<PAGE>
NUVEEN MUNICIPAL BOND FUND
Prospectus
June 13, 1995
Nuveen Municipal Bond Fund (the "Fund") is designed to provide
as high a level of current interest income exempt from regular
federal income tax as is consistent, in the view of the Fund's
management, with preservation of capital. The Fund invests in
investment grade quality, long-term Municipal Obligations
judged by the Fund's investment adviser to offer the best val-
ues among Municipal Obligations of similar credit quality.
The Fund has adopted a Flexible Sales Charge Program which pro-
vides you with alternative ways of purchasing Fund shares based
upon your individual investment needs and preferences. You may
purchase Class A Shares at a price equal to their net asset
value plus an up-front sales charge. You may purchase Class C
Shares without any up-front sales charge at a price equal to
their net asset value but subject to an annual distribution fee
designed to compensate securities dealers over time for the
sale of Fund shares. Class C Shares are subject to a 1% contin-
gent deferred sales charge ("CDSC") for redemptions within 12
months of purchase. Class C Shares automatically convert to
Class A Shares six years after purchase. Both Class A Shares
and Class C Shares are subject to annual service fees, which
are used to compensate securities dealers for providing you
with ongoing account services. Under the Flexible Sales Charge
Program, all Fund shares outstanding as of June 13, 1995, have
been designated as Class R Shares. Class R Shares are available
for purchase at a price equal to their net asset value only un-
der certain limited circumstances, or by specified investors,
as described herein. See "How to Buy Fund Shares."
This Prospectus contains information you should know before in-
vesting in the Fund. Please retain it for future reference. You
can find more detailed information about the Fund in the
"Statement of Additional Information" dated June 13, 1995. For
a free copy of this Statement, write to the Fund, c/o John
Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, IL
60606, or call Nuveen toll-free at 800-621-7227. The Statement
has been filed with the Securities and Exchange Commission and
is incorporated by reference into this Prospectus.
Shares of the Fund are not deposits or obligations of, or guar-
anteed or endorsed by, any bank and are not federally insured
by the Federal Deposit Insurance Corporation, the Federal Re-
serve Board, or any other agency. Shares of the Fund involve
investment risks, including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
JOHN NUVEEN & CO. INCORPORATED
FOR INFORMATION, CALL TOLL-FREE 800-621-7227
1
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CONTENTS
3 Summary of Fund Expenses
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4 How to Determine if the Fund Is Right for You
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8 Financial Highlights
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9 Who Is Responsible for the Operation of the Fund?
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9 What are the Fund's Investment Objective and Policies?
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14 Flexible Sales Charge Program
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17 How to Buy Fund Shares
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29 Distribution and Service Plan
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29 How to Redeem Fund Shares
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33 Management of the Fund
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35 How the Fund Shows Performance
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37 Distributions and Taxes
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41 Net Asset Value
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41 General Information
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Appendix A--Taxable Equivalent Yield Tables
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Application
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2
<PAGE>
SUMMARY OF FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES (AS A PERCENT OF OFFERING PRICE)
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS R
----------- ----------- -------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases 4.50% None None
Maximum Sales Load Imposed on Reinvested
Dividends None None None
Deferred Sales Charge (for sales within 12
months of purchase) None 1.00% None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL OPERATING EXPENSES (AS A PERCENT
OF AVERAGE DAILY NET ASSETS)
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<CAPTION>
CLASS A (1) CLASS C (1) CLASS R
----------- ----------- -------
<S> <C> <C> <C>
Management Fees .45% .45% .45%
Rule 12b-1 Fees (2) .25% 1.00% None
Other Operating Expenses .14% .14% .14%
---- ----- ----
Total Expenses .84% 1.59% .59%
</TABLE>
--------
(1) The percentages shown are estimated because no
Class A Shares or Class C Shares were outstanding
during the Fund's fiscal year ended February 28,
1995. Actual fees and expenses may be greater or
less than those shown.
(2) Class C Shares are subject to an annual distribu-
tion fee of .75 of 1% of average daily net assets,
less the amount of any CDSC received by Nuveen as
to which no reinstatement privilege has been exer-
cised, to compensate Authorized Dealers over time
for the sale of Fund shares. Both Class A Shares
and Class C Shares are subject to an annual service
fee of .25 of 1% of average daily net assets to
compensate Authorized Dealers for ongoing account
services. See "Distribution and Service Plan."
Long-term holders of Class C Shares may pay more in
Rule 12b-1 fees than the economic equivalent of the
maximum front-end sales charge permitted under the
National Association of Securities Dealers Rules of
Fair Practice.
The purpose of the tables above is to help you under-
stand all expenses and fees that you would bear di-
rectly or indirectly as a Fund shareholder. The ex-
penses and fees shown are for the fiscal year ended
February 28, 1995.
EXAMPLE*
You would pay the following expenses on a $1,000 in-
vestment over various time periods, assuming (1) a 5%
annual rate of return and (2) redemption at the end
of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $53 $71 $90 $144
Class C $26** $50 $87 $150
Class R $ 6 $19 $33 $ 74
</TABLE>
*This example does not represent past or future ex-
penses. Actual expenses may be greater or less than
those shown. Moreover, the Fund's actual rate of return
may be greater or less than the hypothetical 5% return
shown in this example. This example assumes that the
percentage amounts listed under Annual Operating Ex-
penses remain the same in each of the periods. The ten-
year figure for Class C Shares reflects the automatic
conversion of Class C Shares into Class A Shares six
years after purchase. Based on the foregoing assump-
tions, the expenses incurred on an investment in Class
C Shares will exceed the expenses incurred on an in-
vestment in Class A Shares sometime in the sixth year
after purchase. You should also note that Class R
Shares are available for purchase only under certain
limited circumstances, or by specified investors. For
additional information about the Fund's fees and ex-
penses, see "Distribution and Service Plan" and "Man-
agement of the Fund."
**If shares are held longer than 12 months, so that no
CDSC is imposed, expenses in the first year would be
$16.
3
<PAGE>
HOW TO DETERMINE IF THE FUND IS RIGHT FOR YOU
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There are many reasons why you might invest in the
Fund. These can include:
. lowering the tax burden on your investment income
. earning regular monthly dividends
. seeking to preserve your investment capital
. systematically setting money aside for retirement,
college funding or estate planning purposes
While there can be no assurance that the Fund will ena-
ble you to achieve your individual investment goals, it
has been designed for investors who have these kinds of
investment goals in mind.
In addition, the Fund incorporates the following fea-
tures and benefits. You should carefully review the
more detailed description of these features and bene-
fits elsewhere in the Prospectus to make sure they
serve your individual investment goals.
MONTHLY, TAX- The Fund provides monthly dividends exempt from regular
FREE INCOME federal income tax.
DIVERSIFIED, The Fund purchases investment grade quality Municipal
INVESTMENT GRADE Obligations issued within the 50 states and certain
QUALITY PORTFOLIO U.S. possessions or territories. The Fund is diversi-
fied and maintains diversity within its portfolio by
selecting Municipal Obligations of different issuers.
The Fund further enhances its portfolio mix by purchas-
ing Municipal Obligations of different types and pur-
poses and from different geographic regions across the
country.
EXPERIENCED The Fund is managed by Nuveen Advisory Corp. ("Nuveen
MANAGEMENT Advisory"), a wholly-owned subsidiary of John Nuveen &
Co. Incorporated ("Nuveen"). Founded in 1898, Nuveen is
the oldest and largest investment banking firm in the
country devoted exclusively to tax-exempt securities.
Nuveen Advisory currently manages 76 different tax-free
portfolios representing approximately $30 billion in
assets.
VALUE INVESTING As a guiding policy, Nuveen Advisory's portfolio manag-
ers seek investment grade quality, undervalued or un-
derrated Municipal Obligations which offer the best
values among Municipal Obligations of similar credit
quality. By selecting these Municipal Obligations,
Nuveen Advisory seeks to position the Fund better to
achieve its investment
4
<PAGE>
------------------------------------------------------------------------------
objective of as high a level of current interest income
exempt from regular federal income tax as is consis-
tent, in the view of the Fund's management, with pres-
ervation of capital, regardless of which direction the
market may move.
NUVEEN RESEARCH Nuveen Advisory's portfolio managers call upon the re-
sources of Nuveen's Research Department, the largest in
the investment banking industry devoted exclusively to
tax-exempt securities. Nuveen research analysts re-
viewed in 1994 more than $100 billion of tax-exempt se-
curities sold in new issue and secondary markets.
LOW MINIMUMS You can start earning tax-free income with a low ini-
tial investment of $1,000 in a particular class. See
"How to Buy Fund Shares."
FLEXIBLE SALES For many investors, working with a professional finan-
CHARGE PROGRAM cial adviser is an important part of their financial
strategy. Because Nuveen recognizes the value a finan-
cial adviser can provide in developing and implementing
a comprehensive plan for your financial future,
Nuveen's open-end long-term bond funds ("Nuveen Mutual
Funds") are sold with a sales charge, either at the
time of purchase or over time in the form of a distri-
bution fee. This provides your financial adviser with
compensation for the professional advice and service
you receive in financial planning and investment selec-
tion.
The Fund has adopted a Flexible Sales Charge Program
which provides you with alternative ways of purchasing
Fund shares based upon your individual investment needs
and preferences. As described below, the Fund offers
Class A Shares, Class C Shares and, under certain lim-
ited circumstances, Class R Shares. In deciding which
class of the Fund's shares to purchase, you should con-
sider all relevant factors, including the dollar amount
of your purchase, the length of time you expect to hold
the shares and whether a CDSC would apply, the amount
of any applicable up-front sales charge, the amount of
any applicable distribution or service fee that may be
incurred while you own the shares, and whether or not
you will be reinvesting income or capital gain distri-
butions in additional shares. For assistance with this
decision, please refer to the tables under "Summary of
Fund Expenses" on page 3 of this Prospectus which set
forth examples of the expenses applicable to each class
of shares, or consult your financial adviser. The fol-
lowing summary describes the three classes of shares
offered by the Fund:
Class A Shares
. available at net asset value plus an up-front sales
charge
5
<PAGE>
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. certain purchasers qualify for a reduction or waiver
of the up-front sales charge
. annual service fee to compensate securities dealers
who have sales agreements with Nuveen ("Authorized
Dealers") for providing you with ongoing account
services
Class C Shares
. available at net asset value without any up-front
sales charge
. annual distribution fee to compensate Authorized
Dealers over time for the sale of Fund shares
. automatic tax-free conversion to Class A Shares six
years after purchase
. annual service fee to compensate Authorized Dealers
for providing you with ongoing account services
. 1% CDSC on shares redeemed within 12 months of pur-
chase
Class R Shares
. if you owned Fund shares as of June 13, 1995, those
shares have been designated as Class R Shares
. available for purchase under certain limited circum-
stances, or by specified investors, at net asset
value without any sales charge or annual distribution
or service fees
See "Flexible Sales Charge Program" and "How to Buy
Fund Shares" for additional information about the
Fund's three classes of shares.
AUTOMATIC DEPOSIT The Fund offers a number of investment options, includ-
PLANS ing automatic deposit, direct deposit and payroll de-
duction, to help you add to your account on a regular
basis.
AUTOMATIC All monthly dividends or capital gains paid with re-
REINVESTMENT spect to each class of shares will be reinvested auto-
matically into additional shares of the same class
without a sales charge, unless you elect to receive
them in cash. Separately, distributions from any Nuveen
unit investment trust (a "Nuveen UIT") may be used to
buy Class A Shares and, under certain circumstances,
Class R Shares, in either case without a sales charge
at net asset value.
EXCHANGE Shares of a class may be quickly and easily exchanged
PRIVILEGE by telephone, without a sales charge, for shares of the
same or equivalent class of another Nuveen Mutual Fund
or for shares of certain Nuveen money market funds.
Class R Shares of the Fund may be exchanged for Class A
Shares of the Fund at any time, provided that the cur-
rent net asset value of those Class R Shares is at
least $1,000 or you already own Class A Shares.
6
<PAGE>
-
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LIQUIDITY You may redeem all or a portion of your Fund shares on
any business day at the net asset value next computed
for the class of shares you are redeeming. An investor
purchasing Class C Shares agrees to pay a CDSC of 1%
if Class C Shares are redeemed within 12 months of
purchase. The Fund will redeem shares at net asset
value and deduct any applicable CDSC from the proceeds
of the redemption. Remember that share prices will
fluctuate with market conditions and upon redemption
may be worth more or less than their original cost.
See "How to Redeem Fund Shares."
AUTOMATIC
WITHDRAWAL If you own shares totalling $10,000 or more, you can
arrange to have $50 or more sent to you from your ac-
count either monthly or quarterly.
TELEPHONE You may establish free telephone redemption privileges
REDEMPTIONS for your account.
NO REDEMPTION There are no fees imposed by the Fund for selling
FEES shares when redeeming all or part of your holdings.
However, your financial adviser may charge you for
serving as agent in the redemption of shares.
RISKS AND You should consider certain other factors about the
SPECIAL Fund before investing. As with other bond mutual funds
CONSIDERATIONS or any long-term, fixed income investment, the value
of the Fund's portfolio will tend to vary inversely
with changes in prevailing interest rates. According-
ly, the Fund should be considered a long-term invest-
ment, designed to provide the best results when held
for a multi-year period. The Fund may not be suitable
if you have a short-term investment horizon. The Fund
also has the ability to engage in certain investment
practices, including the purchase of Municipal Obliga-
tions that pay interest subject to the federal alter-
native minimum tax, the purchase or sale of securities
on a when-issued or delayed delivery basis and the
purchase or sale of municipal lease and installment
purchase obligations. The Fund to date has not in-
vested in Municipal Obligations that pay interest sub-
ject to the federal alternative minimum tax and has no
present intention of doing so. As described elsewhere
in this Prospectus, the Fund may engage in the invest-
ment practices listed above only under strict limits.
7
<PAGE>
FINANCIAL HIGHLIGHTS
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The following financial information for 1994 and prior
periods has been derived from the Fund's financial
statements, which have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in
their report appearing in the Annual Report to Share-
holders, and should be read in conjunction with the fi-
nancial statements and related notes appearing in the
Annual Report. A copy of the Annual Report to Share-
holders which contains additional unaudited performance
information can be obtained without charge by writing
to the Fund. All Fund shares outstanding as of June 13,
1995, have been designated as Class R Shares. Informa-
tion is presented only for Class R Shares since no
Class A Shares or Class C Shares were outstanding dur-
ing the periods shown below.
Selected data for a Class R Share outstanding through-
out each period is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28 5 MOS. YEAR ENDED SEPTEMBER 30
---------------------- ENDED -------------------------------------------------------
1995 1994 1993 2/29/92 1991 1990 1989 1988 1987 1986 1985
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period......... $9.280 $9.450 $9.080 $9.040 $8.650 $8.730 $8.520 $8.020 $8.780 $7.830 $7.180
Income from Investment
Operations:
Net Investment Income.. .515 .519 .555 .239 .579 .596 .597 .596 .598 .595 .586
Net Realized and
Unrealized Gain (Loss)
from Investments....... (.209) (.075) .414 .080 .438 (.080) .239 .536 (.614) 1.162 .650
Less Distributions:
Dividends from Net In-
vestment Income........ (.511) (.516) (.544) (.239) (.589) (.596) (.597) (.596) (.598) (.595) (.586)
Distributions from Cap-
ital Gains............. (.075) (.098) (.055) (.040) (.038) -- (.029) (.036) (.146) (.212) --
---------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period........... $9.000 $9.280 $9.450 $9.080 $9.040 $8.650 $8.730 $8.520 $8.020 $8.780 $7.830
---------------------------------------------------------------------------------------------------------------------
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Total Return on Net As-
set Value............... 3.60% 4.79% 11.04% 3.56% 12.15% 6.04% 10.07% 14.50% (.39%) 23.02% 17.73%
---------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Da-
ta:
Net Assets End of Pe-
riod (in millions)..... $2,741 $2,700 $2,372 $1,836 $1,661 $1,324 $1,120 $945 $764 $668 $460
Ratio of Expenses to
Average Net Assets..... .59% .62% .61% .62%+ .60% .62% .64% .65% .68% .71% .73%
Ratio of Net Investment
Income to Average Net
Assets................. 5.79% 5.49% 5.95% 6.24%+ 6.48% 6.78% 6.85% 7.11% 6.85% 6.95% 7.68%
Portfolio Turnover
Rate................... 17% 15% 14% 6% 10% 8% 12% 8% 16% 39% 28%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
+Annualized.
8
<PAGE>
WHO IS RESPONSIBLE FOR THE OPERATION OF THE FUND?
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The following organizations work together to provide
the services and features offered by the Fund:
<TABLE>
<CAPTION>
ORGANIZATION FUNCTION DUTIES
--------------------------------------------------------
<S> <C> <C>
John Nuveen & Co. Incor- Fund Sponsor and Sponsors and
porated ("Nuveen") Principal Underwriter manages the
offering of
Fund shares;
provides
certain
administrative
services
Nuveen Advisory Corp. Investment Adviser Manages the
("Nuveen Advisory") Fund's
investment
portfolios and
provides day-
to-day
administrative
services to the
Fund
Shareholder Services, Transfer Agent; Maintains
Inc. ("SSI") Shareholder Services shareholder
Agent; Dividend accounts,
Paying Agent handles share
redemptions and
exchanges and
dividend
payments
United States Trust Custodian Maintains
Company of New York ("US custody of the
Trust") Fund's
investments and
provides
certain
accounting
services to the
Fund
</TABLE>
The Chase Manhattan Bank, N.A., has agreed to become
successor to US Trust, as Custodian and Fund Accoun-
tant. The succession is presently scheduled for July 1,
1995. No changes in the Fund's administration or in the
amount of fees and expenses paid by the Fund for these
services will result, and no action by shareholders
will be required.
WHAT ARE THE FUND'S INVESTMENT OBJECTIVE AND POLICIES?
INVESTMENT The investment objective of the Fund is to provide you
OBJECTIVE with as high a level of current interest income exempt
from regular federal income tax as is consistent, in the
view of the Fund's management, with preservation of capi-
tal. This investment objective is a fundamental policy of
the Fund and may not be changed without the approval of
the holders of a majority of the shares of the Fund. There
can be no assurance that the investment objective of the
Fund will be achieved.
The Fund is
designed to
provide income
free from federal
personal income
tax.
9
<PAGE>
HOW THE FUND Value Investing. Nuveen Advisory believes that in any mar-
PURSUES ITS ket environment there are quality Municipal Obligations
OBJECTIVE whose current price, yield, credit quality and future
prospects make them seem underpriced or exceptionally at-
tractive when compared with other Municipal Obligations in
the market. In selecting investments for the Fund, Nuveen
Advisory will attempt to identify and purchase those in-
vestment grade quality, undervalued or underrated Munici-
pal Obligations that offer the best values among Municipal
Obligations of similar credit quality. By selecting these
Municipal Obligations, the Fund will seek to provide at-
tractive current tax-free income and to protect the Fund's
net asset value in both rising and declining markets. In
this way, regardless of the direction the market may move,
value investing, if successful, will better position the
Fund to achieve its investment objective of as high a
level of current interest income exempt from regular fed-
eral income tax as is consistent, in the view of the
Fund's management, with preservation of capital. Any net
capital appreciation realized by the Fund will generally
result in the distribution of taxable capital gains to
Fund shareholders. See "Distributions and Taxes."
The Fund seeks
Municipal Obligations
considered to be
undervalued.
The Importance of Thorough Research. Successful value in-
Thorough research vesting depends on identifying and purchasing undervalued
can help identify or underrated securities before the rest of the market-
values. place finds them. Nuveen Advisory believes the municipal
market provides these opportunities, in part because of
the relatively large number of issuers of tax-exempt secu-
rities and the relatively small number of full-time, pro-
fessional municipal market analysts. For example, there
are currently about 7,500 common stocks that are followed
by about 23,000 analysts. By contrast, there are about
60,000 entities that issue tax-exempt securities and less
than 1,000 professional municipal market analysts.
Nuveen and Nuveen Advisory believe that together they em-
ploy the largest number of research analysts in the in-
vestment banking industry devoted exclusively to the re-
view and surveillance of tax-exempt securities. Their team
of more than 40 individuals has over 350 years of combined
municipal market experience. Nuveen and Nuveen Advisory
have access to information on approximately 60,000 munici-
pal issuers, and review annually more than $100 billion of
tax-exempt securities sold in new issue and secondary mar-
kets.
Which Municipal Obligations Are Selected As
Investments? The Fund will invest primarily in Municipal
Obligations issued within the 50 states and certain U.S.
possessions or territories so that the interest income on
the Municipal Obligations will be exempt from regular fed-
eral income tax, although this income may be subject to
applicable state personal income taxes.
10
<PAGE>
The Fund will The Fund's investment assets will consist of:
seek to purchase
investment grade
quality Municipal
Obligations.
. Municipal Obligations rated investment grade at the
time of purchase (Baa or BBB or better by Moody's In-
vestors Service, Inc. ("Moody's") or Standard and
Poor's Corporation ("S&P"));
. unrated Municipal Obligations of investment grade
quality in the opinion of Nuveen Advisory, limited to
no more than 10% of the Fund's net assets; and
. temporary investments within the limitations and for
the purposes described below.
Municipal Obligations rated Baa are considered by Moody's
to be medium grade obligations which lack outstanding in-
vestment characteristics and in fact have speculative
characteristics as well, while Municipal Obligations rated
BBB are regarded by S&P as having an adequate capacity to
pay principal and interest. Although the Fund to date has
not done so and has no present intention of doing so, the
Fund may invest up to 20% of its net assets in Municipal
Obligations that pay interest subject to the federal al-
ternative minimum tax ("AMT Bonds"). The Fund intends to
emphasize investments in Municipal Obligations with long-
term maturities in order to maintain an average portfolio
maturity of 20-30 years, but the average maturity may be
shortened from time to time depending on market conditions
in order to help limit the Fund's exposure to market risk.
As a result, the Fund's portfolio at any given time may
include both long-term and intermediate-term Municipal Ob-
ligations.
Under ordinary circumstances, the Fund will invest sub-
stantially all
(at least 80%) of its net assets in Municipal Obligations,
and not more than 20% of its net assets in "temporary in-
vestments," described below, provided that temporary in-
vestments subject to regular federal income tax and AMT
Bonds may not comprise more than 20% of the Fund's net as-
sets. For defensive purposes, however, in order to limit
the exposure of its portfolio to market risk from tempo-
rary imbalances of supply and demand or other temporary
circumstances affecting the municipal market, the Fund may
invest without limit in temporary investments. The Fund
will not be in a position to achieve its investment objec-
tive of tax-exempt income to the extent it invests in tax-
able temporary investments.
The foregoing investment policies are fundamental policies
of the Fund and may not be changed without the approval of
the holders of a majority of the shares of the Fund.
11
<PAGE>
DESCRIPTION OF Municipal Obligations. Municipal Obligations, as the term
THE FUND'S is used in this prospectus, are federally tax-exempt debt
INVESTMENTS obligations issued by states, cities and local authorities
and by certain U.S. possessions or terri-
Municipal Obligations
are issued by
states, cities
and local
authorities to
support a variety
of public
activities.
tories to obtain funds for various public purposes, such
as the construction of public facilities, the payment of
general operating expenses and the refunding of outstand-
ing debts. They may also be issued to obtain funding for
various private activities, including loans to finance the
construction of housing, educational and medical facili-
ties or privately owned industrial development and pollu-
tion control projects.
The two principal classifications of Municipal Obligations
are general obligation and revenue bonds. GENERAL OBLIGA-
TION bonds are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of princi-
pal and interest. REVENUE bonds are payable only from the
revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a spe-
cial excise or other specific revenue source. Industrial
development and pollution control bonds are in most cases
revenue bonds and do not generally constitute the pledge
of the credit
or taxing power of the issuer of these bonds.
Municipal Obligations may also include participations in
lease obligations or installment purchase contract obliga-
tions (collectively, "lease obligations") of municipal au-
thorities or entities. Certain "non-appropriation" lease
obligations may present special risks because the
municipality's obligation to make future lease or install-
ment payments depends on money being appropriated each
year for this purpose. The Fund will seek to minimize
these risks by not investing more than 10% of its assets
in non-appropriation lease obligations, and by only in-
vesting in those non-
appropriation lease obligations that meet certain criteria
of the Fund. See the Statement of Additional Information
for further information about lease obligations.
The yields on Municipal Obligations depend on a variety of
factors, including the condition of financial markets in
general and the municipal market in particular, as well as
the size of a particular offering, the maturity of the ob-
ligation and the rating of the issue. Certain Municipal
Obligations may pay variable or floating rates of interest
based upon certain market rates or indexes such as a bank
prime rate or a tax-exempt money market index. The ratings
of Moody's and S&P represent their opinions as to the
quality of the Municipal Obligations that they undertake
to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality.
Consequently, Municipal Obligations with the same maturi-
ty, coupon and rating may have different yields, while
those having the same maturity and coupon with different
ratings may have the
12
<PAGE>
same yield. The market value of Municipal Obligations will
vary with changes in prevailing interest rate levels and
as a result of changing evaluations of the ability of
their issuers to meet interest and principal payments.
Similarly, the market value and net asset value of shares
of the Fund will change in response to interest rate
changes; they will tend to decrease when interest rates
rise and increase when interest rates fall.
All temporary Temporary Investments. As described above, the Fund under
investments will ordinary circumstances may invest up to 20% of its net
be U.S. assets in "temporary investments," but may invest without
Government or limit in temporary investments during temporary defensive
high quality periods. The Fund will seek to make temporary investments
securities. in short-term securities the interest on which is exempt
from regular federal income tax, but may be subject to
state income tax. If suitable tax-exempt temporary
investments are not available at reasonable prices and
yields, the Fund may make temporary investments in taxable
securities. The Fund will invest only in those taxable
temporary investments that are either U.S. Government
securities or are rated within the highest grade by
Moody's or S&P, and mature within one year from the date
of purchase or carry a variable or floating rate of
interest. See the Statement of Additional Information for
further information about the temporary investments in
which the Fund may invest.
CERTAIN Portfolio Trading and Turnover. The Fund will make changes
INVESTMENT in its investment portfolio from time to time in order to
STRATEGIES AND take advantage of opportunities in the municipal market
LIMITATIONS and to limit exposure to market risk. The Fund may engage
to a limited extent in short-term trading consistent with
its investment objective, but will not trade securities
solely to realize a profit. Changes in the Fund's invest-
ments are known as "portfolio turnover." While the Fund's
annual portfolio turnover rate is not expected to exceed
35%, actual portfolio turnover rates are impossible to
predict, and may exceed 35% in particular years depending
upon market conditions.
The Fund will
focus on long-
term
investment strategies,
and will engage
in short-term
trading only when
consistent with
its stated
investment
objective.
When-issued or Delayed Delivery Transactions. The Fund may
purchase and sell Municipal Obligations on a when-issued
or delayed delivery basis, which calls for the Fund to
make payment or take delivery at a future date, normally
15-45 days after the trade date. The commitment to pur-
chase securities on a when-issued or delayed delivery ba-
sis may involve an element of risk because the value of
the securities is subject to market fluctuation, no inter-
est accrues to the purchaser prior to settlement of the
transaction, and at the time of delivery the market value
may be less than cost. A Fund commonly engages in when-is-
sued transactions in order to purchase or sell newly-is-
sued Municipal Obligations, and may
13
<PAGE>
engage in delayed delivery transactions in order to manage
its operations more effectively. See the Statement of Ad-
ditional Information for further information about when-
issued and delayed delivery transactions.
The Fund will Other Investment Policies and Restrictions. The Fund has
take steps to adopted certain fundamental policies intended to limit the
ensure that its risk of its investment portfolio. In accordance with these
assets are not policies, the Fund may not:
concentrated in
just a few . invest more than 5% of its total assets in securities of
holdings. any one issuer, except that this limitation shall not ap-
ply to securities of the U.S. government, its agencies
and instrumentalities;
. invest more than 5% of its total assets in securities of
unseasoned issuers which, together with their predeces-
sors, have been in operation for less than three years;
. invest more than 10% of its total assets in securities
that the Fund is restricted from selling to the public
without registration under the Securities Act of 1933;
. hold securities of a single bank, including securities
backed by a letter of credit of that bank, if these hold-
ings would exceed 10% of the total assets of the Fund.
In applying these policies, the "issuer" of a security is
deemed to be the entity whose assets and revenues are com-
mitted to the payment of principal and interest on that
security, provided that the guarantee of an instrument
will generally be considered a separate security.
See the Statement of Additional Information for a more
complete description of the fundamental investment poli-
cies summarized above and the Fund's other fundamental in-
vestment policies. The Fund's fundamental investment poli-
cies may not be changed without the approval of the Fund's
shareholders.
FLEXIBLE SALES CHARGE PROGRAM
For many investors, working with a professional financial
The Fund offers adviser is an important part of their financial strategy.
various sales Because Nuveen recognizes the value a financial adviser
charge options can provide in developing and implementing a comprehensive
designed to meet plan for your financial future, Nuveen Mutual Funds are
your individual sold with a sales charge, either at the time of purchase
investment needs or at the time of redemption (in the case of Class C
and preferences. Shares redeemed within 12 months of purchase), or over
time in the form of a distribution fee. This provides your
financial adviser with compensation for the professional
advice and service you receive in financial planning and
investment selection.
14
<PAGE>
The Fund has adopted a Flexible Sales Charge Program which
provides you with alternative ways of purchasing Fund
shares based upon your individual investment needs and
preferences. You may purchase Class A Shares at a price
equal to their net asset value plus an up-front sales
charge. You may purchase Class C Shares without any up-
front sales charge at a price equal to their net asset
value, but subject to an annual distribution fee designed
to compensate Authorized Dealers over time for the sale of
Fund shares and a 1% CDSC if Class C Shares are redeemed
within 12 months of purchase. See "How to Buy Fund
Shares--Class C Shares" and "How to Redeem Fund Shares."
Class C Shares automatically convert to Class A Shares six
years after purchase. Both Class A Shares and Class C
Shares are subject to annual service fees, which are used
to compensate Authorized Dealers for providing you with
ongoing account services. See "Distribution and Service
Plan" below. Under the Flexible Sales Charge Program, all
Fund shares outstanding as of June 13, 1995, have been
designated as Class R Shares. Class R Shares are available
for purchase at a price equal to their net asset value
only under certain limited circumstances, or by specified
investors, as described herein. The price at which the
purchase of Fund shares is effected is based on the next
calculation of the Fund's net asset value after the order
is placed.
Which Option is
Right For You? When you purchase Class A Shares, you will pay an up-front
sales charge. As a result, you will have less money in-
vested initially and you will own fewer Class A Shares
than you would in the absence of an up-front sales charge.
Alternatively, when you purchase Class C Shares, you will
not pay an up-front sales charge and all of your monies
will be fully invested at the time of purchase. However,
Class C Shares are subject to an annual distribution fee
to compensate Authorized Dealers over time for the sale of
Fund shares and a CDSC of 1% if redeemed within 12 months
of purchase. Class C Shares automatically convert to Class
A Shares six years after purchase. This automatic conver-
sion is designed to ensure that holders of Class C Shares
would pay over the six-year period a distribution fee that
is approximately the economic equivalent of the one-time,
up-front sales charge paid by holders of Class A Shares on
purchases of up to $50,000. Class A Shares and Class C
Shares are subject to annual service fees which are iden-
tical in amount and which are used to compensate Autho-
rized Dealers for providing you with ongoing account serv-
ices. You may qualify for a reduced sales charge or a
sales charge waiver on a purchase of Class A Shares, as
described below under "How the Sales Charge on Class A
Shares May Be Reduced or Waived." Under certain limited
circumstances, Class R Shares are available for purchase
at a price equal to their net asset value.
15
<PAGE>
In deciding whether to purchase Class A Shares, Class C
Shares or Class R Shares, you should consider all relevant
factors, including the dollar amount of your purchase, the
length of time you expect to hold the shares and whether a
CDSC would apply, the amount of any applicable up-front
sales charge, the amount of any applicable distribution or
service fee that may be incurred while you own the shares,
and whether or not you will be reinvesting income or capi-
tal gain distributions in additional shares. For assis-
tance with this decision, please refer to the tables under
"Summary of Fund Expenses" on page 3 of this Prospectus
which sets forth examples of the expenses applicable to
each class of shares, or consult your financial adviser.
Differences Each class of shares represents an interest in the same
Between the portfolio of investments. Each class of shares is identi-
Classes of Shares cal in all respects except that each class bears its own
class expenses, including administration and distribution
expenses, and each class has exclusive voting rights with
respect to any distribution or service plan applicable to
its shares. In addition, the Class C Shares are subject to
a conversion feature and a CDSC of 1% if redeemed within
12 months of purchase, as described below. As a result of
the differences 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.
Dealer Incentives
Upon notice to all Authorized Dealers, Nuveen may reallow
to Authorized Dealers electing to participate up to the
full applicable sales charge during periods and for trans-
actions specified in the notice. The reallowances made
during these periods may be based upon attainment of mini-
mum sales levels. Further, Nuveen may from time to time
make additional reallowances only to certain Authorized
Dealers who sell or are expected to sell certain minimum
amounts of the Funds or other Nuveen Mutual Funds and
Nuveen UITs during specified time periods. The staff of
the Securities and Exchange Commission takes the position
that dealers who receive 90% or more of the applicable
sales charge may be deemed underwriters under the Securi-
ties Act of 1933, as amended.
Nuveen may also from time to time provide additional pro-
motional support to certain Authorized Dealers who sell or
are expected to sell certain minimum amounts of Nuveen Mu-
tual Funds and Nuveen UITs during specified time periods.
Such promotional support may include providing sales lit-
erature to and holding informational or educational pro-
grams for the benefit of such Authorized Dealers' repre-
sentatives, seminars for the public, and advertising and
sales campaigns. Any such support would be provided by
Nuveen out of its own assets, and not out of the assets of
the
16
<PAGE>
Funds, and will not change the price an investor pays for
shares or the amount that a Fund will receive from such a
sale.
HOW TO BUY FUND SHARES
CLASS A SHARES
You may purchase Class A Shares at a public offering price
equal to the applicable net asset value per share plus an
up-front sales charge imposed at the time of purchase as
set forth below. You may qualify for a reduced sales
charge, or the sales charge may be waived in its entirety,
as described below under "How the Sales Charge on Class A
Shares May Be Reduced or Waived." Class A Shares are also
subject to an annual service fee to compensate Authorized
Dealers for providing you with ongoing account services.
See "Distribution and Service Plan."
Class A Shares
are offered at
their net asset
value plus an up-
front sales
charge.
The sales charges for Class A Shares are as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE REALLOWANCE
AS % OF PUBLIC AS % OF NET AS % OF PUBLIC
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
--------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less than $100,000 4.25% 4.44% 3.75%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 but less than $2,500,000 1.00% 1.01% 1.00%
$2,500,000 but less than $5,000,000 0.75% 0.76% 0.75%
$5,000,000 but less than $7,500,000 0.50% 0.50% 0.50%
$7,500,000 and over 0.00% 0.00% 0.00%
</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 above to Authorized Dealers. See "Flexible Sales
Charge Program--Dealer Incentives" above for more informa-
tion about reallowances and other compensation to Autho-
rized Dealers.
Certain commercial banks may make Class A Shares of the
Fund available to their customers on an agency basis. Pur-
suant to the agreements
between Nuveen and these banks, some or all of the sales
charge paid by a bank customer in connection with a pur-
chase 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.
17
<PAGE>
HOW THE SALES Summary. There are several ways to reduce or eliminate the
CHARGE ON CLASS A sales charge:
SHARES MAY BE
REDUCED OR WAIVED
.cumulative discount;
There are several .letter of intent;
ways to reduce or
eliminate the
sales charge.
.group purchase programs; and
.special sales charge waivers for certain categories of
investors.
Cumulative Discount. You may qualify for a reduced sales
charge as shown above on a purchase of Class A Shares 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 units of a Nuveen
UIT, on which an up-front sales charge or ongoing distri-
bution fee is imposed, falls within the amounts stated in
the table. You or your financial adviser must notify
Nuveen or SSI of any cumulative discount whenever you plan
to purchase Class A Shares of the Fund that you wish to
qualify for a reduced sales charge.
Letter of Intent. You may qualify for a reduced sales
charge on a purchase of Class A Shares if you plan to pur-
chase 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 above. 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 SSI a written Letter of Intent in a
form acceptable to Nuveen. A Letter of Intent states that
you intend, but are not obligated, over the next 13 months
to purchase 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 al-
ready own on which you paid an up-front sales charge or an
ongoing distribution fee and any Class C Shares of a
Nuveen Mutual Fund that you purchase over the next 13
months towards completion of your investment program, but
you will receive a reduced sales charge only on new Class
A Shares you purchase with a sales charge over the 13
months. You cannot count towards completion of your in-
vestment program Class A Shares that you purchase without
a sales charge through investment of distributions from a
Nuveen Mutual Fund or a Nuveen UIT, or otherwise.
By establishing a Letter of Intent, you agree that your
first purchase of Class A Shares 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 in-
tended purchases will be held in escrow pending completion
of these purchases. All dividends and capital gains dis-
tributions on Class A Shares held in escrow
18
<PAGE>
will be credited to your account. If total purchases, less
redemptions, prior to the expiration of the 13 month pe-
riod equal or exceed the amount specified in your Letter
of Intent, the Class A Shares held in escrow will be
transferred to your account. If the total purchases, less
redemptions, exceed the amount specified in your Letter of
Intent and thereby qualify for a lower sales charge than
the sales charge specified in your Letter of
Intent, you will receive this lower sales charge retroac-
tively, 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 re-
demptions, are less than the amount specified, you must
pay Nuveen an amount equal to the difference between the
amounts paid for these purchases and the amounts which
would have been paid if the higher sales charge had been
applied. If you do not pay the additional amount within 20
days after written request by Nuveen or your financial ad-
viser, Nuveen will redeem an appropriate number of your
escrowed Class A Shares to meet the required payment. By
establishing a Letter of Intent, you irrevocably appoint
Nuveen as attorney to give instructions to redeem any or
all of your escrowed shares, with full power of substitu-
tion in the premises.
You or your financial adviser must notify Nuveen or SSI
whenever you make a purchase of Fund shares that you wish
to be covered under the Letter of Intent option.
Group Purchase Programs. If you are a member of a quali-
fied group, you may purchase Class A Shares of the Fund or
of another Nuveen Mutual Fund at the reduced sales charge
applicable to the group's purchases taken as a whole. A
"qualified group" is one which has been in existence for
more than six months, has a purpose other than investment,
has five or more participating members, has agreed to in-
clude Fund sales publications in mailings to members and
has agreed to comply with certain administrative require-
ments relating to its group purchases.
Under any group purchase program, the minimum monthly in-
vestment in Class A Shares of any particular Fund or port-
folio by each participant is $25, and the minimum monthly
investment in Class A Shares of any particular Fund or
portfolio for all participants in the program combined is
$1,000. No certificates will be issued for any partici-
pant's account. All dividends and other distributions by
the Fund will be reinvested in additional Class A Shares
of the Fund. No participant may utilize a systematic with-
drawal program.
To establish a group purchase program, both the group it-
self and each participant must fill out special applica-
tion materials, which the group administrator may obtain
from the group's financial adviser, by checking the
19
<PAGE>
applicable box on the enclosed Application Form or by
calling Nuveen toll-free at 800-621-7227. See the State-
ment of Additional Information for more complete informa-
tion about "qualified groups" and group purchase programs.
Special Sales Charge Waivers. Class A Shares of the Fund
may be purchased at net asset value without a sales charge
and in any amount by the following categories of invest-
ors:
. officers, trustees and retired directors or trustees of
the Fund or its predecessor;
. bona fide, full-time and retired employees of Nuveen,
any parent company of Nuveen, and subsidiaries thereof,
or their immediate family members (as defined below);
. any person who, for at least 90 days, has been an offi-
cer, 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 subsidi-
aries or bank affiliates;
. 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; and
. registered investment advisers, certified financial
planners and registered broker-dealers who in each case
either charge periodic fees to their customers for fi-
nancial planning, investment advisory or asset manage-
ment services, or provide such services in connection
with the establishment of an investment account for
which a comprehensive "wrap fee" charge is imposed.
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 re-
sold except through redemption by the Fund. You or your
financial adviser must notify Nuveen or SSI whenever you
make a purchase of Class A Shares that you wish to be cov-
ered under these special sales charge waivers. The above
categories of investors are also eligible to purchase
Class R Shares, as described below under "Class R Shares."
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 reinvestment of the
proceeds of the redemption of shares of one or more regis-
tered investment companies not affiliated with Nuveen. You
must provide appropriate documentation that the redemption
occurred not more than 60 days prior to the reinvestment
of the proceeds in Class
20
<PAGE>
A Shares, and that you either paid an up-front sales
charge or were subject to a contingent deferred sales
charge in respect of the redemption of such shares of such
other investment company. Finally, Class A Shares may be
issued at net asset value without a sales charge in con-
nection with the acquisition by the Fund of another in-
vestment company. All purchases under the special sales
charge waivers will be subject to minimum purchase re-
quirements as established by the Fund.
--------------------------------
In determining the amount of your purchases of Class A
Shares that may qualify for a reduced sales charge, the
following purchases may be combined: (1) all purchases by
a trustee or other fiduciary for a single trust estate or
fiduciary account; (2) all purchases by individuals and
their immediate family members (i.e., their spouses and
their children under 21 years of age); or (3) all pur-
chases made through a group purchase program as described
above.
The reduced sales charge programs may be modified or dis-
continued by the Fund at any time upon prior written no-
tice to shareholders of the Fund.
FOR MORE INFORMATION ABOUT THE PURCHASE OF CLASS A SHARES
OR REDUCED SALES CHARGE PROGRAMS, OR TO OBTAIN THE RE-
QUIRED APPLICATION FORMS, CALL NUVEEN TOLL-FREE AT 800-
621-7227.
CLASS C SHARES You may purchase Class C Shares at a public offering price
equal to the applicable net asset value per share without
any up-front sales charge. Class C Shares are subject to
an annual distribution fee to compensate Authorized Deal-
ers over time for the sale of Fund shares. See "Flexible
Sales Charge Program--Dealer Incentives" above for more
information about compensation to Authorized Dealers.
Class C Shares are also subject to an annual service fee
to compensate Authorized Dealers for providing you with
ongoing financial advice and other services. See "Distri-
bution and Service Plan."
Class C Shares
may be purchased
at their net
asset value, and
are subject to an
annual
distribution fee.
An investor purchasing Class C Shares agrees to pay a CDSC
of 1% if Class C Shares are redeemed within 12 months of
purchase. The Fund will redeem shares at net asset value
and deduct any applicable CDSC from the proceeds of the
redemption.
The Class C Shares of the Fund will effectively retain the
CDSC; the Fund will pay the amount of the CDSC to Nuveen,
but will be reimbursed by Nuveen in an equal amount by a
reduction in the distribution fees payable to Nuveen.
21
<PAGE>
The CDSC will be based on 1% of the lower of (i) the net
asset value of Class C Shares at the time of purchase or
(ii) the net asset value of Class C Shares at the time of
redemption and will be charged for Class C Shares redeemed
within 12 months of purchase. No CDSC will be charged on
Class C Shares purchased as a result of automatic rein-
vestment of dividends or capital gains paid, or on ex-
changes for Class C Shares of another Nuveen Mutual Fund
or money market fund. The CDSC will be calculated as if
Class C Shares not subject to a CDSC are redeemed first,
except if another order of redemption would result in a
lower charge. The CDSC will be waived for redemptions fol-
lowing the disability (as determined in writing by the So-
cial Security Administration) or death of the shareholder.
Class C Shares will automatically convert to Class A
Shares six years after purchase. 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 C Shares acquired through rein-
vestment 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 C Shares acquired
through reinvestment of distributions will be attributed
to particular purchases of Class C Shares in accordance
with such procedures as the Board of Trustees may deter-
mine from time to time. The automatic conversion of Class
C Shares to Class A Shares six years after purchase was
designed to ensure that holders of Class C Shares would
pay over the six-year period a distribution fee that is
approximately the economic equivalent of the one-time, up-
front sales charge paid by holders of Class A Shares on
purchases of up to $50,000. Class C Shares that are con-
verted to Class A Shares will no longer be subject to an
annual distribution fee, but they will remain subject to
an annual service fee that is identical in amount for both
Class C Shares and Class A Shares. Since net asset value
per share of the Class C Shares and the Class A Shares may
differ at the time of conversion, a shareholder may re-
ceive more or fewer Class A Shares than the number of
Class C Shares converted. Any conversion of Class C Shares
into Class A Shares will be subject to the continuing
availability of an opinion of counsel or a private letter
ruling from the Internal Revenue Service to the effect
that the conversion of shares would not constitute a tax-
able event under federal income tax law. Conversion of
Class C Shares into Class A Shares might be suspended if
such an opinion or ruling were no longer available.
22
<PAGE>
CLASS R SHARES If you owned Fund shares as of June 13, 1995, those shares
have been designated as Class R Shares. Purchases of addi-
tional Class R Shares, which will not be subject to any
sales charge or any distribution or service fee, will be
limited to the following circumstances. You may purchase
Class R Shares with monies representing distributions from
Nuveen-sponsored UITs if, prior to June 13, 1995, you had
purchased such UITs and elected to reinvest distributions
from such UITs in shares of the Fund. You may also pur-
chase Class R Shares with monies representing dividends
and capital gain distributions on Class R Shares of the
Fund. Finally, you may purchase Class R Shares if you are
within the following specified categories of investors who
are also eligible to purchase Class A Shares at net asset
value without an up-front sales charge:
Class R Shares
are offered at
their net asset
value.
. officers, trustees and retired directors and trustees of
the Fund or its predecessor;
. 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 offi-
cer, 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 subsidi-
aries or bank affiliates;
. bank or broker-affiliated trust departments investing
funds over which they exercise exclusive discretionary
investment authority and that are held in a fiduciary,
agency, custodial or similar capacity; and
. registered investment advisers, certified financial
planners and registered broker-dealers who in each case
either charge periodic fees for financial planning, in-
vestment advisory or asset management services, or pro-
vide such services in connection with the establishment
of an investment account for which a comprehensive "wrap
fee" charge is imposed.
Investors who are eligible to purchase either Class R
Shares or Class A Shares without a sales charge at net as-
set value should be aware of the differences between these
two classes of shares. Class A Shares are subject to an
annual service fee to compensate Authorized Dealers for
providing you with ongoing account services. Class R
Shares are not subject to a service fee and consequently
holders of Class R Shares may not receive the same 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 provided by Au-
thorized Dealers against the annual service fee imposed
upon the Class A Shares.
23
<PAGE>
INITIAL AND You may buy Fund shares through Authorized Dealers or by
SUBSEQUENT directing your financial adviser to call Nuveen toll-free
PURCHASES OF at 800-843-6765. You may pay for your purchase by Federal
SHARES Reserve draft or by check made payable to "Nuveen Munici-
pal Bond Fund, Class [A], [C], [R]," delivered to the fi-
nancial adviser through whom the investment is to be made
for forwarding to the Fund's shareholder services agent,
SSI. When making your initial investment, you must also
furnish the information necessary to establish your Fund
account by completing and enclosing with your payment the
attached Application Form. After your initial investment,
you may make subsequent purchases at any time by forward-
ing to SSI a check in the amount of your purchase made
payable to "Nuveen Municipal Bond Fund, Class [A], [C],
[R]," and indicating on the check your account number. All
payments must be in U.S. dollars and should be sent di-
rectly to SSI at its address listed on the back cover of
this Prospectus. A check drawn on a foreign bank or pay-
able other than to the order of the Fund generally will
not be acceptable. You may also wire Federal Funds di-
rectly to SSI, but you may be charged a fee for this. For
instructions on how to make Fund purchases by wire trans-
fer, call Nuveen toll-free at 800-621-7227. Authorized
Dealers and other persons distributing the Fund's shares
may receive different compensation for selling different
classes of shares.
The Fund offers a
number of
convenient ways
to purchase
shares.
MINIMUM Generally, your first purchase of any class of the Fund's
INVESTMENT shares must be for $1,000 or more. Additional purchases
REQUIREMENTS may be in amounts of $100 or more. These minimums may be
changed at any time by the Fund. There are exceptions to
these minimums for shareholders who qualify under one or
more of the Fund's automatic deposit, group purchase or
reinvestment programs.
SYSTEMATIC The Fund offers you several opportunities to capture the
INVESTMENT benefits of "dollar cost averaging" through systematic in-
PROGRAMS vestment programs. In a regularly followed dollar cost av-
eraging 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. The chart below shows the cumu-
lative effect that compound interest can have on a system-
atic investment program.
24
<PAGE>
The Power of a
Systematic
Investment
Program.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
YEAR 6% 5% 4% 0%
<S> <C> <C> <C> <C>
0 1,000 1,000 1,000 1,000
1 2,184 2,170 2,156 2,100
2 3,553 3,509 3,466 3,300
3 5,005 4,916 4,829 4,500
4 6,548 6,396 6,248 5,700
5 8,185 7,951 7,725 6,900
6 9,923 9,586 9,262 8,100
7 11,769 11,304 10,862 9,300
8 13,728 13,110 12,526 10,500
9 15,809 15,009 14,259 11,700
10 18,017 17,004 16,062 12,900
11 20,362 19,102 17,939 14,100
12 22,852 21,307 19,892 15,300
13 25,494 23,625 21,925 16,500
14 28,300 26,062 24,040 17,700
15 31,280 28,623 26,242 18,900
</TABLE>
SOURCE: NUVEEN MARKETING RESEARCH DEPARTMENT
In the above example, it is assumed that $100 is added to
an investment account every month for 15 years. From the
same $1,000 beginning, the chart shows the amount that
would be in the account after 15 years, assuming no inter-
est and interest compounded annually at the rates of 4%,
5% and 6%.
25
<PAGE>
This chart is designed to illustrate the effects of com-
pound interest, and is not intended to predict the results
of an actual investment in the Fund.
There are several important differences between the Fund
and the hypothetical investment program shown. This example
assumes no gain or loss in the net asset value of the in-
vestment over the entire 15-year period, whereas the net
asset value of the Fund will rise and fall due to market
conditions or other factors, which could have a significant
impact on the total value of your investment. Similarly,
this example shows four steady interest rates over the en-
tire 15-year period, whereas the dividend rate of the Fund
can be expected to fluctuate over time. The Fund may pro-
vide additional information to investors and advisers il-
lustrating the benefits of systematic investment programs
and dollar cost averaging.
The Fund offers The Fund offers two different types of systematic invest-
automatic ment programs:
deposit and
payroll deposit
plans.
Automatic Deposit Plan. Once you have established a Class A
Share account or Class C Share account, or if you are eli-
gible to purchase additional Class R Shares, in the Fund,
you may make regular investments in an amount of $25 or
more each month by authorizing SSI 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 appli-
cation form for the Automatic Deposit Plan, check the ap-
plicable box on the enclosed Application Form or call
Nuveen toll-free at 800-621-7227.
Payroll Direct Deposit Plan. Once you have established a
Class A Share or Class C Share account in the Fund, you
may, with your employer's consent, make regular investments
in Fund shares of $25 or more per pay period by authorizing
your employer to deduct this amount automatically from your
paycheck. There is no obligation to continue payments and
you may terminate your participation at any time at your
discretion. No charge in addition to the applicable sales
charge is made 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 enclosed Ap-
plication Form or call Nuveen toll-free at 800-621-7227.
OTHER Exchange Privilege. You may exchange shares of a class of
SHAREHOLDER the Fund for shares of the same class of any other Nuveen
PROGRAMS Mutual Fund with reciprocal exchange privileges, by sending
a written request to the Fund, c/o Shareholder Services,
Inc., P.O. Box 5330, Denver, CO 80217-5330. 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. Class A Shares of the Fund may be exchanged
for Class A Shares of any other Nuveen Mutual Fund at net
asset value without a sales charge. Similarly, Class A
Shares of other Nuveen Mutual Funds purchased subject to a
The Fund
offersno-charge
exchanges with
other Nuveen
Mutual Funds.
26
<PAGE>
sales charge may be exchanged for Class A Shares of the
Fund at net asset value without a sales charge. Shares of
any Nuveen Mutual Fund purchased through dividend rein-
vestment or through investment of Nuveen UIT distributions
may be exchanged for shares of the Fund or any other
Nuveen Mutual Fund without a sales charge. Exchanges of
shares from any Nuveen money market fund will be made into
Class A Shares or Class C Shares of the Fund or any other
Nuveen Mutual Fund at the public offering price, which in-
cludes an up-front sales charge in the case of Class A
Shares, and will be subject to an annual distribution fee
in the case of Class C Shares. 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 Class A Shares
at net asset value without any up-front sales charge.
Shares of any class of the Fund may be exchanged for
shares of any Nuveen money market fund that does not im-
pose a sales charge or have any distribution or service
fees.
No CDSC will be charged on the exchange of Class C Shares
of the Fund for Class C Shares of any other Nuveen Mutual
Fund or shares of any Nuveen money market fund. The 12
month holding period for purposes of the CDSC applicable
to Class C Shares will continue to run during any period
in which Class C Shares of the Fund, Class C Shares of any
other Nuveen Mutual Fund or shares of a Nuveen money mar-
ket fund are held.
The total value of exchanged shares must at least equal
the minimum investment requirement of the Nuveen Mutual
Fund being purchased. For federal income tax purposes, any
exchange constitutes a sale and purchase of shares and may
result in capital gain or loss. Before making any ex-
change, you should obtain the Prospectus for the Nuveen
Mutual Fund you are purchasing and read it carefully. If
the registration of the account for the Fund you are pur-
chasing is not exactly the same as that of the fund ac-
count from which the exchange is made, written instruc-
tions from all holders of the account from which the ex-
change 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 exchanges by checking the applicable
box on the enclosed Application Form or by calling Nuveen
toll-free at 800-621-7227 to obtain an authorization form.
The exchange privilege may be modified or discontinued by
the Fund at any time upon prior written notice to share-
holders of the Fund.
27
<PAGE>
In addition, you may 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 $1,000
or you already own Class A Shares.
Reinstatement Privilege. If you have redeemed Class A
Shares of the Fund or Class A Shares of any other Nuveen
Mutual Fund that were subject to a sales charge, you may
reinvest without any added sales charge up to the full
amount of the redemption in Class A Shares of the Fund at
net asset value at the time of reinvestment. This rein-
statement privilege can be exercised only once for all or
a portion of the Class A Shares you redeemed and must be
exercised within 90 days of the date of the redemption. As
applied to Class C Shares of the Fund or of any other
Nuveen Mutual Fund, this reinstatement privilege, if exer-
cised within 90 days of the date of the redemption, will
preserve the number of years credited to your ownership of
Class C Shares for purposes of the conversion of these
Class C Shares to Class A Shares. Any CDSC charged if the
shares were redeemed within 12 months of purchase will be
refunded if ownership is reinstated within the 90 day pe-
riod. The 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 depend-
ing on the timing and amount of the reinvestment.
FOR MORE INFORMATION ABOUT THESE PURCHASE OPTIONS AND TO
OBTAIN THE APPLICATION FORMS REQUIRED FOR SOME OF THEM,
CALL NUVEEN TOLL-FREE AT 800-621-7227.
ADDITIONAL If you choose to invest in the Fund, an account will be
INFORMATION opened and maintained for you by SSI, the Fund's share-
holder services agent. Share certificates will be issued
to you only upon written request to SSI, and no certifi-
cates will be issued for fractional shares. The Fund re-
serves the right to reject any purchase order and to waive
or increase minimum investment requirements. A change in
registration or transfer of shares held in the name of
your financial adviser's firm can only be made by an order
in good form from the financial adviser acting on your be-
half.
Authorized Dealers are encouraged to open single master
accounts. However, some Authorized Dealers may wish to use
SSI's sub-accounting system to minimize their internal re-
cordkeeping requirements. An Au-
thorized Dealer or other investor requesting shareholder
servicing or accounting other than the master account or
sub-accounting service offered by SSI will be required to
enter into a separate agreement with another agent for
these services for a fee that will depend upon the level
of services to be provided.
Subject to the rules and regulations of the Securities and
Exchange Commission, the Fund reserves the right to sus-
pend the continuous offering of its shares at any time,
but no suspension shall affect your right of redemption as
described below.
28
<PAGE>
DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940, which pro-
vides that Class C Shares will be subject to an annual
distribution fee, and that both Class A Shares and Class C
Shares will be subject to an annual service fee. Class R
Shares will not be subject to either distribution or serv-
ice fees.
The distribution fee applicable to Class C Shares under
the Plan will be payable to reimburse Nuveen for services
and expenses incurred in connection with the distribution
of Class C Shares. These expenses include payments to Au-
thorized Dealers, including Nuveen, who are brokers of
record with respect to the Class C Shares, as well as,
without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the
Fund, expenses of preparing, printing and distributing ad-
vertising and sales literature and reports to shareholders
used in connection with the sale of Class C Shares, cer-
tain other expenses associated with the distribution of
Class C Shares, and any distribution-related expenses that
may be authorized from time to time by the Board of Trust-
ees.
The service fee applicable to Class A Shares and Class C
Shares under the Plan will be payable to Authorized Deal-
ers in connection with the provision of ongoing account
services to shareholders. These services may include es-
tablishing and maintaining shareholder accounts, answering
shareholder inquiries and providing other personal serv-
ices 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 applicable to Class A Shares. The Fund may spend
up to .75 of 1% per year of the average daily net assets
of Class C Shares less the amount of any CDSC received by
Nuveen as to which no reinstatement privilege has been ex-
ercised, as a distribution fee and up to .25 of 1% per
year of the average daily net assets of Class C Shares as
a service fee under the Plan applicable to Class C Shares.
HOW TO REDEEM FUND SHARES
You may require the Fund at any time to redeem for cash
your shares of the Fund at the net asset value next com-
puted after instructions and required documents and cer-
tificates, if any, are received in proper form. There is
no charge for the redemption of Class A Shares or Class R
Shares. An investor purchasing Class C Shares agrees to
pay a CDSC of 1% of the lower of (i) the net asset value
of Class C Shares at the time
29
<PAGE>
of purchase or (ii) the net asset value of Class C Shares
at the time of redemption, if Class C Shares are redeemed
within 12 months of purchase. The Fund will redeem shares
at net asset value and deduct any applicable CDSC from the
proceeds of redemption. No CDSC will be charged on Class C
Shares purchased as a result of automatic reinvestment of
dividends or capital gains paid. The CDSC will be calcu-
lated as if Class C Shares not subject to a CDSC are re-
deemed first, except if another order of redemption would
result in a lower charge. The CDSC will be waived for re-
demption following the disability (as determined in writ-
ing by the Social Security Administration) or death of the
shareholder. There is no CDSC on Class C Shares held more
than 12 months.
By Written Request. You may redeem shares by sending a
The Fund offers a written request for redemption directly to the Fund, c/o
variety of Shareholder Services, Inc., P.O. Box 5330, Denver, CO
redemption 80217-5330, accompanied by duly endorsed certificates, if
options. issued. Requests for redemption and share certificates, if
issued, must be signed by each shareholder and, if the re-
demption proceeds exceed $25,000 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 man-
ner as may be acceptable to the Fund. You will receive
payment based on the net asset value per share next deter-
mined after receipt by the Fund of a properly executed re-
demption request in proper form. A check for the redemp-
tion proceeds will be mailed to you within seven days af-
ter receipt of your redemption request. However, if any
shares to be redeemed were purchased by check within 15
days prior to the date the redemption request is received,
a 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.
By TEL-A-CHECK. If you have authorized telephone redemp-
tion and your account address has not changed within the
last 60 days, you can redeem shares that are held in non-
certificate form and that are worth $25,000 or less by
calling Nuveen at 800-621-7227. While you or anyone autho-
rized by you may make telephone redemption requests, re-
demption 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
2:00 p.m. eastern time, the shares redeemed will earn in-
come through the day the request is made and the redemp-
tion check will be mailed the next business day. For re-
quests received after 2:00 p.m. eastern time, the shares
redeemed earn income through the next business day and the
check will be mailed on the second business day after the
request.
30
<PAGE>
By TEL-A-WIRE. If you have authorized TEL-A-WIRE redemp-
tion, you can take advantage of the following expedited
redemption procedures to
redeem shares held in non-certificate form that are worth
at least $1,000. You may make TEL-A-WIRE redemption re-
quests by calling Nuveen at 800-621-7227. If a redemption
request is received by 4:00 p.m. eastern time, the redemp-
tion will be made as of 4:00 p.m. that day. If the redemp-
tion 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. Redemption proceeds will normally be wired
on the second business day following the redemption, but
may be delayed one additional business day if the Federal
Reserve Bank of Boston or the Federal Reserve Bank of New
York is closed on the day redemption proceeds would ordi-
narily be wired. The Fund reserves the right to charge a
fee for TEL-A-WIRE.
Before you may redeem shares by TEL-A-CHECK or TEL-A-WIRE,
you must complete the telephone redemption authorization
section of the enclosed Application Form and return it to
Nuveen or SSI. If you did not authorize telephone redemp-
tion when you opened your account, you may obtain a tele-
phone redemption authorization form by writing the Fund or
by calling Nuveen toll-free at 800-621-7227. Proceeds of
share redemptions made by TEL-A-WIRE will be transferred
by Federal Reserve wire only to the commercial bank ac-
count specified by the shareholder on the application
form. You must send a written request to Nuveen or SSI in
order to establish multiple accounts, or to change the ac-
count or accounts designated to receive redemption pro-
ceeds. These requests must be signed by each account owner
with signatures guaranteed by a member of an approved Me-
dallion Guarantee Program or in such other manner as may
be acceptable to the Fund. Further documentation may be
required from corporations, executors, trustees or per-
sonal representatives.
The Fund reserves the right to refuse telephone redemp-
tions and, at its option, may limit the timing, amount or
frequency of these redemptions. This procedure may be mod-
ified or terminated at any time, on 30 days' notice, by
the Fund.
For the convenience of shareholders, the Fund has autho-
rized Nuveen as its agent to accept orders from financial
advisers by wire or telephone for the redemption of Fund
shares. The redemption price is the first net asset value
determined following receipt of an order placed by the fi-
nancial 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. However, your
financial adviser may charge you for serving as agent in
the redemption of shares.
31
<PAGE>
The Fund reserves the right to refuse telephone redemp-
tions and, at its option, may limit the timing, amount or
frequency of these redemptions. This procedure may be mod-
ified or terminated at any time, on 30 days' notice, by
the Fund. The Fund, SSI 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.
Automatic Withdrawal Plan. If you own Fund shares cur-
rently worth at least $10,000, you may establish an Auto-
matic Withdrawal Plan by completing an application form
for the Plan. You may obtain an application form by check-
ing the applicable box on the enclosed Application Form or
by calling Nuveen toll-free at 800-621-7227.
The Plan permits you to request periodic withdrawals on a
monthly, quarterly, semi-annual or annual basis in an
amount of $50 or more. Depending upon the size of the
withdrawals requested under the Plan and fluctuations in
the net asset value of Fund shares, these withdrawals may
reduce or even exhaust your account.
The purchase of Class A Shares, other than through rein-
vestment, while you are participating in the Automatic
Withdrawal Plan with respect to Class A Shares will usu-
ally be disadvantageous because you will be paying a sales
charge on any Class A Shares you purchase at the same time
you are redeeming shares. Similarly, use of the Automatic
Withdrawal Plan for Class C Shares held 12 months or less
will result in imposition of the 1% CDSC. Purchase of new
Class C Shares, other than through reinvestment, while
participating in the Automatic Withdrawal Plan may be dis-
advantageous because the newly-purchased Class C Shares
will be subject to the 1% CDSC until more than 12 months
after purchase.
General. The Fund may suspend the right of redemption of
Fund shares or delay payment more than seven days (a) dur-
ing any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), (b)
when trading in the markets the Fund normally utilizes is
restricted, or an emergency exists as determined by the
Securities
and Exchange Commission so that trading of the Fund's in-
vestments 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.
32
<PAGE>
The Fund may, from time to time, establish a minimum total
investment for Fund shareholders, and the Fund reserves
the right to redeem your shares if your investment is less
than the minimum after giving you at
least 30 days' notice. If any minimum total investment is
established, and if your account is below the minimum, you
will be allowed 30 days following the notice in which to
purchase sufficient shares to meet the minimum. So long as
the Fund continues to offer shares at net asset value to
holders of Nuveen UITs who are investing their Nuveen UIT
distributions, no minimum total investment will be estab-
lished for the Fund.
MANAGEMENT OF THE FUND
Nuveen Advisory Board of Trustees. The management of the Fund, including
has been managing general supervision of the duties performed for the Fund
similar tax-free by Nuveen Advisory under the Investment Management Agree-
funds since 1976, ment, is the responsibility of the Fund's Board of Trust-
and has ees.
approximately $30
billion of assets
under management.
Investment Adviser. Nuveen Advisory acts as the investment
adviser for and manages the investment and reinvestment of
the assets of the Fund. Its address is Nuveen Advisory
Corp., 333 West Wacker Drive, Chicago, Illinois 60606.
Nuveen Advisory also administers the Fund's business af-
fairs, provides office facilities and equipment and cer-
tain clerical, bookkeeping and administrative services,
and permits any of its officers or employees to serve
without compensation as directors or officers of the Fund
if elected to such positions.
Nuveen Advisory was organized in 1976 and since then has
exclusively engaged in the management of municipal securi-
ties portfolios. It currently serves as investment adviser
to 21 open-end municipal securities portfolios (the
"Nuveen Mutual Funds") and 55 exchange-traded municipal
securities funds (the "Nuveen Exchange-Traded Funds").
Each of these invests substantially all of its assets in
investment grade quality, tax-free municipal securities,
and except for money-market funds, adheres to the value
investing strategy described previously. As of the date of
this Prospectus, Nuveen Advisory manages approximately $30
billion in assets held by the Nuveen Mutual Funds and the
Nuveen Exchange-Traded Funds.
Nuveen Advisory is a wholly-owned subsidiary of John
Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago,
Illinois 60606, the oldest and
largest investment banking firm (based on number of em-
ployees) specializing in the underwriting and distribution
of tax-exempt securities. Nuveen, the principal under-
writer of the Fund's shares, is sponsor of the
Nuveen Tax-Exempt Unit Trust, a registered unit investment
trust. It is also the principal underwriter for the Nuveen
Mutual Funds, and served as co-managing underwriter for
the shares of the Nuveen Exchange-
33
<PAGE>
Traded Funds. Over 1,000,000 individuals have invested to
date in Nuveen's tax-exempt funds and trusts. Founded in
1898, Nuveen is a subsidiary of The John Nuveen Company
which, in turn, is approximately 75% owned by The St. Paul
Companies, Inc. ("St. Paul"). St. Paul is located in St.
Paul, Minnesota, and is principally engaged in providing
property-liability insurance through subsidiaries.
For the services and facilities furnished by Nuveen Advi-
sory, the Fund has agreed to pay an annual management fee
as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEE
----------------------------------
<S> <C>
For the first $125 million .5000 of 1%
For the next $125 million .4875 of 1%
For the next $250 million .4750 of 1%
For the next $500 million .4625 of 1%
For the next $1 billion .4500 of 1%
For assets over $2 billion .4250 of 1%
</TABLE>
All fees and expenses are accrued daily and deducted be-
fore payment of dividends to investors. In addition to the
management fee of Nuveen Advisory, the Fund pays all its
other costs and expenses of its operations. Nuveen Advi-
sory has agreed to waive all or a portion of its manage-
ment fee or reimburse certain expenses of the Fund in or-
der to prevent total operating expenses (excluding any
distribution or service fees) in any fiscal year from ex-
ceeding .75 of 1% of the average daily net asset value of
any class of shares of the Fund. For the fiscal year ended
February 28, 1995, the management fee amounted to .45 of
1% of the average daily net assets, and the Fund's total
operating expenses amounted to .59 of 1% of the average
net assets.
Portfolio Management. Overall portfolio management strat-
egy and the day-to-day management of the Fund is the re-
sponsibility of Thomas C. Spalding, Jr., a Vice President
of Nuveen Advisory and of the Fund. Mr. Spalding has
served as the portfolio manager of the Fund since August,
1978. Mr. Spalding has been employed by Nuveen since 1976
and by Nuveen Advisory since 1978 and has responsibility
with respect to the portfolio management of all Nuveen
open-end and exchange-traded funds managed by Nuveen Advi-
sory. See the Statement of Additional Information for fur-
ther information about Mr. Spalding.
Consistent with the Fund's investment objectives, the day-
to-day management of the Fund is characterized by an em-
phasis on value investing, a process that involves the
search for Municipal Obligations with favorable
characteristics that, in Nuveen Advisory's judgment, have
not yet been recognized in the marketplace. The process of
searching for such undervalued or underrated securities is
an ongoing one that draws upon the re
sources of the portfolio managers of the various Nuveen
funds and senior management of Nuveen Advisory. All port-
folio management decisions are
34
<PAGE>
subject to weekly review by the Nuveen Advisory management
and to quarterly review by the Fund's Board of Trustees.
HOW THE FUND SHOWS PERFORMANCE
The Fund may The Fund from time to time may quote various performance
compare its measures in order to illustrate the historical returns
performance with available from an investment in the Fund. These perfor-
other tax-free mance measures, which are determined for each class of
and taxable shares of the Fund, include:
investments,
often on a
taxable
equivalent basis.
Yield Information. YIELD is a standardized measure of the
net investment income earned over a specified 30-day peri-
od, expressed as a percentage of the offering price per
share at the end of the period. Yield is an annualized
figure, which means that it is assumed that the same level
of net investment income is generated over a one-year pe-
riod.
TAXABLE EQUIVALENT YIELD is the yield that a taxable in-
vestment would need to generate in order to equal the
yield on an after-tax basis for an investor in a stated
tax bracket. Taxable equivalent yield will consequently be
higher than its yield. See the chart below and Appendix A
for examples of taxable equivalent yields and how you can
use them to compare other investments with investments in
the Fund.
HISTORICAL YIELDS
[GRAPH APPEARS HERE]
SOURCES: BOND BUYER, BANXQUOTE, IBC/DONOGHUE'S MONEY FUND
REPORT
35
<PAGE>
As this chart shows, interest rates on various long- and
short-term investments will fluctuate over time, and not
always in the same direction or to the same degree. For
convenience, the taxable equivalent yield of the Bond
Buyer 20 Index shown here was calculated using a 36% fed-
eral income tax rate. Other federal income tax rates, both
higher and lower, were in existence for all or part of the
period shown in the chart. This chart is not intended to
predict the future direction of interest rates. See the
discussion below under the subcaption "General" for a de-
scription of the indices and investments shown in the
chart.
DISTRIBUTION RATE is determined based upon the latest div-
idend, annualized, expressed as a percentage of the offer-
ing price per share at the end of the measurement period.
Distribution rate may sometimes be different than yield
because it may not reflect amortization of bond premiums
to the extent such premiums arise after the bonds were
purchased.
Total Return Information. AVERAGE ANNUAL TOTAL RETURN and
CUMULATIVE TOTAL RETURN figures for a specified period
measure both the net investment income generated by, and
the effect of any realized and unrealized appreciation or
depreciation of, an investment in the Fund, assuming the
reinvestment of all dividends and capital gain distribu-
tions. Average annual total return figures generally are
quoted for at least one-, five- and ten-year (or life-of-
fund, if shorter) periods and represent the average annual
percentage change over those periods. Cumulative total re-
turn figures are not annualized and represent the cumula-
tive percentage or dollar value change over the period
specified.
TAXABLE EQUIVALENT TOTAL RETURN represents the total re-
turn that would be generated by a taxable income fund that
produced the same amount of net asset value appreciation
or depreciation and after-tax income as the Fund in each
year, assuming a specified tax rate. The taxable equiva-
lent total return of the Fund will therefore be higher
than its total return over the same period.
From time to time, the Fund may compare its risk-adjusted
performance with other investments that may provide dif-
ferent levels of risk and return. For example, the Fund
may compare its risk level, as measured by the variability
of its periodic returns, or its RISK-ADJUSTED TOTAL RE-
TURN, with those of other funds or groups of funds. Risk-
adjusted total return would be calculated by adjusting
each investment's total return to account for the risk
level of the investment.
The Fund may also compare its TAX-ADJUSTED TOTAL RETURN
with that of other funds or groups of funds. This measure
would take into account the tax-
36
<PAGE>
exempt nature of exempt-interest dividends and the payment
of income taxes on the Fund's distributions of net real-
ized capital gains and ordinary income.
General. Any given performance quotation or performance
comparison for the Fund is based on historical earnings
and should not be considered as representative of the per-
formance of the Fund for any future period. See the
Statement of Additional Information for further informa-
tion concerning the Fund's performance. For information as
to current yield and other performance information regard-
ing the Fund, call Nuveen toll-free at 800-621-7227.
A comparison of the current yield or historic performance
of the Fund to those of other investments is one element
to consider in making an informed investment decision. The
Fund may from time to time in its advertising and sales
materials 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 certificates of
deposit (CDs) or money market funds. These taxable invest-
ments have investment characteristics that differ from
those of the Fund. Additionally, the Fund may compare its
current yield or total return history with a widely-fol-
lowed, unmanaged municipal market index such as the Bond
Buyer 20 Index, the Merrill Lynch 500 Municipal Market In-
dex or the Lehman Brothers Municipal Bond Index. Compara-
tive performance information may also be used from time to
time in advertising or marketing the Fund's shares, in-
cluding data from Lipper Analytical Services, Inc., Morn-
ingstar, Inc. and other industry publications.
DISTRIBUTIONS AND TAXES
HOW THE FUND PAYS The Fund will pay monthly dividends to shareholders at a
DIVIDENDS level rate that reflects the past and projected net income
of the Fund and that results, over time, in the distribu-
tion of substantially all of the Fund's net income. Net
income of the Fund consists of all interest income accrued
on its portfolio less all expenses of the Fund accrued
daily. 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-
duced by a decrease in the Fund's monthly net income due
to fluctuations in investment income or expenses. As a re-
sult, the distributions paid by the Fund for any particu-
lar monthly period may be more or less than the amount of
net income
The Fund pays
monthly
dividends.
37
<PAGE>
actually earned by the Fund during such period. Undistrib-
uted net income is included in the Fund's net asset value
and, correspondingly, distributions from previously undis-
tributed net income are deducted from the Fund's net asset
value. It is not expected that this dividend policy will
impact the management of the Fund's portfolio.
Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner and at the
same time, and will be paid in the same amount except that
different distribution and service fees and any other ex-
pense relating to a specific class of shares will be borne
exclusively by that class. As a result, dividends per
share will vary among the Fund's classes.
The Fund will declare dividends on the 9th of each month
(or if the 9th is not a business day, on the immediately
preceding business day), payable to shareholders of record
as of the close of business on that day. This distribution
policy is subject to change, however, by the Board of
Trustees of the Fund without prior notice to or approval
by shareholders. Dividends will be paid on the first busi-
ness day of the following month and are reinvested in ad-
ditional shares of the Fund at net asset value unless you
have elected that your dividends be paid in cash. Net re-
alized capital gains, if any, will be paid not less fre-
quently than annually and will be reinvested at net asset
value in additional shares of the Fund unless you have
elected to receive capital gains distributions in cash.
TAX MATTERS The following federal tax discussion is intended to pro-
vide you with an overview of the impact of federal income
tax provisions on the Fund or its shareholders. These tax
provisions are subject to change by legislative or admin-
istrative action, and any changes may be applied retroac-
tively. Because the Fund's taxes are a complex matter, you
should consult your tax adviser for more detailed informa-
tion concerning the taxation of the Fund and the federal,
state and local tax consequences to Fund shareholders.
Income dividends The Fund intends to qualify, as it has in prior years, un-
are free from der Subchapter M of the Internal Revenue Code of 1986, as
regular federal amended (the "Code"), for tax treatment as a regulated in-
income tax. vestment company. In order to qualify for treatment as a
regulated investment company, the Fund must satisfy cer-
tain requirements relating to the sources of its income,
diversification of its assets and distribution of its in-
come to shareholders. As a regulated investment company,
the Fund will not be subject to federal income tax on the
portion of its net investment income and net realized cap-
ital gains that is
38
<PAGE>
currently distributed to shareholders. The Fund also in-
tends to satisfy conditions that will enable it to pay
"exempt-interest dividends" to its shareholders. This
means that you will not be subject to regular federal in-
come tax on Fund dividends you receive from income on Mu-
nicipal Obligations.
Your share of the Fund's taxable income, if any, from in-
come on taxable temporary investments and net short-term
capital gains, will be taxable to you as ordinary income.
If the Fund purchases a Municipal Obligation at a market
discount, any gain realized by the Fund upon sale or re-
demption of the Municipal Obligation will be treated as
taxable interest income to the extent such gain does not
exceed the market discount, and any gain realized in ex-
cess of the market discount will be treated as capital
gains. Distributions, if any, of net long-term capital
gains are taxable as long-term capital gains, regardless
of the length of time you have owned Fund shares. You are
required to pay tax on all taxable distributions even if
these distributions are automatically reinvested in addi-
tional Fund shares. Certain distributions paid by a Fund
in January of a given year may be taxable to shareholders
as if received the prior December 31. As long as the Fund
qualifies as a regulated investment company under the
Code, distributions will not qualify for the dividends re-
ceived deduction for corporate shareholders. Investors
should consider the tax implications of buying shares im-
mediately prior to a distribution. Investors who purchase
shares shortly before the record date for a distribution
will pay a per share price that includes the value of the
anticipated distribution and will be taxed on the distri-
bution (unless it is exempt from tax) even though the dis-
tribution represents a return of a portion of the purchase
price.
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 taxable income for that year, and the
entire amount of your distributions would be taxable as
ordinary income.
The Code does not permit you to deduct the interest on
borrowed monies used to purchase or carry tax-free invest-
ments, such as Fund shares. Under Internal Revenue Service
rules, the purchase of Fund shares may be considered to
have been made with borrowed monies even though those mon-
ies are not directly traceable to the purchase of those
shares.
Because the net asset value of the Fund's shares includes
net tax-exempt interest earned by the Fund but not yet de-
clared as an exempt-interest dividend, each time an ex-
empt-interest dividend is declared, the net asset value of
the Fund's shares will decrease in an amount equal to the
39
<PAGE>
amount of the dividend. Accordingly, if you redeem Fund
shares immediately prior to or on the record date of a
monthly exempt-interest dividend, you may realize a tax-
able gain even though a portion of the redemption proceeds
may represent your pro rata share of undistributed tax-ex-
empt interest earned by the Fund.
The redemption or exchange of Fund shares normally will
result in capital gain or loss to shareholders. Any loss
you may realize on the redemption or exchange of Fund
shares held for six months or less will be disallowed to
the extent of any distribution of exempt-interest divi-
dends received on these shares and will be treated as a
long-term capital loss to the extent of any distribution
of long-term capital gain received on these shares.
If you receive social security or railroad retirement ben-
efits you should note that tax-exempt income is taken into
account in calculating the amount of these benefits that
may be subject to federal income tax.
The Fund may invest in private activity bonds, the inter-
est on which is not exempt from federal income tax to
"substantial users" of the facilities financed by these
bonds or "related persons" of such substantial users.
Therefore, the Fund may not be an appropriate investment
for you if you are considered either a substantial user or
a related person.
The Fund may invest up to 20% of its net assets in AMT
Bonds, the interest on which is a specific tax preference
item for purposes of computing the alternative minimum tax
on corporations and individuals. If your tax liability is
determined under the alternative minimum tax, you will be
taxed on your share of the Fund's exempt-interest divi-
dends that were paid from income earned on AMT Bonds. In
addition, the alternative minimum taxable income for cor-
porations is increased by 75% of the difference between an
alternative measure of income ("adjusted current earn-
ings") and the amount otherwise determined to be alterna-
tive minimum taxable income. Interest on all Municipal Ob-
ligations, and therefore all distributions by the Fund
that would otherwise be tax exempt, is included in calcu-
lating a corporation's adjusted current earnings.
The Fund is required in certain circumstances to withhold
31% of taxable dividends and certain other payments paid
to non-corporate holders of shares who have not furnished
to the Fund their correct taxpayer identification number
(in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject
to back-up withholding.
Each January, the Fund will notify you of the amount and
tax status of Fund distributions for the preceding year.
40
<PAGE>
NET ASSET VALUE
Net asset value Net asset value of the shares of the Fund will be deter-
is calculated mined separately for each class of shares. The net asset
daily. value per share of a class of shares 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 total number of shares of the class outstanding.
The net asset value per share is expected to vary among
Class A Shares, Class C Shares and Class R Shares, princi-
pally due to the differences in sales charges, distribu-
tion and service fees and other class expenses borne by
each class.
Net asset value will be determined by United States Trust
Company of New York, the Fund's custodian, as of 4:00 p.m.
eastern time on each day the New York Stock Exchange is
normally open for trading. In determining net asset value,
the custodian uses the valuations of portfolio securities
furnished by a pricing service approved by the Board of
Trustees. The pricing service 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 majority of the secu-
rities held by the Fund) are valued at fair value as de-
termined by the pricing service using methods that include
consideration of the following: yields or prices of munic-
ipal bonds of comparable quality, type of issue, coupon,
maturity and rating; indications as to value from securi-
ties dealers; and general market conditions. The pricing
service may employ electronic data processing techniques
and/or a matrix system to determine valuations. The proce-
dures of the pricing service and its valuations are re-
viewed by the officers of the Fund under the general su-
pervision of its Board of Trustees.
GENERAL INFORMATION
If you have any questions about the Fund or other Nuveen
Mutual Funds, call Nuveen toll-free at 800-621-7227.
Custodian and Transfer and Shareholder Services Agent. The
Custodian of the assets of the Fund is United States Trust
Company of New York, 114 West 47th Street, New York, New
York 10036. The Chase Manhattan Bank, N.A., 1 Chase Man-
hattan Plaza, New York, NY 10081, has agreed to become
successor to US Trust, as Custodian and Fund Accountant.
The succession is presently scheduled for July 1, 1995. No
changes in the Fund's administration or in the amount of
fees and expenses paid by the Fund for these services will
result, and no action by shareholders will be required.
The Fund's transfer, shareholder services and dividend
41
<PAGE>
paying agent, Shareholder Services, Inc., P.O. Box 5330,
Denver, CO 80217-5330, performs bookkeeping, data process-
ing and administrative services for the maintenance of
shareholder accounts.
Organization. The Fund is an open-end diversified manage-
ment investment company under the Investment Company Act
of 1940. The Fund was originally incorporated in Maryland
on October 8, 1976 and reorganized as a Massachusetts
business trust on June 12, 1995. The Board of Trustees is
authorized to issue an unlimited number of shares, $.10
par value, divided into three classes of shares designated
as Class A Shares, Class C Shares and Class R Shares. Each
class of shares represents an interest in the same portfo-
lio of investments of the Fund. Each class of shares has
equal rights as to voting, redemption, dividends and liq-
uidation, except that each bears different class expenses,
including different distribution and service fees, and
each has exclusive voting rights with respect to any dis-
tribution or service plan applicable to its shares. There
are no conversion, preemptive or other subscription
rights, except that Class C Shares automatically convert
into Class A Shares, as described above. The Board of
Trustees has the right to establish additional series of
the Fund 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 Fund is not required and does not intend to hold an-
nual 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.
The Fund is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circum-
stances, be held personally liable as partners for its ob-
ligations. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or
obligations of the Fund and requires that notice of this
disclaimer be given in each agreement, obligation or in-
strument entered into or executed by the Fund or the
Trustees. The Declaration of Trust further provides for
indemnification out of the assets and property of the Fund
for all loss and expense of any shareholder held person-
ally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in
which both inadequate insurance existed and the Fund it-
self was unable to meet its obligations. The Fund believes
the likelihood of these circumstances is remote.
42
<PAGE>
APPENDIX A--TAXABLE EQUIVALENT YIELD TABLES
TAXABLE The following tables show the effects for individuals of
EQUIVALENT YIELD federal income taxes on:
TABLES AND THE
EFFECT OF TAXES
AND INTEREST
RATES ON
INVESTMENTS
. what you would have to earn on a taxable investment to
equal a given tax-free yield; and
. the amount that those subject to a given tax rate would
have to put into a tax-free investment in order to gen-
erate the same after-tax income as a taxable investment.
These tables are for illustrative purposes only and are
not intended to predict the actual return you might earn
on a Fund investment. The Fund occasionally may advertise
its performance in similar tables using other current tax
rates than those shown here. The tax rates used in these
tables have been rounded to the nearest one-half of one
percent. They are based upon published 1995 marginal fed-
eral tax rates and do not take into account changes in tax
rates that are proposed from time to time. They reflect
the current federal tax limitations on itemized deductions
and personal exemptions, which may raise the effective tax
rate and taxable equivalent yield for taxpayers above cer-
tain income levels. The tax rates shown here may be higher
or lower than your actual tax rate. A higher tax rate
would tend to make the dollar amounts in the third table
lower, while a lower tax rate would make the amounts high-
er. You should consult your tax adviser to determine your
actual tax rate.
<PAGE>
NUVEEN MUNICIPAL BOND FUND
MARGINAL TAX
RATES FOR JOINT
TAXPAYERS WITH
FOUR PERSONAL
EXEMPTIONS
<TABLE>
<CAPTION>
Federal
Federal Adjusted
Taxable Gross TAX-FREE YIELD
Income Income Federal 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
(1,000's) (1,000's) Tax Rate TAXABLE EQUIVALENT YIELD
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
39.0 $ 0-114.7 15.0% 4.12 4.71 5.29 5.88 6.47 7.06 7.65
-------------------------------------------------------------------
39.0-
94.3 0-114.7 28.0 4.86 5.56 6.25 6.94 7.64 8.33 9.03
-------------------------------------------------------------------
114.7-172.1 29.0 4.93 5.63 6.34 7.04 7.75 8.45 9.15
-------------------------------------------------------------------
94.3-
143.6 0-114.7 31.0 5.07 5.80 6.52 7.25 7.97 8.70 9.42
-------------------------------------------------------------------
114.7-172.1 32.0 5.15 5.88 6.62 7.35 8.09 8.82 9.56
-------------------------------------------------------------------
172.1-294.6 34.5 5.34 6.11 6.87 7.63 8.40 9.16 9.92
-------------------------------------------------------------------
143.6-
256.5 114.2-172.1 37.0 5.56 6.35 7.14 7.94 8.73 9.52 10.32
-------------------------------------------------------------------
172.1-294.6 40.0 5.83 6.67 7.50 8.33 9.17 10.00 10.83
-------------------------------------------------------------------
Over 294.6 37.0 5.56 6.35 7.14 7.94 8.73 9.52 10.32
-------------------------------------------------------------------
Over
256.5 172.1-294.6 44.0 6.25 7.14 8.04 8.93 9.82 10.71 11.61
-------------------------------------------------------------------
Over 294.6 41.0 5.93 6.78 7.63 8.47 9.32 10.17 11.02
</TABLE>
MARGINAL TAX
RATES FOR SINGLE
TAXPAYERS WITH
ONE PERSONAL
EXEMPTION
<TABLE>
<CAPTION>
Federal
Federal Adjusted
Taxable Gross TAX-FREE YIELD
Income Income Federal 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
(1,000's) (1,000's) Tax Rate TAXABLE EQUIVALENT YIELD
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
23.4 $ 0-114.7 15.0% 4.12 4.71 5.29 5.88 6.47 7.06 7.65
-------------------------------------------------------------------
23.4-
56.6 0-114.7 28.0 4.86 5.56 6.25 6.94 7.64 8.33 9.03
-------------------------------------------------------------------
56.6-
118.0 0-114.7 31.0 5.07 5.80 6.52 7.25 7.97 8.70 9.42
-------------------------------------------------------------------
114.7-237.2 32.5 5.19 5.93 6.67 7.41 8.15 8.89 9.63
-------------------------------------------------------------------
118.0-
256.5 114.7-237.2 38.0 5.65 6.45 7.26 8.06 8.87 9.68 10.48
-------------------------------------------------------------------
Over 237.2 37.0 5.56 6.35 7.14 7.94 8.73 9.52 10.32
-------------------------------------------------------------------
Over
256.5 Over 237.2 41.0 5.93 6.78 7.63 8.47 9.32 10.17 11.02
-------------------------------------------------------------------
</TABLE>
-----------------------------------------------------------
FOR AN EQUAL
AFTER-TAX RETURN,
YOUR TAX-FREE
INVESTMENT MAY BE
LESS*
<TABLE>
<CAPTION>
3.5% 4.0% 4.5% 5.0% 5.5% 6.5%
TAX- TAX- TAX- TAX- TAX- 6.0% TAX-
$50,000 INVESTMENT FREE FREE FREE FREE FREE TAX-FREE FREE
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPARE 4% TAXABLE $39,429 $34,500 $30,667 $27,600 $25,091 $23,000 $21,231
----------------------------------------------------------------------
COMPARE 5% TAXABLE $49,286 $43,125 $38,333 $34,500 $31,364 $28,750 $26,538
----------------------------------------------------------------------
COMPARE 6% TAXABLE $59,143 $51,750 $46,000 $41,400 $37,636 $34,500 $31,846
----------------------------------------------------------------------
COMPARE 7% TAXABLE $69,000 $60,375 $53,667 $48,300 $43,909 $40,250 $37,154
----------------------------------------------------------------------
COMPARE 8% TAXABLE $78,857 $69,000 $61,333 $55,200 $50,182 $46,000 $42,462
</TABLE>
For example,
$50,000 in a 6%
taxable
investment earns
the same after-
tax return as
$41,400 in a 5%
tax-free Nuveen
investment.
-----------------------------------------------------------
*The dollar amounts in the table reflect a 31.0% federal
tax rate.
A-2
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
NUVEEN MUNICIPAL BOND FUND
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
Statement of Additional Information
June 13, 1995
Nuveen Municipal Bond Fund
333 West Wacker Drive
Chicago, Illinois 60606
NUVEEN MUNICIPAL BOND FUND
This Statement of Additional Information is not a prospectus. A prospectus may
be obtained from certain securities representatives, banks and other financial
institutions that have entered into sales agreements with John Nuveen & Co. In-
corporated, or from the Fund, c/o John Nuveen & Co. Incorporated, 333 West
Wacker Drive, Chicago, Illinois 60606. This Statement of Additional Information
relates to, and should be read in conjunction with, the Prospectus dated June
13, 1995.
<TABLE>
<S> <C>
Table of Contents Page
- --------------------------------------------------------------------------
Fundamental Policies and Investment Portfolio 2
- --------------------------------------------------------------------------
Management 9
- --------------------------------------------------------------------------
Investment Adviser and Investment Management Agreement 12
- --------------------------------------------------------------------------
Portfolio Transactions 13
- --------------------------------------------------------------------------
Net Asset Value 14
- --------------------------------------------------------------------------
Tax Matters 15
- --------------------------------------------------------------------------
Performance Information 20
- --------------------------------------------------------------------------
Additional Information on the Purchase and Redemption of Fund Shares 24
- --------------------------------------------------------------------------
Distribution and Service Plan 26
- --------------------------------------------------------------------------
Independent Public Accountants and Custodian 27
- --------------------------------------------------------------------------
</TABLE>
The audited financial statements for the fiscal year ended February 28, 1995,
appearing in the Fund's Annual Report are incorporated herein by reference. The
Annual Report accompanies this Statement of Additional Information.
<PAGE>
FUNDAMENTAL POLICIES AND INVESTMENT PORTFOLIO
FUNDAMENTAL POLICIES
The investment objective and certain fundamental investment policies of the
Fund are described in the 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) Invest in securities other than Municipal Obligations and temporary invest-
ments, as those terms are defined in the Prospectus;
(2) Invest more than 5% of its total assets in securities of any one issuer,
except that this limitation shall not apply to securities of the United States
government, its agencies and instrumentalities;
(3) Borrow money, except for temporary or emergency purposes and not for in-
vestment purposes and then only in an amount not exceeding 5% of the value of
the Fund's total assets at the time of borrowing;
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (3) above, it may pledge securities having
a market value at the time of pledge not exceeding 10% of the value of the
Fund's total assets;
(5) Issue senior securities as defined in the Investment Company Act of 1940;
(6) Underwrite any issue of securities;
(7) Purchase or sell real estate, but this shall not prevent the Fund from in-
vesting in Municipal Obligations secured by real estate or interests therein;
(8) Purchase or sell commodities or commodities contracts or oil, gas or other
mineral exploration or development programs;
(9) Make loans, other than by entering into repurchase agreements and through
the purchase of Municipal Obligations or temporary investments in accordance
with the Fund's investment objective, policies and limitations;
(10) Make short sales of securities or purchase any securities on margin, ex-
cept for such short-term credits as are necessary for the clearance of transac-
tions;
(11) Write or purchase puts, calls, straddles, spreads or any combination
thereof;
(12) Invest more than 5% of its total assets in securities of unseasoned is-
suers which, together with their predecessors, have been in operation for less
than three years;
(13) Invest more than 10% of its total assets in securities that the Fund is
restricted from selling to the public without registration under the Securities
Act of 1933; or
(14) Purchase or retain the securities of any issuer other than the securities
of the Fund if, to the Fund's knowledge, those trustees of the Fund, or those
officers and directors of Nuveen Advisory Corp. ("Nuveen Advisory"), who indi-
vidually own beneficially more than 1/2 of 1% of the outstanding securities of
such issuer, together own beneficially more than 5% of such outstanding securi-
ties.
For the purpose of applying the limitations set forth in paragraphs (2) and
(12) above, an issuer shall be deemed the sole issuer of a security when its
assets and revenues are separate from other governmental entities and its secu-
rities are backed only by its assets and revenues. Similarly, in
2
<PAGE>
the case of a non-governmental user, such as an industrial corporation or a
privately owned or operated hospital, if the security is backed only by the as-
sets and revenues of the non-governmental user, then such non-governmental user
would be deemed to be the sole issuer. Where a security is also backed by the
enforceable obligation of a superior or unrelated governmental entity or other
entity (other than a bond insurer), it shall also be included in the computa-
tion of securities owned that are issued by such governmental or other entity.
Where a security is guaranteed by a governmental entity or some other facility,
such as a bank guarantee or letter of credit, such a guarantee or letter of
credit would be considered a separate security and would be treated as an issue
of such government, other entity or bank. Where a security is insured by bond
insurance, it shall not be considered a security issued or guaranteed by the
insurer; instead the issuer of such security will be determined in accordance
with the principles set forth above. The foregoing restrictions do not limit
the percentage of the Fund's assets that may be invested in securities insured
by any single insurer. It is a fundamental policy of the Fund, which cannot be
changed without the approval of the holders of a majority of shares, that the
Fund will not hold securities of a single bank, including securities backed by
a letter of credit of such bank, if such holdings would exceed 10% of the total
assets of the Fund.
With respect to temporary investments, in addition to the foregoing limita-
tions, the Fund will not purchase securities (other than securities of the U.S.
government, its agencies and instrumentalities) if, as a result of such pur-
chase, more that 25% of the Fund's total assets would be invested in any one
industry nor enter into a repurchase agreement if, as a result thereof, more
than 10% of its assets would be subject to repurchase agreements maturing in
more than seven days.
The foregoing restrictions and limitations, as well as the Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated un-
less an excess or deficiency occurs or exists immediately after and as a result
of an acquisition of securities, unless otherwise indicated.
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.
PORTFOLIO SECURITIES
As described in the Prospectus, the Fund invests primarily in a diversified
portfolio of Municipal Obligations issued within the 50 states and certain U.S.
possessions and territories. In general, Municipal Obligations include debt ob-
ligations issued by states, cities and local authorities to obtain funds for
various public purposes, including construction of a wide range of public fa-
cilities such as airports, bridges, highways, hospitals, housing, mass trans-
portation, schools, streets and water and sewer works. Industrial development
bonds and pollution control bonds that are issued by or on
3
<PAGE>
behalf of public authorities to finance various privately-rated facilities are
included within the term Municipal Obligations if the interest paid thereon is
exempt from federal income tax.
The investment assets of the Fund will consist of (1) Municipal Obligations
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") or Standard and
Poor's Corporation ("S&P"), (2) unrated Municipal Obligations which, in the
opinion of Nuveen Advisory, have credit characteristics equivalent to bonds
rated within the four highest grades by Moody's or S&P, except that the Fund
may not invest more than 10% of its net assets in unrated bonds and (3) tempo-
rary investments as described below, the income from which may be subject to
federal income tax.
As described in the Prospectus, the Fund may invest in Municipal Obligations
that constitute participations in a lease obligation or installment purchase
contract obligation (hereafter collectively called "lease obligations") of a
municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. The Fund will seek to minimize the special
risks associated with such securities by not investing more than 10% of its as-
sets in lease obligations that contain non-appropriation clauses, and by only
investing in those nonappropriation leases where (1) the nature of the leased
equipment or property is such that its ownership or use is essential to a gov-
ernmental function of the municipality, (2) the lease payments will commence
amortization of principal at an early date resulting in an average life of
seven years or less for the lease obligation, (3) appropriate covenants will be
obtained from the municipal obligor prohibiting the substitution or purchase of
similar equipment if lease payments are not appropriated, (4) the lease obligor
has maintained good market acceptability in the past, (5) the investment is of
a size that will be attractive to institutional investors, and (6) the under-
lying leased equipment has elements of portability and/or use that enhance its
marketability in the event foreclosure on the underlying equipment were ever
required. Lease obligations provide a premium interest rate which along with
regular amortization of the principal may make them attractive for a portion of
the assets of the Fund.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to the laws enacted in the fu-
ture by Congress, state legislatures or referenda extending the time for pay-
ment of principal and/or interest, or imposing other constraints upon enforce-
ment of such obligations or upon municipalities to levy taxes. There is also
the possibility that, as a result of legislation or other conditions, the power
or ability of any issuer to pay, when due, the principal of and interest on its
Municipal Obligations may be materially affected.
4
<PAGE>
PORTFOLIO TRADING AND TURNOVER
The Fund will make changes in its investment portfolio from time to time in
order to take advantage of opportunities in the municipal market and to limit
exposure to market risk. The Fund may also engage to a limited extent in
short-term trading consistent with its investment objective. Securities may be
sold in anticipation of market decline or purchased in anticipation of market
rise and later sold, but the Fund will not engage in trading solely to recog-
nize a gain. In addition, a security may be sold and another of comparable
quality purchased at approximately the same time to take advantage of what
Nuveen Advisory believes to be a temporary disparity in the normal yield rela-
tionship between the two securities. The Fund may make changes in its invest-
ment portfolio in order to limit its exposure to changing market conditions.
Changes in the Fund's investments are known as "portfolio turnover." While it
is impossible to predict future portfolio turnover rates, the Fund's annual
portfolio turnover rate is generally not expected to exceed 35%. However, the
Fund reserves the right to make changes in its investments whenever it deems
such action advisable, and therefore, the Fund's annual portfolio turnover
rate may exceed 35% in particular years depending upon market conditions. The
Fund's portfolio turnover rates for the fiscal years ended February 28, 1995,
and February 28, 1994 were 17% and 15%, respectively.
WHEN-ISSUED SECURITIES
As described in the Prospectus, the Fund may purchase and sell Municipal Obli-
gations on a when-issued or delayed delivery basis. When-issued and delayed
delivery transactions arise when securities are purchased or sold with payment
and delivery beyond the regular settlement date. (When-issued transactions
normally settle within 15-45 days.) On such transactions the payment obliga-
tion and the interest rate are fixed at the time the buyer enters into the
commitment. The commitment to purchase securities on a when-issued or delayed
delivery basis may involve an element of risk because the value of the securi-
ties is subject to market fluctuation, no interest accrues to the purchaser
prior to settlement of the transaction, and at the time of delivery the market
value may be less than cost. At the time the Fund makes the commitment to pur-
chase a Municipal Obligation on a when issued or delayed delivery basis, it
will record the transaction and reflect the amount due and the value of the
security in determining its net asset value. Likewise, at the time the Fund
makes the commitment to sell a Municipal Obligation on a delayed delivery ba-
sis, it will record the transaction and include the proceeds to be received in
determining its net asset value; accordingly, any fluctuations in the value of
the Municipal Obligation sold pursuant to a delayed delivery commitment are
ignored in calculating net asset value so long as the commitment remains in
effect. The Fund will maintain designated readily marketable assets at least
equal in value to commitments to purchase when-issued or delayed delivery se-
curities, such assets to be segregated by the Custodian specifically for the
settlement of such commitments. The Fund will only make commitments to pur-
chase Municipal Obligations on a when-issued or delayed delivery basis with
the intention of actually acquiring the securities, but the Fund reserves the
right to sell these securities before the settlement date if it is deemed ad-
visable. If a when-issued security is sold before delivery any gain or loss
would not be tax-exempt. A Fund commonly engages in when-issued transactions
in order to purchase or sell newly-issued Municipal Obligations, and may en-
gage in delayed delivery transactions in order to manage its operations more
effectively.
5
<PAGE>
TEMPORARY INVESTMENTS
The Prospectus discusses briefly the ability of the Fund to invest a portion
of its assets in federally tax-exempt or taxable "temporary investments." Tem-
porary investments will not exceed 20% of the Fund's assets except when made
for defensive purposes. The Fund will invest only in taxable temporary invest-
ments that are either U.S. Government securities or are rated within the high-
est grade by Moody's or S&P, and mature within one year from the date of pur-
chase or carry a variable or floating rate of interest.
The Fund may invest in the following federally tax-exempt temporary invest-
ments:
Bond Anticipation Notes (BANs) are usually general obligations of state and
local governmental issuers which are sold to obtain interim financing for pro-
jects that will eventually be funded through the sale of long-term debt obli-
gations or bonds. The ability of an issuer to meet its obligations on its BANs
is primarily dependent on the issuer's access to the long-term municipal bond
market and the likelihood that the proceeds of such bond sales will be used to
pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments to fi-
nance the current operations of such governments. Repayment is generally to be
derived from specific future tax revenues. Tax anticipation notes are usually
general obligations of the issuer. A weakness in an issuer's capacity to raise
taxes due to, among other things, a decline in its tax base or a rise in de-
linquencies, could adversely affect the issuer's ability to meet its obliga-
tions on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or governmental
bodies with the expectation that future revenues from a designated source will
be used to repay the notes. In general, they also constitute general obliga-
tions of the issuer. A decline in the receipt of projected revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.
Construction Loan Notes are issued to provide construction financing for spe-
cific projects. Frequently, these notes are redeemed with funds obtained from
the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as those
described above to commercial banks as evidence of borrowings. The purposes
for which the notes are issued are varied but they are frequently issued to
meet short-term working capital or capital-project needs. These notes may have
risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities and
their agencies. Payment of principal and interest on issues of municipal paper
may be made from various sources, to the extent the funds are available there-
from. Maturities of municipal paper generally will be shorter than the maturi-
ties of TANs, BANs or RANs. There is a limited secondary market for issues of
municipal paper.
6
<PAGE>
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and the Fund may invest in such other types of notes to the ex-
tent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Fund may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States Treasury and
include bills, notes and bonds.
- -- Treasury bills are issued with maturities of up to one year. They are issued
in bearer form, are sold on a discount basis and are payable at par value at
maturity.
- -- Treasury notes are longer-term interest bearing obligations with original
maturities of one to seven years.
- -- Treasury bonds are longer-term interest-bearing obligations with original
maturities from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been estab-
lished as instrumentalities of the United States Government to supervise and
finance certain types of activities. These agencies include, but are not lim-
ited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not di-
rect obligations of the United States Government, are either backed by the full
faith and credit of the United States or are guaranteed by the Treasury or sup-
ported by the issuing agencies' right to borrow from the Treasury. There can be
no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable inter-
est bearing instrument with a specific maturity. CDs are issued by banks in ex-
change for the deposit of funds and normally can be traded in the secondary
market, prior to maturity. The Fund will only invest in U.S. dollar denominated
CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
Other Corporate Obligations--The Fund may purchase notes, bonds and debentures
issued by corporations if at the time of purchase there is less than one year
remaining until maturity or if they carry a variable or floating rate of inter-
est.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price
7
<PAGE>
determines the yield during the Fund's holding period. Repurchase agreements
are considered to be loans collateralized by the underlying security that is
the subject of the repurchase contract. The Fund will only enter into repur-
chase agreements with dealers, domestic banks or recognized financial institu-
tions that in the opinion of Nuveen Advisory present minimal credit risk. The
risk to the Fund is limited to the ability of the issuer to pay the agreed-
upon repurchase price on the delivery date; however, although the value of the
underlying collateral at the time the transaction is entered into always
equals or exceeds the agreed-upon repurchase price, if the value of the col-
lateral declines there is a risk of loss of both principal and interest. In
the event of default, the collateral may be sold but the Fund might incur a
loss if the value of the collateral declines, and might incur disposition
costs or experience delays in connection with liquidating the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, realization upon the collateral by the Fund may be delayed or
limited. Nuveen Advisory will monitor the value of collateral at the time the
transaction is entered into and at all times subsequent during the term of the
repurchase agreement in an effort to determine that the value always equals or
exceeds the agreed upon price. In the event the value of the collateral de-
clined below the repurchase price, Nuveen Advisory will demand additional col-
lateral from the issuer to increase the value of the collateral to at least
that of the repurchase price. The Fund will not invest more than 10% of its
assets in repurchase agreements maturing in more than seven days.
RATINGS OF INVESTMENTS
The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A
and Baa. Municipal Obligations rated Aaa are judged to be of the "best quali-
ty." The rating of Aa is assigned to Municipal Obligations which are of "high
quality by all standards," but as to which margins of protection or other ele-
ments make long-term risks appear somewhat larger than in Aaa rated Municipal
Obligations. The Aaa and Aa rated Municipal Obligations comprise what are gen-
erally known as "high grade bonds." Municipal Obligations that are rated A by
Moody's possess many favorable investment attributes and are considered upper
medium grade obligations. Factors giving security to principal and interest of
A rated Municipal Obligations are considered adequate, but elements may be
present, which suggest a susceptibility to impairment sometime in the future.
Municipal Obligations rated Baa by Moody's are considered medium grade obliga-
tions (i.e., they are neither highly protected nor poorly secured). Such bonds
lack outstanding investment characteristics and in fact have speculative char-
acteristics as well. Moody's bond rating symbols may contain numerical modifi-
ers of a generic 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 general rating category.
The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and
BBB. Municipal Obligations rated AAA have a strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and
interest is very strong and such bonds differ from AAA issues only in small
degree. The category of A describes bonds which have a strong capacity to pay
principal and interest, although such bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions. The
BBB rating is the lowest "investment grade" security rating by S&P. Municipal
Obligations rated BBB are regarded as having an
8
<PAGE>
adequate capacity to pay principal and interest. Whereas such bonds normally
exhibit adequate protection parameters, adverse economic conditions are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
The "Other Corporate Obligations" category of temporary investments are corpo-
rate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by
Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong
capacity to pay principal and interest. The Moody's corporate debt rating of
Aaa is comparable to that set forth above for Municipal Obligations.
Subsequent to its purchase by the Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase. Neither event
requires the elimination of such obligation from the Fund's portfolio, but
Nuveen Advisory will consider such an event in its determination of whether the
Fund should continue to hold such obligation.
MANAGEMENT
The management of the Fund, including general supervision of the duties per-
formed for the Fund under the Investment Management Agreement, is the responsi-
bility of its Board of Trustees. The number of trustees of the Fund is fixed at
seven. Due to the recent death of one of the trustees, John E. O'Toole, there
is a vacancy on the board, so that currently there are six trustees, two of
whom are "interested persons" (as the term "interested person" is defined in
the Investment Company Act of 1940) and four of whom are "disinterested per-
sons." The names and business addresses of the trustees and officers of the
Fund and their principal occupations and other affiliations during the past
five years are set forth below, with those trustees who are "interested per-
sons" of the Fund indicated by an asterisk.
<TABLE>
- -------------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND
OFFICES WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE FUND DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard J. Franke* 63 Chairman of Chairman of the Board, Director and formerly
333 West Wacker Drive the Board and President of John Nuveen & Co. Incorporated;
Chicago, IL 60606 Trustee Chairman of the Board and Director, formerly
President, of Nuveen Advisory Corp.; Chairman
of the Board and Director of Nuveen Institu-
tional Advisory Corp. (since April 1990);
Certified Financial Planner.
- -------------------------------------------------------------------------------------------
Timothy R. Schwertfeger* 46 President and Executive Vice President and Director of The
333 West Wacker Drive Trustee John Nuveen Company (since March 1992) and
Chicago, IL 60606 John Nuveen & Co. Incorporated; Director of
Nuveen Advisory Corp. (since 1992) and Nuveen
Institutional Advisory Corp. (since 1992).
- -------------------------------------------------------------------------------------------
Lawrence H. Brown 60 Trustee Retired (August 1989) as Senior Vice Presi-
201 Michigan Avenue dent of The Northern Trust Company.
Highwood, IL 60040
- -------------------------------------------------------------------------------------------
Anne E. Impellizzeri 62 Trustee President and Chief Executive Officer of
3 West 29th Street Blanton-Peale, Institutes of Religion and
New York, NY 10001 Health (since December 1990); prior thereto,
Vice President of New York City Partnership
(from 1987 to 1990).
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND
OFFICES WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE FUND DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Margaret K. Rosenheim 68 Trustee Helen Ross Professor of Social Welfare Poli-
969 East 60th Street cy, School of Social Service Administration,
Chicago, IL 60637 University of Chicago.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter R. Sawers 62 Trustee Adjunct Professor of Business and Economics,
22 The Landmark University of Dubuque, Iowa (since January
Northfield, IL 60093 1991); Adjunct Professor, Lake Forest Gradu-
ate School of Management, Lake Forest, Illi-
nois (since January 1992); prior thereto, Ex-
ecutive Director, Towers Perrin Australia
(management consultant); Chartered Financial
Analyst; Certified Management Consultant.
- ------------------------------------------------------------------------------------------------------------------------------------
Kathleen M. Flanagan 48 Vice President Vice President of John Nuveen & Co. Incorpo-
333 West Wacker Drive rated.
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Futrell 39 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive (since February 1991); prior thereto, Assis-
Chicago, IL 60606 tant Vice President of Nuveen Advisory Corp.
(from August 1988 to February 1991); Chart-
ered Financial Analyst.
- ------------------------------------------------------------------------------------------------------------------------------------
Steven J. Krupa 37 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive (since October 1990); prior thereto, Vice
Chicago, IL 60606 President of John Nuveen & Co. Incorporated
(from January 1989 to October 1990).
- ------------------------------------------------------------------------------------------------------------------------------------
Anna R. Kucinskis 49 Vice President Vice President of John Nuveen & Co. Incorpo-
333 West Wacker Drive rated.
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin 43 Vice President Vice President (since September 1992), Assis-
333 West Wacker Drive and Assistant tant Secretary and Assistant General Counsel
Chicago, IL 60606 Secretary of John Nuveen & Co. Incorporated; Vice Pres-
ident (since May 1993) and Assistant Secre-
tary of Nuveen Advisory Corp; Vice President
(since May 1993) and Assistant Secretary
(since January 1992) of Nuveen Institutional
Advisory Corp.; Assistant Secretary of The
John Nuveen Company (since February 1993).
- ------------------------------------------------------------------------------------------------------------------------------------
O. Walter Renfftlen 55 Vice President Vice President and Controller of The John
333 West Wacker Drive and Controller Nuveen Company (since March 1992),John Nuveen
Chicago, IL 60606 & Co. Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp. (since
April 1990).
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas C. Spalding, Jr. 43 Vice President Vice President of Nuveen Advisory Corp. and
333 West Wacker Drive Nuveen Institutional Advisory Corp. (since
Chicago, IL 60606 April 1990); Chartered Financial Analyst.
- ------------------------------------------------------------------------------------------------------------------------------------
H. William Stabenow 60 Vice President Vice President and Treasurer of The John
333 West Wacker Drive and Treasurer Nuveen Company (since March 1992), John
Chicago, IL 60606 Nuveen & Co. Incorporated, Nuveen Advisory
Corp. and Nuveen Institutional Advisory Corp,
(since January 1992).
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND
OFFICES WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE FUND DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
George P. Thermos 63 Vice President Vice President of John Nuveen & Co. Incorpo-
333 West Wacker Drive rated.
Chicago, IL 60606
- ----------------------------------------------------------------------------------------
James J. Wesolowski 44 Vice President Vice President, General Counsel and Secretary
333 West Wacker Drive and Secretary of The John Nuveen Company (since March
Chicago, IL 60606 1992), John Nuveen & Co. Incorporated, Nuveen
Advisory Corp. and Nuveen Institutional Advi-
sory Corp. (since April 1990).
- ----------------------------------------------------------------------------------------
Gifford R. Zimmerman 38 Vice President Vice President (since September 1992), Assis-
333 West Wacker Drive and Assistant tant Secretary and Assistant General Counsel
Chicago, IL 60606 Secretary of John Nuveen & Co. Incorporated; Vice Pres-
ident (since May 1993) and Assistant Secre-
tary of Nuveen Advisory Corp.; Vice President
(since May 1993) and Assistant Secretary
(since January 1992) of Nuveen Institutional
Advisory Corp.
</TABLE>
- --------------------------------------------------------------------------------
Richard J. Franke, Timothy R. Schwertfeger and Margaret K. Rosenheim serve as
members of the Executive Committee of the Board of Trustees. The Executive Com-
mittee, which meets between regular meetings of the Board of Trustees, is au-
thorized to exercise all of the powers of the Board of Trustees.
The trustees of the Fund are also directors or trustees, as the case may be, of
20 other Nuveen open-end fund portfolios and 55 closed-end funds.
The following table sets forth compensation paid by the Fund and its predeces-
sor during the fiscal year ended February 28, 1995 to each of the trustees of
the Fund. The Fund has no retirement or pension plans. The officers and trust-
ees affiliated with Nuveen serve without any compensation from the Fund.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM FUND
COMPENSATION AND FUND COMPLEX
NAME OF TRUSTEE FROM THE FUND PAID TO TRUSTEES
- --------------------------------------------------------------------------------
<S> <C> <C>
Richard J. Franke.............................. $ 0 $ 0
Timothy R. Schwertfeger........................ 0 0
Lawrence H. Brown.............................. 4,839 56,500
Anne E. Impellizzeri........................... 3,785 48,750
Margaret K. Rosenheim.......................... 6,509(1) 64,404(2)
Peter R. Sawers................................ 4,839 56,000
</TABLE>
- --------
(1) Includes $270 in interest earned on deferred compensation from prior years.
(2) Includes $1,404 in interest earned on deferred compensation from prior
years.
11
<PAGE>
Each trustee who is not affiliated with Nuveen or Nuveen Advisory receives a
$45,000 annual retainer for serving as a director or trustee of all funds for
which Nuveen Advisory serves as investment adviser and a $1,000 fee per day
plus expenses for attendance at all meetings held on a day on which a regularly
scheduled Board meeting is held, a $1,000 fee per day plus expenses for atten-
dance in person or a $500 fee per day plus expenses for attendance by telephone
at a meeting held on a day on which no regular Board meeting is held, and a
$250 fee per day plus expenses for attendance in person or by telephone at a
meeting of the Executive Committee held solely to declare dividends. The annual
retainer, fees and expenses are allocated among the funds for which Nuveen Ad-
visory serves as investment adviser on the basis of relative net asset sizes.
The Fund requires no employees other than its officers, all of whom are compen-
sated by Nuveen.
On May 18, 1995, the officers and trustees of the Fund as a group owned less
than 1% of the outstanding shares of the Fund. No person owned as much as 5% of
the outstanding shares of the Fund on that date.
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the investment
and reinvestment of the assets of the Fund. Nuveen Advisory also administers
the Fund's business affairs, provides office facilities and equipment and cer-
tain clerical, bookkeeping and administrative services, and permits any of its
officers or employees to serve without compensation as directors or officers of
the Fund if elected to such positions. See "Management of the Fund" in the Pro-
spectus.
Pursuant to an investment management agreement between Nuveen Advisory and the
Fund, the Fund has agreed to pay an annual management fee at the rates set
forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEE
- ------------------------------------------
<S> <C>
For the first $125 million .5000 of 1%
For the next $125 million .4875 of 1%
For the next $250 million .4750 of 1%
For the next $500 million .4625 of 1%
For the next $1 billion .4500 of 1%
For assets over $2 billion .4250 of 1%
</TABLE>
Nuveen Advisory will waive all or a portion of its management fee or reimburse
certain expenses of the Fund in order to prevent total operating expenses (in-
cluding Nuveen Advisory's fee, but excluding interest, taxes, fees incurred in
acquiring and disposing of portfolio securities, any asset-based distribution
or service fees and, to the extent permitted, extraordinary expenses) in any
fiscal year from exceeding .75 of 1% of the average daily net asset value of
any class of shares of the Fund. For the fiscal years ended February 28, 1995,
February 28, 1994, and February 28, 1993, the Fund paid net management fees to
Nuveen Advisory of $11,932,164, $11,645,399 and $9,598,518 respectively. As
discussed in the Prospectus, subject to the expense limitations of the Invest-
ment Management Agreement, the Fund is responsible for payment of certain of
the costs and expenses of its operations.
12
<PAGE>
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co. Incorporated
("Nuveen"), the Fund's principal underwriter. Founded in 1898, Nuveen is the
oldest and largest investment banking firm specializing in the underwriting
and distribution of tax-exempt securities and maintains the largest research
department in the investment banking community devoted exclusively to the
analysis of municipal securities. In 1961, Nuveen began sponsoring the Nuveen
Tax-Exempt Unit Trust and since that time has issued more than $34 billion in
tax-exempt unit trusts, including over $12 billion in tax-exempt insured unit
trusts. In addition, Nuveen open-end and closed-end funds held approximately
$30 billion in tax-exempt securities under management as of the date of this
Statement. Over 1,000,000 individuals have invested to date in Nuveen's tax-
exempt funds and trusts. Nuveen is a subsidiary of The John Nuveen Company
which, in turn, is approximately 75% owned by The St. Paul Companies, Inc.
("St. Paul"). St. Paul is located in St. Paul, Minnesota, and is principally
engaged in providing property-liability insurance through subsidiaries.
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's Re-
search Department, the largest in the investment banking industry devoted ex-
clusively to tax-exempt securities. Nuveen's Research Department was selected
in 1994 by Research & Ratings Review, a municipal industry publication, as one
of the top four research teams in the municipal industry, based on an exten-
sive industry-wide poll of more than 1,000 portfolio managers, department
heads and bond buyers. The Nuveen Research Department reviews more than $100
billion in tax-exempt bonds every year.
The Fund, the other Nuveen funds, the Adviser, and other related entities have
adopted a code of ethics which essentially prohibits all Nuveen fund manage-
ment personnel, including Nuveen fund portfolio managers, from engaging in
personal investments which compete or interfere with, or attempt to take ad-
vantage of, a Fund's anticipated or actual portfolio transactions, and is de-
signed to assure that the interests of Fund shareholders are placed before the
interests of Nuveen personnel in connection with personal investment transac-
tions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of the Fund, will place orders in such manner as, in the opinion
of management, will offer the best price and market for the execution of each
transaction. Portfolio securities will normally be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be ob-
tained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Fund since its inception has effected all portfolio transactions on a
principal (as opposed to an agency) basis and, accordingly, has not paid any
brokerage commissions. Purchases from underwriters will include a commission
or concession paid by the issuer to the underwriter, and purchases from deal-
ers will include the spread between the bid and asked price. Given the best
price and execution obtainable, it will be the practice of the Fund to select
dealers which, in addition, furnish
13
<PAGE>
research information (primarily credit analyses of issuers and general eco-
nomic reports) and statistical and other services to Nuveen Advisory. It is
not possible to place a dollar value on information and statistical and other
services received from dealers. Since it is only supplementary to Nuveen
Advisory's own research efforts, the receipt of research information is not
expected to reduce significantly Nuveen Advisory's expenses. While Nuveen Ad-
visory will be primarily responsible for the placement of the business of the
Fund, the policies and practices of Nuveen Advisory in this regard must be
consistent with the foregoing and will, at all times, be subject to review by
the Board of Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment ac-
counts and investment companies for other clients, which may have investment
objectives similar to the Fund. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions
among the Fund and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by the
Fund and one or more of such other clients simultaneously. In making such al-
locations the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other clients, the size of investment commit-
ments generally held by the Fund and such other clients and opinions of the
persons responsible for recommending investments to the Fund and such other
clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to the Fund from time to time, it is the
opinion of the Board of Trustees that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from ex-
posure to simultaneous transactions.
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 an issue of Munici-
pal Obligations purchased by the Fund, the amount of Municipal Obligations
which may be purchased in any one issue and the assets of the Fund which 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 majority of the trustees who are not interested
persons of the Fund.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Fund
will be determined separately for each class of the Fund's shares by United
States Trust Company of New York, the Fund's custodian, as of 4:00 p.m. east-
ern time on each day on which the New York Stock Exchange (the "Exchange") is
normally open for trading. 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 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.
14
<PAGE>
In determining net asset value for the Fund, the Fund's custodian utilizes the
valuations of portfolio securities furnished by a pricing service approved by
the directors. The pricing service values portfolio securities at the mean be-
tween the quoted bid and asked price or the yield equivalent when quotations
are readily available. Securities for which quotations are not readily avail-
able (which constitute a majority of the securities held by the Fund) are val-
ued at fair value as determined by the pricing service using methods which in-
clude consideration of the following: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from securities representatives; and general market conditions. The
pricing service may employ electronic data processing techniques and/or a ma-
trix system to determine valuations. The procedures of the pricing service and
its valuations are reviewed by the officers of the Fund under the general su-
pervision of the Board of Trustees.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the advice
of Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C., counsel to the
Fund.
As described in the Prospectus, the Fund intends to qualify under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code") for tax treatment
as a regulated investment company. In order to qualify as a regulated invest-
ment company, the Fund must satisfy certain requirements relating to the source
of its income, diversification of its assets, and distributions of its income
to shareholders. First, the Fund must derive at least 90% of its annual gross
income (including tax-exempt interest) from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of invest-
ing in such stock or securities (the "90% gross income test"). Second, the Fund
must derive less than 30% of its annual gross income from the sale or other
disposition of any of the following which was held for less than three months:
(i) stock or securities and (ii) certain options, futures, or forward contracts
(the "short-short test"). Third, the Fund must diversify its holdings so that,
at the close of each quarter of its taxable year, (i) at least 50% of the value
of its total assets is comprised of cash, cash items, United States Government
securities, securities of other regulated investment companies and other secu-
rities limited in respect of any one issuer to an amount not greater in value
than 5% of the value of a 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 total assets is invested in the securities of any one issuer
(other than United States Government securities and securities of other regu-
lated investment companies) or two or more issuers controlled by the Fund and
engaged in the same, similar or related trades or businesses.
15
<PAGE>
As a regulated investment company, the Fund will not be subject to federal in-
come tax in any taxable year for which it distributes at least 90% of its "in-
vestment company taxable income" (which includes dividends, taxable interest,
taxable original issue discount and market discount income, income from securi-
ties lending, net short-term capital gain in excess of long-term capital loss,
and any other taxable income other than "net capital gain" (as defined below)
and is reduced by deductible expenses) and at least 90% of the excess of its
gross tax-exempt interest income over certain disallowed deductions ("net tax-
exempt interest"). The Fund may retain for investment its net capital gain
(which consists of the excess of its net long-term capital gain over its short-
term capital loss). However, if the Fund retains any net capital gain or any
investment company taxable income, it will be subject to tax at regular corpo-
rate rates on the amount retained. If the Fund retains any capital gain, such
Fund may designate the retained amount as undistributed capital gains in a no-
tice to its shareholders who, if subject to federal income tax purposes on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such 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 capital gains included in the shareholder's gross in-
come. The Fund intends to distribute at least annually to its shareholders all
or substantially all of its net tax-exempt interest and any investment company
taxable income and net capital gain.
Treasury regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain, i.e., the excess of net
long-term capital gain over net short-term capital loss for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or part of any net capital loss, any net long-
term capital loss or any net foreign currency loss incurred after October 31 as
if they had been incurred in the succeeding year.
The Fund also intends to satisfy conditions (including requirements as to the
proportion of its assets invested in Municipal Obligations) that will enable it
to designate distributions from the interest income generated by investments in
Municipal Obligations, which is exempt from regular federal income tax when re-
ceived by the Fund, as exempt-interest dividends. Shareholders receiving ex-
empt-interest dividends will not be subject to regular federal income tax on
the amount of such dividends. Insurance proceeds received by the Fund under any
insurance policies in respect of scheduled interest payments on defaulted Mu-
nicipal Obligations will be excludable from federal gross income under Section
103(a) of the Code. In the case of non-appropriation by a political subdivi-
sion, however, there can be no assurance that payments made by the insurer rep-
resenting interest on "non-appropriation" lease obligations will be excludable
from gross income for federal income tax purposes. See "Fundamental Policies
and Investment Portfolio; Portfolio Securities."
Distributions by the Fund of net interest received from certain taxable tempo-
rary investments (such as certificates of deposit, commercial paper and obliga-
tions of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by the Fund, if any, will be taxable
16
<PAGE>
to shareholders as ordinary income whether received in cash or additional
shares./1/ If the Fund purchases a Municipal Obligation at a market discount,
any gain realized by the Fund upon sale or redemption of the Municipal Obliga-
tion will be treated as taxable interest income to the extent such gain does
not exceed the market discount, and any gain realized in excess of the market
discount will be treated as capital gains. Any net long-term capital gains re-
alized by the Fund and distributed to shareholders in cash or additional
shares, will be taxable to shareholders as long-term capital gains regardless
of the length of time investors have owned shares of the Fund. Distributions by
the Fund that do not constitute ordinary income dividends, exempt-interest div-
idends, or capital gain dividends will be treated as a return of capital to the
extent of (and in reduction of) the shareholder's tax basis in his or her
shares. Any excess will be treated as gain from the sale of his or her shares,
as discussed below.
If any of the Funds engages in hedging transactions involving financial futures
and options, these transactions will be subject to special tax rules, the ef-
fect of which may be to accelerate income to a Fund, defer a Fund's losses,
cause adjustments in the holding periods of a Fund's securities, convert long-
term capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Because the taxable portion of the Fund's investment income consists primarily
of interest, none of its dividends, whether or not treated as exempt-interest
dividends, is expected to qualify under the Internal Revenue Code for the divi-
dends received deductions for corporations.
Prior to purchasing shares in the Fund, the impact of dividends or distribu-
tions which are expected to be or have been declared, but not paid, should be
carefully considered. Any dividend or distribution declared shortly after a
purchase of such shares prior to the record date will have the effect of reduc-
ing the per share net asset value by the per share amount of the dividend or
distribution.
Although dividends generally will be treated as distributed when paid, divi-
dends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by the Fund (and received
by the shareholders) on December 31.
The redemption or exchange of the shares of the Fund normally will result in
capital gain or loss to the shareholders. Generally, a shareholder's gain or
loss will be long-term gain or loss if the shares have been held for more than
one year. Present law taxes both long- and short-term capital gains of corpora-
tions at the rates applicable to ordinary income. For non-corporate taxpayers,
however, net
capital gains (i.e., the excess of net long-term capital gain over net short-
term capital loss) will be taxed at a maximum marginal rate of 28%, while
short-term capital gains and other ordinary income will be taxed at a maximum
marginal rate of 39.6%. Because of the limitations on itemized deductions and
the deduction for personal exemptions applicable to higher income taxpayers,
the effective tax rate may be higher in certain circumstances.
- --------
/1/If the Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of in-
come designated as tax-exempt for any particular distribution may be substan-
tially different from the percentage of the Fund's income that was tax-exempt
during the period covered by the distribution.
17
<PAGE>
All or a portion of a sales load paid in purchasing shares of a Fund cannot be
taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of a Fund or another fund are subsequently acquired without payment of
a sales load pursuant to the reinvestment or exchange privilege. Any disre-
garded portion of such load will result in an increase in the shareholder's
tax basis in the shares subsequently acquired. Moreover, losses recognized by
a shareholder on the redemption or exchange of shares of the Fund held for six
months or less are disallowed to the extent of any distribution of exempt-in-
terest 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 dis-
tributions of long-term capital gains made with respect to such shares. In ad-
dition, no loss will be allowed on the redemption or exchange of shares of the
Fund if the shareholder purchases other shares of the Fund (whether through
reinvestment of distributions or otherwise) or the Shareholder acquires or en-
ters 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 ac-
quired.
It may not be advantageous from a tax perspective for shareholders to redeem
or exchange shares after tax-exempt income has accrued but before the record
date for the exempt-interest dividend representing the distribution of such
income. Because such accrued tax-exempt income is included in the net asset
value per share (which equals the redemption or exchange value), such a re-
demption could result in treatment of the portion of the sales or redemption
proceeds equal to the accrued tax-exempt interest as taxable gain (to the ex-
tent the redemption or exchange price exceeds the shareholder's tax basis in
the shares disposed of) rather than tax-exempt interest.
In order to avoid a 4% federal excise tax, the Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98%
of its taxable ordinary income for such year, at least 98% of the excess of
its realized capital gains over its realized capital losses (generally com-
puted on the basis of the one-year period ending on October 31 of such year)
and 100% of any taxable ordinary income and the excess of realized capital
gains over realized capital losses for the prior year that was not distributed
during such year and on which the Fund paid no federal income tax. For pur-
poses of the excise tax, a regulated investment company may reduce its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year. The Fund intends to make timely distribu-
tions in compliance with these requirements and consequently it is anticipated
that they generally will not be required to pay the excise tax.
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 (other than inter-
est income from Municipal Obligations), and distributions to its shareholders
would be taxable to shareholders as ordinary dividend income for federal in-
come tax purposes to the extent of the Fund's available earnings and profits.
Among the requirements that the Fund must meet in order to qualify under
Subchapter M in any year is that less than 30% of its gross income must be de-
rived from the sale or other disposition of securities and certain other as-
sets held for less than three months.
18
<PAGE>
Because the Fund may invest in private activity bonds, the interest on which is
not federally tax-exempt to persons who are "substantial users" of the facili-
ties financed by such bonds or "related persons" of such "substantial users,"
the Fund may not be an appropriate investment for shareholders who are consid-
ered either a "substantial user" or a "related person" within the meaning of
the Code. For additional information, investors should consult their tax advis-
ers before investing in the Fund.
Federal tax law imposes an alternative minimum tax with respect to both corpo-
rations and individuals. Interest on certain Municipal Obligations, such as
bonds issued to make loans for housing purposes or to private entities (but not
for certain tax-exempt organizations such as universities, and non-profit hos-
pitals) is included as an item of tax preference in determining the amount of a
taxpayer's alternative minimum taxable income. To the extent that the Fund re-
ceives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from fed-
eral income tax, will be taxable to shareholders to the extent that their tax
liability is determined under the alternative minimum tax regime. The Fund will
annually supply shareholders with a report indicating the percentage of Fund
income attributable to Municipal Obligations subject to the federal alternative
minimum tax.
In addition, the alternative minimum taxable income for corporations is in-
creased by 75% of the difference between an alternative measure of income ("ad-
justed current earnings") and the amount otherwise determined to be the alter-
native minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Fund that would otherwise be tax exempt, is
included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by the Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to pur-
chase or carry shares of the Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of the Fund
may be considered to have been made with borrowed funds even though such funds
are not directly traceable to the purchase of shares.
The Fund is required in certain circumstances to withhold 31% of taxable divi-
dends and certain other payments paid to non-corporate holders of shares who
have not furnished to the Fund their correct taxpayer identification number (in
the case of individuals, their social security number) and certain certifica-
tions, or who are otherwise subject to back-up withholding.
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
taxation of the Fund and its sharehold-
ers. For complete provisions, reference should be made to the pertinent Code
sections and Treasury Regulations. The Code and Treasury Regulations are sub-
ject to change by legislative or administrative action, and any such change may
be retroactive with respect to Fund transactions. Shareholders are advised to
consult their own tax advisers for more detailed information concerning the
federal taxation of the Fund and the income tax consequences to its sharehold-
ers.
19
<PAGE>
PERFORMANCE INFORMATION
As explained in the Prospectus, the historical investment performance of the
Fund may be shown in the form of "yield," "taxable equivalent yield," "average
annual total return," "cumulative total return" and "taxable equivalent total
return" figures, each of which will be calculated separately for each class of
shares. Information is presented only for Class R Shares since no Class A
Shares or Class C Shares were outstanding during the periods shown below.
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:
<TABLE>
<C> <C> <C> <C> <S>
Yield = 2[(a-b+1)/6/-1]
cd
</TABLE>
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 all cases, the maximum offering price includes the maximum sales
charge of 4.75% which was in effect for the Fund's Class R Shares during the
periods shown.
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, yield may
not equal the income paid to shareholders or the income reported in the Fund's
financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by 1 minus the stated federal income tax rate and adding
the result to that portion, if any, of the yield that is not tax exempt. Based
upon (1) the 1994 maximum marginal federal income tax rate of 39.6% and (2) the
previously quoted yield for the 30-day period ended February 28, 1995, the tax-
able equivalent yield of the Class R Shares of the Fund for that period was
8.64%.
For additional information concerning taxable equivalent yields, see the Tax-
able Equivalent Yield Tables in the Prospectus.
The Fund may from time to time in its advertising and sales materials report a
quotation of the current distribution rate. The distribution rate represents a
measure of dividends distributed for a specified period. Distribution rate is
computed by dividing the most recent monthly tax-free income dividend per
share, multiplying it by 12 to annualize it, and dividing by the appropriate
price per share (e.g., net asset value for purchases to be made without a load
such as reinvestments from Nuveen UITs, or the maximum public offering price).
The distribution rate differs from yield and total return and therefore is not
intended to be a complete measure of performance. Distribution rate may some-
times be higher than yield because it may not include the effect of amortiza-
tion of
bond premiums to the extent such premiums arise after the bonds were purchased.
The distribution
20
<PAGE>
rate as of February 28, 1995, based on maximum public offering price then in
effect for the Class R Shares of the Fund was 5.46%.
Average annual total return quotation is computed in accordance with a stan-
dardized 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 repre-
senting the number of years in the period) and 1 is subtracted from the result,
which is then expressed as a percentage. The calculation assumes that all in-
come and capital gains distributions have been reinvested in Fund shares at net
asset value on the reinvestment dates during the period. The Fund's average an-
nual return figures, including the effect of the maximum sales charge then in
effect for the Class R Shares, for the one-year, five-year and ten-year periods
ended February 28, 1995, and for the period from the Fund's inception on Novem-
ber 29, 1976, through February 28, 1995, were (1.32)%, 6.48%, 9.10% and 6.98%,
respectively.
Calculation of cumulative total return is not subject to a prescribed formula.
Cumulative total return for a specific period is calculated by first taking a
hypothetical initial investment in Fund shares on the first day of the period,
deducting (in some cases) the maximum sales charge, and computing the "redeem-
able value" of that investment at the end of the period. The cumulative total
return percentage is then determined by subtracting the initial investment from
the redeemable value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains distributions by the Fund have been reinvested at net asset
value on the reinvestment dates during the period. Cumulative total return may
also be shown as the 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. The cumula-
tive total return, including the effect of the maximum sales charge then in ef-
fect for the Class R Shares, for the one-year, five-year and ten-year periods
ended February 28, 1995, and for the period from the Fund's inception on Novem-
ber 29, 1976, through February 28, 1995, were (1.32)%, 36.86%, 139.02% and
242.21%, respectively.
Calculation of taxable equivalent total return is also not subject to a pre-
scribed formula. Taxable equivalent total return for a specific period is cal-
culated by first taking a hypothetical initial investment in Fund shares on the
first day of the period, computing the total return for each calendar year in
the period in the manner described above, and increasing the total return for
each such calendar year by the amount of additional income that a taxable fund
would need to have generated to equal the income on an after-tax basis, at a
specified income tax rate (usually the highest marginal federal tax rate), cal-
culated as described above under the discussion of "taxable equivalent yield."
The resulting amount for the calendar year is then divided by the initial in-
vestment amount to arrive at a "taxable equivalent total return factor" for the
calendar year. The taxable equivalent total return factors for all the calendar
years are then multiplied together and the result is then annualized by taking
its Nth root (N representing the number of years in the period) and
subtracting 1, which provides a taxable equivalent total return expressed as a
percentage. Using
21
<PAGE>
the 39.6% maximum marginal federal tax rate for 1995, the annualized taxable
equivalent total returns for the Fund's Class R Shares for the one-year, five-
year and ten-year periods ended February 28, 1995, were as follows:
<TABLE>
<CAPTION>
ONE YEAR ENDED FIVE YEARS ENDED TEN YEARS ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1995 FEBRUARY 28, 1995
- -------------------------------- ---------------------------------- -----------------------------------
<S> <C> <C>
WITH MAXIMUM WITH MAXIMUM WITH MAXIMUM
4.75% SALES CHARGE AT NET 4.75% SALES CHARGE AT NET 4.75% SALES CHARGE AT NET
THEN IN EFFECT ASSET VALUE THEN IN EFFECT ASSET VALUE THEN IN EFFECT ASSET VALUE
- -------------------------------- ---------------------------------- -----------------------------------
2.22% 7.31% 10.53% 11.61% 13.50% 14.05%
</TABLE>
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
example, 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 adjusting each investment's total return to account for the risk level of
the investment.
The Fund may also compare its TAX-ADJUSTED TOTAL RETURN with that of other
funds or groups of funds. This measure would take into account the tax-exempt
nature of exempt-interest dividends and the payment of income taxes on a fund's
distributions of net realized capital gains and ordinary income.
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 standard deviation of
monthly returns for the three years ended February 28, 1995, for the Class R
Shares of the Fund, was 1.21%.
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 short-term tax-exempt
securities (essentially a risk-free return) over that period, by (b) the stan-
dard deviation of the investment's monthly returns for the period. This ratio
is sometimes referred 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. The Sharpe measure, for the three-year period ended Feb-
ruary 28, 1995, for the Class R Shares of the Fund, was 2.248.
Class A Shares of the Fund are sold at net asset value plus a current maximum
sales charge of 4.50% of the offering price. This current maximum sales charge
will typically be used for purposes of calculating performance figures even
though the maximum sales charge may have been different for portion of the mea-
surement period. Yield, returns and net asset value of each class of shares of
the Fund will fluctuate. Factors affecting performance include general market
conditions, operating expenses and investment management. Any additional fees
charged by a securities representative
22
<PAGE>
or other financial services firm would reduce returns described in this sec-
tion. Shares of the Fund are redeemable at net asset value, 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 with that of: (1) the
Consumer Price Index or various unmanaged bond indexes such as the Lehman
Brothers Municipal Bond Index and the Salomon Brothers High Grade Corporate
Bond Index and (2) other fixed income or municipal bond mutual funds or mutual
fund indexes as reported by Lipper Analytical Services, Inc. ("Lipper"), Morn-
ingstar, Inc. ("Morningstar"), Wiesenberger Investment Companies Service
("Wiesenberger") and CDA Investment Technologies, Inc. ("CDA") or similar in-
dependent services which monitor the performance of mutual funds, or other in-
dustry or financial publications such as Barron's, Changing Times, Forbes and
Money Magazine. Performance comparisons by these indexes, services or publica-
tions may rank mutual funds over different periods of time by means of aggre-
gate, average, year-by-year, or other types of total return and performance
figures. Any given performance quotation or performance comparison should not
be considered as representative of the performance of the Fund for any future
period.
There are differences and similarities between the investments which the Fund
may purchase and the investments measured by the indexes and reporting serv-
ices which are described herein. The Consumer Price Index is generally consid-
ered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond Index is
a weighted performance average of other mutual funds with a federally tax-ex-
empt income objective. The Salomon Brothers High Grade Corporate Bond Index is
an unmanaged index that generally represents the performance of high grade
long-term taxable bonds during various market conditions. The Lehman Brothers
Municipal Bond Index is an unmanaged index that generally represents the per-
formance of high grade intermediate and long-term municipal bonds during vari-
ous market conditions. 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 market prices and yields
of taxable and tax-exempt bonds will fluctuate. The Fund primarily invests in
investment grade Municipal Obligations in pursuing its objective of as high a
level of current interest income which is exempt from federal income tax as is
consistent, in the view of the Fund's management, with preservation of capi-
tal.
The Fund may also compare its taxable equivalent total return performance to
the total return performance of taxable income funds such as treasury securi-
ties funds, corporate bond funds (either investment grade or high yield), or
Ginnie Mae funds. These types of funds, because of the character of their un-
derlying securities, differ from municipal bond funds in several respects. The
susceptibility of the price of treasury bonds to credit risk is far less than
that of municipal bonds, but the price of treasury bonds tends to be slightly
more susceptible to change resulting from changes in market interest rates.
The susceptibility of the price of investment grade corporate bonds and munic-
ipal bonds to market interest rate changes and general credit changes is simi-
lar. High yield bonds are subject to a greater degree of price volatility than
municipal bonds resulting from changes in market interest rates and are par-
ticularly susceptible to volatility from credit changes. Ginnie Mae bonds are
generally subject to less price volatility than municipal bonds from
23
<PAGE>
credit concerns, due primarily to the fact that the timely payment of monthly
installments of principal and interest are backed by the full faith and credit
of the U.S. Government, but Ginnie Maes of equivalent coupon and maturity are
generally more susceptible to price volatility resulting from market interest
rate changes. In addition, the volatility of Ginnie Mae bonds due to changes in
market interest rates may differ from municipal bonds of comparable coupon and
maturity because bonds of the sensitivity of Ginnie Mae prepayment experience
to change in interest rates.
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES
As described in the Prospectus, the Fund has adopted a Flexible Sales Charge
Program which provides you with alternative ways of purchasing Fund shares
based upon your individual investment needs and preferences. You may purchase
Class A Shares at a price equal to their net asset value plus an up-front sales
charge.
For information regarding the up-front sales charge on Class A shares, see the
table under "How to Buy Fund Shares" of the Prospectus. Set forth 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 February 28, 1995 of Class A shares
from the Fund aggregating less than $50,000 subject to the schedule of sales
charges set forth in the Prospectus at a price based upon the net asset value
of the Class A shares.
<TABLE>
<S> <C>
Net Asset Value per share......................................... $9.280
Per Share Sales Charge--4.50% of public offering price (4.71% of
net asset value per share)....................................... $ .437
Per Share Offering Price to the Public............................ $9.717
</TABLE>
You may purchase Class C Shares without any up-front sales charge at a price
equal to their net asset value, but subject to an annual distribution fee de-
signed to compensate Authorized Dealers over time for the sale of Fund shares.
Class C Shares are subject to a 1% contingent deferred sales charge for redemp-
tions within 12 months of purchase. Class C Shares automatically convert to
Class A Shares six years after purchase. Both Class A Shares and Class C Shares
are subject to annual service fees, which are used to compensate Authorized
Dealers for providing you with ongoing financial advice and other services. Un-
der the Flexible Sales Charge Program, all Fund shares outstanding as of June
13 1995, have been designated as Class R Shares. Class R Shares are available
for purchase at a price equal to their net asset value only under certain lim-
ited circumstances, or by specified investors, as described herein.
Each class of shares represents an interest in the same portfolio of invest-
ments. Each class of shares is identical in all respects except that each class
bears its own class expenses, including administration and distribution ex-
penses, and each class has exclusive voting rights with respect to any distri-
bution or service plan applicable to its shares. In addition, the Class C
Shares are subject to a conversion feature, as described below. As a result of
the differences 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.
24
<PAGE>
The expenses to be borne by specific classes of shares may include (i) transfer
agency fees attributable to a specific class of shares, (ii) printing and post-
age expenses related to preparing and distributing materials such as share-
holder reports, prospectuses and proxy statements to current shareholders of a
specific class of shares, (iii) Securities and Exchange Commission ("SEC") and
state securities registration fees incurred by a specific class of shares, (iv)
the expense of administrative personnel and services required to support the
shareholders of a specific class of shares, (vi) litigation or other legal ex-
penses relating to a specific class of shares, (vi) directors' fees or expenses
incurred as a result of issues relating to a specific class of shares, (vii)
accounting expenses relating to a specific class of shares and (viii) any addi-
tional incremental expenses subsequently identified and determined to be prop-
erly allocated to one or more classes of shares that shall be approved by the
SEC pursuant to an amended exemptive order.
The Fund has special purchase programs under which certain persons may purchase
Class A Shares at reduced sales charges. One such program is available to mem-
bers of a "qualified group." An individual who is a member of a "qualified
group" may purchase Class A Shares of the Fund (or any other Nuveen Fund with
respect to which a sales charge is imposed), at the reduced sales charge appli-
cable to the group taken as whole. A "qualified group" is one which (i) has
been in existence for more than six months; (ii) has a purpose other than in-
vestment; (iii) has five or more participating members; (iv) has agreed to in-
clude sales literature and other materials related to the Fund in publications
and mailings to members; (v) has agreed to have its group administrator submit
a single bulk order and make payment with a single remittance for all invest-
ments in the Fund during each investment period by all participants who choose
to invest in the Fund; and (vi) has agreed to provide the Fund's transfer agent
with appropriate backup data for each participant of the group in a format
fully compatible with the transfer agent's processing system.
The "amount" of a share purchase by a participant in a group purchase program
for purposes of determining the applicable sales charge is (i) the aggregate
value of all shares of the Fund (and all other Nuveen Funds with respect to
which a sales charge is imposed) currently held by participants of the group,
plus (ii) the amount of shares currently being purchased.
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 tax-free,
fixed income securities.
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 or
additional sales literature to promote the advantages of using the Fund to meet
these and other specific investor needs.
Exchanges of shares of the Fund for shares of a Nuveen money market fund may be
made on days when both 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
25
<PAGE>
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 Veterans Day.
For more information on the procedure for purchasing shares of the Fund and on
the special purchase programs available thereunder, see "How to Buy Fund
Shares" in the Prospectus.
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 Nuveen Municipal Bond Fund, Inc., dated January 2, 1990, and assigned to
the Fund effective June 13, 1995 ("Distribution Agreement"). Pursuant to the
Distribution Agreement, the Fund appointed Nuveen to be its agent for the dis-
tribution of the Fund's shares on a continuous offering basis. Nuveen sells
shares to or through brokers, dealers, banks or other qualified financial in-
termediaries (collectively referred to as "Dealers"), or others, in a manner
consistent with the then effective registration statement of the Fund. Pursuant
to the Distribution Agreement, Nuveen, at its own expense, finances certain ac-
tivities incident to the sale and distribution of the Fund's shares, including
printing and distributing of prospectuses and statements of additional informa-
tion to other than existing shareholders, the printing and distributing of
sales literature, advertising and payment of compensation and giving of conces-
sions to dealers. Nuveen receives for its services the excess, if any, of the
sales price of the Fund's shares sold with an up-front sales charge less the
net asset value of those shares, and reallows a majority 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 Fund
pursuant to Rule 12b-1 and described herein under "Distribution and Service
Plan." Nuveen receives any CDSCs imposed on redemptions of Class C Shares re-
deemed within 12 months of purchase, but any such amounts as to which a rein-
statement privilege is not exercised are set off against and reduce amounts
otherwise payable to Nuveen pursuant to the distribution plan.
The aggregate amount of underwriting commissions with respect to the sale of
Fund shares and the amount thereof retained by Nuveen for the Fund's fiscal
years ended February 28, 1995, 1994 and 1993 were $2,248, $467; $5,703, $1,093;
and $5,938, $986, respectively. All figures are to the nearest thousand.
DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the In-
vestment Company Act of 1940, which provides that Class C Shares will be sub-
ject to an annual distribution fee, and that both Class A Shares and Class C
Shares will 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 C Shares under the Plan will be pay-
able to reimburse Nuveen for services and expenses incurred in connection with
the distribution of Class C Shares. These expenses include payments to Autho-
rized Dealers, including Nuveen, who are brokers of
26
<PAGE>
record with respect to the Class C Shares, as well as, without limitation, ex-
penses of printing and distributing prospectuses to persons other than share-
holders of the Fund, expenses of preparing, printing and distributing adver-
tising and sales literature and reports to shareholders used in connection
with the sale of Class C Shares, certain other expenses associated with the
distribution of Class C Shares, and any distribution-related expenses that may
be authorized from time to time by the Board of Directors.
The service fee applicable to Class A Shares and Class C Shares under the Plan
will be payable to Authorized Dealers in connection with the provision of on-
going account services to shareholders. These services may include establish-
ing and maintaining shareholder accounts, answering shareholder 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 applicable to Class A Shares.
The Fund may spend up to .75 of 1% per year of the average daily net assets of
Class C Shares as a distribution fee and up to .25 of 1% per year of the aver-
age daily net assets of Class C Shares as a service fee under the Plan appli-
cable to Class C Shares. The .75 of 1% distribution fee will be reduced by the
amount of any CDSC imposed on the redemption of Class C Shares within 12
months of purchase as to which a reinstatement privilege has not been exer-
cised.
Under the Plan, the Fund will report quarterly to the Board of Trustees for
its review of 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, with-
out 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 in-
terest in the Plan or by vote of a majority of the outstanding voting securi-
ties 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 directors 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 contin-
ued only if the trustees who vote to approve such continuance conclude, in the
exercise of reasonable business judgment and in light of their fiduciary du-
ties under applicable law, that there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders. The Plan may not be amended to in-
crease 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 directors by a vote cast in person 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 Fund 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 W. Monroe Street, Chi-
cago, Illinois 60603 have been selected as auditors for the Fund. In addition
to audit services, Arthur Andersen LLP will provide consultation and assis-
tance on accounting, internal control, tax and related matters. The
27
<PAGE>
financial statements incorporated by reference elsewhere in this Statement of
Additional Information and the information for 1994 and prior periods set forth
under "Financial Highlights" in the Prospectus have been audited by Arthur An-
dersen LLP as indicated in their report with respect thereto, and are included
in reliance upon the authority of said firm as experts in giving said report.
The custodian of the assets of the Fund is United States Trust Company of New
York, 114 West 47th Street, New York, NY 10036. The custodian performs custodi-
al, fund accounting and portfolio accounting services. The Chase Manhattan
Bank, N.A., 1 Chase Manhattan Plaza, New York, NY 10081 has agreed to become
successor to US Trust, as custodian and fund accountant. The succession is
presently scheduled for July 1, 1995. No changes in the Fund's administration
or in the amount of fees and expenses paid by the Fund for those services will
result, and no action by shareholders will be required.
28
