<PAGE>
NUVEEN TAX-FREE BOND FUND, INC.
Prospectus
June 13, 1995
NUVEEN MASSACHUSETTS TAX-FREE VALUE FUND
NUVEEN NEW YORK TAX-FREE VALUE FUND
NUVEEN OHIO TAX-FREE VALUE FUND
Nuveen Tax-Free Bond Fund, Inc. is an open-end investment company consisting of
the three tax-free mutual funds named above (the "Funds"). Each Fund represents
a separate portfolio, which is designed to provide as high a level of current
interest income exempt from both regular federal income tax and the applicable
state personal income tax as is consistent, in the view of the Fund's
management, with preservation of capital. Each Fund invests in investment grade
quality, long-term Municipal Obligations judged by the Fund's investment
adviser to offer the best values among Municipal Obligations of similar credit
quality.
Each 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
securities dealers over time for the sale of Fund shares. Class C Shares issued
on or after June 13, 1995 are subject to a 1% contingent 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 also 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 September 6, 1994, 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.
See "How to Buy Fund Shares."
This Prospectus contains information you should know before investing in the
Funds. Please retain it for future reference. You can find more detailed
information about the Funds in the "Statement of Additional Information" dated
June 13, 1995. For a free copy of this Statement, write to the Funds, 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 Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency. Shares
of the Funds 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
<PAGE>
CONTENTS
3 Summary of Fund Expenses
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5 How to Determine if One of the Funds Is Right for You
- --------------------------------------------------------------------------------
10 Financial Highlights
- --------------------------------------------------------------------------------
14 Who Is Responsible for the Operation of the Funds?
- --------------------------------------------------------------------------------
15 What are the Funds' Investment Objectives and Policies?
- --------------------------------------------------------------------------------
21 Flexible Sales Charge Program
- --------------------------------------------------------------------------------
23 How to Buy Fund Shares
- --------------------------------------------------------------------------------
35 Distribution and Service Plans
- --------------------------------------------------------------------------------
36 How to Redeem Fund Shares
- --------------------------------------------------------------------------------
39 Management of the Funds
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42 How the Funds Show Performance
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45 Distributions and Taxes
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49 Net Asset Value
- --------------------------------------------------------------------------------
50 General Information
- --------------------------------------------------------------------------------
Appendix A--Special State Factors and State Tax Treatment
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Appendix B--Taxable Equivalent Yield Tables
- --------------------------------------------------------------------------------
Application
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2
<PAGE>
SUMMARY OF FUND EXPENSES
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<TABLE>
<CAPTION>
EACH FUND
SHAREHOLDER TRANSACTION -----------------------
EXPENSES (AS A PERCENT OF OFFERING PRICE) 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 redemptions within 12
months of purchase) None 1.00% None
Redemption Fees None None None
Exchange Fees None None None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES, AFTER
FEE WAIVERS AND TOTAL
EXPENSE EXPENSES,
REIMBURSEMENTS WITHOUT FEE
(AS A PERCENT OF OTHER WAIVERS AND
AVERAGE DAILY NET MANAGEMENT 12B-1 OPERATING TOTAL EXPENSE
ASSETS)(1) FEES FEES(2) EXPENSES EXPENSES REIMBURSEMENTS
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MASSACHUSETTS FUND
Class A None .25% .75% 1.00% 1.87%
Class C None 1.00% .75% 1.75% 3.40%
Class R .53% None .22% .75% .77%
NEW YORK FUND
Class A None .25% .75% 1.00% 1.56%
Class C None 1.00% .75% 1.75% 7.98%
Class R .55% None .19% .74% .74%
OHIO FUND
Class A .28% .25% .47% 1.00% 1.27%
Class C .21% 1.00% .54% 1.75% 2.09%
Class R .55% None .18% .73% .73%
</TABLE>
--------
(1) In order to prevent total operating expenses (ex-
cluding any distribution or service fees) from ex-
ceeding .75 of 1% of the average daily net asset
value of any class of shares of a Fund for any fis-
cal year, Nuveen Advisory has agreed to waive all
or a portion of its management fees or reimburse
certain expenses of each Fund. Nuveen Advisory may
also voluntarily agree to reimburse additional ex-
penses from time to time, which voluntary reim-
bursements may be terminated at any time in its
discretion.
(2) Class C Shares are subject to an annual distribu-
tion fee of .75 of 1% of average daily net assets
to compensate Authorized Dealers over time for the
sale of Fund shares. Both Class A Shares and Class
C Shares of each Fund are subject to an annual
service fee of .25 of 1% of average daily net as-
sets to compensate Authorized Dealers for ongoing
account services. See "Distribution and Service
Plans." Long-term holders of Class C Shares may pay
more in Rule 12b-1 fees than the economic equiva-
lent of the maximum front-end sales charge permit-
ted under the National Association of Securities
Dealers Rules of Fair Practice.
The purpose of the tables above is to help you
understand all expenses and fees that you would bear
directly or indirectly as a Fund shareholder. The
expenses and fees shown are for the fiscal year ended
February 28, 1995.
3
<PAGE>
SUMMARY OF FUND EXPENSES (CONTINUED)
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EXAMPLE*
The following example applies to each of the Funds. You
would pay the following expenses on a $1,000 investment
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>
MASSACHUSETTS FUND
Class A $55 $75 $98 $162
Class C $28** $55 $95 $168
Class R $ 8 $24 $42 $ 93
NEW YORK FUND
Class A $55 $75 $98 $162
Class C $28** $55 $95 $168
Class R $ 8 $24 $41 $ 92
OHIO FUND
Class A $55 $75 $98 $162
Class C $28** $55 $95 $168
Class R $ 7 $23 $41 $ 91
</TABLE>
--------
*This example does not represent past or future ex-
penses. Actual expenses may be greater or less than
those shown. Moreover, a 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 each Fund's fees and ex-
penses, see "Distribution and Service Plans" and "Man-
agement of the Funds."
**If shares were purchased before June 13, 1995 or held
longer than 12 months, so that no CDSC is imposed, ex-
penses in the first year would be $18 for the Massachu-
setts, New York and Ohio Funds.
4
<PAGE>
HOW TO DETERMINE IF ONE OF THE FUNDS IS RIGHT FOR YOU
------------------------------------------------------------------------------
There are many reasons why you might invest in one of
the Funds.
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 Funds will en-
able you to achieve your individual investment goals,
they have been designed for investors who have these
kinds of investment goals in mind.
In addition, each Fund incorporates the following fea-
tures and benefits. You should carefully review the
more detailed description of these features and
benefits elsewhere in the Prospectus to make sure they
serve your individual investment goals.
MONTHLY, DOUBLE Each Fund provides monthly dividends exempt from regu-
TAX-FREE INCOME lar federal and applicable state personal income taxes
for in-state residents.
DIVERSIFIED, Each Fund purchases investment grade quality Municipal
INVESTMENT Obligations issued within its respective state. Each
GRADE QUALITY Fund is diversified and maintains diversity within its
PORTFOLIO portfolio by selecting Municipal Obligations of
different issuers. Each Fund further enhances its
portfolio mix by purchasing Municipal Obligations of
different types and purposes.
EXPERIENCED Each 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
managers seek investment grade quality, undervalued or
underrated Municipal Obligations which offer the best
values among Municipal Obligations of similar credit
quality. By selecting these Municipal Obligations,
Nuveen Advisory seeks to position each Fund better to
achieve its investment
5
<PAGE>
------------------------------------------------------------------------------
objective of as high a level of current interest income
exempt from both regular federal income tax and the
applicable state personal income tax as is consistent,
in the view of the Fund's management, with preservation
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.
Each 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, each Fund offers
Class A Shares, Class C Shares and, under certain lim-
ited circumstances, Class R Shares. In deciding which
class of a 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 each Fund:
6
<PAGE>
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Class A Shares
. available at net asset value plus an up-front sales
charge
. 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 purchased on or after June 13, 1995
and redeemed within 12 months of purchase
Class R Shares
. if you owned Fund shares as of September 6, 1994,
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 three
classes of shares offered by each Fund.
AUTOMATIC The Funds offer a number of investment options, includ-
DEPOSIT 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 by your
REINVESTMENT Fund on each class of shares will be reinvested
automatically 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 of a Fund, in either case without a
sales charge at net asset value.
7
<PAGE>
-
------------------------------------------------------------------------------
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 a Fund may be exchanged for Class A
Shares of the same Fund at any time, provided that the
current net asset value of those Class R Shares is at
least $1,000 or you already own Class A Shares of that
Fund.
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 on or after June 13, 1995
agrees to pay a CDSC of 1% if Class C Shares are
redeemed within 12 months of purchase. Each 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 If you own shares totalling $10,000 or more, you can
WITHDRAWAL 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 Funds 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.
8
<PAGE>
------------------------------------------------------------------------------
RISKS AND You should consider certain other factors about the
SPECIAL Funds before investing. As with other bond mutual funds
CONSIDERATIONS or any long-term, fixed income investment, the value of
a Fund's portfolio will tend to vary inversely with
changes in prevailing interest rates. Accordingly, each
Fund should be considered a long-term investment,
designed to provide the best results when held for a
multi-year period. A Fund may not be suitable if you
have a short-term investment horizon. Additionally,
each Fund's portfolio may be susceptible to political,
economic or regulatory developments affecting issuers
of Municipal Obligations in its state. The Funds also
have the ability to engage in certain investment
practices, including the purchase of Municipal
Obligations that pay interest subject to the federal
alternative minimum tax, the purchase or sale of
securities on a when-issued or delayed delivery basis,
the purchase or sale of municipal lease and installment
purchase obligations, and the purchase or sale of
futures or options for hedging purposes. As described
elsewhere in this Prospectus, the Funds have no present
intention of purchasing or selling futures or options,
and may engage in the other investment practices listed
above only under strict limits.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial information has been derived from
Nuveen Tax-Free Bond Fund, Inc.'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 Shareholders, and should be read in
conjunction with the financial statements and related notes
appearing in the Annual Report. A copy of the Annual Report
to Shareholders which contains additional unaudited
performance information can be obtained without charge by
writing to the Nuveen Tax-Free Bond Fund, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating performance Distributions
----------------------------------------------------------------------
Net realized
and
Net asset unrealized
value at Net gain (loss) Net
beginning investment from investment
of period income investments+++ income Capital gains
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MA
- ------------------------------------------------------------------------------------------------
Class A
9/7/94 to 2/28/95 $ 9.540 $.254* $ .025 $(.259) $ --
Class C
10/6/94 to 2/28/95 9.280 .188* .254 (.212) --
Class R
Year ended,
2/28/95 9.940 .541* (.403) (.538) --
2/28/94 9.910 .543* .038 (.541) (.010)
2/28/93 9.210 .563* .704 (.563) (.004)
3 Months
ended 2/29/92 9.130 .146 .077 (.143) --
Year ended,
11/30/91 8.760 .577* .375 (.582) --
11/30/90 8.900 .587* (.144) (.583) --
11/30/89 8.600 .587* .300 (.587) --
11/30/88 8.250 .581* .350 (.581) --
12/10/86 to
11/30/87 9.600 .577* (1.350) (.577) --
- ------------------------------------------------------------------------------------------------
</TABLE>
See notes on pages 12 and 13.
10
<PAGE>
On September 6, 1994, the Fund commenced selling Class A and
Class C shares. All Fund shares outstanding as of September
6, 1994, have been designated as Class R Shares.
Selected data for a Class A Share, Class C Share
or Class R Share outstanding throughout each pe-
riod is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratios/Supplemental data
---------------------------------------------------------------
Net
asset
value Total return Ratio of net
at end on Net assets Ratio of investment income
of net assetend of period expenses to average to average Portfolio
period value+(in thousands)+ net assets net assets turnover rate
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
$ 9.560 3.05% $ 1,067 1.00%*+ 5.75%*+ 17%
9.510 4.86 147 1.75*+ 5.11*+ 17
9.540 1.64 71,568 .75* 5.77* 17
9.940 5.96 71,942 .75* 5.38* 3
9.910 14.21 53,231 .75* 5.91* 5
9.210 2.44 34,470 .71+ 6.31+ 5
9.130 11.19 31,150 .75* 6.39* 19
8.760 5.21 20,829 .75* 6.68* 23
8.900 10.62 15,513 .75* 6.64* 31
8.600 11.56 9,485 .75* 6.74* 55
8.250 (8.19) 5,681 .37*+ 6.47*+ 34
- --------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating performance Distributions
--------------------------------------------------------------------------
Net realized
and
Net asset unrealized
value at Net gain (loss) Net
beginning investment from investment
of period income investments+++ income Capital gains
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NY
- ----------------------------------------------------------------------------------------------------
Class A
9/7/94 to 2/28/95 $10.230 $.277* $(.067) $(.273) $(.047)
Class C
9/14/94 to 2/28/95 10.110 .231* .038 (.222) (.047)
Class R
Year ended,
2/28/95 10.720 .579 (.529) (.573) (.047)
2/28/94 10.610 .578* .161 (.580) (.049)
2/28/93 9.880 .603* .806 (.598) (.081)
3 Months ended
2/29/92 9.820 .163 .053 (.156) --
Year ended,
11/30/91 9.380 .629* .441 (.630) --
11/30/90 9.560 .631* (.181) (.630) --
11/30/89 9.180 .633* .380 (.633) --
11/30/88 8.760 .625* .420 (.625) --
12/10/86 to
11/30/87 9.600 .612* (.840) (.612) --
- ----------------------------------------------------------------------------------------------------
OH
- ----------------------------------------------------------------------------------------------------
Class A
9/7/94 to 2/28/95 $10.160 $.266* $ .087 $(.272) $(.041)
Class C
9/16/94 to 2/28/95 10.070 .219* .133 (.221) (.041)
Class R
Year ended,
2/28/95 10.610 .568 (.388) (.569) (.041)
2/28/94 10.580 .570* .087 (.565) (.062)
2/28/93 9.870 .595* .728 (.589) (.024)
3 Months ended
2/29/92 9.770 .154 .126 (.153) (.027)
Year ended,
11/30/91 9.530 .619 .287 (.624) (.042)
11/30/90 9.550 .624 .003 (.624) (.023)
11/30/89 9.040 .629* .510 (.629) --
11/30/88 8.610 .626* .430 (.626) --
12/10/86 to
11/30/87 9.600 .600* (.990) (.600) --
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Reflects the waiver of certain management fees and reimbursement of
certain other expenses by Nuveen Advisory. For additional informa-
tion about Nuveen Advisory's fee waivers and expense reimbursements,
see note 7 of Notes to Financial Statements in the Annual Report to
Shareholders.
+ Annualized.
12
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratios/Supplemental data
---------------------------------------------------------------
Net
asset
value Total return Net assets Ratio of net
at end on at Ratio of investment income
of net assetend of period expenses to average to average Portfolio
period value+(in thousands)+ net assets net assets turnover rate
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
$10.120 2.21% $ 3,189 1.00%*+ 5.87%*+ 29%
10.110 2.80 86 1.75*+ 5.16*+ 29
10.150 .75 149,454 .74 5.79 29
10.720 7.10 146,297 .75* 5.33* 15
10.610 14.79 107,146 .75* 5.84* 12
9.880 2.21 66,491 .75+ 6.27+ 16
9.820 11.79 59,351 .75* 6.50* 19
9.380 4.92 44,347 .75* 6.65* 51
9.560 11.34 29,040 .75* 6.63* 85
9.180 12.20 14,975 .75* 6.89* 71
8.760 (2.44) 8,239 .37*+ 6.46*+ 20
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
$10.200 3.63% $ 4,320 1.00%*+ 5.67%*+ 28%
10.160 3.63 901 1.75*+ 4.92*+ 28
10.180 1.99 162,231 .73 5.70 28
10.610 6.30 167,448 .75* 5.28* 9
10.580 13.88 133,797 .75* 5.86* 13
9.870 2.87 90,121 .70+ 6.16+ 3
9.770 9.84 81,649 .71 6.37 16
9.530 6.86 56,887 .74 6.61 38
9.550 12.97 37,714 .75* 6.66* 66
9.040 12.56 20,144 .75* 6.94* 55
8.610 (4.10) 9,135 .39*+ 6.53*+ 26
- --------------------------------------------------------------------------------------------
</TABLE>
++ Total Return on Net Asset Value is the combination of reinvested
dividend income, reinvested capital gain distributions if any, and
changes in net asset value per share.
+++ Net of taxes, if applicable. See note 1 of Notes to Financial
Statements in the Annual Report to Shareholders.
13
<PAGE>
WHO IS RESPONSIBLE FOR THE OPERATION OF THE FUNDS?
The following organizations work together to provide the
services and features offered by the Funds:
<TABLE>
<CAPTION>
ORGANIZATION FUNCTION DUTIES
------------------------------------------------------------------------
<C> <C> <S>
John Nuveen & Co. Incorporated Fund Sponsor and Princi- Sponsors and manages the
("Nuveen") pal offering of Fund shares;
Underwriter provides certain
administrative services
Nuveen Advisory Corp. Investment Adviser Manages the Funds'
("Nuveen Advisory") investment portfolios
and provides day-to-day
administrative services
to the Funds
Shareholder Services, Inc. Transfer Agent; Share- Maintains shareholder
("SSI") holder accounts, handles share
Services Agent; Dividend redemptions and
Paying Agent exchanges and dividend
payments
United States Trust Company Custodian Maintains custody of the
of New York ("US Trust") Funds' investments and
provides certain
accounting services to
the Funds
</TABLE>
The Chase Manhattan Bank, N.A., has agreed to become
successor to U.S. Trust, as Custodian and Fund Accoun-
tant. The succession is presently scheduled for July 1,
1995. No changes in the Funds' administration or in the
amount of fees and expenses paid by the Funds for these
services will result, and no action by shareholders will
be required.
14
<PAGE>
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES?
INVESTMENT The investment objective of each Fund is to provide you
OBJECTIVES with as high a level of current interest income exempt
from both regular federal income tax and the applicable
Each Fund is state personal income tax as is consistent, in the view
designed to of the Fund's management, with preservation of capital.
provide income This investment objective is a fundamental policy of
free from federal each Fund and may not be changed without the approval of
and state the holders of a majority of the shares of that Fund.
personal income There can be no assurance that the investment objective
taxes. of any Fund will be achieved.
HOW THE FUNDS Value Investing. Nuveen Advisory believes that in any
PURSUE THEIR market environment there are quality Municipal Obliga-
OBJECTIVES tions whose current price, yield, credit quality and fu-
ture prospects make them seem underpriced or exception-
The Funds seek ally attractive when compared with other Municipal Obli-
Municipal gations in the market. In selecting investments for the
Obligations Funds, Nuveen Advisory will attempt to identify and pur-
considered to be chase those investment grade quality, undervalued or un-
undervalued. derrated Municipal Obligations that offer the best val-
ues among Municipal Obligations of similar credit quali-
ty. By selecting these Municipal Obligations, each Fund
will seek to provide attractive 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 suc-
cessful, will better position each Fund to achieve its
investment objective of as high a level of current in-
terest income exempt from both regular federal income
tax and the applicable state personal income tax as is
consistent, in the view of the Fund's management, with
preservation of capital. Any net capital appreciation
realized by a Fund will generally result in the distri-
bution of taxable capital gains to Fund shareholders.
See "Distributions and Taxes."
Thorough research The Importance of Thorough Research. Successful value
can help identify investing depends on identifying and purchasing under-
values. valued or underrated securities before the rest of the
marketplace finds them. Nuveen Advisory believes the mu-
nicipal market provides these opportunities, in part be-
cause of the relatively large number of issuers of tax-
exempt securities and the relatively small number of
full-time, professional 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
employ the largest number of research analysts in the
investment banking industry de-
15
<PAGE>
voted exclusively to the review and surveillance of tax-
exempt securities. Their team of more than 40 individu-
als has over 350 years of combined municipal market ex-
perience. Nuveen and Nuveen Advisory have access to in-
formation on approximately 60,000 municipal issuers, and
review annually more than $100 billion of tax-exempt se-
curities sold in new issue and secondary markets.
Which Municipal Obligations Are Selected As Invest-
ments? Each Fund will invest primarily in Municipal Ob-
ligations issued within its respective state so that the
interest income on the Municipal Obligations will be ex-
empt from both regular federal and applicable state per-
sonal income taxes. Because of the different credit
characteristics of governmental authorities in each of
the states and because of differing supply and demand
factors for each state's Municipal Obligations, there
may be differences in the yields on each Fund's classes
of shares and in the degree of market and financial risk
to which each Fund is subject.
Each Fund will Each Fund's investment assets will consist of:
seek to purchase . Municipal Obligations rated investment grade at the
investment grade time of purchase (Baa or BBB or better by Moody's In-
quality Municipal vestors Service, Inc. ("Moody's") or Standard and
Obligations Poor's Corporation ("S&P"));
issued within its
respective state. . unrated Municipal Obligations of investment grade
quality in the opinion of Nuveen Advisory, with no
fixed percentage limitations on these unrated Munici-
pal Obligations; 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 out-
standing investment characteristics and in fact have
speculative characteristics as well, while Municipal Ob-
ligations rated BBB are regarded by S&P as having an ad-
equate capacity to pay principal and interest. Each Fund
may invest up to 20% of its net assets in Municipal Ob-
ligations that pay interest subject to the federal al-
ternative minimum tax ("AMT Bonds"). The Funds intend 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 matu-
rity may be shortened from time to time depending on
market conditions in order to help limit each Fund's ex-
posure to market risk. As a result, each Fund's portfo-
lio at any given time may include both long-term and in-
termediate-term Municipal Obligations.
Under ordinary circumstances, each Fund will invest sub-
stantially all (at least 80%) of its net assets in its
respective state's Municipal Obliga-
16
<PAGE>
tions, and not more than 20% of its net assets in "tem-
porary investments," described below, provided that tem-
porary investments subject to regular federal income tax
and AMT Bonds may not comprise more than 20% of each
Fund's net assets. For defensive purposes, however, in
order to limit the exposure of its portfolio to market
risk from temporary imbalances of supply and demand or
other temporary circumstances affecting the municipal
market, each Fund may invest without limit in temporary
investments. A Fund will not be in a position to achieve
its investment objective of tax-exempt income to the ex-
tent it invests in taxable temporary investments.
The foregoing investment policies are fundamental poli-
cies of each Fund and may not be changed without the ap-
proval of the holders of a majority of the shares of
that Fund.
DESCRIPTION OF Municipal Obligations. Municipal Obligations, as the
THE FUNDS' term is used in this Prospectus, are federally tax-ex-
INVESTMENTS empt debt obligations issued by states, cities and local
authorities and by certain U.S. possessions or territo-
Municipal ries to obtain funds for various public purposes, such
Obligations as the construction of public facilities, the payment of
are issued by general operating expenses and the refunding of out-
states, cities standing debts. They may also be issued to obtain fund-
and local ing for various private activities, including loans to
authorities to finance the construction of housing, educational and
support a variety medical facilities or privately owned industrial devel-
of public opment and pollution control projects.
activities.
The two principal classifications of Municipal Obliga-
tions are general obligation and revenue bonds. GENERAL
OBLIGATION bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment
of principal and interest. REVENUE bonds are payable
only from the revenues derived from a particular facil-
ity or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue
source. Industrial development and pollution control
bonds are in most cases revenue bonds and do not gener-
ally 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 obli-
gations (collectively, "lease obligations") of municipal
authorities or entities. Certain "non-appropriation"
lease obligations may present special risks because the
municipality's obligation to make future lease or in-
stallment payments depends on money being appropriated
each year for this purpose. Each Fund will seek to mini-
mize these risks by not investing more than 10% of its
assets in non-appropriation lease obligations, and by
only investing
17
<PAGE>
in those non-appropriation lease obligations that meet
certain criteria of the Fund. See the Statement of Addi-
tional 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 obligation 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 Obliga-
tions with the same maturity, coupon and rating may have
different yields, while those having the same maturity
and coupon with different ratings may have the 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 Funds 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, each Fund un-
investments will der ordinary circumstances may invest up to 20% of its
be U.S. net assets in "temporary investments," but may invest
Government or without limit in temporary investments during temporary
high quality defensive periods. Each Fund will seek to make temporary
securities. investments in short-term securities the interest on
which is exempt from regular federal income tax, but may
be subject to state income tax in the Fund's respective
state. If suitable federally tax-exempt temporary in-
vestments are not available at reasonable prices and
yields, a Fund may make temporary investments in taxable
securities whose interest is subject to both state and
federal income tax. A Fund will invest only in those
taxable temporary investments that are either U.S. Gov-
ernment 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 Funds may invest.
18
<PAGE>
SPECIAL FACTORS Because each Fund will concentrate its investments in
PERTAINING TO Municipal Obligations issued within a single state, a
EACH FUND Fund may be affected by political, economic or regula-
tory factors that may impair the ability of issuers in
that state to pay interest on or to repay the principal
of their debt obligations. These special factors are
briefly described for each Fund's respective state in
Appendix A to this Prospectus. See the Statement of Ad-
ditional Information for further information about these
factors.
CERTAIN Portfolio Trading and Turnover. Each Fund will make
INVESTMENT changes in its investment portfolio from time to time in
STRATEGIES AND order to take advantage of opportunities in the munici-
LIMITATIONS pal market and to limit exposure to market risk. A Fund
may engage to a limited extent in short-term trading
Each Fund will consistent with its investment objective, but a Fund
focus on long- will not trade securities solely to realize a profit.
term investment Changes in a Fund's investments are known as "portfolio
strategies, and turnover." While each Fund's annual portfolio turnover
will engage in rate is not expected to exceed 50%, actual portfolio
short-term turnover rates are impossible to predict, and may exceed
trading only when 50% in particular years depending upon market condi-
consistent with tions.
its stated
investment
objective. When-issued or Delayed Delivery Transactions. A 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
basis may involve an element of risk because the value
of the securities 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. A Fund commonly engages in
when-issued transactions in order to purchase or sell
newly-issued Municipal Obligations, and may engage in
delayed delivery transactions in order to manage its op-
erations more effectively. See the Statement of Addi-
tional Information for further information about when-
issued and delayed delivery transactions.
The Funds do not Financial Futures and Options Transactions. Although the
presently intend Funds have no present intent to do so, each Fund re-
to use futures or serves the right to engage in certain hedging transac-
options. tions involving the use of financial futures contracts,
options on financial futures or options based on either
an index of long-term tax-exempt securities or on debt
securities whose prices, in the opinion of Nuveen Advi-
sory, correlate with the prices of the Fund's invest-
ments. These hedging transactions are designed to limit
the risk of fluctuations in the prices of a Fund's in-
vestments. See the Statement of Additional Information
for further information on futures and options and asso-
ciated risks.
19
<PAGE>
Each Fund will Other Investment Policies and Restrictions. Each Fund
take steps to has adopted certain fundamental policies intended to
ensure that its limit the risk of its investment portfolio. In accor-
assets are not dance with these policies, each 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
apply to securities of the U.S. government, its agencies
and instrumentalities or to the investment of 25% of the
Fund's assets;
. 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 assets in illiquid municipal
lease obligations and other securities that are unmar-
ketable, illiquid or not readily marketable (securities
that cannot reasonably be sold within seven days, in-
cluding repurchase agreements maturing in more than
seven days);
. invest more than 25% of its total assets in securities
of issuers in any one industry, provided, however, that
such limitation shall not be applicable to Municipal Ob-
ligations issued by governments or political subdivi-
sions of governments, and obligations issued or guaran-
teed by the U.S. Government, its agencies or instrumen-
talities;
. borrow money, except from banks for temporary or emer-
gency purposes and then only in an amount not exceeding
(a) 10% of the value of its total assets at the time of
borrowing or (b) one-third of the value of its total as-
sets, including the amount borrowed, in order to meet
redemption requests which might otherwise require the
untimely disposition of securities; or
. hold securities of a single bank, including securities
backed by a letter of credit of that bank, if these
holdings 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
committed to the payment of principal and interest on
that security, provided that the guarantee of an instru-
ment will generally be considered a separate security.
See the Statement of Additional Information for a more
complete description of the fundamental investment
policies summarized above and the Funds' other fundamental
investment policies. Each Fund's fundamental investment
policies may not be changed without the approval of the
Fund's shareholders.
20
<PAGE>
FLEXIBLE SALES CHARGE PROGRAM
Each Fund offers For many investors, working with a professional finan-
various sales cial adviser is an important part of their financial
charge options strategy. Because Nuveen recognizes the value a finan-
designed to meet cial adviser can provide in developing and implementing
your individual a comprehensive plan for your financial future, Nuveen
investment needs Mutual Funds are sold with a sales charge, either at the
and preferences. time of purchase or at the time of redemption (in the
case of Class C Shares purchased on or after June 13,
1995 and 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 profes-
sional advice and service you receive in financial plan-
ning and investment selection.
Each 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 purchased on or after June 13, 1995 and 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 also subject to annual service fees, which
are used to compensate Authorized Dealers for providing
you with ongoing account services. Under the Flexible
Sales Charge Program, all Fund shares outstanding as of
September 6, 1994, 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 de-
scribed herein. The price at which the purchase of any
Fund's shares is effected is based on the next calcula-
tion of the Fund's net asset value after the order is
placed.
Which Option is When you purchase Class A Shares of a Fund, you will pay
Right For You? an up-front sales charge. As a result, you will have
less money invested 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 of a Fund, you will not pay an up-front
sales charge and all of your monies will be fully in-
vested 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 purchased on or after June 13, 1995
and redeemed within 12 months of purchase. Class C
Shares automatically convert to Class A Shares six years
after purchase. This automatic conversion is designed to
ensure that holders of
21
<PAGE>
Class C Shares would pay over the six-year period a dis-
tribution fee that is approximately the economic equiva-
lent 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 also subject to
annual service fees which are identical in amount and
which are used to compensate Authorized Dealers for
providing you with ongoing account services. You may
qualify for a reduced sales charge or a sales charge
waiver on a purchase of Class A Shares, as described be-
low 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.
In deciding whether to purchase Class A Shares, Class C
Shares or Class R Shares of a Fund, you should consider
all relevant factors, including the dollar amount of
your purchase, the length of time you expect to hold the
shares, 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 in-
come or capital gain distributions 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 fi-
nancial adviser.
Differences Each class of shares of a Fund represents an interest in
Between the the same portfolio of investments. Each class of shares
Classes of Shares of a Fund is identical in all respects except that each
class bears its own class expenses, including adminis-
tration 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 purchased on or after June 13, 1995
and 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 each 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 transactions specified in the notice. The
reallowances made during these periods may be based upon
attainment of minimum 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
22
<PAGE>
who receive 90% or more of the applicable sales charge
may be deemed underwriters under the Securities Act of
1933, as amended.
Nuveen may also from time to time provide additional
promotional support to certain Authorized Dealers who
sell or are expected to sell certain minimum amounts of
Nuveen Mutual Funds and Nuveen UITs during specified
time periods. Such promotional support may include pro-
viding sales literature to and holding informational or
educational programs for the benefit of such Authorized
Dealers' representatives, seminars for the public, and
advertising and sales campaigns. Any such support would
be provided by Nuveen out of its own assets, and not out
of the assets of the Funds, and will not change the
price an investor pays for shares or the amount that a
Fund will receive from such a sale.
HOW TO BUY FUND SHARES
CLASS A SHARES You may purchase Class A Shares of any Fund at a public
offering price equal to the applicable net asset value
Class A Shares per share plus an up-front sales charge imposed at the
are offered at time of purchase as set forth below. You may qualify for
their net asset a reduced sales charge, or the sales charge may be
value plus an up- waived in its entirety, as described below under "How
front sales the Sales Charge on Class A Shares May Be Reduced or
charge. Waived." Class A Shares are also subject to an annual
service fee to compensate Authorized Dealers for provid-
ing you with ongoing account services. See "Distribution
and Service Plans."
The sales charges for each Fund's 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 Funds receive 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
"Flexi-
23
<PAGE>
ble Sales Charge Program--Dealer Incentives" above for
more information about reallowances and other compensa-
tion to Authorized Dealers.
Certain commercial banks may make Class A Shares of the
Funds available to their customers on an agency basis.
Pursuant to the agreements between Nuveen and these
banks, some or all of the sales charge paid by a bank
customer in connection with a purchase of Class A Shares
may be retained by or paid to the bank. Certain banks
and other financial institutions may be required to reg-
ister as securities dealers in certain states.
HOW THE SALES Summary. These are several ways to reduce or eliminate
CHARGE ON CLASS A the sales charge:
SHARES MAY BE
REDUCED OR WAIVED . cumulative discount;
There are several . letter of intent;
ways to reduce or
eliminate the . group purchase programs; and
sales charge.
. 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 of
any Fund if the amount of your purchase, when added to
the value that day of all of your prior purchases of
shares of any Fund or of another Nuveen Mutual Fund, or
units of a Nuveen UIT, on which an up-front sales charge
or ongoing distribution fee is imposed, falls within the
amounts stated in the table. You or your financial ad-
viser must notify Nuveen or SSI of any cumulative dis-
count whenever you plan to purchase Class A Shares of a
Fund that you wish to qualify for a reduced sales
charge.
Letter of Intent. You may qualify for a reduced sales
charge on a purchase of Class A Shares of any Fund if
you plan to purchase Class A Shares of Nuveen Mutual
Funds over the next 13 months and the total amount of
your purchases would, if purchased at one time, qualify
you for one of the reduced sales charges shown above. In
order to take advantage of this option, you must com-
plete the applicable section of the Application Form or
sign and deliver either to an Authorized 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 already
own on which you paid an up-front sales charge or an on-
going 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
24
<PAGE>
sales charge over the 13 months. You cannot count to-
wards completion of your investment 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 of a Fund following ex-
ecution of the Letter of Intent will be at least 5% of
the total amount of your intended purchases. You further
agree that shares representing 5% of the total amount of
your intended purchases will be held in escrow pending
completion of these purchases. All dividends and capital
gains distributions on Class A Shares held in escrow
will be credited to your account. If total purchases,
less redemptions, prior to the expiration of the 13
month period equal or exceed the amount specified in
your Letter of Intent, the Class A Shares held in escrow
will be transferred to your account. If the total pur-
chases, less redemptions, exceed the amount specified in
your Letter of Intent and thereby qualify for a lower
sales charge than the sales charge specified in your
Letter of Intent, you will receive this lower sales
charge retroactively, and the difference between it and
the higher sales charge paid will be used to purchase
additional Class A Shares on your behalf. If the total
purchases, less redemptions, are less than the amount
specified, you must pay Nuveen an amount equal to the
difference between the amounts paid for these purchases
and the amounts which would have been paid if the higher
sales charge had been applied. If you do not pay the ad-
ditional amount within 20 days after written request by
Nuveen or your financial adviser, 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 substitution 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 any 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 ex-
istence for more than six months, has a purpose other
than investment, has five or more participating members,
has agreed to include Fund sales publications in mail-
ings to members and has agreed to comply with certain
administrative requirements relating to its group pur-
chases.
25
<PAGE>
Under any group purchase program, the minimum monthly
investment in Class A Shares of any particular Fund or
portfolio 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 participant's account. All dividends and other dis-
tributions by a Fund will be reinvested in additional
Class A Shares of the same Fund. No participant may uti-
lize a systematic withdrawal program.
To establish a group purchase program, both the group
itself and each participant must fill out special appli-
cation materials, which the group administrator may ob-
tain from the group's financial adviser, by checking the
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 infor-
mation about "qualified groups" and group purchase pro-
grams.
Special Sales Charge Waivers. Class A Shares of any Fund
may be purchased at net asset value without a sales
charge and in any amount by the following categories of
investors:
. officers, directors and retired directors of the Funds;
. 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 resold except through redemption by the Funds.
26
<PAGE>
You or your financial adviser must notify Nuveen or SSI
whenever you make a purchase of Class A Shares of any
Fund that you wish to be covered under these special
sales charge waivers. The above categories of investors
are also eligible to purchase Class R Shares of any
Fund, as described below under "Class R Shares."
You may also purchase Class A Shares of any Fund at net
asset value without a sales charge if the purchase takes
place through a broker-dealer and represents the rein-
vestment of the proceeds of the redemption of shares of
one or more registered investment companies not affili-
ated with Nuveen. You must provide appropriate documen-
tation that the redemption occurred not more than 60
days prior to the reinvestment of the proceeds in Class
A Shares, and that you either paid an up-front sales
charge or were subject to a contingent deferred sales
charge in respect of the redemption of such shares of
such other investment company. Finally, Class A Shares
of any Fund may be issued at net asset value without a
sales charge in connection with the acquisition by a
Fund of another investment company. All purchases under
the special sales charge waivers will be subject to min-
imum purchase requirements as established by the Funds.
--------------------------------
In determining the amount of your purchases of Class A
Shares of any Fund that may qualify for a reduced sales
charge, the following purchases may be 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 purchases made through a group purchase pro-
gram as described above.
The reduced sales charge programs may be modified or
discontinued by the Funds at any time upon prior written
notice to shareholders of the Funds.
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.
27
<PAGE>
CLASS C SHARES You may purchase Class C Shares of any Fund at a public
offering price equal to the applicable net asset value per
Class C Shares share without any up-front sales charge. Class C Shares
may be purchased are subject to an annual distribution fee to compensate
at their net Authorized Dealers over time for the sale of Fund shares.
asset value, and See "Flexible Sales Charge Program--Dealer Incentives"
are subject to an above for more information about compensation to Autho-
annual rized Dealers. Class C Shares are also subject to an an-
distribution fee. nual service fee to compensate Authorized Dealers for pro-
viding you with ongoing financial advice and other servic-
es. See "Distribution and Service Plans."
An investor purchasing Class C Shares on or after June 13,
1995 agrees to pay a CDSC of 1% if Class C Shares are re-
deemed within 12 months of purchase. Each 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 applicable 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.
The CDSC will be the lower of (i) the net asset value of
Class C Shares at the time of purchase or (ii) the net as-
set 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 reinvestment of
dividends or capital gains paid, or on exchanges 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 following the disabil-
ity (as determined by the Social 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 Directors 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
28
<PAGE>
fee, but they will remain subject to an annual service fee
which 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 receive 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 taxable event under fed-
eral 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.
CLASS R SHARES If you owned Fund shares as of September 6, 1994, those
shares have been designated as Class R Shares. Purchases
Class R Shares of additional Class R Shares of any Fund, which will not
are offered at be subject to any sales charge or any distribution or
their net asset service fee, will be limited to the following circumstanc-
value. es. You may purchase Class R Shares with monies represent-
ing distributions from Nuveen-sponsored UITs if, prior to
September 6, 1994, you had purchased such UITs and elected
to reinvest distributions from such UITs in shares of a
Fund. You may also purchase Class R Shares with monies
representing dividends and capital gain distributions on
Class R Shares of a Fund. Finally, you may purchase Class
R Shares if you are within the following specified catego-
ries of investors who are also eligible to purchase Class
A Shares at net asset value without an up-front sales
charge:
. officers, directors and retired directors of the Funds;
. bona fide, full-time and retired employees of Nuveen,
any parent company of Nuveen, and subsidiaries thereof,
or their immediate family members;
. any person who, for at least 90 days, has been an 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 of a Fund without a sales charge
at net asset value should be aware of
29
<PAGE>
the differences between these two classes of shares. Class
A Shares are subject to an annual service fee to compen-
sate Authorized Dealers for providing you with ongoing ac-
count services. Class R Shares are not subject to a serv-
ice fee and consequently holders of Class R Shares may not
receive the same types or levels of services from Autho-
rized Dealers. In choosing between Class A Shares and
Class R Shares, you should weigh the benefits of the serv-
ices to be provided by Authorized Dealers against the an-
nual service fee imposed upon the Class A Shares.
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 [name of
state] Tax-Free Value Fund, Class [A], [C], [R]," deliv-
The Funds offer a ered to the financial adviser through whom the investment
number of is to be made for forwarding to the Funds' shareholder
convenient ways services agent, SSI. When making your initial investment,
to purchase you must also furnish the information necessary to estab-
shares. lish 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 forwarding to SSI a check in the amount of
your purchase made payable to "Nuveen [name of state] Tax-
Free Value 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 directly to SSI at its ad-
dress listed on the back cover of this Prospectus. A check
drawn on a foreign bank or payable other than to the order
of a Fund generally will not be acceptable. You may also
wire Federal Funds directly to SSI, but you may be charged
a fee for this. For instructions on how to make Fund pur-
chases by wire transfer, call Nuveen toll-free at 800-621-
7227. Authorized Dealers and other persons distributing
the Funds' shares may receive different compensation for
selling different classes of shares.
MINIMUM Generally, your first purchase of any class of a 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 Funds. There are exceptions
to these minimums for shareholders who qualify under one
or more of the Funds' automatic deposit, group purchase
or reinvestment programs.
SYSTEMATIC The Funds offer you several opportunities to capture the
INVESTMENT benefits of "dollar cost averaging" through systematic
PROGRAMS investment programs. In a regularly followed dollar cost
averaging program, you would purchase more shares when
Fund share prices are lower and fewer shares when Fund
share prices are higher, so that the average price paid
for Fund shares is less than the average price of Fund
shares over the same time period. The chart below shows
the cumulative effect that compound interest can have on
a systematic investment program.
30
<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>
- --- 6% Compound Interest
- --- 5% Compound Interest
- --- 4% Compound Interest
- --- No Interest
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
interest and interest compounded annually at the rates
of 4%, 5% and 6%.
31
<PAGE>
This chart is designed to illustrate the effects of
compound interest, and is not intended to predict the
results of an actual investment in a Fund. There are
several important differences between the Funds and the
hypothetical investment program shown. This example as-
sumes 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 each of the Funds 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 entire 15-year period, whereas
the dividend rates of the Funds can be expected to
fluctuate over time. The Funds may provide additional
information to investors and advisors illustrating the
benefits of systematic investment programs and dollar
cost averaging.
The Funds offer The Funds offer two different types of systematic in-
automatic deposit vestment programs:
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 eligible to purchase additional Class R Shares
in one of the Funds, 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 continue payments and you may
terminate your participation at any time at your dis-
cretion. No charge in addition to the applicable sales
charge is made in connection with this Plan, and there
is no cost to the Funds. To obtain an application form
for the Automatic Deposit Plan, check the applicable
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 one of the
Funds, you may, with your employer's consent, make reg-
ular 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 Funds.
To obtain an application form for the Payroll Direct
Deposit Plan, check the applicable box on the enclosed
Application Form or call Nuveen toll-free at 800-621-
7227.
32
<PAGE>
OTHER SHAREHOLDER Exchange Privilege. You may exchange shares of a class
PROGRAMS of any Fund you own for shares of the same or equivalent
class of another Fund or for shares of another Nuveen
The Funds offer Mutual Fund with reciprocal exchange privileges by send-
no-charge ing a written request to the applicable Fund, c/o Share-
exchanges with holder Services, Inc., P.O. Box 5330, Denver, CO 80217-
other Nuveen 5330. The shares to be purchased must be offered in your
Mutual Funds. state of residence and you must have held the shares you
are exchanging for at least 15 days. For example, Class
A Shares of a Fund may be exchanged for Class A Shares
of another Nuveen Mutual Fund at net asset value without
a sales charge. Similarly, Class A Shares of another
Nuveen Mutual Fund purchased subject to a sales charge
may be exchanged for Class A Shares of any Fund at net
asset value without a sales charge. Shares of any Nuveen
Mutual Fund purchased through dividend reinvestment or
through investment of Nuveen UIT distributions may be
exchanged for shares of a Fund or any other Nuveen Mu-
tual 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 any Fund at the pub-
lic offering price, which includes an up-front sales
charge in the case of Class A Shares, and will be sub-
ject 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 as-
set value without any up-front sales charge. Shares of
any class of a Fund may be exchanged for shares of any
Nuveen money market fund that does not impose a sales
charge or have any distribution or service fees.
No CDSC will be charged on the exchange of Class C
Shares of a 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 ap-
plicable to Class C Shares will continue to run during
any period in which Class C Shares of a Fund, Class C
Shares of any other Nuveen Mutual Fund or shares of a
Nuveen money market fund are held.
You must exchange shares whose total value at least
equals the minimum investment requirement of the Nuveen
Mutual Fund being purchased. For federal income tax pur-
poses, any exchange constitutes a sale and purchase of
shares and may result in capital gain or loss. Before
making any exchange, you should obtain the Prospectus
for the Nuveen Mutual Fund you are purchasing and read
it carefully. If the registration of the account for the
Fund you are purchasing is not exactly the same as that
of the fund account from which the exchange is made,
written instructions from all holders of the account
from which the exchange is being made must
33
<PAGE>
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 any Fund at any time upon prior written
notice to shareholders of that Fund.
In addition, you may exchange Class R Shares of any Fund
for Class A Shares of the same Fund without a sales
charge if the current net asset value of those Class R
Shares is at least $1,000 or you already own Class A
Shares of that Fund.
Reinstatement Privilege. If you have redeemed Class A
Shares of a 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 a 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 redemp-
tion. As applied to Class C Shares of any Fund or of any
other Nuveen Mutual Fund, this reinstatement privilege,
if exercised within 90 days of the date of the redemp-
tion, will preserve the number of years credited to your
ownership of Class C Shares for purposes of conversion
of these Class C Shares to Class A Shares. Any CDSC
charged if the shares were purchased on or after June
13, 1995 and redeemed within 12 months of purchase will
be refunded if ownership is reinstated within the 90 day
period. The tax consequences of any capital gain real-
ized on a redemption will not be affected by
reinstatement, but a capital loss may be disallowed in
whole or in part depending on the timing 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 a Fund, an account will be
INFORMATION opened and maintained for you by SSI, the Funds' 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. Each Fund
reserves the right to reject any purchase order and to
waive or increase minimum investment requirements. A
change in registration or transfer of shares
34
<PAGE>
held in the name of your financial adviser's firm can
only be made by an order in good form from the financial
adviser acting on your behalf.
Authorized Dealers are encouraged to open single master
accounts. However, some Authorized Dealers may wish to
use SSI's sub-accounting system to minimize their inter-
nal recordkeeping requirements. An Authorized Dealer or
other investor requesting shareholder servicing or ac-
counting other than the master account or sub-accounting
service offered by SSI 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, Nuveen Tax-Free Bond Fund, Inc.
reserves the right to suspend the continuous offering of
shares of any of its Funds at any time, but no suspen-
sion shall affect your right of redemption as described
below.
DISTRIBUTION AND SERVICE PLANS
Each Fund has adopted a plan (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940,
which provides 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 distribu-
tion or service fees.
The distribution fee applicable to Class C Shares under
each Fund's 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 Authorized 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 advertising and sales litera-
ture and reports to shareholders used in connection with
the sale of Class C Shares, certain other expenses asso-
ciated 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 each Fund's Plan will be payable to Autho-
rized Dealers in connection with the provision of ongo-
ing account services to shareholders. These services may
include establishing and maintaining shareholder ac-
counts,
35
<PAGE>
answering shareholder inquiries and providing other per-
sonal services to shareholders.
Each Fund may spend up to .25 of 1% per year of the av-
erage daily net assets of Class A Shares as a service
fee under the Plan applicable to Class A Shares. Each
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 exercised, 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 appli-
cable to Class C Shares.
HOW TO REDEEM FUND SHARES
You may require a Fund at any time to redeem for cash
your shares of that Fund at the net asset value next
computed after instructions and required documents and
certificates, 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 on
or after June 13, 1995 agrees to pay a CDSC of 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, if such Class
C Shares are redeemed within 12 months of purchase. Each
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 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 follow-
ing the disability (as determined in writing by the So-
cial Security Administration) or death of the sharehold-
er. There is no CDSC on Class C Shares held more than 12
months.
The Funds offer a By Written Request. You may redeem shares by sending a
variety of written request for redemption directly to the applica-
redemption ble Fund, c/o Shareholder Services, Inc., P.O. Box 5330,
options. Denver, CO 80217-5330, accompanied by duly endorsed cer-
tificates, if issued. Requests for redemption and share
certificates, if issued, must be signed by each share-
holder and, if the redemption proceeds exceed $25,000 or
are payable other than to the shareholder of record at
the address of record (which address may not have been
changed in the preceding 60 days), the signature must be
guaranteed by a member of an approved Medallion Guaran-
tee Program or in such other manner as may be acceptable
to the Fund. You will receive
36
<PAGE>
payment equal to the net asset value per share next de-
termined after receipt by the Fund of a properly exe-
cuted redemption request in proper form. A check for the
redemption proceeds will be mailed to you within seven
days after receipt of your redemption 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 pro-
ceeds 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
authorized by you may make telephone redemption re-
quests, redemption checks will be issued only in the
name of the shareholder of record and will be mailed to
the address of record. If your telephone request is re-
ceived prior to 2:00 p.m. eastern time, the shares re-
deemed will earn income through the day the request is
made and the redemption check will be mailed the next
business day. For requests 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.
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-cer-
tificate form that are worth at least $1,000. You may
make TEL-A-WIRE redemption requests by calling Nuveen at
800-621-7227. If a redemption request is received by
4:00 p.m. eastern time, the redemption will be made as
of 4:00 p.m. that day. If the redemption request is re-
ceived after 4:00 p.m. eastern time, the redemption will
be made as of 4:00 p.m. the following business day. Re-
demption proceeds will normally be wired on the second
business day following the redemption, but may be de-
layed one additional business day if the Federal Reserve
Bank of Boston or the Federal Reserve Bank of New York
is closed on the day redemption proceeds would ordinar-
ily be wired. The Funds reserve 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 autho-
rization section of the enclosed Application Form and
return it to Nuveen or SSI. If you did not authorize
telephone redemption when you opened your account, you
may obtain a telephone redemption authorization form by
writing the Funds 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
37
<PAGE>
only to the commercial bank account 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 account or accounts
designated to receive redemption proceeds. These re-
quests must be signed by each account owner with signa-
tures guaranteed by a member of an approved Medallion
Guarantee Program or in such other manner as may be ac-
ceptable to the Funds. Further documentation may be re-
quired from corporations, executors, trustees or per-
sonal representatives.
For the convenience of shareholders, the Funds have au-
thorized Nuveen as their agent to accept orders from fi-
nancial 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 financial adviser. A Fund makes payment
for the redeemed shares to the financial adviser who
placed the order promptly upon presentation of required
documents with signatures guaranteed as described above.
Neither the Funds nor Nuveen charges any redemption
fees. However, your financial adviser may charge you for
serving as agent in the redemption of shares.
The Funds reserve the right to refuse telephone redemp-
tions and, at their option, may limit the timing, amount
or frequency of these redemptions. This procedure may be
modified or terminated at any time, on 30 days' notice,
by the Funds. The Funds, SSI and Nuveen will not be lia-
ble for following telephone instructions reasonably be-
lieved to be genuine. The Funds employ procedures rea-
sonably designed to confirm that telephone instructions
are genuine. These procedures include recording all tel-
ephone instructions and requiring up to three forms of
identification prior to acting upon a caller's instruc-
tions. If a Fund does not follow reasonable procedures
for protecting shareholders against loss on telephone
transactions, it may be liable for any losses due to un-
authorized or fraudulent telephone instructions.
Automatic Withdrawal Plan. If you own Fund shares cur-
rently worth at least $10,000, you may establish an Au-
tomatic Withdrawal Plan by completing an application
form for the Plan. You may obtain an application form by
checking 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.
38
<PAGE>
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 pur-
chased on or after June 13, 1995 and 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 disadvantageous because the newly-purchased Class C
Shares will be subject to the 1% CDSC until 12 months
after purchase.
General. Each Fund may suspend the right of redemption
of Fund shares or delay payment more than seven days (a)
during any period when the New York Stock Exchange is
closed (other than customary weekend and holiday
closings), (b) when trading in the markets the Fund nor-
mally utilizes is restricted, or an emergency exists as
determined by the Securities and Exchange Commission so
that trading of the Fund's investments or determination
of its net asset value is not reasonably practicable, or
(c) for any other periods that the Securities and Ex-
change Commission by order may permit for protection of
Fund shareholders.
Each Fund may, from time to time, establish a minimum
total investment for Fund shareholders, and each Fund
reserves the right to redeem your shares if your invest-
ment is less than the minimum after giving you at least
30 days' notice. If any minimum total investment is es-
tablished, 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 a 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
established for that Fund.
MANAGEMENT OF THE FUNDS
Nuveen Advisory Board of Directors. The management of Nuveen Tax-Free Bond
has been managing Fund, Inc., including general supervision of the duties
similar tax-free performed for each Fund by Nuveen Advisory under the
funds since 1976, Investment Management Agreement, is the responsibility of
and has its Board of Directors.
approximately $30
billion of assets Investment Adviser. Nuveen Advisory acts as the investment
under management. adviser for and manages the investment and reinvestment of
the assets of each of the Funds. Its address is Nuveen
Advisory Corp., 333 West Wacker Drive, Chicago, Illinois
60606. Nuveen Advisory also administers the Funds'
business affairs,
39
<PAGE>
provides office facilities and equipment and certain
clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without
compensation as directors or officers of Nuveen Tax-Free
Bond Fund, Inc. if elected to such positions.
Nuveen Advisory was organized in 1976 and since then has
exclusively engaged in the management of municipal
securities 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, Chica-
go, Illinois 60606, the oldest and largest investment
banking firm (based on number of employees) specializing
in the underwriting and distribution of tax-exempt secu-
rities. Nuveen, the principal underwriter of the Funds'
shares, is sponsor of the Nuveen Tax-Exempt Unit Trust,
a registered unit investment trust. It is also the prin-
cipal underwriter for the Nuveen Mutual Funds, and
served as co-managing underwriter for the shares of the
Nuveen Exchange-Traded Funds. Over 1,000,000 individuals
have invested to date in Nuveen's 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 princi-
pally engaged in providing property-liability insurance
through subsidiaries.
For the services and facilities furnished by Nuveen Ad-
visory, each 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 .5500 of 1%
For the next $125 million .5375 of 1%
For the next $250 million .5250 of 1%
For the next $500 million .5125 of 1%
For the next $1 billion .5000 of 1%
For assets over $2 billion .4750 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, each Fund pays
all its other costs and expenses and a portion of Nuveen
Tax-Free Bond Fund, Inc.'s general administrative ex-
penses allo-
40
<PAGE>
cated in proportion to the net assets of each Fund. In
order to prevent total operating expenses (excluding any
distribution or service fees) from exceeding .75 of 1%
of the average daily net asset value of any class of
shares of each Fund for any fiscal year, Nuveen Advisory
has agreed to waive all or a portion of its management
fees or reimburse certain expenses of each Fund. Nuveen
Advisory may also voluntarily agree to reimburse addi-
tional expenses from time to time, which voluntary reim-
bursements may be terminated at any time in its discre-
tion. For information regarding the management fees and
total operating expenses of each class of shares of each
of the Funds for the year ended February 28, 1995, see
the table under "Summary of Fund Expenses" on page 3 of
this Prospectus.
Portfolio Management. Overall portfolio management
strategy for the Funds is determined by Nuveen Advisory
under the general supervision of Thomas C. Spalding,
Jr., a Vice President of Nuveen Advisory and of the
Funds. Mr. Spalding has been employed by Nuveen since
1976 and by Nuveen Advisory since 1978 and has responsi-
bility with respect to the portfolio management of all
Nuveen open-end and exchange-traded funds managed by
Nuveen Advisory. See the Statement of Additional Infor-
mation for further information about Mr. Spalding.
The day-to-day management of the Massachusetts Fund is the
responsibility of Stephen S. Peterson, an Assistant
Portfolio Manager of Nuveen Advisory since October 1991
and portfolio manager for the Massachusetts Fund since May
1993. Prior to joining Nuveen Advisory, he was an analyst
in Nuveen's Research Department. Mr. Peterson currently
manages eight Nuveen sponsored investment companies.
The day-to-day management of the New York Fund is the
responsibility of Daniel S. Solender, an Assistant
Portfolio Manager of Nuveen Advisory since January 1992
and portfolio manager for the New York Fund since
September 1994. Prior to joining Nuveen Advisory, Mr.
Solender attended the University of Chicago (from
September 1990 to June 1992) where he received his M.B.A.
and worked part time in the Research Department of Nuveen.
From June 1989 to August 1990, Mr. Solender worked for
Citibank Investment Services in the areas of investment
research and product development. He currently manages
nine Nuveen-sponsored investment companies.
The day-to-day management of the Ohio Fund is the
responsibility of James W. Lumberg, an Assistant Portfolio
Manager of Nuveen Advisory since July 1993 and portfolio
manager for the Ohio Fund since September 1994. Mr.
Lumberg was Sector Manager, Municipal Leases and Pooled
Finance and a
41
<PAGE>
municipal analyst of Nuveen and, prior thereto, was a
professor of English in Liberia, West Africa. Mr. Lumberg
acts under the direct supervision of J. Thomas Futrell and
he currently manages five Nuveen-sponsored investment
companies. J. Thomas Futrell has been a Vice President of
Nuveen Advisory since February 1991. Prior thereto, he
served as Assistant Vice President of Nuveen Advisory. He
currently manages seven Nuveen-sponsored investment
companies.
Consistent with the Funds' investment objectives, the day-
to-day management of each Fund is characterized by an
emphasis 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 resources of the
portfolio managers of the various Nuveen funds and senior
management of Nuveen Advisory. All portfolio management
decisions are subject to weekly review by Nuveen
Advisory's management and to quarterly review by the Board
of Directors of Nuveen Tax-Free Bond Fund, Inc.
HOW THE FUNDS SHOW PERFORMANCE
The Funds may Each Fund from time to time may quote various performance
compare their measures in order to illustrate the historical returns
performance with available from an investment in the Fund. These
other tax-free performance measures, which are determined for each class
and taxable of shares of a 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
period, 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
period.
TAXABLE EQUIVALENT YIELD is the yield that a taxable
investment 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
42
<PAGE>
than its yield. See the chart below and Appendix B for
examples of taxable equivalent yields and how you can use
them to compare other investments with investments in the
Funds.
HISTORICAL YIELDS
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
TAXABLE
EQUIVALENT 30 YEAR 6 MONTH TAXABLE
DATE BB 20 TREASURY CD MMF
<S> <C> <C> <C> <C>
1/86 12.63% 9.40% 7.54% 7.15%
1/87 10.41% 7.39% 5.60% 5.50%
1/88 12.08% 8.83% 6.75% 6.50%
1/89 11.48% 8.93% 8.12% 8.36%
1/90 11.09% 8.26% 7.62% 7.75%
1/91 11.06% 8.27% 6.75% 6.89%
1/92 10.18% 7.75% 3.72% 4.13%
1/93 9.62% 7.34% 2.87% 2.84%
1/94 8.29% 5.54% 2.72% 2.71%
1/95 10.21% 7.85% 5.43% 5.13%
</TABLE>
SOURCES: BOND BUYER, BANXQUOTE, IBC/DONOGHUE'S MONEY
FUND REPORT
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 de-
gree. For convenience, the taxable equivalent yield of
the Bond Buyer 20 Index shown here was calculated using
a 36% federal 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 inter-
est rates. See the discussion below under the
subcaption "General" for a description of the indices
and investments shown in the chart.
DISTRIBUTION RATE is determined based upon the latest
dividend, annualized, expressed as a percentage of the
offering price per share at the end of the measurement
period. Distribution rate may sometimes be different
than yield because it may not include the effect of am-
ortization of bond premiums to the extent such premiums
arise after the bonds were purchased.
43
<PAGE>
Total Return Information. AVERAGE ANNUAL TOTAL RETURN
and CUMULATIVE TOTAL RETURN figures for a specified pe-
riod measure both the net investment income generated
by, and the effect of any realized and unrealized appre-
ciation or depreciation of, an investment in a Fund, as-
suming the reinvestment of all dividends and capital
gain distributions. 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 return figures are not annualized and
represent the cumulative 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 appre-
ciation or depreciation and after-tax income as a Fund
in each year, assuming a specified tax rate. The taxable
equivalent total return of a Fund will therefore be
higher than its total return over the same period.
From time to time, a Fund may compare its risk-adjusted
performance with other investments that may provide dif-
ferent levels of risk and return. For example, a Fund may
compare its risk level, as measured by the variability of
its periodic returns, or its RISK-ADJUSTED TOTAL RETURN,
with those of other funds or groups of funds. Risk-ad-
justed total return would be calculated by adjusting each
investment's total return to account for the risk level of
the investment.
A 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 dis-
tributions of net realized capital gains and ordinary in-
come.
General. Any given performance quotation or performance
comparison for a Fund is based on historical earnings
and should not be considered as representative of the
performance of the Fund for any future period. See the
Statement of Additional Information for further informa-
tion concerning the Funds' performance. For information
as to current yield and other performance information
regarding the Funds, call Nuveen toll-free at 800-621-
7227.
A comparison of the current yield or historic perfor-
mance of a Fund to those of other investments is one el-
ement to consider in making an informed investment deci-
sion. Each Fund may from time to time in its
44
<PAGE>
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 mar-
ket funds. These taxable investments have investment
characteristics that differ from those of the Funds.
U.S. Government bonds, for example, are long-term in-
vestments backed by the full faith and credit of the
U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and
interest but are subject to fluctuating rollover rates.
Money market funds are short-term investments with sta-
ble net asset values, fluctuating yields and special
features enhancing liquidity. Additionally, each Fund
may compare its current yield or total return history
with a widely-followed, unmanaged municipal market index
such as the Bond Buyer 20 Index, the Merrill Lynch 500
Municipal Market Index or the Lehman Brothers Municipal
Bond Index. Comparative performance information may also
be used from time to time in advertising or marketing a
Fund's shares, including data from Lipper Analytical
Services, Inc., Morningstar, Inc. and other industry
publications.
DISTRIBUTIONS AND TAXES
HOW THE FUNDS PAY Each Fund will pay monthly dividends to shareholders at
DIVIDENDS a level rate that reflects the past and projected net
income of the Fund and that results, over time, in the
distribution of substantially all of the Fund's net in-
come. Net income of each Fund consists of all interest
income accrued on its portfolio less all expenses of
Nuveen Tax-Free Bond Fund, Inc. accrued daily that are
applicable to that Fund. To maintain a more stable
monthly distribution, each 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 distribu-
tions, which might otherwise have been reduced by a de-
crease in a Fund's monthly net income due to fluctua-
tions in investment income or expenses. As a result, the
distributions paid by a Fund for any particular monthly
period may be more or less than the amount of net income
actually earned by a Fund during such period. Undistrib-
uted net income is included in a Fund's net asset value
and, correspondingly, distributions from previously un-
distributed net income are deducted from a Fund's net
asset value. It is not expected that this dividend pol-
icy will impact the management of the Funds' portfolios.
Each Fund pays
monthly
dividends.
Dividends paid by a 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 expense relating to a specific class of shares
will be borne exclu-
45
<PAGE>
sively by that class. As a result, dividends per share
will vary among a Fund's classes of shares.
Each Fund will declare dividends on the 9th of each
month (or if the 9th is not a business day, on the imme-
diately 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 Directors without prior notice to or ap-
proval by shareholders. Dividends will be paid on the
first business day of the following month and are rein-
vested in additional shares of a Fund at net asset value
unless you have elected that your dividends be paid in
cash. Net realized capital gains, if any, will be paid
not less frequently than annually and will be reinvested
at net asset value in additional shares of the Fund un-
less you have elected to receive capital gains distribu-
tions in cash.
TAX MATTERS The following federal and state tax discussion, together
with the additional information on state taxes in Appen-
dix A, is intended to provide you with an overview of
the impact on the Funds and their shareholders of fed-
eral as well as state and local income tax provisions.
These tax provisions are subject to change by legisla-
tive or administrative action, and any changes may be
applied retroactively. Because the Funds' taxes are a
complex matter, you should consult your tax adviser for
more detailed information concerning the taxation of the
Funds and the federal, state and local tax consequences
to Fund shareholders.
Income dividends Federal Income Tax. Each Fund intends to qualify, as it
are free from has in prior years, under Subchapter M of the Internal
regular federal Revenue Code of 1986, as amended (the "Code") for tax
income tax. treatment as a regulated investment company. In order to
qualify for treatment as a regulated investment company,
a Fund must satisfy certain requirements relating to the
sources of its income, diversification of its assets and
distribution of its income to shareholders. As a regu-
lated investment company, a Fund will not be subject to
federal income tax on the portion of its net investment
income and net realized capital gains that is currently
distributed to shareholders. Each Fund also intends 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 income tax on
Fund dividends you receive from income on Municipal Ob-
ligations.
Your share of a 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 in-
come. If a Fund purchases a Municipal Obligation at a
market discount, any gain realized by the Fund upon sale
or redemp-
46
<PAGE>
tion of the Municipal Obligation will be treated as tax-
able ordinary 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 shares of a Fund.
You are required to pay tax on all taxable distributions
even if these distributions are automatically reinvested
in additional 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 a Fund qualifies as a regulated investment com-
pany under the Code, distributions will not qualify for
the dividends received deduction for corporate share-
holders. Investors should consider the tax implications
of buying shares immediately 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 distribution (unless it is exempt
from tax) even though the distribution represents a re-
turn of a portion of the purchase price.
If in any year a Fund should fail to qualify under
Subchapter M for tax treatment as a regulated investment
company, the Fund would incur a regular corporate fed-
eral 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 in-
vestments, such as shares of a Fund. Under Internal Rev-
enue Service rules, the purchase of Fund shares may be
considered to have been made with borrowed monies even
though those monies are not directly traceable to the
purchase of those shares.
Because the net asset value of each Fund's shares in-
cludes net tax-exempt interest earned by the Fund but
not yet declared as an exempt-interest dividend, each
time an exempt-interest dividend is declared, the net
asset value of the Fund's shares will decrease in an
amount equal to the amount of the dividend. Accordingly,
if you redeem shares of a Fund immediately prior to or
on the record date of a monthly exempt-interest divi-
dend, you may realize a taxable gain even though a por-
tion of the redemption proceeds may represent your pro
rata share of undistributed tax-exempt 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 shares
of a Fund held for six months or less will be
47
<PAGE>
disallowed to the extent of any distribution of exempt-
interest dividends 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
benefits 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 Funds may invest in private activity bonds, the in-
terest 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 Funds may not be appropriate investments
for you if you are considered either a substantial user
or a related person.
Each Fund may invest up to 20% of its net assets in AMT
Bonds, the interest on which is a specific tax prefer-
ence item for purposes of computing the alternative min-
imum tax on corporations and individuals. If your tax
liability is determined under the alternative minimum
tax, you will be taxed on your share of a Fund's exempt-
interest dividends that were paid from income earned on
AMT Bonds. In addition, the alternative minimum taxable
income for corporations is increased by 75% of the dif-
ference between an alternative measure of income ("ad-
justed current earnings") and the amount otherwise de-
termined to be the alternative 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 ad-
justed current earnings.
Each Fund is required in certain circumstances to with-
hold 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 identifica-
tion number (in the case of individuals, their social
security number) and certain certifications, or who are
otherwise subject to back-up withholding.
Each January, your Fund will notify you of the amount
and tax status of Fund distributions for the preceding
year.
State Income Tax Matters. Under the laws of the respec-
Dividends are tive state of each Fund, exempt-interest dividends (as
free from determined for federal income tax purposes) you receive
applicable state from income earned by the Fund on Municipal Obligations
personal income issued by the Fund's respective state or a political
tax. subdivision thereof generally will be exempt from that
state's applicable personal income tax. The exemption
from state personal income tax applies whether you re-
ceive a Fund's dividends in cash or reinvest them in ad-
ditional
48
<PAGE>
shares of the Fund. Dividends paid by a Fund represent-
ing interest payments on particular categories of Munic-
ipal Obligations may, under some circumstances, also be
exempt from income taxes imposed by political subdivi-
sions of that Fund's respective state.
Because other special tax rules may apply, you are
encouraged to review Appendix A to this Prospectus and the
Statement of Additional Information for further
information concerning the effect of applicable state or
local taxes.
NET ASSET VALUE
Net asset value Net asset value of the shares of a 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 out-
standing. The net asset value per share is expected to
vary among a Fund's Class A Shares, Class C Shares and
Class R Shares, principally due to the differences in
sales charges, distribution and service fees and other
class expenses borne by each class.
Net asset value of the shares of each Fund will be de-
termined by United States Trust Company of New York, the
Funds' custodian, as of 4:00 p.m. eastern time on each
day the New York Stock Exchange is normally open for
trading. In determining the net asset value, the custo-
dian uses the valuations of portfolio securities fur-
nished by a pricing service approved by the Board of Di-
rectors. The pricing service values portfolio securities
at the mean between the quoted bid and asked prices or
the yield equivalent when quotations are readily avail-
able. Securities for which quotations are not readily
available (which are expected to constitute a majority
of the securities held by the Funds) are valued at fair
value as determined by the pricing service using methods
that include consideration of the following: yields or
prices of municipal bonds of comparable quality, type of
issue, coupon, maturity and rating; indications as to
value from securities dealers; and general market condi-
tions. The pricing service may employ electronic data
processing techniques and/or a matrix system to deter-
mine valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of
Nuveen Tax-Free Bond Fund, Inc. under the general super-
vision of its Board of Directors.
49
<PAGE>
GENERAL INFORMATION
If you have any questions about the Funds 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 Funds is
United States Trust Company of New York, 114 West 47th
Street, New York, NY 10036. The Chase Manhattan Bank,
N.A., 1 Chase Manhattan Plaza, New York, NY 10081, has
agreed to become successor to U.S. Trust, as Custodian
and Fund Accountant. The succession is presently sched-
uled for July 1, 1995. No changes in the Funds' adminis-
tration or in the amount of fees and expenses paid by
the Funds for these services will result, and no action
by shareholders will be required. The Funds' transfer,
shareholder services and dividend paying agent, Share-
holder Services, Inc., P.O. Box 5330, Denver, CO 80217-
5330, performs bookkeeping, data processing and adminis-
trative services for the maintenance of shareholder ac-
counts.
Organization. Nuveen Tax-Free Bond Fund, Inc. is an
open-end diversified management series investment com-
pany under the Investment Company Act of 1940. Each Fund
constitutes a separate series of Nuveen Tax-Free Bond
Fund, Inc. and is itself an open-end diversified manage-
ment mutual fund. Nuveen Tax-Free Bond Fund, Inc. was
incorporated in Minnesota on July 11, 1986. It is cur-
rently authorized to issue an aggregate of 2,000,000,000
shares of common stock, $.01 par value, consisting of
500,000,000 shares of the Nuveen Massachusetts Tax-Free
Value Fund, 500,000,000 shares of the Nuveen New York
Tax-Free Value Fund, 500,000,000 shares of the Nuveen
Ohio Tax-Free Value Fund, and 500,000,000 shares to be
issued in such classes or series as the Board of Direc-
tors may determine. Each Fund's shares of common stock
are 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 port-
folio of investments and has equal rights as to voting,
redemption, dividends and liquidation, except that each
bears different class expenses, including different dis-
tribution and service fees, and each has exclusive vot-
ing rights with respect to any distribution or service
plan applicable to its shares. There are no conversion,
preemptive or other subscription rights, except that
Class C Shares of a Fund automatically convert into
Class A Shares of the same Fund, as described above. The
Board of Directors has the right to establish additional
series and classes of shares in the future, to change
those series or classes and to determine the prefer-
ences, voting powers, rights and privileges thereof.
The Funds are not required and do not intend to hold an-
nual meetings of shareholders. Shareholders owning more
than 10% of the outstanding shares of a Fund have the
right to call a special meeting to remove directors or
for any other purpose.
50
<PAGE>
APPENDIX A--SPECIAL STATE FACTORS AND STATE TAX TREATMENT
SPECIAL FACTORS PERTAINING TO EACH FUND
The following information is a brief summary of special
factors that affect the risk of investing in Municipal
Obligations issued within each Fund's state. This infor-
mation was obtained from official statements of issuers
located in these states as well as from other publicly
available official documents and statements and is not
intended to be a complete description. The Funds have
not independently verified any of the information con-
tained in these statements and documents. See the State-
ment of Additional Information for further information
relating to current political, economic or regulatory
risk factors as well as information relating to legal
proceedings which may adversely affect a state's finan-
cial position.
MASSACHUSETTS In recent years, the Commonwealth of Massachusetts and
certain of its public bodies and municipalities, partic-
ularly the City of Boston, have faced serious financial
difficulties which have affected the credit standing and
borrowing abilities of Massachusetts and these respec-
tive entities and may have contributed to higher inter-
est rates on debt obligations. As a result of these dif-
ficulties, the rating agencies lowered the credit rat-
ings on Massachusetts general obligation bonds several
times during 1989 and 1990. Since then, both S&P and
Moody's have upgraded Massachusetts general obligation
bonds several times. As of the date of this Prospectus,
the uninsured general obligation bonds carry a rating of
A+ by S&P and A1 by Moody's. Since 1988, there has been
a significant slowdown in the Commonwealth's economy, as
indicated by a rise in unemployment, a slowing of its
per capita income growth and a trend in declining state
revenues. In fiscal 1991, the Commonwealth's expendi-
tures for state government programs exceeded current
revenues, and although fiscal 1992, 1993 and 1994 re-
sults indicate that revenues exceeded expenditures, no
assurance can be given that lower than expected tax rev-
enues will not resume and continue. The continuation of,
or an increase in, the financial difficulties of the
Commonwealth and its public bodies and municipalities,
or the development of a financial crisis relating to
these entities, could result in declines in the market
value of, or default on, existing obligations issued by
governmental authorities in the state of Massachusetts,
including Municipal Obligations held by the Massachu-
setts Fund. Many factors, in addition to those cited
above do or may have a bearing upon the financial condi-
tion of the Commonwealth, including social and economic
conditions, many of which are not within the control of
the Commonwealth.
<PAGE>
NEW YORK New York State has historically been one of the wealthi-
est states in the nation. For decades, however, the
State's economy has grown more slowly than that of the
nation as a whole, gradually eroding the State's rela-
tive economic affluence. Statewide, urban centers have
experienced significant changes involving migration of
the more affluent to the suburbs and an influx of gener-
ally less affluent residents. Regionally, the older
Northeast cities have suffered because of the relative
success that the South and the West have had in at-
tracting people and business. New York City has faced
greater competition as other major cities have developed
financial and business resources which make them less
dependent on the specialized services traditionally
available almost exclusively in New York City, which has
had an additional negative impact on New York City's re-
covery. The State has for many years had a very high
State and local tax burden relative to other states. The
burden of State and local taxation, in combination with
the many other causes of regional economic dislocation,
has contributed to the decisions of some businesses and
individuals to relocate outside, or not locate within,
the State.
Economic recovery started considerably later in the
State than in the nation as a whole, due in part to a
significant retrenchment in the banking and financial
services industry, cutbacks in defense spending, and an
overbuilt real estate market. The State has projected
the rate of economic growth to slow within New York dur-
ing 1995 as the expansion of the national economy moder-
ates.
The State ended its 1993-94 fiscal year with an operat-
ing surplus of approximately $1.0 billion. The State
Legislature enacted the State's 1994-95 fiscal year bud-
get on June 7, 1994, more than two months after the
start of that fiscal year.
As of February 1, 1995, the updated 1994-95 State Finan-
cial Plan (the "Plan") projected total general fund re-
ceipts and disbursements of $33.3 billion and $33.5 bil-
lion, respectively, representing reductions in receipts
and disbursements of $1 billion and $743 million, re-
spectively, from the amounts set forth in the 1994-95
State budget, as adopted by the legislature. The Plan
projected a General Fund balance of approximately $157
million at the close of the 1994-95 fiscal year.
The Governor issued a proposed State budget for the
1995-96 fiscal year on February 1, 1995, which projected
a balanced general fund and receipts and disbursements
of $32.5 billion and $32.4 billion, respectively. As of
April 17, 1995, the State legislature had not yet en-
acted, nor had the Governor and the legislature reached
an agreement on, the budget for the 1995-96 fiscal year
commencing on April 1, 1995. The delay in the
A-2
<PAGE>
enactment of the budget may negatively affect certain
proposed actions and reduce projected savings.
Following enactment of the State's 1994-95 fiscal year
budget, New York City adopted a 1995 fiscal year budget
on June 21, 1994, which provided for $31.6 billion in
spending. However, following adoption of that New York
City budget, unexpected budget gaps totalling approxi-
mately $2.0 billion for the 1995 fiscal year were iden-
tified and the Mayor imposed additional spending cuts.
In January 1995, in response to the City's plan to bor-
row $120 million to refund debt due in February without
imposing additional cuts, S&P placed the City on nega-
tive credit watch and indicated that it would consider a
possible downgrade of the City's general obligation debt
in April 1995. On February 2, 1995, the Mayor outlined
his proposed $30.5 billion budget for the 1996 fiscal
year which included $2.7 billion of deficit reduction
measures, almost half of which are dependent upon State
actions in the 1996 fiscal year. The Governor and the
legislature have not agreed upon the level of State aid
to the City during the 1996 fiscal year and there can be
no assurances that further cuts will not be necessary to
close additional budget gaps once a State budget is
adopted. If State aid in later years is less than the
levels projected in the Mayor's proposal, projected sav-
ings may be negatively impacted and the Mayor may be re-
quired to propose significant additional spending reduc-
tions or tax increases to balance the City's budget for
the 1996 and later fiscal years. If the State, the State
agencies, New York City, other municipalities or school
districts were to suffer serious financial difficulties
jeopardizing their respective access to the public
credit markets, or increasing the risk of a default, the
market price of Municipal Obligations issued by such en-
tities could be adversely affected.
OHIO The Ohio economy, while diversifying more into the serv-
ice and other non-manufacturing areas, continues to rely
in part on durable goods manufacturing largely concen-
trated in motor vehicles and equipment, steel, rubber
products and household appliances. As a result, general
economic activity in Ohio, as in many other industrial-
ly-developed states, tends to be more cyclical than in
some other states and in the nation as a whole. Agricul-
ture is an important segment of the State's economy,
with over half the State's area devoted to farming and
approximately 15% of total employment in agribusiness.
In prior years, the State's overall unemployment rate
was usually somewhat higher than the national figure.
For example, the reported 1990 average monthly State
rate was 5.7%, compared to the 5.5% national figure.
However, for the last four years the State rates were
below the
A-3
<PAGE>
national rates (5.5% versus 6.1% in 1994, based on pre-
liminary figures). The unemployment rate, and its ef-
fects, vary among particular geographic areas of the
State.
There can be no assurance that future national, regional
or state-wide economic difficulties, and the resulting
impact on State or local government finances generally,
will not adversely affect the market value of Municipal
Obligations held in the portfolio of the Ohio Fund or
the ability of particular obligors to make timely pay-
ments of debt service on (or lease payments relating to)
those Municipal Obligations.
DESCRIPTION OF STATE TAX TREATMENT
The following state tax information applicable to a Fund
or its shareholders is based upon the advice of the
Fund's special state tax counsel, and represents a sum-
mary of certain provisions of each state's tax laws
presently in effect. These provisions are subject to
change by legislative or administrative action, which
may be applied retroactively to Fund transactions. The
state tax information below assumes that each Fund qual-
ifies as a regulated investment company for federal in-
come tax purposes under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that
amounts so designated by each Fund to its shareholders
qualify as "exempt-interest dividends" under Section
852(b)(5) of the Code. You should consult your own tax
adviser for more detailed information concerning state
taxes to which you may be subject.
MASSACHUSETTS Individual shareholders of the Massachusetts Fund who
are subject to Massachusetts income taxation will not be
required to include that portion of their federally tax-
exempt dividends in Massachusetts gross income which the
Massachusetts Fund clearly identifies as directly at-
tributable to interest earned on Municipal Obligations
issued by governmental authorities in Massachusetts
which are specifically exempted from income taxation in
Massachusetts, provided such dividends are identified in
a timely written notice mailed to shareholders of the
Massachusetts Fund, or interest earned on obligations of
certain U.S. territories or possessions. Similarly, such
shareholders will not be required to include in Massa-
chusetts gross income capital gain dividends designated
by the Massachusetts Fund to the extent such dividends
are attributable to gains derived from Municipal Obliga-
tions issued by Massachusetts governmental authorities
and are specifically exempted from income taxation in
Massachusetts, provided such dividends are identified in
a timely written notice mailed to shareholders of the
Massachusetts Fund. Lastly, any dividends of the Massa-
chusetts Fund attributable to interest on U.S. obliga-
tions exempt from state
A-4
<PAGE>
taxation and included in Federal gross income will not
be included in Massachusetts gross income, provided such
dividends are identified in a timely written notice
mailed to shareholders of the Massachusetts Fund. Indi-
vidual shareholders of the Massachusetts Fund will be
required to include all remaining dividends in their
Massachusetts income.
With respect to corporate shareholders of the Massachu-
setts Fund that are subject to the Massachusetts excise
tax, dividends received from the Massachusetts Fund are
includable in gross income and generally may not be de-
ducted by corporate shareholders in computing their net
income, and the net worth base of an intangible property
corporation includes the corporate shareholders' shares
in the Massachusetts Fund.
NEW YORK Individual shareholders of the New York Fund who are
subject to New York State or New York City personal in-
come taxation will not be required to include in their
New York adjusted gross income that portion of their ex-
empt-interest dividends (as determined for federal in-
come tax purposes) which the New York Fund clearly iden-
tifies as directly attributable to interest earned on
Municipal Obligations issued by governmental authorities
in New York ("New York Municipal Obligations") and which
are specifically exempted from personal income taxation
in New York State or New York City, or interest earned
on obligations of U.S. territories or possessions that
is exempt from taxation by the states pursuant to fed-
eral law. Distributions to individual shareholders of
dividends derived from interest that does not qualify as
exempt-interest dividends (as determined for federal in-
come tax purposes), distributions of exempt-interest
dividends (as determined for federal income tax purpos-
es) which are derived from interest on Municipal Obliga-
tions issued by governmental authorities in states other
than New York State, and distributions derived from in-
terest earned on federal obligations will be included in
their New York adjusted gross income as ordinary income.
Distributions to individual shareholders of the New York
Fund of capital gain dividends (as determined for fed-
eral income tax purposes) will be included in their New
York adjusted gross income as long-term capital gains.
Distributions to individual shareholders of the New York
Fund of dividends derived from any net income received
from taxable temporary investments and any net short-
term capital gains realized by the New York Fund will be
included in their New York adjusted gross income as or-
dinary income.
For purposes of New York State franchise taxation (or
New York City general corporation taxation), entire in-
come will include dividends received from the New York
Fund (as determined for federal income tax purposes), as
well as any gain or loss recognized from an exchange or
redemption of shares of the New York Fund that is recog-
nized for federal
A-5
<PAGE>
income tax purposes, and investment capital will include
a corporate shareholder's shares of the New York Fund.
If a shareholder of the New York Fund is subject to the
New York City unincorporated business tax, income and
gains derived from the New York Fund will be subject to
such tax, except for exempt-interest dividends (as de-
termined for federal in-
come tax purposes) which the New York Fund clearly iden-
tifies as directly attributable to interest earned on
New York Municipal Obligations.
OHIO Shareholders of the Ohio Fund who are otherwise subject
to the Ohio personal income tax will not be subject to
such tax on distributions with respect to shares of the
Ohio Fund to the extent that such distributions are
properly attributable to interest on or gain from the
sale of interest-bearing obligations issued by or on be-
half of the State of Ohio, political subdivisions
thereof and agencies and instrumentalities of the State
or its political subdivisions ("Ohio Obligations"), pro-
vided that the Ohio Fund continues to qualify as a regu-
lated investment company for federal income tax purposes
and that at all times at least 50% of the value of the
total assets of the Ohio Fund consists of Ohio Obliga-
tions or similar obligations of other states or their
subdivisions. It is assumed for purposes of this discus-
sion of Ohio taxation that these requirements are satis-
fied.
Shareholders that are otherwise subject to the Ohio cor-
poration franchise tax computed on the net income basis
will not be subject to such tax on distributions with
respect to shares of the Ohio Fund to the extent that
these distributions either (a) are properly attributable
to interest on or gain from the sale of Ohio Obliga-
tions, or (b) represent "exempt-interest dividends" for
federal income tax purposes. Shares of the Ohio Fund
will be included in a shareholder's tax base for pur-
poses of computing the Ohio corporation franchise tax on
the net worth basis.
Distributions by the Ohio Fund that are properly attrib-
utable to interest on obligations of the U.S. or the
governments of Puerto Rico, the Virgin Islands or Guam
or their authorities or municipalities are exempt from
the Ohio personal income tax and are excluded from the
net income base of the Ohio corporation franchise tax to
the same extent that such interest would be so exempt or
excluded if the obligations were held directly by the
shareholders.
A-6
<PAGE>
APPENDIX B--TAXABLE EQUIVALENT YIELD TABLES
TAXABLE The following tables show the combined effects for indi-
EQUIVALENT YIELD viduals of federal, state and local (if applicable) in-
TABLES AND THE come taxes on:
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 combined tax
rate would have to put into a tax-free investment in
order to generate the same after-tax income as a tax-
able 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 Funds occasionally may adver-
tise their performance in similar tables using other
current combined tax rates than those shown here. The
combined tax rates used in these tables have been
rounded to the nearest one-half of one percent. They are
based upon published 1995 marginal federal tax rates and
marginal state tax rates currently available and sched-
uled to be in effect, and do not take into account
changes in tax rates that are proposed from time to
time. They are calculated using the highest state tax
rate applicable within each federal bracket, and assume
taxpayers are not subject to any alternative minimum
taxes and deduct any state income taxes paid on their
federal income tax returns. They also reflect the cur-
rent federal tax limitations on itemized deductions and
personal exemptions, which may raise the effective tax
rate and taxable equivalent yield for taxpayers above
certain income levels. The combined tax rates shown here
may be higher or lower than your actual combined tax
rate. A higher combined tax rate would tend to make the
dollar amounts in the third table lower, while a lower
combined tax rate would make the amounts higher. You
should consult your tax adviser to determine your actual
combined tax rate.
<PAGE>
MASSACHUSETTS
COMBINED MARGINAL
TAX RATES FOR
JOINT TAXPAYERS
WITH FOUR
PERSONAL
EXEMPTIONS
<TABLE>
<CAPTION>
Federal Combined
Federal Adjusted State
Taxable Gross and 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 25.0% 4.67 5.33 6.00 6.67 7.33 8.00 8.67
----------------------------------------------------------------------
39.0-94.3 0-114.7 36.5 5.51 6.30 7.09 7.87 8.66 9.45 10.24
----------------------------------------------------------------------
114.7-172.1 37.5 5.60 6.40 7.20 8.00 8.80 9.60 10.40
----------------------------------------------------------------------
94.3-143.6 0-114.7 39.5 5.79 6.61 7.44 8.26 9.09 9.92 10.74
----------------------------------------------------------------------
114.7-172.1 40.0 5.83 6.67 7.50 8.33 9.17 10.00 10.83
----------------------------------------------------------------------
172.1-294.6 42.5 6.09 6.96 7.83 8.70 9.57 10.43 11.30
----------------------------------------------------------------------
143.6-256.5 114.7-172.1 44.5 6.31 7.21 8.11 9.01 9.91 10.81 11.71
----------------------------------------------------------------------
172.1-294.6 47.0 6.60 7.55 8.49 9.43 10.38 11.32 12.26
----------------------------------------------------------------------
Over 294.6 44.5 6.31 7.21 8.11 9.01 9.91 10.81 11.71
----------------------------------------------------------------------
Over 256.5 172.1-294.6 50.5 7.07 8.08 9.09 10.10 11.11 12.12 13.13
----------------------------------------------------------------------
Over 294.6 48.0 6.73 7.69 8.65 9.62 10.58 11.54 12.50
</TABLE>
COMBINED MARGINAL
TAX RATES FOR
SINGLE TAXPAYERS
WITH ONE PERSONAL
EXEMPTION
<TABLE>
<CAPTION>
Federal Combined
Federal Adjusted State
Taxable Gross and 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 25.0% 4.67 5.33 6.00 6.67 7.33 8.00 8.67
--------------------------------------------------------------------
23.4-
56.6 0-114.7 36.5 5.51 6.30 7.09 7.87 8.66 9.45 10.24
--------------------------------------------------------------------
56.6-
118.0 0-114.7 39.5 5.79 6.61 7.44 8.26 9.09 9.92 10.74
--------------------------------------------------------------------
114.7-237.2 40.5 5.88 6.72 7.56 8.40 9.24 10.08 10.92
--------------------------------------------------------------------
118.0-
256.5 114.7-237.2 45.5 6.42 7.34 8.26 9.17 10.09 11.01 11.93
--------------------------------------------------------------------
Over 237.2 44.5 6.31 7.21 8.11 9.01 9.91 10.81 11.71
--------------------------------------------------------------------
Over
256.5 Over 237.2 48.0 6.73 7.69 8.65 9.62 10.58 11.54 12.50
</TABLE>
-----------------------------------------------------------
FOR AN EQUAL
AFTER-TAX RETURN,
YOUR
<TABLE>
<CAPTION>
3.5%
$50,000 TAX- 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
INVESTMENT FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPARE
4%
TAXABLE $34,571 $30,250 $26,889 $24,200 $22,000 $20,167 $18,615
-------------------------------------------------------------------
COMPARE
5%
TAXABLE $43,214 $37,813 $33,611 $30,250 $27,500 $25,208 $23,269
-------------------------------------------------------------------
COMPARE
6%
TAXABLE $51,857 $45,375 $40,333 $36,300 $33,000 $30,250 $27,923
-------------------------------------------------------------------
COMPARE
7%
TAXABLE $60,500 $52,938 $47,056 $42,350 $38,500 $35,292 $32,577
-------------------------------------------------------------------
COMPARE
8%
TAXABLE $69,143 $60,500 $53,778 $48,400 $44,000 $40,333 $37,231
</TABLE>
TAX-FREE
INVESTMENT MAY BE
LESS*
For example,
$50,000 in a 6%
taxable
investment earns
the same after-
tax return as
$36,300 in a 5%
tax-free Nuveen
investment.
-----------------------------------------------------------
*Dollar amounts in the table reflect a 39.5% combined
federal and state tax rate.
B-2
<PAGE>
NEW YORK STATE
COMBINED FEDERAL
AND NEW YORK
STATE MARGINAL
TAX RATES FOR
JOINT TAXPAYERS
WITH FOUR
PERSONAL
EXEMPTIONS
<TABLE>
<CAPTION>
Federal
Federal Adjusted Combined
Taxable Gross State and 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 $ 0-100.0 21.5% 4.46 5.10 5.73 6.37 7.01 7.64 8.28
----------------------------------------------------------------------
100.0-114.7 22.5 4.52 5.16 5.81 6.45 7.10 7.74 8.39
----------------------------------------------------------------------
39.0-94.3 0-100.0 33.5 5.26 6.02 6.77 7.52 8.27 9.02 9.77
----------------------------------------------------------------------
100.0-114.7 34.5 5.34 6.11 6.87 7.63 8.40 9.16 9.92
----------------------------------------------------------------------
114.7-150.0 35.0 5.38 6.15 6.92 7.69 8.46 9.23 10.00
----------------------------------------------------------------------
150.0-172.1 34.0 5.30 6.06 6.82 7.58 8.33 9.09 9.85
----------------------------------------------------------------------
94.3-143.6 0-100.0 36.0 5.47 6.25 7.03 7.81 8.59 9.38 10.16
----------------------------------------------------------------------
100.0-114.7 37.0 5.56 6.35 7.14 7.94 8.73 9.52 10.32
----------------------------------------------------------------------
114.7-150.0 38.0 5.65 6.45 7.26 8.06 8.87 9.68 10.48
----------------------------------------------------------------------
150.0-172.1 37.0 5.56 6.35 7.14 7.94 8.73 9.52 10.32
----------------------------------------------------------------------
172.1-294.6 39.5 5.79 6.61 7.44 8.26 9.09 9.92 10.74
----------------------------------------------------------------------
143.6-256.5 114.7-150.0 42.5 6.09 6.96 7.83 8.70 9.57 10.43 11.30
----------------------------------------------------------------------
150.0-172.1 42.0 6.03 6.90 7.76 8.62 9.48 10.34 11.21
----------------------------------------------------------------------
172.1-294.6 44.5 6.31 7.21 8.11 9.01 9.91 10.81 11.71
----------------------------------------------------------------------
Over 294.6 42.0 6.03 6.90 7.76 8.62 9.48 10.34 11.21
----------------------------------------------------------------------
Over 256.5 172.1-294.6 48.0 6.73 7.69 8.65 9.62 10.58 11.54 12.50
----------------------------------------------------------------------
Over 294.6 45.5 6.42 7.34 8.26 9.17 10.09 11.01 11.93
</TABLE>
COMBINED FEDERAL
AND NEW YORK
STATE MARGINAL
TAX RATES FOR
SINGLE TAXPAYERS
WITH ONE PERSONAL
EXEMPTION
<TABLE>
<CAPTION>
Federal
Federal Adjusted Combined
Taxable Gross State and 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 $ 0-100.0 21.5% 4.46 5.10 5.73 6.37 7.01 7.64 8.28
-----------------------------------------------------------------------
100.0-114.7 22.0 4.49 5.13 5.77 6.41 7.05 7.69 8.33
-----------------------------------------------------------------------
23.4-56.6 0-100.0 33.5 5.26 6.02 6.77 7.52 8.27 9.02 9.77
-----------------------------------------------------------------------
100.0-114.7 34.0 5.30 6.06 6.82 7.58 8.33 9.09 9.85
-----------------------------------------------------------------------
56.6-118.0 0-100.0 36.0 5.47 6.25 7.03 7.81 8.59 9.38 10.16
-----------------------------------------------------------------------
100.0-114.7 36.5 5.51 6.30 7.09 7.87 8.66 9.45 10.24
-----------------------------------------------------------------------
114.7-150.0 38.0 5.65 6.45 7.26 8.06 8.87 9.68 10.48
-----------------------------------------------------------------------
150.0-237.2 37.5 5.60 6.40 7.20 8.00 8.80 9.60 10.40
-----------------------------------------------------------------------
118.0-256.5 114.7-150.0 43.0 6.14 7.02 7.89 8.77 9.65 10.53 11.40
-----------------------------------------------------------------------
150.0-237.2 42.5 6.09 6.96 7.83 8.70 9.57 10.43 11.30
-----------------------------------------------------------------------
Over 237.2 42.0 6.03 6.90 7.76 8.62 9.48 10.34 11.21
-----------------------------------------------------------------------
Over 256.5 Over 237.2 45.5 6.42 7.34 8.26 9.17 10.09 11.01 11.93
</TABLE>
B-3
<PAGE>
FOR AN EQUAL
AFTER- -----------------------------------------------------------
<TABLE>
<CAPTION>
3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
TAX- TAX- TAX- TAX- TAX- TAX- TAX-
$50,000 INVESTMENT FREE FREE FREE FREE FREE FREE FREE
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPARE 4% TAXABLE $36,571 $32,000 $28,444 $25,600 $23,273 $21,333 $19,692
---------------------------------------------------------------------
COMPARE 5% TAXABLE $45,714 $40,000 $35,556 $32,000 $29,091 $26,667 $24,615
---------------------------------------------------------------------
COMPARE 6% TAXABLE $54,857 $48,000 $42,667 $38,400 $34,909 $32,000 $29,538
---------------------------------------------------------------------
COMPARE 7% TAXABLE $64,000 $56,000 $49,778 $44,800 $40,727 $37,333 $34,462
---------------------------------------------------------------------
COMPARE 8% TAXABLE $73,143 $64,000 $56,889 $51,200 $46,545 $42,667 $39,385
</TABLE>
TAX RETURN, YOUR
TAX-FREE INVESTMENT
MAY BE LESS*
For example,
$50,000 in a 6%
taxable
investment earns
the same after-
tax return as
$38,400 in a 5%
tax-free Nuveen
investment.
-----------------------------------------------------------
*The dollar amounts in the table reflect a 36.0% com-
bined federal and state tax rate.
B-4
<PAGE>
NEW YORK STATE AND NEW YORK CITY
COMBINED FEDERAL,
<TABLE>
<CAPTION>
Federal
Federal Adjusted Combined
Taxable Gross State and 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 $ 0-100.0 25.0% 4.67 5.33 6.00 6.67 7.33 8.00 8.67
-----------------------------------------------------------------------
100.0-114.7 26.0 4.73 5.41 6.08 6.76 7.43 8.11 8.78
-----------------------------------------------------------------------
39.0-94.3 0-100.0 36.5 5.51 6.30 7.09 7.87 8.66 9.45 10.24
-----------------------------------------------------------------------
100.0-114.7 37.5 5.60 6.40 7.20 8.00 8.80 9.60 10.40
-----------------------------------------------------------------------
114.7-150.0 38.0 5.65 6.45 7.26 8.06 8.87 9.68 10.48
-----------------------------------------------------------------------
150.0-172.1 37.5 5.60 6.40 7.20 8.00 8.80 9.60 10.40
-----------------------------------------------------------------------
94.3-143.6 0-100.0 39.5 5.79 6.61 7.44 8.26 9.09 9.92 10.74
-----------------------------------------------------------------------
100.0-114.7 40.0 5.83 6.67 7.50 8.33 9.17 10.00 10.83
-----------------------------------------------------------------------
114.7-150.0 41.0 5.93 6.78 7.63 8.47 9.32 10.17 11.02
-----------------------------------------------------------------------
150.0-172.1 40.0 5.83 6.67 7.50 8.33 9.17 10.00 10.83
-----------------------------------------------------------------------
172.1-294.6 42.5 6.09 6.96 7.83 8.70 9.57 10.43 11.30
-----------------------------------------------------------------------
143.6-256.5 114.7-150.0 45.5 6.42 7.34 8.26 9.17 10.09 11.01 11.93
-----------------------------------------------------------------------
150.0-172.1 44.5 6.31 7.21 8.11 9.01 9.91 10.81 11.71
-----------------------------------------------------------------------
172.1-294.6 47.0 6.60 7.55 8.49 9.43 10.38 11.32 12.26
-----------------------------------------------------------------------
Over 294.6 44.5 6.31 7.21 8.11 9.01 9.91 10.81 11.71
-----------------------------------------------------------------------
Over 256.5 172.1-294.6 50.5 7.07 8.08 9.09 10.10 11.11 12.12 13.13
-----------------------------------------------------------------------
Over 294.6 48.0 6.73 7.69 8.65 9.62 10.58 11.54 12.50
</TABLE>
NEW YORK STATE
AND NEW YORK CITY
MARGINAL TAX
RATES FOR JOINT
TAXPAYERS WITH
FOUR PERSONAL
EXEMPTIONS
COMBINED FEDERAL,
<TABLE>
<CAPTION>
Federal
Federal Adjusted Combined
Taxable Gross State and 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 $ 0-100.0 25.0% 4.67 5.33 6.00 6.67 7.33 8.00 8.67
-----------------------------------------------------------------------
100.0-114.7 25.5 4.70 5.37 6.04 6.71 7.38 8.05 8.72
-----------------------------------------------------------------------
23.4-56.6 0-100.0 36.5 5.51 6.30 7.09 7.87 8.66 9.45 10.24
-----------------------------------------------------------------------
100.0-114.7 37.0 5.56 6.35 7.14 7.94 8.73 9.52 10.32
-----------------------------------------------------------------------
56.6-118.0 0-100.0 39.5 5.79 6.61 7.44 8.26 9.09 9.92 10.74
-----------------------------------------------------------------------
100.0-114.7 39.5 5.79 6.61 7.44 8.26 9.09 9.92 10.74
-----------------------------------------------------------------------
114.7-150.0 41.0 5.93 6.78 7.63 8.47 9.32 10.17 11.02
-----------------------------------------------------------------------
150.0-237.2 40.5 5.88 6.72 7.56 8.40 9.24 10.08 10.92
-----------------------------------------------------------------------
118.0-256.5 114.7-150.0 45.5 6.42 7.34 8.26 9.17 10.09 11.01 11.93
-----------------------------------------------------------------------
150.0-237.2 45.5 6.42 7.34 8.26 9.17 10.09 11.01 11.93
-----------------------------------------------------------------------
Over 237.2 44.5 6.31 7.21 8.11 9.01 9.91 10.81 11.71
-----------------------------------------------------------------------
Over 256.5 Over 237.2 48.0 6.73 7.69 8.65 9.62 10.58 11.54 12.50
</TABLE>
NEW YORK STATE
AND NEW YORK CITY
MARGINAL TAX
RATES
FOR SINGLE
TAXPAYERS
WITH ONE PERSONAL
EXEMPTION
B-5
<PAGE>
FOR AN EQUAL -----------------------------------------------------------
AFTER- <TABLE>
<CAPTION>
3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
$50,000 TAX- TAX- TAX- TAX- TAX- TAX- TAX-
INVESTMENT FREE FREE FREE FREE FREE FREE FREE
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPARE 4%
TAXABLE $34,571 $30,250 $26,889 $24,200 $22,000 $20,167 $18,615
-------------------------------------------------------------
COMPARE 5%
TAXABLE $43,214 $37,813 $33,611 $30,250 $27,500 $25,208 $23,269
-------------------------------------------------------------
COMPARE 6%
TAXABLE $51,857 $45,375 $40,333 $36,300 $33,000 $30,250 $27,923
-------------------------------------------------------------
COMPARE 7%
TAXABLE $60,500 $52,938 $47,056 $42,350 $38,500 $35,292 $32,577
-------------------------------------------------------------
COMPARE 8%
TAXABLE $69,143 $60,500 $53,778 $48,400 $44,000 $40,333 $37,231
</TABLE>
TAX RETURN, YOUR
TAX-FREE
INVESTMENT
MAY BE LESS*
For example,
$50,000 in a 6%
taxable
investment earns
the same after-
tax return as
$36,300 in a 5%
tax-free Nuveen
investment.
-----------------------------------------------------------
*The dollar amounts in the table reflect a 39.5% combined
federal, state and New York City tax rate.
B-6
<PAGE>
OHIO
COMBINED MARGINAL
TAX RATES FOR
JOINT TAXPAYERS
WITH FOUR
PERSONAL
EXEMPTIONS
<TABLE>
<CAPTION>
Federal
Federal Adjusted Combined
Taxable Gross State and 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 19.0% 4.32 4.94 5.56 6.17 6.79 7.41 8.02
-----------------------------------------------------------------------
39.0-94.3 0-114.7 32.5 5.19 5.93 6.67 7.41 8.15 8.89 9.63
-----------------------------------------------------------------------
114.7-167.7 33.0 5.22 5.97 6.72 7.46 8.21 8.96 9.70
-----------------------------------------------------------------------
94.3-143.6 0-114.7 36.0 5.47 6.25 7.03 7.81 8.59 9.38 10.16
-----------------------------------------------------------------------
114.7-172.1 36.5 5.51 6.30 7.09 7.87 8.66 9.45 10.24
-----------------------------------------------------------------------
172.1-294.6 39.0 5.74 6.56 7.38 8.20 9.02 9.84 10.66
-----------------------------------------------------------------------
143.6-256.5 114.7-172.1 42.0 6.03 6.90 7.76 8.62 9.48 10.34 11.21
-----------------------------------------------------------------------
172.1-294.6 44.5 6.31 7.21 8.11 9.01 9.91 10.81 11.71
-----------------------------------------------------------------------
Over 294.6 42.0 6.03 6.90 7.76 8.62 9.48 10.34 11.21
-----------------------------------------------------------------------
Over 256.5 172.1-294.6 48.0 6.73 7.69 8.65 9.62 10.58 11.54 12.50
-----------------------------------------------------------------------
Over 294.6 45.0 6.36 7.27 8.18 9.09 10.00 10.91 11.82
</TABLE>
COMBINED MARGINAL
TAX RATES FOR
SINGLE TAXPAYERS
WITH ONE PERSONAL
EXEMPTION
<TABLE>
<CAPTION>
Federal
Federal Adjusted Combined
Taxable Gross State and 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 19.0% 4.32 4.94 5.56 6.17 6.79 7.41 8.02
-----------------------------------------------------------------------
23.4-56.6 0-114.7 31.5 5.11 5.84 6.57 7.30 8.03 8.76 9.49
-----------------------------------------------------------------------
56.6-118.0 0-114.7 36.0 5.47 6.25 7.03 7.81 8.59 9.38 10.16
-----------------------------------------------------------------------
114.7-237.2 37.0 5.56 6.35 7.14 7.94 8.73 9.52 10.32
-----------------------------------------------------------------------
118.0-256.5 114.7-237.2 42.5 6.09 6.96 7.83 8.70 9.57 10.43 11.30
-----------------------------------------------------------------------
Over 237.2 42.0 6.03 6.90 7.76 8.62 9.48 10.34 11.21
-----------------------------------------------------------------------
Over 256.5 Over 237.2 45.0 6.36 7.27 8.18 9.09 10.00 10.91 11.82
</TABLE>
FOR AN EQUAL -----------------------------------------------------------
AFTER- <TABLE>
<CAPTION>
3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
$50,000 INVESTMENT TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPARE 4% TAXABLE $36,571 $32,000 $28,444 $25,600 $23,273 $21,333 $19,692
----------------------------------------------------------------------------
COMPARE 5% TAXABLE $45,714 $40,000 $35,556 $32,000 $29,091 $26,667 $24,615
----------------------------------------------------------------------------
COMPARE 6% TAXABLE $54,857 $48,000 $42,667 $38,400 $34,909 $32,000 $29,538
----------------------------------------------------------------------------
COMPARE 7% TAXABLE $64,000 $56,000 $49,778 $44,800 $40,727 $37,333 $34,462
----------------------------------------------------------------------------
COMPARE 8% TAXABLE $73,143 $64,000 $56,889 $51,200 $46,545 $42,667 $39,385
----------------------------------------------------------------------------
</TABLE>
TAX RETURN, YOUR
TAX-FREE INVESTMENT
MAY BE LESS*
For example,
$50,000 in a 6%
taxable
investment earns
the same after-
tax return as
$38,400 in a 5%
tax-free Nuveen
investment.
*The dollar amounts in the table reflect a 36.0% com-
bined federal and state tax rate.
B-7
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
NUVEEN TAX-FREE BOND FUND, INC.
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
Statement of Additional Information June 13, 1995
Nuveen Tax-Free Bond Fund, Inc.
333 West Wacker Drive
Chicago, Illinois 60606
NUVEEN MASSACHUSETTS TAX-FREE VALUE FUND
NUVEEN NEW YORK TAX-FREE VALUE FUND
NUVEEN OHIO TAX-FREE VALUE FUND
This Statement of Additional Information is not a prospectus. A prospectus may
be obtained from certain securities representatives, banks and other financial
institutions that have entered into sales agreements with John Nuveen & Co. In-
corporated, or from the Funds, 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 34
- --------------------------------------------------------------------------
Investment Adviser and Investment Management Agreement 40
- --------------------------------------------------------------------------
Portfolio Transactions 42
- --------------------------------------------------------------------------
Net Asset Value 43
- --------------------------------------------------------------------------
Tax Matters 44
- --------------------------------------------------------------------------
Performance Information 52
- --------------------------------------------------------------------------
Additional Information on the Purchase and Redemption of Fund Shares 58
- --------------------------------------------------------------------------
Distribution and Service Plans 61
- --------------------------------------------------------------------------
Independent Public Accountants and Custodian 63
- --------------------------------------------------------------------------
</TABLE>
The audited financial statements for the fiscal year ended February 28,
1995, appearing in the Annual Report of Nuveen Tax-Free Bond Fund, Inc. are
incorporated herein by reference. The Annual Report accompanies this State-
ment of Additional Information.
<PAGE>
FUNDAMENTAL POLICIES AND INVESTMENT PORTFOLIO
FUNDAMENTAL POLICIES
The investment objective and certain fundamental investment policies of each
Fund are described in the Prospectus. Each of the Funds, as a fundamental pol-
icy, may not, without the approval of the holders of a majority of the shares
of that Fund:
(1) Invest in securities other than Municipal Obligations and temporary in-
vestments, 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 or to the investment of 25% of
such Fund's assets;
(3) Borrow money, except from banks for temporary or emergency purposes and
not for investment purposes and then only in an amount not exceeding (a) 10%
of the value of its total assets at the time of borrowing or (b) one-third of
the value of the Fund's total assets including the amount borrowed, in order
to meet redemption requests which might otherwise require the untimely dispo-
sition of securities. While any such borrowings exceed 5% of such Fund's total
assets, no additional purchases of investment securities will be made by such
Fund. If due to market fluctuations or other reasons, the value of the Fund's
assets falls below 300% of its borrowings, the Fund will reduce its borrowings
within 3 business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so;
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (3) above, it may pledge securities hav-
ing 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,
except to the extent such issuance might be involved with respect to
borrowings described under item (3) above or with respect to transactions in-
volving futures contracts or the writing of options within the limits de-
scribed in the Prospectus and this Statement of Additional Information;
(6) Underwrite any issue of securities, except to the extent that the purchase
of Municipal Obligations in accordance with its investment objective, policies
and limitations, may be deemed to be an underwriting;
(7) Purchase or sell real estate, but this shall not prevent any Fund from in-
vesting in Municipal Obligations secured by real estate or interests therein
or foreclosing upon and selling such security;
(8) Purchase or sell commodities or commodities contracts or oil, gas or other
mineral exploration or development programs, except for transactions involving
futures contracts within the limits described in the Prospectus and this
Statement of Additional Information;
(9) Make loans, other than by entering into repurchase agreements and through
the purchase of Municipal Obligations or temporary investments in accordance
with its 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 trans-
actions;
2
<PAGE>
(11) Write or purchase put or call options, except to the extent that the pur-
chase of a stand-by commitment may be considered the purchase of a put, and ex-
cept for transactions involving options within the limits described in the Pro-
spectus and this Statement of Additional Information;
(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 25% of its total assets in securities of issuers in any
one industry; provided, however, that such limitations shall not be applicable
to Municipal Obligations issued by governments or political subdivisions of
governments, and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities;
(14) Invest more than 10% of its total assets in repurchase agreements maturing
in more than seven days, "illiquid" securities (such as non-negotiable CDs) and
securities without readily available market quotations;
(15) Purchase or retain the securities of any issuer other than the securities
of the Fund if, to the Fund's knowledge, those directors of Nuveen Tax-Free
Bond Fund, Inc., or those officers and directors of Nuveen Advisory Corp.
("Nuveen Advisory"), who individually own beneficially more than 1/2 of 1% of
the outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
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 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 assets 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 obli-
gation of a superior or unrelated governmental entity or other entity (other
than a bond insurer), it shall also be included in the computation of securi-
ties 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 a Fund's assets that may be invested in securities insured by
any single insurer. It is a fundamental policy of each Fund, which cannot be
changed without the approval of the holders of a majority of shares of such
Fund, that a Fund will not hold securities of a single bank, including securi-
ties backed by a letter of credit of such bank, if such holdings would exceed
10% of the total assets of such Fund.
The foregoing restrictions and limitations, as well as the Funds' 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.
3
<PAGE>
The foregoing fundamental investment policies, together with the investment ob-
jective of each Fund, cannot be changed without approval by holders of a "ma-
jority of the Fund's outstanding voting shares." As defined in the Investment
Company Act of 1940, this means the vote of (i) 67% or more of the Fund's
shares present at a meeting, if the holders of more than 50% of the Fund's
shares are present or represented by proxy, or (ii) more than 50% of the Fund's
shares, whichever is less.
Nuveen Tax-Free Bond Fund, Inc. is an open-end diversified management series
company under SEC Rule 18f-2. Each Fund is a separate series issuing its own
shares. Nuveen Tax-Free Bond Fund, Inc. currently has three authorized series
with shares outstanding: the Nuveen Massachusetts Tax-Free Value Fund (the
"Massachusetts Fund"), the Nuveen New York Tax-Free Value Fund (the "New York
Fund") and the Nuveen Ohio Tax-Free Value Fund (the "Ohio Fund"). Certain mat-
ters under the Investment Company Act of 1940 which must be submitted to a vote
of the holders of the outstanding voting securities of a series company shall
not be deemed to have been effectively acted upon unless approved by the hold-
ers of a majority of the outstanding voting securities of each series affected
by such matter.
PORTFOLIO SECURITIES
As described in the Prospectus, each Fund invests primarily in a diversified
portfolio of Municipal Obligations that are issued within the Fund's respective
state or certain U.S. possessions or territories. In general, Municipal Obliga-
tions include debt obligations issued by states, cities and local authorities
to obtain funds for various public purposes, including construction of a wide
range of public facilities such as airports, bridges, highways, hospitals,
housing, mass transportation, schools, streets and water and sewer works. In-
dustrial development bonds and pollution control bonds that are issued by or on
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. Municipal Obligations in which each Fund will
primarily invest are issued by that Fund's respective state and cities and lo-
cal authorities in that state, and bear interest that, in the opinion of bond
counsel to the issuer, is exempt from federal income tax and from personal in-
come tax imposed by the respective state.
The investment assets of each 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 Ser vice, 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, with no fixed percentage
limitations on these unrated Municipal Obligations, and (3) temporary
investments as described below, the income from which may be subject to state
income tax or to both federal and state income taxes.
As described in the Prospectus, each 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-appropria-
4
<PAGE>
tion" clauses which provide that the municipality has no obligation to make
lease or installment purchase payments in future years unless money is appro-
priated for such purpose on a yearly basis. Although non-appropriation lease
obligations are secured by the leased property, disposition of the property in
the event of foreclosure might prove difficult. Each Fund will seek to minimize
the special risks associated with such securities by not investing more than
10% of its assets 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 governmental 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 in-
vestment is of a size that will be attractive to institutional investors, and
(6) the underlying 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 Funds.
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.
PORTFOLIO TRADING AND TURNOVER
Each 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. A 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 a Fund will not engage in trading solely to recognize 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 Advi-
sory believes to be a temporary disparity in the normal yield relationship be-
tween the two securities. A Fund may make changes in its investment portfolio
in order to limit its exposure to changing market conditions. Changes in a
Fund's investments are known as "portfolio turnover." While it is impossible to
predict future portfolio turnover rates, each Fund's annual portfolio turnover
rate is generally not expected to exceed 50%. However, each Fund reserves the
right to make changes in its investments whenever it deems such action advis-
able, and therefore, a Fund's annual portfolio turnover rate may exceed 50% in
particular years depending upon market conditions. The portfolio turnover rates
for the Massachusetts Fund, the New York Fund and the Ohio Fund for the fiscal
year ended February 28, 1995, were 17%, 29% and 28%, respectively, and for the
fiscal year ended February 28, 1994, were 3%, 15% and 9%, respectively.
5
<PAGE>
WHEN-ISSUED SECURITIES
As described in the Prospectus, each Fund may purchase and sell Municipal Ob-
ligations 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 a 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 a 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. A Fund will only make commitments to purchase
Municipal Obligations on a when-issued or delayed delivery basis with the in-
tention of actually acquiring the securities, but each Fund reserves the right
to sell these securities before the settlement date if it is deemed advisable.
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 engage in delayed
delivery transactions in order to manage its operations more effectively.
SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL OBLIGATIONS OF DESIGNATED STATES
As described in the Prospectus, except for investments in temporary invest-
ments, each of the Funds will, at all times, invest all of its net assets in
its respective state's Municipal Obligations. Each Fund is therefore more sus-
ceptible to political, economic or regulatory factors adversely affecting is-
suers of Municipal Obligations in its respective state. Brief summaries of
these factors are contained in the Prospectus. Set forth below is additional
information that bears upon the risk of investing in Municipal Obligations is-
sued by public authorities in these states. This information was obtained from
official statements of issuers located in the respective states as well as
from other publicly available official documents and statements. The Funds
have not independently verified any of the information contained in such
statements and documents.
FACTORS PERTAINING TO MASSACHUSETTS
As described above, except to the extent the Massachusetts Fund invests in
temporary investments, the Massachusetts Fund will invest substantially all of
its net assets in Massachusetts Municipal Obligations. The Massachusetts Fund
is therefore susceptible to political, economic or regulatory factors affect-
ing issuers of Massachusetts Municipal Obligations. Without intending to be
complete, the following briefly summarizes the current financial situation, as
well as some of the complex factors affecting the financial situation, in the
Commonwealth of Massachusetts (the "Commonwealth"). It is derived from
6
<PAGE>
sources that are generally available to investors and is based in part on in-
formation obtained from various agencies in Massachusetts. No independent ver-
ification has been made of the accuracy or completeness of the following in-
formation.
There can be no assurance that current or future statewide or regional eco-
nomic difficulties, and the resulting impact on Commonwealth or local govern-
mental finances generally, will not adversely affect the market value of Mas-
sachusetts Obligations in the Fund or the ability of particular obligors to
make timely payments of debt service on (or relating to) those obligations.
Since 1988, there has been a significant slowdown in the Commonwealth's econo-
my, as indicated by a rise in unemployment, a slowing of its per capita income
growth and declining state revenues. In fiscal 1991, the Commonwealth's expen-
ditures for state government programs exceeded current revenues, and although
fiscal 1992, 1993 and 1994 revenues exceeded expenditures, no assurance can be
given that lower than expected tax revenues will not resume and continue.
1995 Fiscal Year Budget. On July 10, 1994, the Governor signed the Common-
wealth's budget for fiscal 1995. The fiscal 1995 budget is based on estimated
budgeted revenues and other sources of approximately $16.360 billion, which
includes revised tax revenue estimates of approximately $11.179 billion. Tax
revenues for fiscal 1995 were originally estimated at $11.328 billion in May,
1994, however, due to the slowing of the rate of growth in certain tax revenue
categories in the months following the signing of the budget, particularly in-
come tax, the Secretary of the Administration on September 26, 1994, as re-
quired by law, reduced the fiscal 1995 tax revenue estimate by $75 million. On
January 25, 1995, the Secretary for Administration and Finance further revised
the fiscal 1995 tax revenue estimate to $11.179 billion, a reduction of ap-
proximately $55 million from the September 26, 1994 estimate. The tax revenue
estimate includes $19.3 million of tax cuts signed by the Governor in the fis-
cal 1995 budget. Estimated fiscal 1995 tax revenues are approximately $572
million higher than fiscal 1994 tax revenues of $10.607 billion.
As signed by the Governor, the budget authorizes approximately $16.482 billion
in fiscal 1995 expenditures. The Governor exercised his authority to veto and
reduce individual line items and reduced total expenditures by approximately
$298.2 million and vetoed certain other law changes contained in the fiscal
1995 budget. The $16.449 billion of fiscal 1995 expenditures includes a re-
serve against certain contingencies currently in the amount of $98.6 million.
On January 25, 1995, the Governor filed a supplemental appropriation recommen-
dation aggregating approximately $43.6 million, which expenditures are in-
cluded in the $98.6 million contingency reserve for fiscal 1995 expenditures.
Included in the approximately $298.2 million of vetoes noted above, the Gover-
nor vetoed approximately $296.9 million in appropriations for the Executive
Office of Human Services and the Department of Public Welfare, representing
the estimate, at the time, of 4 months of funding for the Commonwealth's pub-
lic assistance programs.
On February 10, 1995, the Governor signed into law certain reforms to the Com-
monwealth's program for Aid to Families with Dependent Children ("AFDC") which
take effect on July 1, 1995, subject to federal approval of certain waivers.
The revised program reduces AFDC benefits to able bodied recipients by 2.75%,
while allowing them to keep a larger portion of their earned wages, requires
approxi-
7
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mately 22,000 able-bodied parents of school-aged children to work or perform
community service for 20 hours per week and requires approximately 16,000 re-
cipients who have children between the ages of two and six to participate in an
education or training program or perform community service. The plan also es-
tablishes a pilot program for up to 2,000 participants that offers tax credits
and wage subsidies to employers who hire welfare recipients. Parents who find
employment will be provided with extended medical benefits and day care bene-
fits for up to one year. The plan mandates paternal identification, expands
funding for anti-fraud initiatives, and requires parents on AFDC to immunize
their children. Parents who are disabled, caring for a disabled child, have a
child under the age of two, or are teen-agers living at home and attending high
school, will continue to receive cash assistance. Since most provisions of the
new law do not take effect until July 1, 1995, the Executive Office for Admin-
istration projects that the reforms will not materially affect fiscal 1995 pub-
lic assistance spending. The fiscal 1995 expenditure estimate of $16.449 bil-
lion includes $247.8 million appropriated to fund the Commonwealth's public as-
sistance programs for the last four months of fiscal 1995. The Commonwealth is
currently evaluating the new law's impact on fiscal 1996 projected spending for
public assistance programs.
The fiscal 1995 budget is based on numerous spending and revenue estimates the
achievement of which cannot be assured.
On November 8, 1994, the voters in the statewide general election approved an
initiative petition that would slightly increase the portion of the gasoline
tax revenue credited to the Highway Fund, one of the Commonwealth's three major
budgetary funds, prohibit the transfer of money from the Highway Fund to other
funds for non-highway purposes and not permit including the Highway Fund bal-
ance in the computation "consolidated net surplus" for purposes of state fi-
nance laws. The initiative petition also provides that no more than 15% of gas-
oline tax revenues may be used for mass transportation purposes, such as expen-
ditures related to the Massachusetts Bay Transit Authority. The Executive Of-
fice of Administration and Finance is analyzing the effect, if any, this ini-
tiative petition, which became law on December 8, 1994, may have on the fiscal
1995 budget and it currently does not expect it to have any materially adverse
impact. This is not a constitutional amendment and is subject to amendment or
repeal by the Legislature, which may also, notwithstanding the terms of the pe-
tition, appropriate moneys from the Highway Fund in such amounts and for such
purposes as it determines, subject only to a constitutional restriction that
such moneys be used for highways or mass transit purposes.
1994 Fiscal Year. Fiscal 1994 tax revenue collections were approximately
$10.607 billion, $87 million below the Department of Revenue's fiscal year 1994
tax revenue estimate of $10.694 billion and $677 million above fiscal 1993 tax
revenues of $9.930 billion. Budgeted revenues and other sources, including non-
tax revenues, collected in fiscal 1994 were approximately $15.550 billion. To-
tal revenues and other sources increased by approximately 5.7% from fiscal 1993
to fiscal 1994 while tax revenues increased by 6.8% for the same period. Bud-
geted expenditures and other uses of funds in fiscal 1994 were approximately
$15.523 billion, which is $826.5 million or approximately 5.6% higher than fis-
cal 1993 budgeted expenditures and other uses.
8
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As of June 30, 1994, the Commonwealth showed a year-end cash position of ap-
proximately $757 million, as compared to a projected position of $599 million.
In June, 1993, the Legislature adopted and the Governor signed into law compre-
hensive education reform legislation. This legislation required an increase in
expenditures for education purposes above fiscal 1993 base spending of $1.288
billion of approximately $175 million in fiscal 1994. The Executive Office for
Administration and Finance expects the annual increases in expenditures above
the fiscal 1993 base spending of $1.288 billion to be approximately $396 mil-
lion in fiscal 1995, $625 million in fiscal 1996 and $868 million in fiscal
1997. Additional annual increases are also expected in later fiscal years. The
fiscal 1995 budget as signed by the Governor includes $896 million in appropri-
ations to satisfy this legislation.
1993 Fiscal Year. The Commonwealth's budgeted expenditures and other uses were
approximately $14.696 billion in fiscal 1993, which is approximately $1.280
billion or 9.6% higher than fiscal 1992 expenditures and other uses. Final fis-
cal 1993 budgeted expenditures were $23 million lower than the initial July
1992 estimates of fiscal 1993 budgeted expenditures. Budgeted revenues and
other sources for fiscal 1993 totalled approximately $14.710 billion, including
tax revenues of $9.930 billion. Total revenues and other sources increased by
approximately 6.9% from fiscal 1992 to fiscal 1993, while tax revenues in-
creased by 4.7% for the same period. Overall, fiscal 1993 ended with a surplus
of revenues and other sources over expenditures and other uses of $13.1 million
and aggregate ending fund balances in the budgeted operating funds of the Com-
monwealth of approximately $562.5 million. After payment in full of the distri-
bution of local aid to the Commonwealth's cities and towns ("Local Aid") and
the retirement of short term debt, the Commonwealth showed a year end cash po-
sition of approximately $622.2 million, as compared to a projected position of
$485.1 million.
1992 Fiscal Year. The Commonwealth's budgeted expenditures and other uses were
approximately $13.4 billion in fiscal 1992, which is $238.7 million or 1.7%
lower than fiscal 1991 budgeted expenditures. Final fiscal 1992 budgeted expen-
ditures were $300 million more than the initial July 1991 estimates of budget-
ary expenditures, due in part to increases in certain human services programs,
including an increase of $268.7 million for the Medicaid program and $50.0 mil-
lion for mental retardation consent decree requirements. Budgeted revenues and
other sources for fiscal 1992 totalled approximately $13.7 billion (including
tax revenues of approximately $9.5 billion), reflecting an increase of approxi-
mately 0.7% from fiscal 1991 to 1992 and an increase of 5.4% in tax revenues
for the same period. Overall, fiscal 1992 is estimated to have ended with an
excess of revenues and other sources over expenditures and other uses of $312.3
million. After payment in full of Local Aid in the amount of $514.0 million due
on June 30, 1992, retirement of the Commonwealth's outstanding commercial paper
(except for approximately $50 million of bond anticipation notes) and certain
other short term borrowings, as of June 30, 1992, the end of fiscal 1992, the
Commonwealth showed a year-end cash position of approximately $731 million, as
compared with the Commonwealth's cash balance of $182.3 million at the end of
fiscal 1991.
1991 Fiscal Year. Budgeted expenditures for fiscal 1991 were approximately
$13.659 billion, as against budgeted revenues and other sources of approxi-
mately $13.634 billion. The Commonwealth suffered an operating loss of approxi-
mately $21.2 million. Application of the adjusted fiscal 1990 fund balances
9
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of $258.3 million resulted in a fiscal 1991 budgetary surplus of $237.1 mil-
lion. State law requires that approximately $59.2 million of the fiscal year
ending balances of $237.1 million be placed in the Stabilization Fund, a re-
serve from which funds can be appropriated (i) to make up any difference be-
tween actual state revenues in any fiscal year in which actual revenues fall
below the allowable amount, (ii) to replace state and local losses by federal
funds or (iii) for any event, as determined by the legislature, which threatens
the health, safety or welfare of the people or the fiscal stability of the Com-
monwealth or any of its political subdivisions.
Upon taking office in January 1991, the new Governor proposed a series of leg-
islative and administrative actions, including withholding of allotments under
Section 9C of Chapter 29 of the General Laws, intended to eliminate the pro-
jected deficits. The new Governor's review of the Commonwealth's budget indi-
cated projected spending of approximately $14.1 billion with an estimated $850
million in budget balancing measures that would be needed prior to the close of
fiscal 1991. At that time, estimated tax revenues were revised to approximately
$8.8 billion, $903 million less than was estimated at the time the fiscal 1991
budget was adopted. The Legislature adopted a number of the Governor's recom-
mendations and the Governor took certain administrative actions not requiring
legislative approval, including the adoption of a state employee furlough pro-
gram. It is estimated by the Commonwealth that spending reductions achieved
through savings initiatives and withholding of allotments total approximately
$484.3 million in aggregate for fiscal 1991. However, these savings and reduc-
tions may be impacted negatively by litigation pursued by third parties con-
cerning the Governor's actions under Section 9C of Chapter 29 of the General
Laws and with regard to the state employee furlough program.
In addition, the new administration in May 1991 filed an amendment to its Med-
icaid state plan that enables it to claim 50% federal reimbursement on
uncompensated care payments for certain hospitals in the Commonwealth. As a re-
sult, in fiscal 1991, the Commonwealth obtained additional non-tax revenues in
the form of federal reimbursements equal to approximately $513 million on ac-
count of uncompensated care payments. This reimbursement claim was based upon
recent amendments of federal law contained in the Omnibus Budget Reconciliation
Act of 1990 and, consequently, on relatively undeveloped federal laws, regula-
tions and guidelines. At the request of the federal Health Care Financing Ad-
ministration, the Office of Inspector General of the United States Department
of Health and Human Services has commenced an audit of the reimbursement. The
administration, which had reviewed the matter with the Health Care Financing
Administration prior to claiming the reimbursement, believes that the Common-
wealth will prevail in the audit. If the Commonwealth does not prevail, the
Commonwealth would have the right to contest an appeal, but could be required
to pay all or part of Medicaid reimbursements with interest and to have such
amount deducted from future reimbursement payments.
1990 and 1989 Fiscal Years. In July 1989, the former Governor vetoed certain
provisions included in the budget legislation for fiscal 1990, including ap-
proximately $273 million of the fiscal 1990 appropriations, including $100 mil-
lion for Local Aid. One of the Governor's vetoes occasioned a default by the
Commonwealth on a September 1, 1989 payment of $2.5 million on a general obli-
gation contract with the Massachusetts Community Development Finance Corpora-
tion to which its full faith and credit had been pledged, which payment was
made on September 17, 1990 after a supplemental appro-
10
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priation was proposed by the Governor and passed by the legislature. The leg-
islature overrode the Governor's veto of $100 million of Local Aid and the
Governor then indicated that he was withholding the allotment for such expen-
diture. The Supreme Judicial Court invalidated the Governor's withholding of
$210 million of appropriated funds for certain Local Aid purposes in May 1990.
Budgeted expenditures for fiscal 1989 and 1990 totalled approximately $12.6
billion and $13.3 billion, respectively. Budgeted revenues for fiscal 1989 and
1990 totalled approximately $12.0 billion and $12.0 billion, respectively.
Employment. Reversing a trend of relatively low unemployment during the early
and mid 1980's, the Massachusetts unemployment rate beginning in 1990 in-
creased significantly to where the Commonwealth's unemployment rate exceeded
the national unemployment rate. During 1990, the Massachusetts unemployment
rate increased from 4.5% in January to 6.1% in July to 6.7% in August. During
1991, the Massachusetts unemployment rate averaged 9.0% while the average
United States unemployment rate was 6.7%. The Massachusetts unemployment rate
during 1992 averaged 8.5% while the average United States unemployment rate
was 7.4%. Since 1993, the average monthly unemployment rate has declined
steadily. The Massachusetts unemployment rate in December 1994 was 5.7%, as
compared with the United States unemployment rate of 5.4% for the same period.
Other factors which may significantly and adversely affect the employment rate
in the Commonwealth include reductions in federal government spending on de-
fense-related industries. Due to this and other considerations, there can be
no assurance that unemployment in the Commonwealth will not increase in the
future.
Debt Ratings. S&P currently rates the Commonwealth's uninsured general obliga-
tion bonds at A+. At the same time, S&P currently rates state and agency notes
at SP1. From 1989 through 1992, the Commonwealth had experienced a steady de-
cline in its S&P rating, with its decline beginning in May 1989, when S&P low-
ered its rating on the Commonwealth's general obligation bonds and other Com-
monwealth obligations from AA+ to AA and continuing a series of further reduc-
tions until March 1992, when the rating was affirmed at BBB.
Moody's currently rates the Commonwealth's uninsured general obligation bonds
at A1. From 1989 through 1992, the Commonwealth had experienced a steady de-
cline in its rating by Moody's since May 1989. In May 1989, Moody's lowered
its rating on the Commonwealth's notes from MIG-1 to MIG-2, and its rating on
the Commonwealth's commercial paper from P-1 to P-2. On June 21, 1989, Moody's
reduced the Commonwealth's general obligation rating from Aa to A. On November
15, 1989, Moody's reduced the rating on the Commonwealth's general obligations
from A to Baa1, and on March 9, 1990, Moody's reduced the rating of the Com-
monwealth's general obligation bonds from Baa1 to Baa. There can be no assur-
ance that these ratings will continue.
In recent years, the Commonwealth and certain of its public bodies and munici-
palities have faced serious financial difficulties which have affected the
credit standing and borrowing abilities of Massachusetts and its respective
entities and may have contributed to higher interest rates on debt obliga-
tions. The continuation of, or an increase in, such financial difficulties
could result in declines in the market values of, or default on, existing ob-
ligations including Massachusetts Obligations in the Fund.
11
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Should there be during the term of the Fund a financial crisis relating to Mas-
sachusetts, its public bodies or municipalities, the market value and market-
ability of all outstanding bonds issued by the Commonwealth and its public au-
thorities or municipalities including the Massachusetts Obligations in the Fund
and interest income to the Fund could be adversely affected.
Total Bond and Note Liabilities. The total general obligation bond indebtedness
of the Commonwealth (including Fiscal Recovery Bonds) as of January 1, 1995 was
approximately $9.19 billion. There were also outstanding approximately $264
million in general obligation notes and other short term general obligation
debt. The total bond and note liabilities of the Commonwealth as of October 1,
1994, including guaranteed bond and contingent liabilities was approximately
$12.98 billion.
Debt Service. During the 1980s, capital expenditures were increased substan-
tially, which has had a short term impact on the cash needs of the Commonwealth
and also accounts for a significant rise in debt service during that period.
Payments for debt service on Commonwealth general obligation bonds and notes
have risen at an average annual rate of 22.2% from $770.9 million in fiscal
1990 to an estimated $942.3 million in fiscal 1991. Debt service payments in
fiscal 1992 were $898.3 million. Debt service payments for fiscal 1992 reflect
a $261 million one-time reduction achieved as a result of the Issuance of the
refunding bonds in September and October 1991. Debt service expenditures were
approximately $1.140 billion and $1.149 billion for fiscal 1993 and 1994, re-
spectively, and are projected to be approximately $1.242 billion for fiscal
1995 and $1.267 billion for fiscal 1996. The fiscal 1993 and fiscal 1994 debt
service expenditures reflect savings of $62.9 million and $57.3 million, re-
spectively, achieved through the issuance of refunding bonds in October 1992,
and March, May and August 1993. The amounts represented do not include debt
service on notes issued to finance the fiscal 1989 deficit and certain Medicaid
related liabilities, certain debt service contract assistance to the Massachu-
setts Bay Transportation Authority ($181.9 million projected in fiscal 1995),
the Massachusetts Convention Center Authority ($24.6 million projected in fis-
cal 1995), the Massachusetts Government Land Bank ($6.0 million projected in
fiscal 1995) and the Massachusetts Water Pollution Abatement Trust ($13.9 mil-
lion projected in fiscal 1995), as well as grants to municipalities under the
school building assistance program to defray a portion of the debt service
costs on local school bonds ($179.2 million projected in fiscal 1995).
In January 1990, legislation was passed to impose a limit on debt service be-
ginning in fiscal 1991, providing that no more than 10% of the total appropria-
tions in any fiscal year may be expended for payment of interest and principal
on general obligation debt (excluding the Fiscal Recovery Bonds). The percent-
age of total appropriations expended from the budgeted operating funds for debt
service (excluding debt service on Fiscal Recovery Bonds) for fiscal 1994 is
5.6% which is projected to increase to 5.9% in fiscal 1995.
Certain Liabilities. Among the material future liabilities of the Commonwealth
are significant unfunded general liabilities of its retirement systems and a
program to fund such liabilities; a program whereby, starting in 1978, the Com-
monwealth began assuming full financial responsibility for all costs of the ad-
ministration of justice within the Commonwealth; continuing demands to raise
aggregate aid to cities, towns, schools and other districts and transit author-
ities above current levels; and Medicaid
12
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expenditures which have increased each year since the program was initiated.
The Commonwealth has signed consent decrees to continue improving mental health
care and programs for the mentally retarded in order to meet federal standards,
including those governing receipt of federal reimbursements under various pro-
grams, and the parties in those cases have worked cooperatively to resolve the
disputed issues.
As a result of comprehensive legislation approved in January, 1988, the Common-
wealth is required, beginning in fiscal 1989 to fund future pension liabilities
currently and to amortize the Commonwealth's unfunded liabilities over 40
years. The estimated pension expenditures (inclusive of current benefits and
pension reserves) for fiscal 1996 are $1.044 billion, representing an increase
of 5.0% over estimated fiscal 1995 expenditures of $994.3 million.
Litigation. The Commonwealth is engaged in various lawsuits involving environ-
mental and related laws, including an action brought on behalf of the U.S. En-
vironmental Protection Agency alleging violations of the Clean Water Act and
seeking to enforce the clean-up of Boston Harbor. The MWRA, successor in lia-
bility to the Metropolitan District Commission, has assumed primary responsi-
bility for developing and implementing a court-approved plan for the construc-
tion of the treatment facilities necessary to achieve compliance with federal
requirements. Under the Clean Water Act, the Commonwealth may be liable for
costs of compliance in these or any other Clean Water cases if the MWRA or a
municipality is prevented from raising revenues necessary to comply with a
judgment. The MWRA currently projects that the total cost of construction of
the treatment facilities required under the court's order is approximately $3.5
billion in current dollars, with approximately $1.54 billion to be spent on or
after July 1, 1994.
The Department of Public Welfare has been sued for the alleged unlawful denial
of personal care attendant services to certain disabled Medicaid recipients.
The Superior Court has denied the plaintiff's motion for preliminary injunction
and has also denied the plaintiff's motion for class certification. If the
plaintiffs were to prevail on their claims and the Commonwealth were required
to provide all of the services sought by the plaintiffs to all similarly situa-
tion persons, it would substantially increase the annual cost to the Common-
wealth if these services are eventually required. The Department of Public Wel-
fare currently estimates this increase to be as much as $200 million per year.
There are also actions pending in which recipients of human services benefits,
such as welfare recipients, the mentally retarded, the elderly, the handi-
capped, children, residents of state hospitals and inmates of corrections in-
stitutions, seek expanded levels of services and benefits and in which provid-
ers of services to such recipients challenge the rates at which they are reim-
bursed by the Commonwealth. To the extent that such actions result in judgments
requiring the Commonwealth to provide expanded services or benefits or pay in-
creased rates, additional operating and capital expenditures might be needed to
implement such judgments.
The Massachusetts Hospital Association has brought an action challenging an el-
ement of the Medicaid rate setting methodologies for hospitals. On October 12,
1993, the case was settled with the hospital association and most acute hospi-
tals, thereby reducing the Commonwealth's potential liability in the pending
case or in related appeals to approximately $10 million.
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In addition there are several tax matters in litigation which could result in
significant refunds to taxpayers if decisions unfavorable to the Commonwealth
are rendered. In BayBank, et al. v. Commissioner of Revenue, the banks chal-
lenge the inclusion of income from tax exempt obligations in the measure of the
bank excise tax. The Appellate Tax Board issued findings of fact and a report
in favor of the Commissioner of Revenue on September 30, 1993. The case is
pending before the Supreme Judicial Court and is expected to be heard in March
1995. Taking into account all banks and all years at issue (1974 through 1986),
there are 142 appeals consolidated in this case. The amount at issue is esti-
mated to be approximately $1.2 billion, which amount includes interest of ap-
proximately $900 million and amounts involved in other related applications for
abatement pending with the Commissioner of Revenue or with the Appellate Tax
Board. The amount of taxes and interest at issue in other cases is approxi-
mately $150 million.
In National Association of Government Employees v. Commonwealth, the Superior
Court declared that a line item in the Commonwealth's general appropriations
act for fiscal 1994 that increased the state employees' percentage share of
their group health insurance premiums from 10% to 15% violated the terms of
several collective bargaining agreements, and therefore was invalid under the
United States Constitution as regards employees covered by the agreements. On
February 9, 1995, the Supreme Judicial Court vacated the Superior Court's deci-
sion and declared that the fiscal 1994 line item did not violate the contracts
clause. Several other unions have filed a companion suit asserting that the
premium increase similarly violated other collective bargaining agreements. The
latter suit is in its initial stages. If the Superior Court decision in favor
of the state employees is upheld, the Commonwealth's aggregate liability is es-
timated to be approximately $32 million.
A variety of other civil suits pending against the Commonwealth may also affect
its future liabilities. There include challenges to the Commonwealth's alloca-
tion of school aid under Section 9C of Chapter 29 of the General Laws and to
adopt a state employee furlough program. No prediction is possible as to the
ultimate outcome of these proceedings.
Many factors, in addition to those cited above, do or may have a bearing upon
the financial condition of the Commonwealth, including social and economic con-
ditions, many of which are not within the control of the Commonwealth.
Expenditure and Tax Limitation Measures. Limits have been established on state
tax revenues by legislation approved by the Governor on October 25, 1986 and by
an initiative petition approved by the voters on November 4, 1986. The Execu-
tive Office for Administration and Finance currently estimates that state tax
revenues will not reach the limit imposed by either the initiative petition or
the legislative enactment in fiscal 1992.
Proposition 2 1/2, passed by the voters in 1980, led to large reductions in
property taxes, the major source of income for cities and towns and large in-
creases in state aid to offset such revenue losses. According to the Executive
Office for Administration and Finance, all of the 351 cities and towns have now
achieved a property tax level of no more than 2.5% of full property values. Un-
der the terms of Proposition 2 1/2, the property tax levy can now be increased
annually for all cities and towns, almost all by 2.5% of the prior fiscal
year's tax levy plus 2.5% of the value of new properties and of signifi-
14
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cant improvements to property. Legislation has also been enacted providing for
certain local option taxes. A voter initiative petition approved at the state-
wide general election in November, 1990 further regulates the distribution of
Local Aid of no less than 40% of collections from individual income taxes,
sales and use taxes, corporate excise taxes, and the balance of the state lot-
tery fund. If implemented in accordance with its terms (including appropriation
of the necessary funds), the petition as approved would shift several hundred
million dollars to direct Local Aid.
Other Tax Measures. To provide revenue to pay debt service on both the deficit
and Medicaid-related borrowings and to fund certain direct Medicaid expendi-
tures, legislation was enacted imposing an additional tax on certain types of
personal income for 1989 and 1990 taxable years at rates of 0.375% and 0.75%,
respectively, effectively raising the tax rate of 1989 from 5% to 5.375% and
for 1990 to 5.75%. Recent legislation has effectively further increased tax
rates to 5.95% for tax year 1990 to 6.25% for tax year 1991 and returning to
5.95% for tax year 1992 and subsequent tax years. The tax is applicable to all
personal income except income derived from dividends, capital gains, unemploy-
ment compensation, alimony, rent, interest, pensions, annuities and IRA/Keogh
distributions. The income tax rate on other interest (excluding interest on ob-
ligations of the United States and of the Commonwealth and its subdivisions),
dividends and net capital gains (after a 50% reduction) was increased from 10%
to 12% for tax year 1990 and subsequent years, by recently enacted legislation.
Estate Tax Revisions. The fiscal 1993 budget included legislation which gradu-
ally phases out the current Massachusetts estate tax and replaces it with a
"sponge tax" in 1997. The "sponge tax" is based on the maximum amount of the
credit for state taxes allowed for federal estate tax purposes. The estate tax
is phased out by means of annual increases in the basic exemption from the cur-
rent $200,000 level. The exemption is increased to $300,000 for 1993, $400,000
for 1994, $500,000 for 1995 and $600,000 for 1996. In addition, the legislation
includes a full marital deduction starting July 1, 1994. Currently the marital
deduction is limited to 50% of the Massachusetts adjusted gross estate. The
static fiscal impact of the phase out of the estate tax was estimated to be ap-
proximately $24.8 million in fiscal 1994 and is estimated to be approximately
$72.5 million in fiscal 1995.
Other Issuers of Massachusetts Obligations. There are a number of state agen-
cies, instrumentalities and political subdivisions of the Commonwealth that is-
sue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the securi-
ties issued by them may vary considerably from the credit quality of obliga-
tions backed by the full faith and credit of the Commonwealth. The brief sum-
mary above does not address, nor does it attempt to address, any difficulties
and the financial situations of those other issuers of Massachusetts Obliga-
tions.
FACTORS PERTAINING TO NEW YORK
As described above, except to the extent the New York Fund invests in temporary
investments, the New York Fund will invest substantially all of its assets in
New York Municipal Obligations. The New York Fund is therefore susceptible to
political, economic or regulatory factors affecting New York State and govern-
mental bodies within New York State. Some of the more significant events and
conditions relating to the financial situation in New York are summarized be-
low. The following information provides only a brief summary of the complex
factors affecting the financial situation in New York, is
15
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derived from sources that are generally available to investors and is believed
to be accurate. It is based on information drawn from official statements and
prospectuses issued by, and other information reported by, the State of New
York (the "State"), by its various public bodies (the "Agencies"), and by other
entities located within the State, including the City of New York (the "City"),
in connection with the issuance of their respective securities.
There can be no assurance that current or future statewide or regional economic
difficulties, and the resulting impact on State or local government finances
generally, will not adversely affect the market value of New York Municipal Ob-
ligations held in the portfolio of the New York Fund or the ability of particu-
lar obligors to make timely payments of debt service on (or relating to) those
obligations.
(1) The State: The State has historically been one of the wealthiest states in
the nation. For decades, however, the State economy has grown more slowly than
that of the nation as a whole, gradually eroding the State's relative economic
affluence. Statewide, urban centers have experienced significant changes in-
volving migration of the more affluent to the suburbs and an influx of gener-
ally less affluent residents. Regionally, the older Northeast cities have suf-
fered because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater competi-
tion as other major cities have developed financial and business capabilities
which make them less dependent on the specialized services traditionally avail-
able almost exclusively in the City. The State has for many years had a very
high state and local tax burden relative to other states. The burden of State
and local taxation, in combination with the many other causes of regional eco-
nomic dislocation, has contributed to the decisions of some businesses and in-
dividuals to relocate outside, or not locate within, the State.
Slowdown of Regional Economy. A national recession commenced in mid-1990. The
downturn continued throughout the State's 1990-91 fiscal year and was followed
by a period of weak economic growth during the 1991 and 1992 calendar years.
For calendar year 1993, the economy grew faster than in 1992, but still at a
very moderate rate as compared to other recoveries. Moderate economic growth
continued in calendar year 1994. The State has projected the rate of economic
growth to slow within New York during 1995 as the expansion of the national
economy moderates. Economic recovery started considerably later in the State
than in the nation as a whole due in part to a significant retrenchment in the
banking and financial services industries, downsizing by major corporations,
cutbacks in defense spending, and an oversupply of office buildings. Many un-
certainties exist in forecasts of both the national and State economies and
there can be no assurance that the State's economy will perform at a level suf-
ficient to meet the State's projections of receipts and disbursements.
1995-96 Fiscal Year. The Governor issued a proposed Executive Budget for the
1995-96 fiscal year (the "Proposed Budget") on February 1, 1995, which pro-
jected a balanced general fund and receipts and disbursements of $32.5 billion
and $32.4 billion, respectively. As of April 17, 1995, the State legislature
had not yet enacted, nor had the Governor and the legislature reached an agree-
ment on, the budget for the 1995-96 fiscal year which commenced on April 1,
1995. The delay in the enactment of the budget may negatively affect certain
proposed actions and reduce projected savings.
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The Proposed Budget and the 1995-96 Financial Plan provide for the closing of a
projected $4.7 billion budget gap in the 1995-96 fiscal year by cost-contain-
ment savings in social welfare programs, savings from State agency
restructurings, freezing the level of some categories of local aid and new rev-
enue measures.
The proposed budget and the 1995-96 Financial Plan may be impacted negatively
by uncertainties relating to the economy and tax collections, although recent
signs of improvement in the national economy could lead to short-term increases
in State receipts.
1994-95 Fiscal Year. The State Legislature enacted the State's 1994-95 fiscal
year budget on June 7, 1994, more than two months after the start of that fis-
cal year. As of February 1, 1995, the updated 1994-95 State Financial Plan (the
"Plan") projected total general fund receipts and disbursements of $33.3 bil-
lion and $33.5 billion, respectively, representing reductions in receipts and
disbursements of $1 billion and $743 billion, respectively, from the amount set
forth in the 1994-95 budget. The Plan projected for a General Fund balance of
approximately $157 million at the close of the 1994-95 fiscal year.
1993-94 Fiscal Year. The State ended the 1993-94 fiscal year with an operat-
ing surplus of approximately $1.0 billion.
Future Fiscal Years. There can be no assurance that the State will not face
substantial potential budget gaps in the future resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To ad-
dress any potential budgetary imbalance, the State may need to take significant
actions to align recurring receipts and disbursements.
Indebtedness. As of March 31, 1994, the total amount of long-term State general
obligation debt authorized but unissued stood at $2.0 billion. As of the same
date, the State had approximately $5.4 billion in general obligation bonds, in-
cluding $224 million in bond anticipation notes outstanding.
The State originally projected that its borrowings for capital purposes during
the State's 1994-95 fiscal year would consist of $374 million in general obli-
gation bonds and bond anticipation notes and $140 million in general obligation
commercial paper. The Legislature has authorized the issuance of up to $69 mil-
lion in certificates of participation in pools of leases for equipment and real
property to be utilized by State agencies. Through March 15, 1995, the State
had issued in excess of $590 million of its general obligation bonds (including
$430 million of refunding bonds). The projections of the State regarding its
borrowings for any fiscal year are subject to change if actual receipts fall
short of State projections or if other circumstances require.
In June 1990, legislation was enacted creating the New York Local Government
Assistance Corporation ("LGAC"), a public benefit corporation empowered to is-
sue long-term obligations to fund certain payments to local governments tradi-
tionally funded through the State's annual seasonal borrowing. As of March 31,
1994, LGAC has issued its bonds to provide net proceeds of $4.5 billion. The
LGAC was
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authorized to provide net proceeds of $315 million, during the State's 1994-95
fiscal year. The LGAC issued $347 million of bonds on March 1, 1995 providing
the authorized net proceeds.
Financing of capital programs by other public authorities of the State is also
obtained from lease-purchase and contractual-obligation financing arrangements,
the debt service for which is paid from State appropriations. As of March 31,
1994, there were $16.6 billion of such other financing arrangements outstanding
and additional financings of this nature by public authorities are projected to
total $2.4 billion during the 1994-1995 fiscal year. In addition, certain agen-
cies had issued and outstanding approximately $7.3 billion of "moral obligation
financings" as of March 31, 1994, which are to be repaid from project revenues.
While there has never been a default on moral obligation debt of the State, the
State would be required to make up any shortfall in debt service.
Ratings. The $850 million in TRANs issued by the State in April 1993 were rated
SP-1 Plus by S&P and MIG-1 by Moody's, which represent the highest ratings
given by such agencies and the first time the State's TRANs have received these
ratings since its May 1989 TRANs issuance. Both agencies cited the State's im-
proved fiscal position as a significant factor in the upgrading of the April
1993 TRANs.
Moody's rating of the State's general obligation bonds stood at A on February
28, 1994, and S&P's rating stood at A- with a positive outlook, on February 28,
1994, an improvement from S&P's stable outlook from February 1994 through April
1993 and negative outlook prior to April 1993. Previously, Moody's lowered its
rating to A on June 6, 1990, its rating having been A1 since May 27, 1986. S&P
lowered its rating from A to A- on January 13, 1992. S&P's previous ratings
were A from March 1990 to January 1992, AA- from August 1987 to March 1990 and
A+ from November 1982 to August 1987.
Moody's maintained its A rating and S&P continued its A- rating in connection
with the State's issuance of $537 million of general obligation bonds in March
1995.
(2) The City and the Municipal Assistance Corporation ("MAC"): The City ac-
counts for approximately 40% of the State's population and personal income, and
the City's financial health affects the State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among other actions,
the State Legislature (i) created MAC to assist with long-term financing for
the City's short-term debt and other cash requirements and (ii) created the
State Financial Control Board (the "Control Board") to review and approve the
City's budgets and four-year financial plans (the financial plans also apply to
certain City-related public agencies).
In recent years, the rate of economic growth in the City slowed substantially
as the City's economy entered a recession. While by some measures the City's
economy may have begun to recover, a number of factors, including poor perfor-
mance by the City's financial services companies, may prevent a significant im-
provement in the City's economy and may in fact negatively impact upon the
City's finances by reducing tax receipts. The City Comptroller has issued re-
ports concluding that the recession of the
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City's economy may be ending, but there is little prospect of any significant
improvement in the near term.
Fiscal Year 1996 and the 1995-1998 Financial Plan. On February 14, 1995, the
Mayor released his preliminary $30.5 billion budget for fiscal year 1996, which
included $2.7 billion of deficit reduction measures. The Mayor is seeking a
$1.2 billion reduction in mandated welfare and Medicaid expenditures from the
State, a $569 million reduction in expenditures by City agencies and the Board
of Education budget, $600 million in personnel related savings partly through
the elimination of 15,000 jobs within 18 months, and other measures.
The 1995-1998 Financial Plan (the "Plan"), which was submitted to the Control
Board on February 23, 1995, projected budget gaps of $3.2 billion and $3.8 bil-
lion for fiscal years 1997 and 1998, respectively. The City Comptroller warned
on March 7, 1995 that the budget gap for fiscal year 1996 could increase by
$500 million to as much as $3.2 billion. The Control Board reported on March
17, 1995 that the proposed budget for fiscal year 1996 relies heavily on risky
assumptions such as $600 million in savings to be negotiated with City unions
and $1.4 billion in savings dependent on State legislative approval.
The City successfully negotiated concessions with a number of unions in order
to ensure that the fiscal year 1995 budget remained in balance. The Mayor has
indicated that to avoid additional lay-offs, higher than the number referred to
above, reductions will be necessary in the benefit plans of City employees to
close the budget gaps for fiscal years 1996 and thereafter. Union leadership
has publicly opposed such "givebacks". With respect to fiscal year 1995 the
City was also successful in obtaining additional funds and relief from certain
mandated expenditures from the State for various programs, including Medicaid.
However, the amount of gap closing measures requiring State action set forth in
the Plan is well in excess of proposed assistance to the City outlined in the
Governor's Proposed Budget. The Mayor has directed City agencies to identify an
additional $300 million in cuts for fiscal year 1996 because of anticipated
shortfalls in State aid and budgetary actions. An extended delay by the State
in adopting its 1995-96 fiscal year budget would negatively impact upon the
City's financial condition and ability to close budget gaps for fiscal years
1996 and thereafter.
The Mayor is required to submit an executive budget for fiscal year 1996 to the
City Council by April 26, 1995. Due to continuing uncertainties related to the
amount of State aid, the Mayor has indicated that he may delay submission of
such executive budget.
Given the foregoing, there can be no assurance that the City will continue to
maintain a balanced budget during fiscal year 1996 or thereafter, or that it
can maintain a balanced budget without additional tax or other revenue in-
creases or reductions in City services, which could adversely affect the City's
economic base.
Pursuant to State law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections. The City is required to submit
its financial plans to review bodies, including the Control Board. If the City
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were to experience certain adverse financial circumstances, including the oc-
currence or the substantial likelihood and the imminence of the occurrence of
an annual operating deficit of more than $100 million or the loss of access to
the public credit markets to satisfy the City's capital and seasonal financial
requirements, the Control Board would be required by State law to exercise
certain powers, including prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to balance
its budget and to meet its cash requirements. If the State experiences revenue
shortfalls or spending increases beyond its projections during its 1995-96
fiscal year or subsequent years, such developments could result in reductions
in projected State aid to the City. In addition, there can be no assurance
that State budgets for the 1996-97 or future fiscal years will be adopted by
the April 1 statutory deadline and that there will not be adverse effects on
the City's cashflow and additional City expenditures as a result of such de-
lays.
The City projections set forth in the Plan are based on various assumptions
and contingencies which are uncertain and which may not materialize. Changes
in major assumptions could significantly affect the City's ability to balance
its budget as required by State law and to meet its annual cash flow and fi-
nancing requirements. Such assumptions and contingencies include the timing of
any regional and local economic recovery, the absence of wage increases in ex-
cess of the increases assumed in its financial plan, employment growth, provi-
sion of State and Federal aid and mandate relief, State legislative approval
of future State budgets, levels of education expenditures as may be required
by State law, adoption of future City budgets by the New York City Council,
and approval by the Governor or the State Legislature and the cooperation of
MAC with respect to various other actions proposed in the Plan.
The City's ability to maintain a balanced operating budget is dependent on
whether it can implement necessary service and personnel reduction programs
successfully. As discussed above, the City must identify additional expendi-
ture reductions and revenue sources to achieve balanced operating budgets for
fiscal year 1996 and thereafter. Any such proposed expenditure reductions will
be difficult to implement because of their size and the substantial expendi-
ture reductions already imposed on City operations in recent years.
Attaining a balanced budget is also dependent upon the City's ability to mar-
ket its securities successfully in the public credit markets. The City's fi-
nancing program for fiscal years 1995 through 1998 contemplates capital spend-
ing of $16.4 billion, which will be financed through issuance of $10.7 billion
of general obligation bonds and the balance through Water Authority Revenue
Bonds and Covered Organization obligations, and will be used primarily to re-
construct and rehabilitate the City's infrastructure and physical assets and
to make capital investments. A significant portion of such bond financing is
used to reimburse the City's general fund for capital expenditures already in-
curred. In addition, the City issues revenue and tax anticipation notes to fi-
nance its seasonal working capital requirements. The terms and success of pro-
jected public sales of City general obligation bonds and notes will be subject
to prevailing market conditions at the time of the sale, and no assurance can
be given that the credit markets will absorb the projected amounts of public
bond and note sales. In addition, future developments concerning the City and
public discussion of such developments, the City's future financial needs and
other issues may affect the market for outstanding City general obliga-
20
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tion bonds and notes. If the City were unable to sell its general obligation
bonds and notes, it would be prevented from meeting its planned operating and
capital expenditures.
The City is a defendant in a significant number of lawsuits and is subject to
numerous claims and investigations, including, but not limited to, actions com-
menced and claims asserted against the City arising out of alleged constitu-
tional violations, torts, breaches of contracts, and other violations of law
and condemnation proceedings. While the ultimate outcome and fiscal impact, if
any, on the proceedings and claims are not currently predictable, adverse de-
terminations in certain of them might have a material adverse effect upon the
City's ability to carry out its financial plan. As of June 30, 1994, the City
estimated its potential future liability on outstanding claims to be $2.6
billion.
On January 30, 1995, Robert L. Schulz and other defendants commenced a federal
district court action seeking among other matters to cancel the issuance on
January 31, 1995 of $659 million of City bonds. While the federal courts have
rejected requests for temporary restraining orders and expedited appeals, the
case is still pending. The City has indicated that it believes the action to be
without merit as it relates to the City, but there can be no assurance as to
the outcome of the litigation and an adverse ruling or the granting of a perma-
nent injunction would have a negative impact on the City's financial condition
and its ability to fund its operations.
Fiscal Year 1995. New York City adopted its fiscal year 1995 budget on June 21,
1994, which provided for spending of $31.6 billion and closed a budget gap of
$2.3 billion. However, following adoption of the fiscal year 1995 budget, addi-
tional unexpected budget gaps totaling approximately $2.0 billion were identi-
fied. The widening of the budget gap for fiscal year 1995 resulted from
shortfalls in tax revenues and State and federal aid. The Mayor and the City
Council were unable to reach agreement on additional cuts proposed by the Mayor
in October 1994. The City Council passed its own budget cut proposal in Novem-
ber 1994. The Mayor vetoed the City Council version, the City Council overrode
his veto and the Mayor implemented his original plan. A state court held in De-
cember 1994 that neither budget cut proposal could be implemented. The Mayor
then elected not to spend certain funds in order to keep the budget in balance.
Fiscal Years 1990 through 1994. The City achieved balanced operating results in
accordance with generally accepted accounting principles for its fiscal years
1990 through 1994. The City was required to close substantial budget gaps in
these fiscal years in order to maintain balanced operating results.
Ratings. As of the date of this prospectus, Moody's rating of the City's gen-
eral obligation bonds stood at Baa1 and S&P's rating stood at A-. On February
11, 1991, Moody's had lowered its rating from A.
On March 13, 1995, Moody's confirmed its Baa1 rating in connection with a
scheduled March 1995 sale of $795 million of the City's general obligation
bonds.
S&P's confirmed its rating of the City's general obligation bonds in connection
with the City's $795 million general obligation bond issue in March 1995. In
January 1995, in response to the City's plan to borrow $120 million to refund
debt due in February without imposing additional cuts in the fiscal
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1995 budget, S&P's placed the City on negative credit watch and indicated that
in April 1995 it would consider a possible downgrade of the City's general ob-
ligation debt from A- to BBB. At the end of March 1995, concerned by published
reports that the Mayor might not produce his executive budget for fiscal year
1996, S&P's suggested that the Mayor should prepare "a budget-balancing con-
tingency plan" or face the possibility of downgrade of the City's general ob-
ligation bonds. As of April 17, 1995, S&P's had not announced any change in
its ratings of the City's debt. Any such rating decrease would negatively af-
fect the marketability of the City's bonds and significantly increase the
City's financing costs.
On October 12, 1993, Moody's increased its rating of the City's issuance of
$650 million of Tax Anticipation Notes ("TANs") to MIG-1 from MIG-2. Prior to
that date, on May 9, 1990, Moody's revised downward its rating on outstanding
City revenue anticipation notes from MIG-1 to MIG-2 and rated the $900 million
notes then being sold MIG-2. S&P's rating of the October 1993 TANs issue in-
creased to SP-1 from SP-2. Prior to that date, on April 29, 1991, S&P revised
downward its rating on City revenue anticipation notes from SP-1 to SP-2.
As of December 31, 1994, the City and MAC had, respectively, $22.5 billion and
$4.1 billion of outstanding net long-term indebtedness.
(3) The State Agencies: Certain Agencies of the State have faced substantial
financial difficulties which could adversely affect the ability of such Agen-
cies to make payments of interest on, and principal amounts of, their respec-
tive bonds. The difficulties have in certain instances caused the State (under
so-called "moral obligation" provisions, which are non-binding statutory pro-
visions for State appropriations to maintain various debt service reserve
funds) to appropriate funds on behalf of the Agencies. Moreover, it is ex-
pected that the problems faced by these Agencies will continue and will re-
quire increasing amounts of State assistance in future years. Failure of the
State to appropriate necessary amounts or to take other action to permit those
Agencies having financial difficulties to meet their obligations could result
in a default by one or more of the Agencies. Such default, if it were to oc-
cur, would be likely to have a significant adverse affect on investor confi-
dence in, and therefore the market price of, obligations of the defaulting
Agencies. In addition, any default in payment on any general obligation of any
Agency whose bonds contain a moral obligation provision could constitute a
failure of certain conditions that must be satisfied in connection with Fed-
eral guarantees of City and MAC obligations and could thus jeopardize the
City's long-term financing plans.
As of September 30, 1993, the State reported that eighteen Agencies each had
outstanding debt of $100 million or more and an aggregate of $63.5 billion of
outstanding debt, some of which was state-supported, state-relatd debt.
(4) State Litigation: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal
laws. Included in the State's outstanding litigation are a number of cases
challenging the constitutionality or the adequacy and effectiveness of a vari-
ety of significant social welfare programs primarily involving the State's
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mental hygiene programs. Adverse judgments in these matters generally could
result in injunctive relief coupled with prospective changes in patient care
which could require substantial increased financing of the litigated programs
in the future.
The State is also engaged in a variety of claims wherein significant monetary
damages are sought. Actions commenced by several Indian nations claim that
significant amounts of land were unconstitutionally taken from the Indians in
violation of various treaties and agreements during the eighteenth and nine-
teenth centuries. The claimants seek recovery of approximately six million
acres of land, as well as compensatory and punitive damages.
The State has entered into a settlement agreement with Delaware, Massachusetts
and all other parties with respect to State of Delaware v. State of New York,
an action by Delaware and other states to recover unclaimed property from New
York-based brokers, which had escheated to the State pursuant to its Abandoned
Property Law. Annual payments under this settlement will be made through the
State's 2002-03 fiscal year in amounts not exceeding $48.4 million in any fis-
cal year subsequent to the State's 1994-95 fiscal year.
In Schulz v. State of New York, commenced May 24, 1993 ("Schulz"), petitioners
challenged the constitutionality of mass transportation bonding programs of
the New York State Thruway Authority and the Metropolitan Transportation Au-
thority. On May 24, 1993, the Supreme Court, Albany County, temporarily en-
joined the State from implementing those bonding programs.
Petitioners in Schulz asserted that issuance of bonds by the two Authorities
is subject to approval by statewide referendum. By decision dated October 21,
1993, the Appellate Division, Third Department, affirmed the order of the Su-
preme Court, Albany County, granting the State's motion for summary judgment,
dismissing the complaint and vacating the temporary restraining order. On June
30, 1994, the Court of Appeals, the State's highest court, upheld the deci-
sions of the Supreme Court and Appellate Division in Schulz. Plaintiffs' mo-
tion for reargument was denied by the Court of Appeals on September 1, 1994
and their writ of certiorari to the U.S. Supreme Court was denied on January
23, 1995.
Adverse developments in the foregoing proceedings or new proceedings could ad-
versely affect the financial condition of the State in the future.
(5) Other Municipalities: Certain localities in addition to New York City
could have financial problems leading to requests for additional State assis-
tance. The potential impact on the State of such actions by localities is not
included in projections of State receipts and expenditures in the State's
1994-95 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted in
the creation of the Financial Control Board for the City of Yonkers (the "Yon-
kers Board") by the State in 1984. The Yonkers Board is charged with oversight
of the fiscal affairs of Yonkers. Future actions taken by the Governor or the
State Legislature to assist Yonkers could result in allocation of State re-
sources in amounts that cannot yet be determined.
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Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1992, the total indebtedness of all localities in the
State was approximately $35.2 billion, of which $19.5 billion was debt of New
York City (excluding $5.9 billion in MAC debt). State law requires the Comp-
troller to review and make recommendations concerning the budgets of those lo-
cal government units other than New York City authorized by State law to issue
debt to finance deficits during the period that such deficit financing is out-
standing. Seventeen localities had outstanding indebtedness for State financ-
ing at the close of their fiscal year ending in 1992.
Certain proposed Federal expenditure reductions could reduce, or in some cases
eliminate, Federal funding of some local programs and accordingly might impose
substantial increased expenditure requirements on affected localities to in-
crease local revenues to sustain those expenditures. If the State, New York
City or any of the Agencies were to suffer serious financial difficulties
jeopardizing their respective access to the public credit markets, the market-
ability of notes and bonds issued by localities within the State, including
notes or bonds in the Fund, could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions, and long-range economic trends. The longer-range potential
problems of declining urban population, increasing expenditures, and other
economic trends could adversely affect certain localities and require increas-
ing State assistance in the future.
(6) Other Issuers of New York Municipal Obligations. There are a number of
other state agencies, instrumentalities and political subdivisions of the
State that issue Municipal Obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
FACTORS PERTAINING TO OHIO
As described above, the Ohio Fund will invest most of its net assets in secu-
rities issued by or on behalf of (or in certificates of participation in
lease-purchase obligations of) the State of Ohio, political subdivisions of
the State, or agencies or instrumentalities of the State or its political sub-
divisions (Ohio Obligations). The Ohio Fund is therefore susceptible to gen-
eral or particular political, economic or regulatory factors that may affect
issuers of Ohio Obligations. The following information constitutes only a
brief summary of some of the many complex factors that may have an effect. The
information does not apply to "conduit" obligations on which the public issuer
itself has no financial responsibility. This information is derived from offi-
cial statements of certain Ohio issuers published in connection with their is-
suance of securities and from other publicly available information, and is be-
lieved to be accurate. No independent verification has been made of any of the
following information.
Generally, the creditworthiness of Ohio Obligations of local issuers is unre-
lated to that of obligations of the State itself, and the State has no respon-
sibility to make payments on those local obligations. There may be specific
factors that at particular times apply in connection with investment in par-
ticular Ohio Obligations or in those obligations of particular Ohio issuers.
It is possible that the investment may be in particular Ohio Obligations, or
in those of particular issuers, as to which those factors apply.
24
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However, the information below is intended only as a general summary, and is
not intended as a discussion of any specific factor that may affect any par-
ticular obligation or issuer.
There can be no assurance that future national, regional or state-wide eco-
nomic difficulties, and the resulting impact on State or local government fi-
nances generally, will not adversely affect the market value of Ohio Obliga-
tions held in the Ohio Fund or the ability of particular obligors to make
timely payments of debt service on (or lease payments relating to) those Obli-
gations.
General. Ohio is the seventh most populous state; the 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census estimate
for 1993 is 11,091,000.
While diversifying more into the service and other non-manufacturing areas,
the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products
and household appliances. As a result, general economic activity, as in many
other industrially-developed states, tends to be more cyclical than in some
other states and in the nation as a whole. Agriculture is an important segment
of the economy, with over half the State's area devoted to farming and approx-
imately 15% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly somewhat
higher than the national figure. For example, the reported 1990 average
monthly State rate was 5.7%, compared to the 5.5% national figure. However,
for the last four years the State rates were below the national rates (5.5%
versus 6.1% in 1994, based on preliminary figures). The unemployment rate and
its effects vary among geographic areas of the State.
State Finances. The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending its July
1 to June 30 fiscal year (FY) or fiscal biennium in a deficit position. Most
State operations are financed through the General Revenue Fund (GRF), for
which the personal income and sales-use taxes are the major sources. Growth
and depletion of GRF ending fund balances show a consistent pattern related to
national economic conditions, with the ending FY balance reduced during less
favorable and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary actions to
ensure resource/expenditure balances during less favorable economic periods.
Those procedures included general and selected reductions in appropriations
spending.
Key biennium-ending fund balances at June 30, 1989 were $475.1 million in the
GRF and $353 million in the Budget Stabilization Fund (BSF, a cash and budget-
ary management fund). In the next two fiscal years necessary corrective steps
were taken to respond to lower receipts and higher expenditures in certain
categories than earlier estimated. Those steps included selected reductions in
appropriations spending and the transfer of $64 million from the BSF to the
GRF. Reported June 30, 1991 ending fund balances were $135.3 million (GRF) and
$300 million (BSF).
To allow time to resolve certain budget differences for the latest complete
biennium, an interim appropriations act was enacted effective July 1, 1991; it
included GRF debt service and lease rental appropriations for the entire 1992-
93 biennium, while continuing most other appropriations for a month.
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Pursuant to the general appropriations act for the entire biennium, passed on
July 11, 1991, $200 million was transferred from the BSF to the GRF in FY
1992.
Based on updated results and forecasts in the course of FY 1992, both in light
of a continuing uncertain nationwide economic situation, there was projected,
and then timely addressed, an FY 1992 imbalance in GRF resources and expendi-
tures. GRF receipts significantly below original forecasts resulted primarily
from lower collections of certain taxes, particularly sales-use and personal
income taxes. Higher expenditure levels came in certain areas, particularly
human services including Medicaid. The Governor ordered most State agencies to
reduce GRF spending in the last six months of FY 1992 by a total of approxi-
mately $184 million. As authorized by the General Assembly, the $100.4 million
BSF balance and additional amounts from certain other funds were transferred
late in the FY to the GRF, and adjustments made in the timing of certain tax
payments. Other administrative revenue and spending actions resolved the re-
maining imbalance.
A significant GRF shortfall (approximately $520 million) was then projected
for the next year, FY 1993. It was addressed by appropriate legislative and
administrative actions. The Governor ordered, effective July 1, 1992, $300
million in selected GRF spending reductions. Subsequent executive and legisla-
tive action in December 1992--a combination of tax revisions and additional
spending reductions--resulted in a balance of GRF resources and expenditures
for the 1992-93 biennium. The June 30, 1993 ending GRF fund balance was ap-
proximately $111 million, of which, as a first step to BSF replenishment, $21
million was deposited in the BSF. (Based on June 30, 1994 balances, an addi-
tional $260 million has been deposited in the BSF, which has a current balance
of $288 million.)
No spending reductions were applied to appropriations needed for debt service
on or lease rentals relating to any State obligations.
The GRF appropriations act for the current 1994-95 biennium was passed and
signed by the Governor on July 1, 1993. It included all necessary GRF appro-
priations for State debt service and lease rental payments then projected for
the biennium.
Debt. The State's incurrence or assumption of debt without a vote of the peo-
ple is, with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise pro-
vided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)
By 13 constitutional amendments, the last adopted in 1993, Ohio voters have
authorized the incurrence of State debt and the pledge of taxes or excises to
its payment. At March 24, 1995, $790.1 million (excluding certain highway
bonds payable primarily from highway use charges) of this debt was outstand-
ing. The only such State debt then still authorized to be incurred are por-
tions of the highway bonds, and the following: (a) up to $100 million of obli-
gations for coal research and development may be outstanding at any one time
($34.7 million outstanding); (b) $360 million of obligations authorized for
local infrastructure improvements, no more than $120 million of which may be
issued
26
<PAGE>
in any calendar year ($728.2 million outstanding); and (c) up to $200 million
in general obligation bonds for parks, recreation and natural resources pur-
poses which may be outstanding at any one time ($20 million outstanding, with
no more than $50 million to be issued in any one year).
Resolutions have been introduced in both houses of the General Assembly that
would submit at the November 1995 election a constitutional amendment relating
to State debt. The amendment would authorize, among other things, the issuance
of State general obligation debt for a variety of purposes and without addi-
tional vote of the people to the extent that debt service on all State general
obligation debt and GRF-supported obligations would not exceed 5% of the pre-
ceding fiscal year's GRF expenditures. It cannot be predicted whether any such
amendment will in fact be submitted, or, if submitted, whether it would be ap-
proved by the electors.
The Constitution also authorizes the issuance of State obligations for certain
purposes, the owners of which do not have the right to have excises or taxes
levied to pay debt service. Those special obligations include obligations is-
sued by the Ohio Public Facilities Commission and the Ohio Building Authority,
and certain obligations issued by the State Treasurer, over $4.5 billion of
which were outstanding at March 24, 1995.
A 1990 constitutional amendment authorizes greater State and political subdi-
vision participation (including financing) in the provision of housing. The
General Assembly may for that purpose authorize the issuance of State obliga-
tions secured by a pledge of all or such portion as it authorizes of State
revenues or receipts (but not by a pledge of the State's full faith and cred-
it).
A 1994 constitutional amendment pledges the full faith and credit and taxing
power of the State to meeting certain guarantees under the State's tuition
credit program which provides for purchase of tuition credits, for the benefit
of State residents, guaranteed to cover a specified amount when applied to the
cost of higher education tuition. (A 1965 constitutional provision that autho-
rized student loan guarantees payable from available State moneys has never
been implemented, apart from a "guarantee fund" approach funded essentially
from program revenues.)
State and local agencies issue obligations that are payable from revenues from
or relating to certain facilities (but not from taxes). By judicial interpre-
tation, these obligations are not "debt" within constitutional provisions. In
general, payment obligations under lease-purchase agreements of Ohio public
agencies (in which certificates of participation may be issued) are limited in
duration to the agency's fiscal period, and are renewable only upon appropria-
tions being made available for the subsequent fiscal period.
Debt Rating. The outstanding State tax supported bonds are currently rated
"Aa" by Moody's and "AAA" (highway obligations) and "AA" by S&P, and the out-
standing State bonds issued by the Ohio Public Facilities Commission and Ohio
Building Authority are rated "A1" by Moody's and "A+" by S&P.
Schools and Municipalities. Local school districts in Ohio receive a major
portion (state-wide aggregate in the range of 46% in recent years) of their
operating moneys from State subsidies, but are dependent
27
<PAGE>
on local property taxes, and in 109 districts from voter-authorized income tax-
es, for significant portions of their budgets. Litigation, similar to that in
other states, is pending questioning the constitutionality of Ohio's system of
school funding. The trial court recently concluded that aspects of the system
(including basic operating assistance) are unconstitutional, and ordered the
State to provide for and fund a system complying with the Ohio Constitution.
The State has appealed. A small number of the State's 612 local school dis-
tricts have in any year required special assistance to avoid year-end deficits.
A current program provides for school district cash need borrowing directly
from commercial lenders, with diversion of State subsidy distributions to re-
payment if needed. Borrowings under this program totalled $68.6 million for 44
districts (including $46.6 million for one district) in FY 1992, $94.5 million
for 27 districts (including $75 million for one) in FY 1993, and $15.6 million
for 28 districts in FY 1994.
Ohio's 943 incorporated cities and villages rely primarily on property and mu-
nicipal income taxes for their operations. With other subdivisions, they also
receive local government support and property tax relief moneys distributed by
the State. For those few municipalities that on occasion have faced significant
financial problems, there are statutory procedures for a joint State/local com-
mission to monitor the municipality's fiscal affairs and for development of a
financial plan to eliminate deficits and cure any defaults. Since inception in
1979, these procedures have been applied to 23 cities and villages; for 18 of
them the fiscal situation was resolved and the procedures terminated.
Property Taxes. At present the State itself does not levy ad valorem taxes on
real or tangible personal property. Those taxes are levied by political subdi-
visions and other local taxing districts. The Constitution has since 1934 lim-
ited to 1% of true value in money the amount of the aggregate levy (including a
levy for unvoted general obligations) of property taxes by all overlapping sub-
divisions, without a vote of the electors or a municipal charter provision, and
statutes limit the amount of that aggregate levy to 10 mills per $1 of assessed
valuation (commonly referred to as the "ten-mill limitation"). Voted general
obligations of subdivisions are payable from property taxes that are unlimited
as to amount or rate.
Litigation. According to recent State official statements, the State is a party
to various legal proceedings seeking damages or injunctive or other relief and
generally incidental to its operations. The ultimate disposition of those pro-
ceedings is not determinable.
CONSIDERATIONS RELATING TO FINANCIAL FUTURES AND OPTION CONTRACTS
As described in the Prospectus, each of the Funds may purchase and sell finan-
cial futures contracts, options on financial futures or related options for the
purpose of hedging its portfolio securities against declines in the value of
such securities, and to hedge against increases in the cost of securities the
Fund intends to purchase. To accomplish such hedging, a Fund may take an in-
vestment position in a futures contract or in an option which is expected to
move in the opposite direction from the position being hedged. Futures or op-
tions utilized for hedging purposes would either be based on an index of long-
term Municipal Obligations (i.e., those with remaining maturities averaging 20-
30 years) or relate to debt securities whose prices are anticipated by Nuveen
Advisory to correlate with the prices of the Municipal Obligations owned by a
Fund. The sale of financial futures or the purchase of put options on financial
futures or on debt securities or indexes is a means of hedging against the risk
that the
28
<PAGE>
value of securities owned by a Fund may decline on account of an increase in
interest rates, and the purchase of financial futures or of call options on fi-
nancial futures or on debt securities or indexes is a means of hedging against
increases in the cost of the securities a Fund intends to purchase as a result
of a decline in interest rates. Writing a call option on a futures contract or
on debt securities or indexes may serve as a hedge against a modest decline in
prices of Municipal Obligations held in a Fund's portfolio, and writing a put
option on a futures contract or on debt securities or indexes may serve as a
partial hedge against an increase in the value of Municipal Obligations a Fund
intends to acquire. The writing of such options provides a hedge to the extent
of the premium received in the writing transaction. Regulations of the Commod-
ity Futures Trading Commission ("CFTC") applicable to the Funds require that
transactions in futures and options on futures be engaged in only for bona-fide
hedging purposes, and that no such transactions may be entered into by a Fund
if the aggregate initial margin deposits and premiums paid by that Fund exceeds
5% of the market value of the Fund's assets. A Fund will not purchase futures
unless it has segregated cash, government securities or high grade liquid debt
equal to the contract price of the futures less any margin on deposit, or un-
less the long futures position is covered by the sale of a put option. A Fund
will not sell futures unless the Fund owns the instruments underlying the
futures or owns options on such instruments or owns a portfolio whose market
price may be expected to move in tandem with the market price of the instru-
ments or index underlying the futures. In addition, each Fund is subject to the
tax requirement that less than 30% of its gross income may be derived from the
sale or disposition of securities held for less than three months. With respect
to its engaging in transactions involving the purchase or writing of put and
call options on debt securities or indexes, a Fund will not purchase such op-
tions if more than 5% of its assets would be invested in the premiums for such
options, and it will only write "covered" or "secured" options, wherein the se-
curities or cash required to be delivered upon exercise are held by a Fund,
with such cash being maintained in a segregated account. These requirements and
limitations may limit a Fund's ability to engage in hedging transactions.
Description of Financial Futures and Options. A futures contract is a contract
between a seller and a buyer for the sale and purchase of specified property at
a specified future date for a specified price. An option is a contract that
gives the holder of the option the right, but not the obligation, to buy (in
the case of a call option) specified property from, or to sell (in the case of
a put option) specified property to, the writer of the option for a specified
price during a specified period prior to the option's expiration. Financial
futures contracts and options cover specified debt securities (such as U.S.
Treasury securities) or indexes designed to correlate with price movements in
certain categories of debt securities. At least one exchange trades futures
contracts on an index designed to correlate with the long-term municipal bond
market. Financial futures contracts and options on financial futures contracts
are traded on exchanges regulated by the CFTC. Options on certain financial in-
struments and financial indexes are traded in securities markets regulated by
the Securities and Exchange Commission. Although futures contracts and options
on specified financial instruments call for settlement by delivery of the fi-
nancial instruments covered by the contracts, in most cases positions in these
contracts are closed out in cash by entering into offsetting, liquidating or
closing transactions. Index futures and options are designed for cash settle-
ment only.
Risks of Futures and Options Transactions. There are risks associated with the
use of futures contracts and options for hedging purposes. Investment in
futures contracts and options involves the risk of
29
<PAGE>
imperfect correlation between movements in the price of the futures contract
and options and the price of the security being hedged. The hedge will not be
fully effective where there is imperfect correlation between the movements in
the two financial instruments. For example, if the price of the futures con-
tract moves more than the price of the hedged security, a Fund will experience
either a loss or gain on the future which is not completely offset by move-
ments in the price of the hedged securities. Further, even where perfect cor-
relation between the price movements does occur, a Fund will sustain a loss at
least equal to the commissions on the financial futures transaction. To com-
pensate for imperfect corrections, the Funds may purchase or sell futures con-
tracts in a greater dollar amount than the hedged securities if the volatility
of the hedged securities is historically greater than the volatility of the
futures contracts. Conversely, the Funds may purchase or sell fewer futures
contracts if the volatility of the price of the hedged securities is histori-
cally less than that of the futures contracts.
Because of low initial margin deposits made upon the opening of a futures po-
sition, futures transactions involve substantial leverage. As a result, rela-
tively small movements in the price of the futures contract can result in sub-
stantial unrealized gains or losses. Because the Funds will engage in the pur-
chase and sale of financial futures contracts solely for hedging purposes,
however, any losses incurred in connection therewith should, if the hedging
strategy is successful, be offset in whole or in part by increases in the
value of securities held by the Funds or decreases in the price of securities
the Funds intend to acquire.
The Funds expect to liquidate a majority of the financial futures contracts
they enter into through offsetting transactions on the applicable contract
market. There can be no assurance, however, that a liquid secondary market
will exist for any particular futures contract at any specific time. Thus, it
may not be possible to close a futures position. In the event of adverse price
movements, the Funds would continue to be required to make daily cash payments
of variation margin. In such situations, if a Fund has sufficient cash, it may
be required to sell portfolio securities to meet daily variation margin re-
quirements at a time when it may be disadvantageous to do so. The inability to
close out futures positions also could have an adverse impact on a Fund's
ability to hedge its portfolio effectively and may expose the Fund to risk of
loss. The Funds will enter into a futures position only if, in the judgment of
Nuveen Advisory, there appears to be an actively traded secondary market for
such futures contracts.
The liquidity of a secondary market in a futures contract may be adversely af-
fected by "daily price fluctuation limits" established by commodity exchanges
which limit the amount of fluctuation in a futures contract price during a
single trading day. Once the daily limit has been reached in the contract, no
trades may be entered into at a price beyond the limit, thus preventing the
liquidation of open futures positions. Prices have in the past moved the daily
limit on a number of consecutive trading days.
The successful use of transactions in futures also depends on the ability of
Nuveen Advisory to forecast the direction and extent of interest rate move-
ments within a given time frame. To the extent these prices remain stable dur-
ing the period in which a futures contract is held by a Fund or moves in a di-
rection opposite to that anticipated, the Fund may realize a loss on the hedg-
ing transaction which is not fully or partially offset by an increase in the
value of portfolio securities. As a result, the Fund's total return for such
period may be less than if it had not engaged in the hedging transaction.
30
<PAGE>
The ability of each of the Funds to engage in transactions in futures contracts
may be limited by the tax requirement that it have less than 30% of its gross
income derived from the sale or other disposition of stock or securities held
for less than three months. Gain from transactions in futures contracts will be
taxable to a Fund's shareholders partially as short-term and partially as long-
term capital gain.
TEMPORARY INVESTMENTS
The Prospectus discusses briefly the ability of each Fund to invest a portion
of its assets in federally tax-exempt or taxable "temporary investments." Tem-
porary investments will not exceed 20% of any Fund's assets except when made
for defensive purposes. The Funds 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 Funds may invest in the following federally tax-exempt temporary invest-
ments:
Bond Anticipation Notes (BANs) are usually general obligations of state and lo-
cal governmental issuers which are sold to obtain interim financing for pro-
jects that will eventually be funded through the sale of long-term debt obliga-
tions or bonds. The ability of an issuer to meet its obligations on its BANs is
primarily dependent on the issuer's access to the long-term municipal bond mar-
ket and the likelihood that the proceeds of such bond sales will be used to pay
the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments to fi-
nance the current operations of such governments. Repayment is generally to be
derived from specific future tax revenues. Tax anticipation notes are usually
general obligations of the issuer. A weakness in an issuer's capacity to raise
taxes due to, among other things, a decline in its tax base or a rise in delin-
quencies, could adversely affect the issuer's ability to meet its obligations
on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or governmental
bodies with the expectation that future revenues from a designated source will
be used to repay the notes. In general, they also constitute general obliga-
tions of the issuer. A decline in the receipt of projected revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and in-
terest 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.
31
<PAGE>
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.
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 each Fund may invest in such other types of notes to the
extent 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 Funds 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 Funds will only invest in U.S. dollar denomi-
nated 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.
32
<PAGE>
Other Corporate Obligations--The Funds 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 determines the
yield during a 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 Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the opin-
ion of Nuveen Advisory present minimal credit risk. The risk to the Funds 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 collateral declines there is a risk
of loss of both principal and interest. In the event of default, the collateral
may be sold but the Funds might incur a loss if the value of the collateral de-
clines, 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 col-
lateral by the Funds 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 declined below the repurchase price, Nuveen
Advisory will demand additional collateral from the issuer to increase the
value of the collateral to at least that of the repurchase price. A 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 of 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.
33
<PAGE>
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 in-
terest is very strong and such bonds differ from AAA issues only in small de-
gree. 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 adequate capacity to pay prin-
cipal and interest. Whereas such bonds normally exhibit adequate protection pa-
rameters, adverse economic conditions are more likely to lead to a weakened ca-
pacity 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 a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligation from the Fund's port-
folio, 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 Nuveen Tax-Free Bond Fund, Inc., including general supervi-
sion of the duties performed for the Funds under the Investment Management
Agreement, is the responsibility of its Board of Directors. The number of di-
rectors of Nuveen Tax-Free Bond Fund, Inc. is fixed at seven. Due to the recent
death of one of the directors, John E. O'Toole, there is a vacancy on the
board, so that currently there are six directors, two of whom are "interested
persons" (as the term "interested persons" is defined in the Investment Company
Act of 1940) and four of whom are "disinterested persons." The names and busi-
ness addresses of the directors and officers of Nuveen Tax-Free Bond Fund, Inc.
and their principal occupations and other affiliations during the past five
years are set forth below, with those directors who are "interested persons"
indicated by an asterisk.
<TABLE>
- ------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND
OFFICES WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE FUNDS DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard J. Franke* 63 Chairman of the Chairman of the Board, Director and
333 West Wacker Board and Di- formerly President of John Nuveen & Co.
Drive rector Incorporated; Chairman of the Board and
Chicago, IL 60606 Director, formerly President, of Nuveen
Advisory Corp.; Chairman of the Board
and Director of Nuveen Institutional
Advisory Corp. (since April 1990); Cer-
tified Financial Planner.
</TABLE>
- --------------------------------------------------------------------------------
34
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND
OFFICES WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE FUNDS DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Timothy R. 46 President and Executive Vice President and Director
Schwertfeger* Director of The John Nuveen Company (since March
333 West Wacker 1992) and John Nuveen & Co. Incorporat-
Drive ed; Director of Nuveen Advisory Corp.
Chicago, IL 60606 (since 1992) and Nuveen Institutional
Advisory Corp. (since 1992).
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown 60 Director Retired (August 1989) as Senior Vice
201 Michigan Avenue President of The Northern Trust Compa-
Highwood, IL 60040 ny.
- ------------------------------------------------------------------------------------------------------------------------------------
Anne E. Impellizzeri 62 Director President and Chief Executive Officer
3 West 29th Street of Blanton-Peale, Institutes of Reli-
New York, NY 10001 gion and Health (since December 1990);
prior thereto, Vice President of New
York City Partnership (from 1987 to
1990).
- ------------------------------------------------------------------------------------------------------------------------------------
Margaret K. Rosen- 68 Director Helen Ross Professor of Social Welfare
heim Policy, School of Social Service Admin-
969 East 60th Street istration, University of Chicago.
Chicago, IL 60637
- ------------------------------------------------------------------------------------------------------------------------------------
Peter R. Sawers 62 Director Adjunct Professor of Business and Eco-
22 The Landmark nomics, University of Dubuque, Iowa
Northfield, IL 60093 (since January 1991); Adjunct Profes-
sor, Lake Forest Graduate School of
Management, Lake Forest, Illinois
(since January 1992); prior thereto,
Executive Director, Towers Perrin Aus-
tralia (management consultant); Chart-
ered Financial Analyst; Certified Man-
agement Consultant.
- ------------------------------------------------------------------------------------------------------------------------------------
Kathleen M. Flanagan 48 Vice President Vice President of John Nuveen & Co. In-
333 West Wacker corporated.
Drive
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
J. Thomas Futrell 39 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker (since February 1991); prior thereto,
Drive Assistant Vice President of Nuveen
Chicago, IL 60606 Advisory Corp. (from August 1988 to
February 1991); Chartered Financial
Analyst.
- ------------------------------------------------------------------------------------------------------------------------------------
Steven J. Krupa 37 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker (since October 1990); prior thereto,
Drive Vice President of John Nuveen & Co. In-
Chicago, IL 60606 corporated (from January 1989 to Octo-
ber 1990).
- ------------------------------------------------------------------------------------------------------------------------------------
Anna R. Kucinskis 49 Vice President Vice President of John Nuveen & Co. In-
333 West Wacker corporated.
Drive
Chicago, IL 60606
</TABLE>
- --------------------------------------------------------------------------------
35
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND
OFFICES WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE FUNDS DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Larry W. Martin 43 Vice President Vice President (since September 1992),
333 West Wacker and Assistant Assistant Secretary and Assistant Gen-
Drive Secretary eral Counsel of John Nuveen & Co. In-
Chicago, IL 60606 corporated; Vice President (since May
1993) and Assistant Secretary of Nuveen
Advisory Corp; Vice President (since
May 1993) and Assistant Secretary
(since January 1992) of Nuveen Institu-
tional Advisory Corp.; Assistant Secre-
tary of The John Nuveen Company (since
February 1993).
- ------------------------------------------------------------------------------------------------------------------------------------
O. Walter Renfftlen 55 Vice President Vice President and Controller of The
333 West Wacker and Controller John Nuveen Company (since March 1992),
Drive John Nuveen & Co. Incorporated, Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional
Advisory Corp. (since April 1990).
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas C. Spalding, 43 Vice President Vice President of Nuveen Advisory Corp.
Jr. and Nuveen Institutional Advisory Corp.
333 West Wacker (since April 1990); Chartered Financial
Drive Analyst.
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
H. William Stabenow 60 Vice President Vice President and Treasurer of The
333 West Wacker and Treasurer John Nuveen Company (since March 1992),
Drive John Nuveen & Co. Incorporated, Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional
Advisory Corp. (since January 1992).
- ------------------------------------------------------------------------------------------------------------------------------------
George P. Thermos 63 Vice President Vice President of John Nuveen & Co. In-
333 West Wacker corporated.
Drive
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
James J. Wesolowski 44 Vice President Vice President, General Counsel and
333 West Wacker and Secretary Secretary of The John Nuveen Company
Drive (since March 1992), John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.
(since April 1990).
- ------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman 38 Vice President Vice President (since September 1992),
333 West Wacker and Assistant Assistant Secretary and Assistant Gen-
Drive Secretary eral Counsel of John Nuveen & Co. In-
Chicago, IL 60606 corporated; Vice President (since May
1993) and Assistant Secretary of Nuveen
Advisory Corp.; Vice President (since
May 1993) and Assistant Secretary
(since January 1992) of Nuveen Institu-
tional Advisory Corp.
</TABLE>
- --------------------------------------------------------------------------------
36
<PAGE>
Richard J. Franke, Timothy R. Schwertfeger and Margaret K. Rosenheim serve as
members of the Executive Committee of the Board of Directors. The Executive
Committee, which meets between regular meetings of the Board of Directors, is
authorized to exercise all of the powers of the Board of Directors.
The directors of Nuveen Tax-Free Bond Fund, Inc. are also directors or trust-
ees, as the case may be, of 18 other Nuveen open-end fund portfolios and 55
Nuveen closed-end funds.
The following table sets forth compensation paid by Nuveen Tax-Free Bond Fund,
Inc. during the fiscal year ended February 28, 1995 to each of the directors.
The Nuveen Tax-Free Bond Fund, Inc. has no retirement or pension plans. The
officers and directors affiliated with Nuveen serve without any compensation
from the Nuveen Tax-Free Bond Fund, Inc.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM THE FUND
AGGREGATE AND FUND COMPLEX
COMPENSATION PAID TO
NAME OF DIRECTOR FROM THE FUND DIRECTORS(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Richard J. Franke.............................. $ -- $ --
Timothy R. Schwertfeger........................ -- --
Lawrence H. Brown.............................. 1,149 56,500
Anne E. Impellizzeri........................... 884 48,750
Margaret K. Rosenheim.......................... 1,619(2) 64,404(3)
Peter R. Sawers................................ 1,149 56,000
</TABLE>
- --------
(1) The directors of the Nuveen Tax-Free Bond Fund, Inc. are directors or
trustees, as the case may be, of 21 Nuveen open-end funds and 55 Nuveen
closed-end funds.
(2) Includes $270 in interest earned on deferred compensation from prior
years.
(3) Includes $1,404 in interest earned on deferred compensation from prior
years.
Each director 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 regu-
larly scheduled Board meeting is held, a $1,000 fee per day plus expenses for
attendance in person or a $500 fee per day plus expenses for attendance by
telephone at a meeting held on a day on which no regular Board meeting is
held, and a $250 fee per day plus expenses for attendance in person or by tel-
ephone at a meeting of the Executive Committee held solely to declare divi-
dends. The annual retainer, fees and expenses are allocated among the funds
for which Nuveen Advisory serves as investment adviser on the basis of rela-
tive net asset sizes. The Funds require no employees other than its officers,
all of whom are compensated by Nuveen.
37
<PAGE>
On May 25, 1995, the officers and directors of Nuveen Tax-Free Bond Fund, Inc.
as a group owned less than 1% of the outstanding shares of each Fund. The fol-
lowing table sets forth the percentage ownership of each person who, as of May
25, 1995, owned of record or was known by Nuveen Tax-Free Bond Fund, Inc. to
own of record or beneficially 5% or more of any class of shares of a Fund.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OWNERSHIP
- --------------------------------------------------------------------------------
<S> <C> <C>
Massachusetts Fund
Class A Shares......................... Prudential Securities FBO 5.77%
Edith Ferrera
138 Harbor View Rd.
Milton, MA 02186-5256
Alfred Campanelli 5.65%
P.O. Box 850985
Braintree, MA 02185-0985
Massachusetts Fund
Class C Shares......................... Richard Doucette 24.76%
363 Farrwood Dr.
Bradford, MA 01835-8400
Emily Pelczarski Cust. 20.06%
FBO Brian Pelczarski
UNIF TRANS MIN ACT MA
8 Coram St.
Tauton, MA 02780-2512
Emily Pelczarski Cust. 19.87%
FBO Laurie Pelczarski
UNIF TRANS MIN ACT MA
8 Coram St.
Taunton, MA 02780-2512
Pauline H. Bates 8.29%
68 Brattle St.
Worcester, MA 01606-2548
Swastika Sengupta 5.83%
23 Loumar Dr., #2
Pittsfield, MA 01201-5932
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OWNERSHIP
- --------------------------------------------------------------------------------
<S> <C> <C>
Charles G. Allen, Jr. TR. 5.56%
UA MAR 05 54
UW Flora A. Generess
FBO Charles G. Allen, Jr. et al.
221 James St., #65
Barre, MA 01005-8805
New York Fund
Class A Shares.................. BHC Securities, Inc. 8.85%
ATTN: Mutual Funds
One Commerce Square
2005 Market St., Ste. 1200
Philadelphia, PA 19103-7042
New York Fund
Class C Shares.................. NFSC FEBO #OMY-319236 35.70%
Karen Takoushian
Special M & D Account
245 North Cottage Street
Valley Stream, NY 11580
Katherine C. Hinton & 18.17%
Lorin W. Lyle
JT TEN WROS NOT TC
100 LaSalle St., Apt. 11F
New York, NY 10027-4738
Anne M. Cherico 12.10%
8 Sharon Dr.
New City, NY 10956-3620
Mary J. Pelosi 8.69%
1708 Hone Ave.
Bronx, NY 10461-1403
Apolonia Rehill & 7.60%
Donald Rehill
JT TEN WROS NOT TC
4360 Douglaston Pky., Apt. 511
Douglaston, NY 11363-1877
New York Fund
Class R Shares.................. BHC Securities, Inc. 10.01%
ATTN: Mutual Funds
One Commerce Square
2005 Market St., Ste. 1200
Philadelphia, PA 19103-7042
Ohio Fund
Class A Shares.................. Ann Zlatoper 11.30%
100 Windrush Dr.
Chagrin Falls, OH 44022-6843
Ohio Fund
Class C Shares.................. Timothy L. Horn 20.02%
2109 Fishinger Rd.
Columbus, OH 43221-1246
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
NAME
OF
FUND
AND PERCENTAGE OF
CLASS NAME AND ADDRESS OF OWNER OWNERSHIP
- --------------------------------------------------
<S> <C> <C>
Jack C. Amato 10.44%
16687 Saint Clair Ave.
East Liverpool, OH 43920-9401
John T. Given & 8.05%
Deborah Given
JT TEN WROS NOT TC
5130 Parkhaven Ave., N.E.
Canton, OH 44705-3142
NFSC FEBO # A7D-559865 6.03%
ADCO Distributors, Inc.
ATTN: Barry Adelman
221 Cherry, N.E.
Canton, OH 44702
Amedeo Chiovitti & 5.17%
Pierina Chiovitti
JT TEN WROS NOT TC
1470 Tamarisk Trl.
Youngstown, OH 44514-3630
ADCO Distributors, Inc. 5.10%
ATTN: Barry Adelman
221 Cherry Ave., N.E.
Canton, OH 44702-1138
</TABLE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the investment
and reinvestment of the assets of each of the Funds. Nuveen Advisory also ad-
ministers Nuveen Tax-Free Bond Fund Inc.'s business affairs, provides office
facilities and equipment and certain clerical, bookkeeping and administrative
services, and permits any of its officers or employees to serve without compen-
sation as directors or officers if elected to such positions. See "Management
of the Funds" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
Nuveen Tax-Free Bond Fund, Inc., each Fund has agreed to pay an annual manage-
ment fee at the rates set forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEE
- ------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1%
For the next $250 million .5250 of 1%
For the next $500 million .5125 of 1%
For the next $1 billion .5000 of 1%
For assets over $2 billion .4750 of 1%
</TABLE>
40
<PAGE>
In order to prevent total operating expenses (including 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) from exceeding .75 of 1% of the av-
erage daily net asset value of any class of shares of each Fund for any fiscal
year, Nuveen Advisory has agreed to waive all or a portion of its management
fees or reimburse certain expenses of each Fund. Nuveen Advisory may also vol-
untarily agree to reimburse additional expenses from time to time, which vol-
untary reimbursements may be terminated at any time in its discretion. For the
last three fiscal years, the Funds paid net management fees to Nuveen Advisory
as follows:
<TABLE>
<CAPTION>
NET MANAGEMENT FEES FEE WAIVERS AND
PAID TO NUVEEN ADVISORY FOR EXPENSE REIMBURSEMENTS FOR
THE YEAR ENDED FEBRUARY 28 THE YEAR ENDED FEBRUARY 28,
-------------------------------- ---------------------------
1993 1994 1995 1993 1994 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Massachusetts Fund...... $ 181,971 $ 320,135 $ 370,394 $ 55,314 $ 37,413 $ 17,319
New York Fund........... 383,947 688,156 786,847 75,609 34,007 4,556
Ohio Fund............... 493,664 831,787 873,409 94,194 6,228 3,524
Total For All Funds..... 1,059,582 1,840,078 2,030,650 225,117 77,648 25,399
</TABLE>
As discussed in the Prospectus, in addition to the management fees of Nuveen
Advisory, each Fund pays all other costs and expenses of its operations and a
portion of Nuveen Tax-Free Bond Fund Inc.'s general administrative expenses
allocated in proportion to the net assets of each Fund.
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co. Incorporated
("Nuveen"), the Funds' 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 Funds, the other Nuveen funds, Nuveen Advisory, and other related entities
have adopted a code of ethics which essentially prohibits all Nuveen fund man-
agement personnel, including Nuveen fund portfolio managers, from engaging in
personal investments which compete or interfere with, or at-
41
<PAGE>
tempt to take advantage of, a Fund's anticipated or actual portfolio transac-
tions, and is designed to assure that the interest of Fund shareholders are
placed before the interest of Nuveen personnel in connection with personal in-
vestment transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of each 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
obtained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Funds expect that all portfolio transactions will be effected on a princi-
pal (as opposed to an agency) basis and, accordingly, do not expect to pay 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 Funds to select
dealers which, in addition, furnish research information (primarily credit
analyses of issuers and general economic reports) and statistical and other
services to Nuveen Advisory. It is not possible to place a dollar value on in-
formation 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 Advisory will be primarily responsible for
the placement of the business of the Funds, 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 Directors.
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 Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions
among the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a
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 a Fund from time to time, it is the
opinion of the Board of Directors that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from ex-
posure to simultaneous transactions.
42
<PAGE>
Under the Investment Company Act of 1940, the Funds 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 a Fund, the amount of Municipal Obligations which
may be purchased in any one issue and the assets of a Fund which may be in-
vested in a particular issue. In addition, purchases of securities made pursu-
ant to the terms of the Rule must be approved at least quarterly by the Board
of Directors, including a majority of the directors who are not interested
persons of the Funds.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of each Fund
will be determined separately for each class of a Fund's shares by United
States Trust Company of New York, the Funds' 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 of a Fund will be computed by dividing the value of the Fund's
assets attributable to the class, less the liabilities attributable to the
class, by the number of shares of the class outstanding. The annual distribu-
tion fee to which Class C shares are subject is accrued each day as a liabil-
ity of the Fund with respect to the Class C shares, and accordingly reduces
the net asset value of those shares.
In determining net asset value for each of the Funds, the Funds' 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 between the quoted bid and asked price or the yield equivalent when
quotations are readily available. Securities for which quotations are not
readily available (which constitute a majority of the securities held by these
Funds) are valued at fair value as determined by the pricing service using
methods which include consideration of the following: yields or prices of mu-
nicipal bonds of comparable quality, type of issue, coupon, maturity and rat-
ing; indications as to value from dealers; 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 Funds under the general su-
pervision of the Board of Directors.
43
<PAGE>
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the advice
of Fried, Frank, Harris, Shriver and Jacobson, Washington, D.C., counsel to the
Funds.
As described in the Prospectus, each Fund intends to qualify, as it has in
prior years, 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 investment company, a Fund must satisfy certain
requirements relating to the source of its income, diversification of its as-
sets, and distributions of its income to shareholders. First, a Fund must de-
rive 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) de-
rived with respect to its business of investing in such stock or securities
(the "90% gross income test"). Second, a 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,
a 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 reg-
ulated investment companies and other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the value of 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 secu-
rities and securities of other regulated investment companies) or two or more
issuers controlled by a Fund and engaged in the same, similar or related trades
or businesses.
As a regulated investment company, a fund will not be subject to U.S. federal
income tax in any taxable year for which it distributes at least 90% of its
"investment company taxable income" (which includes dividends, taxable inter-
est, taxable original issue discount and market discount income, income from
securities 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"). A 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 a Fund retains any net capital gain or any in-
vestment company taxable income, it will be subject to tax at regular corporate
rates on the amount retained. If a Fund retains any capital gain, such Fund may
designate the retained amount as undistributed capital gains in a notice to its
shareholders who, if subject to U.S. 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 undistributed amount,
and (ii) will be entitled to credit their proportionate shares of the tax paid
by such Fund against their U.S. federal income tax liabilities if any, and to
claim refunds to the extent the credit exceeds such liabilities. For U.S. fed-
eral 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
44
<PAGE>
of undistributed capital gains included in the shareholder's gross income.
Each Fund intends to distribute at least annually to its shareholders all or
substantially all of its 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 pur-
poses 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 Oc-
tober 31 as if they had been incurred in the succeeding year.
Each 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 investment
in Municipal Obligations, which is exempt from federal income tax when re-
ceived by such Fund, as exempt-interest dividends. Shareholders receiving ex-
empt-interest dividends will not be subject to federal income tax on the
amount of such dividends. Insurance proceeds received by a Fund under any in-
surance policies in respect of scheduled interest payments on defaulted Munic-
ipal 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
representing interest on "non-appropriation" lease obligations will be exclud-
able from gross income for federal income tax purposes. See "Fundamental Poli-
cies and Investment Portfolio--Portfolio Securities."
Distributions by each Fund of net interest received from certain taxable tem-
porary investments (such as certificates of deposit, commercial paper and ob-
ligations of the United States Government, its agencies and instrumentalities)
and net short-term capital gains realized by a Fund, if any, will be taxable
to shareholders as ordinary income whether received in cash or additional
shares./1/ If a 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 a Fund and distributed to shareholders, in cash or in additional
shares will be taxable to shareholders as long-term capital gains regardless
of the length of time investors have owned shares of a Fund. Distributions by
a Fund that do not constitute ordinary income dividends, exempt-interest divi-
dends, 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.
- --------
/1/If a Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable in-
come 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 per-
centage of income designated as tax-exempt for any particular distribution may
be substantially different from the percentage of the Fund's income that was
tax-exempt during the period covered by the distribution.
45
<PAGE>
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. This may in-
crease the amount of short-term capital gains realized by that Fund.
Because the taxable portion of each 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 deduction for corporations. Prior to purchasing shares in one of
the Funds, the impact of dividends or distributions which are expected to be or
have been declared, but not paid, should be carefully considered. Any dividend
or distribution declared shortly after a purchase of such shares prior to the
record date will have the effect of reducing the per share net asset value by
the per share amount of the 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 each Fund (and received
by the shareholders) on December 31.
The redemption or exchange of the shares of a Fund normally will result in cap-
ital 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 corporations
at the rates applicable to ordinary income. For non-corporate taxpayers, howev-
er, 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 rate of tax may be higher in certain circumstances. All or a por-
tion 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 disregarded 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 a Fund held for six months or less are
disallowed to the extent of any distribution of exempt-interest dividends re-
ceived with respect to such shares and, if not disallowed, such losses are
treated as long-term capital losses to the extent of any distributions of long-
term capital gain made with respect to such shares. In addition, no loss will
be allowed on the redemption or exchange of shares of a Fund if the shareholder
purchases other shares of such Fund (whether through reinvestment of distribu-
tions or otherwise) or the shareholder acquires or enters into a contract or
option to acquire securities that are substantially identical to shares of a
Fund within a period of 61 days beginning 30 days before and ending 30 days af-
ter such redemption or exchange. If disallowed, the loss will be reflected in
an adjustment to the basis of the shares acquired.
46
<PAGE>
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 redemption 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 extent 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, each 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 computed 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 real-
ized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the ex-
cise tax, a regulated investment company may (i) 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 in determining the amount of ordinary taxable income
for the current calendar year (and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year). The
Funds intend to make timely distributions in compliance with these requirements
and consequently it is anticipated that they generally will not be required to
pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax treat-
ment as a regulated investment company, the Fund would incur a regular corpo-
rate federal income tax upon its income for that year (other than interest in-
come from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Among the requirements that a 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 assets
held for less than three months.
Because the Funds may invest in private activity bonds, the interest on which
is not federally tax-exempt to persons who are "substantial users" of the fa-
cilities financed by such bonds or "related persons" of such "substantial us-
ers," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax ad-
visers before investing in one of the Funds.
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 hospi-
tals), is included as an item of tax preference in determining the amount of a
taxpayer's alternative minimum taxable income. To the extent that a 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
47
<PAGE>
determined under the alternative minimum tax regime. The Funds will annually
supply shareholders with a report indicating the percentage of Fund income at-
tributable 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 Funds 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 any 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 a 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 Funds are required in certain circumstances to withhold 31% of taxable div-
idends and certain other payments paid to non-corporate holders of shares who
have not furnished to the Funds their correct taxpayer identification number
(in the case of individuals, their social security number) and certain certifi-
cations, 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 Funds and their shareholders. For complete provisions, refer-
ence should be made to the pertinent Code sections and Treasury Regulations.
The Code and Treasury Regulations are subject to change by legislative or ad-
ministrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the Funds and
the income tax consequences to their shareholders.
STATE TAX MATTERS
The following state tax information applicable to each Fund or its shareholders
is based upon the advice of each Fund's special state tax counsel, and repre-
sents a summary of certain provisions of each state's tax laws presently in ef-
fect. The state tax information below assumes that each Fund qualifies as a
regulated investment company for federal income tax purposes under Subchapter M
of the Code, and that the amounts so designated by each Fund to its sharehold-
ers qualify as "exempt-interest dividends" under Section 852(b)(5) of the Code.
These provisions are subject to change by legislative or administrative action,
which may be applied retroactively to Fund transactions. You should consult
your own tax adviser for more detailed information concerning state taxes to
which you may be subject.
48
<PAGE>
NUVEEN MASSACHUSETTS TAX-FREE VALUE FUND
Individual shareholders of the Massachusetts Fund who are subject to Massachu-
setts income taxation will not be required to include that portion of their
federally tax-exempt dividends in Massachusetts gross income which the Massa-
chusetts Fund clearly identifies as directly attributable to interest earned on
Municipal Obligations issued by governmental authorities in Massachusetts and
which are specifically exempted from income taxation in Massachusetts; provided
that such portion is identified in a written notice mailed to the shareholders
of the Massachusetts Fund not later than sixty days after the close of the Mas-
sachusetts Fund's tax year. Also, the individual shareholders of the Massachu-
setts Fund will not be required to include in gross income interest earned on
obligations of United States possessions and territories to the extent interest
earned on such obligations is exempt from taxation by the states pursuant to
federal law.
Similarly, such shareholders will not be required to include in Massachusetts
gross income capital gain dividends designated by the Massachusetts Fund to the
extent such dividends are attributable to gains derived from Municipal Obliga-
tions issued by Massachusetts governmental authorities and are specifically ex-
empted from income taxation in Massachusetts, provided that such dividends are
identified in a written notice mailed to the shareholders of the Massachusetts
Fund not later than sixty days after the close of the Massachusetts Fund's tax
year. Lastly, any dividends of the Massachusetts Fund attributable to interest
on U.S. obligations exempt from state taxation and included in Federal gross
income will not be included in Massachusetts gross income if identified by the
Massachusetts Fund in a written notice mailed to shareholders within sixty days
after the close of the Massachusetts Fund's tax year. Massachusetts sharehold-
ers will be required to include all remaining dividends in their Massachusetts
income.
To the extent not otherwise exempted from Massachusetts income taxation as pro-
vided above, the Massachusetts Fund's long-term capital gains for federal in-
come tax purposes will be taxed as long-term capital gains to the individual
shareholders of the Massachusetts Fund for purposes of Massachusetts income
taxation. Massachusetts shareholders will be required to recognize any taxable
gain or loss that is recognized for federal income tax purposes upon an ex-
change or redemption of their shares.
If a shareholder of the Massachusetts Fund is a Massachusetts business corpora-
tion or any foreign business corporation which exercises its charter, qualifies
to do business, actually does business or owns or uses any part of its capital,
plant or other property in Massachusetts, then it will be subject to Massachu-
setts excise taxation either as a tangible property corporation or as an intan-
gible property corporation. If the corporate shareholder is a tangible property
corporation, it will be taxed upon its net income allocated to Massachusetts
and the value of certain tangible property. If it is an intangible property
corporation, it will be taxed upon its net income and net worth allocated to
Massachusetts. Net income is gross income less allowable deductions for federal
income tax purposes, subject to specified modifications. Dividends received
from the Massachusetts Fund are includable in gross income and generally may
not be deducted by a corporate shareholder in computing its net income. The
corporation's shares in the Massachusetts Fund are not includable in the compu-
tation of the tangible property base of a tangible property corporation, but
are includable in the computation of the net worth base of an intangible prop-
erty corporation.
49
<PAGE>
Shares of the Massachusetts Fund will be includable in the Massachusetts gross
estate of a deceased individual shareholder who is a resident of Massachusetts
for purposes of the Massachusetts Estate Tax.
Shares of the Massachusetts Fund will be exempt from local property taxes in
Massachusetts.
NUVEEN NEW YORK TAX-FREE VALUE FUND
Individual shareholders of the New York Fund who are subject to New York State
(or New York City) personal income taxation will not be required to include in
their New York adjusted gross income that portion of their exempt-interest div-
idends (as determined for federal income tax purposes) which the New York Fund
clearly identifies as directly attributable to interest earned on Municipal Ob-
ligations issued by governmental authorities in New York ("New York Municipal
Obligations") and which are specifically exempted from personal income taxation
in New York State (or New York City), or interest earned on obligations of
United States possessions or territories to the extent interest earned on such
obligations is exempt from taxation by the states pursuant to federal law. Dis-
tributions to individual shareholders of dividends derived from interest that
does not qualify as an exempt-interest dividend (as determined for federal in-
come tax purposes), distributions of exempt-interest dividends (as determined
for federal income tax purposes) which are derived from interest earned on Mu-
nicipal Obligations issued by governmental authorities in states other than New
York State, and distributions derived from interest earned on federal obliga-
tions will be included in their New York adjusted gross income as ordinary in-
come.
Distributions to individual shareholders of the New York Fund of capital gain
dividends (as determined for federal income tax purposes) will be included in
their New York adjusted gross income as long-term capital gains. Distributions
to individual shareholders of the New York Fund of dividends derived from any
net income received from taxable temporary investments and any net short-term
capital gains realized by the New York Fund will be included in their New York
adjusted gross income as ordinary income. Present New York law taxes long-term
capital gains at the rates applicable to ordinary income.
Gain or loss, if any, resulting from an exchange or redemption of shares of the
New York Fund that is recognized by individual shareholders of the New York
Fund for federal income tax purposes will be recognized for purposes of New
York State (or New York City) personal income taxation.
Generally, corporate shareholders of the New York Fund which are subject to New
York State franchise taxation (or New York City general corporation taxation)
will be taxed upon their entire net income, business and investment capital, or
at a flat rate minimum tax. Entire income will include dividends received from
the New York Fund (as determined for federal income tax purposes), as well as
any gain or loss recognized from an exchange or redemption of shares of the New
York Fund that is recognized for federal income tax purposes. Investment capi-
tal will include the corporate shareholder's shares of the New York Fund. Cor-
porate shareholders of the New York Fund, which are subject to the temporary
metropolitan transportation surcharge, will be required to pay a tax surcharge
on the franchise taxes imposed by New York State.
50
<PAGE>
Shareholders of the New York Fund will not be subject to New York City unincor-
porated business taxation solely by reason of their ownership of shares of the
New York Fund. If a shareholder of the New York Fund is subject to the New York
City unincorporated business tax, income and gains derived from the New York
Fund will be subject to such tax, except for exempt-interest dividends (as de-
termined for federal income tax purposes) which the New York Fund clearly iden-
tifies as directly attributable to interest earned on New York Municipal Obli-
gations.
Shares of the New York Fund will be exempt from local property taxes in New
York State and New York City, but will be includible in the New York gross es-
tate of a deceased individual shareholder who is a resident of New York for
purposes of the New York Estate Tax.
NUVEEN OHIO TAX-FREE VALUE FUND
The Ohio Fund is not subject to the Ohio personal income tax, municipal or
school district income taxes in Ohio, the Ohio corporation franchise tax, or
the Ohio dealers in intangibles tax, provided that, with respect to the Ohio
corporation franchise tax and the Ohio dealers in intangibles tax, the Ohio
Fund timely files the annual report required by Section 5733.09 of the Ohio Re-
vised Code.
Shareholders of the Ohio Fund ("Shareholders") who are otherwise subject to the
Ohio personal income tax, or municipal or school district income taxes in Ohio
will not be subject to such taxes on distributions with respect to shares of
the Ohio Fund to the extent that such distributions are properly attributable
to interest on or gain from the sale of interest-bearing obligations issued by
or on behalf of the State of Ohio, political subdivisions thereof and agencies
or instrumentalities of the State or its political subdivisions ("Ohio Obliga-
tions") provided that the Ohio Fund continues to qualify as a regulated invest-
ment company for federal income tax purposes and that at all times at least 50%
of the value of the total assets of the Ohio Fund consists of Ohio Obligations
or similar obligations of other states or their subdivisions. It is assumed for
purposes of this discussion of Ohio taxation that these requirements are satis-
fied. Gain recognized by such individual shareholders on the exchange or re-
demption of shares of the Fund will be subject to the Ohio personal income tax
and school district income taxes in Ohio; such gain may be subjected to munici-
pal income tax only by those Ohio municipalities that are authorized by State
law to tax intangible income.
Shareholders that are otherwise subject to the Ohio corporation franchise tax
computed on the net income basis will not be subject to such tax on distribu-
tions with respect to shares of the Ohio Fund to the extent that such distribu-
tions either (a) are properly attributable to interest on or gain from the sale
of Ohio Obligations, or (b) represent "exempt-interest dividends" for federal
income tax purposes. Shares of the Ohio Fund will be included in a Sharehold-
er's tax base for purposes of computing the Ohio corporation franchise tax on
the net worth basis. Corporate Shareholders that are subject to Ohio municipal
income taxes will not be subject to such taxes on distributions received from
the Ohio Fund to the extent such distributions consist of interest on or gain
from the sale of Ohio Obligations.
Distributions by the Ohio Fund that consist of interest on obligations of the
United States or the governments of Puerto Rico, the Virgin Islands or Guam or
their authorities or municipalities are exempt from Ohio personal income tax,
and municipal and school district income taxes in Ohio, and
51
<PAGE>
are excluded from the net income base of the Ohio corporation franchise tax to
the same extent that such interest would be so exempt or excluded if the obli-
gations were held directly by the Shareholders.
The value of shares of the Fund is included in the value of the gross estate of
decedents domiciled in Ohio for purposes of the Ohio estate tax. The value of
shares of the Fund may be included in the value of the gross estate of dece-
dents not domiciled in Ohio for such purposes only if the shares were employed
in carrying on business in Ohio.
PERFORMANCE INFORMATION
As explained in the Prospectus, the historical investment performance of the
Funds 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.
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:
a - b 6
Yield = 2 [(----- + 1 ) - 1]
cd
In the above formula, a = dividends and interest earned during the period; b =
expenses accrued for the period (net of reimbursements); c = the average daily
number of shares outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share on the last day of the
period. In the case of Class A shares, the maximum offering price includes the
current maximum sales charge of 4.50%.
In computing yield, the Funds follow certain standardized accounting practices
specified by SEC rules. These practices are not necessarily consistent with
those that the Funds use to prepare their annual and interim financial state-
ments in conformity with generally accepted accounting principles. Thus, yield
may not equal the income paid to shareholders or the income reported in the
Fund's financial statements. Yields for each class of shares of each Fund as of
February 28, 1995 are set forth below.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by remainder of (1 minus the stated combined federal and
state income tax rate, taking into account the deductibility of state income
taxes for federal income tax purposes) and adding the result to that portion,
if any, of the yield of that is not tax exempt. The taxable equivalent yields
quoted below are
52
<PAGE>
based upon (1) the stated combined federal and state income tax rates and (2)
the yields for the 30-day period ended February 28, 1995 quoted in the left-
hand column.
<TABLE>
<CAPTION>
COMBINED
FEDERAL TAXABLE
AND STATE EQUIVALENT
AS OF FEBRUARY 28, 1995 YIELD TAX RATE* YIELD
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Fund
Class A Shares.................................... 5.12% 42.5% 8.90%
Class C Shares.................................... 4.62% 42.5% 8.03%
Class R Shares.................................... 5.62% 42.5% 9.77%
New York Fund**
Class A Shares.................................... 5.24% 42.5% 9.11%
Class C Shares.................................... 4.74% 42.5% 8.24%
Class R Shares.................................... 5.75% 42.5% 10.00%
Ohio Fund
Class A Shares.................................... 5.13% 44.0% 9.16%
Class C Shares.................................... 4.63% 44.0% 8.27%
Class R Shares.................................... 5.63% 44.0% 10.05%
</TABLE>
- --------
*The combined tax rates used in the table represent the highest or one of the
highest combined tax rates applicable to state taxpayers, rounded to the near-
est .5%; these rates do not 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 certain income levels.
**Reflects a combined federal, state and New York City tax rate.
For additional information concerning taxable equivalent yields, see the Tax-
able Equivalent Yield Tables in the Prospectus.
Each Fund may from time to time in its 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, multiply-
ing 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 rein-
vestments from Nuveen UITs, or the maximum public offering price). The distri-
bution rate differs from yield and total return and therefore is not intended
to be a complete measure of performance. Distribution rate may sometimes be
higher than yield because it may not include the effect of amortization of bond
premiums to the extent such premiums arise after the bonds were purchased. The
distribution rates as of February 28, 1995, based on maximum public offering
price then in effect for the Funds were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION RATES
------------------------
CLASS A* CLASS C CLASS R
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Fund..................................... 5.21% 4.73% 5.72%
New York Fund.......................................... 5.21% 4.75% 5.73%
Ohio Fund.............................................. 5.11% 4.61% 5.60%
</TABLE>
- --------
*Assumes imposition of the maximum sales charge for Class A shares of 4.50%.
53
<PAGE>
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 average annual to-
tal return figures, including the effect of the current maximum sales charge
for Class A Shares, for the one-year and five-year periods ended February 28,
1995, and for the period from inception (on December 10, 1986, with respect to
the Class R Shares and on September 6, 1994 with respect to the Class A Shares
and Class C Shares) through February 28, 1995, respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-------------------------------------------------------
ONE YEAR FIVE YEARS FROM INCEPTION
ENDED ENDED THROUGH
FEBRUARY 28, 1995 FEBRUARY 28, 1995 FEBRUARY 28, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Fund
Class A Shares........ N/A N/A -1.59%*
Class C Shares........ N/A N/A 4.86%*
Class R Shares........ 1.64% 7.98% 6.44%
New York Fund
Class A Shares........ N/A N/A -2.39%*
Class C Shares........ N/A N/A 2.80%*
Class R Shares........ 0.75% 8.19% 7.48%
Ohio Fund
Class A Shares........ N/A N/A -1.03%*
Class C Shares........ N/A N/A 3.63%*
Class R Shares........ 1.99% 8.18% 7.54%
</TABLE>
- --------
*Not annualized because it relates to period of less than one year.
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 cumulative total return figures, including the effect of the current maxi-
mum sales charge for the Class A Shares, for the one-year and five-years peri-
ods ended February 28, 1995, and for the period from inception (on December 10,
1986 with respect to the Class R Shares and on September 6, 1994
54
<PAGE>
with respect to the Class A Shares and Class C Shares) through February 28,
1995, respectively, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
ONE YEAR FIVE YEARS FROM INCEPTION
ENDED ENDED THROUGH
FEBRUARY 28, 1995 FEBRUARY 28, 1995 FEBRUARY 28, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Fund
Class A Shares........ N/A N/A -1.59%
Class C Shares........ N/A N/A 4.86%
Class R Shares........ 1.64% 46.79% 67.03%
New York Fund
Class A Shares........ N/A N/A -2.39%
Class C Shares........ N/A N/A 2.80%
Class R Shares........ 0.75% 48.20% 80.96%
Ohio Fund
Class A Shares........ N/A N/A -1.03%
Class C Shares........ N/A N/A 3.63%
Class R Shares........ 1.99% 48.16% 81.78%
</TABLE>
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 the 39.6% maximum marginal federal tax rate for 1995, and assuming that
no front-end sales charge is imposed, the annualized taxable equivalent total
returns for each Fund's Class R Shares for the one-year and five-year periods
ended February 28, 1994, and for all classes for the period from inception (on
December 10, 1986 with respect to the Class R Shares and on September 6, 1994
with respect to the Class A Shares and Class C Shares), through February 28,
1995, respectively, were as follows:
55
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR ENDED FIVE YEARS ENDED FROM INCEPTION THROUGH
FEBRUARY 28, 1995 FEBRUARY 28, 1995 FEBRUARY 28, 1995
------------------- ------------------- ------------------------------ COMBINED
WITH MAXIMUM AT NET WITH MAXIMUM AT NET WITH MAXIMUM AT NET FEDERAL
4.50% SALES ASSET 4.50% SALES ASSET 4.50% SALES ASSET AND STATE
CHARGE VALUE CHARGE VALUE CHARGE VALUE TAX RATE*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Massachusetts Fund
Class A Shares......... N/A N/A N/A N/A 0.35%+ 5.08%+ 42.5%
Class C Shares......... N/A N/A N/A N/A N/A 6.56%+ 42.5%
Class R Shares......... N/A 5.75% N/A 12.55% N/A 11.18% 42.5%
New York Fund**
Class A Shares......... N/A N/A N/A N/A -0.48%+ 4.21%+ 42.5%
Class C Shares......... N/A N/A N/A N/A N/A 4.44%+ 42.5%
Class R Shares......... N/A 4.81% N/A 12.78% N/A 12.28% 42.5%
Ohio Fund
Class A Shares......... N/A N/A N/A N/A 1.00%+ 5.76%+ 44.0%
Class C Shares......... N/A N/A N/A N/A N/A 5.37%+ 44.0%
Class R Shares......... N/A 6.33% N/A 12.99% N/A 12.60% 44.0%
</TABLE>
- --------
*The combined tax rates used in the table do not 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
certain income levels.
**Reflects a combined federal, state and New York City tax rate.
+Not annualized because it relates to period of less than one year.
From time to time, a Fund may compare its risk-adjusted performance with other
investments that may provide different levels of risk and return. For example,
a Fund may compare its risk level, as measured by the variability of its peri-
odic 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.
A 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 dis-
tributions of net realized capital gains and ordinary income.
The risk level for a class of shares of a Fund, and any of the other invest-
ments used for comparison, would be evaluated by measuring the variability of
the investment's return, as indicated by the standard deviation of the invest-
ment's monthly returns over a specified measurement period (e.g., two years).
An 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 Funds, were as follows:
<TABLE>
<CAPTION>
STANDARD
DEVIATION
OF RETURN
- -----------------------------
<S> <C>
Massachusetts Fund 1.75%
New York Fund 1.80%
Ohio Fund 1.82%
</TABLE>
56
<PAGE>
THE RISK-ADJUSTED TOTAL RETURN for a class of shares of a Fund and for other
investments over a specified period would be evaluated by dividing (a) the re-
mainder of the investment's annualized two-year total return minus the
annualized total return of an investment in short-term tax-exempt securities
(essentially a risk-free return) over that period, by (b) the standard devia-
tion of the investment's monthly returns for the period. This ratio is some-
times 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 each of the Funds, was as follows:
<TABLE>
<CAPTION>
SHARPE
MEASURE
- ----------------------------
<S> <C>
Massachusetts Fund 1.777
New York Value Fund 1.888
Ohio Fund 1.791
</TABLE>
Class A Shares of the Funds 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 be typically used for purposes of calculating performance figures. Yield,
returns and net asset value of each class of shares of the Funds will fluctu-
ate. Factors affecting the performance of the Funds include general market
conditions, operating expenses and investment management fees. Any additional
fees charged by a securities representative or other financial services firm
would reduce returns described in this section. Shares of the Funds are re-
deemable 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 Funds may also compare their 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 Funds for any future
period.
There are differences and similarities between the investments which the Funds
may purchase and the investments measured by the indexes and reporting 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 repre-
57
<PAGE>
sents the performance of high grade intermediate and long-term municipal bonds
during various market conditions. Lipper, Morningstar, Wiesenberger and CDA
are widely recognized mutual fund reporting services whose performance calcu-
lations are based upon changes in net asset value with all dividends rein-
vested and which do not include the effect of any sales charges. The market
prices and yields of taxable and tax-exempt bonds will fluctuate. The Funds
primarily invest in investment grade Municipal Obligations in pursuing their
objective of as high a level of current interest income which is exempt from
federal and state income tax as is consistent, in the view of the Funds' man-
agement, with preservation of capital.
The Funds may also compare their taxable equivalent total return performance
to the total return performance of taxable income funds such as treasury secu-
rities 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 credit
concerns, due primarily to the fact that the timely payment of monthly in-
stallments of principal and interest are backed by the full faith and credit
of the U.S. Government, but Ginnie Mae bonds of equivalent coupon and maturity
are generally more susceptible to price volatility resulting from market in-
terest 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 of the sensitivity of Ginnie Mae prepayment expe-
rience to change in interest rates.
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES
As described in the Prospectus, each 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 exam-
ple of the method of computing the offering price of the Class A shares of
each of the Funds. The example assumes a purchase on February 28, 1995 of
Class A shares from the Massachusetts Fund aggregating less than $50,000 sub-
ject 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.
58
<PAGE>
<TABLE>
<S> <C>
Net Asset Value per share........................................ $ 9.560
Per Share Sales Charge--4.50% of public offering price (4.71% of
net asset value per share)...................................... $ 0.450
Per Share Offering Price to the Public........................... $10.010
</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 contingent deferred sales charge for redemption
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.
Under the Flexible Sales Charge Program, all Fund shares outstanding as of Sep-
tember 6, 1994, 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.
Each class of shares of a Fund represents an interest in the same portfolio of
investments. Each class of shares is identical in all respects except that each
class bears its own class expenses, including administration and distribution
expenses, and each class has exclusive voting rights with respect to any dis-
tribution 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 a
Fund's classes of shares.
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.
Each Fund has special purchase programs under which certain persons may pur-
chase Class A Shares at reduced sales charges. One such program is available to
members of a "qualified group." An individual who is a member of a "qualified
group" may purchase Class A Shares of a Fund (or any other Nuveen Fund with re-
spect to which a sales charge is imposed), at the reduced sales charge applica-
ble to the group taken as a 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
59
<PAGE>
payment with a single remittance for all investments 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 Funds may encourage registered representatives and their firms to help ap-
portion their assets among bonds, stocks and cash, and may seek to participate
in programs that recommend a portion of their assets be invested in tax-free,
fixed income securities.
To help advisers and investors better understand and most efficiently use the
Funds to reach their investment goals, the Funds may advertise and create spe-
cific investment programs and systems. For example, this may include informa-
tion on how to use the Funds to accumulate assets for future education needs or
periodic payments such as insurance premiums. The Funds may produce software or
additional sales literature to promote the advantages of using the Funds to
meet these and other specific investor needs.
Exchange of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares avail-
able for public purchase. Shares of the Nuveen money market funds may be pur-
chased on days on which the Federal Reserve Bank of Boston is normally open for
business. In addition to the holidays observed by the Fund, the Nuveen money
market funds observe and will not make fund shares available for purchase on
the following holidays: Martin Luther King's Birthday, Columbus Day and Veter-
ans Day.
For more information on the procedure for purchasing shares of the Funds 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 each of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agree-
ment with Nuveen Tax-Free Bond Fund, Inc., dated January 2, 1990, and last re-
newed on July 29, 1994 ("Distribution Agreement"). Pursuant to the Distribution
Agreement, Nuveen Tax-Free Bond Fund, Inc. appointed Nuveen to be its agent for
the distribution of the Funds' shares on a continuous offering basis. Nuveen
sells shares to or through brokers, dealers, banks or other qualified financial
intermediaries (collectively referred to as "Dealers"), or others, in a manner
consistent with the then effective registration statement of Nuveen Tax-Free
Bond Fund, Inc. Pursuant to the Distribution Agreement, Nuveen, at its own ex-
pense, finances certain activities incident to the sale and distribution of the
Funds' shares, including printing and distributing of prospectuses and state-
ments of additional information to other than existing shareholders, the print-
ing and distributing of sales literature, advertising and payment of compensa-
tion and giving of concessions to dealers. Nuveen receives for its services the
excess, if any, of the sales price of the Funds' shares less the net asset
value of those shares, and reallows a majority or all of such amounts to the
Dealers
60
<PAGE>
who sold the shares; Nuveen may act as such a Dealer. Nuveen also receives
compensation pursuant to a distribution plan adopted by Nuveen Tax-Free Bond
Fund, Inc. pursuant to Rule 12b-1 and described herein under "Distribution and
Service Plans." Nuveen receives any CDSCs imposed on redemptions of Class C
Shares redeemed within 12 months of purchase, but any such amounts as to which
a reinstatement privilege is not exercised are set off against and reduce
amounts otherwise payable to Nuveen pursuant to the distribution plan.
The following table sets forth the aggregate amount of underwriting commis-
sions with respect to the sale of Fund shares and the amount thereof retained
by Nuveen for each of the Funds for the last three fiscal years. All figures
are to the nearest thousand.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, 1995 YEAR ENDED FEBRUARY 28, 1994
-------------------------------- ---------------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
FUND COMMISSIONS NUVEEN COMMISSIONS NUVEEN
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts Fund...... $170 $20 $430 $ 52
New York Fund........... $428 $64 $989 $146
Ohio Fund............... $471 $55 $980 $144
<CAPTION>
YEAR ENDED FEBRUARY 28, 1993
-------------------------------------
AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY
FUND COMMISSIONS NUVEEN
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Massachusetts Fund...... $624 $ 76
New York Fund........... $860 $102
Ohio Fund............... $982 $125
</TABLE>
DISTRIBUTION AND SERVICE PLANS
Each Fund has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the In-
vestment Company Act of 1940, which provides that Class 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 each Fund's Plan will
be payable to reimburse Nuveen for services and expenses incurred in connec-
tion with the distribution of Class C Shares. These expenses include payments
to Authorized Dealers, including Nuveen, who are brokers of record with re-
spect 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 advertising 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 each
Fund's Plan will be payable to Authorized Dealers in connection with the pro-
vision of ongoing account services to shareholders. These services may include
establishing and maintaining shareholder accounts, answering shareholder in-
quiries and providing other personal services to shareholders.
Each Fund may spend up to .25 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A
Shares. Each 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
61
<PAGE>
the average daily net assets of Class C Shares as a service fee under the Plan
applicable 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. For the fiscal year ended February 28, 1995, 100% of service fees and
distribution fees were paid out as compensation to Authorized Dealers. The
amount of compensation paid to Authorized Dealers for the fiscal year ended
February 28, 1995 for each Fund per class of shares were as follows:
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR YEAR
ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<S> <C>
MASSACHUSETTS FUND
Class A............................................ $ 752
Class C............................................ $ 215
Class R............................................ $ N/A
NEW YORK FUND
Class A............................................ $1,620
Class C............................................ $ 152
Class R............................................ $ N/A
OHIO FUND
Class A............................................ $2,727
Class C............................................ $1,868
Class R............................................ $ N/A
</TABLE>
Under each Fund's Plan, the Fund will report quarterly to the Board of Direc-
tors 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, without the payment of any penalty, by a vote of a majority of the di-
rectors who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding
voting securities of such class. The Plan may be renewed from year to year if
approved by a vote of the Board of Directors 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 continued only if the directors who vote to approve such continuance
conclude, in the exercise of reasonable business judgment and in light of
their fiduciary duties under applicable law, that there is a reasonable like-
lihood that the Plan will benefit the Fund and its shareholders. The Plan may
not be amended to increase materially the cost which a class of shares may
bear under the Plan without the approval of the shareholders of the affected
class, and any other material amendments of the Plan must be approved by the
non-interested 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 directors of the Fund will
be committed to the discretion of the non-interested directors then in office.
62
<PAGE>
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 Nuveen Tax-Free Bond
Fund, Inc. In addition to audit services, Arthur Andersen LLP will provide con-
sultation and assistance on accounting, internal control, tax and related mat-
ters. The financial statements incorporated by reference elsewhere in this
Statement of Additional Information and the information set forth under "Finan-
cial Highlights" in the Prospectus have been audited by Arthur Andersen 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 Funds 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 U.S. Trust, as custodian and fund accountant. The succession is
presently scheduled for July 1, 1995. No changes in the Funds' administration
or in the amount of fees and expenses paid by the Funds for those services will
result, and no action by shareholders will be required.
63
