strength of the credit enhancement, changes in interest
rates, and at times the financial condition of the issuer. Some asset-backed
securities also may receive prepayments, which can change the securities' ef-
fective maturities.
(5) Other Mortgage-Related Securities. The Fund may invest in real estate in-
vestment conduits which are issued in portions or tranches with varying maturi-
ties and characteristics. Some tranches may only receive the interest paid on
the underlying mortgages (IOs) and others may only receive the principal pay-
ments (POs). The values of IOs and POs are extremely sensitive to interest rate
fluctuations and prepayment rates, and IOs are also subject to the risk of
early repayment of the underlying mortgages, which will substantially reduce or
eliminate interest payments.
Inflation-Indexed Bonds
The Fund may invest in inflation-indexed bonds issued by the U.S. Government,
its agencies or instrumentalities, or by private corporations. The principal
value of this type of bond is periodically adjusted according to changes in the
rate of inflation. The interest rate is generally fixed at issuance; however,
interest payments are based upon an inflation adjusted principal value. For ex-
ample, in a period of falling inflation, principal value will be adjusted down-
ward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for infla-
tion) is guaranteed in the case of U.S. Treasury inflation indexed bonds, even
during a period of deflation. However, the current market value of the bonds is
not guaranteed and will fluctuate. The Fund may also invest in other bonds
which may or may not provide a similar guarantee. If a guarantee of principal
is not provided, the adjusted principal value of the bond repaid at maturity
may be less than the original principal.
Convertible Debt Securities
Among the corporate debt securities in which the Fund may invest are convert-
ible securities. A convertible debt security is a bond, debenture, note, or
other security that entitles the holder to acquire common stock or other equity
securities of the same or a different issuer. A convertible security generally
entitles the holder to receive interest paid or accrued until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to non-convertible debt se-
curities. Convertible securities rank senior to common stock in a corporation's
capital structure and, therefore, generally entail less risk than the corpora-
tion's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a predetermined price. If a convertible security held by the Fund is called
for redemption, the Fund would be required to permit the issuer to redeem the
security and convert it to underlying common stock, or would sell the convert-
ible security to a third party. The Fund generally would invest in convertible
securities for their favorable price characteristics and total return potential
and would normally not exercise an option to convert. The convertible securi-
ties in which the Fund may invest must be rated at least BBB by S&P, D&P, or
Fitch, or at least Baa by Moody's.
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<PAGE>
Eurodollar Convertibles
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.
Other Considerations
Obligations of issuers are subject to the provisions of bankruptcy, insolvency
and other laws affecting the rights and remedies of creditors, such as the
Bankruptcy Reform Act of 1978. In addition, the obligations of such issuers may
become subject to the laws enacted in the future by Congress, state legisla-
tures or referenda extending the time for payment of principal or interest, or
both, or imposing other constraints upon enforcement of such obligations or
upon municipalities to levy taxes. There is also the possibility that, as a re-
sult of legislation or other conditions, the power or ability of any issuer to
pay, when due, the principal of and interest on its securities may be materi-
ally affected.
During temporary defensive periods (e.g., times when, in NIAC's opinion, the
ability of the Fund to meet its long-term investment objectives and preserve
the asset value of the Fund may be adversely affected by significant adverse
market, economic, political, or other circumstances), and in order to keep cash
on hand fully invested, the Fund may invest any percentage of its assets in
temporary investments. For further information, see "Cash Equivalents and
Short-Term Investments" below.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Short-Term Fixed Income Securities
The Fund may invest up to 20% 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, high quality fixed-income securities having
a maturity of one year or less. Short-term fixed income securities are defined
to include, without limitation, 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 size of the debt serv-
ice burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may
be subject.
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<PAGE>
(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 in-
struments used to finance commercial transactions. Generally, an acceptance is
a time draft drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is then "accepted"
by a bank that, in effect, unconditionally guarantees to pay the face value of
the instrument on its maturity date. The acceptance may then be held by the ac-
cepting 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. 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
Fund is entitled to sell the underlying collateral. If the value of the collat-
eral declines after the agreement is entered into, however, and if the seller
defaults under a repurchase agreement when the value of the underlying collat-
eral 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 collat-
eral 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 deter-
mine 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 collat-
eral could be delayed or impaired because of certain provisions of the bank-
ruptcy 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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<PAGE>
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-1 or better by S&P, Prime-1 or higher by Moody's,
Duff 2 or higher by D&P or Fitch 2 or higher by Fitch.
DURATION AND PORTFOLIO MATURITY
In administering the Fund's investments, the NIAC currently intends that the
average portfolio duration of the Fund will normally vary within a three- to
six-year time frame based upon NIAC'S forecast for interest rates. Duration is
an indicator of the expected volatility of a bond position in response to
changes in interest rates. In calculating duration, the Fund measures the av-
erage time required to receive all cash flows associated with those debt secu-
rities--representing payments of principal and interest--by considering the
timing, frequency and amount of payment expected from each portfolio debt se-
curity. The higher the duration, the greater the gains and losses when inter-
est rates change. Duration generally is a more accurate measure of potential
volatility with a portfolio composed of high-quality debt securities, such as
U.S. government securities, municipal securities and high-grade U.S. corporate
bonds, than with lower-grade securities.
NIAC may use several methods to manage the duration of the Fund's bond posi-
tion in order to increase or decrease its exposure to changes in interest
rates. First, NIAC may adjust duration by adjusting the mix of debt securities
held by the Fund. For example, if NIAC intends to shorten duration, it may
sell debt instruments that individually have a long duration and purchase
other debt instruments that individually have a shorter duration. Among the
factors that will affect a debt security's duration are the length of time to
maturity, the timing of interest and principal payments, and whether the terms
of the security give the issuer of the security the right to call the security
prior to maturity. Second, NIAC may adjust bond duration using derivative
transactions, especially with interest rate futures and options contracts. For
example, if NIAC wants to lengthen the duration of the Fund's bond position,
it could purchase interest rate futures contracts instead of buying longer-
term bonds or selling shorter-term bonds. Similarly, during periods of lower
interest rate volatility, NIAC may use a technique to extend duration in the
event rates rise by writing an out-of-the-money put option and receiving pre-
mium income with the expectation that the option could be exercised. In manag-
ing duration, the use of such derivatives may be faster and more efficient
than trading specific portfolio securities.
Weighted average maturity is another indicator of potential volatility used by
NIAC with respect to the Fund's bond portfolio, although for certain types of
debt securities, such as high quality debt securities, it is not as accurate
as duration in quantifying potential volatility. Weighted average maturity is
the average of all maturities of the individual debt securities held by the
Fund, weighted by the market value of each security. Generally, the longer the
weighted average maturity, the more bond prices will vary in response to
changes in interest rates.
The fund buys bonds with different maturities in pursuit of its investment ob-
jective, but maintains under normal market conditions an investment portfolio
with an overall weighted average effective maturity of 5 to 10 years. A bond's
effective maturity may be significantly shorter than its stated maturity due
to certain features (such as puts, an adjustable coupon, or a prepayment
schedule or expected prepayment rate, but not a call provision) that cause the
bond to experience the same price volatility as a shorter-maturity but other-
wise comparable bond. For example, a mortgage-backed security with a 30-year
stated maturity but structured to have an expected maturity of 7 years will
generally
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<PAGE>
experience price changes due to market interest rate movements similar to an
ordinary bond with a 7-year maturity. Consequently, the fund portfolio's aver-
age stated maturity could be significantly longer than 10 years but, because
its average effective maturity will be less than 10 years, fund shares should
under normal market conditions experience price volatility similar to an ordi-
nary bond with a stated maturity of less than 10 years. It is possible that, if
market interest rates were to rise rapidly and substantially, the fund will ex-
perience somewhat more volatility than a bond with a stated maturity of less
than 10 years.
The policy of having a weighted average portfolio effective maturity of 5 to 10
years will not limit the effective maturity of any particular bond, and one or
more portfolio bonds may have effective maturities less than 5 years or greater
than 10 years so long as the weighted average effective maturity remains be-
tween 5 and 10 years.
The average effective maturity policy will apply at all times, even though
changes to the average effective maturity may result from market changes inde-
pendent of any portfolio changes. For example, if the average effective matu-
rity rises above 10 years not because of portfolio changes but rather because
market changes have lengthened the effective maturities of certain bonds in the
portfolio, the adviser will promptly adjust the portfolio to bring the average
below 10 years. The average effective maturity may occasionally fall below 5
years during a temporary defensive period in response to adverse market condi-
tions, or because cash on hand awaiting investment in long-term bonds is in-
vested in short-term securities which tend to lower the portfolio's overall av-
erage effective maturity.
HEDGING STRATEGIES
General Description of Hedging Strategies
The Fund may engage in hedging activities. NIAC may cause the Fund to utilize a
variety of financial instruments, including options, futures contracts (some-
times referred to as "futures"), interest rate swaps, forward contracts, and
options on futures contracts to attempt to hedge the Fund's holdings.
Hedging or derivative 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. Such instruments may also be used to "lock-in"
realized but unrecognized gains in the value of portfolio securities. Hedging
strategies, if successful, can reduce the risk of loss by wholly and partially
offsetting the negative effect of unfavorable price movements in the invest-
ments being hedged. However, hedging strategies can also reduce the opportunity
for gain by offsetting the positive effect of favorable price movements in the
hedged investments. The Fund may also use derivative instruments to manage the
risks of its assets. Risk management strategies include, but are not limited
to, facilitating the sale of Fund securities, managing the effective maturity
or duration of debt obligations that the Fund holds, establishing a position in
the derivatives markets as a substitute for buying or selling certain securi-
ties or creating or altering exposure to certain asset classes, such as debt
and foreign securities. The use of derivative instruments may provide a less
expensive, more expedient, or more specifically focused way for the Fund to in-
vest than would "traditional" securities (i.e., stocks or bonds). The use of
hedging instruments is subject to applicable regulations of the Securities and
Exchange Commission (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
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<PAGE>
markets. Pursuant to Section 4.5 of the regulations under the Commodity Ex-
change 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 con-
tracts and options transactions if more than 50% of total 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 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 outstanding, unless replaced with other per-
missible assets, and will be marked-to-market daily.
Options
The Fund may use options for any lawful purpose consistent with its respective
investment objective such as hedging or managing risk but not for speculation.
An option is a contract in which the "holder" (the buyer) pays a certain amount
(the "premium") to the "writer" (the seller) to obtain the right, but not the
obligation, to buy from the writer (in a "call") or sell to the writer (in a
"put") a specific asset at an agreed upon price (the "strike price" or "exer-
cise price") at or before a certain time (the "expiration date"). The holder
pays the premium at inception and has no further financial obligation. The
holder of an option will benefit from favorable movements in the price of the
underlying asset but is not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The writer of an option will
receive fees or premiums but is exposed to losses due to changes in the value
of the underlying asset. The Fund may purchase (buy) or write (sell) put and
call options on assets, such as debt securities, commodities, and indices of
debt securities ("underlying assets") and enter into closing transactions with
respect to such options to terminate an existing position. Options used by the
Fund may include European-, American- and Bermuda-style options. If an option
is exercisable only at maturity, it is a "European" option; if it is also exer-
cisable prior to maturity, it is an "American" option; if it is exercisable
only at certain times, it is a "Bermuda" option.
The Fund may purchase and write put and call options and enter into closing
transactions with respect to such options to terminate an existing position.
The purchase of call options serves as a long hedge, and the purchase of put
options serves as a short hedge. Writing put or call options can enable the
Fund to enhance income by reason of the premiums paid by the purchaser of such
options. Writing call options serves as a limited short hedge because declines
in the value of the hedged investment would be
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offset to the extent of the premium received for writing the option. If the se-
curity appreciates to a price higher than the exercise price of the call op-
tion, however, it can be expected that the option will be exercised and the
Fund will be obligated to sell the security at less than its market value or
will be obligated to purchase the security at a price greater than that at
which the security must be sold under the option. All or a portion of any as-
sets used as cover for OTC options written by the Fund would be considered il-
liquid to the extent described under "Investment Policies and Techniques--Il-
liquid Securities." Writing put options serves as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent
of the premium received for writing the option. If the security depreciates to
a price lower than the exercise price of the put option, it can be expected
that the put option will be exercised and the Fund will be obligated to pur-
chase the security at more than its market value.
The value of an option position will reflect, among other things, the histori-
cal price volatility of the underlying investment, the current market value of
the underlying investment, the time remaining until expiration, the relation-
ship of the exercise price to the market price of the underlying investment,
and general market conditions.
The Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it has written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a clos-
ing sale transaction. Closing transactions permit the Fund to realize the
profit or limit the loss on an option position prior to its exercise or expira-
tion.
The Fund may purchase or write both exchange-traded and OTC options. Exchange-
traded options are issued by a clearing organization affiliated with the ex-
change on which the option is listed that, in effect, guarantees completion of
every exchange-traded option transaction. In contrast, OTC options are con-
tracts between the Fund and the other party to the transaction ("counterparty")
(usually a securities dealer or a bank) with no clearing organization guaran-
tee. Thus, when the Fund purchases or writes an OTC option, it relies on the
counter party to make or take delivery of the underlying investment upon exer-
cise of the option. Failure by the counter party to do so would result in the
loss of any premium paid by the Fund as well as the loss of any expected bene-
fit of the transaction.
The Fund's ability to establish and close out positions in exchange-listed op-
tions depends upon the existence on a liquid market for such instruments. The
Fund intends to purchase or write only those exchange-traded options for which
there appears to be a liquid secondary market. However, there can be no assur-
ance that such a market will exist at any particular time. Closing transactions
can be made for OTC options only by negotiating directly with the counter par-
ty, or by a transaction in the secondary market if any such market exists. Al-
though the Fund will enter into OTC options only with counter parties that are
expected to be capable of entering into closing transactions, there is no as-
surance that the Fund will in fact be able to close out OTC options at favora-
ble prices prior to expiration. In the event of insolvency of the counter par-
ty, the Portfolios may be unable to close out an OTC option position at any
time prior to its expiration. If the Fund were unable to effect a closing
transaction for an option it had purchased, it would have to exercise the op-
tion to realize any profit and would incur transaction costs upon the purchase
and sale of the underlying securities.
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<PAGE>
The Fund also may engage in options transactions on indices in much the same
manner as the options on securities discussed above, except the index options
may serve as a hedge against overall fluctuations in the securities market in
general. The writing and purchasing of options is a highly specialized activ-
ity that involves investment techniques and risks different from those associ-
ated with ordinary portfolio securities transactions. An imperfect correlation
between the options and securities markets may detract from the effectiveness
of attempted hedging. For instance, 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 indices, de-
pends on the degree to which price movements in the underlying 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 correla-
tion 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 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 indexes ac-
quired by the Fund. The purchase of index options also 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 securi-
ties comprising the index on which the option is based.
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. 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 pro-
ceeds 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,
certain of 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 pur-
poses in accordance with the 60%/40% rule discussed above even though the po-
sition 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 desig-
nation 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.
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<PAGE>
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 securities markets, in order to establish more definitely the effective
return on securities held or intended to be acquired by the Fund, to manage
risk 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 declines
in the prices of securities and purchases of Futures as an offset against the
effect of expected increases in the prices of securities. The Fund will not en-
ter 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 matu-
rity date and underlying 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 interest rate futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial instru-
ment (e.g., a debt security) or currency for a specified price at a designated
date, time and place. 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 orig-
inally written. Transaction 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 par-
ticular 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. Howev-
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<PAGE>
er, 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.
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.
Interest Rate Swaps
The Fund may also utilize interest rate swaps. In an interest rate swap, the
Fund and another party exchange their right to receive, or their obligation to
pay, interest on a security. For example, they may swap a right to receive
floating rate interest payments for fixed rate payments. The Fund enters into
swaps only on securities it owns. The Fund may not enter into swaps with re-
spect to more than 25% of its total assets. The Fund will segregate liquid as-
sets of any type of any grade to cover any amounts it could owe under swaps
that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed.
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<PAGE>
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 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 delivera-
ble upon exercise 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, howev-
er, 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 partial 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 NIAC's ability
to correctly predict the movement in prices of Futures Contracts and the under-
lying instruments, which may prove to be incorrect. In addition, there may be
imperfect correlation between the instruments being hedged and the Futures Con-
tract subject to the option. Certain characteristics of the futures market
might increase the risk that movements in the prices of futures contracts or
options on futures contracts might not correlate perfectly with movements in
the prices of the investments being hedged. For example, all participants in
the futures and options on futures contracts markets are subject to daily vari-
ation margin calls and might be compelled to liquidate futures or options on
futures contracts positions whose prices are moving unfavorably to avoid being
subject to further calls. These
B-19
<PAGE>
liquidations could increase the price volatility of the instruments and distort
the normal price relationship between the futures or options and the invest-
ments being hedged. Also, because of initial margin deposit requirements in the
futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the futures
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities mar-
kets involving arbitrage, "program trading," and other investment strategies
might result in temporary price distortions.
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.
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.
Risks and Special Considerations Concerning Derivatives
The use of derivative instruments involves certain general risks and considera-
tions as described below. The specific risks pertaining to certain types of de-
rivative instruments are described in the sections that follow.
(1) Market Risk. Market risk is the risk that the value of the underlying as-
sets may go up or down. Adverse movements in the value of an underlying asset
can expose the Fund to losses. Market risk is the primary risk associated with
derivative transactions. Derivative instruments may include elements of lever-
age and, accordingly, fluctuations in the value of the derivative instrument in
relation to the underlying asset may be magnified. The successful use of deriv-
ative instruments depends upon a variety of factors, particularly the portfolio
manager's ability to predict movements of the securities, currencies, and com-
modities markets, which may require different skills than predicting changes in
the prices of individual securities. There can be no assurance that any partic-
ular strategy adopted will succeed. A decision to engage in a derivative trans-
action will reflect the portfolio manager's judgment that the derivative trans-
action will provide value to the Fund and its shareholders and is consistent
with the Fund's objectives, investment limitations, and operating policies. In
making such a judgment, the portfolio manager will analyze the benefits and
risks of the derivative transactions and weigh them in the context of the
Fund's overall investments and investment objective.
B-20
<PAGE>
(2) Credit Risk. Credit risk is the risk that a loss may be sustained as a re-
sult of the failure of a counterpart to comply with the terms of a derivative
instrument. The counterparty risk for exchange-traded derivatives is generally
less than for privately-negotiated or OTC derivatives, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated in-
struments, there is no similar clearing agency guarantee. In all transactions,
the Fund will bear the risk that the counterparty will default, and this could
result in a loss of the expected benefit of the derivative transactions and
possibly other losses to the Fund. The Fund will enter into transactions in
derivative instruments only within counterparties that their respective port-
folio manager reasonably believes are capable of performing under the con-
tract.
(3) Correlation Risk. Correlation risk is the risk that there might be an im-
perfect correlation, or even no correlation, between price movements of a de-
rivative instrument and price movements of investments being hedged. When a
derivative transaction is used to completely hedge another position, changes
in the market value of the combined position (the derivative instrument plus
the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged with any change in the price of the under-
lying asset. With an imperfect hedge, the value of the derivative instrument
and its hedge are not perfectly correlated. For example, if the value of a de-
rivative instrument used in a short hedge (such as writing a call option, buy-
ing a put option or selling a futures contract) increased by less than the de-
cline in value of the hedged investments, the hedge would not be perfectly
correlated. This might occur due to factors unrelated to the value of the in-
vestments being hedged, such as speculative or other pressures on the markets
in which these instruments are traded. The effectiveness of hedges using in-
struments on indices will depend, in part, on the degree of correlation be-
tween price movements in the index and the price movements in the investments
being hedged.
(4) Liquidity Risk. Liquidity risk is the risk that a derivative instrument
cannot be sold, closed out, or replaced quickly at or very close to its funda-
mental value. Generally, exchange contracts are very liquid because the ex-
change clearinghouse is the counterparty of every contract. OTC transactions
are less liquid than exchange-traded derivatives since they often can only be
closed out with the other party to the transaction. The Fund might be required
by applicable regulatory requirements to maintain assets as "cover," maintain
segregated accounts, and/or make margin payments when it takes positions in
derivative instruments involving obligations to third parties (i.e., instru-
ments other than purchase options). If the Fund is unable to close out its po-
sitions in such instruments, it might be required to continue to maintain such
assets or accounts or make such payments until the position expires, matures,
or is closed out. These requirements might impair a Fund's ability to sell a
security or make an investment at a time when it would otherwise be favorable
to do so, or require that the Fund sell a portfolio security at a disadvanta-
geous time. The Fund's ability to sell or close out a position in an instru-
ment prior to expiration or maturity depends upon the existence of a liquid
secondary market or, in the absence of such a market, the ability and willing-
ness of the counterparty to enter into a transaction closing out the position.
Due to liquidity risk, there is no assurance that any derivatives position can
be sold or closed out at time and price that is favorable to the Fund.
(5) Legal Risk. Legal risk is the risk of loss caused by the unenforceability
of a party's obligations under the derivative. While a party seeking price
certainty agrees to surrender the potential upside in ex-
B-21
<PAGE>
change for downside protection, the party taking the risk is looking for a pos-
itive payoff. Despite this voluntary assumption of risk, a counterparty that
has lost money in a derivative transaction may try to avoid payment by exploit-
ing various legal uncertainties about certain derivative products.
(6) Systemic or "Interconnection" Risk. Systemic or interconnection risk is the
risk that a disruption in the financial markets will cause difficulties for all
market participants. In other words, a disruption in one market will spill over
into other markets, perhaps creating a chain reaction. Much of the OTC deriva-
tives market takes place among the OTC dealers themselves, thus creating a
large interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create losses
for other dealers and destabilize the entire market for OTC derivative instru-
ments.
OTHER INVESTMENT POLICIES AND TECHNIQUES
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 NIAC the day-to-day determination of the illiquidity of any fixed-in-
come security, although it has retained oversight and ultimate responsibility
for such determinations. Although no definitive liquidity criteria are used,
the Board of Trustees has directed NIAC to look to such factors as (i) the na-
ture of the market for a security (including the institutional private resale
market; the frequency of trades and quotes for the security; the number of
dealers willing to purchase or sell the security; and the amount of time nor-
mally needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer), (ii) the terms of certain securities or other in-
struments allowing for the disposition to a third party or the issuer thereof
(e.g., certain repurchase obligations and demand instruments), and (iii) other
permissible relevant factors.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in ef-
fect under the Securities Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective registration 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 Fund will take such steps as is deemed advisable,
if any, to protect liquidity.
B-22
<PAGE>
Dollar Roll Transactions
The Fund may enter into "dollar roll" transactions, which involve the sale of
pass-through securities together with a commitment to purchase similar, but not
identical, securities at a later date. The Fund assumes the rights and risks of
ownership, including the risk of price and yield fluctuations as of the time of
the agreement.
When-Issued Securities
The Fund may from time to time purchase securities on a "when-issued" or other
delayed-delivery basis. The price of securities purchased on a when-issued ba-
sis is fixed at the time the commitment to purchase is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
date occurs within 45 days of the purchase. During the period between the 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. Forward commitments involve a risk of loss if the value of the secu-
rity to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in value of the Fund's other assets. While
when-issued securities may be sold prior to the settlement date, the Fund in-
tends to purchase such securities with the purpose of actually acquiring them.
At the time the Fund makes the commitment to purchase a security on a when-is-
sued basis, it will record the transaction and reflect the value of the secu-
rity in determining its net asset value. The Fund does not believe that net as-
set value will be adversely affected by purchases of securities on a when-is-
sued basis.
The Fund will maintain cash, U.S. government securities and high grade liquid
debt securities equal in value to commitments for when-issued securities. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date. When the time comes to pay for when-issued securities, the
Fund will meet its obligations from then available cash flow, sale of the secu-
rities held in the separate account (described above), sale of other securities
or, although it would not normally expect to do so, from the sale of the when-
issued securities themselves (which may have a market value greater or less
than the Fund's payment obligation).
Foreign Securities
The Fund may invest up to 20% of its net assets in foreign securities denomi-
nated in U.S. dollars. Investments in securities of foreign issuers involve
risks in addition to the usual risks inherent in domestic investments. Foreign
securities are affected by the fact that in many countries there is less pub-
licly available information about issuers than is available in the reports and
ratings published about companies in the U.S. and companies may not be subject
to uniform accounting, auditing and financial reporting standards. Other risks
inherent in foreign investments include expropriation; confiscatory taxation;
withholding taxes on dividends and interest; less extensive regulation of for-
eign brokers, securities markets and issuers; diplomatic developments; and po-
litical or social instability. Foreign economies may differ favorably or unfa-
vorably from the U.S. economy in various respects, and many foreign securities
are less liquid and their prices tend to be more volatile than comparable U.S.
securities. From time to time, foreign securities may be difficult to liquidate
rapidly without adverse price effects.
B-23
<PAGE>
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
Under normal market conditions, the Fund expects annual portfolio turnover to
be relatively low in order to reduce trading costs and realization of taxable
capital gains. 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 bro-
kerage costs and could result in the payment by shareholders of increased taxes
on realized investment gains.
B-24
<PAGE>
MANAGEMENT
The management of the Trust, including general supervision of the duties per-
formed for the Fund under the Management Agreement, is the responsibility of
its Board of Trustees. The number of trustees of the Trust is six, two of whom
are "interested persons" (as the term "interested persons" is defined in the
Investment Company Act of 1940) and four of whom are "disinterested persons."
The names and business addresses of the trustees and officers of the Trust and
their principal occupations and other affiliations during the past five years
are set forth below, with those trustees who are "interested 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 1,
333 West Wacker Drive 1996 of The John Nuveen
Chicago, IL 60606 Company, John Nuveen &
Co. Incorporated, Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.; prior thereto,
Executive Vice President
and Director of The John
Nuveen Company, John
Nuveen & Co.
Incorporated, Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.; President and
Director (since January
1997) of Nuveen Asset
Management, Inc.;
Chairman and Director
(since 1997) of
Rittenhouse Financial
Services, Inc.
- -------------------------------------------------------------------------------
Timothy R. Schwertfeger* 49 President and Trustee Chairman since July 1,
333 West Wacker Drive 1996 of The John Nuveen
Chicago, IL 60606 Company, John Nuveen &
Co. Incorporated, Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.; prior thereto
Executive Vice President
and Director of The John
Nuveen Company, John
Nuveen & Co.
Incorporated, Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.; Chairman and
Director (since January
1997) of Nuveen Asset
Management, Inc.;
Director (since 1996) of
Institutional Capital
Corporation.
- -------------------------------------------------------------------------------
James E. Bacon 67 Trustee Business consultant;
114 W. 4th St. Director of Lone Star
New York, NY 10036 Industries, Inc.
(cement); retired.
- -------------------------------------------------------------------------------
William L. Kissick 66 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) of
250 Park Avenue Catalyst (a not-for-
New York, NY 10003 profit organization
focusing on women's
leadership development in
business and the
professions).
- -------------------------------------------------------------------------------
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.
</TABLE>
- --------------------------------------------------------------------------------
B-25
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
POSITION AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH TRUST DURING PAST FIVE YEARS
- ---------------------------------------------------------------------------------
<C> <C> <C> <S>
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.
- ---------------------------------------------------------------------------------
Stephen D. Foy 44 Vice President and Controller Vice President of John
333 West Wacker Drive Nuveen & Co.
Chicago, IL 60606 Incorporated.
- ---------------------------------------------------------------------------------
Richard A. Huber 35 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. (since
Chicago, IL 60606 January 1997); prior
thereto, Vice President
and Portfolio Manager of
Flagship Financial.
- ---------------------------------------------------------------------------------
Larry W. Martin 47 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 and Assistant
Secretary of Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp.;
Assistant Secretary of
The John Nuveen Company
(since February 1993).
- ---------------------------------------------------------------------------------
Edward F. Neild, IV 33 Vice President Vice President (since
333 West Wacker Drive September 1996),
Chicago, IL 60606 previously Assistant
Vice President (since
December 1993) of Nuveen
Advisory Corp.,
Portfolio Manager prior
thereto; Vice President
(since September 1996),
previously Assistant
Vice President (since
May 1995) of Nuveen
Institutional Advisory
Corp., Portfolio Manager
prior thereto; Chartered
Financial Analyst.
- ---------------------------------------------------------------------------------
Stuart W. Rogers 42 Vice President Vice President of John
333 West Wacker Drive Nuveen & Co.
Chicago, IL 60606 Incorporated.
- ---------------------------------------------------------------------------------
H. William Stabenow 64 Vice President and Vice President and
333 West Wacker Drive Treasurer Treasurer of The John
Chicago, IL 60606 Nuveen Company, John
Nuveen & Co.
Incorporated, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp.
- ---------------------------------------------------------------------------------
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; Chartered
Financial Analyst.
- ---------------------------------------------------------------------------------
Gifford R. Zimmerman 42 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. and
Nuveen Institutional
Advisory Corp.;
Chartered Financial
Analyst.
</TABLE>
- --------------------------------------------------------------------------------
B-26
<PAGE>
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.
The trustees of the Trust are trustees of eleven open-end and closed-end funds
advised by NIAC.
Mr. Dean and Mr. Schwertfeger are also directors or trustees, as the case may
be, of 89 Nuveen open-end funds and closed-end funds advised by Nuveen Advisory
Corp.
The following table sets forth compensation estimated to be paid by the Trust
to each of the trustees who are not designated "interested persons" during the
Trust's fiscal year ending September 30, 1999, and the total compensation that
the Nuveen Funds paid to such trustees during the one year period ended Septem-
ber 30, 1998. The Trust has no retirement or pension plans. The officers and
trustees affiliated with Nuveen serve without any compensation from the Trust.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
ESTIMATED FROM TRUST
AGGREGATE AND FUND
COMPENSATION COMPLEX
FROM THE PAID TO
NAME OF TRUSTEE TRUST* TRUSTEES**
-------------------------------- ------------ ------------
<S> <C> <C>
James E. Bacon.................. $ 471 $ 29,500
William L. Kissick.............. $ 471 $ 29,500
Thomas E. Leafstrand............ $ 491 $ 32,000
Sheila W. Wellington............ $ 471 $ 29,500
------ --------
Total......................... $1,904 $120,500
====== ========
</TABLE>
- --------
*Based on the estimated compensation to be paid to the independent trustees
for the one year period ending September 30, 1999 for services to the Trust.
**Based on the compensation paid to the independent trustees for the one year
period ended September 30, 1998 for services to the 10 open-end and closed-
end funds advised by NIAC.
Each trustee who is not affiliated with NIAC receives a $20,000 annual retainer
for serving as a director or trustee of all funds for which NIAC serves as in-
vestment adviser or manager and a $1,000 fee per day plus expenses for atten-
dance at all meetings held on a day on which a regularly scheduled Board meet-
ing is held, a $500 fee per day plus expenses for attendance 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 ex-
penses for attendance in person or by telephone at a meeting of the Executive
Committee held solely to declare dividends. The annual retainer, fees and ex-
penses are allocated among the funds for which NIAC serves as investment ad-
viser or manager on the basis of relative net asset sizes. The Trust requires
no employees other than its officers, all of whom are compensated by NIAC or
Nuveen.
As of November 25, 1998, NIAC owns all the outstanding shares of the Fund. John
Nuveen & Co. Incorporated, however, intends to invest $10,000,000 in the Fund
subsequent to the effective date of this Statement of Additional Information.
Therefore, John Nuveen & Co. Incorporated will be deemed to control the Fund so
long as it owns more than 25% of the Fund's voting securities.
B-27
<PAGE>
FUND MANAGER AND PORTFOLIO MANAGER
Fund Manager
NIAC acts as the manager of the Fund, with responsibility for the overall man-
agement of the Fund. Its address is 333 West Wacker Drive, Chicago, Illinois
60606. NIAC is responsible for managing the Fund's business affairs, providing
day-to-day administrative services to the Fund, and managing the Fund's in-
vestment portfolio. For additional information regarding the management serv-
ices performed by NIAC, see "Who Manages the Funds" in the Prospectus.
NIAC is a wholly-owned subsidiary of John Nuveen & Co. Incorporated
("Nuveen"), which is also the principal underwriter of the Fund's shares.
Nuveen is sponsor of the Nuveen Defined Portfolios, registered unit investment
trusts, is the principal underwriter for the Nuveen Mutual Funds, and has
served as co-managing underwriter for the shares of the Nuveen Exchange-Traded
Funds. Over 1,300,000 individuals have invested to date in Nuveen's funds and
defined portfolios. 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 princi-
pally engaged in providing 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 Prospec-
tus under "Management Fees." In addition, NIAC agreed to waive all or a por-
tion of its management fee or reimburse certain expenses of the Fund for the
year ended July 31, 1999 in order to prevent total operating expenses (exclud-
ing distribution or service fees, and extraordinary expenses) from exceeding
.80% of the average daily net asset value of any class of shares of the Fund.
All fees and expenses are accrued daily and deducted before payment of divi-
dends to investors. In addition to the fee paid to NIAC and the distribution
and service fees paid to Nuveen, the Fund is responsible for its own expenses
that are not covered under such agreements, including, without limitation:
custodial, transfer agent, accounting and legal fees; interest charges; bro-
kerage commissions; and extraordinary expenses.
PORTFOLIO TRANSACTIONS
NIAC is responsible for decisions to buy and sell securities for the Fund and
for the placement of the Fund's securities business, the negotiation 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 NIAC to seek the best execution at the best se-
curity price available with respect to each transaction, and with respect to
brokered transactions, in light of the overall quality of brokerage and re-
search services provided to the adviser 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 transactions, if any. The purchase price of portfolio se-
curities purchased from an underwriter or dealer may include underwriting com-
missions and dealer spreads. The Fund may pay mark-ups on principal transac-
tions. In selecting broker-dealers and in negotiating commissions, the portfo-
lio manager considers, among other things, 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.
B-28
<PAGE>
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)") permits
an investment adviser, under certain circumstances, to cause an account to pay
a broker or dealer who supplies brokerage and research services a commission
for effecting a transaction in excess of the amount of commission another bro-
ker or dealer would have charged for effecting the transaction. Brokerage and
research services include (a) furnishing advice as to the value of securities,
the advisability of investing, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b) fur-
nishing analyses and reports concerning issuers, industries, securities, eco-
nomic factors and trends, portfolio strategy, and the performance of accounts;
and (c) effecting securities transactions and performing functions incidental
thereto (such as clearance, settlement, and custody).
In light of the above, in selecting brokers, NIAC also considers investment
and market information and other research, such as economic, securities and
performance measurement research, provided by such brokers, and the quality
and reliability of brokerage services, including execution capability, perfor-
mance, and financial responsibility. Accordingly, the commissions charged by
any such broker may be greater than the amount another firm might charge if
NIAC determines in good faith that the amount of such commissions is reason-
able in relation to the value of the research information and brokerage serv-
ices provided by such broker to NIAC or the Fund. NIAC believes that the re-
search information received in this manner provides the Fund with benefits by
supplementing the research otherwise available to the Fund. The Management
Agreement provides that such higher commissions will not be paid by the Fund
unless the 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 are not reduced as a result of re-
ceipt by NIAC of research services.
NIAC places portfolio transactions for other advisory accounts managed by
them. Research services furnished by firms through which the Fund effects
their securities transactions may be used by NIAC in servicing all of its ac-
counts; not all of such services may be used by NIAC in connection with the
Fund. NIAC believes it is not possible to measure separately the benefits from
research services to each of the accounts (including the Fund) managed by
them. 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 an-
other broker paid by each account for brokerage and research services will
vary. However, NIAC believes such costs to the Fund will not be disproportion-
ate to the benefits received by the Fund on a continuing basis. NIAC seeks to
allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities by the Fund and another advisory account.
In some cases, this procedure could have an adverse effect 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 NIAC 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 pur-
chased 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 addition, purchases of securities made pursuant to the terms of the Rule
must be approved at least quarterly by the Board of Trustees, including a ma-
jority of the trustees who are not interested persons of the Trust.
B-29
<PAGE>
NET ASSET VALUE
The Fund's net asset value per share is determined separately for each class of
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 col-
lected, less all liabilities, and dividing by the total number of shares out-
standing. The result, rounded to the nearest cent, is the net asset 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. Preferred stock and other securities primarily traded
on the national securities exchange or Nasdaq are valued at the last sales
price; however, securities traded on a national securities exchange or Nasdaq
for which there were no transactions on a given day or securities not listed on
a national securities exchange or Nasdaq are valued at the most recent bid
prices. Fixed-income securities are valued by a pricing service that values
portfolio securities at the mean between the quoted bid and asked prices or the
yield equivalent when quotations are readily available. Securities for which
quotations are not readily available (which are expected to constitute a major-
ity of the fixed-income securities held by the Fund) are valued at fair value
as determined by the pricing service using methods that include consideration
of the following: yields or prices of bonds of comparable quality, type of is-
sue, coupon, maturity and rating; indications as to value from securities deal-
ers; 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, re-
gardless 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 dele-
gate 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 advice
of Chapman and Cutler, counsel to the Trust.
The Fund intends to qualify under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code") for tax treatment as a regulated investment com-
pany. In order to qualify as a regulated investment company, a Fund (i) must
elect to be treated as a regulated investment company and (ii) for each taxable
year thereafter must satisfy certain requirements relating to the source of its
income, diversi-
B-30
<PAGE>
fication of its assets, and distributions of its income to shareholders. First,
the Fund must derive at least 90% of its annual gross income 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 con-
tracts) derived with respect to its business of investing in such stock, secu-
rities or currencies (the "90% gross income test"). Second, the Fund must di-
versify 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 in-
vestment 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 securities of such issuer,
and (ii) not more than 25% of the value of the Fund's total assets is invested
in the securities of any one issuer (other than United States Government secu-
rities and securities of other regulated investment companies) or two or more
issuers controlled by a Fund and engaged in the same, similar or related trades
or businesses.
As a regulated investment company, 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 cap-
ital 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 in-
come tax purposes, as long-term capital gain, their shares of such undistrib-
uted 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 increased by an amount equal to the difference between the
amount of such includable gains and the tax deemed paid by such shareholder in
respect of such shares. The Fund intends to distribute at least annually to its
shareholders all or substantially all of its investment company taxable income
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
B-31
<PAGE>
the Fund's losses, cause adjustments in the holding periods of the Fund's secu-
rities, convert long-term capital gains into short-term capital gains and con-
vert short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to share-
holders.
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 dividends for Federal in-
come 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 cur-
rent 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. 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. Distributions 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 reinvested in ad-
ditional shares of a Fund.
Although dividends generally will be treated as distributed when paid, divi-
dends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by the Fund (and received
by the shareholders) on December 31 of the year such dividends are declared.
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 corpora-
tions at the rates applicable to ordinary income. The Internal Revenue Service
Restructuring and Reform Act of 1998 (the "1998 Tax Act") provides that for
taxpayers other than corporations, net capital gain (which is defined as net
long-term capital gain over net short-term capital loss for the taxable year)
realized from property (with certain exclusions) is subject to a maximum mar-
ginal stated tax rate of 20% (10% in the case of certain taxpayers in the low-
est tax bracket). Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period for
the asset is one year or less. 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. Capital gains realized from assets held for one year or less are taxed
at the same rates as ordinary income.
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 en-
B-32
<PAGE>
tered into after April 30, 1993. Shareholders and prospective investors should
consult with their tax advisers regarding the potential effect of this provi-
sion 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 realized
by the individual (and other non-corporate) shareholders in excess of the dis-
tributions received from the Fund.
All or a portion of a sales load paid in purchasing shares of 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 a 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 redemp-
tion or exchange of shares of a Fund held for six months or less are disal-
lowed to the extent of any distribution of exempt-interest dividends received
with respect to such shares and, if not disallowed, such losses are treated as
long-term capital losses to the extent of any distributions of long-term capi-
tal gains made with respect to such shares. In addition, no loss will be al-
lowed on the redemption or exchange of shares of a Fund if the shareholder
purchases other shares of the Fund (whether through reinvestment of distribu-
tions 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 Funds 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 (and, in certain cases, capital gains 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
B-33
<PAGE>
the Fund on certain Securities (other than corporate shareholders, such as "S"
corporations, which are not eligible for the deduction because of their spe-
cial 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 divi-
dends for the 70% dividends 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 hold-
ing requirement is met. Moreover, the allowable percentage of the deduction
will generally be reduced from 70% if a corporate shareholder owns Shares of
the Fund the financing of which is directly attributable to indebtedness in-
curred by such corporation. It should be noted that various legislative pro-
posals that would affect the dividends received deduction have been intro-
duced. To the extent dividends received by a Fund are attributable to foreign
corporations, a corporate shareholder will not be entitled to the dividends
received deduction with respect to its share of such foreign dividends since
the dividends received deduction is generally available only with respect to
dividends paid by domestic corporations. It should be noted that payments to
the Fund of dividends on Equity Securities that are attributable to foreign
corporations may be subject to foreign withholding taxes. Corporate sharehold-
ers should consult with their tax advisers with respect to the limitations on,
and possible modifications to, the dividends received deduction.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
federal income taxation of the Fund and its shareholders and relates only to
the federal income tax status of the Fund and to the tax treatment of distri-
butions by the Fund to United States shareholders. For complete provisions,
reference should be made to the pertinent Code sections and Treasury Regula-
tions. The Code and Treasury Regulations are subject to change by legislative
or administrative action, and any such change may be retroactive with respect
to Fund transactions. Shareholders are advised to consult their own tax advis-
ers for more detailed information concerning the federal taxation of the Fund
and the income tax consequences to their shareholders, as well as with respect
to foreign, state and local tax consequences of ownership of Fund shares.
NUVEEN INCOME FUND DISTRIBUTIONS
The Fund will pay monthly dividends to shareholders at a level rate that re-
flects the past and projected net income of the Fund and that results, over
time, in the distribution of substantially all of the Fund's net income. To
maintain a more stable monthly distribution, the Fund may from time to time
distribute less than the entire amount of net income earned in a particular
period. This undistributed net income would be available to supplement future
distributions, which might otherwise have been reduced by a decrease in the
Fund's monthly net income due to fluctuations in investment income or ex-
penses. As a result, the income distributions paid by the Fund for any partic-
ular monthly period may be more or less than the amount of net income actually
earned by the Fund during such period. Undistributed net income is included in
the Fund's net asset value and, correspondingly, distributions from previously
undistributed net income are deducted from the Fund's net asset value. It is
not expected that this dividend policy will impact the management of the
Fund's portfolio.
B-34
<PAGE>
PERFORMANCE INFORMATION
The Fund may quote its yield, distribution rate, beta, average annual total re-
turn or cumulative total return in reports to shareholders, sales literature
and advertisements each of which will be calculated separately for each class
of shares.
In accordance with a standardized method prescribed by rules of the Securities
and Exchange Commission ("SEC"), yield is computed by dividing the net invest-
ment income per share earned during the specified one month or 30-day period by
the maximum offering price per share on the last day of the period, according
to the following formula:
Yield=2[(a-b +1)/6/ -1]
cd
In the above formula, a = dividends and interest earned during the period; b =
expenses accrued for the period (net of reimbursements); c = the average daily
number of shares outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share on the last day of the
period. In the case of Class A shares, the maximum offering price includes the
current maximum front-end sales charge of 4.75%.
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 statements
in conformity with generally accepted accounting principles. Thus, the yield
may not equal the income paid to shareholders or the income reported in a
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 as-
set value for purchases to be made without a load such as reinvestments from
Nuveen Defined Portfolios, or the maximum public offering price). The distribu-
tion rate differs from yield and total return and therefore is not intended to
be a complete measure of performance. Distribution rate may sometimes differ
from yield because the Fund may be paying out more than it is earning and be-
cause it may not include the effect of amortization of bond premiums to the ex-
tent such premiums arise after the bonds were purchased.
The Fund also may from time to time in its advertising and sales literature
quote its beta. Beta is a standardized measure of a security's risk (variabil-
ity of returns) relative to the overall market, i.e. the proportion of the
variation in the security's returns that can be explained by the variation in
the return of the overall market. For example, a security with a beta of 0.85
is expected to have returns that are 85% as variable as overall market returns.
Conversely, a security with a beta of 1.25 is expected to have returns that are
125% as variable as overall market returns. The beta of the overall market is
by definition 1.00.
B-35
<PAGE>
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 a Fund. The Fund currently does not have any
prior operating history.
The average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation as-
sumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.
Calculation of cumulative total return is not subject to a prescribed formula.
Cumulative total return for a specific period is calculated by first taking a
hypothetical initial investment in Fund shares on the first day of the period,
deducting (in some cases) the maximum sales charge, and computing the "redeem-
able value" of that investment at the end of the period. The cumulative total
return percentage is then determined by subtracting the initial investment
from the redeemable value and dividing the remainder by the initial investment
and expressing the result as a percentage. The calculation assumes that all
income and capital gains distributions by a Fund have been reinvested at net
asset value on the reinvestment dates during the period. Cumulative total re-
turn may also be shown as the increased dollar value of the hypothetical in-
vestment over the period. Cumulative total return calculations that do not in-
clude the effect of the sales charge would be reduced if such charge were in-
cluded. Average annual and cumulative total returns may also be presented in
advertising and sales literature without the inclusion of sales charges.
B-36
<PAGE>
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 a fund had greater price variability, and therefore greater risk,
than an investment with a lower standard deviation.
THE RISK-ADJUSTED TOTAL RETURN for a class of shares of 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 4.75% 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 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) mutual funds or mutual fund indexes as reported by Lipper Ana-
lytical Services, Inc. ("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesen-
berger Investment Companies Service ("Wiesenberger") and CDA Investment Tech-
nologies, Inc. ("CDA") or similar independent services which monitor the per-
formance 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 In-
dex, the Lehman Aggregate Bond Index, or 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, av-
erage, year-by-year, or other types of total return and performance figures.
Any given performance quotation or performance comparison should not be consid-
ered 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 services
which are described herein. The Consumer Price Index is generally considered to
be a measure of inflation. Lipper, Morningstar, Wiesenberger and
B-37
<PAGE>
CDA are widely recognized mutual fund reporting services whose performance cal-
culations 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 in-
vestments with stable net asset values, fluctuating yields and special features
enhancing liquidity.
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 below.
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) trans-
fer agency fees attributable to a specific class of shares, (ii) printing and
postage 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.
B-38
<PAGE>
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 800-257-8787. You may pay
for your purchase by Federal Reserve draft or by check made payable to "Nuveen
Income Fund, Class [A], [B], [C], [R]," delivered to the financial adviser
through whom the investment is to be made for forwarding to Nuveen Investor
Services. When making your initial investment, you must also furnish the infor-
mation necessary to establish your Fund account by completing and enclosing
with your payment the application form attached to the Prospectus (the "Appli-
cation Form"). After your initial investment, you may make subsequent purchases
at any time by forwarding to your financial adviser or Nuveen Investor Services
a check, in the amount of your purchase, made payable to "Nuveen Income 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 Nuveen In-
vestor Services at P.O. Box 5186, Bowling Green Station, New York, NY 10004-
5186. A check drawn on a foreign bank or payable other than to the order of the
Fund generally will not be acceptable. You may also wire Federal Funds directly
to Nuveen Investor Services, but you may be charged a fee for this. For in-
structions on how to make Fund purchases by wire transfer, call Nuveen toll-
free at 800-257-8787.
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 share class ($1,000 for a
Traditional/Roth IRA Account; $500 for an Education IRA Account), and $500 for
accounts opened through fee-based programs for which the program sponsor has
established a single master 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
reinvestment 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
B-39
<PAGE>
rising markets before deciding to invest in this way. The Fund offers two dif-
ferent 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 Nuveen Investor Services to
draw preauthorized checks on your bank account. 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 in
connection with this Plan, and there is no cost to the Fund. To obtain an ap-
plication form for the Systematic Investment Plan, check the applicable box on
the Application Form or call Nuveen toll-free at 800-257-8787.
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 the 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 800-257-8787.
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 November 20, 1998 of Class A shares from the Fund aggre-
gating 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>
<CAPTION>
INCOME
FUND
------
<S> <C>
Net Asset Value per share......................................... $20.00
Per Share Sales Charge--4.75% of public offering price (5.00% of
net asset value per share)....................................... 1.00
------
Per Share Offering Price to the Public............................ $21.00
Shares Outstanding (as of November 20, 1998)...................... 5,000
</TABLE>
B-40
<PAGE>
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 or of another Nuveen Mutual
Fund, or Nuveen exchange-traded fund, or units of a Nuveen Defined Portfolio,
on which an up-front sales charge or ongoing distribution fee is imposed, or is
normally imposed, falls within the amounts stated in the Class A sales charges
and commissions table in "How to Choose a Share Class" in the Fund's Prospec-
tus. You or your financial adviser must notify Nuveen or the Fund's transfer
agent, Chase Global Fund Services Company ("Chase Global") of any cumulative
discount whenever you plan to purchase Class A Shares that you wish to qualify
for a reduced sales charge.
Letter of Intent
You may qualify for a reduced sales charge on a purchase of Class A Shares of
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
Fund's 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
Authorized 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 Defined Port-
folio, 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
B-41
<PAGE>
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 cred-
ited to your account. If total purchases, less redemptions, prior to the expi-
ration 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 re-
ceive 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 fi-
nancial adviser, Nuveen will redeem an appropriate number of your escrowed
Class A Shares to meet the required payment. By establishing a Letter of In-
tent, you irrevocably appoint Nuveen as attorney to give instructions to re-
deem any or all of your escrowed shares, with full power of substitution in
the premises.
You or your financial adviser must notify Nuveen or the Fund's transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.
Reinvestment of Nuveen Defined Portfolio Distributions
You may purchase Class A Shares without an up-front sales charge by reinvest-
ment of distributions from any of the various defined portfolios sponsored by
Nuveen. There is no initial or subsequent minimum investment requirement for
such reinvestment 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 any particular Fund or portfolio for each participant in the program
is $3,000 and the minimum monthly investment in Class A Shares of any particu-
lar Fund or portfolio by each participant is $50. No certificate will be is-
sued for any participant's account. All dividends and other distributions by
the Fund will be reinvested in additional Class A Shares. 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-
257-8787.
B-42
<PAGE>
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 a broker/dealer and represents the rein-
vestment of the proceeds of the redemption of shares of one or more registered
open-end investment companies not affiliated with Nuveen. You must provide ap-
propriate documentation that the redemption occurred not more than 60 days
prior to the reinvestment of the proceeds in Class A Shares, and that you ei-
ther 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 invest-
ment 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 or any Nuveen-Spon-
sored registered investment company;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transac-
tion fee basis through a broker-dealer sponsored mutual fund purchase
program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their serv-
ices; and
. 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. Authorized Deal-
ers are eligible to receive a sales commission on such purchases equal
to .75% 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 investors that purchased Class A shares at net asset value because they
purchased such shares through an eligible employer-sponsored qualified defined
contribution plan described above or because the purchase amount equaled or ex-
ceeded $1 million and the Authorized Dealer did not waive the sales commission,
a contingent deferred sales charge of .75% will be assessed on redemptions
within 18 months of purchase.
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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 any 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 sibling's
spouse, and a spouse's siblings); or (3) all purchases made through a group
purchase program as described above.
Class R Share Purchase Eligibility
Class R Shares are available for purchases of $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 or any Nuveen-spon-
sored registered investment company and their immediate family members
or trustees/directors of any fund sponsored by Nuveen, any parent com-
pany of Nuveen and subsidiaries thereof and their immediate family mem-
bers;
. bona fide, full-time and retired employees of Nuveen, 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
categories 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.
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<PAGE>
In addition, purchasers of Nuveen Defined Portfolios may reinvest their distri-
butions from such defined portfolios 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). Sharehold-
ers 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. To encourage their participation, the Fund waives the sales charge
on Class A Shares and offers Class R Shares to trustees and officers of the
Trust and other affiliated persons of the Trust and Nuveen as noted above.
If you are eligible to purchase either Class R Shares or Class A Shares without
a sales charge at net asset value, you should be aware of the differences be-
tween these two classes of shares. Class A Shares are subject to an annual
service fee to compensate Authorized Dealers for providing you with ongoing ac-
count services. Class R Shares are not subject to a distribution or service fee
and, consequently, holders of Class R Shares may not receive the sale types or
levels of services from Authorized Dealers. In choosing between Class A Shares
and Class R Shares, you should weigh the benefits of the services to be pro-
vided by Authorized Dealers against the annual service fee imposed upon the
Class A Shares.
For more information about the purchase of Class A Shares or reduced sales
charge program, or to obtain the required application forms, call Nuveen toll-
free at (800) 257-8787.
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.
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<PAGE>
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.
CLASS C SHARES
You may purchase Class C Shares at a public offering price equal to the appli-
cable net asset value per share without any up-front sales charge. Class C
Shares are subject to an annual distribution fee of .75% to compensate Nuveen
for its costs in connection with the sale of Class C Shares. Class C Shares are
also subject to an annual service fee of .25% to compensate Authorized Dealers
for providing you with on-going financial advice and other account services.
Nuveen compensates Authorized Dealers for sales of Class C Shares at the time
of the sale at a rate of 1% of the amount of Class C Shares purchased, which
represents a sales commission of .75% plus an advance on the first year's an-
nual service fee of .25%. See "Distribution and Service Plans."
Redemptions of Class C Shares within 12 months of purchase may be subject to a
CDSC of 1% of the lower of the purchase price or redemption proceeds. Because
Class C Shares do not convert to Class A Shares and continue to pay an annual
distribution fee indefinitely, Class C Shares should normally not be purchased
by an investor who expects to hold shares for significantly longer than eight
years.
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Class A Shares are normally redeemed at net asset value, without any CDSC. How-
ever, in the case of Class A Shares purchased at net asset value because the
purchase amount equaled or exceeded $1 million where the Authorized Dealer did
not waive the sales commission or pursuant to an eligible employer-sponsored
qualified defined contribution plan described above, where the Authorized
Dealer did not waive the sales commission, a CDSC of .75% is imposed on any re-
demption within 18 months of purchase. In the case of Class B Shares redeemed
within six years of purchase, a CDSC is imposed,
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<PAGE>
beginning at 5% for redemptions within the first year, declining to 4% for re-
demptions 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 as-
set value, without any CDSC, except that a CDSC of 1% is imposed upon redemp-
tion 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 the 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. The holding
period is calculated on a monthly basis and begins the first day of the month
in which the order for investment is received. The CDSC is calculated based on
the lower of the redeemed shares' cost 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, Class B or Class C shares sub-
ject 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 duration of the CDSC. The
Fund may elect not to so count the period during which the shareholder held the
money market fund shares, in which event the amount of any applicable CDSC
would be reduced in accordance with applicable 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 So-
cial 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 cer-
tain minimum balance or that the applicable board has determined may have mate-
rial 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
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<PAGE>
redemptions made pursuant to an IRA systematic withdrawal based on the share-
holder's life expectancy including, but not limited to, substantially equal pe-
riodic payments described in Code Section 72(t)(A)(iv) prior to age 59; and
(ii) for redemptions 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
You may exchange shares of a class of the Fund for shares of the same class of
any other Nuveen Mutual Fund with reciprocal exchange privileges, at net asset
value without a sales charge, by sending a written request to the Fund, c/o
Nuveen Investor Services, P.O. Box 5186, Bowling Green Station, New York, NY
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 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. All share classes may be exchanged for shares of
any 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 800-257-8787 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
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<PAGE>
circumstances where Fund management believes doing so would be in the best in-
terest of the Fund, the Fund reserves the right to revise or terminate the ex-
change privilege, or limit the amount or number of exchanges or reject any ex-
change. Shareholders would be notified of any such action to the extent re-
quired by law.
Reinstatement Privilege
If you redeemed Class A, Class B or Class C Shares of 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
privilege can be exercised only once for any redemption, and reinvestment will
be made at the net asset value next calculated after reinstatement of the ap-
propriate 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
capital 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 tim-
ing, the amount of the reinvestment and the fund from which the redemption oc-
curred.
Fund DirectSM
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 Nuveen Investor
Services at 800-257-8787 for more information.
Fund Direct privileges may be requested via an application you obtain by call-
ing 800-257-8787. Fund Direct privileges will apply to each shareholder listed
in the registration on your account as well as to your Authorized Dealer rep-
resentative of record unless and until Nuveen Investor Services receives writ-
ten 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 Nuveen Investor Services 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 rep-
resentative, call Nuveen Investor Services at 800-257-8787. The purchase pay-
ment will be debited from your bank account.
REDEMPTION
You may redeem shares by sending a written request for redemption directly to
your Fund, c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green Station,
New York 10274-5186, accompanied by duly endorsed certificates, if issued. Re-
quests for redemption and share certificates, if issued, must be signed by
each shareholder and, if the redemption proceeds exceed $50,000 or are payable
other than to the shareholder of record at the address of record (which ad-
dress may not have changed in the preceding 60
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<PAGE>
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 af-
ter receipt by the Fund of a properly executed redemption request in proper
form. A check for the redemption proceeds will be mailed to you within seven
days after receipt of your redemption request. For accounts registered in the
name of a broker-dealer, payment will be forwarded within three business days.
However, if any shares to be redeemed were 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 received for the purchase of shares has
cleared, which may take up to 15 days.
Telephone and Electronic Redemptions
If you have authorized telephone redemption and your account address has not
changed within the last 60 days, you can redeem shares that are held in non-
certificate form by calling Nuveen Investor Services at 800-257-8787. 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 request is received prior to
4:00 p.m. eastern time, the redemption check will normally be mailed the next
business day. For requests received after 4:00 p.m. eastern time, the redemp-
tion will be effected at 4:00 p.m. eastern time the following business day and
the check will normally be mailed on the second business day after the request.
If you have authorized electronic fund redemption or established Fund Direct
privileges, you can take advantage of the following expedited redemption proce-
dures to redeem shares held in non-certificate form that are worth at least
$1,000. You may make electronic fund redemption requests through a phone repre-
sentative or Fund Direct redemption requests by calling Nuveen Investor Serv-
ices at 800-257-8787. 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 redemp-
tions will normally be wired on the second business day following the redemp-
tion, but may be delayed one additional business day if the Federal Reserve
Bank of Boston or the Federal Reserve Bank of New York is closed on the day re-
demption 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 sec-
ond or third business day after the redemption.
Before you may redeem shares electronically by phone or through Fund Direct,
you need to complete the telephone redemption authorization section of the Ap-
plication Form or the Fund Direct application form and return it to Nuveen In-
vestor Services. If you did not authorize telephone redemption when you opened
your account, you may obtain a telephone redemption authorization form by writ-
ing your Fund or by calling Nuveen Investor Services toll-free at 800-257-8787.
Proceeds from electronic share redemptions will be transferred by Federal Re-
serve wire only to the commercial bank account specified by the shareholder on
the Application Form. You need to send a written request to Nuveen Investor
Services 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 ap-
proved Medallion Guarantee Program or in such other manner as may be acceptable
to a Fund. Further documentation may be required from corporations, executors,
trustees or personal representatives.
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<PAGE>
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, Chase Global Funds Services Company, the Funds'
shareholder services agent ("Chase Global"), and Nuveen will not be liable for
following telephone instructions reasonably believed to be genuine. The Fund
employs procedures reasonably designed to confirm that telephone instructions
are genuine. These procedures include recording all telephone instructions and
requiring up to three forms of identification prior to acting upon a caller's
instructions. If 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 800-257-8787.
The Plan permits you to request periodic withdrawals on a monthly, quarterly,
semi-annual or annual basis in an amount of $50 or more. Depending upon the
size of the withdrawals requested under the Plan and fluctuations in the net
asset value of Fund shares, these withdrawals may reduce or even exhaust your
account.
The purchase of Class A Shares, other than through reinvestment, while you are
participating in the Systematic Withdrawal Plan with respect to Class A Shares
will usually be disadvantageous because you will be paying a sales charge on
any Class A Shares you purchase at the same time you are redeeming shares. Sim-
ilarly, use of the Systematic Withdrawal Plan for Class B Shares held for less
than six years or Class C Shares held for less than 12 months may be disadvan-
tageous because the newly-purchased Class B or Class C Shares will be subject
to the CDSC.
Suspension of Right of Redemption
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 exists as
determined by the Securities and Exchange Commission so that trading of the
Fund's investments or determination of its net asset value is not reasonably
practicable, or (c) for any other periods that the Securities and Exchange Com-
mission by order may permit for protection of Fund shareholders.
B-51
<PAGE>
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 in-
vestment 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 purchase
sufficient shares to meet the minimum. So long as the Fund continues to offer
shares at net asset value to holders of Nuveen Defined Portfolios who are in-
vesting their Nuveen Defined Portfolio distributions, no minimum total invest-
ment will be established for those investors.
Redemption In Kind
The Fund has reserved the right to redeem in kind (that is, to pay redemption
requests in cash and portfolio securities, or wholly in portfolio securities),
although the Fund has no present intention to redeem in kind. The Fund volun-
tarily has committed to pay in cash all requests for redemption by any share-
holder, limited as to each shareholder during any ninety-day period to the
lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of
the ninety-day period.
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 debt secu-
rities.
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 Fund's Prospectus, Nuveen may from time to
time make additional reallowances only to certain authorized dealers who sell
or are expected to sell certain minimum amounts of shares of the Nuveen Mutual
Funds and Nuveen Defined Portfolios during specified time periods. Promotional
support may include providing sales literature to and holding informational or
educational programs for the benefit of such Authorized Dealers' representa-
tives, seminars for the public, and advertising and sales campaigns. Nuveen may
reimburse a participating Authorized Dealer for up to one-half of specified me-
dia costs incurred in the placement of advertisements which jointly feature the
Authorized Dealer and Nuveen Funds and Nuveen Defined Portfolios.
Such reimbursement will be based on the number of its financial advisers who
have sold Nuveen Fund shares and Nuveen Defined Portfolio units during the
prior calendar year according to an established schedule. Any such support or
reimbursement would be provided by Nuveen out of its own assets, and not out of
the assets of the Fund, and will not change the price an investor pays for
shares or the amount that a Fund will receive from such a sale. The staff of
the Securities and Exchange Commission takes the position that dealers who re-
ceive 90% or more of the applicable sales charge may be deemed underwriters un-
der the Securities Act of 1933, as amended.
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<PAGE>
To help advisers and investors better understand and more 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.
The Funds have authorized one or more brokers to accept on their behalf pur-
chase and redemption orders. Such brokers are authorized to designate other in-
termediaries to accept purchase and redemption orders on the Fund's behalf. The
Funds will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee accepts the
order. Customer orders received by such broker (or their designee) will be
priced at the Funds' net asset value next computed after they are accepted by
an authorized broker (or their designee). Orders accepted by an authorized bro-
ker (or their designee) before the close of regular trading on the New York
Stock Exchange will receive that day's share price; orders accepted after the
close of trading will receive the next business day's share price.
Exchanges of shares of the Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares avail-
able for public purchase. Shares of the Nuveen money market funds may be pur-
chased on days on which the Federal Reserve Bank of Boston is normally open for
business. In addition to the holidays observed by the Fund, the Nuveen money
market funds observe and will not make fund shares available for purchase on
the following holidays: Martin Luther King's Birthday, Columbus Day and Veter-
ans Day.
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 a Fund and on
the special purchase programs available thereunder, see "How to Buy Shares" and
"Systematic Investing" in the Fund's Prospectus.
If you choose to invest in the Fund, an account will be opened and maintained
for you by Chase Global. Share certificates will be issued to you only upon
written request to Nuveen Investor Services, 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 registra-
tion 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 acting on
your behalf.
Authorized Dealers are encouraged to open single master accounts. However, some
Authorized Dealers may wish to use Chase Global's sub-accounting system to min-
imize their internal recordkeeping requirements. An Authorized Dealer or other
investor requesting shareholder servicing or accounting other
B-53
<PAGE>
than the master account or sub-accounting service offered by Chase Global 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 a
Fund's shares less the net asset value of those shares, and reallows a major-
ity or all of such amounts to the Dealers who sold the shares; Nuveen may act
as such a Dealer. Nuveen also receives compensation pursuant to a distribution
plan adopted by the Trust pursuant to Rule 12b-1 and described herein under
"Distribution and Service Plans." Nuveen receives any CDSCs imposed on redemp-
tions of Shares, but any amounts as to which a reinstatement privilege is not
exercised are set off against and reduce amounts otherwise payable to Nuveen
pursuant to the distribution plan.
DISTRIBUTION AND SERVICE PLAN
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 Class B and Class C Shares, re-
spectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of pre-
paring, printing and distributing advertising and sales literature and reports
to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
B-54
<PAGE>
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 voting securities of such
class. The Plan may be renewed from year to year if approved by a vote of the
Board of Trustees and a vote of the non-interested Trustees who have no direct
or indirect financial interest in the Plan cast in person at a meeting called
for the purpose of voting on the Plan. The Plan may be continued only if the
trustees who vote to approve such continuance conclude, in the exercise of rea-
sonable business judgment and in light of their fiduciary duties under applica-
ble law, that there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders. The Plan may not be amended to increase materially
the cost which a class of shares may bear under the Plan without the approval
of the shareholders of the affected class, and any other material amendments of
the Plan must be approved by the non-interested trustees by a vote cast in per-
son at a meeting called for the purpose of considering such amendments. During
the continuance of the Plan, the selection and nomination of the non-interested
trustees of the Trust will be committed to the discretion of the non-interested
trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS, CUSTODIAN AND TRANSFER AGENT
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago, Illinois 60603 have been selected as auditors for the Trust. In addi-
tion to audit services, Arthur Andersen LLP will provide consultation and as-
sistance on accounting, internal control, tax and related matters. The finan-
cial statements to be included in this Statement of Additional Information will
be audited by Arthur Andersen LLP as indicated in their report with respect
thereto, and will be included in reliance upon the authority of said firm as
experts in giving said report.
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.
The Fund's transfer, shareholder services, and dividend paying agent is Chase
Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108.
B-55
<PAGE>
STATEMENT OF NET ASSETS
NUVEEN INVESTMENT TRUST III
Statement of Net Assets
November 20, 1998
<TABLE>
<S> <C> <C>
Assets:
Cash............................................................ $100,000
-------- ---
Total assets.................................................. 100,000
-------- ---
Net assets........................................................ $100,000
======== ===
Shares outstanding (note 1):
Class A shares.................................................. 1,250
Class B shares.................................................. 1,250
Class C shares.................................................. 1,250
Class R shares.................................................. 1,250
Net asset value and redemption price per share:
Class A, B, C and R Shares...................................... $ 20.00
======== ===
Offering price per share:
Class B, C and R Shares at net asset value...................... $ 20.00
======== ===
Class A Shares at net asset value plus maximum sales charge of
4.75% of offering price........................................ $ 21.00
======== ===
</TABLE>
(1) THE TRUST:
The Trust was organized as a Massachusetts business trust on August 20, 1998,
and has been inactive since that date except for matters relating to its organ-
ization, its registration as an open-end series investment company and the reg-
istration of its shares under the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended, and the sale of the outstanding
shares to Nuveen Institutional Advisory Corp., the Trust's investment adviser
(the "Adviser"), a wholly owned subsidiary of Nuveen. The Fund is a series of
the Trust. Additional series may be added in the future. The Fund is permitted
to issue shares at a price equal to net asset value for its authorized Class B,
C, and R Shares and at varying sales charges for its authorized Class A Shares.
(2) ORGANIZATION COSTS:
John Nuveen & Co. Incorporated, a wholly owned subsidiary of The John Nuveen
Company, will assume all of the organization costs, approximately $147,000, re-
lated to the Trust.
(3) RELATED PARTIES:
The Adviser will act as investment adviser for and manage the investment and
reinvestment of the assets of the Fund and will administer its business af-
fairs. For these services the Fund has agreed to pay an annual management fee
as described in the Fund's Prospectus.
B-56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder and Trustees
Nuveen Investment Trust III:
We have audited the accompanying statement of net assets of the Nuveen Invest-
ment Trust III (A Massachusetts business trust comprising the Nuveen Income
Fund) as of November 20, 1998. This statement of net assets is the responsibil-
ity of the Trust's management. Our responsibility is to express an opinion on
the statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of net assets is free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the statement of net assets. Our proce-
dures included confirmation of cash held by the custodian as of November 20,
1998. An audit also includes assessing the accounting principles used and sig-
nificant estimates made by management, as well as evaluating the overall finan-
cial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the statement of net assets presents fairly, in all material
respects, the net assets of the Fund constituting the Nuveen Investment Trust
III as of November 20, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois,
November 20, 1998
B-57
<PAGE>
GENERAL TRUST INFORMATION
The Fund is a series of the Trust. The Trust is an open-end diversified manage-
ment investment company registered under the Investment Company Act of 1940.
The Trust was organized as a Massachusetts business trust on August 20, 1998.
The Board of Trustees of the Trust is authorized to issue an unlimited number
of shares in one or more series or "Funds," which may be divided into classes
of shares. Currently, the Fund is the only series authorized and outstanding,
with 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 Declaration of Trust further provides for indemnification out
of the assets and property of the Trust for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder lia-
bility is limited to circumstances in which both inadequate insurance existed
and the Trust or Fund itself was unable to meet its obligations. The Trust be-
lieves the likelihood of the occurrence of these circumstances is remote.
B-58
<PAGE>
APPENDIX A--RATINGS OF INVESTMENTS
STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable Standard
& Poor's Ratings Group ("S&P") rating symbols and their meanings (as published
by S&P) follows:
LONG TERM DEBT
An S&P corporate or municipal debt rating is a current assessment of the cred-
itworthiness of an obligor with respect to a specific obligation. This assess-
ment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a partic-
ular investor.
The ratings are based on current information furnished by the issuer or ob-
tained by S&P from other sources it considers reliable. S&P does not perform an
audit in connection with any rating and may, on occasion, rely on unaudited fi-
nancial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
INVESTMENT GRADE
AAA Debt rated "AAA' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Debt rated "AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small de-
gree.
A
Debt rated "A' has a strong capacity to pay interest and repay princi-
pal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB
Debt rated "BBB' is regarded as having an adequate capacity to pay in-
terest and repay principal. Whereas it normally exhibits adequate pro-
tection parameters, adverse economic conditions or changing circum-
stances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than in higher rated
categories.
<PAGE>
SPECULATIVE GRADE RATING
Debt rated "BB', "B', "CCC', "CC' and "C' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. "BB' indicates the least degree of speculation and "C' the highest.
While such debt will likely have some quality and protective characteristics
these are outweighed by major uncertainties or major exposures to adverse con-
ditions.
BB Debt rated "BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and princi-
pal payments. The "BB' rating category is also used for debt subordi-
nated to senior debt that is assigned an actual or implied "BBB-' rat-
ing.
B Debt rated "B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal.
The "B' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB' or "BB-' rating.
CCC Debt rated "CCC' has a currently identifiable vulnerability to de-
fault, and is dependent upon favorable business, financial, and eco-
nomic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.
The "CCC' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "B' or "B-' rating.
CC The rating "CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC' debt rating.
C The rating "C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-' debt rating. The
"C' rating may be used to cover a situation where a bankruptcy peti-
tion has been filed, but debt service payments are continued.
CI The rating "CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated "D' is in payment default. The "D' rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
"D' rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA' to "CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
comple-
A-2
<PAGE>
tion of the project, makes no comment on the likelihood of, or the risk of de-
fault upon failure of, such completion. The investor should exercise judgment
with respect to such likelihood and risk.
L The letter "L' indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit col-
lateral is federally insured by the Federal Savings & Loan Insurance
Corp. or the Federal Deposit Insurance Corp.* and interest is ade-
quately collateralized. In the case of certificates of deposit the
letter "L' indicates that the deposit, combined with other deposits
being held in the same right and capacity will be honored for princi-
pal and accrued pre-default interest up to the federal insurance lim-
its within 30 days after closing of the insured institution or, in the
event that the deposit is assumed by a successor insured institution,
upon maturity.
NR Indicates no rating has been requested, that there is insufficient in-
formation on which to base a rating, or that S&P does not rate a par-
ticular type of obligation as a matter of policy.
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
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
A-4
<PAGE>
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 appear somewhat larger than in Aaa securi-
ties.
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 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 unrealiable over any great length of time. Such bonds lack out-
standing investment characteristics and in fact have speculative char-
acteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protec-
tion of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desir-
able investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and is-
sues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Con( . . . )
Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination
of basis of condition.
NOTE: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the sym-
bols Aa1, A1, Baa1, Ba1, and B1.
A-5
<PAGE>
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 broadbased 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.
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 funds employed.
--Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
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.
A-6
<PAGE>
DUFF & PHELPS, INC.--A brief description of the applicable Duff & Phelps, Inc.
("D&P") ratings symbols and their meanings (as published by D&P) follows:
LONG TERM DEBT
These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
which may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition, gov-
ernment action, regulation, technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by sev-
eral factors including relative weightings of the different security classes in
the capital structure, the overall credit strength of the issuer, and the na-
ture of covenant protection.
The Credit Rating Committee formally reviews all ratings once per quarter (more
frequently, if necessary). Ratings of "BBB-' and higher fall within the defi-
nition of investment grade securities, as defined by bank and insurance super-
visory authorities. Structured finance issues, including real estate, asset-
backed and mortgage-backed financings, use this same rating scale. Duff &
Phelps Credit Rating claims paying ability ratings of insurance companies use
the same scale with minor modification in the definitions. Thus, an investor
can compare the credit quality of investment alternatives across industries and
structural types. A "Cash Flow Rating" (as noted for specific ratings) ad-
dresses the likelihood that aggregate principal and interest will equal or ex-
ceed the rated amount under appropriate stress conditions.
RATING SCALEDEFINITION
- --------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
- --------------------------------------------------------------------------------
AA+ High credit quality. Protection factors are strong. Risk is mod-
AA est, but may vary slightly from time to time because of economic
AA- conditions.
- --------------------------------------------------------------------------------
A+ Protection factors are average but adequate. However, risk factors
A are more variable and greater in periods of economic stress.
A-
- --------------------------------------------------------------------------------
BBB+ Below average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during
BBB- economic cycles.
- --------------------------------------------------------------------------------
A-7
<PAGE>
BB+ Below investment grade but deemed likely to meet obligations when
BB due. Present or prospective financial protection factors fluctuate
BB- according to industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.
- -------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that obligations will
B not be met when due. Financial protection factors will fluctuate
B- widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating
grade.
- -------------------------------------------------------------------------------
CCC Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substan-
tial with unfavorable economic/industry conditions, and/or with
unfavorable company developments.
- -------------------------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet scheduled prin-
cipal and/or interest payments.
DP Preferred stock with dividend arrearages.
- -------------------------------------------------------------------------------
SHORT-TERM DEBT RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria used
by money market participants. The ratings apply to all obligations with matu-
rities of under one year, including commercial paper, the uninsured portion of
certificates of deposit, unsecured bank loans, master notes, bankers accept-
ances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from opera-
tions, but also access to alternative sources of funds including trade credit,
bank lines, and the capital markets. An important consideration is the level
of an obligor's reliance on short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps Credit Ratings' short-term ratings
is the refinement of the traditional "1' category. The majority of short-term
debt issuers carry the highest rating, yet quality differences exist within
that tier. As a consequence, Duff & Phelps Credit Rating has incorporated gra-
dations of "1+' (one plus) and "1-' (one minus) to assist investors in recog-
nizing those differences.
These ratings are recognized by the SEC for broker-dealer requirements, 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.
A-8
<PAGE>
RATING SCALE:
DEFINITION
HIGH GRADE
D-1+ Highest certainty of timely payment. Short-term liquidity, includ-
ing internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-
free U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are ex-
cellent and supported by good fundamental protection factors. Risk
factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
GOOD GRADE
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.
SATISFACTORY GRADE
D-3 Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
NON-INVESTMENT GRADE
D-4 Speculative investment characteristics. Liquidity is not suffi-
cient to insured against disruption in debt service. Operating
factors and market access may be subject to a high degree of vari-
ation.
DEFAULT
D-5 Issuer failed to meet scheduled principal and/or interest pay-
ments.
FITCH IBCA, INC.--A brief description of the applicable Fitch IBCA, 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.
A-9
<PAGE>
Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small differ-
ences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security. Rat-
ings do not comment on the adequacy of market price, the suitability of any se-
curity for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information. Rat-
ings may be changed, suspended, or withdrawn as a result of changes in, or the
unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay inter-
est and repay principal, which is unlikely to be affected by reasona-
bly foreseeable events.
AA Bonds considered to be investment grade and of very high credit quali-
ty. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA'. Because
bonds rated in the "AAA' and "AA' categories are not significantly
vulnerable to foreseeable future developments, short-term debt of the
issuers is generally rated "F-1+'.
A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is consid-
ered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these bonds and, therefore, impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
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.
A-10
<PAGE>
Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories cannot fully reflect the differ-
ences in the degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay inter-
est and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identi-
fied which could assist the obligor in satisfying its debt service re-
quirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of con-
tinued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and eco-
nomic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not reme-
died, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, Bonds are in default on interest and/or principal payments. Such bonds
DD are extremely speculative and should be valued on the basis of their
AND Dultimate recovery value in liquidation or reorganization of the obli-
gor. "DDD' represents the highest potential for recovery of these
bonds, and "D' represents the lowest potential for recovery.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on de-
mand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
EXCEPTIONALLY STRONG CREDIT QUALITY Issues assigned this rating are
regarded as having the strongest degree of assurance for timely pay-
ment.
F-1
VERY STRONG CREDIT QUALITY Issues assigned this rating reflect an as-
surance of timely payment only slightly less in degree than issues
rated "F-1+'.
F-2
GOOD CREDIT QUALITY Issues assigned this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not
as great as for issues assigned "F-1+' and "F-1' ratings.
F-3
FAIR CREDIT QUALITY Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is ade-
quate; however, near-term adverse changes could cause these securities
to be rated below investment grade.
A-11
<PAGE>
F-S WEAK CREDIT QUALITY Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic con-
ditions.
D DEFAULT Issues assigned this rating are in actual or imminent payment
default.
LOC The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
A-12
<PAGE>
PART C--OTHER INFORMATION
ITEM 23: EXHIBITS:
<TABLE>
<C> <S> <C>
(a)(1). Declaration of Trust of Registrant.(1)
(a)(2). Certificate for the Establishment and Designation of Classes
dated August 20, 1998.(1)
(b). By-Laws of Registrant.(1)
(c). Specimen certificate of Shares of the Fund.(1)
(d). Management Agreement between Registrant and Nuveen
Institutional Advisory Corp.(1)
(e)(1). Distribution Agreement between Registrant and John Nuveen & Co.
Incorporated.(2)
(e)(2). Dealer Management Agreement.(2)
(f). Not applicable.
(g). Custodian Agreement between Registrant and Chase Manhattan
Bank.(2)
(h). Mutual Fund Service Agreement between Nuveen Funds and Chase
Global Funds Services Company.(1)
(i)(1). Opinion and consent of Chapman and Cutler.(2)
(i)(2). Opinion and consent of Bingham, Dana & Gould.(2)
(j). Consent of Independent Public Accountants.(2)
(k). Not applicable.
(l). Subscription Agreement with Nuveen Institutional Advisory
Corp.(2)
(m). Plan of Distribution and Service Pursuant to Rule 12b-1.(1)
(n). Not applicable.
(o). Multi-Class Plan.(2)
(z)(1). Original Powers of Attorney for Messrs. Schwertfeger, Dean,
Leafstrand, Bacon, Kissick, and Ms. Wellington, Trustees,
authorizing, among others, Larry W. Martin and Gifford R.
Zimmerman to execute the Registration Statement.(1)
(z)(2). Original Power of Attorney for Mr. Schwertfeger to execute the
Registration Statement.(2)
</TABLE>
- --------
(1) Incorporated by reference to the initial registration statement filed on
Form N-1A for Registrant.
(2) Filed herewith.
ITEM 24: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH FUND.
Not applicable.
ITEM 25: INDEMNIFICATION
Section 4 of Article XII of Registrant's Declaration of Trust provides as fol-
lows:
Subject to the exceptions and limitations contained in this Section 4, every
person who is, or has been, a Trustee, officer, employee or agent of the Trust,
including persons who serve at the request of the Trust as directors, trustees,
officers, employees or agents of another organization in which the Trust has an
interest as a shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Trust to the fullest extent per-
mitted by law against liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his being or having
been such a Trustee, director, officer, employee or agent and against amounts
paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross negli-
gence or reckless disregard of the duties involved in the conduct of his
office;
II-1
<PAGE>
(b) with respect to any matter as to which he shall have been finally adju-
dicated not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a pay-
ment by a Covered Person, unless there has been either a determination that
such Covered Person did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office by the court or other body approving the settlement or other
disposition or a reasonable determination, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that he did not
engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in of-
fice act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by poli-
cies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall con-
tinue as to a person who has ceased to be such a Covered Person and shall inure
to the benefit of the heirs, executors and administrators of such a person.
Nothing contained herein shall affect any rights to indemnification to which
Trust personnel other than Covered Persons may be entitled by contract or oth-
erwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it
is ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any
such advances; or
(b) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the
matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient ul-
timately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an
Interested Person of the Trust (including, as such Disinterested Trustee, any-
one who has been exempted from being an Interested Person by any rule, regula-
tion or order of the Commission), and (y) against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding on the
same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits, proceedings (civil, criminal, admin-
istrative or other, including appeals), actual or threatened; and the word "li-
ability" and "expenses" shall include without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other lia-
bilities.
----------------
The trustees and officers of the Registrant are covered by Investment Trust Er-
rors and Omission policies in the aggregate amount of $20,000,000 (with a maxi-
mum deductible of $500,000) against liability and expenses of claims of wrong-
ful acts arising out of their position with the Registrant, except for matters
which involved willful acts, bad faith, gross negligence and willful disregard
of duty (i.e., where the insured did not act in good faith for a purpose he or
she reasonably believed to be in the best interest of Registrant or where he or
she shall have had reasonable cause to believe this conduct was unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, trustees or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and Ex-
change Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for indem-
nification against such liabilities (other than the payment by the Registrant
of expenses incurred or paid by an officer or trustee or controlling person of
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such officer, trustee or controlling person in connection
II-2
<PAGE>
with the securities being registered, the Registrant will, unless in the opin-
ion of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether such indemnifi-
cation by it is against public policy as expressed in the Act and will be gov-
erned by the final adjudication of such issue.
ITEM 26: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Nuveen Institutional Advisory Corp. ("NIAC") manages the Registrant and
serves as investment adviser or manager to other open-end and closed-end man-
agement investment companies and to separately managed accounts. The principal
business address for all of these investment companies is 333 West Wacker
Drive, Chicago, Illinois 60606.
A description of any other business, profession, vocation or employment of a
substantial nature in which the directors and officers of NIAC who serve as of-
ficers or Trustees of the Registrant have engaged during the last two years for
his or her account or in the capacity of director, officer, employee, partner
or trustee appears under "Management" in the Statement of Additional Informa-
tion. Such information for the remaining senior officers of NIAC appears below:
<TABLE>
<CAPTION>
OTHER BUSINESS, PROFESSION, VOCATION OR
NAME AND POSITION WITH NIAC EMPLOYMENT DURING PAST TWO YEARS
--------------------------- ---------------------------------------
<C> <S>
John P. Amboian, Executive Vice President..... Executive Vice President and Secretary of The
John Nuveen Company; Executive Vice President of
John Nuveen & Co. Incorporated, Nuveen Advisory
Corp. and Nuveen Asset Management, Inc. and
Executive Vice President and Director of
Rittenhouse Financial Services, Inc.
Bruce P. Bedford, Executive Vice President.... Executive Vice President of John Nuveen & Co.
Incorporated, Nuveen Advisory Corp. (since
January 1997); prior thereto, Chairman and CEO
of Flagship Resources Inc. and Flagship
Financial Inc. and the Flagship funds.
Jerome S. Contro, Vice President.............. Vice President of Nuveen Asset Management, Inc.
Michael S. Davern, Vice President............. Vice President of Nuveen Advisory Corp. (since
January 1997); prior thereto, Vice President and
Portfolio Manager of Flagship Financial
Clifton L. Fenton, Vice President............. Vice President of John Nuveen & Co. Incorporated
Thomas C. Spalding, Vice President............ Vice President of Nuveen Advisory Corp.
Margaret E. Wilson, Vice President and Con- Vice President and Controller of The John Nuveen
troller...................................... Company, John Nuveen & Co. Incorporated and
Nuveen Advisory Corp.
</TABLE>
ITEM 27: PRINCIPAL UNDERWRITERS
(a) John Nuveen & Co. Incorporated ("Nuveen") acts as principal underwriter to
the following open-end management type investment companies: Nuveen Flagship
Multistate Trust I, Nuveen Flagship Multistate Trust II, Nuveen Flagship
Multistate Trust III, Nuveen Flagship Multistate Trust IV, Nuveen Flagship Mu-
nicipal Trust, Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free Money
Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., Nuveen Tax-Free
Reserves, Inc., Flagship Admiral Funds Inc., Nuveen Investment Trust, Nuveen
Investment Trust II and IV, and the Registrant. Nuveen also acts as depositor
and principal underwriter of the Nuveen Tax-Free Unit Trust and the Nuveen Unit
Trust, registered unit investment trusts. Nuveen has also served or is serving
as co-managing underwriter to the following closed-end management type invest-
ment companies: Nuveen Municipal Value Fund, Inc., Nuveen California Municipal
Value Fund, Inc., Nuveen New York Municipal Value Fund, Inc., Nuveen Municipal
Income Fund, Inc., Nuveen
II-3
<PAGE>
Premium Income Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund,
Inc., Nuveen California Performance Plus Municipal Fund, Inc., Nuveen New York
Performance Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc.,
Nuveen Municipal Market Opportunity Fund, Inc., Nuveen California Municipal
Market Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc.,
Nuveen California Investment Quality Municipal Fund, Inc., Nuveen New York In-
vestment Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund,
Inc., Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey In-
vestment Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality
Municipal Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California
Select Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal
Fund, Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured Munici-
pal Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund,
Nuveen Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality In-
come Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen Pre-
mier Insured Municipal Income Fund, Inc., Nuveen Premium Income Municipal Fund
2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc., Nuveen
Insured New York Premium Income Municipal Fund, Inc., Nuveen Select Maturities
Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen In-
sured Florida Premium Income Municipal Fund, Nuveen Michigan Premium Income
Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund, Inc.,
Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California Pre-
mium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income Munici-
pal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen Massachu-
setts Premium Income Municipal Fund, Nuveen Virginia Premium Income Municipal
Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen Connecticut Pre-
mium Income Municipal Fund, Nuveen Georgia Premium Income Municipal Fund,
Nuveen Missouri Premium Income Municipal Fund, Nuveen North Carolina Premium
Income Municipal Fund, Nuveen California Premium Income Municipal Fund, Nuveen
Insured Premium Income Municipal Fund 2, Nuveen Select Tax-Free Income Portfo-
lio, Nuveen Select Tax-Free Income Portfolio 2, Nuveen Insured California Se-
lect Tax-Free Income Portfolio, Nuveen Insured New York Select Tax-Free Income
Portfolio and Nuveen Select Tax-Free Income Portfolio 3.
(b)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT
- -------------------------------------------------------------------------------
<S> <C> <C>
Anthony T. Dean President, Chief Operating Chairman and Trustee
333 West Wacker Drive Officer and Director
Chicago, IL 60606
Timothy R. Schwertfeger Chairman of the Board, President and Trustee
333 West Wacker Drive Chief Executive Officer,
Chicago, IL 60606 and Director
John P. Amboian Executive Vice President None
333 West Wacker Drive
Chicago, IL 60606
Bruce P. Bedford Executive Vice President None
333 West Wacker Drive
Chicago, IL 60606
William Adams IV Vice President None
333 West Wacker Drive
Chicago, IL 60606
Alan G. Berkshire Vice President Vice President and
333 West Wacker Drive and Secretary Assistant Secretary
Chicago, IL 60606
Clifton L. Fenton Vice President None
333 West Wacker Drive
Chicago, IL 60606
Kathleen M. Flanagan Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES WITH
BUSINESS ADDRESS WITH UNDERWRITER REGISTRANT
- ------------------------------------------------------------------------------------
<S> <C> <C>
Stephen D. Foy Vice President Vice President and
333 West Wacker Drive Controller
Chicago, IL 60606
Michael G. Gaffney Vice President None
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Robert B. Kuppenheimer Vice President None
333 West Wacker Drive
Chicago, IL 60606
Larry W. Martin Vice President Vice President
333 West Wacker Drive and Assistant and Assistant
Chicago, IL 60606 Secretary Secretary
Thomas C. Muntz Vice President None
333 West Wacker Drive
Chicago, IL 60606
Stuart W. Rogers Vice President None
333 West Wacker Drive
Chicago, IL 60606
Bradford W. Shaw, Jr. Vice President None
333 West Wacker Drive
Chicago, IL 60606
H. William Stabenow Vice President Vice President and
333 West Wacker Drive and Treasurer Treasurer
Chicago, IL 60606
Paul C. Williams Vice President None
333 West Wacker Drive
Chicago, IL 60606
Margaret E. Wilson Vice President None
333 West Wacker Drive and Corporate
Chicago, IL 60606 Controller
Gifford R. Zimmerman Vice President Vice President and
333 West Wacker Drive and Assistant Secretary Secretary
Chicago, IL 60606
</TABLE>
(c) Not applicable.
ITEM 28: LOCATION OF ACCOUNTS AND RECORDS
Nuveen Institutional Advisory Corp., 333 West Wacker Drive, Chicago, Illinois
60606, maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholder meetings and contracts of the Registrant and all advisory material
of the investment adviser.
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004-2413,
maintains all general and subsidiary ledgers, journals, trial balances, records
of all portfolio purchases and sales, and all other required records not main-
tained by Nuveen Institutional Advisory Corp., or Chase Global Fund Services
Company.
Chase Global Fund Services Company, 73 Tremont Street, Boston, MA 02108, main-
tains all the required records in its capacity as transfer, dividend paying,
and shareholder service agent for the Registrant.
II-5
<PAGE>
ITEM 29: MANAGEMENT SERVICES
Not applicable.
ITEM 30: UNDERTAKINGS
(a)Not applicable.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT AND THE INVESTMENT COMPANY
ACT, THE FUND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, DULY AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE
OF ILLINOIS, ON THE 25TH DAY OF NOVEMBER, 1998.
NUVEEN INVESTMENT TRUST III
/s/ Gifford R. Zimmerman
__________________________________________
Gifford R. Zimmerman
Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Stephen D. Foy Vice President and November 25, 1998
________________________________ Controller (Principal
Stephen D. Foy Financial and
Accounting Officer)
Timothy R. Schwertfeger President and Trustee
Thomas E. Leafstrand Trustee
James E. Bacon Trustee /s/ Gifford R. Zimmerman
By_________________________
William L. Kissick Trustee Gifford R. Zimmerman
Attorney-in-Fact
Sheila W. Wellington Trustee
Anthony T. Dean Chairman and Trustee November 25, 1998
(Principal Executive
Officer)
AN ORIGINAL POWER OF ATTORNEY AUTHORIZING, AMONG OTHERS, LARRY W. MARTIN AND
GIFFORD R. ZIMMERMAN TO EXECUTE THIS REGISTRATION STATEMENT, AND AMENDMENTS
THERETO, FOR EACH OF THE TRUSTEES OF REGISTRANT ON WHOSE BEHALF THIS REGISTRA-
TION STATEMENT IS FILED, HAS BEEN EXECUTED AND HAS BEEN OR IS BEING FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION WITH THIS REGISTRATION STATEMENT.
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT NUMBERED PAGE
------- ------- -------------
<C> <S> <C>
(e)(1). Distribution Agreement between Registrant and John
Nuveen & Co. Incorporated.
(e)(2). Dealer Management Agreement.
(g). Custodian Agreement between Registrant and Chase
Manhattan Bank.
(i)(1). Opinion and consent of Chapman and Cutler.
(i)(2). Opinion and consent of Bingham, Dana & Gould.
(j). Consent of Independent Public Accountants.
(l). Subscription Agreement with Nuveen Institutional
Advisory Corp.
(o). Multi-Class Plan.
(z)(2). Original Power of Attorney for Mr. Schwertfeger to
execute the Registration Statement.
</TABLE>
<PAGE>
(e) 1
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of this 26th of August, 1998 between NUVEEN INVESTMENT
TRUST III, a business trust organized under the laws of the Commonwealth of
Massachusetts (the "Fund"), and JOHN NUVEEN & CO. INCORPORATED, a Delaware
corporation (the "Underwriter").
W I T N E S S E T H
- - - - - - - - - -
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints the Underwriter its agent for the distribution
of shares of beneficial interest, par value $.01 per share, including such
series or classes of shares as may now or hereafter be authorized, (the
"Shares") in jurisdictions wherein Shares may legally be offered for sale;
provided, however, that the Fund, in its absolute discretion, may: (a) issue or
sell Shares directly to holders of Shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; and (b) issue or
sell Shares at net asset value in connection with merger or consolidation with,
or acquisition of the assets of, other investment companies or similar
companies.
2. The Underwriter hereby accepts appointment as agent for the distribution of
the Shares and agrees that it will use its best efforts to sell such part of the
authorized Shares remaining unissued as from time to time shall be effectively
registered under the Securities Act of 1933 ("Securities Act"), at prices
determined as hereinafter provided and on terms hereinafter set forth, all
subject to applicable Federal and State laws and regulations and to the
Declaration of Trust of the Fund.
3. The Fund agrees that it will use its best efforts to keep effectively
registered under the Securities Act for sale, as herein contemplated, such
Shares as the Underwriter shall reasonably request and as the Securities and
Exchange Commission shall permit to be so registered.
4. Notwithstanding any other provision hereof, the Fund may terminate, suspend,
or withdraw the offering of the Shares, or Shares of any series or class,
whenever, in its sole discretion, it deems such action to be desirable.
5. The Underwriter shall sell Shares to, or through, brokers, dealers, banks or
other qualified financial intermediaries (hereinafter referred to as "dealers"),
or others, in such manner not inconsistent with the provisions hereof and the
then effective Registration Statement of the Fund under the Securities Act (and
related Prospectus and Statement of Additional Information) as the Underwriter
may determine from time to time, provided that no dealer, or other person, shall
be appointed nor authorized to act as agent of the Fund without the prior
consent of the Fund. The Underwriter shall have the right to enter into
agreements with brokers, dealers and banks (referred to herein as "dealers") of
its choice for the sale of Shares and fix therein the portion of
<PAGE>
the sales charge which may be allocated to such dealers; provided that the Fund
shall approve the form of such agreements and shall evidence such approval by
filing said form and any amendments thereto as attachments to this Agreement,
which shall be filed as an exhibit to the Fund's currently effective
registration statement under the Securities Act. Shares sold to dealers shall be
for resale by such dealers only at the public offering price(s) set forth in the
Fund's then current Prospectus. The current forms of such agreements are
attached hereto as Exhibits 1, 2 and 3.
6. Shares offered for sale, or sold by the Underwriter, shall be so offered or
sold at a price per Share determined in accordance with the then current
Prospectus relating to the sale of Shares except as departure from such prices
shall be permitted by the rules and regulations of the Securities and Exchange
Commission. Any public offering price shall be the net asset value per Share
plus a sales charge of not more than 5.75% of such public offering price. Shares
may be sold at net asset value without a sales charge to such class or classes
of investors or in such class or classes of transactions as may be permitted
under applicable rules of the Securities and Exchange Commission and as
described in the then current Prospectus of the Fund. The net asset value per
Share of each series or class shall be calculated in accordance with the
Declaration of Trust of the Fund and shall be determined in the manner, and at
the time, set forth in the then current Prospectus of the Fund relating to such
Shares.
7. The price the Fund shall receive for all Shares purchased from the Fund shall
be the net asset value used in determining the public offering price applicable
to the sale of such Shares. The excess, if any, of the sales price over the net
asset value of Shares sold by the Underwriter as agent shall be retained by the
Underwriter as a commission for its services hereunder. Out of such commission,
the Underwriter may allow commissions or concessions to dealers in such amounts
as the Underwriter shall determine from time to time. Except as may be otherwise
determined by the Underwriter and the Fund from time to time, such commissions
or concessions shall be uniform to all dealers.
8. The Underwriter shall issue and deliver, or cause to be issued and delivered,
on behalf of the Fund such confirmations of sales made by it as agent, pursuant
to this Agreement, as may be required. At, or prior to, the time of issuance of
Shares, the Underwriter will pay, or cause to be paid, to the Fund the amount
due the Fund for the sale of such Shares. Certificates shall be issued, or
Shares registered on the transfer books of the Fund, in such names and
denominations as the Underwriter may specify.
9. The Fund will execute any and all documents, and furnish any and all
information, which may be reasonably necessary in connection with the
qualification of the Shares for sale (including the qualification of the Fund as
a dealer, where necessary or advisable) in such states as the Underwriter may
reasonably request (it being understood that the Fund shall not be required,
without its consent, to comply with any requirement which, in its opinion, is
unduly burdensome).
2
<PAGE>
10. The Fund will furnish to the Underwriter, from time to time, such
information with respect to the Fund and the Shares as the Underwriter may
reasonably request for use in connection with the sale of Shares. The
Underwriter agrees that it will not use or distribute, nor will it authorize
dealers or others to use, distribute or disseminate, in connection with the sale
of such Shares, any statements other than those contained in the Fund's current
Prospectus and Statement of Additional Information, except such supplemental
literature or advertising as shall be lawful under Federal and State securities
laws and regulations, and that it will furnish the Fund with copies of all such
material.
11. The Underwriter shall order Shares from the Fund only to the extent that it
shall have received purchase orders therefor. The Underwriter will not make, nor
authorize any dealers or others, to make: (a) any short sale of Shares; or (b)
any sale of Shares to any officer or trustee of the Fund, nor to any officer or
trustee of the Underwriter, or of any corporation or association furnishing
investment advisory, managerial, or supervisory services to the Fund, nor to any
such corporation or association, unless such sales are made in accordance with
the then current Prospectus relating to the sale of such Shares.
12. In selling Shares for the account of the Fund, the Underwriter will in all
respects conform to the requirements of all Federal and State laws and the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
relating to such sales, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by the Underwriter or any
employee, representative, or agent of the Underwriter. The Underwriter will
observe and be bound by all the provisions of the Declaration of Trust of the
Fund (and of any fundamental policies adopted by the Fund pursuant to the
Investment Company Act of 1940, notice of which shall have been given by the
Fund to the Underwriter) which at the time in any way require, limit, restrict,
prohibit or otherwise regulate any action on the part of the Underwriter.
13. The Underwriter will require each dealer to conform to the provisions hereof
and of the Registration Statement (and related Prospectus) at the time in effect
under the Securities Act with respect to the public offering price of the
Shares, and neither the Underwriter nor any such dealer shall withhold the
placing of purchase orders so as to make a profit thereby.
14. The Fund will pay, or cause to be paid, expenses (including the fees and
disbursements of its own counsel) of any registration of Shares under the
Securities Act, expenses of qualifying or continuing the qualification of the
Shares for sale and, in connection therewith, of qualifying or continuing the
qualification of the Fund as a dealer or broker under the laws of such states as
may be designated by the Underwriter under the conditions herein specified, and
expenses incident to the issuance of the Shares such as the cost of Share
certificates, issue taxes, and fees of the transfer and shareholder service
agent. The Underwriter will pay, or cause to be paid, all expenses (other than
expenses which any dealer may bear pursuant to any agreement with the
Underwriter) incident to the sale and distribution of the Shares issued or sold
hereunder, including, without limiting the generality of the foregoing, all: (a)
expenses of printing and
3
<PAGE>
distributing any Prospectus and Statement of Additional Information and of
preparing, printing and distributing or disseminating any other literature,
advertising and selling aids in connection with such offering of the Shares for
sale (except that such expenses need not include expenses incurred by the Fund
in connection with the preparation, printing and distribution of any report or
other communication to holders of Shares in their capacity as such), and (b)
expenses of advertising in connection with such offering. No transfer taxes, if
any, which may be payable in connection with the issue or delivery of Shares
sold as herein contemplated, or of the certificates for such Shares, shall be
borne by the Fund, and the Underwriter will indemnify and hold harmless the Fund
against liability for all such transfer taxes.
15. This agreement shall continue in effect until August 1, 1999, unless and
until terminated by either party as hereinafter provided, and will continue from
year to year thereafter, but only so long as such continuance is specifically
approved, at least annually, in the manner required by the Investment Company
Act of 1940. Either party hereto may terminate this agreement on any date by
giving the other party at least six months' prior written notice of such
termination, specifying the date fixed therefor. Without prejudice to any other
remedies of the Fund in any such event, the Fund may terminate this agreement at
any time immediately upon any failure of fulfillment of any of the obligations
of the Underwriter hereunder.
Without prejudice to any other remedies of the Fund in any such event, the Fund
may terminate this Agreement at any time immediately upon any failure of
fulfillment of any of the obligations of the Underwriter hereunder.
16. This agreement shall automatically terminate in the event of its assignment.
17. Any notice under this agreement shall be in writing, addressed, and
delivered or mailed, postage pre-paid, to the other party at such address as
such other party may designate for the receipt of such notice.
18. The Declaration of Trust of the Fund on file with the Secretary of State of
the Commonwealth of Massachusetts was executed on behalf of the Fund by the
initial trustees of the Fund and not individually, and any obligation of the
Fund shall be binding only upon the assets of the Fund (or applicable series
thereof) and shall not be binding upon any trustee, officer or shareholder of
the Fund. Neither the authorization of any action by the trustees or
shareholders of the Fund nor the execution of this agreement on behalf of the
Fund shall impose any liability upon any Trustee, officer or shareholder of the
Fund.
4
<PAGE>
IN WITNESS WHEREOF, the Fund and the Underwriter have each caused this agreement
to be executed on its behalf as of the day and year first above written.
NUVEEN INVESTMENT TRUST III
By /s/ Gifford R. Zimmerman
---------------------------------
Vice President
Attest:
/s/ Karen L. Healy
- ------------------------------
Assistant Secretary
JOHN NUVEEN & CO. INCORPORATED
By /s/ Alan G. Berkshire
---------------------------------
Vice President
Attest:
/s/ Larry Martin
- ------------------------------
Assistant Secretary
5
<PAGE>
(e) 2
Exhibit A to Nuveen Mutual Funds NUVEEN
Dealer Distribution and John Nuveen & Co. Incorporated
Shareholder Servicing Agreement 333 West Wacker Drive
Policies and Procedures With Respect to Chicago, IL 60606-1286
Sales of Multiple Classes of Funds (312) 917-7700
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee; Class B Shares, which are subject to an asset-based sales charge, a service
fee, and a declining contingent deferred sales charge ("CDSC"); and Class C
Shares, which are subject to an asset-based sales charge, a service fee, and a
12-month CDSC. It is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Fund shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or a cumulative
discount, as described in the Prospectus for the Fund, and any
anticipated changes in the funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B or Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B Shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquiries about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
Exhibit A (Page 2)
<TABLE>
<CAPTION>
==================================================================================================================================
A SHARE B SHARE C SHARE R SHARE
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Rittenhouse Growth Fund 67065W100 # 67065W209 # 67065W308 # 67065W407 NRGRX
Nuveen Growth and Income Stock Fund 67064Y503 NNGAX 67064Y602 NNGBX 67064Y701 # 67064Y800 NNGRX
Nuveen Balanced Stock and Bond Fund 67064Y107 NNSAX 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 NBMSX 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Nuveen Income Fund
Nuveen European Value Fund 67064Y842 # # 67064Y834 # # 67064Y826 # 67064Y818 #
Municipal Mutual Funds
Nuveen Municipal Bond Fund 67065Q202 NMBAX 67065Q103 # 67065Q301 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 NMBKX* 67065Q806 NITNX
Nuveen Flagship All-American Tax Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX* 67065Q780 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX* 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NCAAX* 67065N209 # 67065N308 NCACX 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX 67065N605 # 67065N704 NCAKX* 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FCTCX* 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L658 # 67065L641 FLCTX* 67065L872 NMFLX
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term Municipal Bond 67065R887 FLKAX* - - 67065R879 FLKCX* 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX* 67065P857 #
Nuveen MD Municipal Bond Fund 67065L831 NMDAX 67065L823 # 67065L815 NMDCX* 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX 67065N837 # 67065N829 NMZCX* 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX 67065N787 # 67065N779 NMAKX* 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX* 67065R770 #
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX* 67065N720 NMNJX
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX 67065N662 # 67065N654 NNYCX* 67065N647 NTNYX
Nuveen NY Insured Municipal Bond Fund 67065N639 NNYIX 67065N621 # 67065N613 NNYKX* 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX* 67065P816 #
Nuveen Flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPMBX* 67065L716 NBPAX
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX* 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
==================================================================================================================================
</TABLE>
# Will receive a supplemental listing when the number of class shareholder
accounts is 300 or when the class asset base reaches $1 million.
NOTE: A Quotron Symbol requires 1,000 shareholder accounts or $25 million
in assets.
*Denotes supplemental listing only
Effective June 26, 1998
<PAGE>
Although not covered by this Agreement, following are the Nuveen Money Market
Funds.
<TABLE>
<CAPTION>
-------------------
CUSIP Quotron
Number Symbol
- ----------------------------------------------------------------------
<S> <C> <C>
Nuveen Tax-Free Money Market Funds
Nuveen Tax-Exempt Money Market Fund, Inc. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfolio 670637602 NTFXX
- ----------------------------------------------------------------------
</TABLE>
Effective June 26, 1998
<PAGE>
(g)
CUSTODY AGREEMENT
=================
THIS AGREEMENT is made this 30th day of November, 1998 by and between
NUVEEN INVESTMENT TRUST III (the "Trust"), and THE CHASE MANHATTAN BANK.
W I T N E S S E T H
WHEREAS, the Trust is authorized to issue shares in separate series, with
each such series representing interest in a separate portfolio of securities and
other assets; and
WHEREAS, the Trust intends to initially offer shares in one series, Nuveen
Income Fund (such series together with all other series subsequently established
by the Trust and made subject to this Contract in accordance with paragraph 33,
being herein referred to as the "Fund(s)):
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust hereby appoints The Chase Manhattan Bank to act
-----------
as custodian of its portfolio securities, cash and other property on the terms
set forth in this Agreement. The Chase Manhattan Bank accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Section 23 of this Agreement.
2. DELIVERY OF DOCUMENTS. The Trust has furnished The Chase Manhattan
---------------------
Bank with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Trust's Board of Trustees authorizing the
appointment of The Chase Manhattan Bank as Custodian of the portfolio
securities, cash and other property of the Fund and approving this Agreement;
(b) Incumbency and signature certificates identifying and containing the
signatures of the Trust's officers and/or the persons authorized to sign Proper
Instructions, as hereinafter defined, on behalf of the Fund;
<PAGE>
(c) The Trust's Declaration of Trust filed with the Commonwealth of
Massachusetts and all amendments thereto (such Declaration of Trust as currently
in effect and from time to time, be amended, are herein called the
"Declaration");
(d) The Trust's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(e) Resolutions of the Trust's Board of Trustees appointing the investment
advisor of the Fund and resolutions of the Trust's Board of Trustees and the
Fund's Shareholders approving the proposed Investment Advisory Agreement between
the Trust and the advisor (the "Advisory Agreement");
(f) The Advisory Agreement;
(g) The Trust's Registration Statement on Form N-1A under the 1940 Act and
the Securities Act of 1933, as amended ("the 1933 Act") as filed with the SEC;
and
(h) The Trust's most recent prospectus and statement of additional
information including all amendments and supplements thereto (the "Prospectus").
Upon request the Trust will furnish The Chase Manhattan Bank with copies of
all amendments of or supplements to the foregoing, if any. The Trust will also
furnish The Chase Manhattan Bank upon request with a copy of the opinion of
counsel for the Trust with respect to the validity of the Shares and the status
of such Shares under the 1933 Act filed with the SEC, and any other applicable
federal law or regulation.
2
<PAGE>
3. DEFINITIONS.
-----------
(a) "Authorized Person". As used in this Agreement, the term "Authorized
-----------------
Person" means the Trust's President, Treasurer and any other person, whether or
not any such person is an officer or employee of the Trust, duly authorized by
the Board of Trustees of the Trust to give Proper Instructions on behalf of the
Fund as set forth in resolutions of the Trust's Board of Trustees.
(b) "Book-Entry System". As used in this Agreement, the term "Book-Entry
-----------------
System" means a book-entry system authorized by the U.S. Department of Treasury,
its successor or successors and its nominee or nominees.
(c) "Proper Instructions". Proper Instructions as used herein means a
-------------------
writing signed or initialled by two or more persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if The Chase Manhattan Bank reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
such oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Trustees of the Trust accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and The Chase Manhattan Bank are
satisfied that such procedures afford adequate safeguards for the Fund's assets.
For purposes of this Section, Proper Instructions shall include instructions
received by The Chase Manhattan Bank pursuant to any three-party agreement which
requires a segregated asset account in accordance with Section 9.
(d) "Property". The term "Property", as used in this Agreement, means:
--------
3
<PAGE>
(i) any and all securities and other property of the Fund which the Fund
may from time to time deposit, or cause to be deposited, with The
Chase Manhattan Bank or which The Chase Manhattan Bank may from time
to time hold for the Fund;
(ii) all income in respect of any such securities or other property;
(iii) all proceeds of the sales of any of such securities or other
property; and
(iv) all proceeds of the sale of securities issued by the Fund, which
are received by The Chase Manhattan Bank from time to time from or
on behalf of the Fund.
(e) "Securities Depository". As used in this Agreement, the term
---------------------
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee or
nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of a
resolution of the Company's Board of Trustees approving deposits by The Chase
Manhattan Bank therein.
4. DELIVERY AND REGISTRATION OF THE PROPERTY. The Fund will deliver or
-----------------------------------------
cause to be delivered to The Chase Manhattan Bank all securities and all moneys
owned by it, including payments of interest, principal and capital distributions
and cash received for the issuance of its Shares, at any time during the period
of this Agreement, except for securities and monies to be delivered to any
subcustodian appointed pursuant to Section 7 hereof. The Chase Manhattan Bank
will not be responsible for such securities and such monies until actually
received by it. All securities delivered to The Chase Manhattan Bank or to any
such subcustodian (other than in bearer form) shall be registered in the name of
the Fund or in the name of a nominee of the Fund or in the name of The Chase
Manhattan Bank or any nominee of The Chase Manhattan Bank (with or without
indication of fiduciary status) or in the name of any subcustodian or any
nominee of such subcustodian
4
<PAGE>
appointed pursuant to Paragraph 7 hereof or shall be properly endorsed and in
form for transfer satisfactory to The Chase Manhattan Bank.
5. VOTING RIGHTS. With respect to all securities, however registered, it
-------------
is understood that the voting and other rights and powers shall be exercised by
the Fund. The Chase Manhattan Bank's only duty shall be to mail for delivery on
the next business day to the Fund any documents received, including proxy
statements and offering circulars, with any proxies for securities registered in
a nominee name executed by such nominee. Where warrants, options, tenders or
other securities have fixed expiration dates, the Fund understands that in order
for The Chase Manhattan Bank to act, The Chase Manhattan Bank must receive the
Fund's instructions at its offices in New York, addressed as The Chase Manhattan
Bank may from time to time request, by no later than noon (NY City time) at
least one business day prior to the last scheduled date to act with respect
thereto (or such earlier date or time as The Chase Manhattan Bank may reasonably
notify the Fund). Absent The Chase Manhattan Bank's timely receipt of such
instructions, such instruments will expire without liability to The Chase
Manhattan Bank.
6. RECEIPT AND DISBURSEMENT OF MONEY.
---------------------------------
(a) The Chase Manhattan Bank shall open and maintain a custody account for
the Fund, subject only to draft or order by The Chase Manhattan Bank acting
pursuant to the terms of this Agreement, and shall hold in such account, subject
to the provisions hereof, all cash received by it from or for the Fund other
than cash maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the 1940 Act. Funds held by The Chase
Manhattan Bank for the Fund may be deposited by it to its credit at The Chase
Manhattan Bank in the Banking Department of The Chase Manhattan Bank or in such
other banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the 1940 Act, and that each such bank or
trust company shall be approved by vote of a majority of the Board of Trustees
of the Trust. Such funds shall be
5
<PAGE>
deposited by The Chase Manhattan Bank in its capacity as Custodian and shall be
withdrawable by The Chase Manhattan Bank only in that capacity.
(b) Upon receipt of Proper Instructions (which may be continuing
instructions as deemed appropriate by the parties) The Chase Manhattan Bank
shall make payments of cash to, or for the account of, the Fund from such cash
only (i) for the purchase of securities, options, futures contracts or options
on futures contracts for the Fund as provided in Section 13 hereof; (ii) in the
case of a purchase of securities effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section 8
hereof; (iii) in the case of repurchase agreements entered into between the Fund
and The Chase Manhattan Bank, or another bank, or a broker-dealer which is a
member of The National Association of Securities Dealers, Inc. ("NASD"), either
(a) against delivery of the securities either in certificate form or through an
entry crediting The Chase Manhattan Bank's account at the Federal Reserve Bank
with such securities or (b) against delivery of the receipt evidencing purchase
by the Fund of securities owned by The Chase Manhattan Bank along with written
evidence of the agreement by The Chase Manhattan Bank to repurchase such
securities from the Fund; (iv) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund; (v) for the payment of dividends
or other distributions on shares declared pursuant to the governing documents of
the Fund, or for the payment of interest, taxes, administration, distribution or
advisory fees or expenses which are to be borne by the Fund under the terms of
this Agreement, any Advisory Agreement, or any administration agreement; (vi)
for payments in connection with the conversion, exchange or surrender of
securities owned or subscribed to by the Fund and held by or to be delivered to
The Chase Manhattan Bank; (vii) to a subcustodian pursuant to Section 7 hereof;
(viii) for such common expenses incurred by the Fund in the ordinary course of
its business, including but not limited to printing and mailing expenses, legal
fees,
6
<PAGE>
accountants fees, exchange fees; or (ix) for any other proper purpose, but only
upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee of the Trust
signed by an officer of the Trust and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be made.
(c) The Chase Manhattan Bank is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money received as
custodian for the Fund.
6A. ADVANCES BY CUSTODIAN. The Custodian may from time to time agree to
---------------------
advance cash to the Fund, without interest, for the fund's other proper
corporate purposes. If the Custodian advances cash for any purpose, the Fund
shall and hereby does grant to the Custodian a security interest in Fund
securities equal in value to the amount of the cash advance but in no event
shall the value of securities in which a security interest has been granted
exceed 20% of the value of the Fund's total assets at the time of the pledge;
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to reasonably dispose of any securities
in which it has a security interest to the extent necessary to obtain
reimbursement.
7
<PAGE>
7. RECEIPT AND DELIVERY OF SECURITIES.
----------------------------------
(a) Except as provided by Section 8 hereof, The Chase Manhattan Bank shall
hold and physically segregate all securities and noncash Property received by it
for the Fund. All such securities and non-cash Property are to be held or
disposed of by The Chase Manhattan Bank for the Fund pursuant to the terms of
this Agreement. In the absence of Proper Instructions accompanied by a
certified resolution authorizing the specific transaction by the Trust's Board,
The Chase Manhattan Bank shall have no power or authority to withdraw, deliver,
assign, hypothecate, pledge or otherwise dispose of any such securities and
investments, except in accordance with the express terms provided for in this
Agreement. In no case may any director, officer, employee or agent of the Fund
withdraw any securities. In connection with its duties under this Section 7,
The Chase Manhattan Bank may, at its own expense, enter into subcustodian
agreements with other banks or trust companies for the receipt of certain
securities and cash to be held by The Chase Manhattan Bank for the account of
the Fund pursuant to this Agreement; provided that each such bank or trust
company has an aggregate capital, surplus and undivided profits, as shown by its
last published report, of not less than twenty million dollars ($20,000,000) and
that such bank or trust company agrees with The Chase Manhattan Bank to comply
with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder. The Chase Manhattan Bank will be liable for acts or
omissions of any subcustodian. The Chase Manhattan Bank shall employ sub-
custodians upon receipt of Proper Instructions, but only in accordance with an
applicable vote by the Board of Trustees of the Trust.
(b) Promptly after the close of business on each day The Chase Manhattan
Bank shall furnish the Fund with confirmations and a summary of all transfers to
or from the account of the Fund during said day. Where securities are
transferred to the account of the Fund established at a Securities Depository or
Book Entry System pursuant to Section 8 hereof, The Chase Manhattan Bank shall
also by book-entry or otherwise identify as
8
<PAGE>
belonging to such Fund the quantity of securities in a fungible bulk of
securities registered in the name of The Chase Manhattan Bank (or its nominee)
or shown in The Chase Manhattan Bank's account on the books of a Securities
Depository or Book-Entry System. At least monthly and from time to time, The
Chase Manhattan Bank shall furnish the Fund with a detailed statement of the
Property held for the Fund under this Agreement.
8. USE OF SECURITIES DEPOSITORY OR BOOK-ENTRY SYSTEM. The Fund shall
-------------------------------------------------
deliver to The Chase Manhattan Bank a certified resolution of the Board of
Trustees of the Trust approving, authorizing and instructing The Chase Manhattan
Bank on a continuous and ongoing basis until instructed to the contrary by
Proper Instructions actually received by The Chase Manhattan Bank (i) to deposit
in a Securities Depository or Book-Entry System all securities of the Fund
eligible for deposit therein and (ii) to utilize a Securities Depository or
Book-Entry System to the extent possible in connection with the performance of
its duties hereunder, including without limitation settlements of purchases and
sales of securities by the Fund, and deliveries and returns of securities
collateral in connection with borrowings. Without limiting the generality of
such use, it is agreed that the following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or Book-Entry System will at all times (1) be represented in an
account of The Chase Manhattan Bank in the Securities Depository or Book Entry
System (the "Account") and (2) be segregated from any assets and cash controlled
by The Chase Manhattan Bank in other than a fiduciary or custodian capacity but
may be commingled with other assets held in such capacities. The Chase
Manhattan Bank will effect payment for securities and receive and deliver
securities in accordance with accepted industry practices as set forth in (b)
below, unless the Fund has given The Chase Manhattan Bank Proper Instructions to
the contrary. The records of The Chase Manhattan Bank with respect to
securities of the Fund maintained in a Securities Depository or Book Entry
System shall identify by book entry those securities belonging to the Fund.
9
<PAGE>
(b) The Chase Manhattan Bank shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities Depository or
Book Entry System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of The Chase Manhattan Bank to
reflect such payment and transfer for the account of the Fund. Upon receipt of
Proper Instructions, The Chase Manhattan Bank shall transfer securities sold for
the account of the Fund upon (i) receipt of advice from the Securities
Depository or Book Entry System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the records of
The Chase Manhattan Bank to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities Depository or Book Entry
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by The Chase Manhattan Bank and be provided to
the Fund at its request. Upon request, The Chase Manhattan Bank shall furnish
the Fund confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in a Securities Depository
or Book Entry System for the account of the Fund.
(c) The Chase Manhattan Bank shall provide the Fund with any report
obtained by The Chase Manhattan Bank on the Securities Depository or Book Entry
System's accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities Depository or Book Entry
System;
(d) All Books and records maintained by The Chase Manhattan Bank which
relate to the Fund participation in a Securities Depository or Book-Entry System
will at all times during The Chase Manhattan Bank's regular business hours be
open to the inspection of the Fund's duly authorized employees or agents, and
the Fund will be furnished with all information in respect of the services
rendered to it as it may require.
(e) Anything to the contrary in this Agreement notwithstanding, The Chase
Manhattan Bank shall be liable to the Fund for any loss or damage to the Fund
resulting
10
<PAGE>
from any negligence, misfeasance or misconduct of The Chase Manhattan Bank or
any of its agents or of any of its or their employees in connection with its or
their use of the Securities Depository or Book Entry Systems or from failure of
The Chase Manhattan Bank or any such agent to enforce effectively such rights as
it may have against such Securities Depository or Book Entry System; at the
election of the Fund, it shall be entitled to be subrogated to the rights of The
Chase Manhattan Bank with respect to any claim against the Securities Depository
or Book Entry System or any other person which The Chase Manhattan Bank may have
as a consequence of any such loss or damage if and to the extent that the Fund
has not been made whole for any such loss or damage.
9. SEGREGATED ACCOUNT. The Chase Manhattan Bank shall upon receipt of
------------------
Proper Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by The
Chase Manhattan Bank pursuant to Section 8 hereof, (i) in accordance with the
provisions of any agreement among the Fund, The Chase Manhattan Bank and a
broker dealer registered under the Securities and Exchange Act of 1934 and a
member of the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii) for purposes of
segregating cash or government securities in connection with options purchased,
sold or written by the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund
with the procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case of
11
<PAGE>
clause (iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Trustees or of the Executive Committee
signed by an officer of the Trust and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
10. INSTRUCTIONS CONSISTENT WITH THE DECLARATION, ETC.
--------------------------------------------------
(a) Unless otherwise provided in this Agreement, The Chase Manhattan Bank
shall act only upon Proper Instructions. The Chase Manhattan Bank may assume
that any Proper Instructions received hereunder are not in any way inconsistent
with any provision of the Declaration or By-Laws or any vote or resolution of
the Trust's Board of Trustees or any committee thereof. The Chase Manhattan
Bank shall be entitled to rely upon any Proper Instructions actually received by
The Chase Manhattan Bank pursuant to this Agreement. The Fund agrees that The
Chase Manhattan Bank shall incur no liability in acting in good faith upon
Proper Instructions given to The Chase Manhattan Bank, except to the extent such
liability was incurred as a result of The Chase Manhattan Bank's negligence or
willful misconduct. In accord with instructions from the Fund, as required by
accepted industry practice or as The Chase Manhattan Bank may elect in effecting
the execution of Fund instructions, advances of cash or other Property made by
The Chase Manhattan Bank, arising from the purchase, sale, redemption, transfer
or other disposition of Property of the Fund, or in connection with the
disbursement of funds to any party, or in payment of fees, expenses, claims or
liabilities owed to The Chase Manhattan Bank by the Fund, or to any other party
which has secured judgment in a court of law against the Fund which creates an
overdraft in the accounts or over-delivery of Property, shall be deemed a loan
by The Chase Manhattan Bank to the Fund, payable on demand, bearing interest at
such rate customarily charged by The Chase Manhattan Bank for similar loans.
(b) The Fund agrees that test arrangements, authentication methods or other
security devices to be used with respect to instructions which the Fund may give
by
12
<PAGE>
telephone, telex, TWX, facsimile transmission, bank wire or other teleprocess,
or through an electronic instruction system, shall be processed in accordance
with terms and conditions for the use of such arrangements, methods or devices
as The Chase Manhattan Bank may put into effect and modify from time to time.
The Fund shall safeguard any test keys, identification codes or other security
devices which The Chase Manhattan Bank makes available to the Fund and agrees
that the Fund shall be responsible for any loss, liability or damage incurred by
The Chase Manhattan Bank or by the Fund as a result of The Chase Manhattan
Bank's acting in accordance with instructions from any unauthorized person using
the proper security device except to the extent such loss, liability or damage
was incurred as a result of The Chase Manhattan Bank's negligence or willful
misconduct. The Chase Manhattan Bank may electronically record, but shall not be
obligated to so record, any instructions given by telephone and any other
telephone discussions with respect to the Fund. In the event that the Fund uses
The Chase Manhattan Bank's Asset Management system or any successor electronic
communications or information system, the Fund agrees that The Chase Manhattan
Bank is not responsible for the consequences of the failure of that system to
perform for any reason, beyond the reasonable control of The Chase Manhattan
Bank, or the failure of any communications carrier, utility, or communications
network. In the event that system is inoperable, the Fund agrees that it will
accept the communication of transaction instructions by telephone, facsimile
transmission on equipment compatible to The Chase Manhattan Bank's facsimile
receiving equipment or by letter, at no additional charge to the Fund.
(c) The Chase Manhattan Bank shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and the maturity
of futures contracts purchased or sold by the Fund) received by The Chase
Manhattan Bank from issuers of the securities being held for the Fund. With
respect to tender or exchange offers, The Chase Manhattan Bank shall
13
<PAGE>
transmit promptly by facsimile to the Fund all written information received by
The Chase Manhattan Bank from issuers of the securities whose tender or exchange
is sought and from the party (or his agents) making the tender or exchange
offer. If the Fund desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Fund shall notify The Chase
Manhattan Bank at least three business days prior to the date on which The Chase
Manhattan Bank is to take such action or upon the date such notification is
first received by the Fund, if later. If any Property registered in the name of
a nominee of The Chase Manhattan Bank is called for partial redemption by the
issuer of such property, The Chase Manhattan Bank is authorized to allot the
called portion to the respective beneficial holders of the Property in such
manner deemed to be fair and equitable by The Chase Manhattan Bank in its sole
discretion.
11. TRANSACTIONS NOT REQUIRING INSTRUCTIONS. The Chase Manhattan Bank is
---------------------------------------
authorized to take the following action without Proper Instructions:
(a) Collection of Income and Other Payments. The Chase Manhattan Bank
---------------------------------------
shall:
(i) collect and receive on a timely basis for the account of the
Fund, all income and other payments and distributions, including
(without limitation) stock dividends, rights, warrants and similar
items, included or to be included in the Property of the Fund, and
promptly advise the Fund of such receipt and shall credit such income,
as collected, to the Fund. From time to time, The Chase Manhattan Bank
may elect, but shall not be obligated, to credit the account with
interest, dividends or principal payments on payable or contractual
settlement date, in anticipation of receiving same from a payor,
central depository, broker or other agent employed by the Fund or The
Chase Manhattan Bank. Any such crediting and posting shall be at the
Fund's sole risk, and The Chase Manhattan Bank shall be authorized to
reverse any such advance posting in the event it does not receive good
funds from any such payor, central depository, broker or agent of the
Customer.
14
<PAGE>
The Chase Manhattan Bank agrees to promptly notify the Fund
of the reversal of any such advance posting.
(ii) endorse and deposit for collection in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same
day as received;
(iii) receive and hold for the account of the Fund all
securities received by the Fund as a result of a stock dividend, share
split-up or reorganization, merger, recapitalization, readjustment or
other rearrangement or distribution of rights or similar securities
issued with respect to any portfolio securities of the Fund held by
The Chase Manhattan Bank hereunder;
(iv) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable;
(v) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other
payments and the endorsement for collection of checks, drafts and
other negotiable instruments;
(vi) to effect an exchange of the securities where the par value
is changed, and to surrender securities at maturity or upon an earlier
call for redemption, or when securities otherwise become payable,
against payment therefore in accordance with accepted industry
practice. If any Property registered in the name of a nominee of The
Chase Manhattan Bank is called for partial redemption by the issuer of
such property, The Chase Manhattan Bank is authorized to allot the
called portion to the respective beneficial holders of the Property in
such manner deemed to be fair and equitable by The Chase Manhattan
Bank in its sole discretion.
(b) Miscellaneous Transactions. The Chase Manhattan Bank is authorized to
--------------------------
deliver or cause to be delivered Property against payment or other consideration
or written
15
<PAGE>
receipt therefor for examination by a dealer selling for the account of the Fund
in accordance with street delivery custom.
12. TRANSACTIONS REQUIRING INSTRUCTIONS. In addition to the actions
-----------------------------------
requiring Proper Instructions set forth herein, upon receipt of Proper
Instructions and not otherwise, The Chase Manhattan Bank, directly or through
the use of a Securities Depository or Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated in such
Proper Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
issuer of securities or corporation, or the exercise of any conversion
privilege;
(c) Deliver any securities held for the Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
issuer of securities or corporation, against receipt of such certificates of
deposit, interim receipts or other instruments or documents, and cash, if any,
as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust company
for the purpose of pledge or hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be released only upon payment to
The Chase Manhattan Bank of the monies borrowed, or upon receipt of adequate
collateral as agreed upon by the
16
<PAGE>
Fund and The Chase Manhattan Bank which may be in the form of cash or
obligations issued by the U.S. government, its agencies or instrumentalities,
except that in cases where additional collateral is required to secure a
borrowing already made, subject to proper prior authorization, further
securities may be released for that purpose; and pay such loan upon re-delivery
to it of the securities pledged or hypothecated therefore and upon surrender of
the note or notes evidencing the loan; and
(f) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Funds;
(g) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund; and
(h) Deliver securities against payment or other consideration or written
receipt therefore for transfer of securities into the name of the Fund or The
Chase Manhattan Bank or a nominee of either, or for exchange or securities for a
different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to The Chase Manhattan Bank;
(i) Exchange securities in temporary form for securities in definitive
form;
17
<PAGE>
(j) Surrender, in connection with their exercise, warrants, rights or
similar securities, provided that in each case, the new securities and cash, if
any, are to be delivered to The Chase Manhattan Bank;
(k) Deliver securities upon receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Fund;
(l) Deliver securities pursuant to any other proper corporate purpose, but
only upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee signed by an
officer of the Trusts and certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
13. PURCHASE OF SECURITIES. Promptly after each purchase of securities,
----------------------
options, futures contracts or options on futures contracts by the investment
advisor, the Fund shall deliver to The Chase Manhattan Bank (as Custodian)
Proper Instructions specifying with respect to each such purchase: (a) the name
of the issuer and the title of the securities, (b) the number of shares of the
principal amount purchased and accrued interest, if any, (c) the dates of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, (f) the name of the person from whom or the broker
through whom the purchase was made and (g) the Fund name. The Chase Manhattan
Bank shall upon receipt of securities purchased by or for the Fund registered in
the name of the Fund or in the name of a nominee of The Chase Manhattan Bank or
of the Fund or in proper form for transfer or upon receipt of evidence of title
to options, futures contracts or options on futures contracts purchased by the
Fund, pay out of the moneys held for the account of the Fund the total amount
payable to the person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Proper Instructions. Except as specifically stated otherwise in this
18
<PAGE>
Agreement, in any and every case where payment for purchase of securities for
the account of the Fund is made by The Chase Manhattan Bank in advance of
receipt of the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, The Chase Manhattan Bank shall
be absolutely liable to the Fund for such securities to the same extent as if
the securities had been received by The Chase Manhattan Bank.
14. SALE OF SECURITIES. Promptly after each sale of securities by the Fund
------------------
at the instruction of the investment advisor, the Fund shall deliver to The
Chase Manhattan Bank (as Custodian) Proper Instructions, specifying with respect
to each such sale; (a) the name of the issuer and the title of the security, (b)
the number of shares or principal amount sold, and accrued interest, if any, (c)
the date of sale, (d) the sale price per unit, (e) the total amount payable to
the Fund upon such sale, (f) the name of the broker through whom or the person
to whom the sale was made and (g) the Fund name. The Chase Manhattan Bank shall
deliver the securities upon receipt of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as set
forth in such Proper Instructions. Subject to the foregoing, The Chase
Manhattan Bank may accept payment in such form as shall be satisfactory to it,
and may deliver securities and arrange for payment in accordance with the
customs prevailing among dealers in securities.
15. NOT IN USE.
----------
16. RECORDS. The books and records pertaining to the Fund which are in the
-------
possession of The Chase Manhattan Bank shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the 1940 Act,
as amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representative, shall have access to such books
and records at all times during The Chase Manhattan Bank's normal business
hours, and such books and records shall be surrendered to the Fund promptly upon
request. Upon reasonable request of the Fund,
19
<PAGE>
copies of any such books and records shall be provided by The Chase Manhattan
Bank to the Fund or the Fund's authorized representative at the Fund's expense.
17. COOPERATION WITH ACCOUNTANTS. The Chase Manhattan Bank shall cooperate
----------------------------
with the Fund's independent certified public accountants and shall take all
reasonable action in the performance of its obligations under this Agreement to
assure that the necessary information is made available to such accountants for
the expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's Form N-1A, Form N-SAR and other reports to the
Securities and Exchange Commission and with respect to any other requirement of
such Commission.
18. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Chase Manhattan
-------------------------------------------------
Bank shall provide the Fund, at such times as the Fund may reasonably require,
with reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities deposited
and/or maintained in a Securities Depository or Book Entry System, relating to
the services provided by The Chase Manhattan Bank under this Contract; such
reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
19. CONFIDENTIALITY. The Chase Manhattan Bank agrees on behalf of itself
---------------
and its employees to treat confidentially and as the proprietary information of
the Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to the advisors and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where The
Chase Manhattan Bank may be exposed to civil or criminal contempt proceedings
for
20
<PAGE>
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Fund. Nothing contained
herein, however, shall prohibit The Chase Manhattan Bank from advertising or
soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential Shareholders of the Fund.
20. EQUIPMENT FAILURES. In the event of equipment failures beyond The
------------------
Chase Manhattan Bank's control, The Chase Manhattan Bank shall, at no additional
expense to the Fund, take reasonable steps to minimize service interruptions but
shall not have liability with respect thereto. The Chase Manhattan Bank shall
enter into and shall maintain in effect with appropriate parties one or more
agreements making reasonable provisions for back up emergency use of electronic
data processing equipment to the extent appropriate equipment is available.
21. RIGHT TO RECEIVE ADVICE.
-----------------------
(a) Advice of Fund. If The Chase Manhattan Bank shall be in doubt as to
--------------
any action to be taken or omitted by it, it may request, and shall receive, from
the Fund clarification or advice.
(b) Advice of Counsel. If The Chase Manhattan Bank shall be in doubt as to
-----------------
any question of law involved in any action to be taken or omitted by The Chase
Manhattan Bank, it may request advice at its own cost from counsel of its own
choosing (who may be counsel for the Fund or The Chase Manhattan Bank, at the
option of The Chase Manhattan Bank).
(c) Conflicting Advice. In case of conflict between directions or advice
------------------
received by The Chase Manhattan Bank pursuant to sub-paragraph (a) of this
paragraph and advice received by The Chase Manhattan Bank pursuant to
subparagraph (b) of this paragraph, The Chase Manhattan Bank shall be entitled
to rely on and follow the advice received pursuant to the latter provision
alone.
21
<PAGE>
(d) Protection of The Chase Manhattan Bank. The Chase Manhattan Bank shall
---------------------------------------
be protected in any action or inaction which it takes or omits to take in
reliance on any directions or advice received pursuant to subparagraphs (a) or
(b) of this section which The Chase Manhattan Bank, after receipt of any such
directions or advice, in good faith believes to be consistent with such
directions or advice. However, nothing in this paragraph shall be construed as
imposing upon The Chase Manhattan Bank any obligation (i) to seek such
directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms of another provision of this
Agreement, the same is a condition to The Chase Manhattan Bank's properly taking
or omitting to take such action. Nothing in this subsection shall excuse The
Chase Manhattan Bank when an action or omission on the part of The Chase
Manhattan Bank constitutes willful misfeasance, bad faith, negligence or
reckless disregard by The Chase Manhattan Bank of its duties under this
Agreement.
22. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Trust assumes
--------------------------------------------------
full responsibility for insuring that the contents of each Prospectus of the
Trust complies with all applicable requirements of the 1933 Act, the 1940 Act,
and any laws, rules and regulations of governmental authorities having
jurisdiction.
23. COMPENSATION. As compensation for the services rendered by The Chase
------------
Manhattan Bank during the term of this Agreement, the Fund will pay to The Chase
Manhattan Bank, in addition to reimbursement of its out-of-pocket expenses,
monthly fees as outlined in Exhibit A.
24. INDEMNIFICATION. The Fund, as sole owner of the Property, agrees to
---------------
indemnify and hold harmless The Chase Manhattan Bank and its nominees from all
taxes, charges, expenses, assessments, claims, and liabilities (including,
without limitation, liabilities arising under the 1933 Act, the Securities
Exchange Act of 1934, the 1940 Act, and any state and foreign securities and
blue sky laws, all as or to be amended from time to time) and expenses,
including (without limitation) attorney's fees and disbursements
22
<PAGE>
(hereafter "liabilities and expenses"), arising directly or indirectly from any
action or thing which The Chase Manhattan Bank takes or does or omits to take or
do (i) at the request or on the direction of or in reliance on the advice of the
Fund, or (ii) upon Proper Instructions, provided, that neither The Chase
Manhattan Bank nor any of its nominees or sub-custodians shall be indemnified
against any liability to the Fund or to its Shareholders (or any expenses
incident to such liability) arising out of (x) The Chase Manhattan Bank's or
such nominee's or sub-custodian's own willful misfeasance, bad faith, negligence
or reckless disregard of its duties under this Agreement or any agreement
between The Chase Manhattan Bank and any nominee or subcustodian or (y) The
Chase Manhattan Bank's own negligent failure to perform its duties under this
Agreement. The Chase Manhattan Bank similarly agrees to indemnify and hold
harmless the Fund from all liabilities and expenses arising directly or
indirectly from The Chase Manhattan Bank's or such nominee's or sub-custodian's
willful misfeasance, bad faith, negligence or reckless disregard in performing
its duties under this agreement. In the event of any advance of cash for any
purpose made by The Chase Manhattan Bank resulting from orders or Proper
Instructions of the Fund, or in the event that The Chase Manhattan Bank or its
nominee or subcustodian shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement, except such as may arise from its or its nominee's or sub-custodian's
own negligent action, negligent failure to act, willful misconduct, or reckless
disregard, the Fund shall promptly reimburse The Chase Manhattan Bank for such
advance of cash or such taxes, charges, expenses, assessments claims or
liabilities.
25. RESPONSIBILITY OF THE CHASE MANHATTAN BANK. In the performance of its
------------------------------------------
duties hereunder, The Chase Manhattan Bank shall be obligated to exercise care
and diligence and to act in good faith to insure the accuracy and completeness
of all services performed under this Agreement. The Chase Manhattan Bank shall
be responsible for its own negligent failure or that of any subcustodian it
shall appoint to perform its duties
23
<PAGE>
under this Agreement but to the extent that duties, obligations and
responsibilities are not expressly set forth in this Agreement, The Chase
Manhattan Bank shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith, or negligence on the part of The
Chase Manhattan Bank or such subcustodian or reckless disregard of such duties,
obligations and responsibilities. Without limiting the generality of the
foregoing or of any other provision of this Agreement, The Chase Manhattan Bank
in connection with its duties under this Agreement shall, so long as and to the
extent it is in the exercise of reasonable care, not be under any duty or
obligation to inquire into and shall not be liable for or in respect of (a) the
validity or invalidity or authority or lack thereof of any advice, direction,
notice or other instrument which conforms to the applicable requirements of this
Agreement, if any, and which The Chase Manhattan Bank believes to be genuine,
(b) the validity of the issue of any securities purchased or sold by the Fund,
the legality of the purchase or sale thereof or the propriety of the amount paid
or received therefor, (c) the legality of the issue or sale of any Shares, or
the sufficiency of the amount to be received therefore, (d) the legality of the
redemption of any Shares, or the propriety of the amount to be paid therefor,
(e) the legality of the declaration or payment of any dividend or distribution
on Shares, of (f) delays or errors or loss of data occurring by reason of
circumstances beyond The Chase Manhattan Bank's control, including acts of civil
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown (except as provided in Section 20), flood or catastrophe,
acts of God, insurrection, war, riots, or failure of the mail, transportation,
communication or power supply.
26. COLLECTION OF INCOME. The Chase Manhattan Bank shall collect on a
--------------------
timely basis all income and other payments with respect to registered securities
held hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by The
24
<PAGE>
Chase Manhattan Bank or its agent thereof and shall credit such income, as
collected, to the Fund's custodian account. Without limiting the generality of
the foregoing, The Chase Manhattan Bank shall detach and present for payment all
coupons and other income items requiring presentation as and when they become
due and shall collect interest when due on securities held hereunder. Income due
the Fund on securities loaned pursuant to the provisions of Section 9 shall be
the responsibility of the Fund. The Chase Manhattan Bank will have no duty or
responsibility in connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is properly
entitled.
27. OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Chase Manhattan Bank
---------------------------------------
shall execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to securities of the Fund held by it and in connection with
transfers of securities.
28. EFFECTIVE PERIOD; TERMINATION AND AMENDMENT. This agreement shall
-------------------------------------------
become effective as of its execution, shall continue in full force and effect
until terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than thirty (30) days after the date
of such delivery or mailing; provided, however that the Chase Manhattan Bank
shall not act under Section 8 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees of the Fund has approved the initial use of a particular Securities
Depository or Book Entry System and the receipt of an annual certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has reviewed the
use by the Fund of such Securities Depository and/or Book Entry System, as
required in each case by Rule 17f-4 under the Investment Company Act of 1940, as
amended; provided further, however, that the Fund shall not amend or terminate
this agreement in contravention of any applicable federal or state
25
<PAGE>
regulations, or any provision of the Declaration of Trust, and further provided,
that the Trust may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Chase Manhattan Bank by giving notice as
described above to the Chase Manhattan Bank, or (ii) immediately terminate this
agreement in the event of the appointment of a conservator or receiver for the
Chase Manhattan Bank by the Comptroller of the Currency or upon the happening of
a like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to The Chase
Manhattan Bank such compensation as may be due as of the date of such
termination and shall likewise reimburse The Chase Manhattan Bank for its costs,
expenses and disbursements.
26
<PAGE>
29. SUCCESSOR CUSTODIAN. If a successor custodian shall be appointed by
----------------------
the Board of Trustees of the Trust, the Chase Manhattan Bank shall, upon
termination, deliver to such successor custodian at the office of the custodian,
duly endorsed and in the form for transfer, all securities then held by it
hereunder and shall transfer to an account of the successor custodian all of the
Fund's securities held in a Securities Depository or Book Entry System.
If no such successor custodian shall be appointed, The Chase Manhattan Bank
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Trust, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
The Chase Manhattan Bank on or before the date when such termination shall be
come effective, then The Chase Manhattan Bank shall have the right to deliver to
a bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business in New York, New York, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
The Chase Manhattan Bank and all instruments held by The Chase Manhattan Bank
relative thereto and all other property held by it under this Agreement and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities Depository or Book Entry System. Thereafter, such bank
or trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of The Chase Manhattan Bank after the date of termination hereof
owing to failure of the Fund to procure the certified copy of the vote referred
to or of the Board of Trustees to appoint a successor custodian, The Chase
Manhattan Bank shall be entitled to fair compensation for its services during
such period as The Chase Manhattan Bank retains
27
<PAGE>
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of The Chase Manhattan Bank
shall remain in full force and effect.
30. NOTICES. All notices and other communications (collectively referred
-------
to as "Notice" or "Notices") in this section hereunder shall be in writing and
shall be first sent by telegram, cable, telex, or facsimile sending device and
thereafter by overnight mail for delivery on the next business day. Notices
shall be addressed (a) if to The Chase Manhattan Bank, at The Chase Manhattan
Bank's address, 4 New York Plaza, New York, New York, 10004, facsimile number
(212) 623-8997; (b) if to the Fund, at the address of the Fund, 333 West Wacker
Drive, Chicago, Illinois 60606 Attention: Fund Controller, facsimile number
(312) 917-8049; or (c) if to neither of the foregoing, at such other address as
shall have been notified to the sender of any such Notice or other
communication. Notices sent by overnight mail shall be deemed to have been
given the next business day. Notices sent by messenger shall be deemed to have
been given on the day delivered, and notices sent by confirming telegram, cable,
telex or facsimile sending device shall be deemed to have been given
immediately. All postage, cable, telegram, telex and facsimile sending device
charges arising from the sending of a Notice hereunder shall be paid by the
sender.
31. FURTHER ACTIONS. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
32. AMENDMENTS. This Agreement or any part hereof may be changed or waived
----------
only by an instrument in writing signed by the party against which enforcement
of such change or waiver is sought.
33. ADDITIONAL FUNDS. In the event that the Trust establishes one or more
----------------
series of Shares in addition to the Nuveen Income Fund with respect to which it
desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the
28
<PAGE>
Custodian in writing, and if the Custodian agrees in writing to provide such
services, such series of Shares shall become a Fund hereunder.
34. MISCELLANEOUS. This Agreement embodies the entire Agreement and
-------------
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall insure to the benefit of the parties hereto and their respective
successors.
35. The Trust's Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts. This Agreement is executed on behalf of the
Trust by the Trust's officers as officers and not individually and the
obligations imposed upon the Trust by this Agreement are not binding upon any of
the Trust's Trustees, officers or shareholders individually but are binding only
upon the assets and property of the Fund.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE CHASE MANHATTAN BANK
Attest: /s/ Tara Noonan-Amaral By: /s/ Thomas A. De Angelo
___________________________ ___________________________
THOMAS A. DE ANGELO
VICE PRESIDENT
NUVEEN INVESTMENT TRUST III
Attest: /s/ Gifford R. Zimmerman By: /s/ Stephen D. Foy
___________________________ ___________________________
STEPHEN D. FOY
VICE PRESIDENT &
CONTROLLER
30
<PAGE>
EXHIBIT A
---------
CUSTODY SERVICE FEE
-------------------
ADMINISTRATION AND MAINTENANCE FEE
- ----------------------------------
.01375% (1 3/8 Basis Points) on first $10 billion
.00875% (7/8 Basis Point) on second $10 billion
.0075% (3/4 Basis Point) on third $10 billion
.005% (1/2 Basis Point) on remainder
TRANSACTION FEES
- ----------------
$10.00 Per Book Entry or Physical Transaction
$35.00 Per Future Contract or Option wire
$8.00 Per outgoing Wire Transfer for ETFs
$5.00 Per incoming and outgoing Wire Transfer for Open
End and Money Market Funds
NOTES:
1. Schedule should be applied to total assets for all Exchange Traded Funds,
Open End Load Funds, and Money Market Funds.
2. Add $5.00 per book entry transaction and physical transaction if Custody
inputs trades.
BALANCES:
The allowable overdraft policy will not apply to the Nuveen Income Fund.
Instead, this series will receive an earnings credit which will be applied
to the bill and used to reduce the monthly custody fees. This monthly
assessment will be determined at the end of the month as follows:
The positve net cumulative balance less 10% reserves multiplied by the
monthly average 90-Day Treasury Bill rate divided by 365 days.
If the average monthly balance is negative a charge will be applied to
the custody bill as follows:
The negative net cumulative balance plus 10% reserves multiplied by
the average monthly Fed Funds rate divided by 365 days.
31
<PAGE>
1. TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C> <C>
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 3
4. Delivery and Registration of the Property 4
5. Voting Rights 5
6. Receipt and Disbursement of Money 5
6A. Advances By Custodian 7
7. Receipt and Delivery of Securities 8
8. Use of Securities Depository or the Book Entry System 9
9. Segregated Account 11
10. Instructions Consistent With The Declaration, etc. 12
11. Transaction Not Requiring Instructions, 15
Collection of Income and Other Payments 15
Miscellaneous Transactions 16
12. Transactions Requiring Instructions 16
13. Purchase of Securities 19
14. Sale of Securities 20
15. Not In Use 20
16. Records 20
17. Cooperation with Accountants 21
18. Reports to Fund Independent Public Accountants 21
19. Confidentiality 21
20. Equipment Failures 22
21. Right to Receive Advice 22
22. Compliance with Governmental Rules and Regulations 23
23. Compensation 23
24. Indemnification 23
25. Responsibility of Chase Manhattan Bank 25
26. Collection of Income 26
27. Ownership Certificates for Tax Purposes 26
28. Effective Period; Terminations and Amendment 28
29. Successor Custodian 29
30. Notices 29
31. Further Actions 29
32. Amendments 29
33. Additional Funds 29
34. Miscellaneous 30
35. Declaration of Trust 30
</TABLE>
32
<PAGE>
November 25, 1998
Nuveen Investment Trust III
333 West Wacker Drive
Chicago, Illinois 60606-1286
Re: Nuveen Investment Trust III
---------------------------
Gentlemen:
We have served as counsel for the Nuveen Investment Trust III (the
"Fund"), which proposes to offer and sell shares of various classes of its sole
series, the Nuveen Income Fund, (collectively, the "Shares") in the manner and
on the terms set forth in Pre-Effective Amendment No. 1 to its Registration
Statement to be filed on or about November 25, 1998 (the "Amendment") with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended.
In connection therewith, we have examined such pertinent records and
documents and matters of law, including the opinions of Bingham, Dana & Gould
LLP upon which we have relied as they relate to the laws of the Commonwealth of
Massachusetts, as we have deemed necessary in order to enable us to express the
opinion hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
The Shares of the Fund, which are currently being registered by
the Amendment referred to above, may be legally and validly issued from
time to time in accordance with the Fund's Declaration of Trust dated
August 20, 1998, the Fund's By-Laws, the Fund's Certificate for the
Establishment and Designation of Classes, the Fund's Certificate for the
Establishment and Designation of Series, and subject to compliance with
the Securities Act of 1933, as amended, the Investment Company Act of
1940, as amended, and applicable state laws regulating the sale of
securities and the receipt by the Fund of a purchase price of not less
than the net asset value per share and such Shares, when so issued and
sold, will be legally issued, fully paid and non-assessable, except
that, as set forth in the Amendment, shareholders of the Fund may under
certain circumstances be held personally liable for its obligations.
<PAGE>
Nuveen Investment Trust III
November 25, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-65269) relating to the Shares referred to
above, to the use of our name and to the reference to our firm in said
Registration Statement.
Respectfully submitted,
Chapman and Cutler
<PAGE>
BINGHAM DANA LLP
BINGHAM DANA 150 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110-1726
TEL: (617) 951-8000
FAX: (617) 951-8736
BOSTON. NEW YORK. WASHINGTON
LOS ANGELES. HARTFORD AND LONDON
November 23, 1998
Nuveen Investment Trust III
333 West Wacker Drive
Chicago, Illinois 60606-1286
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
Re: Registration Statement on Form N-1A under the Securities
--------------------------------------------------------
Act of 1933
-----------
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to Nuveen
Investment Trust III (the "Fund") on behalf of its series Nuveen Income
Fund in connection with the Fund's Pre-Effective Amendment No. 1 to its
Registration Statement on Form N-1A to be filed on or about November 24,
1998 ( the "Amemdment"), with respect of certain of its Class A Common
Shares, par value $01. per share (the "Class A Shares"), Class B Common
Shares, par value $01. per share (the "Class B Shares"), Class C Common
Shares, par value $01. per share (the "Class C Shares"), and Class R
Common Shares, par value $01. per share (the "Class R Shares, such Class
A Shares, Class B Shares, Class C Shares and Class R Shares referred to
collectively herein as the "Shares"). You have requested that we deliver
this opinion to you in connection with the Fund's filing of such
Amendment.
In Connection with the furnishing of this opinion, we have
examined the following documents:
(a) a certificate dated as of a recent date of the
Secretary of the Commonwealth of Massachusetts as to the existence of
the Fund;
<PAGE>
BINGHAM DANA
Nuveen Investment Trust III
Chapman and Cutler
November 23, 1998
Page 2
(b) a copy, as filed with the Secretary of the Commonwealth of
Massachusetts on September 10, 1998, of the Fund's Declaration of Trust
dated August 20, 1998;
(c) A copy of the Fund's Certificate for the Establishment and
Designation of Classes designating the Class A Shares, Class B Shares,
Class C Shares and Class R Shares, as executed by the Trustees of the
Fund and filed with Secretary of the Commonwealth of Massachusetts (the
"Designation of Classes");
(d) a copy of the Fund's Certificate for the Establishment and
Designation of Series designating Nuveen Income Fund, as executed by the
Trustees of the Fund and filed with the Secretary of the Commonwealth of
Massachusetts (the "Designation of Series");
(e) a Certificate executed by an appropriate officer of the
Fund, certifying as to, and attaching copies of, the Fund's Declaration
of Trust, Designation of Classes, Designation of Series, By-Laws, and
certain resolutions adopted by the Trustees of the Fund;
(f) a printer's proof dated as of November 12, 1998 of the
Amendment.
In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all of the documents reviewed by us as
copies, the authenticity and completeness of all original documents reviewed by
us in original or copy form and the legal competence of each individual
executing any document. We have assumed that the Amendment, as filed with the
Securities and Exchange Commission, will be in substantially the form of the
printer's proof referred to in paragraph (f) above.
This opinion is based entirely on our review of the documents listed
above and such investigation of law as we have deemed necessary or appropriate.
We have made no other review of investigation of any kind whatsoever, and we
have assumed, without independent inquiry, the accuracy of the information
set forth in such documents.
This opinion is limited solely to the internal substantive laws of the
Commonwealth of Massachusetts as applied by courts located in such
<PAGE>
BINGHAM DANA
Nuveen Investment Trust III
Chapman and Cutler
November 23, 1998
Page 3
Commonwealth, except that we express no opinion as to any Massachusetts
securities law.
We understand that all of the foregoing assumptions and
limitations are acceptable to you.
Based upon and subject to the foregoing, please be advised that
it is our opinion that:
1. The Fund is duly organized and existing under the Fund's
Declaration of Trust and the laws of the Commonwealth of Massachusetts
as a voluntary association with transferable shares of beneficial
interest commonly referred to as a "Massachusetts business trust."
2. The Shares, when issued and sold in accordance with the
Fund's Declaration of Trust, Designation of Classes, Designation of
Series and By-Laws and for the consideration described in the Amendment
will be legally issued, fully paid and non-assessable, except that, as
set forth in the Amendment, shareholders of the Fund may under certain
circumstances be held personally liable for its obligations.
We hereby consent to your reliance on this opinion in connection
with your opinion to the Fund with respect to the Shares and to the
filing of this opinion as an exhibit to the Amendment.
Very truly yours,
/s/ Bingham Dana LLP
BINGHAM DANA
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated November 20, 1998, and to all references to our Firm included in or made
a part of this registration statement of Nuveen Investment Trust III (comprised
of the Nuveen Income Fund).
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 20, 1998
<PAGE>
(L)
NUVEEN INVESTMENT TRUST III
Subscription Agreement
----------------------
This Agreement made this 26th day of August, 1998 by and between Nuveen
Investment Trust III, a Massachusetts business trust (the "Trust"), and Nuveen
Institutional Advisory Corp., a Delaware corporation (the "Subscriber");
WITNESSETH:
WHEREAS, the Trust has been formed for the purposes of carrying on business
as an open-end diversified management investment company; and
WHEREAS, the Subscriber has been selected by the Trust's Board of Trustees
to serve as investment adviser to the Trust; and
WHEREAS, the Subscriber wishes to subscribe for and purchase, and the Trust
wishes to sell to the Subscriber, 5,000 common shares (1,250 shares of each of
the four classes of shares designated in the Trust's Establishment and
Designation of Classes), for a purchase price of $20.00 per share;
NOW THEREFORE, IT IS AGREED:
1. The Subscriber subscribes for and agrees to purchase from the Trust
5,000 common shares (1,250 shares of each of the four classes of shares
designated in the Trust's Establishment and Designation of Classes), for a
purchase price of $20.00 per share. Subscriber agrees to make payment for these
shares at such time as demand for payment may be made by an officer of the
Trust.
2. The Trust agrees to issue and sell said shares to Subscriber promptly
upon its receipt of the purchase price.
3. To induce the Trust to accept its subscription and issue the shares
subscribed for, the Subscriber represents that it is informed as follows:
(a) That the shares being subscribed for have not been and will not be
registered under the Securities Act of 1933 ("Securities Act");
(b) That the shares will be sold by the Trust in reliance on an exemption
from the registration requirements of the Securities Act;
(c) That the Trust's reliance upon an exemption from the registration
requirements of the Securities Act is predicated in part on the
representations and agreements contained in this Subscription Agreement;
<PAGE>
2
(d) That when issued, the shares will be "restricted securities" as defined
in paragraph (a)(3) of Rule 144 of the General Rules and Regulations under
the Securities Act ("Rule 144") and cannot be sold or transferred by
Subscriber unless they are subsequently registered under the Securities Act
or unless an exemption from such registration is available;
(e) That there do not appear to be any exemptions from the registration
provisions of the Securities Act available to the Subscriber for resale of
the shares. In the future, certain exemptions may possibly become
available, including an exemption for limited sales including an exemption
for limited sales in accordance with the conditions of Rule 144.
The Subscriber understands that a primary purpose of the information
acknowledged in subparagraphs (a) through (e) above is to put it on notice as to
restrictions on the transferability of the shares.
4. To further induce the Trust to accept its subscription and issue the
shares subscribed for, the Subscriber:
(a) Represents and warrants that the shares subscribed for are being and
will be acquired for investment for its own account and not on behalf of
any other person or persons and not with a view to, or for sale in
connection with, any public distribution thereof; and
(b) Agrees that any certificates representing the shares subscribed for may
bear a legend substantially in the following form:
The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933 or any other federal or state securities law. These shares may
not be offered for sale, sold or otherwise transferred unless
registered under said securities laws or unless some exemption from
registration is available.
5. This Subscription Agreement and all of its provisions shall be binding
upon the legal representatives, heirs, successors and assigns of the parties
hereto.
<PAGE>
3
6. The Trust's Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts. This Agreement is executed on behalf of the Trust
by the Trust's officers as officers and not individually and the obligations
imposed upon the Trust by this Agreement are not binding upon any of the Trust's
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Trust.
IN WITNESS WHEREOF, this Subscription Agreement has been executed by the
parties hereto as of the day and date first above written.
NUVEEN INVESTMENT TRUST III
By: /s/ Gifford R. Zimmerman
----------------------------
Vice President
NUVEEN INSTITUTIONAL ADVISORY CORP.
By: /s/ Alan G. Berkshire
-------------------------------
Vice President
<PAGE>
(O)
Nuveen Investment Trust
Nuveen Investment Trust II
Nuveen Investment Trust III
Nuveen Investment Trust IV
Multiple Class Plan
Adopted Pursuant to Rule 18f-3
Whereas, Nuveen Investment Trust, Nuveen Investment Trust II, Nuveen
Investment Trust III and Nuveen Investment Trust IV, each a Massachusetts
business trust (each, a "Trust"), engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act");
Whereas, the Trust is authorized to and does issue shares of beneficial
interest in separate series, with the shares of each such series representing
the interests in a separate portfolio of securities and other assets (the
Trust's series together with all other such series subsequently established by a
Trust being referred to herein individually as a "Fund" and collectively as the
"Funds");
Whereas, the Trust is authorized to and has divided the shares of each Fund
into four classes, designated as Class A Shares, Class B Shares, Class C Shares
and Class R Shares; and
Whereas, the Board of the Trust as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the Act) (the "Non-Interested
Members"), after having been furnished and having evaluated information
reasonably necessary to evaluate this Multiple Class Plan (the "Plan"), have
determined in the exercise of their reasonable business judgment that the Plan
is in the best interests of each class of each Fund individually, and each Fund
and the Trust as a whole.
Now, Therefore, the Trust hereby adopts this Plan, effective the date
listed on Exhibit A attached hereto, in accordance with Rule 18f-3 under the
Act:
Section 1. Class Differences. Each class of shares of a Fund shall
represent interests in the same portfolio of investments of that Fund and,
except as otherwise set forth in this Plan, shall differ solely with respect to:
(i) distribution, service and other charges and expenses as provided for in
Sections 2 and 3 of this Plan; (ii) the exclusive right of each class of shares
to vote on matters submitted to shareholders that relate solely to that class or
for which the interests of one class differ from the interests of another class
or classes; (iii) such differences relating to eligible investors as may be set
forth in the prospectus and statement of additional information of each Fund, as
the same may be amended or supplemented from time
<PAGE>
to time (each a "Prospectus" and "SAI" and collectively, the "Prospectus" and
"SAI"); (iv) the designation of each class of shares; and (v) conversion
features.
Section 2. Distribution and Service Arrangements; Conversion Features.
Class A Shares, Class B Shares, Class C Shares and Class R Shares of each Fund
shall differ in the manner in which such shares are distributed and in the
services provided to shareholders of each such class as follows:
(a) Class A Shares:
(i) Class A Shares shall be sold at net asset value subject
to a front-end sales charge set forth in the Prospectus and SAI;
(ii) Class A Shares shall be subject to an annual service
fee ("Service Fee") pursuant to a Plan of Distribution and
Service Pursuant to Rule 12b-1 (the "12b-1 Plan") not to exceed
0.25 of 1% of the average daily net assets of the Fund allocable
to Class A Shares, which, as set forth in the Prospectus, SAI and
the 12b-1 Plan, may be used to compensate certain authorized
dealers for providing ongoing account services to shareholders;
and
(iii) Class A Shares shall not be subject to a Distribution
Fee (as hereinafter defined);
(iv) As described in the Prospectus and SAI, certain Class A
shares redeemed within 18 months of purchase shall be subject to
a contingent deferred sales charge ("CDSC") of 1% of the lower of
(a) the net asset value of Class A Shares at the time of purchase
or (b) the net asset value of Class A Shares at the time of
redemption, as set forth in the Prospectus and SAI; and
(v) Class A Shares may be offered from time to time at net
asset value without a front-end sales load, the terms and
conditions of such offer will be described in the Trust's
Prospectus or supplement thereto. If the Class A Shares are sold
on a load-waived basis, such Class A Shares redeemed within 24
months of purchase shall be subject to a CDSC of 2% of the lower
of the purchase price or redemption proceeds, as described in the
Prospectus or supplement thereto.
(b) Class B Shares:
-2-
<PAGE>
(i) Class B Shares shall be sold at net asset value without
a front-end sales charge;
(ii) Class B Shares shall be subject to a Service Fee
pursuant to the 12b-1 Plan not to exceed 0.25 of 1% of average
daily net assets of the Fund allocable to Class B Shares, which,
as set forth in the Prospectus, SAI and the 12b-1 Plan, may be
used to compensate certain authorized dealers for providing
ongoing account services to shareholders;
(iii) Class B Shares shall be subject to an annual
distribution fee ("Distribution Fee") pursuant to the 12b-1 Plan
not to exceed 0.75 of 1% of average daily net assets of the Fund
allocable to Class B Shares, which, as set forth in the
Prospectus, SAI and the 12b-1 Plan, will be used to reimburse
John Nuveen & Co. Incorporated, the Trust's distributor, for
certain expenses and for providing compensation to certain
authorized dealers;
(iv) Class B Shares redeemed within 6 years of purchase
shall be subject to a CDSC described below of the lower of (a)
the net asset value of Class B Shares at the time of purchase or
(b) the net asset value of Class B Shares at the time of
redemption, as set forth in the Prospectus and SAI; and
<TABLE>
<CAPTION>
Years Since Purchase
of Class B Shares CDSC
<S> <C> <C>
0-1 5%
1-2 4%
2-3 4%
3-4 3%
4-5 2%
5-6 1%
6+ 0%
</TABLE>
(v) Class B Shares will automatically convert to Class A
Shares eight years after purchase, as set forth in the Prospectus
and SAI.
(c) Class C Shares:
(i) Class C Shares shall be sold at net asset value without
a front-end sales charge;
-3-
<PAGE>
(ii) Class C Shares shall be subject to a Service Fee
pursuant to the 12b-1 Plan not to exceed 0.25 of 1% of average
daily net assets of the Fund allocable to Class C Shares, which,
as set forth in the Prospectus, SAI and the 12b-1 Plan, may be
used to compensate certain authorized dealers for providing
ongoing account services to shareholders;
(iii) Class C Shares shall be subject to a Distribution Fee
pursuant to the 12b-1 Plan not to exceed 0.75 of 1% of average
daily net assets of the Fund allocable to Class C Shares, which,
as set forth in the Prospectus, SAI and the 12b-1 Plan, will be
used to reimburse John Nuveen & Co. Incorporated, the Trust's
distributor, for certain expenses and for providing compensation
to certain authorized dealers; and
(iv) Class C Shares redeemed within 12 months of purchase
shall be subject to a CDSC of 1% of the lower of (a) the net
asset value of Class C Shares at the time of purchase or (b) the
net asset value of Class C Shares at the time of redemption, as
set forth in the Prospectus and SAI.
(d) Class R Shares:
(i) Class R Shares shall be sold at net asset value without
a front-end sales charge;
(ii) Class R Shares shall not be subject to a Service Fee;
and
(iii) Class R Shares shall not be subject to a Distribution
Fee.
Section 3. Allocation of Income, Expenses, Gains and Losses.
(a) Investment Income, and Realized and Unrealized Gains and Losses. The
daily investment income, and realized and unrealized gains and losses, of a Fund
will be allocated to each class of shares based on each class' relative
percentage of the total value of shares outstanding of the Funds at the
beginning of the day, after such net assets are adjusted for the prior day's
capital share transactions.
(b) Fund Level Expenses. Expenses that are attributable to a Fund, but not
a particular class thereof ("Fund level expenses"), will be allocated to each
class of shares based on each class' relative percentage of the total value of
shares outstanding of the Fund at the beginning of the day, after such net
assets are adjusted for the prior day's capital share transactions. Fund level
expenses include fees for services that are received equally by the
-4-
<PAGE>
classes under the same fee arrangement. All expenses attributable to a Fund that
are not "class level expenses" (as defined below) shall be Fund level expenses,
including but not limited to transfer agency fees and expenses, share
registration expenses, and shareholder reporting expenses.
(c) Class Level Expenses. Expenses that are directly attributable to a
particular class of shares, including the expenses relating to the distribution
of a class' shares, or to services provided to the shareholders of a class, as
set forth in Section 2 of this Plan, will be incurred by that class of shares.
Class level expenses include expenses for services that are unique to a class of
shares in either form or amount. "Class level expenses" shall include, but not
be limited to, 12b-1 Service Fees, 12b-1 Distribution Fees, expenses associated
with the addition of share classes to a Trust (to the extent that the expenses
were not fully accrued prior to the issuance of the new classes of shares),
expenses of administrative personnel and services required to support the
shareholders of a specific class, litigation or other legal expenses relating to
a specific class of shares, directors' fees or expenses incurred as a result of
issues relating to a specific class of shares, and accounting expenses relating
to a specific class of shares.
(d) Fee Waivers and Expense Reimbursements. On a daily basis, if the Fund
level expenses and the class level expenses (not including 12b-1 plan payments)
exceed the daily expense cap for the Fund, an appropriate waiver/reimbursement
will be made to the Fund. The amount of such reimbursement to each class will be
in an amount such that the expenses of the class with the highest expense ratio
(excluding Service Fees and Distribution Fees) will be equal to the daily
expense cap after reimbursement. The expense reimbursement will be allocated to
each class of shares based on each class' relative percentage of the total value
of shares outstanding of the Fund at the beginning of the day, after such net
assets are adjusted for the prior day's capital share transactions.
Section 4. Exchange Privilege. Shares of a class of a Fund may be
exchanged only for shares of the same class of another Fund, except as otherwise
set forth in the Prospectus and SAI.
Section 5. Term and Termination.
(a) The Funds. This Plan shall become effective with respect to each Fund
on the date hereof, and shall continue in effect with respect to such Class A,
Class B, Class C and Class R Shares of each such Fund until terminated in
accordance with the provisions of Section 5(c) hereof.
-5-
<PAGE>
(b) Additional Funds or Classes. This Plan shall become effective with
respect to any class of shares of a Fund other than Class A, Class B, Class C or
Class R and with respect to each additional Fund or class thereof established by
a Trust after the date hereof and made subject to this Plan upon commencement of
the initial public offering thereof (provided that the Plan has previously been
approved with respect to such additional Fund or class by votes of a majority of
both (i) the members of the Board of a Trust, as a whole, and (ii) the Non-
Interested Members, cast at a meeting held before the initial public offering of
such additional Fund or classes thereof), and shall continue in effect with
respect to each such additional Fund or class until terminated in accordance
with provisions of Section 5(c) hereof. An addendum setting forth such specific
and different terms of such additional series or classes shall be attached to or
made part of this Plan.
(c) Termination. This Plan may be terminated at any time with respect to
any Trust or any Fund or class thereof, as the case may be, by vote of a
majority of both the members of the Board of a Trust, as a whole, and the Non-
Interested Members. The Plan may remain in effect with respect to a particular
Trust or any Fund or class thereof even if it has been terminated in accordance
with this Section 5(c) with respect to any other Trust or Fund or class thereof.
Section 6. Subsequent Trusts. The parties hereto intend that any open-
end investment company established subsequent to the date set forth below for
which Nuveen Institutional Advisory Corp. acts as investment adviser (each a
"Future Trust"), will be covered by the terms and conditions of this Plan,
provided that the Board of such Future Trust as a whole, and the Non-Interested
Members of such Future Trust , after having been furnished and having evaluated
information reasonably necessary to evaluate the Plan, have determined in the
exercise of their reasonable business judgment that the Plan is in the best
interests of each class of each Fund of such Future Trust individually, and each
Fund of such Future Trust and such Future Trust as a whole.
Section 7. Amendments.
(a) General. Except as set forth below, any material amendment to this Plan
affecting a Trust or Fund or class thereof shall require the affirmative vote of
a majority of both the members of the Board of that Trust, as a whole, and the
Non-Interested Members that the amendment is in the best interests of each class
of each Trust individually and each Fund as a whole.
(b) Future Trusts. Any amendment to the Plan solely for the purpose of
adding a Future Trust as a party hereto in accordance with Section 6, will not
require any action by the Board of the Trust.
-6-
<PAGE>
<TABLE>
<CAPTION>
Exhibit A
Effective Date of 18f-3 Plan
<S> <C>
Nuveen Investment Trust:
Nuveen Growth and Income Stock Fund July 17, 1996
Nuveen Balanced Stock and Bond Fund July 17, 1996
Nuveen Balanced Municipal and Stock Fund July 17, 1996
Nuveen European Value Fund May 16, 1998
Nuveen Investment Trust II:
Nuveen Rittenhouse Growth Fund July 24, 1997
Nuveen Investment Trust III:
Nuveen Income Fund August 26, 1998
Nuveen Investment Trust IV:
Nuveen Dividend and Growth Fund August 26, 1998
</TABLE>
-7-
<PAGE>
NUVEEN INVESTMENT TRUST III
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced organization, hereby constitutes and appoints ANTHONY T. DEAN,
ALAN G. BERKSHIRE, LARRY W. MARTIN and GIFFORD R. ZIMMERMAN, and each of them
(with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him on his behalf and in his name, place and
stead, in any and all capacities, to sign and file one or more Registration
Statements on Form N-1A under the Securities Act of 1933 and the Investment
Company Act of 1940, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the registration thereof, or
the issuance of shares thereof, without limitation, granting unto said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as he might
or could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, this undersigned trustee of the above-referenced
organization has hereunto set his hand this 26th day of August, 1998.
/s/ Timothy R. Schwertfeger
-------------------------------
Timothy R. Schwertfeger
STATE OF ILLINOIS )
-------------- ) SS
COUNTY OF COOK )
-------------
On this 26th day of August, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
- ----------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/27/01
- ----------------------------------
/s/ Virginia L. Corcoran
------------------------------
Notary Public
My Commission Expires: 10/27/01
