<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OR ABOUT OCTOBER 2,
1998
- --------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
Registration No. 333-
Pre-Effective Amendment No. [_]
---
Post-Effective Amendment No. [_]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Registration No. 811-
Amendment No. [_]
----------------
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.
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until registrant shall file a fur-
ther amendment which specifically states that this registration statement shall
thereafter become effective in accordance with section 8(a) of the Securities
Act of 1933, or until the registration statement shall become effective on such
date as the Commission, acting pursuant to said section 8(a), may determine.
<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 INVESTMENT TRUST
----------------
CROSS REFERENCE SHEET
PART A--PROSPECTUS FOR NUVEEN INCOME FUND
<TABLE>
<CAPTION>
ITEM IN PART A
OF FORM N-1A PROSPECTUS LOCATION
-------------- -------------------
<C> <S> <C>
1 Front and Back Cover Pages Front and Back Cover Pages
2 Risk/Return Summary: The Fund: Nuveen Income Fund
Investments, Risks, and
Performance
3 Risk/Return Summary: Fee The Fund: Nuveen Income Fund
Table
4 Investment Objectives, The Fund: Nuveen Income Fund; What
Principal Investment Securities We Invest In; How We Select
Strategies, and Related Risks Investments; What the Risks Are, How We
Manage Risk
5 Management's Discussion of Not Applicable
Fund Performance
6 Management, Organization and Who Manages the Fund; Management Fees; How
Capital Structure to Sell Shares
7 Shareholder Information How to Choose a Share Class; How to Reduce
Your Sales Charge; How to Buy Shares; How
to Sell Shares; Distributions and Taxes;
Net Asset Value
8 Distribution Arrangements How to Choose a Share Class; How to Reduce
Your Sales Charge; How to Buy Shares; How
to Sell Shares; Distribution and Service
Plans;
9 Financial Highlights Not Applicable
</TABLE>
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM IN PART B LOCATION IN STATEMENT
OF FORM N-1A OF ADDITIONAL INFORMATION
-------------- -------------------------
<C> <S> <C>
10 Cover Page and Table of Cover Page
Contents
11 Fund History General Information; General Trust
Information
12 Description of the Fund and Investment Policies and Restrictions;
Its Investment Risks Investment Policies and Techniques; See
"What the Risks Are" in the Prospectus
13 Management of the Fund Management
14 Control Persons and Management
Principal Holders of
Securities
15 Investment Advisory and Fund Manager and Portfolio Manager;
Other Services Distribution and Service Plans; Independent
Public Accountants and Custodian
16 Brokerage Allocation and Portfolio Transactions
Other Practices
17 Capital Stock and Other Tax Matters; Additional Information on the
Securities Purchase and Redemption of Fund Shares and
Shareholder Programs; See "Organization of
the Fund," Cover Page, "How to Choose a
Share Class" and "How to Sell Shares" in
the Prospectus
18 Purchase, Redemption and Additional Information on the Purchase and
Pricing of Securities Redemption of Fund Shares and Shareholder
Programs; Distribution and Service Plans;
Net Asset Value
19 Taxation of the Fund Tax Matters
20 Underwriters Additional Information on the Purchase and
Redemption of Fund Shares and Shareholder
Programs; See "Who Manages the Fund" in the
Prospectus
21 Calculation of Performance Performance Information
Data
22 Financial Statements Financial Statements
</TABLE>
<PAGE>
NUVEEN
Mutual Funds
November __, 1998
Prospectus
For investors seeking attractive current income and capital preservation.
Income Fund
[PHOTO APPEARS HERE]
NOT FDIC- May lose value
INSURED 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>
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
Investment Strategy
Risks
Fees, Charges and Expenses
Shareholder Instructions
Performance and Current Portfolio Information
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Section 1 The Fund
This section provides you with an overview of the fund including investment
objectives and portfolio holdings.
Introduction 1
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Nuveen Income Fund 2
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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
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Management Fees 5
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What Securities We Invest In 5
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How We Select Investments 6
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What the Risks Are 7
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How We Manage Risk 8
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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
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How to Reduce Your Sales Charge 11
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How to Buy Shares 11
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Systematic Investing 12
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Systematic Withdrawal 13
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Special Services 13
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How to Sell Shares 14
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Section 4 General Information
This section summarizes the fund's distribution policies and other general fund
information.
Distributions and Taxes 16
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Distribution and Service Plan 17
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Net Asset Value 18
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Fund Service Providers 18
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</TABLE>
<PAGE>
November , 1998
Section 1 The Fund
Nuveen Income Fund
Prospectus
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 in
intermediate-term, primarily investment grade, bonds with attractive current
yields and future appreciation potential.
A 100-Year Tradition of Quality Investments
Since our founding in 1898, John Nuveen & Co. Incorporated 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.
To learn more about how Nuveen Mutual Funds can help you achieve your financial
goals, talk with your financial adviser or call us at (800) 257-8787 for more
information.
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 bond
prices to fall. Credit risk is the risk that a bond issuer will default or be
unable to pay principal and interest; lower rated bonds generally carry greater
credit risk. The fund's investments in dollar-denominated foreign bonds present
additional risks. As with any 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 suitable 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 .83% .83% .83% .83%
========================================================================
Total Annual Operating
Expenses--Gross+ 1.68% 2.43% 2.43% 1.43%
........................................................................
+After Expense Reimbursements
........................................................................
Reimbursements .63% .63% .63% .63%
========================================================================
Total Annual 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 $638 $ 638 $246 $146 $638 $246 $246 $146
................................................................
3 Years $979 $1,069 $758 $452 $979 $758 $758 $452
................................................................
</TABLE>
How the Fund Is Invested (as of 98)
Portfolio Statistics
<TABLE>
<CAPTION>
<S> <C>
Weighted Average Maturity years
....................................................
Weighted Average Duration years
....................................................
Weighted Average Credit Quality
....................................................
Number of Issues
....................................................
</TABLE>
Credit Quality
<TABLE>
<CAPTION>
<S> <C>
AAA
....................................................
AA
....................................................
A
....................................................
BBB
....................................................
NR/Other
....................................................
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
[Category ( %)]
[Category ( %)]
[Other ( %)]
[Category ( %)]
[Category ( %)]
[Category ( %)]
</TABLE>
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 Annual 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), which is the
sponsor and principal underwriter of the fund's shares and has
sponsored or underwritten more than $60 billion of investment company
securities. Nuveen and its affiliates have more than $35 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:
====================================================================
Average Daily Net Asset Value Management Fee
====================================================================
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%
....................................................................
================================================================================
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 Investors Service, 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 Investor Service, 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).
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
Section 2 How We Manage Your Money 5
<PAGE>
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, and 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.
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 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 may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this
prospectus or the Statement of Additional Information.
================================================================================
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. 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
6 Section 2 How We Manage Your Money
<PAGE>
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.
================================================================================
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: 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 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 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: 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. Prices
of foreign bonds may also be more volatile and they may be less liquid
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).
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 maturity of the fund's
investment portfolio may fall below the defined range described under
"What Securities We Invest In -- Portfolio Maturity."
The fund 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, 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.
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 Sales Charge as Commission as
% of Public % of Net % of Public
Amount of Purchase Offering Price Amount Invested 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 shares within 18 months of purchase, you may have to pay a CDSC of .75% of
either your purchase price or your redemption proceeds, whichever is lower. You
do not have to pay this CDSC if your financial adviser has made arrangements
with Nuveen and agrees to waive the commission.
Class B Shares
You can buy Class B shares at 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.
<TABLE>
<CAPTION>
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6
<S> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1%
.................................................................
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C> <C>
Class A Sales Charge Class A Sales Charge Class R Eligibility
Reductions Waivers
. Certain employees and
. Rights of accumulation . Nuveen Defined Portfolio directors of Nuveen or
reinvestment employees of authorized
. Letter of intent dealers
. Purchases using
. Group purchase redemptions from . Bank trust departments
unrelated funds
. Retirement plans
. Certain employees and
directors of Nuveen or
employees of authorized
dealers
. Bank trust departments
</TABLE>
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.
[GRAPH APPEARS HERE]
[Plot points to come.]
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 systematic investment.
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 has 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 a 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 (which may be taxable at different rates depending on the length
of time the fund holds its assets). Dividends from a fund's long-term capital
gains are taxable as capital gains, while dividends from short-term capital
gains and net investment income are generally taxable as ordinary income. 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. Further, the tax status of your
dividends is not affected by whether you reinvest your dividends or receive them
in cash. Taxable dividends do not qualify for a dividends received deduction if
you are a corporate shareholder.
Early in each year, you will receive a statement detailing the amount and nature
of all dividends and capital gains. 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 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>
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 Louisiana North Carolina
California/1/ Maryland Ohio
Colorado Massachusetts/1/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky/2/ New York/1/
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 Investment
Company File Number for this fund is 811- ________.
1. Long-term and insured long-term portfolios.
2. Long-term and limited-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
<PAGE>
Statement of Additional Information
, 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 John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago,
Illinois 60606 or by calling 800-257-8787. This Statement of Additional Infor-
mation relates to, and should be read in conjunction with the Prospectus for
the Nuveen Income Fund. The Prospectus for the fund is dated , 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 Plans B-54
- ------------------------------------------------------------------------------
Independent Public Accountants and Custodian B-55
- ------------------------------------------------------------------------------
Financial Statements B-56
- ------------------------------------------------------------------------------
General Trust Information B-56
- ------------------------------------------------------------------------------
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 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, (i) more than 5% of the
Fund's total assets would be invested in securities of that issuer, or (ii) the
Fund would hold more than 10% of the outstanding voting securities of that is-
suer.
(2) Borrow money, except that the Fund may (i) borrow money from banks for tem-
porary or emergency purposes (but not for leverage or the purchase of invest-
ments) and (ii) engage in other transactions permissible under the Investment
Company Act of 1940 that may involve a borrowing (such as, obtaining 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 30% of the
Fund's net assets would be represented by futures contracts or more than 5% of
the Fund's net assets would be committed to initial margin deposits and premi-
ums on futures contracts and related options.
(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 intermediate-term, investment grade quality, fixed-income securi-
ties. 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 Service, 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 fixed-income securities that are
rated B or BB (below investment grade) or in unrated securities, judged by NIAC
to be of comparable quality. The Fund may also invest up to 20% of its net as-
sets in dollar-denominated fixed-income securities of foreign issuers [whose
headquarters are located in a country that is a member of the Organization for
Economic Cooperation and Development]. Lastly, the Fund may invest in temporary
investments as described below. See Appendix A for more information about rat-
ings 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.
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 convert-
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ible 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 corpora-
tions; 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; repur-
chase agreements and reverse repurchase agreements; debt securities issued by
states or local governments and their agencies, authorities and other instru-
mentalities; obligations of foreign governments or their subdivisions, agencies
and instrumentalities; obligations of international agencies or supranational
entities; and similar instruments. Fixed income securities may have fixed,
variable, or floating rates of interest [including rates of interest that vary
inversely at a multiple of a designated or floating rate, or that vary accord-
ing to changes in relative values of currencies.] The Fund may invest all of
its assets in derivative instruments or in mortgage- or asset-backed securi-
ties. 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 securities 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
B-6
<PAGE>
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
B-8
<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.] To the extent that the Fund invests in IOs and
POs, the Fund does not intend to invest more than % of their assets in such
securities.
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 "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.
B-10
<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"), forward contracts, and options on futures con-
tracts 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 a Portfolio to
invest 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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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 30% of its net assets would be
committed to such instruments.
The foregoing limitations are not fundamental policies of the Fund and may be
changed without shareholder approval as regulatory agencies permit. Various ex-
changes and regulatory authorities have undertaken reviews of options and
futures trading in light of market volatility. Among the possible actions that
have been presented are proposals to adopt new or more stringent daily price
fluctuation limits for futures and options transactions and proposals to in-
crease the margin requirements for various types of futures transactions.
Asset Coverage for Futures and Options Positions
The Fund will comply with the regulatory requirements of the SEC and the CFTC
with respect to coverage of options and futures positions by registered invest-
ment companies and, if the guidelines so 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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<PAGE>
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,
such positions must be marked-to-market as of the last business day of the
year, and gain or loss must be recognized for federal income tax purposes in
accordance with the 60%/40% rule discussed above even though the position has
not been terminated. A "nonequity option" includes an option with respect to
any group of stocks or a stock index if there is in effect a designation by
the CFTC of a contract market for a contract based on such group of stocks or
indexes. For example, options involving stock indexes such as the S&P 500 In-
dex 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.
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.
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<PAGE>
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 liquidations could increase the price volatil-
ity of the instruments and distort the normal price relationship between the
futures or options and the investments 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 tem-
porary price distortions. In addition, activities of large traders in both the
futures and securities markets involving arbitrage, "program trading," and
other investment strategies might result in temporary price distortions.
B-19
<PAGE>
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.
(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 clear-
ing agency, which is the issuer or counterparty to each exchange-traded instru-
ment, provides a guarantee of performance. For privately-negotiated instru-
ments, there is no similar clearing agency guarantee. In all transactions, the
Fund will bear the risk that the counterparty will default, and this could
B-20
<PAGE>
result in a loss of the expected benefit of the derivate transactions and pos-
sibly other losses to the Fund. The Fund will enter into transactions in de-
rivative instruments only within counterparties that their respective portfo-
lio manager reasonably believes are capable of performing under the contract.
(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 exchange for downside
protection, the party taking the risk is looking for a positive payoff. De-
spite this voluntary assumption of risk, a counterparty that has lost money in
a derivative transaction may try to avoid payment by exploiting 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
B-21
<PAGE>
market will spill over into other markets, perhaps creating a chain reaction.
Much of the OTC derivatives market takes place among the OTC dealers them-
selves, 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 instruments.
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.
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.
B-22
<PAGE>
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, includ-
ing currency risks. The value of a foreign security in U.S. dollars tends to
decrease when the value of the U.S. dollar rises against the foreign currency
in which the security is denominated and tends to increase when the value of
the U.S. dollar falls against such currency.
Foreign securities are affected by the fact that in many countries there is
less publicly available information about issuers than is available in the re-
ports and ratings published about companies in the U.S. and companies may not
be subject to uniform accounting, auditing and financial reporting standards.
Other risks inherent in foreign investments include expropriation; confiscatory
taxation; withholding taxes on dividends and interest; less extensive regula-
tion of foreign brokers, securities markets and issuers; diplomatic develop-
ments; and political or social instability. Foreign economies may differ favor-
ably or unfavorably from the U.S. economy in various respects, and many foreign
securities are less liquid and their prices tend to be more volatile than com-
parable U.S. securities. From time to time, foreign securities may be difficult
to liquidate rapidly without adverse price effects.
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
B-23
<PAGE>
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 com-
pensation 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 currently set at
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 "disinter-
ested 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
333 West Wacker Drive 1996) and Director,
Chicago, IL 60606 formerly Executive Vice
President, of The John
Nuveen Company and of
John Nuveen & Co.
Incorporated; Director
and President (since July
1996), formerly Executive
Vice President (from May
1994 to July 1996) of
Nuveen Institutional
Advisory Corp. and Nuveen
Advisory Corp.
- -------------------------------------------------------------------------------
Timothy R. Schwertfeger* 49 President and Trustee Chairman (since July
333 West Wacker Drive 1996) and Director,
Chicago, IL 60606 formerly Executive Vice
President, of The John
Nuveen Company and of
John Nuveen & Co.
Incorporated; Director
and Chairman (since July
1996), formerly Executive
Vice President (from May
1994 to July 1996) of
Nuveen Institutional
Advisory Corp and Nuveen
Advisory Corp.
- -------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------
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.
</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.
Mr. Dean and Mr. Schwertfeger are also directors or trustees, as the case may
be, of 93 Nuveen open-end funds and closed-end funds advised by Nuveen Advisory
Corp.
The other trustees of the Trust are also trustees of eight open-end and closed-
end funds advised by NIAC.
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 , and the total compensation that the Nuveen Funds
paid to such trustees during the one year period,
. 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................................ $ 9,983.00 $ 28,000.00
William L. Kissick............................ $ 9,500.00 $ 28,000.00
Thomas E. Leafstrand.......................... $10,806.00 $ 29,800.00
Sheila W. Wellington.......................... $ 9,500.00 $ 28,000.00
---------- -----------
Total....................................... 39,789.00 113,800.00
========== ===========
</TABLE>
- --------
*Based on the estimated compensation to be paid to the independent trustees
for the one year period, for services to
the Trust.
**Based on the compensation paid to the independent trustees for the one year
period for services to the Trust and the
eight 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 , NIAC owned all the shares of each class of the Fund with
shares outstanding (Class A, Class B, Class C and Class R).
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 invest-
ment portfolio. For additional information regarding the management services
performed by NIAC, see "Who Manages the Funds" in the Prospectus.
NIAC is a wholly-owned subsidiary of Nuveen, which is also the principal under-
writer of the Fund's shares. Nuveen is sponsor of the Nuveen Tax-Free Defined
Portfolio and Nuveen Defined Portfolio, 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
1,000,000 individuals have invested to date in Nuveen's funds and trusts.
Founded in 1898, Nuveen is a subsidiary of The John Nuveen Company which, in
turn, is approximately 78% owned by The St. Paul Companies, Inc. ("St. Paul").
St. Paul is located in St. Paul, Minnesota, and is principally engaged in pro-
viding property-liability insurance through subsidiaries.
For the fund management services and facilities furnished by NIAC, the Fund has
agreed to pay an annual management fee at rates set forth in the Prospectus un-
der "Management Fees." In addition, NIAC agreed to waive all or a portion 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 (excluding distribu-
tion or service fees, and extraordinary expenses) from exceeding .80% of the
average daily net asset value of any class of shares of the Fund.
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 secu-
rity price available with respect to each transaction, and with respect to bro-
kered transactions, in light of the overall quality of brokerage and research
services provided to the 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 securities
purchased from an underwriter or dealer may include underwriting commissions
and dealer spreads. The Fund may pay mark-ups on principal transactions. In se-
lecting broker-dealers and in negotiating commissions, the portfolio manager
considers, among other things, the firm's reliability, the quality of its exe-
cution 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 per-
formance 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 under current law to 65% of the
amount of undistributed net capital gains included in the shareholder's gross
income. The Fund intends to distribute at least annually to its shareholders
all or substantially all of its investment company taxable income and net capi-
tal 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 se-
curities, convert long-term capital gains into short-term capital gains and
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders.
Prior to purchasing shares in the Fund, the impact of dividends or distribu-
tions which are expected to be or have been declared, but not paid, should be
carefully considered. Any dividend or distribution declared shortly after a
purchase of such shares prior to the record date will have the effect of re-
ducing 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. It should be noted that certain legis-
lative proposals have been made which could affect the calculation of basis
for shareholders holding securities that are substantially identical to the
Fund's securities. Distributions of the Fund's net capital gain which are
properly designated as capital gain dividends by the Fund will be taxable to
the shareholders as long-term capital gain, regardless of the length of time
the shares have been held by a shareholder. 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 additional shares
of a Fund.
Although dividends generally will be treated as distributed when paid, divi-
dends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the follow-
ing January, will be treated as having been distributed by the Fund (and re-
ceived by the shareholders) on December 31 of the year such dividends are de-
clared.
The redemption or exchange of the shares of the Fund normally will result in
capital gain or loss to the shareholders. Generally, a shareholder's gain or
loss will be long-term gain or loss if the shares have been held for more than
one year. Present law taxes both long- and short-term capital gains of corpo-
rations at the rates applicable to ordinary income. The Internal Revenue Serv-
ice 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
marginal stated tax rate of 20% (10% in the case of certain taxpayers in the
lowest 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. The legislation is generally effective retroactively for
amounts properly taken into account on or after January 1, 1998. Capital gains
realized from assets held for one year or less are taxed at the same rates as
ordinary income. The date on which a share is acquired
B-32
<PAGE>
(i.e., the "trade date") is excluded for purposes of determining the holding
period of the share. It should be noted that legislative proposals are intro-
duced from time to time that affect tax rates and could affect relative dif-
ferences at which ordinary income and capital gains are taxed.
In addition, please note that capital gains may be recharacterized as ordinary
income in the case of certain financial transactions that are considered "con-
version transactions" effective for transactions entered into after April 30,
1993. Shareholders and prospective investors should consult with their tax ad-
visers regarding the potential effect of this provision on their investment in
shares of a Fund.
Under the Code, certain miscellaneous itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses, will be
deductible by individuals only to the extent they exceed 2% of adjusted gross
income. Miscellaneous itemized deductions subject to this limitation under
present law do not include expenses incurred by the Fund as long as the shares
of the Fund are held by or for 500 or more persons at all times during the
taxable year or another exception is met. In the event the shares of the Fund
are held by fewer than 500 persons, additional taxable income may be realized
by the individual (and other non-corporate) shareholders in excess of the dis-
tributions received from the Fund.
All or a portion of a sales load paid in purchasing shares of 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.
B-33
<PAGE>
Shareholders who are non-resident aliens are subject to U.S. withholding taxes
on ordinary income dividends at a rate of 30% or such lower rate as prescribed
by an applicable tax treaty.
A corporate shareholder may be entitled to a 70% dividends received deduction
with respect to any portion of such shareholder's ordinary income dividends
which are attributable to dividends received by the Fund on certain Securities
(other than corporate shareholders, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and
the personal holding corporation tax). The Fund will designate the portion of
any taxable dividend which is eligible for this deduction. However, a corpo-
rate shareholder should be aware that Sections 246 and 246A of the Code impose
additional limitations on the eligibility of dividends 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 de-
termined under, and during the period specified in, Section 246(c) of the
Code). Regulations have been issued which address special rules that must be
considered in determining whether the 46 day holding requirement is met. More-
over, the allowable percentage of the deduction will generally be reduced from
70% if a corporate shareholder owns Shares of the Fund the financing of which
is directly attributable to indebtedness incurred by such corporation. It
should be noted that various legislative proposals that would affect the divi-
dends received deduction have been introduced. To the extent dividends re-
ceived by a Fund are attributable to foreign corporations, a corporate share-
holder will not be entitled to the dividends received deduction with respect
to its share of such foreign dividends since the dividends received deduction
is generally available only with respect to dividends paid by domestic corpo-
rations. It should be noted that payments to the Fund of dividends on Equity
Securities that are attributable to foreign corporations may be subject to
foreign withholding taxes. Corporate shareholders should consult with their
tax advisers with respect to the limitations on, and possible modifications
to, the dividends received deduction.
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 tax treatment of distribu-
tions by the Fund to United States shareholders. For complete provisions, ref-
erence should be made to the pertinent Code sections and Treasury Regulations.
The Code and Treasury Regulations are subject to change by legislative or ad-
ministrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the 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 re-
B-34
<PAGE>
duced by a decrease in the Fund's monthly net income due to fluctuations in in-
vestment income or expenses. As a result, the income distributions paid by the
Fund for any particular 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, distri-
butions from previously undistributed net income are deducted from such Fund's
net asset value. It is not expected that this dividend policy will impact the
management of a Fund's portfolio.
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 5.25%.
In computing yield, the Fund follows certain standardized accounting practices
specified by SEC rules. These practices are not necessarily consistent with
those that the Fund uses to prepare its annual and interim financial 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 UITs, or the maximum public offering price). The distribution rate dif-
fers from yield and total return and therefore is not intended to be a complete
measure of performance. Distribution rate may sometimes differ from yield be-
cause the Fund may be paying out more than it is earning and because it may not
include the effect of amortization of bond premiums to the extent such premiums
arise after the bonds were purchased.
B-35
<PAGE>
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 re-
turns. 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.
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
B-36
<PAGE>
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 ex-
pressing 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 return may
also be shown as the increased dollar value of the hypothetical investment over
the period. Cumulative total return calculations that do not include the effect
of the sales charge would be reduced if such charge were included. Average an-
nual and cumulative total returns may also be presented in advertising and
sales literature without the inclusion of sales charges.
From time to time, the Fund may compare its risk-adjusted performance with
other investments that may provide different levels of risk and return. For ex-
ample, the Fund may compare its risk level, as measured by the variability of
its periodic returns, or its RISK-ADJUSTED TOTAL RETURN, with those of other
funds or groups of funds. Risk-adjusted total return would be calculated by ad-
justing each investment's total return to account for the risk level of the in-
vestment.
The risk level for a class of shares of the Fund, and any of the other invest-
ments used for comparison, would be evaluated by measuring the variability of
the investment's return, as indicated by the standard deviation of the invest-
ment's monthly returns over a specified measurement period (e.g., two years).
An investment with a higher standard deviation of monthly returns would indi-
cate that 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 publica-
B-37
<PAGE>
tions such as Barron's, Changing Times, Forbes and Money Magazine; and/or (3)
the S&P 500 Index, the Lehman Aggregate Bond Index, or other unmanaged indices
reported by Lehman Brothers. Performance comparisons by these indexes, services
or publications may rank mutual funds over different periods of time by means
of aggregate, average, year-by-year, or other types of total return and perfor-
mance figures. Any given performance quotation or performance comparison should
not be considered as representative of the performance of the Fund for any fu-
ture 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 CDA are widely
recognized mutual fund reporting services whose performance calculations are
based upon changes in net asset value with all dividends reinvested and which
do not include the effect of any sales charges.
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
B-38
<PAGE>
materials such as shareholder reports, prospectuses and proxy statements to
current shareholders of a specific class of shares, (iii) Securities and Ex-
change 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 expenses 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 additional incremental expenses subsequently
identified and determined to be properly allocated to one or more classes of
shares.
INITIAL AND SUBSEQUENT PURCHASES OF SHARES
You may buy Fund shares through Authorized Dealers or by calling or directing
your financial adviser to call Nuveen toll-free at 800-257-8787. 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 its address listed in the Prospectus. 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 instructions 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.
B-39
<PAGE>
SYSTEMATIC INVESTMENT PROGRAMS
The Fund offers you several opportunities to capture the benefits of "dollar
cost averaging" through systematic investment programs. In a regularly followed
dollar cost averaging program, you would purchase more shares when Fund share
prices are lower and fewer shares when Fund share prices are higher, so that
the average price paid for Fund shares is less than the average price of the
Fund shares over the same time period. Dollar cost averaging does not assure
profits or protect against losses in a steadily declining market. Since dollar
cost averaging involves continuous investment regardless of fluctuating price
levels, you should consider your financial ability to continue investing in de-
clining as well as rising markets before deciding to invest in this way. The
Fund offers two different types of systematic investment programs:
SYSTEMATIC INVESTMENT PLAN
Once you have established a Fund account, you may make regular investments in
an amount of $50 or more each month by authorizing 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 , 1998 of Class A shares from the Fund aggregating
less than $50,000 subject to the schedule of sales charges set forth in the
Prospectus at a price based upon the net asset value of the Class A shares.
B-40
<PAGE>
<TABLE>
<CAPTION>
INCOME FUND
-----------
<S> <C>
Net Asset Value per share.................................... $
Per Share Sales Charge--4.75% of public offering price (4.96%
of net asset value per share)............................... $
Per Share Offering Price to the Public....................... $
Shares Outstanding (as of , 1998).......................
</TABLE>
The Fund receives the entire net asset value of all Class A Shares that are
sold. Nuveen retains the full applicable sales charge from which it pays the
uniform reallowances shown in the Prospectus to Authorized Dealers.
Certain commercial banks may make Class A Shares of the Fund available to their
customers on an agency basis. Pursuant to the agreements between Nuveen and
these banks, some or all of the sales charge paid by a bank customer in connec-
tion with a purchase of Class A Shares may be retained by or paid to the bank.
Certain banks and other financial institutions may be required to register as
securities dealers in certain states.
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES AND CLASS R
SHARE PURCHASE AVAILABILITY
Rights of Accumulation
You may qualify for a reduced sales charge on a purchase of Class A Shares of
the Fund if the amount of your purchase, when added to the value that day of
all of your prior purchases of shares of the Fund 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 Prospectus. 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 re-
duced sales charge.
Letter of Intent
You may qualify for a reduced sales charge on a purchase of Class A Shares of
the Fund if you plan to purchase Class A Shares of Nuveen Mutual Funds over the
next 13 months and the total amount of your purchases would, if purchased at
one time, qualify you for one of the reduced sales charges shown in the Class A
sales charges and commissions table in "How to Choose a Share Class" in the
Prospectus. In order to take advantage of this option, you must complete the
applicable section of the Application Form or sign and deliver either to an Au-
thorized Dealer or to the Fund's transfer agent a written Letter of Intent in a
form acceptable to Nuveen. A Letter of Intent states that you intend, but are
not obligated, to purchase over the next 13 months a stated total amount of
Class A shares that would qualify you for a reduced sales charge shown above.
You may count shares of a Nuveen Mutual Fund that you already own on which you
paid an up-front sales charge or an ongoing distribution fee and any Class B
and Class C Shares of a Nuveen Mutual Fund that you purchase over the next 13
months towards completion of your investment program, but you will receive a
reduced sales charge only on new Class
B-41
<PAGE>
A Shares you purchase with a sales charge over the 13 months. You cannot count
towards completion of your investment program Class A Shares that you purchase
without a sales charge through investment of distributions from a Nuveen Mu-
tual Fund or a Nuveen Defined Portfolio, or otherwise.
By establishing a Letter of Intent, you agree that your first purchase of
Class A Shares of the Fund following execution of the Letter of Intent will be
at least 5% of the total amount of your intended purchases. You further agree
that shares representing 5% of the total amount of your intended purchases
will be held in escrow pending completion of these purchases. All dividends
and capital gains distributions on Class A Shares held in escrow will be 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.
B-42
<PAGE>
To establish a group purchase program, both the group itself and each partici-
pant must fill out application materials, which the group administrator may ob-
tain from the group's financial adviser, by calling Nuveen toll-free at 800-
257-8787.
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.
Waiver 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 Nuveen and Flagship Funds;
. 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.
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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.
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;
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. 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.
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%.
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<PAGE>
Class B Shares acquired through the reinvestment of dividends are not subject
to a CDSC. Any CDSC will be imposed on the lower of the redeemed shares' cost
or net asset value at the time of redemption.
Class B Shares will automatically convert to Class A Shares eight years after
purchase. The purpose of the conversion is to limit the distribution fees you
pay over the life of your investment. All conversions will be done at net asset
value without the imposition of any sales load, fee, or other charge, so that
the value of each shareholder's account immediately before conversion will be
the same as the value of the account immediately after conversion. Class B
Shares acquired through reinvestment of distributions will convert into Class A
Shares based on the date of the initial purchase to which such shares relate.
For this purpose, Class B Shares acquired through reinvestment of distributions
will be attributed to particular purchases of Class B Shares in accordance with
such procedures as the Board of Trustees may determine from time to time. Class
B Shares that are converted to Class A Shares will remain subject to an annual
service fee that is identical in amount for both Class B Shares and Class A
Shares. Since net asset value per share of the Class B Shares and the Class A
Shares may differ at the time of conversion, a shareholder may receive more or
fewer Class A Shares than the number of Class B Shares converted. Any conver-
sion of Class B Shares into Class A Shares will be subject to the continuing
availability of an opinion of counsel or a private letter ruling from the In-
ternal Revenue Service to the effect that the conversion of shares would not
constitute a taxable event under federal income tax law. Conversion of Class B
Shares into Class A Shares might be suspended if such an opinion or ruling were
no longer available.
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-
B-46
<PAGE>
sponsored qualified defined contribution plan described above and the Autho-
rized Dealer did not waive the sales commission, a CDSC of .75% is imposed on
any redemption within 18 months of purchase. In the case of Class B Shares re-
deemed within six years of purchase, a CDSC is imposed, beginning at 5% for
redemptions within the first year, declining to 4% for redemptions within
years two and three, and declining by 1% each year thereafter until disappear-
ing after the sixth year. Class C Shares are redeemed at net asset value,
without any CDSC, except that a CDSC of 1% is imposed upon redemption of Class
C Shares that are redeemed within 12 months of purchase.
In determining whether a CDSC is payable, the Fund will first redeem shares
not subject to any charge, or that represent an increase in the value of 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. You may
not exchange Class B Shares for shares of a Nuveen money market fund. The
holding period is calculated on a monthly basis and begins the first day of
the month in which the order for investment is received. The CDSC is calcu-
lated based on the lower of the redeemed shares' cost or net asset value at
the time of the redemption and is deducted from the redemption proceeds.
Nuveen receives the amount of any CDSC shareholders pay. If Class A or Class C
shares subject to a CDSC are exchanged for shares of a Nuveen money market
fund, the CDSC would be imposed on the subsequent redemption of those money
market fund shares, and the period during which the shareholder holds the
money market fund shares would be counted in determining the remaining dura-
tion of the CDSC. The Fund may elect not to so count the period during which
the shareholder held the money market fund shares, in which event the amount
of any applicable CDSC would be reduced in accordance with 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
Social Security Administration) of the shareholder (including a registered
joint owner) occurring after the purchase of the shares being redeemed; (ii)
in the event of the death of the shareholder (including a registered joint
owner); (iii) for redemptions made pursuant to a systematic withdrawal plan,
up to 12% annually of the original investment amount; (iv) involuntary redemp-
tions caused by operation of law; (v) redemptions in connection with a payment
of account or plan fees; (vi) redemptions in connection with the exercise of a
reinstatement privilege whereby the proceeds of a redemption of the Fund's
shares subject to a sales charge are reinvested in shares of certain funds
within a specified number of days; and (vii) redemptions in connection with
the exercise of the Fund's right to redeem all shares in an account that does
not maintain a certain minimum balance or that the applicable board has deter-
mined may have material adverse consequences to the shareholders of the Fund.
In addition, the CDSC will be waived in connection with the following redemp-
tions of shares held by an employer-sponsored qualified defined contribution
retirement plan: (i) partial or complete redemptions in connection with a dis-
tribution without penalty under Section 72(t) of the Internal Revenue Code
("Code") from a retirement plan: (a) upon attaining age 59 1/2, (b) as part of
a series of substantially equal periodic payments, or (c) upon separation from
service and attaining age 55; (ii) partial or com-
B-47
<PAGE>
plete redemptions in connection with a qualifying loan or hardship withdrawal;
(iii) complete redemptions in connection with termination of employment, plan
termination or transfer to another employer's plan or IRA; and (iv) redemptions
resulting from the return of an excess contribution. The CDSC will also be
waived in connection with the following redemptions of shares held in an IRA
account: (i) for redemptions made pursuant to an IRA systematic withdrawal
based on the shareholder's life expectancy including, but not limited to, sub-
stantially equal periodic 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.
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<PAGE>
The exchange privilege is not intended to permit the Fund to be used as a ve-
hicle for short-term trading. Excessive exchange activity may interfere with
portfolio management, raise expenses, and otherwise have an adverse effect on
all shareholders. In order to limit excessive exchange activity and in other
circumstances where Fund management believes doing so would be in the best 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 Direct
You can use Fund Direct to link your Fund account to your account at a bank or
other financial institution. Fund Direct enables you to transfer money elec-
tronically between these accounts and perform a variety of account transac-
tions. These include purchasing shares by telephone, investing through a Sys-
tematic Investment Plan, and sending dividends, distributions, redemption pay-
ments or Systematic Withdrawal Plan payments directly to your bank account.
Please refer to the Application Form for details, or call Nuveen 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
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<PAGE>
endorsed certificates, if issued. Requests for redemption and share certifi-
cates, if issued, must be signed by each shareholder and, if the redemption
proceeds exceed $50,000 or are payable other than to the shareholder of record
at the address of record (which address may not have changed in the preceding
60 days), the signature must be guaranteed by a member of an approved Medallion
Guarantee Program or in such other manner as may be acceptable to the Fund. You
will receive payment based on the net asset value per share next determined 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 at 800-257-8787. While you or anyone autho-
rized 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 redemption will be
effected at 4:00 p.m. eastern time the following business day and the check
will normally be mailed on the second business day after the request.
If you have authorized electronic fund redemption or established Fund Direct
privileges, you can take advantage of the following expedited redemption proce-
dures to redeem shares held in non-certificate form that are worth at least
$1,000. You may make electronic fund redemption requests through a 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 toll-free at 800-257-8787. Proceeds from
electronic share redemptions will be transferred by Federal Reserve wire only
to the commercial bank account specified by the shareholder on the Application
Form. You need to send a written request to Nuveen Investor Services in order
to establish multiple accounts, or to change the account or accounts designated
to receive redemption
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<PAGE>
proceeds. These requests must be signed by each account owner with signatures
guaranteed by a member of an approved Medallion Guarantee Program or in such
other manner as may be acceptable to a Fund. Further documentation may be re-
quired from corporations, executors, trustees or personal representatives.
For the convenience of shareholders, 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 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
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<PAGE>
holiday closings), (b) when trading in the markets the Fund normally utilizes
is restricted, or an emergency exists as determined by the Securities and Ex-
change 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 Commission by order may permit for protection
of Fund shareholders.
Involuntary Redemption
The Fund may, from time to time, establish a minimum total investment for Fund
shareholders, and the Fund reserves the right to redeem your shares if your 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.
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 prospectus, Nuveen may from time to time make
additional reallowances only to certain authorized dealers who sell or are ex-
pected to sell certain minimum amounts of shares of the Nuveen Mutual Funds and
Nuveen Defined Portfolios during specified time periods. Promotional support
may include providing sales literature to and holding informational or educa-
tional programs for the benefit of such Authorized Dealers' representatives,
seminars for the public, and advertising and sales campaigns. Nuveen may reim-
burse a participating Authorized Dealer for up to one-half of specified media
costs incurred in the placement of advertisements which jointly feature the Au-
thorized 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 most efficiently use the
Fund to reach their investment goals, the Fund may advertise and create spe-
cific investment programs and systems. For example, this may include informa-
tion on how to use the Fund to accumulate assets for future education needs or
periodic payments such as insurance premiums. The Fund may produce software,
electronic information sites, or additional sales literature to promote the ad-
vantages of using the Fund to meet these and other specific investor needs.
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 Prospectus.
If you choose to invest in the Fund, an account will be opened and maintained
for you by Nuveen Investor Services. 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 pur-
chase order and to waive or increase minimum investment requirements. A change
in registration or transfer of shares held in the name of your financial advis-
er'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 Nuveen Investor Services, the sub-accounting
system of Chase Global to minimize their internal recordkeeping requirements.
An Authorized Dealer or other investor requesting shareholder
B-53
<PAGE>
servicing or accounting other than the master account or sub-accounting serv-
ice offered by Chase Global will be required to enter into a separate agree-
ment 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 PLANS
The Fund has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the In-
vestment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will all be subject to an annual service
fee. Class R Shares will not be subject to either distribution or service
fees.
The distribution fee applicable to Class B Shares and Class C Shares under the
Fund's Plan will be payable to reimburse Nuveen for services and expenses in-
curred in connection with the distribution of 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 AND CUSTODIAN
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago, Illinois 60603 have been selected as auditors for the Trust. In addi-
tion to audit services, Arthur Andersen LLP will provide consultation and as-
sistance on accounting, internal control, tax and related matters. The finan-
cial statements 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.
B-55
<PAGE>
FINANCIAL STATEMENTS
To be filed by Pre-Effective Amendment.
GENERAL TRUST INFORMATION
The Fund is a series of the Trust. The Trust is an open-end diversified man-
agement investment company under the Investment Company Act of 1940. The Trust
was organized as a Massachusetts business trust on ,1988. 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 dif-
ferent 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 future,
to change those series or classes and to determine the preferences, voting
powers, rights and privileges thereof.
The Trust is not required and does not intend to hold annual meetings of
shareholders. Shareholders owning more than 10% of the outstanding shares of
the Fund have the right to call a special meeting to remove Trustees or for
any other purpose.
Under Massachusetts law applicable to Massachusetts business trusts, share-
holders 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 indemni-
fication out of the assets and property of the Trust for all losses and ex-
penses 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 liability is limited to circumstances in which both inadequate in-
surance existed and the Trust or Fund itself was unable to meet its obliga-
tions. The Trust believes the likelihood of the occurrence of these circum-
stances is remote.
B-56
<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 INVESTORS SERVICE, INC.--A brief description of the applicable Fitch In-
vestors Service, Inc. ("Fitch") ratings symbols and meanings (as published by
Fitch) follows:
LONG TERM DEBT
Fitch investment grade bond ratings provide a guide to investors in determining
the credit risk associated with a particular security. The ratings represent
Fitch's assessment of the issuer's ability to meet the obligations of a spe-
cific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its rela-
tionship to other obligations of the issuer, the current and prospective finan-
cial condition and operating performance of the issuer and any guarantor, as
well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by in-
surance policies or financial guaranties unless otherwise indicated.
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)(1). Subscription Agency Agreement between Registrant and The Chase
Manhattan Bank.(2)
(h)(2). 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). Code of Ethic and Reporting Requirements.(2)
</TABLE>
- --------
(1) Filed herewith.
(2) To be filed by amendment.
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, sub-
mit to a court of appropriate jurisdiction the question of whether such indem-
nification by it is against public policy as expressed in the Act and will be
governed 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
officers 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
Information. Such information for the remaining senior officers of NIAC ap-
pears 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 II, 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 invest-
ment trusts. Nuveen has also served or is serving as co-managing underwriter
to the following closed-end management type investment companies: Nuveen Mu-
nicipal Value Fund, Inc., Nuveen California Municipal Value Fund, Inc., Nuveen
New York Munic-
II-3
<PAGE>
ipal Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium In-
come Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc.,
Nuveen California Performance Plus Municipal Fund, Inc., Nuveen New York Per-
formance 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 OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE FUND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE 2ND DAY OF OCTOBER, 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 October 2, 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 ) October 2, 1998
(Principal Executive )
Officer) )
</TABLE>
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 OFFICERS AND TRUSTEES OF REGISTRANT ON WHOSE BEHALF
THIS REGISTRATION STATEMENT IS FILED, HAS BEEN EXECUTED AND IS BEING FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WITH THIS REGISTRATION STATEMENT.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT NUMBERED PAGE
------- ------- -------------
<C> <S> <C>
(a)(1). Declaration of Trust of Registrant.
(a)(2). Certificate for the Establishment and Designation of
Classes dated August 20, 1998.
(b). By-Laws of Registrant.
(c). Specimen certificate of Shares of the Fund.
(d). Management Agreement between Registrant and Nuveen
Institutional Advisory Corp.
(h)(2). Mutual Fund Service Agreement between Nuveen Funds
and Chase Global Funds Services Company.
(m). Plan of Distribution and Service Pursuant to Rule
12b-1.
(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.
</TABLE>
<PAGE>
DECLARATION OF TRUST
OF
NUVEEN INVESTMENT TRUST III
DECLARATION OF TRUST made as of this 20th day of August, 1998 by the
Trustees hereunder.
WHEREAS, the Trustees desire to establish a trust fund for the purposes of
carrying on the business of a management investment company; and
WHEREAS, in furtherance of such purpose, the Trustees and any successor
Trustees elected in accordance with Article V hereof are acquiring and may
hereafter acquire assets and properties which they will hold and manage as
trustees of a Massachusetts business trust with transferable shares in
accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees and any successor Trustees elected or
appointed in accordance with Article V hereof hereby declare that they will hold
all cash, securities and other assets and properties, which they may from time
to time acquire in any manner as Trustees hereunder, IN TRUST, and that they
will manage and dispose of the same upon the following terms and conditions for
the benefit of the holders from time to time of shares of beneficial interest in
this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as the "Nuveen Investment
Trust III" and the Trustees shall conduct the business of the Trust under that
name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts voluntary association
established by this Declaration of Trust, as amended from time to time;
(b) "Trustee" or "Trustees" refers to each signatory to this
Declaration of Trust so long as such signatory shall continue in office in
accordance with the terms hereof, and all other individuals who at the time
in question have been duly elected or appointed and qualified in accordance
with Article V hereof and are then in office;
(c) "Shares" mean the shares of beneficial interest described in
Article
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IV hereof and include fractions of Shares as well as whole Shares;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 (and
any successor statute) and the Rules and Regulations thereunder, all as
amended from time to time;
(f) The terms "Commission," "Interested Person," "Principal
Underwriter" and "vote of a majority of the outstanding voting securities"
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" or "Declaration" shall mean this
Declaration of Trust as amended or restated from time to time; and
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time.
ARTICLE II
NATURE AND PURPOSE OF TRUST
The Trust is a voluntary association with transferable shares (commonly
known as a business trust) of the type referred to in Chapter 182 of the General
Laws of the Commonwealth of Massachusetts. The Trust is not intended to be,
shall not be deemed to be, and shall not be treated as, a general or a limited
partnership, joint venture, corporation or joint stock company, nor shall the
Trustees or Shareholders or any of them for any purpose be deemed to be, or be
treated in any way whatsoever as though they were, liable or responsible
hereunder as partners or joint venturers. The purpose of the Trust is to engage
in, operate and carry on the business of an open-end management investment
company and to do any and all acts or things as are necessary, convenient,
appropriate, incidental or customary in connection therewith.
The Trust set forth in this instrument shall be deemed made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a business trust, and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust. No provision of this Declaration shall be
effective to require a waiver of compliance with any provision of the Securities
Act of 1933, as amended, or the 1940 Act, or of any valid rule, regulation or
order of the Commission thereunder.
ARTICLE III
REGISTERED AGENT; PRINCIPAL PLACE OF BUSINESS
The name of the registered agent of the Trust is CT Corporation System at 2
Oliver Street, Boston, Massachusetts. The principal place of business of the
Trust is 333 West Wacker Drive, Chicago, Illinois 60606. The Trustees may,
without the approval of
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Shareholders, change the registered agent of the Trust and the principal place
of business of the Trust.
ARTICLE IV
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in the
Trust shall be divided into such transferable Shares of beneficial interest, of
such series or classes, and of such designations and par values (if any) and
with such rights, preferences, privileges and restrictions as shall be
determined by the Trustees in their sole discretion, without Shareholder
approval, from time to time and shall initially consist of one class of
transferable shares, par value $.01 per share. The number of Shares is
unlimited and each Share shall be fully paid and nonassessable. The Trustees
shall have full power and authority, in their sole discretion and without
obtaining any prior authorization or vote of the Shareholders of the Trust or of
the Shareholders of any series or class of Shares, to create and establish (and
to change in any manner) Shares or any series or classes thereof with such
preferences, voting powers, rights and privileges as the Trustees may from time
to time determine; to divide or combine the Shares or the Shares of any series
or classes thereof into a greater or lesser number; to classify or reclassify
any issued Shares into one or more series or classes of Shares; to abolish any
one or more series or classes of Shares; and to take such other action with
respect to the Shares as the Trustees may deem desirable. Except as may be
specifically set forth in Section 2 of this Article IV or in an instrument
establishing and designating classes or series of Shares, the Shares shall have
the powers, preferences, rights, qualifications, limitations and restrictions
described below:
(i) In the event of the termination of the Trust the holders of the
Shares shall be entitled to receive pro rata the net distributable assets
of the Trust.
(ii) Each holder of Shares shall be entitled to one vote for each
Share held on each matter submitted to a vote of Shareholders, and the
holders of outstanding Shares shall vote together as a single class.
(iii) Dividends or other distributions to Shareholders, when, as and
if declared or made by the Trustees, shall be shared equally by the holders
of Shares on a share for share basis, such dividends or other distributions
or any portion thereof to be paid in cash or to be reinvested in full and
fractional Shares of the Trust as the Trustees shall direct.
(iv) Any Shares purchased, redeemed or otherwise reacquired by the
Trust shall be retired automatically and such retired Shares shall have the
status of authorized but unissued Shares.
(v) Shares may be issued from time to time, without the vote of the
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Shareholders (or, if the Trustees in their sole discretion deem advisable,
with a vote of Shareholders), either for cash or for such other
consideration (which may be in any one or more instances a certain
specified consideration or certain specified considerations) and on such
terms as the Trustees, from time to time, may deem advisable, and the Trust
may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities).
(vi) The Trust may issue Shares in fractional denominations to the
same extent as its whole Shares, and Shares in fractional denominations
shall be Shares having proportionately to the respective fractions
represented thereby all the rights of whole Shares, including, without
limitation, the right to vote, the right to receive dividends and
distributions and the right to participate upon termination of the Trust.
The Trustees may from time to time, without the vote of Shareholders,
divide or combine Shares into a greater or lesser number without thereby
changing their proportionate beneficial interest in the Trust.
Section 2. Establishment of Series and Classes of Shares.
(a) Series. The Trustees, in their sole discretion, without obtaining any
prior authorization or vote of the Shareholders of the Trust or of the
Shareholders of any series or class of Shares, from time to time may authorize
the division of Shares into two or more series, the number and relative rights,
privileges and preferences of which shall be established and designated by the
Trustees, in their discretion, upon and subject to the following provisions:
(i) All Shares shall be identical except that there may be such
variations as shall be fixed and determined by the Trustees between different
series as to purchase price, right of redemption, and the price, terms and
manner or redemption, and special and relative rights as to dividends and on
liquidation.
(ii) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any series into one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any series reacquired by the Trust at their
discretion from time to time.
(iii) The power of the Trustees to invest and reinvest the assets of
the Trust allocated or belonging to any particular series shall be governed by
Section 1, Article VI hereof unless otherwise provided in the instrument of the
Trustees establishing such series which is hereinafter described.
(iv) Each Share of a series shall represent a beneficial interest in
the net assets allocated or belonging to such series only, and such interest
shall not extend to the assets of the Trust generally. Dividends and
distributions on Shares of a particular series may be paid with such frequency
as the Trustees may determine, which may be monthly or otherwise, pursuant to a
standing vote or votes adopted only once or with such frequency as the Trustees
may determine, to the Shareholders of that series only, from such of the income
and capital gains, accrued or realized, from the assets belonging to
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that series. All dividends and distributions on Shares of a particular series
shall be distributed pro rata to the Shareholders of that series in proportion
to the number of Shares of that series held by such Shareholders at the date and
time of record established for the payment of such dividends or distributions.
Shares of any particular series of the Trust may be redeemed solely out of the
assets of the Trust allocated or belonging to that series. Upon liquidation or
termination of a series of the Trust, Shareholders of such series shall be
entitled to receive a pro rata share of the net assets of such series only.
(v) Notwithstanding any provision hereof to the contrary, on any
matter submitted to a vote of the Shareholders of the Trust, all Shares then
entitled to vote shall be voted by individual series, except that (i) when
required by the 1940 Act to be voted in the aggregate, Shares shall not be voted
by individual series, (ii) when the Trustees have determined that the matter
affects only the interests of Shareholders of one or more series, only
Shareholders of such series shall be entitled to vote thereon, and (iii) all
series shall vote together on the election of Trustees.
(vi) The establishment and designation of any series of Shares shall
be effective upon the execution by a majority of the Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series or as otherwise provided in such instrument.
(b) Classes. Notwithstanding anything in this Declaration to the
contrary, the Trustees may, in their discretion, without obtaining any prior
authorization or vote of the Shareholders of the Trust or of the Shareholders of
any series or class of Shares, from time to time authorize the division of
Shares of the Trust or any series thereof into Shares of one or more classes
upon the execution by a majority of the Trustees of an instrument setting forth
such establishment and designation and the relative rights and preferences of
such class or classes. All Shares of a class shall be identical with each other
and with the Shares of each other class of the same series except for such
variations between classes as may be approved by the Board of Trustees and set
forth in such instrument of establishment and designation and be permitted under
the 1940 Act or pursuant to any exemptive order issued by the Commission.
Section 3. Ownership of Shares. The ownership and transfer of Shares
shall be recorded on the books of the Trust or its transfer or similar agent.
No certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates,
transfer of Shares and similar matters. The record books of the Trust, as kept
by the Trust or any transfer or similar agent of the Trust, shall be conclusive
as to who are the holders of Shares and as to the number of Shares held from
time to time by each Shareholder.
Section 4. No Preemptive Rights, Etc. The holders of Shares shall not, as
such holders, have any right to acquire, purchase or subscribe for any Shares or
securities of the Trust which it may hereafter issue or sell, other than such
right, if any, as the Trustees in their discretion may determine. The holders
of Shares shall have no appraisal rights
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with respect to their Shares and, except as otherwise determined by resolution
of the Trustees in their sole discretion, shall have no exchange or conversion
rights with respect to their Shares.
Section 5. Assets and Liabilities of Series. In the event that the Trust,
pursuant to Section 2(a) of this Article IV, shall authorize the division of
Shares into two or more series, the following provisions shall apply:
(a) All consideration received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of the Trust. Such
consideration, assets, income, earnings, profits and proceeds, including any
proceeds derived from the sale, exchange or liquidation of such assets and any
funds or payments derived from any reinvestment of such proceeds, in whatever
form the same may be, together with any General Items (as hereinafter defined)
allocated to that series as provided in the following sentence, are herein
referred to as "Assets belonging to" that series. In the event that there are
any assets, income, earnings, profits or proceeds thereof, funds or payments
which are not readily identifiable as belonging to any particular series
(collectively "General Items"), the Trustees shall allocate such General Items
to and among any one or more of the series created from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable; and any General Items allocated to a particular series shall belong
to that series. Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all series for all purposes.
(b) The assets belonging to a particular series shall be charged with the
liabilities of the Trust in respect of that series and with all expenses, costs,
charges and reserves attributable to that series and shall be so recorded upon
the books of the Trust. Liabilities, expenses, costs, charges and reserves
charged to a particular series, together with any General Items (as hereinafter
defined) allocated to that series as provided in the following sentence, are
herein referred to as "liabilities belonging to" that series. In the event
there are any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular series
(collectively "General Items"), the Trustees shall allocate and charge such
General Items to and among any one or more of the series created from time to
time in such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable; and any General Items so allocated and charges to a
particular series shall belong to that series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all series for
all purposes.
Section 6. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms of this Declaration of
Trust and to have become a party thereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees,
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but only to the rights of said decedent under this Trust. Ownership of Shares
shall not entitle the Shareholder to any title in or to the whole or any part of
the Trust property or right to call for a partition or division of the same or
for an accounting. Neither the Trustees, nor any officer, employee or agent of
the Trust shall have any power to bind any Shareholder personally or to call
upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay by way of subscription for any Shares or otherwise.
ARTICLE V
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of the Trust
shall be managed by the Trustees, and they shall have all powers necessary and
desirable to carry out that responsibility.
Section 2. Qualification and Number. Each Trustee shall be a natural
person. A Trustee need not be a Shareholder, a citizen of the United States, or
a resident of the Commonwealth of Massachusetts. By the vote or consent of a
majority of the Trustees then in office, the Trustees may fix the number of
Trustees at a number not less than two (2) nor more than twelve (12) and may
fill the vacancies created by any such increase in the number of Trustees.
Except as determined from time to time by resolution of the Trustees, no
decrease in the number of Trustees shall have the effect of removing any Trustee
from office prior to the expiration of his term, but the number of Trustees may
be decreased in conjunction with the removal of a Trustee pursuant to Section 4
of Article V.
Section 3. Term and Election. Each Trustee shall hold office until the
next meeting of Shareholders called for the purpose of considering the election
or re-election of such Trustee or of a successor to such Trustee, and until his
successor is elected and qualified, and any Trustee who is appointed by the
Trustees in the interim to fill a vacancy as provided hereunder shall have the
same remaining term as that of his predecessor, if any, or such term as the
Trustees may determine. Any vacancy resulting from a newly created Trusteeship
or the death, resignation, retirement, removal, or incapacity of a Trustee may
be filled by the affirmative vote or consent of a majority of the Trustees then
in office.
Section 4. Resignation and Removal. Any Trustee may resign his trust or
retire as a Trustee (without need for prior or subsequent accounting except in
the event of removal) by an instrument in writing signed by him and delivered or
mailed to the Chairman, if any, the President or the Secretary, and such
resignation or retirement shall be effective upon such delivery, or at a later
date according to the terms of the instrument. Any Trustee who has become
incapacitated by illness or injury as determined by a majority of the other
Trustees, may be retired by written instrument signed by a majority of the other
Trustees. Except as aforesaid, any Trustee may be removed from office only
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for "Cause" (as hereinafter defined) and only (i) by action of at least sixty-
six and two-thirds percent (66-2/3%) of the outstanding Shares, or (ii) by
written instrument, signed by at least sixty-six and two-thirds percent (66-
2/3%) of the remaining Trustees, specifying the date when such removal shall
become effective. "Cause" shall require willful misconduct, dishonesty, fraud or
a felony conviction.
Section 5. Vacancies. The death, declination, resignation, retirement,
removal, or incapacity, of the Trustees, or any one of them, shall not operate
to annul the Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. Whenever a vacancy in the number of
Trustees shall occur, until such vacancy is filled as provided herein, or the
number of Trustees as fixed is reduced, the Trustees in office, regardless of
their number, shall have all the powers granted to the Trustees, and during the
period during which any such vacancy shall occur, only the Trustees then in
office shall be counted for the purposes of the existence of a quorum or any
action to be taken by such Trustees.
Section 6. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or any successor
Trustees. All of the assets of the Trust shall at all times be considered as
automatically vested in the Trustees as shall be from time to time in office.
Upon the resignation, retirement, removal, incapacity or death of a Trustee,
such Trustee shall automatically cease to have any right, title or interest in
any of the Trust property, and the right, title and interest of such Trustee in
the Trust property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective without the execution or
delivery of any conveyancing or other instruments. No Shareholder shall be
deemed to have a severable ownership in any individual asset of the Trust or any
right of partition or possession thereof.
Section 7. Voting Requirements. In addition to the voting requirements
imposed by law or by any other provision of this Declaration of Trust, the
provisions set forth in this Article V may not be amended, altered or repealed
in any respect, nor may any provision inconsistent with this Article V be
adopted, without the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the outstanding Shares. In the event the
holders of the outstanding shares of any series or class are required by law or
any other provision of this Declaration of Trust to approve such an action by a
class vote of such holders, such action must be approved by the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the outstanding Shares of
such series or class or such lower percentage as may be required by law or any
other provision of this Declaration of Trust.
ARTICLE VI
POWERS OF TRUSTEES
Section 1. Powers. The Trustees in all instances shall have full,
absolute and exclusive power, control and authority over the Trust assets and
the business and affairs of the Trust to the same extent as if the Trustees were
the sole and absolute owners thereof in their own right. The Trustees shall
have full power and authority to do any and all acts and to make and execute any
and all contracts and instruments that they may
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consider necessary or appropriate in connection with the management of the
Trust. The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers. In construing the provisions of this Declaration
of Trust, there shall be a presumption in favor of the grant of power and
authority to the Trustees. Subject to any applicable limitation in this
Declaration, the Trustees shall have power and authority:
(a) To invest and reinvest in, to buy or otherwise acquire, to hold,
for investment or otherwise, to sell or otherwise dispose of, to lend or to
pledge, to trade in or deal in securities or interests of all kinds,
however evidenced, or obligations of all kinds, however evidenced, or
rights, warrants, or contracts to acquire such securities, interests, or
obligations, of any private or public company, corporation, association,
general or limited partnership, trust or other enterprise or organization
foreign or domestic, or issued or guaranteed by any national or state
government, foreign or domestic, or their agencies, instrumentalities or
subdivisions (including but not limited to, bonds, debentures, bills, time
notes and all other evidences or indebtedness); negotiable or non-
negotiable instruments; any and all options and futures contracts,
derivatives or structured securities; government securities and money
market instruments (including but not limited to, bank certificates of
deposit, finance paper, commercial paper, bankers acceptances, and all
kinds of repurchase agreements) and, without limitation, all other kinds
and types of financial instruments;
(b) To adopt By-Laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and
repeal them to the extent that they do not reserve that right to the
Shareholders;
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(d) To set record dates for any purpose;
(e) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment adviser, investment subadviser,
transfer agent, custodian, underwriter or other independent contractor or
agent;
(f) Subject to Article IX, Section 1 hereof, to merge, or consolidate
the Trust with any other corporation, association, trust or other
organization; or to sell, convey, transfer, or lease all or substantially
all of the assets of the Trust;
(g) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;
(h) To exercise powers and rights of subscription or otherwise which
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in any manner arise out of ownership of securities;
(i) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either
in their or the Trust's name or in the name of a custodian or a nominee or
nominees;
(j) To issue, sell, repurchase, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer and otherwise deal in Shares and in
any options, warrants or other rights to purchase Shares or any other
interests in the Trust other than Shares;
(k) To set apart, from time to time, out of any funds of the Trust a
reserve or reserves for any proper purpose, and to abolish any such
reserve;
(l) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security or
property of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or issuer, and
to pay calls or subscriptions with respect to any security held in the
Trust;
(m) To compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(n) To make distributions to Shareholders;
(o) To borrow money and to pledge, mortgage, or hypothecate the
assets of the Trust;
(p) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any
Shareholders whose investment is less than such minimum upon such terms as
shall be established by the Trustees;
(q) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection
to deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such committee,
depositary or trustee as the Trustees shall deem proper;
(r) To purchase and pay for out of Trust property such insurance as
they may deem necessary or appropriate for the conduct of the business of
the Trust, including, without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, investment
subadvisers or managers, principal underwriters, or independent contractors
of the Trust individually against all
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claims and liabilities of every nature arising by reason of holding, being
or having held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person as Shareholder,
Trustee, officer, employee, agent, investment adviser, subadviser or
manager, principal underwriter, or independent contractor, whether or not
any such action may be determined to constitute negligence, and whether or
not the Trust would have the power to indemnify such person against such
liability; and
(s) To pay pensions for faithful service, as deemed appropriate by
the Trustees, and to adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust.
Any determination made by or pursuant to the direction of the Trustees in
good faith and consistent with the provisions of this Declaration of Trust shall
be final and conclusive and shall be binding upon the Trust and every holder at
any time of Shares, including, but not limited to the following matters: the
amount of the assets, obligations, liabilities and expenses of the Trust; the
amount of the net income of the Trust from dividends, capital gains, interest or
other sources for any period and the amount of assets at any time legally
available for the payment of dividends or distributions; the amount, purpose,
time of creation, increase or decrease, alteration or cancellation of any
reserves or charges and the propriety thereof (whether or not any obligation or
liability for which such reserves or charges were created shall have been paid
or discharged); the market value, or any quoted price to be applied in
determining the market value, of any security or other asset owned or held by
the Trust; the fair value of any security for which quoted prices are not
readily available, or of any other asset owned or held by the Trust; the number
of Shares of the Trust issued or issuable; the net asset value per Share; any
matter relating to the acquisition, holding and depositing of securities and
other assets by the Trust; any question as to whether any transaction
constitutes a purchase of securities on margin, a short sale of securities, a
borrowing, or an underwriting of the sale of, or participation in any
underwriting or selling group in connection with the public distribution of, any
securities, and any matter relating to the issue, sale, redemption, repurchase,
and/or other acquisition or disposition of Shares of the Trust. No provision of
this Declaration of Trust shall be effective to protect or purport to protect
any Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Section 2. Manner of Acting, By-Laws. The By-Laws shall make
provision from time to time for the manner in which the Trustees may take
action, including, without limitation, at meetings within or without
Massachusetts, including meetings held by means of a conference telephone or
other communications equipment, or by written consents, the quorum and notice,
if any, that shall be required for any meeting or other action, and the
delegation of some or all of the power and authority of
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the Trustees to any one or more committees which they may appoint from their own
number, and terminate, from time to time.
ARTICLE VII
EXPENSES OF THE TRUST
The Trustees shall have the power to reimburse themselves from the Trust
property for their expenses and disbursements, to pay reasonable compensation to
themselves from the Trust property, and to incur and pay out of the Trust
property any other expenses which in the opinion of the Trustees are necessary
or incidental to carry out any of the purposes of this Declaration of Trust, or
to exercise any of the powers of the Trustees hereunder.
ARTICLE VIII
INVESTMENT ADVISER, UNDERWRITER
AND TRANSFER AGENT
Section 1. Investment Adviser. The Trust may enter into written contracts
with one or more persons (which term shall include any firm, corporation, trust
or association), to act as investment adviser or investment subadviser to the
Trust, and as such to perform such functions as the Trustees may deem reasonable
and proper, including, without limitation, investment advisory, management,
research, valuation of assets, clerical and administrative functions, under such
terms and conditions, and for such compensation, as the Trustees may in their
discretion deem advisable.
Upon the termination of any contract with Nuveen Institutional Advisory
Corp., or any corporation affiliated with John Nuveen & Co. Incorporated, acting
as investment adviser or manager, the Trustees are hereby required to promptly
change the name of the Trust to a name which does not include "Nuveen" or any
approximation or abbreviation thereof.
Section 2. Underwriter; Transfer Agent. The Trust may enter into a
written contract or contracts with an underwriter or underwriters or distributor
or distributors whereby the Trust may either agree to sell Shares to the other
party or parties to the contract or appoint such other party or parties its
sales agent or agents for such Shares and with such other provisions as the
Trustees may deem reasonable and proper, and the Trustees may in their
discretion from time to time enter into transfer agency and/or shareholder
service contract(s), in each case with such terms and conditions, and providing
for such compensation, as the Trustees may in their discretion deem advisable.
Section 3. Parties to Contract. Any contract of the character described
in Sections 1 and 2 of this Article VIII or in Article X hereof may be entered
into with any corporation, firm, partnership, trust or association, including,
without limitation, the investment adviser, any investment subadviser or an
affiliate of the investment adviser or investment subadviser, although one or
more of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, or
otherwise interested in such contract and no such contract shall be invalidated
or
<PAGE>
-13-
rendered voidable by reason of the existence of any such relationship, nor
shall any person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was not inconsistent
with the provisions of this Article VIII, Article X, or the By-Laws. The same
person (including a firm, corporation, partnership, trust or association) may be
the other party to contracts entered into pursuant to Sections 1 and 2 above or
Article X, and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 3.
ARTICLE IX
SHAREHOLDERS' VOTING POWERS AND MEETINGS
<PAGE>
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Section 1. Voting Powers. The Shareholders shall have power to vote only:
(a) for the election or removal of Trustees as provided in Article V, (b) with
respect to any investment advisory or management contract to the extent required
by the 1940 Act, (c) with respect to any termination of the Trust or a series
thereof to the extent and as provided in this Article IX, Section 1, (d) with
respect to any amendment of this Declaration of Trust to the extent and as
provided in Article XIII, Section 4, (e) with respect to a merger or
consolidation of the Trust or any series thereof with any corporation,
association, trust or other organization or a reorganization or recapitalization
of the Trust or series thereof, or a sale, lease or transfer of all or
substantially all of the assets of the Trust or any series thereof (other than
in the regular course of the Trust's investment activities) to the extent and as
provided in this Article IX, Section 1, (f) to the same extent as the
shareholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (g) with
respect to such additional matters relating to the Trust as may be required by
law, the 1940 Act, this Declaration of Trust, the By-Laws of the Trust, or any
registration of the Trust with the Commission or any State, or as the Trustees
may consider necessary or desirable.
An affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding Shares of the Trust (or, in the event of
any action set forth below affecting only one or more series or classes of the
Trust, an affirmative vote of the holders of at least sixty-six and two-thirds
percent of the outstanding Shares of such affected series or class) shall be
required to approve, adopt or authorize (i) a merger or consolidation of the
Trust or a series of the Trust with any corporation, association, trust or other
organization or a reorganization or recapitalization of the Trust or a series of
the Trust, (ii) a sale, lease or transfer of all or substantially all of the
assets of the Trust or series of the Trust (other than in the regular course of
the Trust's investment activities), or (iii) a termination of the Trust or a
series of the Trust (other than a termination by the Trustees as provided for in
Section 1 of Article XIII hereof), unless in any case such action is
recommended by the Trustees, in which case the affirmative vote of a majority of
the outstanding voting securities of the Trust or the affected series or class
shall be required. Nothing contained herein shall be construed as requiring
approval of Shareholders for any transaction, whether deemed a merger,
consolidation, reorganization or otherwise whereby the Trust issues Shares in
connection with the acquisition of assets (including those subject to
liabilities) from any other investment company or similar entity).
Section 2. Meetings. Meetings of the Shareholders of the Trust or any one
or more series thereof may be called and held from time to time for the purpose
of taking action upon any matter requiring the vote or authority of the
Shareholders as herein provided or upon any other matter deemed by the Trustees
to be necessary or desirable. Meetings of the Shareholders shall be
<PAGE>
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held at such place within the United States as shall be fixed by the Trustees,
and stated in the notice of the meeting. Meetings of the Shareholders may be
called by the Trustees and shall be called by the Trustees upon the written
request of Shareholders owning at least one-tenth of the outstanding Shares
entitled to vote. Shareholders shall be entitled to at least ten days' written
notice of any meeting, except where the meeting is an adjourned meeting and the
date, time and place of the meeting were announced at the time of the
adjournment.
Section 3. Quorum and Action. (a) The Trustees shall set in the By-Laws
the quorum required for the transaction of business by the Shareholders at a
meeting, which quorum shall in no event be less than thirty percent (30%) of the
Shares entitled to vote at such meeting. If a quorum is present when a duly
called or held meeting is convened, the Shareholders present may continue to
transact business until adjournment, even though the withdrawal of a number of
Shareholders originally present leaves less than the proportion or number
otherwise required for a quorum.
(b) The Shareholders shall take action by the affirmative vote of the
holders of a majority, except in the case of the election of Trustees which
shall only require a plurality, of the Shares present in person or by proxy and
entitled to vote at a meeting of Shareholders at which a quorum is present,
except as may be otherwise required by any provision of this Declaration of
Trust or the By-Laws.
Section 4. Voting. Each whole Share shall be entitled to one vote as to
any matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted. In the event that there is more than
one series of the Shares, Shares shall be voted by individual series on any
matter submitted to a vote of the Shareholders of the Trust except as provided
in Sections 2(a)(v) and 2(b) of Article IV. There shall be no cumulative voting
in the election of Trustees or on any other matter submitted to a vote of the
Shareholders. Shares may be voted in person or by proxy. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required or permitted by law, this Declaration of Trust or the By-Laws of
the Trust to be taken by Shareholders.
Section 5. Action by Written Consent in Lieu of Meeting of Shareholders.
Any action required or permitted to be taken at a meeting of the Shareholders
may be taken without a meeting by written action signed by all of the
Shareholders entitled to vote on that action. The written action is effective
when it has been signed by all of those Shareholders, unless a different
effective time is provided in the written action.
<PAGE>
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ARTICLE X
CUSTODIAN
All securities and cash of the Trust shall be held by one or more
custodians and subcustodians, each meeting the requirements for a custodian
contained in the 1940 Act, or shall otherwise be held in accordance with the
1940 Act.
ARTICLE XI
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions. The Trustees may in their sole discretion from
time to time declare and pay, or may prescribe and set forth in a duly adopted
vote or votes of the Trustees, the bases and time for the declaration and
payment of, such dividends and distributions to Shareholders as they may deem
necessary or desirable, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with good accounting practices.
Section 2. Redemption of Shares. All shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. The Trust shall redeem the Shares of the Trust or any series or
class thereof at the price determined as hereinafter set forth, upon the
appropriately verified application of the record holder thereof (or upon such
other form of request as the Trustees may determine) at such office or agency as
may be designated from time to time for that purpose by the Trustees. The
Trustees may from time to time specify additional conditions, not inconsistent
with the 1940 Act, regarding the redemption of Shares in the Trust's then
effective prospectus under the Securities Act of 1933.
Section 3. Redemption Price. Shares shall be redeemed at their net asset
value (less any applicable redemption fee or sales charge) determined as set
forth in Section 7 of this Article XI as of such time as the Trustees shall have
theretofore prescribed by resolution. In the absence of such resolution, the
redemption price of Shares deposited shall be the net asset value of such Shares
next determined as set forth in such Section hereof after receipt of such
application.
Section 4. Payment. Payment of the redemption price of Shares of the
Trust or any series or class thereof shall be made in cash or in property or
partly in cash and partly in property to the Shareholder at such time and in the
manner, not inconsistent with the 1940 Act or other applicable laws, as may be
specified from time to time in the Trust's then effective prospectus under the
Securities Act of 1933.
<PAGE>
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Section 5. Redemption of Shareholder's Interest. The Trustees, in their
sole discretion, may cause the Trust to redeem all of the Shares of the Trust or
one or more series of the Trust held by any Shareholder if the value of such
Shares held by such Shareholder is less than the minimum amount established from
time to time by the Trustees.
Section 6. Suspension of Right of Redemption. Notwithstanding the
foregoing, the Trust may postpone payment of the redemption price and may
suspend the right of the holders of Shares to require the Trust to redeem Shares
(a) during any period when the New York Stock Exchange (the "Exchange") is
closed (other than customary weekend and holiday closings), (b) when trading in
the markets the Trust normally utilizes is restricted, or an emergency exists as
determined by the Commission so that disposal of the Trust's investments or
determination of its net asset value is not reasonably practicable, or (c) for
such other periods as the Commission may by order, rule or otherwise permit.
Section 7. Determination of Net Asset Value and Valuation of Portfolio
Assets. The Trustees may in their sole discretion from time to time prescribe
and shall set forth in the By-Laws or in a duly adopted vote or votes of the
Trustees such bases and times for determining the per Share net asset value of
the Shares and the valuation of portfolio assets as they may deem necessary or
desirable.
The Trust may suspend the determination of net asset value during any
period when it may suspend the right of the holders of Shares to require the
Trust to redeem Shares.
<PAGE>
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ARTICLE XII
LIMlTATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Liability. No personal liability for any debt or
obligation of the Trust shall attach to any Trustee of the Trust. Without
limiting the foregoing, a Trustee shall not be responsible for or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, investment
adviser, subadviser, principal underwriter or custodian of the Trust, nor shall
any Trustee be responsible or liable for the act or omission of any other
Trustee. Nothing contained herein shall protect any Trustee against any
liability to which such Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his capacity as Trustees or Trustee and neither such Trustees or
Trustee nor the Shareholders shall be personally liable thereon.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of State of the Commonwealth
of Massachusetts, shall recite that the same was executed or made by or on
behalf of the Trust by them as Trustees or Trustee or as officers or officer and
not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recitals as they
or he may deem appropriate, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually.
All persons extending credit to, contracting with or having any claim
against the Trust shall look only to the assets of the Trust for payment under
such credit, contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor.
Section 2. Trustees' Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions thereunder shall be
binding upon everyone interested. A Trustee shall be liable only for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of
<PAGE>
-19-
Trust and their duties as Trustees hereunder, and shall be under no liability
for any act or omission in accordance with such advice or for failing to follow
such advice. In discharging their duties, the Trustees, when acting in good
faith, shall be entitled to rely upon the books of account of the Trust and upon
written reports made to the Trustees by any officer appointed by them, any
independent public accountant and (with respect to the subject matter of the
contract involved) any officer, partner or responsible employee of any other
party to any contract entered into hereunder. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. Indemnification. 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 permitted 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 negligence or reckless disregard of the duties involved in the
conduct of his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated 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 payment by
a Covered Person, unless there has been either a determination
<PAGE>
-20-
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 office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies 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
continue 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
otherwise 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 ultimately 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 anyone, as such Disinterested
Trustee, who has been exempted from being an Interested Person by any rule,
regulation 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.
<PAGE>
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As used in this Section 4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
Section 5. Shareholders. No personal liability for any debt or obligation
of the Trust shall attach to any Shareholder or former Shareholder of the Trust.
In case any Shareholder or former Shareholder of the Trust shall be held to be
personally liable solely by reason of his being or having been a Shareholder and
not because of his acts or omissions or for some other reason, the Shareholder
or former Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of the Trust to
be held harmless from and indemnified against all loss and expense arising from
such liability; provided, however, there shall be no liability or obligation of
the Trust arising hereunder to reimburse any Shareholder for taxes paid by
reason of such Shareholder's ownership of any Share or for losses suffered by
reason of any changes in value of any Trust assets. The Trust shall, upon
request by the Shareholder or former Shareholder, assume the defense of any
claim made against the Shareholder for any act or obligation of the Trust and
satisfy any judgment thereon.
ARTICLE XIII
MISCELLANEOUS
Section 1. Termination of Trust. Unless terminated as provided herein,
the Trust shall continue without limitation of time. The Trust or any series of
the Trust may be terminated at any time by the Trustees by written notice to the
Shareholders of the Trust, or such Series as the case may be, without a vote of
the Shareholders of the Trust, or of such series, or the Trust or any series of
the Trust may be terminated by the affirmative vote of the Shareholders in
accordance with Section 1 of Article IX hereof.
Upon termination of the Trust or any series thereof, after paying or
otherwise providing for all charges, taxes, expenses and liabilities, whether
due or accrued or anticipated, as may be determined by the Trustees, the Trust
shall, in accordance with such procedures as the Trustees consider appropriate,
reduce the remaining assets of the Trust or of the particular series thereof to
distributable form in cash or other securities, or any
<PAGE>
-22-
combination thereof, and distribute the proceeds to the holders of the Shares of
the Trust or such series in the manner set forth by resolution of the Trustees.
Section 2. Filing of Copies, References, Headings. The original or a copy
of this instrument and of each amendment hereto shall be kept in the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment shall be filed by the Trustees with the
Secretary of State of the Commonwealth of Massachusetts, as well as any other
governmental office where such filing may from time to time be required,
provided, however, that the failure to so file will not invalidate this
instrument or any properly authorized amendment hereto. Anyone dealing with the
Trust may rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this instrument or of any such amendments. In this instrument or in
any such amendment, references to this instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this instrument
as a whole and as amended or affected by any such amendment, and masculine
pronouns shall be deemed to include the feminine and the neuter, as the context
shall require. Headings are placed herein for convenience of reference only, and
in case of any conflict, the text of this instrument, rather than the headings,
shall control. This instrument may be executed in any number of counterparts,
each of which shall be deemed an original.
Section 3. Trustees May Resolve Ambiguities. The Trustees may construe
any of the provisions of this Declaration insofar as the same may appear to be
ambiguous or inconsistent with any other provisions hereof, and any such
construction hereof by the Trustees in good faith shall be conclusive as to the
meaning to be given to such provisions.
Section 4. Amendments. Except as otherwise specifically provided in this
Declaration of Trust, this Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees with the consent
of Shareholders holding more than fifty percent (50%) of Shares entitled to vote
except that an amendment which in the determination of the Trustees shall affect
the holders of one or more series or classes of Shares but not the holders of
all outstanding series or classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each series
and class affected and no vote of Shareholders of a series or class not affected
shall be required. In addition, notwithstanding any other provision to the
contrary contained in this Declaration of Trust, the Trustees may amend this
Declaration of Trust without the vote or consent of Shareholders (i) at any time
if the Trustees deem it necessary in order for the Trust or any series or class
thereby to meet the requirements of applicable Federal or State laws or
regulations, or the
<PAGE>
-23-
requirements of the regulated investment company provisions of the Internal
Revenue Code, (ii) to designate series or classes or exercise other powers with
respect thereto in accordance with Section 1 and 2 or Article IV hereof, (iii)
change the name of the Trust or to supply any omission, cure any ambiguity or
cure, correct or supplement any defective or inconsistent provision contained
herein, or (iv) for any reason at any time before a registration statement under
the Securities Act of 1933, as amended, covering the initial public offering of
Shares has become effective.
<PAGE>
-24-
IN WITNESS WHEREOF, the undersigned, being the sole Trustees of the Trust,
have executed this instrument as of the date first written above.
/s/ Anthony T. Dean /s/ Timothy R. Schwertfeger
- ------------------------------ ----------------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOlS )
) SS.
COUNTY OF COOK )
Then personally appeared the above-named persons who are known to me to be
Trustees of the Trust whose names and signatures are affixed to the foregoing
Declaration of Trust and who acknowledged the same to be his free act and deed,
before me this 20th day of August, 1998.
/s/ Karen L. Healy
-------------------------------------------------
Notary Public
My Commission Expires: 12/30/99
---------------------------
<PAGE>
NUVEEN INVESTMENT TRUST III
ESTABLISHMENT AND DESIGNATION OF CLASSES
The undersigned, being the sole Trustees of Nuveen Investment Trust III, a
Massachusetts business trust (the "Trust"), acting pursuant to Sections 1 and 2
of Article IV of the Declaration of Trust dated August 20, 1998 (the
"Declaration"), do hereby divide the Shares of its series, whether currently
existing or created in the future, into four Classes of Shares effective as of
the date hereof, as follows:
1. The four Classes of Shares are designated "Class A Shares", "Class B
Shares", "Class C Shares" and "Class R Shares".
2. Class A Shares, Class B Shares, Class C Shares and Class R Shares shall
be entitled to all the rights and preferences accorded to Shares under the
Declaration.
3. The number of Shares of each Class designated hereby shall be unlimited.
4. The purchase price of Class A Shares, Class B Shares, Class C Shares and
Class R Shares, the method of determination of the net asset value of Class A
Shares, Class B Shares, Class C Shares and Class R Shares, the price, terms and
manner of redemption of Class A Shares, Class B Shares, Class C Shares and Class
R Shares, any conversion or exchange feature or privilege of the Class A Shares,
Class B Shares, Class C Shares and Class R Shares, and the relative dividend
rights of the holders of Class A Shares, Class B Shares, Class C Shares and
Class R Shares shall be established by the Trustees of the Trust in accordance
with the Declaration and shall be set forth in the current prospectus and
statement of additional information of the Trust or any series thereof, as
amended from time to time, contained in the Trust's registration statement under
the Securities Act of 1933, as amended (the "Prospectus").
5. Each of the Class A Shares, Class B Shares, Class C Shares and Class R
Shares shall bear the expenses of payments under any distribution and service
agreements entered into by or on behalf of the Trust with respect to that Class,
and any other expenses that are properly allocated to such Class in accordance
with the Investment Company Act of
<PAGE>
-2-
1940, or any rule or order issued thereunder and applicable to the Trust (the
"1940 Act").
6. As to any matter on which shareholders are entitled to vote, Class A
Shares, Class B Shares, Class C Shares and Class R Shares of a series shall vote
together as a single class; provided however, that notwithstanding the
provisions of Section 4 of Article IX of the Declaration to the contrary, (a) as
to any matter with respect to which a separate vote of any Class is required by
the 1940 Act or is required by a separate agreement applicable to such Class,
such requirements as to a separate vote by the Class shall apply, (b) except as
required by (a) above, to the extent that a matter affects more than one Class
and the interests of two or more Classes in the matter are not materially
different, then the Shares of such Classes whose interests in the matter are not
materially different shall vote together as a single Class, but to the extent
that a matter affects more than one Class and the interests of a Class in the
matter are materially different from that of each other Class, then the Shares
of such Class shall vote as a separate class; and (c) except as required by (a)
above or as otherwise required by the 1940 Act, as to any matter which does not
affect the interests of a particular Class, only the holders of Shares of the
one or more affected Classes shall be entitled to vote.
7. The designation of Class A Shares, Class B Shares, Class C Shares and
Class R Shares hereby shall not impair the power of the Trustees from time to
time to designate additional classes of Shares of the Trust.
8. Subject to the applicable provisions of the 1940 Act, the Trustees may
from time to time modify the preferences, voting powers, rights and privileges
of any of the Classes designated hereby or redesignate any of the Classes
designated hereby without any action or consent of the Shareholders.
<PAGE>
-3-
IN WITNESS WHEREOF, the undersigned, being the sole Trustees of the Trust,
have executed this instrument as of this 20th day of August, 1998.
/s/ Anthony T. Dean /s/ Timothy R. Schwertfeger
- --------------------------------- ---------------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
Then personally appeared the above-named persons who are known to me
to be Trustees of the Trust whose names and signatures are affixed to the
foregoing Establishment and Designation of Classes and who acknowledged the same
to be his free act and deed, before me this 20th day of August, 1998.
/s/ Karen L. Healy
---------------------------------
Notary Public
My Commission Expires: 12/30/99
----------
<PAGE>
BY-LAWS
OF
NUVEEN INVESTMENT TRUST III
ARTICLE I
DECLARATION OF TRUST
AND
OFFICES
Section 1.1. Declaration of Trust. These By-Laws shall be subject to the
Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of Nuveen Investment Trust III, the Massachusetts business trust
established by the Declaration of Trust (the "Trust").
Section 1.2. Other Offices. The Trust may have such other offices and
places of business within or without the Commonwealth of Massachusetts as the
Board of Trustees shall determine.
ARTICLE II
SHAREHOLDERS
Section 2.1. Place of Meetings. Meetings of the Shareholders may be held
at such place or places within or without the Commonwealth of Massachusetts as
shall be fixed by the Board of Trustees and stated in the notice of the meeting.
Section 2.2. Regular Meeting. Regular meetings of the Shareholders for
the election of Trustees and the transaction of such other business as may
properly come before the meeting shall be held on an annual or other less
frequent periodic basis at such date and time as the Board of Trustees by
resolution shall designate, except as otherwise required by applicable law.
Section 2.3. Special Meeting. Special meetings of the Shareholders for
any purpose or purposes may be called by the Chairman of the Board, the
President or two or more Trustees, and must be called at the written request
stating the purpose or purposes of the meeting, of Shareholders
<PAGE>
-2-
entitled to cast at least 10 percent of all the votes entitled to be cast at the
meeting.
Section 2.4. Notice of Meetings. Notice stating the time and place of the
meeting and in the case of a special meeting the purpose or purposes thereof and
by whom called, shall be delivered to each Shareholder not less than ten nor
more than sixty days prior to the meeting, except where the meeting is an
adjourned meeting and the date, time and place of the meeting were announced at
the time of the adjournment.
Section 2.5. Quorum and Action. (a) The holders of thirty percent (30%)
of the voting power of the shares of beneficial interest of the Trust (the
"Shares") entitled to vote at a meeting are a quorum for the transaction of
business. If a quorum is present when a duly called or held meeting is
convened, the Shareholders present may continue to transact business until
adjournment, even though the withdrawal of a number of Shareholders originally
present leaves less than the proportion or number otherwise required for a
quorum.
(b) The Shareholders shall take action by the affirmative vote of the
holders of a majority, except in the case of the election of Trustees which
shall only require a plurality, of the voting power of the Shares present and
entitled to vote at a meeting of Shareholders at which a quorum is present,
except as may be otherwise required by the Investment Company Act of 1940, as
amended (the "1940 Act"), or the Declaration of Trust.
Section 2.6. Voting. At each meeting of the Shareholders, every holder of
Shares then entitled to vote may vote in person or by proxy and shall have one
vote for each Share registered in his name.
Section 2.7. Proxy Representation. A Shareholder may cast or authorize
the casting of a vote by filing a written appointment of a proxy with an officer
of the Trust at or before the meeting at which the appointment is to be
effective. The appointment of a proxy is valid for eleven months, unless a
longer period is expressly provided in the appointment. No appointment is
irrevocable unless the appointment is coupled with an interest in the Shares or
in the Trust.
Section 2.8. Adjourned Meetings. Any meeting of Shareholders may be
adjourned to a designated time and place by the vote of the holders of a
majority of the Shares present and entitled to vote thereat even though less
than a quorum is so present without any further notice except by
<PAGE>
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announcement at the meeting. An adjourned meeting may reconvene as designed, and
when a quorum is present any business may be transacted which might have been
transacted at the meeting as originally called.
ARTICLE III
TRUSTEES
Section 3.1. Qualifications and Number: Vacancies. Each Trustee shall be
a natural person. A Trustee need not be a Shareholder, a citizen of the United
States, or a resident of the Commonwealth of Massachusetts. The number of
Trustees of the Trust, their term and election and the filling of vacancies,
shall be as provided in the Declaration of Trust.
Section 3.2. Powers. The business and affairs of the Trust shall be
managed under the direction of the Board of Trustees. All powers of the Trust
may be exercised by or under the authority of the Board of Trustees, except
those conferred on or reserved to the Shareholders by statute, the Declaration
of Trust or these By-Laws.
Section 3.3. Investment Policies. It shall be the duty of the Board of
Trustees to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Trust are at all times
consistent with the investment objectives, policies and restrictions with
respect to securities investments and otherwise of the Trust filed from time to
time with the Securities and Exchange Commission and as required by the 1940
Act, unless such duty is delegated to an investment adviser pursuant to a
written contract, as provided in the Declaration of Trust. The Trustees,
however, may delegate the duty of management of the assets of the Trust to an
individual or corporate investment adviser or subadviser to act as investment
adviser or subadviser pursuant to a written contract.
Section 3.4. Meetings. Regular meetings of the Trustees may be held
without notice at such times as the Trustees shall fix. Special meetings of the
Trustees may be called by the Chairman of the Board or the President, and shall
be called at the written request of two or more Trustees. Unless waived by each
Trustee, three days' notice of special meetings shall be given to each Trustee
in person, by mail, by telephone, or by telegram or cable, or by any other means
that reasonably may be expected to provide similar notice. Notice of special
meetings need not state the purpose or purposes thereof. Meetings of the
Trustees may be
<PAGE>
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held at any place within or outside the Commonwealth of Massachusetts. A
conference among Trustees by any means of communication through which the
Trustees may simultaneously hear each other during the conference constitutes a
meeting of the Trustees or of a committee of the Trustees, if the notice
requirements have been met (or waived) and if the number of Trustees
participating in the conference would be sufficient to constitute a quorum at
such meeting. Participation in such meeting by that means constitutes presence
in person at the meeting.
Section 3.5. Quorum and Action. A majority of the Trustees currently
holding office, or in the case of a meeting of a committee of the Trustees, a
majority of the members of such committee, shall constitute a quorum for the
transaction of business at any meeting. If a quorum is present when a duly
called or held meeting is convened, the Trustees present may continue to
transact business until adjournment, even though the withdrawal of a number of
Trustees originally present leaves less than the proportion or number otherwise
required for a quorum. At any duly held meeting at which a quorum is present,
the affirmative vote of the majority of the Trustees present shall be the act of
the Trustees or the committee, as the case may be, on any question, except where
the act of a greater number is required by these By-Laws or by the Declaration
of Trust.
Section 3.6. Action by Written Consent in Lieu of Meetings of Trustees. An
action which is required or permitted to be taken at a meeting of the Trustees
or a committee of the Trustees may be taken by written action signed by the
number of Trustees that would be required to take the same action at a meeting
of the Trustees or committee, as the case may be, at which all Trustees were
present. The written action is effective when signed by the required number of
Trustees, unless a different effective time is provided in the written action.
When written action is taken by less than all Trustees, all Trustees shall be
notified immediately of its text and effective date.
Section 3.7. Committees. The Trustees, by resolution adopted by the
affirmative vote of a majority of the Trustees, may designate from their members
an Executive Committee, an Audit Committee and any other committee or
committees, each such committee to consist of two or more Trustees and to have
such powers and authority (to the extent permitted by law) as may be provided in
such resolution. Any such committee may be terminated at any time by the
affirmative vote of a majority of the Trustees.
<PAGE>
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ARTICLE IV
OFFICERS
Section 4.1. Number and Qualifications. The officers of the Trust shall
include a Chairman of the Board, a President, a Controller, one or more Vice
Presidents (one of whom may be designated an Executive Vice President), a
Treasurer, and a Secretary. Any two or more offices may be held by the same
person. Unless otherwise determined by the Trustees, each officer shall be
appointed by the Trustees for a term which shall continue until the meeting of
the Trustees following the next regular meeting of Shareholders and until his
successor shall have been duly elected and qualified, or until his death, or
until he shall have resigned or have been removed, as hereinafter provided in
these By-Laws. The Trustees may from time to time elect, or delegate to the
Chairman of the Board or the President, or both, the power to appoint, such
officers (including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) and such agents as may be
necessary or desirable for the business of the Trust. Such other officers shall
hold office for such terms as may be prescribed by the Trustees or by the
appointing authority.
Section 4.2. Resignations. Any officer of the Trust may resign at any
time by giving written notice of his resignation to the Trustees, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 4.3. Removal. An officer may be removed at any time, with or
without cause, by a resolution approved by the affirmative vote of a majority of
the Trustees present at a duly convened meeting of the Trustees.
Section 4.4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause, may be filled for the
unexpired portion of the term by the Trustees, or in the manner determined by
the Trustees.
Section 4.5. The Chairman of the Board. The Chairman of the Board shall
be elected from among the Trustees. He shall be the chief executive officer of
the Trust and shall:
<PAGE>
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(a) have general active management of the business of the Trust;
(b) when present, preside at all meetings of the Trustees and of the
Shareholders;
(c) see that all orders and resolutions of the Trustees are carried
into effect;
(d) sign and deliver in the name of the Trust any deeds, mortgages,
bonds, contracts or other instruments pertaining to the business of the
Trust, except in cases in which the authority to sign and deliver is
required by law to be exercised by another person or is expressly delegated
by the Declaration of Trust or By-Laws or by the Trustees to some other
officer or agent of the Trust; and
(e) maintain records of and, whenever necessary, certify all
proceedings of the Trustees and the Shareholders.
The Chairman of the Board shall be authorized to do or cause to be done all
things necessary or appropriate, including preparation, execution and filing of
any documents, to effectuate the registration from time to time of the Shares of
the Trust with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended. He shall perform all duties incident to the office of
Chairman of the Board and such other duties as from time to time may be assigned
to him by the Trustees or by these By-Laws.
Section 4.6. The President. The President shall be the chief operating
officer of the Trust and, subject to the Chairman of the Board, he shall have
general authority over and general management and control of the business and
affairs of the Trust. In general, he shall discharge all duties incident to the
office of the chief operating officer of the Trust and such other duties as may
be prescribed by the Trustees and the Chairman of the Board from time to time.
In the absence of the Chairman of the Board or in the event of his disability,
or inability to act or to continue to act, the President shall perform the
duties of the Chairman of the Board and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the Chairman of the Board.
Section 4.7. Executive Vice-President. In the case of the absence or
inability to act of the President and the Chairman of the Board, any
<PAGE>
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Executive Vice-President shall perform the duties of the President and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the President. Any Executive Vice-President shall perform all duties
incident to the office of Executive Vice-President and such other duties as from
time to time may be assigned to him by the Trustees, the President or these By-
Laws,
Section 4.8. Vice Presidents. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Trustees, the Chairman
of the Board or the President.
Section 4.9. Controller. The Controller shall:
(a) keep accurate financial records for the Trust;
(b) render to the Chairman of the Board, the President and the
Trustees, whenever requested, an account of all transactions by and of the
financial condition of the Trust; and
(c) in general, perform all the duties incident to the office of
Controller and such other duties as from time to time may be assigned to
him by the Trustees, the Chairman of the Board or the President.
Section 4.10. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Trust, except those which the Trust has placed in the
custody of a bank or trust company pursuant to a written agreement
designating such bank: or trust company as custodian of the property of the
Trust, as required by Section 6.5 of these By-Laws;
(b) deposit all money, drafts, and checks in the name of and to the
credit of the Trust in the banks and depositories designated by the
Trustees;
(c) endorse for deposit all notes, checks, and drafts received by the
Trust making proper vouchers therefor:
(d) disburse corporate funds and issue checks and drafts in the name
of the Trust, as ordered by the Trustees; and
<PAGE>
-8-
(e) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
by the Trustees, the Chairman of the Board or the President.
Section 4.11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Trustees, the committees of the
Trustees and the Shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by statute;
(c) be custodian of the records of the Trust;
(d) see that the books, reports, statements, certificates and other
documents and records required by statute to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Trustees, the Chairman of the Board or the President.
Section 4.12. Salaries. The salaries of all officers shall be fixed by
the Trustees.
ARTICLE V
SHARES
Section 5.1. Share Certificates. Each owner of Shares of the Trust shall
be entitled upon request to have a certificate, in such form as shall be
approved by the Trustees, representing the number of whole Shares of the Trust
owned by him. Certificates representing fractional Shares shall not be issued.
The certificates representing whole Shares shall be signed in the name of the
Trust by the Chairman of the Board, the President, the Executive Vice President
or a Vice President and by the Secretary, an Assistant Secretary, the Treasurer
or an Assistant Treasurer (which signatures may be either manual or facsimile,
engraved or printed). In case any officer who shall have signed such certificate
shall have ceased to be such officer before such certificates shall be issued,
they may
<PAGE>
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nevertheless be issued by the Trust with the same effect as if such officer were
still in office at the date of their issuance.
Section 5.2. Books and Records; Inspection. The Trust shall keep at its
principal executive office, or at another place or places within the United
States determined by the Trustees, a share register not more than one year old,
containing the names and addresses of the shareholders and the number of Shares
held by each Shareholder. The Trust shall also keep, at its principal executive
office, or at another place or places within the United States determined by the
Trustees, a record of the dates on which certificates representing Shares were
issued.
Section 5.3. Share Transfers. Upon compliance with any provisions
restricting the transferability of Shares that may be set forth in the
Declaration of Trust, these By-Laws, or any resolution or written agreement in
respect thereof, transfers of Shares of the Trust shall be made only on the
books of the Trust by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with an
officer of the Trust, or with a transfer agent or a registrar and on surrender
of any certificate or certificates for such Shares properly endorsed and the
payment of all taxes thereon. Except as may be otherwise provided by law or
these By-Laws, the person in whose name Shares stand on the books of the Trust
shall be deemed the owner thereof for all purposes as regards the Trust;
provided that whenever any transfer of Shares shall be made for collateral
security, and not absolutely, such fact, if known to an officer of the Trust,
shall be so expressed in the entry of transfer.
Section 5.4. Regulations. The Trustees may make such additional rules and
regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the issue, certification, transfer and registration of Shares of the
Trust. They may appoint, or authorize any officer or officers to appoint, one or
more transfer agents or one or more transfer clerks and one or more registrars
and may require all certificates for Shares to bear the signature or signatures
of any of them.
Section 5.5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing Shares of the Trust shall immediately notify the Trust
of any loss, destruction or mutilation of such certificate, and the Trust may
issue a new certificate in the place of any certificate theretofore issued by it
which the owner thereof shall allege to have been lost or destroyed or which
shall have been mutilated, and the Trustees may, in their discretion, require
such owner or his legal representatives to give to
<PAGE>
-10-
the Trust a bond in such sum, limited or unlimited, and in such form and with
such surety or sureties as the Trustees in their absolute discretion shall
determine, to indemnify the Trust against any claim that may be made against it
on account of the alleged loss or destruction of any such certificate, or the
issuance of a new certificate. Anything herein to the contrary notwithstanding,
the Trustees, in their absolute discretion, may refuse to issue any such new
certificate, except as otherwise required by law.
Section 5.6. Record Date: Certification of Beneficial Owner. (a) The
Trustees may fix a date not more than ninety days before the date of a meeting
of Shareholders as the date for the determination of the holders of Shares
entitled to notice of and entitled to vote at the meeting or any adjournment
thereof.
(b) The Trustees may fix a date for determining Shareholders entitled to
receive payment of any dividend or distribution or allotment of any rights or
entitled to exercise any rights in respect of any change, conversion or exchange
of Shares.
(c) In the absence of such fixed record date, (i) the date for
determination of Shareholders entitled to notice of and entitled to vote at a
meeting of Shareholders shall be the later of the close of business on the day
on which notice of the meeting is mailed or the thirtieth day before the
meeting, and (ii) the date for determining Shareholders entitled to receive
payment of any dividend or distribution or an allotment of any rights or
entitled to exercise any rights in respect of any change, conversion or exchange
of Shares shall be the close of business on the day on which the resolution of
the Trustees is adopted.
(c) A resolution approved by the affirmative vote of a majority of the
Trustees present may establish a procedure whereby a Shareholder may certify in
writing to the Trust that all or a portion of the Shares registered in the name
of the Shareholder are held for the account of one or more beneficial owners.
Upon receipt by the Trust of the writing, the persons specified as beneficial
owners, rather than the actual Shareholders, are deemed the Shareholders for the
purposes specified in the writing.
ARTICLE VI
MISCELLANEOUS
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Section 6.1. Fiscal Year. The fiscal year of the Trust shall be as fixed
by the Trustees of the Trust.
Section 6.2. Notice and Waiver of Notice. (a) Any notice of a meeting
required to be given under these By-Laws to Shareholders or Trustees, or both,
may be waived by any such person (i) orally or in writing signed by such person
before, at or after the meeting or (ii) by attendance at the meeting in person
or, in the case of a Shareholder, by proxy.
(b) Except as otherwise specifically provided herein, all notices required
by these By-Laws shall be printed or written, and shall be delivered either
personally, by telecopy, telegraph or cable, or by mail or courier or delivery
service, and, if mailed, shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, addressed to the Shareholder or Trustee at
his address as it appears on the records of the Trust.
ARTICLE VII
AMENDMENTS
Section 7.1. These By-Laws may be amended or repealed, or new By-Laws may
be adopted, by the Trustees at any meeting thereof or by action of the Trustees
by written consent in lieu of a meeting.
<PAGE>
Number Class [ ] Shares
Nuveen Investment Trust III
[Name of Series]
Organized Under the Laws of the Commonwealth of Massachusetts
This is to certify that See Reverse for
is the owner of Certain Definitions
CUSIP
Fully Paid and Non-Assessable Class [ ] Shares
- -------------------------------------------------------------------------------
of beneficial interest, with the par value of one-cent ($.01) each, of the [Name
of Series] series of the Nuveen Investment Trust III (herein called the "Trust")
transferable on the books of the Trust by the holder hereof in person or by duly
authorized attorney upon surrender of this certificate properly endorsed. The
shares represented by this certificate are issued and held subject to all of the
provisions of the Declaration of Trust establishing the Trust as a Massachusetts
business trust and any amendments thereto and any designation of classes, and
the By-Laws of the Trust, and any amendments thereto, copies of which are on
file with the Transfer Agent, to all of which the holder by acceptance hereof
expressly assents. This certificate is executed on behalf of the Trust by the
officers as officers and not individually and the obligations hereof are not
binding upon any of the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Trust. This certificate is not
valid unless countersigned by the Transfer Agent.
WITNESS THE FACsimile signatures of its duly authorized officers.
Dated:
Nuveen Investment Trust III
Secretary, President, Nuveen
Nuveen Investment Trust III Investment Trust III
<PAGE>
Nuveen Investment Trust III
[Name of Series]
Nuveen Investment Trust III (the "Trust") will furnish to any shareholder, upon
request and without charge, a full statement of the designations, preferences,
limitation as to dividends, qualifications and terms and conditions of
redemption and relative rights and preferences of the shares of each class or
series of the Trust authorized to be issued, so far as they have been
determined, and the authority of the Board of Trustees to determine the relative
rights and preferences of subsequent classes or series. Any such request should
be addressed to the Secretary of the Trust.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ________ Custodian _______ under Uniform gifts
(Cust) (Minor)
to Minors Act _______
(State)
Additional abbreviations may also be used though not in the above list.
________________________________________________________________________________
For value received, ________ hereby sell, assign and transfer unto
__________________________________
Please insert social security or other identifying number of assignee
________________________________________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
________________________________________________________________________________
______________________________________________________________________ Shares of
beneficial interest represented by the within certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
____________________________________________________________________ Attorney to
<PAGE>
transfer the said shares on the books of the within-named Trust with full power
of substitution in the premises.
Dated, _________________ NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the certificate in every particular, without
alteration or enlargement or any change whatever.
Owner __________________ The signature(s) must be guaranteed by one of the
following entities: U.S. bank, trust company,
credit union, savings association, or foreign bank
having a U.S. correspondent bank: a U.S. registered
securities dealer or broker, municipal securities
dealer or broker, or government securities dealer
or broker; or a national securities exchange,
registered securities association or clearing
agency.
Signature of Co-Owner, if any
_________________________________
Signature(s) guaranteed by:
________________________________________________________________________________
PLEASE NOTE: This document contains a watermark when viewed at an angle. It is
invalid without this watermark: NUVEEN
________________________________________________________________________________
This Space Must Not Be Covered In Any Way
<PAGE>
Management Agreement
Between
Nuveen Investment Trust III
and
Nuveen Institutional Advisory Corp.
Nuveen Investment Trust III, a Massachusetts business trust registered
under the Investment Company Act of 1940 ("1940 Act") as an open-end diversified
management series investment company ("Trust"), hereby appoints Nuveen
Institutional Advisory Corp., a Delaware corporation registered under the
Investment Advisers Act of 1940 as an investment adviser, of Chicago, Illinois
("Manager"), to furnish investment advisory and management services and certain
administrative services with respect to the portion of its assets represented by
the shares of beneficial interest issued in the series listed in Schedule A
hereto, as such schedule may be amended from time to time (each such series
hereinafter referred to as "Fund"). Trust and Manager hereby agree that:
1. Investment Management Services. Manager shall manage the
investment operations of Trust and each Fund, subject to the terms of this
Agreement and to the supervision and control of Trust's Board of Trustees
("Trustees"). Manager agrees to perform, or arrange for the performance of,
the following services with respect to each Fund:
(a) to obtain and evaluate such information relating to
economies, industries, businesses, securities and commodities markets,
and individual securities, commodities and indices as it may deem
necessary or useful in discharging its responsibilities hereunder;
(b) to formulate and maintain a continuous investment program in
a manner consistent with and subject to (i) Trust's agreement and
declaration of trust and by-laws; (ii) the Fund's investment
objectives, policies, and restrictions as set forth in written
documents furnished by the Trust to Manager; (iii) all securities,
commodities, and tax laws and regulations applicable to the Fund and
Trust; and (iv) any other written limits or directions furnished by
the Trustees to Manager;
<PAGE>
(c) unless otherwise directed by the Trustees, to determine from
time to time securities, commodities, interests or other investments
to be purchased, sold, retained or lent by the Fund, and to implement
those decisions, including the selection of entities with or through
which such purchases, sales or loans are to be effected;
(d) to use reasonable efforts to manage the Fund so that it will
qualify as a regulated investment company under subchapter M of the
Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in which voting
rights, rights to consent to Trust or Fund action, and any other
rights pertaining to Trust or the Fund shall be exercised;
(f) to make available to Trust promptly upon request all of the
Fund's records and ledgers and any reports or information reasonably
requested by the Trust; and
(g) to the extent required by law, to furnish to regulatory
authorities any information or reports relating to the services
provided pursuant to this Agreement.
Except as otherwise instructed from time to time by the Trustees, with
respect to execution of transactions for Trust on behalf of a Fund, Manager
shall place, or arrange for the placement of, all orders for purchases,
sales, or loans with issuers, brokers, dealers or other counterparts or
agents selected by Manager. In connection with the selection of all such
parties for the placement of all such orders, Manager shall attempt to
obtain most favorable execution and price, but may nevertheless in its sole
discretion as a secondary factor, purchase and sell portfolio securities
from and to brokers and dealers who provide Manager with statistical,
research and other information, analysis, advice, and similar services. In
recognition of such services or brokerage services provided by a broker or
dealer, Manager is hereby authorized to pay such broker or dealer a
commission or spread in excess of that which might be charged by another
broker or dealer for the same transaction if the Manager determines in good
faith that the commission or spread is reasonable in relation to the value
of the services so provided.
Trust hereby authorizes any entity or person associated with Manager
that is a member of a national securities exchange to effect any
transaction on the exchange for the account of a Fund to the extent
permitted by and in accordance with Section 11(a)
-2-
<PAGE>
of the Securities Exchange Act or 1934 and Rule 11a2-2(T) thereunder. Trust
hereby consents to the retention by such entity or person of compensation
for such transactions in accordance with Rule 11a-2-2(T)(a)(iv).
Manager may, where it deems to be advisable, aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for Trust or one or more Funds in order to obtain best execution
or lower brokerage commissions. In such event, Manager shall allocate the
shares so purchased or sold, as well as the expenses incurred in the
transaction, in a manner it considers to be equitable and fair and
consistent with its fiduciary obligations to Trust, the Funds, and
Manager's other customers.
Manager shall for all purposes be deemed to be an independent
contractor and not an agent of Trust and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent Trust in
any way.
2. Administrative Services. Subject to the terms of this Agreement
and to the supervision and control of the Trustees, Manager shall provide
to the Trust facilities, equipment, statistical and research data,
clerical, accounting and bookkeeping services, internal auditing and legal
services, and personnel to carry out all management services required for
operation of the business and affairs of the Funds other than those
services to be performed by the Trust's Distributor pursuant to the
Distribution Agreement, those services to be performed by the Trust's
Custodian pursuant to the Custody Agreement, those services to be performed
by the Trust's Transfer Agent pursuant to the Transfer Agency Agreement,
those services to be provided by the Trust's Custodian pursuant to the
Accounting Agreement and those services normally performed by the Trust's
counsel and auditors.
3. Use of Affiliated Companies and Subcontractors. In connection
with the services to be provided by Manager under this Agreement, Manager
may, to the extent it deems appropriate, and subject to compliance with the
requirements of applicable laws and regulations, make use of (i) its
affiliated companies and their directors, trustees, officers, and employees
and (ii) subcontractors selected by Manager, provided that Manager shall
supervise and remain fully responsible for the services of all such third
parties in accordance with and to the extent provided by this Agreement.
All costs and expenses associated with services provided by any such third
parties shall be borne by Manager or such parties.
4. Expenses Borne by Trust. Except to the extent expressly assumed
by Manager herein or under a separate agreement between Trust and Manager
and except
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<PAGE>
to the extent required by law to be paid by Manager, Manager shall not be
obligated to pay any costs or expenses incidental to the organization,
operations or business of the Trust. Without limitation, such costs and
expenses shall include but not be limited to:
(a) all charges of depositories, custodians and other agencies
for the safekeeping and servicing of its cash, securities, and other
property;
(b) all charges for equipment or services used for obtaining
price quotations or for communication between Manager or Trust and the
custodian, transfer agent or any other agent selected by Trust;
(c) all charges for and accounting services provided to Trust by
Manager, or any other provider of such services;
(d) all charges for services of Trust's independent auditors and
for services to Trust by legal counsel;
(e) all compensation of Trustees, other than those affiliated
with Manager, all expenses incurred in connection with their services
to Trust, and all expenses of meetings of the Trustees or committees
thereof;
(f) all expenses incidental to holding meetings of holders of
units of interest in the Trust ("Shareholders"), including printing
and of supplying each record-date Shareholder with notice and proxy
solicitation material, and all other proxy solicitation expense;
(g) all expenses of printing of annual or more frequent
revisions of Trust prospectus(es) and of supplying each then-existing
Shareholder with a copy of a revised prospectus;
(h) all expenses related to preparing and transmitting
certificates representing Trust shares;
(i) all expenses of bond and insurance coverage required by law
or deemed advisable by the Board of Trustees;
(j) all brokers' commissions and other normal charges incident
to the purchase, sale, or lending of portfolio securities;
-4-
<PAGE>
(k) all taxes and governmental fees payable to Federal, state or
other governmental agencies, domestic or foreign, including all stamp
or other transfer taxes;
(l) all expenses of registering and maintaining the registration
of Trust under the 1940 Act and, to the extent no exemption is
available, expenses of registering Trust's shares under the 1933 Act,
of qualifying and maintaining qualification of Trust and of Trust's
shares for sale under securities laws of various states or other
jurisdictions and of registration and qualification of Trust under all
other laws applicable to Trust or its business activities;
(m) all interest on indebtedness, if any, incurred by Trust or a
Fund; and
(n) all fees, dues and other expenses incurred by Trust in
connection with membership of Trust in any trade association or other
investment company organization.
5. Allocation of Expenses Borne by Trust. Any expenses borne by Trust
that are attributable solely to the organization, operation or business of
a Fund shall be paid solely out of Fund assets. Any expense borne by Trust
which is not solely attributable to a Fund, nor solely to any other series
of shares of Trust, shall be apportioned in such manner as Manager
determines is fair and appropriate, or as otherwise specified by the Board
of Trustees.
6. Expenses Borne by Manager. Manager at its own expense shall furnish
all executive and other personnel, office space, and office facilities
required to render the investment management and administrative services
set forth in this Agreement.
In the event that Manager pays or assumes any expenses of Trust or a
Fund not required to be paid or assumed by Manager under this Agreement,
Manager shall not be obligated hereby to pay or assume the same or similar
expense in the future; provided that nothing contained herein shall be
deemed to relieve Manager of any obligation to Trust or a Fund under any
separate agreement or arrangement between the parties.
7. Management Fee. For the services rendered, facilities provided, and
charges assumed and paid by Manager hereunder, Trust shall pay to Manager
out of the assets of each Fund fees at the annual rate for such Fund as set
forth in Schedule B to this Agreement. For each Fund, the management fee
shall accrue on each calendar
-5-
<PAGE>
day, and shall be payable monthly on the first business day of the next
succeeding calendar month. The daily fee accrual shall be computed by
multiplying the fraction of one divided by the number of days in the
calendar year by the applicable annual rate of fee, and multiplying this
product by the net assets of the Fund, determined in the manner established
by the Board of Trustees, as of the close of business on the last preceding
business day on which the Fund's net asset value was determined.
8. State Expense Limitation. If for any fiscal year of a Fund, its
aggregate operating expenses ("Aggregate Operating Expenses") exceed the
applicable percentage expense limit imposed under the securities law and
regulations of any state in which Shares of the Fund are qualified for sale
(the "State Expense Limit"), the Manager shall pay such Fund the amount of
such excess. For purposes of this State Expense Limit, Aggregate Operating
Expenses shall (a) include (i) any fees or expenses reimbursements payable
to Manager pursuant to this Agreement and (ii) to the extent the Fund
invests all or a portion of its assets in another investment company
registered under the 1940 Act, the pro rata portion of that company's
operating expenses allocated to the Fund, and (iii) any compensation
payable to Manager pursuant to any separate agreement relating to the
Fund's administration, but (b) exclude any interest, taxes, brokerage
commissions, and other normal charges incident to the purchase, sale or
loan of securities, commodity interests or other investments held by the
Fund, litigation and indemnification expense, and other extraordinary
expenses not incurred in the ordinary course of business. Except as
otherwise agreed to by the parties or unless otherwise required by the law
or regulation of any state, any reimbursement by Manager to a Fund under
this section shall not exceed the management fee payable to Manager by the
Fund under this Agreement.
Any payment to a Fund by Manager hereunder shall be made monthly, by
annualizing the Aggregate Operating Expenses for each month as of the last
day of the month. An adjustment for payments made during any fiscal year of
the Fund shall be made on or before the last day of the first month
following such fiscal year of the Fund if the Annual Operating Expenses for
such fiscal year (i) do not exceed the State Expense Limitation or (ii) for
such fiscal year there is no applicable State Expense Limit.
9. Retention of Sub-Adviser. Subject to obtaining the initial and
periodic approvals required under Section 15 of the 1940 Act, Manager may
retain one or more sub-advisers at Manager's own cost and expense for the
purpose of furnishing one or more of the services described in Section 1
hereof with respect to Trust or one or more Funds. Retention of a sub-
adviser shall in no way reduce the responsibilities or obligations of
Manager under this Agreement, and Manager shall be responsible to
-6-
<PAGE>
Trust and its Funds for all acts or omissions of any sub-adviser in
connection with the performance or Manager's duties hereunder.
10. Non-Exclusivity. The services of Manager to Trust hereunder are
not to be deemed exclusive and Manager shall be free to render similar
services to others.
11. Standard of Care. The Manager shall not be liable for any loss
sustained by reason of the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have been based upon
the investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been selected with due care
and in good faith, except loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of the Manager in the performance of
its obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
12. Amendment. This Agreement may not be amended as to the Trust or
any Fund without the affirmative votes (a) of a majority of the Board of
Trustees, including a majority of those Trustees who are not "interested
persons" of Trust or of Manager, voting in person at a meeting called for
the purpose of voting on such approval, and (b) of a "majority of the
outstanding shares" of Trust or, with respect to any amendment affecting an
individual Fund, a "majority of the outstanding shares" of that Fund. The
terms "interested persons" and "vote of a majority of the outstanding
shares" shall be construed in accordance with their respective definitions
in the 1940 Act and, with respect to the latter term, in accordance with
Rule 18f-2 under the 1940 Act.
13. Effective Date and Termination. This Agreement shall become
effective as to any Fund as of the effective date for that Fund specified
in Schedule A hereto. This Agreement may be terminated at any time, without
payment of any penalty, as to any Fund by the Board of Trustees of Trust,
or by a vote of a majority of the outstanding shares of that fund, upon at
least sixty (60) days' written notice to Manager. This Agreement may be
terminated by Manager at any time upon at least sixty (60) days' written
notice to Trust. This Agreement shall terminate automatically in the event
of its "assignment" (as defined in the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in effect with respect
to any Fund for an initial period of two (2) years from the effective date
applicable to that Fund specified in Schedule A and thereafter from year to
year only so long as such continuance is specifically approved with respect
to that Fund at least annually (a) by a majority of those Trustees who are
not interested persons of Trust or of Manager, voting in person at a
meeting called for the purpose of voting on such approval, and
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<PAGE>
(b) by either the Board of Trustees of Trust or by a "vote of a majority of
the outstanding shares" of the Fund.
14. Ownership of Records; Interparty Reporting. All records required
to be maintained and preserved by Trust pursuant to the provisions of rules
or regulations of the Securities and Exchange Commission under Section
31(a) of the 1940 Act or other applicable laws or regulations which are
maintained and preserved by Manager on behalf of Trust and any other
records the parties mutually agree shall be maintained by Manager on behalf
of Trust are the property of Trust and shall be surrendered by Manager
promptly on request by Trust; provided that Manager may at its own expense
make and retain copies of any such records.
Trust shall furnish or otherwise make available to Manager such copies
of the financial statements, proxy statements, reports, and other
information relating to the business and affairs of each Shareholder in a
Fund as Manager may, at any time or from time to time, reasonably require
in order to discharge its obligations under this Agreement.
Manager shall prepare and furnish to Trust as to each Fund statistical
data and other information in such form and at such intervals as Trust may
reasonably request.
15. Non-Liability of Trustees and Shareholders. Any obligation of
Trust hereunder shall be binding only upon the assets of Trust (or the
applicable Fund thereof) and shall not be binding upon any Trustee,
officer, employee, agent or Shareholder of Trust. Neither the authorization
of any action by the Trustees or Shareholders of Trust nor the execution of
this Agreement on behalf of Trust shall impose any liability upon any
Trustee or any Shareholder.
16. Use of Manager's Name. Trust may use the name "Nuveen Investment
Trust III" and the Fund names listed in Schedule A or any other name
derived from the name "Nuveen" only for so long as this Agreement or any
extension, renewal, or amendment hereof remains in effect, including any
similar agreement with any organization which shall have succeeded to the
business of Manager as investment adviser. At such time as this Agreement
or any extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, Trust will cease to use any name
derived from the name "Nuveen" or otherwise connected with Manager, or with
any organization which shall have succeeded to Manager's business as
investment adviser.
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<PAGE>
17. References and Headings. In this Agreement and in any such
amendment, references to this Agreement and all expressions such as
"herein," "hereof," and "hereunder'" shall be deemed to refer to this
Agreement as amended or affected by any such amendments. Headings are
placed herein for convenience of reference only and shall not be taken as a
part hereof or control or affect the meaning, construction, or effect of
this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
Dated: August 26, 1998
Nuveen Investment Trust III
Attest By /s/ Gifford R. Zimmerman
----------------------------------
/s/ Karen L. Healy
- -----------------------------
Nuveen Institutional Advisory Corp.
Attest By /s/ Alan G. Berkshire
----------------------------------
/s/ Larry W. Martin
- -----------------------------
<PAGE>
Nuveen Investment Trust III
Management Agreement
Schedule A
The Funds of the Trust currently subject to this Agreement and the
effective date of each are as follows:
FUND EFFECTIVE DATE INITIAL TERM
Nuveen Income Fund ______________ Until_________
<PAGE>
Nuveen Investment Trust III
Management Agreement
Schedule B
Compensation pursuant to Section 7 of this Agreement shall be calculated
with respect to each Fund in accordance with the following schedule applicable
to the average daily net assets of the Fund:
Nuveen Income Fund
<TABLE>
<CAPTION>
Average Daily Net Asset Value Fund Management Fee
<S> <C>
For the first $125 million .6000 of 1%
For the next $125 million .5875 of 1%
For the next $250 million .5750 of 1%
For the next $500 million .5625 of 1%
For the next $1 billion .5500 of 1%
For assets over $2 billion .5250 of 1%
</TABLE>
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
. Transfer Agency Services
NUVEEN FUNDS
August 24, 1998
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. Appointment......................................................... 1
2. Representations and Warranties...................................... 1
3. Delivery of Documents............................................... 3
4. Services Provided................................................... 3
5. Fees and Expenses................................................... 4
6. Limitation of Liability and Indemnification......................... 6
7. Term................................................................ 8
8. Notices............................................................. 9
9. Waiver.............................................................. 9
10. Force Majeure....................................................... 9
11. Additional Funds.................................................... 10
12. Amendments.......................................................... 10
13. Assignment.......................................................... 10
14. Severability........................................................ 10
15. Governing Law....................................................... 10
Signatures................................................................. 10
</TABLE>
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
Table of Contents (continued)
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule A -- Fees and Expenses........................................ A-1
Schedule B -- List of Nuveen Funds and Jurisdictions under
which Funds are Organized................................ B-1
Schedule C -- Transfer Agency Services Description..................... C-1
</TABLE>
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
AGREEMENT made as of August 24, 1998 by and between the Nuveen Funds
(each, a "Fund" and collectively the "Funds"), for the Funds listed on Schedule
B, and organized under the jurisdictions set forth on Schedule B, and Chase
Global Funds Services Company ("Chase"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, each Fund wishes to contract with Chase to provide certain
services with respect to the Fund;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Funds hereby appoint Chase to provide services for
the Funds, as described hereinafter, subject to the supervision of the Board of
Directors or Trustees of the Funds (the "Board"), for the period and on the
terms set forth in this Agreement. Chase accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Section 5 of and Schedule A to this Agreement.
2. Representations and Warranties.
(a) Chase represents and warrants to the Funds that:
(i) Chase is a corporation, duly organized and existing under the
laws of the State of Delaware;
(ii) Chase is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(iii) Chase is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(iv) all requisite corporate proceedings have been taken to
authorize Chase to enter into and perform this Agreement;
(v) Chase has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
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<PAGE>
(vi) no legal or administrative proceedings have been instituted
or threatened which would impair Chase's ability to perform its duties and
obligations under this Agreement; and
(vii) Chase's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of Chase or any law or regulation applicable to Chase;
(b) Each Fund represents and warrants to Chase that:
(i) the Fund is a duly organized and existing and in good standing
under the laws of the jurisdictions set forth above its name on Schedule B;
(ii) the Fund is empowered under applicable laws and by its
Charter Document and By-Laws to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize the
Fund to enter into and perform this Agreement;
(iv) the Fund is an investment company properly registered under
the 1940 Act;
(v) a registration statement under the Securities Act of 1933, as
amended ("1933 Act") and the 1940 Act on Form N-1A has been filed and will be
effective and will remain effective during the term of this Agreement, and all
necessary filings under the laws of the states will have been made and will be
current during the term of this Agreement;
(vi) no legal or administrative proceedings have been instituted
or threatened which would impair the Fund's ability to perform its duties and
obligations under this Agreement;
(vii) the Fund's registration statement complies in all material
respects with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and none of the Fund's prospectuses and/or statements of additional
information contain any untrue statement of material fact or omit to state a
material fact necessary to make the statements therein not misleading; and
(viii) the Fund's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of the Fund or any law or regulation applicable to it.
2
<PAGE>
3. Delivery of Documents. Each Fund will promptly furnish to Chase such
copies, properly certified or authenticated, of contracts, documents and other
related information that Chase may request or requires to properly discharge its
duties. Such documents may include but are not limited to the following:
(a) Resolutions of the Board authorizing the appointment of Chase to
provide certain services to the Fund and approving this Agreement;
(b) The Fund's Charter Document;
(c) The Fund's By-Laws;
(d) The Fund's Notification of Registration on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Fund's registration statement including exhibits, as amended,
on Form N-1A (the "Registration Statement") under the 1933 Act and the 1940 Act,
as filed with the SEC;
(f) Copies of the Investment Advisory Agreement between the Fund and
its investment adviser (the "Advisory Agreement");
(g) Opinions of counsel and auditors' reports;
(h) The Fund's prospectus(es) and statement(s) of additional
information relating to all funds, series, portfolios and classes, as
applicable, and all amendments and supplements thereto (such Prospectus(es) and
Statement(s) of Additional Information and supplements thereto, as presently in
effect and as from time to time hereafter amended and supplemented, herein
called the "Prospectuses"); and
(i) Such other agreements as the Fund may enter into from time to time
including securities lending agreements, futures and commodities account
agreements, brokerage agreements and options agreements.
4. Services Provided.
(a) Chase will provide the following services subject to the control,
direction and supervision of the Board and its designated agents and in
compliance with the objectives, policies and limitations set forth in the Funds'
Registration Statement, Charter Document and By-Laws; applicable laws and
regulations; and all resolutions and policies implemented by the Board:
(i) Transfer Agency.
A description of the above service is contained in Schedule C to this Agreement.
(b) Chase will also:
3
<PAGE>
(i) provide office facilities with respect to the provision of the
services contemplated herein (which may be in the offices of Chase or a
corporate affiliate of Chase);
(ii) provide or otherwise obtain personnel sufficient for
provision of the services contemplated herein;
(iii) furnish equipment and other materials, which are necessary
or desirable for provision of the services contemplated herein; and
(iv) keep records relating to the services provided hereunder in
such form and manner as Chase may deem appropriate or advisable. To the extent
required by Section 31 of the 1940 Act and the rules thereunder, Chase agrees
that all such records prepared or maintained by Chase relating to the services
provided hereunder are the property of the Funds and will be preserved for the
periods prescribed under Rule 31a-2 under the 1940 Act, maintained at the Funds'
expense, and made available in accordance with such Section and rules.
5. Fees and Expenses.
(a) As compensation for the services rendered to the Funds pursuant to
this Agreement the Funds shall pay Chase monthly fees determined as set forth in
Schedule A to this Agreement. Such fees are to be billed monthly and shall be
due and payable upon receipt of the invoice. Upon any termination of the
provision of services under this Agreement before the end of any month, the fee
for the part of the month before such termination shall be prorated according to
the proportion which such part bears to the full monthly period and shall be
payable upon the date of such termination.
(b) For the purpose of determining fees calculated as a function of
each Fund's assets, the value of the Fund's assets and net assets shall be
computed as required by its currently effective Prospectus, generally accepted
accounting principles, and resolutions of the Board.
(c) The Funds may request additional services, additional processing,
or special reports, with such specifications, requirements and documentation as
may be reasonably required by Chase. If Chase elects to provide such services
or arrange for their provision, it shall be entitled to additional fees and
expenses at its customary rates and charges.
(d) Chase will bear its own expenses in connection with the performance
of the services under this Agreement except as provided herein or as agreed to
by the parties. Each Fund agrees to promptly reimburse Chase for any services,
equipment or supplies ordered by or for the Fund through Chase and for any other
expenses that Chase may incur on the Fund's behalf at the
4
<PAGE>
Fund's request or as consented to by the Fund. Such other expenses to be
incurred in the operation of the Fund and to be borne by the Funds, include, but
are not limited to: taxes; interest; brokerage fees and commissions; salaries
and fees of officers, directors, or trustees who are not officers, directors,
shareholders or employees of Chase, or the Fund's distributor; SEC and state
Blue Sky registration and qualification fees, levies, fines and other charges;
postage and mailing costs; costs of share certificates; advisory fees;
independent public accountants and custodians; insurance premiums including
fidelity bond premiums; legal expenses; consulting fees; customary bank charges
and fees; expenses of typesetting and printing of Prospectuses for regulatory
purposes and for distribution to current shareholders of the Fund (the Fund's
distributor to bear the expense of all other printing, production, and
distribution of Prospectuses, and marketing materials); expenses of printing and
production costs of shareholders' reports and proxy statements and materials;
expenses of proxy solicitation and annual meetings; costs and expenses of Fund
stationery and forms; customer service telephone expenses, costs and expenses of
telephone and data lines and devices which are specially requested by the Fund;
costs associated with corporate or trust, shareholder, and Board meetings; trade
association dues and expenses; reprocessing costs to Chase caused by third party
errors; and any extraordinary expenses and other customary Fund expenses.
(e) All fees, out-of-pocket expenses, or additional charges of Chase
shall be billed on a monthly basis and shall be due and payable upon receipt of
the invoice.
(f) Chase will render, after the close of each month in which services
have been furnished, a statement reflecting all of the charges for such month.
Charges remaining unpaid after thirty (30) days shall bear interest in finance
charges equivalent to, in the aggregate, the Prime Rate (as reasonably
determined by Chase) plus two percent per year and all costs and expenses of
effecting collection of any such sums, including reasonable attorney's fees,
shall be paid by the Funds to Chase.
(g) In the event that the Funds are more than sixty (60) days
delinquent in payments of monthly billings in connection with this Agreement
(with the exception of specific amounts which may be contested in good faith by
the Funds), this Agreement may be terminated upon thirty (30) days' written
notice to the Funds by Chase. The Funds must notify Chase in writing of any
contested amounts within thirty (30) days of receipt of a billing for such
amounts. Disputed amounts are not due and payable while they are being
investigated.
5
<PAGE>
6. Limitation of Liability and Indemnification.
(a) Chase shall not be liable for any error of judgment or mistake of
law or for any loss or expense suffered by the Funds, in connection with the
matters to which this Agreement relates, except for a loss or expense solely
caused by or resulting from willful misfeasance, bad faith or negligence on
Chase's part in the performance of its duties or from reckless disregard by
Chase of its obligations and duties under this Agreement. In no event shall
Chase be liable for any indirect, incidental, special or consequential losses or
damages of any kind whatsoever, even if Chase has been advised of the likelihood
of such loss or damage and regardless of the form of action.
(b) Subject to Section 6(a) above, Chase shall not be responsible for,
and the Funds shall indemnify and hold Chase harmless from and against, any and
all losses, damages, costs, reasonable attorneys' fees and expenses, payments,
expenses and liabilities incurred by Chase, any of its agents, or the Funds'
agents in the performance of its/their duties hereunder, including but not
limited to those arising out of or attributable to:
(i) any and all actions of Chase or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reasonable reliance on or use by Chase or its officers or
agents of information, records, or documents which are received by Chase or its
officers or agents and furnished to it or them by or on behalf of the Funds, and
which have been prepared or maintained by the Funds or any third party on behalf
of the Funds;
(iii) the Funds' refusal or failure to comply with the terms of
this Agreement or the Funds' lack of good faith, or actions, or lack thereof,
involving negligence or willful misfeasance;
(iv) the breach of any representation or warranty of the Funds
hereunder;
(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with investors and
shareholders, or reasonable reliance by Chase on telephone or other electronic
instructions of any person acting on behalf of a shareholder or shareholder
account for which telephone or other electronic services have been authorized;
(vi) the reliance on or the carrying out by Chase or its officers
or agents of any proper instructions reasonably believed to be duly authorized,
or requests of the Funds or
6
<PAGE>
recognition by Chase of any share certificates which are reasonably believed to
bear the proper signatures of the officers of the Funds and the proper
countersignature of any transfer agent or registrar of the Funds;
(vii) any delays, inaccuracies, errors in or omissions from
information or data provided to Chase by data, corporate action, pricing
services or securities brokers and dealers;
(viii) the offer or sale of shares by any Fund in violation of any
requirement under the Federal securities laws or regulations or the securities
laws or regulations of any state, or in violation of any stop order or other
determination or ruling by any Federal agency or any state agency with respect
to the offer or sale of such shares in such state (1) resulting from activities,
actions, or omissions by the Funds or their other service providers and agents,
or (2) existing or arising out of activities, actions or omissions by or on
behalf of the Fund prior to the effective date of this Agreement;
(ix) any failure of a Fund's registration statement to comply with
the 1933 Act and the 1940 Act (including the rules and regulations thereunder)
and any other applicable laws, or any untrue statement of a material fact or
omission of a material fact necessary to make any statement therein not
misleading in a Fund's prospectus;
(x) the actions taken by the Funds, their investment adviser, and
their distributor in compliance with applicable securities, tax, commodities and
other laws, rules and regulations, or the failure to so comply; and
(xi) all actions, inactions, omissions, or errors caused by third
parties to whom Chase or the Funds has assigned any rights and/or delegated any
duties under this Agreement at the request of or as required by the Funds, their
investment advisers, distributor, administrator or sponsor.
(c) In performing its services hereunder, Chase shall be entitled to
reasonably rely on any oral or written instructions, notices or other
communications, including electronic transmissions, from the Funds and their
custodians, officers and directors, investors, agents and other service
providers and shareholders which Chase reasonably believes to be genuine, valid
and authorized, and shall be indemnified by the Funds for any loss or expense
caused by such reliance. Chase shall also be entitled to consult with and rely
on the advice and opinions of outside legal counsel retained by the Funds, as
necessary or appropriate.
7
<PAGE>
(d) Chase shall indemnify and hold the Funds harmless from and against
any and all losses, damages, costs, charges, payments, expenses and liability,
excluding attorneys' fees and costs, arising out of or attributable to Chase's
refusal or failure to comply with the material terms of this Agreement, or
Chase's lack of good faith, negligence or willful misconduct.
(e) Subject to the above Sections 6 (a) through 6 (d), any costs or
losses incurred by a Fund for the processing of any purchase, redemption,
exchange or other share transactions at a price per share other than the price
per share applicable to the effective date of the transaction (the foregoing
being generally referred to herein as "as of" transactions) will be handled in
the following manner:
(i) For each calendar year, if all "as of" transactions for the
year, taken in the aggregate, result in a net loss to a Fund ("net loss"), Chase
will reimburse the Fund for such net loss, except to the extent that such net
loss may be offset by application of a "net benefit" to the Fund carried over
from prior calendar years pursuant to sub-paragraph (ii) immediately below.
(ii) For each calendar year, if all "as of" transactions for the
year, taken in the aggregate, result in a net benefit to a Fund ("net benefit"),
the Fund shall not reimburse Chase for the amount of such net benefit; however,
any "net benefit" for any calendar year may be used to offset, in whole or in
part, any "net loss" suffered by the Fund in any future calendar year so as to
reduce the amount by which Chase shall be required to reimburse the Fund for
such "net loss" in such year pursuant to sub-paragraph (i) immediately above.
(iii) Any "net loss" for which Chase reimburses a Fund in any
calendar year shall not be carried over into future years so as to offset any
"net benefit" in such future years.
7. Term. This Agreement shall become effective on the date first
hereinabove written for an initial term of four years. The Agreement may be
modified or amended from time to time by mutual agreement between the parties
hereto. After the initial term, the Agreement shall continue in effect unless
terminated by either party on 6 months' prior written notice. Upon termination
of this Agreement, each Fund shall pay to Chase such compensation and any
reasonable out-of-pocket or other reimbursable expenses which may become due or
payable under the terms hereof as of the date of termination or after the date
that the provision of services ceases, whichever is later. If the Funds
terminate the Agreement for any reason during the first year of the initial
term, they will reimburse Chase in accordance with Schedule A.
8
<PAGE>
8. Notices. Any notice required or permitted hereunder shall be in
writing and shall be deemed effective on the date of personal delivery (by
private messenger, courier service or otherwise) or upon confirmed receipt of
telex or facsimile, whichever occurs first, or upon receipt if by mail to the
parties at the following address (or such other address as a party may specify
by notice to the other):
If to the Funds:
John Nuveen & Co., Incorporated
333 West Wacker Drive
Chicago, IL 60606
Attention: Fund Controller
Fax: (312) 917-8049
If to Chase:
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
Attention: Karl O. Hartmann, Esq., General Counsel
Fax: (617) 557-8616
9. Waiver. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
10. Force Majeure. Chase shall not be responsible or liable for any harm,
loss or damage suffered by the Funds, their investors, or other third parties or
for any failure or delay in performance of Chase's obligations under this
Agreement arising out of or caused, directly or indirectly, by circumstances
beyond Chase's control. In the event of a force majeure, any resulting harm,
loss, damage, failure or delay by Chase will not give the Funds the right to
terminate this Agreement.
11. Additional Funds. In the event that John Nuveen & Company Incorporated
sponsors additional open-end management companies with respect to which it
desires Chase to provide services under the terms of this Agreement, it shall so
notify Chase in writing, and if Chase agrees in writing to provide such
services, such Fund or Funds shall be subject to the terms of this Agreement and
Schedule C shall be modified accordingly.
9
<PAGE>
12. Amendments. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
13. Assignment. Chase may assign and delegate this Agreement and its
rights and obligations hereunder without the consent of the other party.
14. Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
NUVEEN FUNDS
By: /s/ Stuart Rogers
--------------------------
Name: Stuart Rogers
------------------------
Title: Vice President
-----------------------
CHASE GLOBAL FUNDS
SERVICES COMPANY
By: /s/ Donald P. Hearn
--------------------------
Name: Donald P. Hearn
------------------------
Title: Chairman and CEO
------------------------
10
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE A
FEES AND EXPENSES
Transfer Agency Fees
A. $18.50 per municipal fund account per annum
$18.25 per equity fund account per annum
$29.00 per money market fund account per annum
B. Out-of-pocket expenses, including but not limited to those in Section 5(d),
will be computed, billed and payable monthly Customized systems and
technology charges (excluding those projects covered under the conversion
agreement) will be negotiated individually and billed along with out-of-
pocket expenses.
C. If the Funds terminate this Agreement for any reason whatsoever between the
date of this Agreement and July 1, 1999, there will be immediately due and
owing to Chase by Nuveen a $6 million charge; if between the date of July
1, 1999 and June 30, 2000, a $4 million charge; and if between July 1, 2000
and June 30, 2001, a $2 million charge. In addition, the Funds will
reimburse Chase for all costs it incurs in connection with any conversion
to another transfer agent.
A-1
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE B
Flagship Admiral Funds Inc. (Maryland Corporation)
Flagship Utility Income Fund
Nuveen Investment Trust (Massachusetts Business Trust)
Nuveen Growth and Income Stock Fund
Nuveen Balanced Stock and Bond Fund
Nuveen Balanced Municipal and Stock Fund
Nuveen European Value Fund
Nuveen Investment Trust II (Massachusetts Business Trust)
Nuveen Rittenhouse Growth Fund
Nuveen Investment Trust III (Massachusetts Business Trust)
Nuveen Income Fund
Nuveen Flagship Municipal Trust (Massachusetts Business Trust)
Nuveen Municipal Bond Fund
Nuveen Insured Municipal Bond Fund
Nuveen Flagship All-American Municipal Bond Fund
Nuveen Flagship Limited Term Municipal Bond Fund
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Flagship Multistate Trust I (Massachusetts Business Trust)
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Flagship Florida Municipal Bond Fund
Nuveen Flagship Florida Intermediate Municipal Bond Fund
Nuveen Maryland Municipal Bond Fund
Nuveen Flagship New Mexico Municipal Bond Fund
B-1
<PAGE>
Nuveen Flagship Pennsylvania Municipal Bond Fund
Nuveen Flagship Virginia Municipal Bond Fund
Nuveen Flagship Multistate Trust II (Massachusetts Business Trust)
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
Nuveen Flagship Connecticut Municipal Bond Fund
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
Nuveen Flagship New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
Nuveen Flagship Multistate Trust III (Massachusetts Business Trust)
Nuveen Flagship Alabama Municipal Bond Fund
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship South Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
Nuveen Flagship Multistate Trust IV (Massachusetts Business Trust)
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
Nuveen Tax-Exempt Money Market Fund, Inc. (Maryland Corporation)
Nuveen Tax-Free Reserves, Inc. (Maryland Corporation)
Nuveen Tax-Free Money Market Fund, Inc. (Minnesota Corporation)
Nuveen Massachusetts Tax-Free Money Market Fund
B-2
<PAGE>
Nuveen New York Tax-Free Money Market Fund
Nuveen California Tax-Free Fund, Inc. (Maryland Corporation)
Nuveen California Tax-Free Money Market Fund
B-3
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE C
DESCRIPTION OF TRANSFER AGENCY SERVICES
The following is a general description of the transfer agency services Chase
shall provide to each Fund.
A. Shareholder Recordkeeping. Maintain records showing for each Fund
shareholder the following: (i) name, address, appropriate tax
certification and tax identifying number; (ii) number of shares of each
Fund, portfolio or class; (iii) historical information including, but not
limited to, dividends paid, date and price of all transactions including
individual purchases and redemptions, based upon appropriate supporting
documents; and (iv) any dividend reinvestment order, application,
specific address, payment and processing instructions and correspondence
relating to the current maintenance of the account.
B. Share Issuance. Record the issuance of shares of each Fund, portfolio or
class. Except as specifically agreed in writing between Chase and the
Fund, Chase shall have no obligation when countersigning and issuing
and/or crediting shares to take cognizance of any other laws relating to
the issue and sale of such shares except insofar as policies and
procedures of the Stock Transfer Association recognize such laws.
C. Transfer, Purchase, Exchange and Redemption Orders. Process all orders
for the transfer, purchase, exchange and redemption of shares of the Fund
in accordance with the Fund's current prospectus and customary transfer
agency policies and procedures, including electronic transmissions which
the Fund acknowledges it has authorized, or in accordance with any
instructions of the Fund or its agents which Chase reasonably believes to
be authorized.
D. Shareholder Communications. Transmit all communications by the Fund to
its shareholders promptly following the delivery by the Fund of the
material to be transmitted by mail, telephone, courier service or
electronically.
E. Proxy Materials. Assist with the mailing or transmission of proxy
materials, tabulating votes, and compiling and certifying voting results.
Services may include the provision of inspectors of election at any
meeting of shareholders.
F. Share Certificates. If permitted by Fund policies, and if a shareholder
of the Fund requests a certificate representing shares, Chase as Transfer
Agent, will countersign and mail a share certificate to the investor at
his/her address as it appears on the Fund's shareholder records.
C-1
<PAGE>
G. Returned Checks. In the event that any check or other negotiable
instrument for the payment of shares is returned unpaid for any reason,
Chase will take such steps, as Chase may, in its discretion, deem
appropriate and notify the Fund of such action. However, the Fund
remains ultimately liable for any returned checks or negotiable
instruments of its shareholders.
H. Shareholder & Broker-Dealer Correspondence. Acknowledge all
correspondence from shareholders and broker-dealers relating to share
accounts and undertake such other shareholder and broker-dealer
correspondence as may from time to time be mutually agreed upon.
I. Tax Reporting. Chase shall issue appropriate shareholder tax forms as
required.
J. Dividend Disbursing. Chase will prepare and mail checks, place wire
transfers or credit income and capital gain payments to shareholders.
The Fund will advise Chase of the declaration of any dividend or
distribution and the record and payable date thereof at least five (5)
days prior to the record date. Chase will, on or before the payment date
of any such dividend or distribution, notify the Fund's Custodian of the
estimated amount required to pay any portion of such dividend or
distribution payable in cash, and on or before the payment date of such
distribution, the Fund will instruct its Custodian to make available to
Chase sufficient funds for the cash amount to be paid out. If a
shareholder is entitled to receive additional shares by virtue of any
such distribution or dividend, appropriate credits will be made to each
shareholder's account.
K. Escheatment. Chase shall provide escheatment services only with respect
to the escheatment laws of the Commonwealth of Massachusetts, including
those which relate to reciprocal agreements with other states.
L. Telephone Services. Chase will provide staff coverage, training and
supervision in connection with the Fund's telephone line for shareholder
inquiries, and will respond to inquiries concerning shareholder records,
transactions processed by Chase, procedures to effect the shareholder
records and inquiries of a general nature relative to shareholder
services.
M. 12b-1. Chase will calculate and process all 12b-1 payments in accordance
with each Fund's current prospectus.
N. Commission Payments. Chase will calculate and process all commission
payments in accordance with each Fund's current prospectus.
O. Requests for Information. Chase will provide all required information in
a timely fashion in support of regulatory filings.
P. SAS 70. Chase will make available to the Funds' sponsor independent
auditor reports in compliance with SAS 70.
C-2
<PAGE>
Q. Regulatory Changes. Chase will provide assistance with the analysis and
implementation of any changes required by regulatory bodies.
C-3
<PAGE>
Nuveen Investment Trust
Nuveen Investment Trust II
Nuveen Investment Trust III
Nuveen Investment Trust IV
Plan of Distribution and Service
Pursuant to Rule 12b-1
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 under the Investment Company Act of 1940,
as amended (the "Act");
Whereas, each Trust is authorized to and may or 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 (each 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, each Trust has outstanding the Funds set forth on Exhibit A;
Whereas, each Trust employs John Nuveen & Co. Incorporated (the
"Distributor") as distributor of the shares of each Fund (the "Shares") pursuant
to separate Distribution Agreements;
Whereas, each Fund is authorized to issue Shares in four different classes
("Classes"): Class A, Class B, Class C and Class R.
Whereas, each Trust has adopted, or desires to adopt, a Plan of
Distribution and Service pursuant to Rule 12b-1 under the Act ("Rule 12b-1"),
and the Board of Trustees of each Trust has determined that there is a
reasonable likelihood that adoption of this Plan of Distribution and Service
will benefit each Fund and its shareholders;
Whereas, each Trust, on behalf of its Funds has adopted a Multiple Class
Plan Pursuant to Rule 18f-3 (the "Rule 18f-3 Plan") to enable the various
Classes of Shares to be granted different rights and privileges and to bear
different expenses, and has an effective registration statement on file with the
SEC containing a Prospectus describing such Classes of Shares;
Whereas, as described in the Rule 18f-3 Plan, the purchase of Class A
Shares is generally subject to an up-front sales charge, as set forth in the
Trust's Prospectus and Statement
<PAGE>
of Additional Information, and the purchase of Class B and Class C Shares will
not be subject to an up-front sales charge, but in lieu thereof the Class B
Shares will be subject to an asset-based distribution fee (and a declining
contingent deferred sales charge) and Class C Shares will be subject to an
asset-based distribution fee (and a one-year contingent deferred sales charge),
as described in the Prospectus for the Shares; and
Whereas, Shares representing an investment in Class B will automatically
convert to Class A Shares 8 years after the investment, as described in the
Prospectus for the Shares;
Now, Therefore, each Fund hereby adopts, and the Distributor hereby agrees
to the terms of, this Plan of Distribution and Service (the "Plan") in
accordance with Rule 12b-1, on the following terms and conditions:
1. (a) The Fund is authorized to compensate the Distributor for services
performed and expenses incurred by the Distributor in connection
with the distribution of Shares of Class A, Class B and Class C
of the Fund and the servicing of accounts holding such Shares.
(b) The amount of such compensation paid during any one year shall
consist
(i) with respect to Class A Shares of a Service Fee not to
exceed .25% of average daily net assets of the Class A
Shares of the Fund;
(ii) with respect to Class B Shares of a Service Fee not to
exceed .25% of average daily net assets of the Class B
Shares of the Fund, plus a Distribution Fee not to exceed
.75% of average daily net assets of the Class B Shares of
the Fund; and
(iii) with respect to Class C Shares of a Service Fee not to
exceed .25% of average daily net assets of the Class C
Shares of the Fund, plus a Distribution Fee not to exceed
.75% of average daily net assets of the Class C Shares of
the Fund.
Such compensation shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board of Trustees may
determine.
(c) With respect to Class A Shares, the Distributor shall pay any
Service Fees it receives under the Plan for which a particular
underwriter, dealer, broker, bank or selling entity having a
Dealer Agreement in effect ("Authorized Dealer", which may
include the Distributor) is the dealer of record to such
Authorized
-2-
<PAGE>
Dealers to compensate such organizations for providing services to
shareholders relating to their investment. The Distributor may retain
any Service Fees not so paid.
(d) With respect to the Class B Shares, the Distributor:
(i) shall retain the Distribution Fee to compensate it for costs
associated with the distribution of the Class B Shares, including
the payment of broker commissions to Authorized Dealers (which
may include the Distributor) who were the dealer of record with
respect to the purchase of those shares; and
(ii) shall pay any Service Fees it receives under the Plan for which a
particular Authorized Dealer is the dealer of record (which may
include the Distributor) to such Authorized Dealers to compensate
such organizations for providing services to shareholders
relating to their investment; provided, however, that the
Distributor shall be entitled to retain, for the first year after
purchase of the Class B Shares, the Service Fee to the extent
that it may have pre-paid the Service Fee for that period to the
Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not so
paid.
(e) With respect to the Class C Shares, the Distributor:
(i) shall pay the Distribution Fee it receives under the Plan with
respect to Class C Shares for which a particular Authorized
Dealer is the dealer of record (which may include the
Distributor) to such Authorized Dealers to compensate such
organizations in connection with such share sales; provided,
however, that the Distributor shall be entitled to retain, for
the first year after purchase of the Class C Shares, the
Distribution Fee to the extent that it may have pre-paid the
Distribution Fee for that period to the Authorized Dealer of
record; and
(ii) shall pay any Service Fees it receives under the Plan for which a
particular Authorized Dealer is the dealer of record (which may
include the Distributor) to such Authorized Dealers to compensate
such organizations for providing services to shareholders
relating to their investment; provided, however, that the
Distributor shall be entitled to retain, for the first year after
purchase of the Class C Shares, the Service Fee to the
-3-
<PAGE>
extent that it may have pre-paid the Service Fee for that
period to the Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not
so paid.
(f) Services for which such Authorized Dealers may receive Service
Fee payments include any or all of the following: maintaining account records
for shareholders who beneficially own Shares; answering inquiries relating to
the shareholders' accounts, the policies of the Fund and the performance of
their investment; providing assistance and handling transmission of funds in
connection with purchase, redemption and exchange orders for Shares; providing
assistance in connection with changing account setups and enrolling in various
optional fund services; producing and disseminating shareholder communications
or servicing materials; the ordinary or capital expenses, such as equipment,
rent, fixtures, salaries, bonuses, reporting and recordkeeping and third party
consultancy or similar expenses, relating to any activity for which payment is
authorized by the Board; and the financing of any other activity for which
payment is authorized by the Board.
(g) Payments of Distribution or Service Fees to any organization as
of any quarter-end will not exceed the appropriate amount based on the annual
percentages set forth in subparagraphs b(i), (ii) and (iii) above, based on
average net assets of accounts for which such organization appeared on the
records of the Fund and/or its transfer agent as the organization of record
during the preceding quarter.
2. This Plan shall not take effect until the Plan, together with any
related agreement(s), has been approved with respect to the affected Fund and
Class thereof by votes of a majority of both (a) the Board of Trustees of the
Trust, and (b) those Trustees of the Trust who are not "interested persons" of
the Trust (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the "Rule
12b-1 Trustees") cast in person at a meeting (or meetings) called for the
purpose of voting on the Plan and such related Agreement(s).
3. This Plan shall remain in effect until August 1, 1999, and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2.
4. The Distributor shall provide to the Board of Trustees of the Trust
and the Board shall review, at least quarterly, a written report of
distribution-and service-related activities, Distribution Fees, Service Fees,
and the purposes for which such activities were performed and expenses incurred.
-4-
<PAGE>
5. This Plan may be terminated as to a given Fund or as to a given Class
A, Class B or Class C of a Fund at any time by vote of a majority of the Rule
12b-1 Trustees or by vote of a majority (as defined in the Act) of the
outstanding voting Shares of the applicable Fund or Class.
6. This Plan may not be amended to increase materially the amount of
compensation payable by the Fund with respect to Class A, Class B or Class C
Shares under paragraph 1 hereof unless such amendment is approved by a vote of
at least a majority (as defined in the Act) of the outstanding voting Shares of
that Class of Shares of the respective Fund. No material amendment to the Plan
shall be made unless approved in the manner provided in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of the Trust
shall be committed to the discretion of the Trustees who are not such interested
persons.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
This Plan was adopted by: NIT on July 17, 1996 (amended on May 16, 1998)
NITII on July 24, 1997 (amended on May 16, 1998)
NIT III and NIT IV on August 26, 1998
-5-
<PAGE>
Exhibit A
to Plan of Distribution and Service Pursuant to Rule 12b-1
Nuveen Investment Trust:
Nuveen Growth and Income Stock Fund
Nuveen Balanced Stock and Bond Fund
Nuveen Balanced Municipal and Stock Fund
Nuveen European Value Fund
Nuveen Investment Trust II:
Nuveen Rittenhouse Growth Fund
Nuveen Investment Trust III:
Nuveen Income Fund
Nuveen Investment Trust IV:
Nuveen Dividend and Growth Fund
-6-
<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 TIMOTHY R.
SCHWERTFEGER, 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, the undersigned trustee of the above-referenced organization
has hereunto set his hand this 26th day of August, 1998.
/s/ Anthony T. Dean
------------------------------
Anthony T. Dean
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
------------------------
My Commission Expires: 10/27/01
<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,
TIMOTHY R. SCHWERTFEGER, 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, the undersigned trustee of the above-referenced organization
has hereunto set his hand this 26th day of August, 1998.
/s/ James E. Bacon
-------------------------
James E. Bacon
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
-------------------------------
My Commission Expires: 10/27/01
<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,
TIMOTHY R. SCHWERTFEGER, 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, the undersigned trustee of the above-referenced organization
has hereunto set his hand this 26th day of August, 1998.
/s/ William L. Kissick
----------------------------------
William L. Kissick
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
------------------------------------
My Commission Expires: 10/27/01
<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,
TIMOTHY R. SCHWERTFEGER, 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, the undersigned trustee of the above-referenced organization
has hereunto set his hand this 26th day of August, 1998.
/s/ Thomas E. Leafstrand
-------------------------------
Thomas E. Leafstrand
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"
VIRGINA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/27/01
- -----------------------------------
/s/ Virginia L. Corcoran
-------------------------------
My Commission Expires: 10/27/01
<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,
TIMOTHY R. SCHWERTFEGER, ALAN G. BERKSHIRE, LARRY W. MARTIN and GIFFORD R.
ZIMMERMAN, and each of them (with full power to each of them to act alone) her
true and lawful attorney-in-fact and agent, for her on her behalf and in her
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 she
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, the undersigned trustee of the above-referenced organization
as hereunto set her hand this 26th day of August, 1998.
/s/ Sheila W. Wellington
--------------------------
Sheila W. Wellington
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.
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"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/27/01
- --------------------------------
/s/ Virginia L. Corcoran
--------------------------
My Commission Expires: 10/27/01
