<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1995
SECURITIES ACT REGISTRATION NO. 33-62053
INVESTMENT COMPANY ACT REGISTRATION NO. 811-5235
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
(Check Appropriate Box or Boxes)
[X] Pre-Effective Amendment No. 1
[_] Post-Effective Amendment No.
NUVEEN CALIFORNIA MUNICIPAL VALUE FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
333 West Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 917-7700
James J. Wesolowski, Esq.--Vice President and Secretary
333 West Wacker Drive
Chicago, Illinois 60606
(Name and Address of Agent For Service)
With a copy to:
Cathy G. O'Kelly
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
PART A
<TABLE>
<CAPTION>
ITEM CAPTION OF FORM N-
ITEM NO. 14 LOCATION IN JOINT PROXY STATEMENT--PROSPECTUS
-------- ----------------------- ---------------------------------------------
<C> <S> <C>
Item 1. Beginning of
Registration Statement
and Outside Front Cover
Page of Prospectus..... Cover Page
Item 2. Beginning and Outside
Back Cover Page of
Prospectus............. Cover Page; Table of Contents
Item 3. Synopsis Information and Summary; Risks and Special Considerations Regarding
Risk Factors........... the Reorganization
Item 4. Information about the
Transaction............ Proposal No. 1--The Reorganization
Item 5. Information about the Available Information; Proposal No. 1--The
Registrant............. Reorganization; Proposal No. 2--Election of
Directors of Each Fund; Management of the Funds;
Additional Information About the Funds
Item 6. Information about the
Company being Acquired. Available Information; Proposal No. 1--The
Reorganization; Proposal No. 2--Election of
Directors of Each Fund; Management of the Funds;
Additional Information About the Funds
Item 7. Voting Information...... The Annual Meetings; Proposal No. 1--The
Reorganization; Proposal No. 2--Election of
Directors of Each Fund
Item 8. Interest of Certain
Persons and Experts.... Legal Opinions; Experts
Item 9. Additional Information
Required for Reoffering
by Persons Deemed to be
Underwriters........... Not Applicable
PART B
<CAPTION>
LOCATION IN JOINT PROXY STATEMENT--PROSPECTUS
("PROSPECTUS") OR STATEMENT OF ADDITIONAL INFORMATION
("SAI")/1/
----------------------------------------------------
<C> <S> <C>
Item 10. Cover Page.............. SAI--Cover Page
Item 11. Table of Contents....... SAI--Cover Page
Item 12. Additional Information Prospectus--Proposal No. 2--Election of Directors of
about the Registrant... Each Fund; Management of the Funds; Additional
Information About the Funds; Experts; SAI--All
Sections
Item 13. Additional Information
about the Company being Prospectus--Proposal No. 2--Election of Directors of
Acquired............... Each Fund; Management of the Funds; Additional
Information About the Funds; Experts; SAI--All
Sections
Item 14. Financial Statements.... SAI--Index to Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
- --------
(/1/Some)of the information to be included in Part B is contained in the
Prospectus.
<PAGE>
LOGO
September , 1995
Dear Shareholder:
We are pleased to invite you to the Annual Meetings of Shareholders of Nuveen
California Municipal Value Fund, Inc. and Nuveen California Municipal Income
Fund, Inc. The meetings are scheduled for Thursday, November 16, 1995 at 10:00
a.m., Central Time, in the 31st Floor conference room of John Nuveen & Co.
Incorporated, 333 West Wacker Drive in Chicago.
At the Annual Meetings, you will be asked to consider and approve a very
important proposal. Subject to shareholder approval, Nuveen California
Municipal Value Fund, Inc. (the "Acquiring Fund") will acquire substantially
all of the assets and assume substantially all of the liabilities of Nuveen
California Municipal Income Fund, Inc. (the "Acquired Fund") in exchange for
newly issued shares of the Acquiring Fund, which will be distributed to the
shareholders of the Acquired Fund.
The reorganization should lead to efficiencies of scale, providing benefits
such as:
. Lower Administrative Expenses
. Improved Portfolio Management Flexibility
. Increased Trading Liquidity
You will also be asked to elect directors and ratify the selection of
independent auditors.
The attached Joint Proxy Statement--Prospectus has been prepared to give you
information about these proposals.
WHETHER OR NOT YOU PLAN TO JOIN US, PLEASE COMPLETE, DATE AND SIGN YOUR PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE COUNTED.
We appreciate your continued support and confidence in Nuveen and our family of
tax-free investments.
Very truly yours,
LOGO
Richard J. Franke
Chairman of the Board
<PAGE>
NUVEEN CALIFORNIA MUNICIPAL VALUE FUND, INC.
NUVEEN CALIFORNIA MUNICIPAL INCOME FUND, INC.
333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606
TELEPHONE (312) 917-7700
NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
NOVEMBER 16, 1995
September , 1995
TO THE SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of Shareholders of each of
Nuveen California Municipal Value Fund, Inc. (the "Acquiring Fund") and Nuveen
California Municipal Income Fund, Inc. (the "Acquired Fund" and, together with
the Acquiring Fund, the "Funds"), will be held in the 31st Floor conference
room of John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago,
Illinois, on Thursday, November 16, 1995, at 10:00 a.m., Central Time, for the
following purposes:
1. To approve or disapprove, in the case of the Acquiring Fund, the issuance
of additional shares pursuant to an Agreement and Plan of Reorganization and
Liquidation (the "Agreement") between the Acquiring Fund and the Acquired Fund,
whereby the Acquiring Fund would acquire substantially all of the assets of the
Acquired Fund in exchange for up to 7,000,000 shares of the Acquiring Fund and
the Acquiring Fund's assumption of substantially all of the liabilities of the
Acquired Fund, and, to approve or disapprove, in the case of the Acquired Fund,
the Agreement.
2. To elect three (3) directors.
3. To ratify or reject the selection of Ernst & Young LLP as independent
auditors for the fiscal year ending August 31, 1996.
4. To transact such other business as may properly come before the Annual
Meeting.
As more fully described in the accompanying Joint Proxy Statement--
Prospectus, shareholders of the Acquired Fund who do not vote to approve the
Agreement and who comply with certain other requirements of Minnesota law may,
as an alternative to receiving the consideration specified in the Agreement,
dissent from the transactions provided for therein and obtain the payment in
cash of the "fair value" of their shares, as defined under Minnesota law. The
full text of Minnesota Statutes, Sections 302A.471 and 302A.473, which set
forth the procedures to be followed by shareholders who choose to dissent under
Minnesota law, is included as Annex B to the Joint Proxy Statement--Prospectus
and should be read in its entirety.
Shareholders of record at the close of business on September 18, 1995 are
entitled to notice of and to vote at that Fund's Annual Meeting.
IN ORDER TO AVOID DELAY AND ADDITIONAL EXPENSE FOR YOUR FUND, AND TO ASSURE
THAT YOUR SHARES ARE REPRESENTED, IF YOU DO NOT EXPECT TO BE PRESENT IN PERSON
AT THE ANNUAL MEETING, YOU ARE REQUESTED TO FILL IN, SIGN AND MAIL THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
James J. Wesolowski
Secretary
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED SEPTEMBER 27, 1995
NUVEEN CALIFORNIA
MUNICIPAL VALUE FUND, INC.
NUVEEN CALIFORNIA
MUNICIPAL INCOME FUND, INC.
JOINT PROXY STATEMENT
MEETINGS OF SHAREHOLDERS TO BE HELD NOVEMBER 16, 1995
----------
NUVEEN CALIFORNIA MUNICIPAL VALUE FUND, INC.
PROSPECTUS
----------
This Joint Proxy Statement--Prospectus is being furnished to the shareholders
of Nuveen California Municipal Value Fund, Inc. (the "Acquiring Fund") and
Nuveen California Municipal Income Fund, Inc. (the "Acquired Fund" and,
together with the Acquiring Fund, the "Funds") in connection with the
solicitation of proxies by the Acquiring Fund's Board of Directors and the
Acquired Fund's Board of Directors for use at each Fund's Annual Meeting of
Shareholders to be held on Thursday, November 16, 1995, at 10:00 a.m., Central
Time, and at any and all adjournments thereof. At the Acquiring Fund's Annual
Meeting, shareholders of the Acquiring Fund will be asked to approve the
issuance of up to 7,000,000 shares of common stock of the Acquiring Fund
pursuant to an Agreement and Plan of Reorganization and Liquidation dated as of
August 1, 1995 by and between the Acquiring Fund and the Acquired Fund (the
"Agreement"). At the Acquired Fund's Annual Meeting, shareholders of the
Acquired Fund will be asked to approve the Agreement. The Agreement provides
for (a) the Acquiring Fund's acquisition of substantially all of the assets of
the Acquired Fund in exchange for newly issued shares of common stock
(hereinafter referred to as "shares") and the Acquiring Fund's assumption of
substantially all of the liabilities of the Acquired Fund and (b) the
liquidation of the Acquired Fund and the distribution of the Acquiring Fund
shares held by the Acquired Fund to its shareholders. The transactions
contemplated by the Agreement are referred to herein as the "Reorganization."
The number of Acquiring Fund shares to be issued to the Acquired Fund would be
that number having an aggregate per share net asset value equal to the
aggregate value of the net assets of the Acquired Fund transferred to the
Acquiring Fund.
In addition, at the Annual Meetings, shareholders of each Fund will be asked
to consider and vote upon the election of three (3) directors and the
ratification of the selection of independent auditors for their respective
Funds. Shareholders of the Acquired Fund are being asked to vote on these
additional matters in case the Reorganization is not consummated and the
Acquired Fund remains a separate entity.
The Funds are both closed-end, diversified management investment companies,
with substantially similar investment objectives and policies. The primary
investment objective of the Acquiring Fund is to provide current interest
income exempt from both regular Federal and California income taxes; its
secondary objective is to enhance portfolio value relative to the California
municipal bond market. The principal executive office of each Fund is located
at 333 West Wacker Drive, Chicago, Illinois 60606, and the telephone number of
each Fund is (312) 917-7700. The shares of each Fund are listed on the New York
Stock Exchange ("NYSE"); reports, proxy statements and other information
concerning the Funds can be inspected at the offices of the NYSE. See
"Additional Information."
This Joint Proxy Statement--Prospectus sets forth concisely the information
that shareholders of the Funds should know before voting on the proposals
described above. It should be read and retained for future reference. A
Statement of Additional Information dated September , 1995 containing
additional information about the Funds has been filed with the Securities and
Exchange Commission (the "Commission") and is hereby incorporated by reference
in its entirety into this Joint Proxy Statement--Prospectus. A copy of the
Statement of Additional Information may be obtained without charge by mailing a
written request to either of the Funds, Attention: Administration, 333 West
Wacker Drive, Chicago, Illinois 60606, or by calling (800) 257-8787.
----------
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 ON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT--
PROSPECTUS. ANY REPRESEN- TATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT--PROSPECTUS IS SEPTEMBER , 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
The Annual Meetings...................................................... 1
The Reorganization....................................................... 1
Reasons for the Reorganization........................................... 1
Dissenting Shareholders' Rights of Appraisal............................. 2
Tax Consequences of the Reorganization................................... 2
Comparison of the Acquiring Fund and the Acquired Fund................... 2
General................................................................ 2
Investment Objectives and Policies..................................... 2
Management of the Funds................................................ 3
Dividends and Distributions............................................ 3
Comparative Fee Table.................................................. 4
RISKS AND SPECIAL CONSIDERATIONS REGARDING THE REORGANIZATION............. 5
THE ANNUAL MEETINGS....................................................... 6
General.................................................................. 6
Voting; Proxies.......................................................... 6
AVAILABLE INFORMATION..................................................... 7
PROPOSAL NO. 1--THE REORGANIZATION........................................ 7
General.................................................................. 7
Terms of the Reorganization.............................................. 8
Reasons for the Reorganization........................................... 9
Votes Required........................................................... 10
Description of Shares Issued by the Acquiring Fund....................... 10
General................................................................ 10
Distributions.......................................................... 10
Dividend Reinvestment Plan............................................. 11
Odd Lot Holdings....................................................... 12
Comparison of Rights of Holders of Shares of the Acquiring Fund and the
Acquired Fund........................................................... 12
Comparison of the Investment Objectives and Policies of the Acquiring
Fund and the Acquired Fund.............................................. 13
General................................................................ 13
Municipal Obligations.................................................. 14
Special Considerations Relating to California Municipal Obligations.... 15
Investment Restrictions................................................ 16
Surrender and Exchange of Acquired Fund Share Certificates............... 16
Expenses Associated with the Reorganization.............................. 17
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dissenting Shareholders' Rights of Appraisal............................. 17
General................................................................ 17
Procedure.............................................................. 17
Tax Consequences of the Reorganization................................... 19
Exchange of Acquired Fund Shares Solely for Acquiring Fund Shares...... 19
Fractional Share Interests............................................. 19
Dissenting Shareholders................................................ 19
Capitalization........................................................... 20
Comparative Performance Information...................................... 20
PROPOSAL NO. 2--ELECTION OF DIRECTORS OF EACH FUND........................ 20
PROPOSAL NO. 3--SELECTION OF INDEPENDENT AUDITORS FOR THE FUNDS........... 23
MANAGEMENT OF THE FUNDS................................................... 24
Directors and Officers................................................... 24
Investment Adviser....................................................... 24
Portfolio Management..................................................... 24
ADDITIONAL INFORMATION ABOUT THE FUNDS.................................... 25
Financial Highlights..................................................... 25
General Information and History.......................................... 26
Repurchase of Fund Shares; Conversion to Open-End Fund................... 26
Custodian, Transfer Agent, and Dividend Disbursing Agent................. 27
Tax Matters Associated With Investment in the Funds...................... 27
Federal Income Tax Matters............................................. 27
California State and Local Tax Matters................................. 28
LEGAL OPINIONS............................................................ 28
EXPERTS................................................................... 28
SHAREHOLDER PROPOSALS..................................................... 28
GENERAL................................................................... 29
Agreement and Plan of Reorganization and Liquidation (ANNEX A)
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act
Relating to the Acquired Fund Dissenting Shareholders' Rights of
Appraisal (ANNEX B)
</TABLE>
ii
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Joint
Proxy Statement--Prospectus. This summary is qualified in its entirety by the
more detailed information contained herein and in the attached Annexes.
Shareholders should read the entire Joint Proxy Statement--Prospectus. Certain
capitalized terms used but not defined in this summary are defined elsewhere in
the text of this Joint Proxy Statement--Prospectus.
THE ANNUAL MEETINGS
This Joint Proxy Statement--Prospectus is being furnished to the shareholders
of each of the Funds in connection with the solicitation by the Boards of the
Funds of proxies to be voted at the Annual Meetings. Holders of record of
shares of each Fund as of the close of business on September 18, 1995 will be
entitled to notice of and to vote at their Fund's Annual Meeting, as described
elsewhere in this Joint Proxy Statement--Prospectus. Holders of outstanding
shares of the Acquiring Fund will be asked to approve the issuance of
additional Acquiring Fund shares pursuant to the Agreement and holders of
outstanding shares of the Acquired Fund will be asked to approve the Agreement.
Shareholders of each Fund also will be asked to consider and vote upon the
election of three (3) directors and the ratification of the selection of
independent auditors for their respective Funds. Shareholders of the Acquired
Fund are being asked to vote on these additional matters in case the
Reorganization is not consummated and the Acquired Fund remains a separate
entity. The details of each proposal to be voted on by the shareholders of each
Fund and the vote required for approval of each proposal are set forth under
the description of each proposal in this Joint Proxy Statement--Prospectus.
THE REORGANIZATION
The Agreement provides that, subject to the satisfaction of certain
conditions, including shareholder approval, (a) the Acquiring Fund would
acquire substantially all of the assets of the Acquired Fund in exchange for
newly issued shares of the Acquiring Fund and the Acquiring Fund's assumption
of substantially all of the liabilities of the Acquired Fund, and (b) the
Acquired Fund would liquidate and distribute to its shareholders pro rata the
Acquiring Fund shares received. The number of Acquiring Fund shares to be
issued to the Acquired Fund would be that number having an aggregate per share
net asset value equal to the aggregate value of the assets of the Acquired Fund
transferred to, net of the Acquired Fund's liabilities assumed by, the
Acquiring Fund as of the time such assets and liabilities are transferred and
assumed (the "Effective Time"). As a result of the Reorganization, the assets
of the Acquiring Fund and the Acquired Fund would be combined and the
shareholders of the Acquired Fund would become shareholders of the Acquiring
Fund. The investment objectives and policies of each Fund are substantially
similar. The portfolio characteristics of the larger combined entity would
reflect the blended characteristics and certain differences of the constituent
Funds.
The Board of each Fund, including the directors of that Fund who are not
"interested persons," as that term is defined by the 1940 Act, has approved the
Reorganization based on its conclusion that the Reorganization is in the best
interests of the Fund and that the interests of the shareholders of the Fund
would not be diluted as a result of the Reorganization. ACCORDINGLY, THE BOARD
OF EACH FUND RECOMMENDS THAT THE SHAREHOLDERS OF THAT FUND VOTE FOR THE
APPROVAL OF THE PROPOSAL RELATING TO THE AGREEMENT. See "Proposal No. 1--The
Reorganization" and "Additional Information About the Funds."
REASONS FOR THE REORGANIZATION
In approving the Reorganization, the respective Boards of the Funds, which
consist of the same individuals, identified certain benefits that are likely to
result from the Reorganization, including lower administrative expenses,
greater efficiency and flexibility in portfolio management and a more liquid
trading market for shares of the combined Fund. The larger combined Fund that
would result from the Reorganization would have a significantly larger asset
base than either individual Fund has currently. Based on data presented by
management of the Funds, the Boards believe that administrative expenses of a
larger combined Fund comprised of the assets of both Funds would be less than
the aggregate expenses of the individual Funds, resulting in a lower expense
ratio for the
1
<PAGE>
combined Fund. Based on the eleven-month period ended July 31, 1995, the
annualized expense ratios for the Acquiring Fund and the Acquired Fund were
0.75% and 0.84%, respectively. The annualized expense ratio for the combined
Fund based upon the eleven-month period ended July 31, 1995 would have been
.73%.
The Boards also considered certain possible adverse effects and estimated
costs of combining the Funds and determined that the Reorganization is likely
to provide benefits to the shareholders of each Fund that outweigh such
possible adverse effects and the costs presented by the Reorganization. See
"Risks and Special Considerations Regarding the Reorganization" and "Proposal
No. 1--The Reorganization--Reasons for the Reorganization."
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Shareholders of the Acquiring Fund have no dissenters' rights of appraisal
with respect to the Reorganization under Minnesota law. However, under
Minnesota law, shareholders of the Acquired Fund who do not vote to approve the
Agreement may elect to have the "fair value" of their shares (determined in
accordance with Minnesota law) judicially appraised and paid to them, provided
that (a) the Acquired Fund participates in the Reorganization and (b) such
Acquired Fund shareholders comply with the provisions of Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act, which are attached hereto
as Annex B. Any deviation from such requirements may result in the loss of
dissenters' rights. See "Proposal No. 1--The Reorganization--Dissenting
Shareholders' Rights of Appraisal" and Annex B.
TAX CONSEQUENCES OF THE REORGANIZATION
The Funds have received an opinion of Vedder, Price, Kaufman & Kammholz to
the effect that the Reorganization will qualify as a tax-free reorganization
under Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code"). Accordingly, neither Fund will recognize gain or loss for Federal
income tax purposes as a result of the Reorganization. In addition,
shareholders of the Acquired Fund who receive Acquiring Fund shares pursuant to
the Reorganization will recognize no gain or loss for Federal income tax
purposes, except with respect to the cash received for a fractional Acquiring
Fund share interest, if any. Provided that each Fund qualifies as a qualified
investment fund under California tax law and that the proposed Reorganization
qualifies as a tax-free reorganization under the Code, neither Fund will
recognize any gain or loss for California income tax purposes as a result of
the Reorganization and shareholders of the Acquired Fund who receive Acquiring
Fund shares pursuant to the Reorganization will recognize no gain or loss for
California income tax purposes, except, as to individual shareholders, with
respect to cash received for a fractional Acquiring Fund share interest. See
"Proposal No. 1--The Reorganization--Tax Consequences of the Reorganization."
COMPARISON OF THE ACQUIRING FUND AND THE ACQUIRED FUND
GENERAL
The Acquiring Fund and the Acquired Fund are both closed-end, diversified
management investment companies. The Acquiring Fund shares are listed and trade
on the NYSE under the symbol NCA and the Acquired Fund shares are listed and
trade on the NYSE under the symbol NCM. Each Fund is organized as a corporation
under the laws of the State of Minnesota. The shares of each Fund have similar
voting rights and equal rights with respect to the payment of dividends and
distribution of assets upon liquidation and have no preemptive, conversion or
exchange rights or rights to cumulative voting. See "Proposal No. 1--The
Reorganization." For more detailed information about the general business and
management of the Funds, see "Additional Information About the Funds."
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Funds are substantially similar. The
Acquiring Fund's primary investment objective is current interest income exempt
from both regular Federal and California income taxes, and its secondary
investment objective is the enhancement of portfolio value relative to the
California municipal bond market through investments in tax-exempt California
Municipal Obligations that, in the opinion of Nuveen
2
<PAGE>
Advisory Corp. (the "Adviser"), are underrated or that represent municipal
markets that are undervalued. The Acquired Fund's investment objective is to
provide a high level of current income exempt from both Federal and California
income taxes.
The investment policies of the Funds are substantially similar. Each Fund, as
a fundamental policy, invests substantially all of its assets in a diversified
portfolio of long-term investment-grade quality California Municipal
Obligations. The Acquired Fund may invest no more than 25% of its net assets in
below investment-grade or unrated equivalent obligations and the Acquiring Fund
may invest no more than 20% of its net assets in below investment-grade or
unrated obligations. Both Funds limit investment in obligations with specified
ratings below investment-grade and/or unrated equivalents as more fully
described herein. As of July 31, 1995, the dollar-weighted average portfolio
maturities of the Funds were 21.2 years for the Acquiring Fund and 20.8 years
for the Acquired Fund and the durations were 5.0 years for the Acquiring Fund
and 5.2 years for the Acquired Fund. The portfolio characteristics of the
Acquiring Fund, after the Reorganization, would reflect the blended
characteristics of the constituent Funds. Compared to the Acquiring Fund, the
combined portfolio would have a higher yield, comparable maturity and slightly
lower credit quality. Compared to the Acquired Fund, the combined portfolio
would have a lower yield, comparable maturity and higher overall quality. See
"Risks and Special Considerations Regarding the Reorganization" and "Proposal
No. 1--The Reorganization--Comparison of the Investment Objectives and Policies
of the Acquiring Fund and the Acquired Fund."
MANAGEMENT OF THE FUNDS
The Acquiring Fund and the Acquired Fund have the same directors and
officers. In addition, the Adviser acts as the investment adviser for, and
manages the investment and reinvestment of the assets of, each Fund. Pursuant
to an Investment Management Agreement between the Adviser and each Fund, each
Fund pays an annual management fee for the services and facilities furnished by
the Adviser on a monthly basis. The Acquiring Fund pays an annual management
fee of .35% of the average weekly net assets of the Fund. The Acquiring Fund
also pays a fee of 4.125% of gross interest income. The Acquired Fund pays an
annual management fee of .65% of average daily net assets for net assets of up
to $125 million, .6375% in excess of $125 million (but less than $250 million),
.625% in excess of $250 million (but less than $500 million), .6125% in excess
of $500 million (but less than $1 billion), .60% in excess of $1 billion (but
less than $2 billion), and .5875% in excess of $2 billion. For the fiscal year
ended August 31, 1994, the effective management fee rate for the Acquiring and
Acquired Funds, respectively, was 0.64% and 0.65%.
DIVIDENDS AND DISTRIBUTIONS
The Funds have identical dividend policies with respect to the payment of
dividends on their shares. Each Fund's present policy, which may be changed by
its Board, is to make monthly cash distributions to holders of its shares at a
level rate that reflects the past and projected performance of such Fund, which
over time will result in the distribution of all net investment income of such
Fund. Fund management does not expect the level of monthly distributions to the
shareholders of the Acquiring Fund and the Acquired Fund, to be affected by the
Reorganization. There can be no assurance, however, that a stable level of
distributions may be maintained over the life of a Fund. Holders of shares of
each Fund may elect to have all distributions automatically reinvested in
shares of that Fund at the prevailing market price, plus customary brokerage
charges, pursuant to that Fund's Dividend Reinvestment Plan. See "Proposal No.
1--The Reorganization--Description of Shares Issued by the Acquiring Fund--
Distributions" and "--Dividend Reinvestment Plan" and "Additional Information
About the Funds--Tax Matters Associated with Investment in the Funds."
3
<PAGE>
COMPARATIVE FEE TABLE
<TABLE>
<CAPTION>
PRO-FORMA
ACQUIRING ACQUIRED ACQUIRING
FUND FUND FUND
--------- -------- ---------
<S> <C> <C> <C>
ANNUAL EXPENSES
(as a percentage of net assets)
Management Fees.................................... 0.64% 0.65% 0.64%
Other Expenses..................................... 0.11 0.19 0.09
Total Annual Expenses.............................. 0.75 0.84 0.73
</TABLE>
EXAMPLE:
The following table illustrates the expenses on a $1,000 investment based
upon the fees and expenses shown above and assuming a 5% annual return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Acquiring Fund.................................. $8 $24 $42 $ 93
Acquired Fund................................... 9 27 47 104
Pro-Forma Acquiring Fund........................ 7 23 41 91
</TABLE>
The purpose of the comparative fee table is to assist you in understanding
the various costs and expenses of investing in shares of the Funds. The
information in the table is based upon annualized expenses for the eleven-month
period ending July 31, 1995. The figures in the Example are not necessarily
indicative of past or future expenses, and actual expenses may be greater or
less than those shown. The Funds' actual rate of return may be greater or less
than the hypothetical 5% annual return shown in the Example.
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<PAGE>
RISKS AND SPECIAL CONSIDERATIONS REGARDING THE REORGANIZATION
The Boards of each of the Acquiring Fund and the Acquired Fund have
identified certain benefits to the respective shareholders of each Fund as a
result of the Reorganization. The portfolio characteristics of the Acquiring
Fund, after the Reorganization, would reflect the blended characteristics of
the constituent Funds. Compared to the Acquiring Fund, the combined portfolio
would have a higher yield, comparable maturity and slightly lower credit
quality. Compared to the Acquired Fund, the combined portfolio would have a
lower yield, comparable maturity and higher overall quality. The following
risks and special considerations should be considered by shareholders of each
Fund in their evaluation of the Reorganization:
1. Each of the Fund's portfolios of Municipal Obligations has different
maturity and yield characteristics, due in part to the different market
conditions existing at the time each Fund was organized. As of July 31,
1995 the yield for the Acquiring Fund's portfolio was 5.04% and for the
Acquired Fund's portfolio was 5.31%. The yield provided for each Fund
represents the average yield of the bonds in the portfolio derived by
weighing each bond's "yield to worst" by the market value of the bond. The
"yield to worst" of a bond is the lower of the yield to maturity and the
yield to call of that bond. Additionally, as of July 31, 1995, the dollar-
weighted average portfolio maturity of the Acquiring Fund was 21.2 years
and of the Acquired Fund was 20.8 years and the duration was 5.0 years for
the Acquiring Fund and 5.2 years for the Acquired Fund. Both dollar-
weighted average maturity and duration reflect the sensitivity of a Fund to
interest rate fluctuations, whereby a Fund with a longer maturity and
duration reacts more strongly to interest rate changes than a Fund with a
shorter maturity and duration. The average dollar-weighted maturity of a
Fund is the dollar-weighted average of the stated maturities of all debt
instruments held by the Fund. Duration is the weighted present value of
principal and interest payments expressed in years and may more accurately
measure a Fund's sensitivity to incremental changes in interest rates than
average maturity. For example, a Fund with a duration of 5.0 years should
have half the interest rate sensitivity of a Fund with a duration of 10.0
years, because the Fund with the shorter duration will receive payments
(and can reinvest at prevailing interest rates) twice as quickly. Assuming
the Reorganization had occurred on July 31, 1995, the portfolio yield,
dollar-weighted average portfolio maturity and duration of the combined
Funds would have been 5.12%, 21.1 years and 5.1 years, respectively.
2. Although the investment portfolio of each Fund must satisfy similar
standards of credit quality and diversification, the securities owned by
each Fund are different, resulting in certain differences in the
composition of each Fund's portfolio. Of the Municipal Obligations owned by
the Acquiring Fund as of July 31, 1995 (excluding temporary investments),
43% are rated in the highest grade by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's, a division of the McGraw Hill Companies,
("S&P"), 68% in the highest two grades, 85% in the highest three grades,
87% in the highest four grades, and 13% are unrated. Of the Municipal
Obligations owned by the Acquired Fund, as of July 31, 1995 (excluding
temporary investments), 26% are in the highest grade, 52% in the highest
two grades, 83% in the highest three grades, 87% in the highest four
grades, 2% below the four highest grades and 11% are unrated. See Annex A
to the Statement of Additional Information for a general description of
Moody's and S&P's ratings of Municipal Obligations. Assuming the
Reorganization had occurred on July 31, 1995, of the Municipal Obligations
owned by the combined Funds, 39% would have been rated in the highest grade
category by S&P or Moody's, 64% in the highest two grades, 85% in the
highest three grades, 87% in the highest four grades, 1% below the four
highest grades and 12% would have been unrated.
3. There are differences in concentration among the categories of
industries and tax-exempt issuers of the Municipal Obligations held in the
portfolios of the Funds. For the Acquiring Fund, as of July 31, 1995, the
highest concentrations of Municipal Obligations were in the escrowed,
health care, housing and tax allocation categories, accounting for 37%,
15%, 14% and 12% of such Fund's portfolio, respectively. For the Acquired
Fund, as of July 31, 1995, the highest concentrations were in the escrowed,
health care, tax allocation and housing categories, accounting for 30%,
18%, 12% and 10% of such Fund's portfolio, respectively. Assuming the
Reorganization had occurred on July 31, 1995, the combined Funds would have
had the highest concentrations in the escrowed, health care, housing and
tax allocation categories accounting for 35%, 15%, 13% and 12%, of the
combined Funds portfolio, respectively.
4. During the periods since the inception of the Funds, shares of the
Acquiring Fund have generally traded at premiums to net asset value, with
slight discounts being reflected at times, and the shares of the Acquired
Fund have generally traded at premiums to net asset value, with moderate
discounts being reflected at times. As determined by the closing price at
the end of each week, share prices for the Acquiring Fund have fluctuated
between a maximum premium of 11.92% and a maximum discount of 3.36%; and
share prices for the Acquired Fund have fluctuated between a maximum
premium of 9.61% and a maximum discount of 6.43%. As of July 31, 1995, the
Acquiring Fund shares were trading at a premium to net asset value of
0.59%,
5
<PAGE>
and the Acquired Fund shares were trading at a discount to net asset value
of 3.76%. It is not possible to state whether the Acquiring Fund shares
will trade at a premium or discount to net asset value following the
Reorganization, or what the extent of any such premium or discount might
be.
5. Each Fund is managed under a different management fee schedule. The
Acquiring Fund pays an annual management fee of .35% of the average weekly
net assets of the Fund. The Acquiring Fund also pays a fee of 4.125% of
gross interest income. The Acquired Fund pays an annual management fee of
.65% of average daily net assets for net assets of up to $125 million,
.6375% in excess of $125 million (but less than $250 million), .625% in
excess of $250 million (but less than $500 million), .6125% in excess of
$500 million (but less than $1 billion), .60% in excess of $1 billion (but
less than $2 billion), and .5875% in excess of $2 billion. For the fiscal
year ended August 31, 1994, the effective management fee rate for the
Acquiring and Acquired Funds, respectively, was 0.64% and 0.65%.
Based upon the foregoing, as well as the anticipated benefits of the
Reorganization described below, the Board of each Fund determined that the
Reorganization is likely to provide benefits to the shareholders of such Fund
that outweigh the possible adverse effects and the costs presented by the
Reorganization. See "Proposal No. 1--The Reorganization--Reasons for the
Reorganization."
THE ANNUAL MEETINGS
GENERAL
This Joint Proxy Statement--Prospectus is furnished in connection with the
solicitation by the Boards of the Funds of proxies to be voted at the Funds'
Annual Meetings to be held in the 31st Floor conference room of John Nuveen &
Co. Incorporated ("Nuveen"), 333 West Wacker Drive, Chicago, Illinois, on
Thursday, November 16, 1995 at 10:00 a.m., Central Time, and at any and all
adjournments of such Annual Meetings. The cost of preparing, printing and
mailing the enclosed proxy, accompanying notice and Joint Proxy Statement--
Prospectus, and all other costs in connection with the solicitation of proxies,
to the extent they are not incremental costs related to the Reorganization,
will be paid by the Funds pro rata based on their respective asset sizes.
Incremental costs related to the Reorganization will be paid by the Funds based
upon estimated savings to each Fund as a result of expected reduced operating
expenses resulting from the Reorganization. Additional solicitation may be made
by letter, telephone or telegraph by officers of the Funds, by officers or
employees of the Adviser or Nuveen, or by dealers and their representatives. To
assist in the solicitation of proxies, the Funds have engaged TriTech Services,
at a total estimated cost of $12,000, and D. F. King, at a total estimated cost
of $3,500.
The Board of each Fund has fixed the close of business on September 18, 1995
as the record date (the "Record Date") for determining holders of such Fund's
shares entitled to notice of and to vote at that Fund's Annual Meeting. Each
shareholder will be entitled to one vote for each share held. At the close of
business on the Record Date, there were outstanding (a) 18,971,948 shares of
the Acquiring Fund, and (b) 5,209,911 shares of the Acquired Fund. This Joint
Proxy Statement--Prospectus is first being mailed to shareholders of the Funds
on or about September 29, 1995. EACH FUND WILL FURNISH, WITHOUT CHARGE, A COPY
OF ITS AUGUST 31, 1994 ANNUAL REPORT AND ITS MORE RECENT SEMI-ANNUAL REPORT
UPON REQUEST. SUCH WRITTEN OR ORAL REQUEST SHOULD BE DIRECTED TO A FUND AT 333
WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606 OR BY CALLING 1-800-257-8787. THE
ANNUAL REPORT FOR THE FISCAL YEAR ENDED AUGUST 31, 1995 IS EXPECTED TO BE
AVAILABLE ON OR BEFORE OCTOBER 30, 1995.
VOTING; PROXIES
Shares of each Fund entitled to vote at that Fund's Annual Meeting that are
represented by properly executed proxies will, unless such proxies have been
revoked, be voted in accordance with the shareholder's instructions indicated
on such proxies. If no contrary instructions are indicated, all such shares
will be voted (1) FOR approval of, in the case of the Acquiring Fund, the
issuance of the Acquiring Fund shares pursuant to the Agreement, and, in the
case of the Acquired Fund, the Agreement, (2) FOR the election of the three
nominees for director and (3) FOR ratification of the Acquiring Fund's
selection of independent auditors.
A quorum of shareholders is required to take action at each Annual Meeting. A
majority of the shares entitled to vote at each Annual Meeting, represented in
person or by proxy, will constitute a quorum of shareholders at that Annual
Meeting. Votes cast by proxy or in person at each Annual Meeting will be
tabulated by the inspectors of election appointed for that Annual Meeting. The
inspectors of election will determine whether or not a quorum is present at
that Annual Meeting. The inspectors of election will treat abstentions and
"broker non-votes" (i.e., shares held by brokers or nominees, typically in
"street name," as to which (i) instructions have not been received from the
beneficial owners or persons entitled to vote and (ii) the broker or nominee
does not have discretionary voting power on a particular matter) as present for
purposes of determining a quorum.
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<PAGE>
For purposes of determining the approval of the matters submitted to
shareholders for a vote, abstentions and broker non-votes will be treated as
shares voted against the election of directors and against ratification of a
Fund's selection of independent auditors. In the case of the Acquired Fund,
abstentions and broker non-votes will be treated as shares voted against the
proposal relating to the Agreement. In the case of the Acquiring Fund,
abstentions and broker non-votes will not be treated as voting on the proposal
relating to the Agreement. The details of each proposal to be voted on by the
shareholders of each Fund and the vote required for approval of each proposal
are set forth under the description of each proposal below. Shareholders of
either Fund who execute proxies may revoke them at any time before they are
voted by filing with their Fund a written notice of revocation, by delivering a
duly executed proxy bearing a later date or by attending the meeting and voting
in person.
AVAILABLE INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended (the "1940 Act"), and in accordance therewith
is required to file reports, proxy statements and other information with the
Commission. Any such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Northeast Regional Office, Suite 1300, Seven World Trade
Center, New York, New York 10048 and Midwest Regional Office, Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies
of such materials can be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The shares of the
Acquiring Fund and the Acquired Fund are listed on the NYSE, and such reports,
proxy statements and other information concerning the Funds can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
The Acquiring Fund has filed with the Commission a registration statement on
Form N-14 (herein, together with all amendments and exhibits, referred to as
the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the Acquiring Fund shares to be issued pursuant
to the Reorganization. This Joint Proxy Statement--Prospectus and the related
Statement of Additional Information does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Acquiring Fund shares to be issued pursuant to
the Reorganization, reference is hereby made to the Registration Statement.
Statements contained in the Joint Proxy Statement--Prospectus and the related
Statement of Additional Information as to the content of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document included as an
Annex hereto or filed as an exhibit to the Registration Statement.
The information in this Joint Proxy Statement--Prospectus concerning the
Acquiring Fund has been furnished by the Acquiring Fund, and the information
concerning the Acquired Fund has been furnished by the Acquired Fund. This
Joint Proxy Statement--Prospectus constitutes a prospectus of the Acquiring
Fund with respect to the Acquiring Fund Shares issued pursuant to the
Reorganization.
PROPOSAL NO. 1--THE REORGANIZATION
The terms and conditions of the Reorganization are set forth in the
Agreement. Significant provisions of the Agreement are summarized below;
however, this summary is qualified in its entirety by reference to the
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement--Prospectus.
GENERAL
The Agreement sets forth the terms of the Reorganization, under which (a) the
Acquiring Fund would acquire substantially all of the assets of the Acquired
Fund in exchange for newly issued shares of the Acquiring Fund and the
Acquiring Fund's assumption of substantially all of the liabilities of the
Acquired Fund; and (b) the Acquired Fund would liquidate and distribute to its
shareholders pro rata the Acquiring Fund shares received. As a result of the
Reorganization, the assets of the Acquiring Fund and the Acquired Fund would be
combined and the
7
<PAGE>
shareholders of the Acquired Fund would become shareholders of the Acquiring
Fund. The investment objectives and policies of the Acquiring Fund are
substantially similar to those of the Acquired Fund. If the proposals relating
to the Agreement are approved, the Effective Time is expected to be the close
of business on January 8, 1996. Following the Reorganization, the Acquired Fund
would terminate its registration as an investment company under the 1940 Act by
filing a Form N-8F with the Commission.
TERMS OF THE REORGANIZATION
If the Reorganization is approved and the other conditions are satisfied or
waived, at the Effective Time the Acquiring Fund will acquire substantially all
of the assets of the Acquired Fund, including cash (other than cash used to pay
certain reorganization expenses of the Acquired Fund, to pay shareholders
exercising dissenters' rights, if any, and to make a final distribution of net
tax-exempt income, net ordinary income and net capital gains to the
shareholders of the Acquired Fund as of the Effective Time), cash equivalents,
Municipal Obligations and other securities, receivables and other property
owned by the Acquired Fund. In exchange, the Acquiring Fund would assume from
the Acquired Fund all debts, liabilities, obligations and duties of the
Acquired Fund (other than certain expenses incurred by the Acquired Fund in
connection with the Reorganization, the payment of amounts to shareholders
exercising dissenters' rights, if any, and the Acquired Fund's obligation to
distribute any net tax-exempt income, net ordinary income and net capital gains
accrued as of the Effective Time), and the Acquiring Fund would issue to the
Acquired Fund shares of the Acquiring Fund. The number of Acquiring Fund shares
to be issued to the Acquired Fund would be that number having an aggregate per
share net asset value equal to the aggregate value of the Acquired Fund's
assets transferred to, net of the Acquired Fund's liabilities assumed by, the
Acquiring Fund as of the Effective Time.
The value of the Acquired Fund's assets to be acquired and liabilities to be
assumed by the Acquiring Fund, and the net asset value per share to be issued
by the Acquiring Fund, will be determined by The Chase Manhattan Bank, N.A.
("Chase"), the custodian for each Fund, as of the Effective Time. Net asset
value per Acquiring Fund share shall be computed by dividing the value of the
Acquiring Fund's total assets, less liabilities, by the number of Acquiring
Fund shares outstanding. In determining net asset value per Acquiring Fund
share and the value of the Acquired Fund's assets, Chase utilizes the
valuations of portfolio securities furnished by a pricing service approved by
the Boards of the respective Funds. 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 the Funds) are valued at fair value as determined by the
pricing service using methods that include consideration of yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating; indications as to value from dealers; and general market conditions.
The pricing service may employ electronic data processing techniques or a
matrix system, or both, to determine valuations. The procedures of the pricing
service and its valuations are reviewed periodically by the officers of each
Fund under the general supervision of that Fund's Board. The number of
Acquiring Fund shares to be issued to the Acquired Fund pursuant to the
Reorganization will be calculated based on the determinations of Chase.
In the event the Reorganization is consummated, as soon as practicable after
the Effective Time, the Acquired Fund will liquidate and distribute pro rata to
its shareholders of record the Acquiring Fund shares it receives. Such
liquidation and distribution will be accomplished by opening accounts on the
books of the Acquiring Fund in the names of the shareholders of the Acquired
Fund and transferring to those shareholder accounts the Acquiring Fund shares
previously credited on those books to the account of the Acquired Fund. Each
shareholder account will receive the respective pro rata number of Acquiring
Fund shares (rounded down, in the case of fractional Acquiring Fund shares, to
the next largest number of whole Acquiring Fund shares) due such Acquired Fund
shareholder.
No fractional Acquiring Fund shares will be issued. In lieu thereof, the
Acquired Fund's transfer agent, Chase, will aggregate all fractional Acquiring
Fund shares and sell the resulting whole Acquiring Fund shares on the NYSE for
the account of all shareholders of fractional interests, and each such
shareholder will be entitled to his or her pro rata share of the proceeds of
such sale upon surrender of his or her Acquired Fund share certificates.
Following the Reorganization, every shareholder of the Acquired Fund would
own shares of the Acquiring Fund that, except for cash payments received in
lieu of fractional Acquiring Fund shares, will have an aggregate per share net
asset value immediately after the Effective Time equal to the aggregate per
share net asset value of
8
<PAGE>
that shareholder's Acquired Fund shares immediately prior to the Effective
Time. See "Description of Shares Issued by the Acquiring Fund" for a
description of the rights of such shareholders. Since the Acquiring Fund shares
issued to the shareholders of the Acquired Fund would be issued at net asset
value in exchange for net assets of the Acquired Fund having a value equal to
the aggregate per share net asset value of those Acquiring Fund shares so
issued, the net asset value of the Acquiring Fund shares should remain
virtually unchanged by the Reorganization. Thus, the Reorganization should
result in no dilution of net asset value of any shareholder's holdings. See
"Pro Forma Financial Statements" in the Statement of Additional Information.
However, as a result of the Reorganization, shareholders of both Funds would
hold reduced percentages of ownership in the larger combined entity than they
held in the Acquiring Fund or the Acquired Fund, as the case may be.
Under the terms of the Agreement, the Reorganization is conditioned upon (a)
approval by the shareholders of the Acquiring Fund and the Acquired Fund, as
described under "Votes Required" below, (b) the Funds' receipt of an opinion to
the effect that the Reorganization will qualify as a tax-free reorganization
under the Code (which opinion has already been received), (c) the absence of
legal proceedings challenging the Reorganization and (d) the Funds' receipt of
certain routine certificates and legal opinions.
The Agreement may be terminated and the Reorganization abandoned, whether
before or after approval by the Funds' shareholders, at any time prior to the
Effective Time (a) by the written consent of the Boards of both Funds, (b) by
either Fund if any condition to that Fund's obligations under the Agreement has
not been satisfied or waived and it reasonably appears that such condition will
not be satisfied or (c) by either Fund if the Reorganization has not occurred
by March 31, 1996.
REASONS FOR THE REORGANIZATION
The respective Boards of the Acquiring Fund and the Acquired Fund, which
consist of the same individuals, have concluded that the Reorganization is in
the best interests of the shareholders of their respective Funds and
unanimously recommend that the shareholders of their respective Funds vote FOR
approval of the proposals relating to the Agreement.
In approving the Reorganization, the Boards identified certain benefits that
are likely to result from combining the Funds, including lower administrative
expenses, greater efficiency and flexibility in portfolio management and a more
liquid trading market for shares of the combined Fund. The Boards also
considered the possible adverse effects and estimated costs of combining the
Funds. See "Risks and Special Considerations Regarding the Reorganization."
Based on data presented by management of the Funds, the Boards believe that
administrative expenses of a larger combined Fund comprised of the assets of
both Funds will be less than the aggregate expenses of the individual Funds,
resulting in a lower expense ratio for the combined Fund. For the eleven-month
period ended July 31, 1995, the annualized expense ratios for the Acquiring
Fund and the Acquired Fund were 0.75% and 0.84%, respectively. The pro-forma
annualized expense ratio for the combined Fund for that period would have been
0.73%.
The larger asset base resulting from combining the Funds should also provide
benefits in portfolio management. The Acquiring Fund after the Reorganization
should be able to purchase larger amounts of Municipal Obligations at more
favorable prices than either of the Funds individually and, with this greater
purchasing power, be in a better position to request improvements in the terms
of Municipal Obligations (e.g., added indenture provisions covering call
protection, sinking funds or audits for the benefit of large holders) prior to
purchase.
The Reorganization would result in the Acquiring Fund's having a
significantly larger number of shares outstanding, and a significantly larger
number of shareholders, than either individual Fund. Data prepared by
management of the Funds indicates that market prices of shares of smaller funds
are likely to experience greater spreads between the bid and the offer than
market prices of shares of larger funds, and that increasing the size of the
Acquiring Fund by combining it with the Acquired Fund should result in a higher
average daily trading volume, a narrower average spread between the bid and the
offer and reduced price volatility for its shares. There can be no assurance
that the Reorganization will produce these anticipated benefits. However, the
Boards believe that these results, if obtained, would benefit holders of shares
by affording them a more liquid trading market for their shares and the
opportunity for more favorable price execution in trading the shares.
9
<PAGE>
In approving the Reorganization, the respective Boards determined that the
Reorganization should result in no dilution of the interests of the respective
Funds' existing shareholders. See "Pro Forma Financial Statements" in the
Statement of Additional Information. Although the Reorganization is expected to
result in a reduction in net asset value per Acquiring Fund share (and per
Acquired Fund share equivalent) of approximately $0.01 as a result of the
estimated costs of the Reorganization, management of the Funds has advised the
Boards that it expects that such costs will be recovered within approximately
17 months after the Effective Time. See "Expenses Associated with the
Reorganization."
In approving the Reorganization, the Boards considered a report of the Funds'
management indicating that the Reorganization should not have a materially
adverse overall effect on the financial status and ongoing performance of
either Fund, and considered such measures as gross portfolio yield, net
portfolio earnings rate as a percentage of net asset value, monthly net
earnings, monthly dividends, dividend rates as a percentage of the initial
offering and market price, management fees, expense ratios and undistributed
net investment income balances. The Boards also examined the relative credit
strength, maturity characteristics, mix of type and purpose, and yield of the
Funds' portfolios of Municipal Obligations and the costs involved in the
Reorganization. The Boards noted similarities between the Funds, including
their substantially similar investment objectives and policies, common
management and each of the Fund's respective portfolios of Municipal
Obligations. Based on these factors, the Boards determined that the
Reorganization is likely to provide benefits to the shareholders of each Fund,
as discussed above, that outweigh any possible adverse effects and the costs
(including relatively minor legal, accounting and administrative costs, some of
which have already been incurred in evaluating and analyzing the
Reorganization) presented by the Reorganization.
VOTES REQUIRED
Shareholders of the Acquiring Fund are being asked to approve the issuance of
up to 7,000,000 additional shares of the Acquiring Fund pursuant to the
Agreement. Adoption of this proposal requires the affirmative vote of the
holders of at least a majority of the Acquiring Fund shares voting on the
proposal, provided that the total vote cast on the proposal represents over 50%
of all Acquiring Fund shares entitled to vote on the proposal.
Shareholders of the Acquired Fund are being asked to approve the Agreement.
Adoption of this proposal requires the affirmative vote of the holders of at
least a majority of the outstanding shares of the Acquired Fund entitled to
vote on the proposal.
DESCRIPTION OF SHARES ISSUED BY THE ACQUIRING FUND
GENERAL
The Articles of Incorporation (the "Articles") of the Acquiring Fund
authorizes the issuance of 250,000,000 shares of common stock, par value $.01
per share. As of July 31, 1995, there were issued and outstanding 18,958,790
shares of the Acquiring Fund. If the Reorganization is approved, at the
Effective Time the Acquiring Fund will issue additional shares. The number of
such additional Acquiring Fund shares will be based on the relative aggregate
per share net asset values of the Acquiring Fund and the Acquired Fund, in each
case as of the Effective Time. Based on the relative per share net asset values
as of July 31, 1995, the Acquiring Fund would have issued approximately
6,026,058 additional shares if the Reorganization had occurred as of that date.
The terms of the Acquiring Fund shares to be issued pursuant to the
Reorganization will be identical to the terms of the Acquiring Fund shares that
are then outstanding. All of the Acquiring Fund shares have equal rights with
respect to the payment of dividends and the distribution of assets upon
liquidation. The Acquiring Fund shares are, when issued, fully paid and non-
assessable and have no preemptive, conversion or exchange rights or right to
cumulative voting.
DISTRIBUTIONS
It is each Fund's present policy, which may be changed by its Board, to make
monthly cash distributions to the holders of its shares of net investment
income at a level rate that reflects past and projected performance of the
Fund, which over time will result in the distribution of all net investment
income of the Fund and to distribute at least annually net capital gains, if
any. Each Fund's distribution level is determined by the Board of such Fund
10
<PAGE>
after giving consideration to a number of factors, including the Fund's
undistributed net investment income and historical and projected investment
income and expenses. Net investment income of each Fund consists of all
interest income accrued on portfolio assets less all expenses of such Fund.
Expenses of each Fund are accrued each day. To permit each Fund to maintain a
more stable monthly distribution, each Fund may from time to time distribute
less than the entire amount of net investment income earned in a particular
period. Such undistributed net investment income would be available to
supplement future distributions, including distributions which might otherwise
have been reduced by a decrease in such Fund's monthly net income due to
fluctuations in investment income or expenses. As a result, the distributions
paid by each Fund for any particular monthly period may be more or less than
the amount of net investment income actually earned by such Fund during such
period. Undistributed net investment income is added to each Fund's net asset
value, and, correspondingly, distributions from undistributed net investment
income are deducted from such Fund's net asset value. See "Tax Matters
Associated with Investment in the Funds" under "Additional Information About
the Funds" below.
Fund management does not expect the level of monthly distributions to the
shareholders of the Acquiring Fund and the Acquired Fund to be affected by the
Reorganization. There can be no assurance, however, that a stable level of
distributions may be maintained over the life of a Fund.
DIVIDEND REINVESTMENT PLAN
Under each Fund's Dividend Reinvestment Plan (the "Plan"), each shareholder
of such Fund may elect to have all dividends or capital gains distributions, or
both, automatically reinvested by Chase, as agent for the shareholders of the
Fund (the "Plan Agent"), in additional Fund shares. A Fund shareholder may make
this election by completing a Dividend Reinvestment Plan Application Form.
Shareholders of the Acquired Fund who participate in the Acquired Fund's
Dividend Reinvestment Plan will automatically be enrolled in the Plan upon
consummation of the Reorganization and any unpaid dividends at the time of the
Reorganization will be reinvested in shares of the Acquiring Fund as if subject
to the Plan. Other shareholders of the Acquired Fund will be given the
opportunity to enroll in the Plan following the Effective Time. An Acquired
Fund shareholder who does not elect to participate in the Plan will receive all
dividends and capital gains distributions in cash paid by check mailed directly
to the record shareholder by Chase, as dividend paying agent.
Under the plan, the number of shares equivalent to the cash distribution is
determined as follows:
(a) If the Fund shares are trading at net asset value or at a premium
above net asset value at the time of valuation, the Fund will issue new
shares at the then current market price; or
(b) If the Fund shares are trading at a discount from net asset value at
the time of valuation, the Plan Agent will receive the dividend or
distribution in cash and apply it to the purchase of Fund shares in the
open market, on the NYSE or elsewhere, for the participants' accounts. As a
result of increases in the market price prior to the time the Plan Agent
has completed its purchases, the average purchase price per share paid by
the Plan Agent may exceed the market price at the time of valuation,
resulting in the acquisition of fewer Fund shares than if the dividend or
distribution had been paid in shares issued by the Fund. The Plan Agent
will use all dividends and distributions received in cash to purchase Fund
shares in the open market within 30 days of the dividend payment date.
Interest will not be paid on any uninvested cash payments.
Participants in the Plan may withdraw from the Plan upon written or telephone
notice to the Plan Agent. When a participant withdraws from the Plan or upon
termination of the Plan, certificates for whole Fund shares credited to his or
her account under the Plan will be issued and a cash payment will be made for
any fraction of a Fund share credited to such account; or, if a participant so
desires, the Plan Agent will sell his or her Fund shares in the Plan and send
the proceeds to the participant, less brokerage commissions and a $2.50 service
fee.
The Plan Agent maintains all Fund shareholder accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by such shareholders for tax records. The Fund shares in the
account of each Plan participant are held by the Plan Agent in non-certificated
form in the name of the participant, and each such shareholder's proxy includes
those Acquiring Fund shares received pursuant to the Plan.
In the case of Fund shareholders such as banks, brokers or nominees that hold
Fund shares for others who are the beneficial owners, the Plan Agent
administers the Plan on the basis of the number of Fund shares certified from
time to time by the record shareholders as representing the total amount
registered in the record shareholder's name and held for the account of
beneficial owners who participate in the Plan.
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There will be no brokerage charges with respect to shares issued directly by
the Fund as a result of dividends or capital gains distributions payable either
in shares or in cash. However, each participant pays a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of dividends or capital gains
distributions.
The automatic reinvestment of dividends and distributions does not relieve
participants of any income taxes that may be payable on dividends or
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, each Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, each Fund
reserves the right to amend the Plan to include a service charge payable by the
participants. Additional information about the Plan may be obtained from Chase,
770 Broadway, New York, New York 10003.
ODD LOT HOLDINGS
In connection with the Reorganization, a shareholder of the Acquired Fund
might receive a number of Acquiring Fund shares in the Reorganization which
consists of or includes an "odd lot" (i.e., less than 100 shares). Such odd lot
holders may participate in the Acquiring Fund's Dividend Reinvestment Plan for
the limited purpose of purchasing a sufficient number of Acquiring Fund shares
to bring their odd lot shares up to a 100-share "round lot." Each such odd lot
holder would send in the certificates representing his or her odd lot shares
and direct the Plan Agent to reinvest dividends only until a sufficient number
of Acquiring Fund shares have been acquired to form a round lot. When this is
accomplished, (a) certificates representing the round lot of Acquiring Fund
shares would be issued to the holder, (b) any excess Acquiring Fund shares or
fractional Acquiring Fund shares would be sold and a check for the sale issued
to the holder, and (c) dividend reinvestment on behalf of such shareholder
would be discontinued.
COMPARISON OF RIGHTS OF HOLDERS OF SHARES
OF THE ACQUIRING FUND AND THE ACQUIRED FUND
The terms of the Acquiring Fund shares to be issued in the Reorganization are
identical to the terms of the outstanding Acquired Fund shares, including the
super-majority voting provisions contained in each Fund's Articles, except for
the voting provisions relating to the conversion to an open-end investment
company as described below.
Each Fund's Articles include provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Fund. Specifically, the Board of Directors is divided into three classes, each
having a term of three years. At each annual meeting of shareholders the term
of one class will expire. This provision could delay for up to two years the
replacement of a majority of the Board of Directors. In addition, each Fund's
Articles require the affirmative vote of the holders of at least 66 2/3% of the
shares then entitled to be voted to authorize any of the following
transactions:
(a) conversion of the Fund from a closed-end to an open-end investment
company (except under certain circumstances in the case of the Acquired
Fund as discussed below),
(b) a merger or consolidation of the Fund with another corporation or a
reorganization or recapitalization,
(c) a sale, lease or transfer of all or substantially all of the Fund's
assets (other than in the regular course of the Fund's investment
activities), or
(d) a liquidation or dissolution of the Fund,
unless such transaction has been authorized by the affirmative vote of 66 2/3%
of the total number of directors fixed in accordance with the By-Laws, in which
case the affirmative vote of the holders of a majority of the Fund's
outstanding shares is required. The votes required under certain circumstances
to approve the conversion of each Fund from a closed-end to an open-end
investment company or to approve the other transactions described above is
higher than that required by the 1940 Act. Reference should be made to each
Fund's Articles on file with the Commission (which may be obtained as described
under "Available Information") for the full text of these provisions, which
could have the effect of depriving shareholders of the Fund of an opportunity
to sell their shares at a premium over prevailing market prices by discouraging
a third party from seeking to obtain control of the Fund.
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The Acquired Fund's Articles differ from those of the Acquiring Fund in that
they provide that if the Acquired Fund's shares trade at an average discount
from net asset value of more than 10%, determined on the basis of the discount
as of the end of the last trading day in each week during the 12 calendar weeks
preceding the beginning of such fiscal year, an amendment to the Acquired
Fund's Articles to convert the Acquired Fund to an open-end investment company
that is approved by a majority of the directors fixed in accordance with the
By-Laws will require for its adoption the affirmative vote of the holders of a
majority of the outstanding shares of the Acquired Fund.
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES
OF THE ACQUIRING FUND AND THE ACQUIRED FUND
GENERAL
The investment objectives and policies set forth below for each of the
Acquiring Fund and the Acquired Fund are fundamental policies of such Fund and
may not be changed without the approval of the holders of a "majority of the
outstanding" shares of that Fund. For purposes of the following discussion and
"Investment Restrictions" below, "majority of the outstanding" means (a) 67% or
more of the shares present at a meeting, if the holders of more than 50% of the
shares are present or represented by proxy, or (b) more than 50% of the shares,
whichever is less. The following restrictions and other limitations discussed
herein and in the Statement of Additional Information apply only at the time of
purchase of securities and will not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of an acquisition
of securities.
During temporary defensive periods (e.g., times when temporary imbalances of
supply and demand or other temporary dislocations in the tax-exempt bond market
adversely affect the price at which California Municipal Obligations are
available), each Fund may invest any percentage of its net assets in taxable
temporary investments, the income on which may be subject to California income
tax or to both Federal and California income taxes. Each Fund will invest only
in temporary investments which are U.S. Government securities or securities
rated within the two highest grades by Moody's or S&P (including tax-exempt
securities issued in states other than California), and which mature within one
year from the date of purchase. Temporary investments of the Funds may also
include repurchase agreements.
Neither Fund has established any limit on the percentage of its portfolio
that may be invested in California Municipal Obligations subject to the
alternative minimum tax provisions of Federal tax law, and a substantial
portion of the income produced by the Funds may be taxable under the
alternative minimum tax. The Funds, therefore, would not ordinarily be suitable
investments for investors who are subject to the alternative minimum tax. The
suitability of either Fund for these investors will depend upon a comparison of
the yield likely to be provided from the Funds, from comparable tax-exempt
investments not subject to the alternative minimum tax, and from comparable
fully taxable investments in light of each such investor's tax position.
The Acquiring Fund. The Acquiring Fund's primary investment objective is to
provide, through investment in a professionally managed portfolio of tax-exempt
California Municipal Obligations, current interest income exempt from both
Federal and California income taxes. A secondary objective of the Acquiring
Fund is to achieve enhancement of portfolio value through investments in tax-
exempt California Municipal Obligations that, in the opinion of the Acquiring
Fund's Adviser, are underrated or represent municipal market sectors that are
undervalued. Underrated Municipal Obligations are those whose ratings do not,
in the Adviser's opinion, reflect their true value. Obligations may be
underrated because of the time that has elapsed since their most recent rating,
or because of positive factors that may not have been fully taken into account
by the rating agencies, or for other similar reasons. Undervalued municipal
market sectors, on the other hand, refers to Municipal Obligations of
particular types or purposes (e.g., hospital bonds, industrial revenue bonds,
or bonds issued by a particular municipal issuer) that, in the Adviser's
opinion, are worth more than the value assigned to them in the marketplace.
Obligations may be undervalued because there is a temporary excess of supply in
a particular market sector, or because of a general decline in the market price
of Municipal Obligations of a market sector for reasons that do not apply to
the particular Municipal Obligations that are considered undervalued. The
Acquiring Fund's investment in underrated or undervalued California Municipal
Obligations will be based on the Adviser's belief that the prices of such
Obligations should ultimately reflect their true value. Under certain market
conditions, such underrated or undervalued Municipal Obligations may realize
market appreciation, while in a declining market such Municipal Obligations may
experience less market depreciation than other Municipal Obligations.
Accordingly, "enhancement of portfolio value" does not merely refer to market
appreciation of portfolio securities, and the Acquiring Fund does not suggest
that capital appreciation is itself an objective of the Acquiring Fund.
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Instead, the objective of enhancement of portfolio value is one of seeking to
outperform the market by prudent selection of Municipal Obligations, regardless
of which direction the market may move. A shareholder of the Acquiring Fund
will receive taxable income upon the sale of shares at an appreciated value or
in the event of capital gains distributions by the Acquiring Fund.
Except during temporary defensive periods, the Acquiring Fund will, as a
fundamental policy, invest 100% of its net assets in tax-exempt California
Municipal Obligations, of which 80% will be Municipal Obligations rated at the
time of purchase within the four highest grades (Baa or BBB or better) by
Moody's or S&P. Municipal Obligations rated Baa or BBB are considered
"investment grade" securities; Obligations rated Baa are considered medium
grade obligations which lack outstanding investment characteristics and in fact
have speculative characteristics as well, while Obligations rated BBB are
regarded as having an adequate capacity to pay principal and interest. A
general description of Moody's and S&P's ratings of Municipal Obligations is
set forth in Annex A to the Statement of Additional Information. The Acquiring
Fund emphasizes investments in California Municipal Obligations with long-term
maturities, but the degree of such emphasis will depend upon market conditions
existing at the time of investment.
The Acquiring Fund may invest up to 20% of its net assets in unrated
California Municipal Obligations or in California Municipal Obligations rated
lower than the four highest grades, but no more than half of this amount (10%
of the Fund's net assets) will be invested in such lower rated California
Municipal Obligations. To the extent it does so, there may be somewhat greater
risk because such unrated or lower rated Municipal Obligations, although
generally offering a higher current yield than higher rated securities, are
generally less liquid and involve a greater risk of non-payment of principal
and interest than higher rated securities. The Acquiring Fund will only invest
in unrated California Municipal Obligations which, in the opinion of the
Adviser, have credit characteristics equivalent to Obligations rated Baa or BBB
or better. The Acquiring Fund will not invest in any rated California Municipal
Obligations that are rated lower than Ba by Moody's or BB by S&P at the time of
purchase.
The Acquired Fund. The Acquired Fund's investment objective is to provide,
through investment in a professionally managed portfolio of tax-exempt
California Municipal Obligations, a high level of current interest income
exempt from both Federal and California income taxes.
Except during temporary defensive periods, the Acquired Fund will, as a
fundamental policy, invest 100% of its net assets in tax-exempt California
Municipal Obligations, of which 75% will be Municipal Obligations rated at the
time of purchase within the four highest grades (Baa or BBB or better) by
Moody's or S&P, or unrated Municipal Obligations which, in the opinion of the
Adviser, have credit characteristics equivalent to, and will be of comparable
quality to, Obligations rated within the four highest grades by Moody's or S&P,
provided that the Acquired Fund may not invest more than 10% of its net assets
in such unrated Municipal Obligations. The Acquired Fund emphasizes investments
in California Municipal Obligations with long-term maturities, but the degree
of such emphasis will depend upon market conditions existing at the time of
investment.
The Acquired Fund may invest up to 25% of its net assets in California
Municipal Obligations rated Ba or B by Moody's or BB or B by S&P at the time of
purchase, or in unrated California Municipal Obligations that, in the Adviser's
opinion, have credit characteristics equivalent to Obligations so rated,
provided that no more than 10% of the Fund's net assets may be invested in
California Municipal Obligations rated B by Moody's or B by S&P, or their
unrated equivalents. To the extent the Acquired Fund invests in these lower
rated California Municipal Obligations, there may be somewhat greater risk
because such lower rated securities, although generally offering a higher
current yield than higher rated securities, are generally less liquid and
involve a greater risk of non-payment of principal and interest than higher
rated securities. Securities rated B by S&P have a greater vulnerability to
default but presently have the capacity to meet interest and principal
payments, while securities rated B by Moody's generally lack characteristics of
the desirable investment. The Acquired Fund will not invest in any California
Municipal Obligations that are not rated at least B by either Moody's or S&P or
that do not have credit characteristics equivalent to Municipal Obligations so
rated in the opinion of the Adviser.
MUNICIPAL OBLIGATIONS
"Municipal Obligations" are debt obligations issued by states, cities and
local authorities to obtain funds for various public purposes, including the
construction and maintenance of such public facilities as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Municipal Obligations may be
issued include the refinancing of outstanding obligations and the obtaining of
funds for general operating expenses and for loans to other public institutions
and facilities. In addition,
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certain industrial development, private activity and pollution control bonds
may be included within the term Municipal Obligations if the interest paid
thereon qualifies as exempt from regular Federal income tax. The two principal
classifications of Municipal Obligations 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 (e.g., industrial development bonds) are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source.
Also included within the general category of Municipal Obligations are
participations in lease obligations or installment purchase contract
obligations of municipal authorities or entities.
"California Municipal Obligations" are Municipal Obligations issued by the
State of California and cities and local authorities in the State of California
bearing interest that, in the opinion of bond counsel to the issuer, is exempt
from regular Federal income tax as well as California personal income tax. Such
interest may be subject to the Federal alternative minimum tax.
The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. 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.
Each Fund may purchase and sell Municipal Obligations 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. On such transactions the payment obligation is fixed
at the time the buyer enters into the commitment. This involves an element of
risk to a Fund when it is the buyer because at the time of delivery the market
value of the Municipal Obligations may be less than such Fund's payment
obligation. Each Fund is required under the rules of the Commission to maintain
in a segregated account liquid assets, consisting of cash, U.S. government
securities or other high grade debt obligations, equal in value to the purchase
price due on the settlement date. Income generated by assets in such a
segregated account of a Fund may be taxable to shareholders of that Fund.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL OBLIGATIONS
Except to the extent a Fund invests in temporary investments, it will invest
substantially all of its net assets in California Municipal Obligations. The
Funds are therefore susceptible to political, economic and regulatory factors
affecting issuers of California Municipal Obligations.
The financial condition of the State of California is affected by various
national, economic, social and environmental policies and conditions.
Additionally, limitations imposed by constitutional amendments, legislative
measures, or voter initiatives on the State and its local governments
concerning taxes, bond indebtedness and other matters may constrain the
revenue-generating capacity of the State and its local governments and,
therefore, the ability of issuers of California Municipal Obligations to
satisfy their obligations. The State faces a structural imbalance in its budget
with the largest programs supported by the General Fund (education, health,
welfare and corrections) growing at rates higher than the growth rates for the
principal revenue sources of the General Fund.
The economic vitality of the State and its various regions and, therefore,
the ability of the State and its local governments to satisfy their
obligations, are affected by numerous factors, such as natural disasters and
cutbacks in federal defense spending. The California economy continues to show
weakness in manufacturing, particularly aerospace, construction, services and
trade. California's population increase has resulted in traffic congestion,
school overcrowding and high housing costs which have caused an increase demand
for government services and which may impede future economic growth.
The State is a party to numerous lawsuits in which an adverse final decision
could materially affect the State's governmental operations and consequently
its ability to pay debt service on its obligations.
On December 7, 1994, Orange County, California, together with its pooled
investment fund (the "Pooled Fund") filed for protection under Chapter 9 of the
U.S. Bankruptcy Code. Many governmental entities kept moneys in the Pooled
Fund.
All outstanding general obligation bonds of the State are rated "A" by
Standard and Poor's and "A1" by Moody's.
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Further information concerning the more significant events and conditions
affecting the financial situation in California is included under "Investment
Objectives and Policies of the Funds--Special Considerations Relating to
California Municipal Obligations" in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
Neither Fund, as a fundamental policy, may, without the approval of the
holders of a "majority of the outstanding" shares:
(1) Issue senior securities, as defined in the 1940 Act, except to the
extent such issuance might be involved with respect to borrowings described
under subparagraph (3) under "Investment Objectives and Policies of the
Funds--Investment Restrictions" in the Statement of Additional Information
or with respect to transactions involving futures contracts or the writing
of options within the limits described in the Statement of Additional
Information under "Certain Trading Strategies of the Funds--Financial
Futures and Options Transactions;"
(2) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitation shall not apply
to Municipal Obligations issued by governments or political subdivisions of
governments (except, in the case of the Acquired Fund, this limitation
shall apply to those Municipal Obligations backed only by the assets and
revenues of non-governmental users) and obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(3) Invest in securities other than California Municipal Obligations and
temporary investments as described in the Statement of Additional
Information under "Investment Objectives and Policies of the Funds--
Portfolio Investments;" or
(4) 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
U.S. government, its agencies and instrumentalities or to the investment of
25% of its total assets.
See "Investment Objectives and Policies of the Funds--Investment
Restrictions" in the Statement of Additional Information for a description of
additional investment restrictions.
SURRENDER AND EXCHANGE OF ACQUIRED FUND SHARE CERTIFICATES
After the Effective Time, each holder of an outstanding certificate or
certificates formerly representing shares of the Acquired Fund ("Acquired Fund
Shares") will be entitled to receive, upon surrender of his or her
certificates, a certificate or certificates representing the number of
Acquiring Fund shares distributable with respect to such holder's Acquired Fund
Shares, together with cash in lieu of any fractional Acquiring Fund share.
Promptly after the Effective Time, the Transfer Agent will mail to each holder
of certificates formerly representing Acquired Fund Shares a letter of
transmittal for use in surrendering his or her certificates for certificates
representing Acquiring Fund shares and cash in lieu of any fractional Acquiring
Fund share.
PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME. UPON CONSUMMATION
OF THE REORGANIZATION, HOLDERS OF ACQUIRED FUND SHARES WILL BE FURNISHED
INSTRUCTIONS FOR EXCHANGING THEIR ACQUIRED FUND SHARE CERTIFICATES FOR
ACQUIRING FUND SHARE CERTIFICATES AND, IF APPLICABLE, CASH IN LIEU OF
FRACTIONAL ACQUIRING FUND SHARES.
From and after the Effective Time, certificates formerly representing
Acquired Fund Shares will be deemed for all purposes to evidence ownership of
the number of full Acquiring Fund shares distributable with respect to such
Acquired Fund Shares in the Reorganization, provided that until such Acquired
Fund Share certificates have been so surrendered, no dividends payable to the
holders of record of Acquiring Fund shares as of any date subsequent to the
liquidation of the Acquired Fund are required to be paid to the holders of such
outstanding Acquired Fund Share certificates. Unpaid Dividends on Acquiring
Fund shares to holders of record as of any date after the liquidation of the
Acquired Fund and prior to the exchange of certificates by any Acquired Fund
shareholder will be paid to such shareholder, without interest, at the time
such shareholder surrenders his or her Acquired Fund Share certificates for
exchange.
From and after the Effective Time, there will be no transfers on the record
transfer books of the Acquired Fund. If, after the Effective Time, certificates
representing Acquired Fund Shares are presented to the Acquired Fund, they will
be cancelled and exchanged for certificates representing the Acquiring Fund
shares and, if applicable, the cash in lieu of fractional Acquiring Fund shares
distributable with respect to such Acquired Fund Shares in the Reorganization.
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EXPENSES ASSOCIATED WITH THE REORGANIZATION
In evaluating the Reorganization, management of the Funds estimated the
amount of additional expenses the Funds would incur, including additional stock
exchange listing fees, Commission registration fees, legal and accounting fees
and proxy and distribution costs. These estimates were based in part on
information provided by the Funds' independent auditors, as well as historical
expense information regarding expenses incurred by other funds managed by the
Funds' management in preparation for previous shareholder meetings. The
aggregate amount of estimated Reorganization expenses (estimated to be
$176,091), excluding annual stock exchange fees which will be borne by the
Acquiring Fund after the Reorganization, are to be allocated between the
Acquiring Fund (32.5%) and the Acquired Fund (67.5%) based upon estimated
savings to each Fund as a result of expected reduced operating expenses
resulting from the Reorganization.
Reorganization expenses of the Acquiring Fund and the Acquired Fund have been
or will be expensed prior to the Effective Time. Management of the Funds
expects that reduced operating expenses resulting from the Reorganization
should allow the Acquiring Fund to recover the projected costs of the
Reorganization within approximately 17 months after the Effective Time.
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Under Minnesota law, shareholders of the Acquired Fund have dissenters'
rights of appraisal with respect to the Reorganization, but shareholders of the
Acquiring Fund do not have such rights.
GENERAL
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act
provide for rights of shareholders to dissent and obtain payment in cash of the
"fair value" of their shares, as defined in the statute, in the event of a sale
of substantially all of the assets of a Minnesota corporation. The procedures
for asserting dissenters' rights are set forth in such sections, the full texts
of which are reprinted as Annex B to this Joint Proxy Statement-Prospectus.
Shareholders of the Acquired Fund who wish to assert their dissenters' rights
must fully comply with the statutory requirements in order to preserve the
right to obtain payment for their shares under the statute. The following
summary of the applicable provisions of Section 302A.471 and 302A.473 is not
intended to be a complete statement of such provisions and is qualified in its
entirety by reference to such Sections.
PROCEDURE
Any shareholder of the Acquired Fund who wishes to dissent and obtain payment
for his or her shares (a) must file with the Acquired Fund prior to the
shareholder vote with respect to the Agreement at the Annual Meeting, a written
notice stating the shareholder's intention to demand payment of the fair value
of his or her shares if the Reorganization is effectuated and (b) must not vote
his or her shares in favor of approval of the Agreement. Such notice must be
filed at the offices of the Acquired Fund at 333 West Wacker Drive, Chicago,
Illinois 60606. A vote against approval of the Agreement does not in itself
constitute the required written notice described in (a) above. A shareholder
must satisfy requirement (b) above either by voting against approval of the
Agreement in person or by proxy at the Annual Meeting or by abstaining from
voting his or her shares. The shareholder can so abstain by not voting in favor
of approval of the Agreement at the Annual Meeting and either (i) not signing
and returning the proxy card or (ii) marking the space indicating "Abstain" on
the proxy card. If a shareholder returns a signed proxy card, unless such proxy
card indicates that the shareholder wishes to abstain or vote against approval
of the Agreement, such shareholder's shares will be voted in favor of approval
of the Agreement, and such shareholder will not be permitted to dissent.
A shareholder of the Acquired Fund may not assert dissenters' rights as to
less than all of the shares registered in such holder's name, except in the
situation in which certain shares are beneficially owned by another person but
registered in such holder's name. If a shareholder wishes to dissent with
respect to shares beneficially owned by another person, such shareholder must
dissent with respect to all such shares and disclose the name and address of
the beneficial owner on whose behalf the holder is dissenting. A beneficial
owner who is not the shareholder of record may assert dissenters' rights with
respect to all of his or her shares if the beneficial owner submits a written
consent of the shareholder of record at the time of or prior to the assertion
of such dissenters' rights.
If the Agreement is approved by the requisite shareholder vote, the Acquired
Fund will be required to mail a notice to each Acquired Fund shareholder who
filed a written notice of intent to demand payment and refrained
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from voting in favor of approval of the Agreement. The notice shall state when
and where a demand for payment shall be sent and share certificates shall be
deposited in order to obtain payment. The notice shall also include a form to
be completed by the shareholder for demanding payment and certifying the date
on which the shareholder, or the beneficial owner on whose behalf the
shareholder is dissenting, acquired the shares. In order to receive the fair
value of his or her shares, a dissenting shareholder must demand payment and
deposit his or her share certificates within 30 days after the notice is mailed
by the Acquired Fund. A shareholder who fails to demand payment or fails to
deposit share certificates, as required by such notice, shall have no right to
receive payment for his or her shares under the dissenters' rights provisions.
After the Reorganization takes effect or after receipt of a valid demand for
payment, whichever is later, the Acquired Fund shall remit to each shareholder
who has made such demand of the Acquired Fund and deposited his or her share
certificates, the amount that the Acquired Fund estimates to be the fair value
of the shares, plus any interest that may have accrued commencing five days
after the Effective Time up to and including the date of payment at the
judgment rate of interest then in effect under Minnesota law (currently 6% per
annum). The Acquired Fund shall also include with such remittance, along with
certain financial statements of the Acquired Fund, a brief description of the
method used to reach the estimated fair value of the shares of the Acquired
Fund. As used in Section 302A.473, the term "fair value of the shares" means
the value of the shares immediately before the Effective Time.
The Acquired Fund may withhold any remittance from a dissenting shareholder
who was not a shareholder (or who is dissenting on behalf of a person who was
not a beneficial owner) on July 27, 1995, the date of the first public
announcement of the Reorganization, if the Acquired Fund (a) provides to such
shareholder, along with the materials described in the preceding paragraph, a
statement of the reason for withholding the remittance and (b) offers to pay
the fair value of the shares, plus interest, if the dissenting shareholder
agrees to accept that amount in full satisfaction. The dissenting shareholder
may decline the offer and demand payment as described below. Failure to make
such demand entitles the dissenting shareholder only to the amount offered by
the Acquired Fund.
If a dissenting shareholder of the Acquired Fund believes that the amount
remitted (or the amount offered in the case of certain dissenting shareholders)
by the Acquired Fund is less than the fair value of his or her shares of the
Acquired Fund, plus interest, the shareholder may, within 30 days after the
mailing date of the remittance (or the offer), give written notice to the
Acquired Fund of his or her own estimate of the fair value of the shares of the
Acquired Fund, plus interest, and demand payment of the difference. If the
shareholder fails to do so, the shareholder is entitled only to the amount
remitted (or offered).
If the Acquired Fund receives a demand for supplemental payment from any
dissenting shareholder, it shall, within 60 days after receipt of such demand,
either (a) pay to the dissenter the amount demanded or agreed to by the
dissenter after settlement discussions or (b) file in a court of competent
jurisdiction in Hennepin County, Minnesota, a petition requesting that the
court determine the fair value of the shares, plus interest. All shareholders
of the Acquired Fund whose demands have not been settled with the Acquired Fund
shall be made parties to the proceeding. The court shall determine whether each
such dissenting shareholder has complied with all statutory requirements and
shall determine the fair value of the shares, taking into account any and all
factors the court finds relevant if the court determines that the fair value of
the shares exceeds the Acquired Fund's estimate of the fair value of the shares
of the Acquired Fund, then the court will enter judgment in favor of such
dissenting shareholders in an amount by which the value determined by the court
exceeds the Acquired Fund's estimated value.
The costs and expenses of the proceeding, including the reasonable expense
and compensation of any appraisers appointed by the court, shall be determined
by the court and assessed against the Acquired Fund, except that the court may
assess part or all of such costs and expenses against any dissenting
shareholder whose action in demanding supplemental payment is found by the
court to be arbitrary, vexatious or not in good faith. If the court finds that
the Acquired Fund has failed to comply substantially with the statutory
requirements, the court may assess against the Acquired Fund all fees and
expenses of any experts or attorneys as the court deems equitable. In addition,
fees and expenses may be assessed against any party the court determines has
acted arbitrarily, vexatiously or not in good faith in bringing a proceeding
for supplemental payment.
Cash received pursuant to the exercise of dissenters' rights may be subject
to Federal or state income tax. See "Tax Consequences of the Reorganization--
Dissenting Shareholders."
18
<PAGE>
TAX CONSEQUENCES OF THE REORGANIZATION
The Funds have received the opinion of Vedder, Price, Kaufman & Kammholz,
counsel to the Funds, to the effect that the Reorganization will qualify as a
tax-free reorganization under Section 368(a)(1)(C) of the Code. Accordingly,
neither Fund will recognize gain or loss for Federal income tax purposes as a
result of the Reorganization. Provided that each Fund qualifies (prior to and
as of the Effective Time) as a qualified investment fund under California tax
law and that the proposed Reorganization qualifies as a tax-free reorganization
under the Code, neither Fund will recognize any gain or loss for California
income tax purposes as a result of the Reorganization. The following discussion
summarizes the anticipated Federal income and California personal income tax
treatment to shareholders of the Acquired Fund.
EXCHANGE OF ACQUIRED FUND SHARES SOLELY FOR ACQUIRING FUND SHARES
A shareholder of the Acquired Fund who receives shares of the Acquiring Fund
pursuant to the Reorganization will recognize no gain or loss for Federal
income or California personal income tax purposes, except with respect to the
cash received for a fractional Acquiring Fund share interest, if any. See
"Fractional Share Interests" below.
The aggregate basis of the Acquiring Fund shares received by a shareholder of
the Acquired Fund (including any fractional Acquiring Fund share interest to
which he or she may be entitled) will be the same as the shareholder's
aggregate basis in the Acquired Fund Shares surrendered in exchange therefor,
decreased by any cash received and increased by the amount of gain recognized
on the exchange.
The holding period of the Acquiring Fund shares received by a shareholder of
the Acquired Fund (including any fractional Acquiring Fund share interest to
which he or she may be entitled) will include the period during which the
shareholder's Acquired Fund Shares were held, provided such Acquired Fund
Shares were held as a capital asset at the Effective Time.
For Federal income tax reasons, the Acquired Fund must declare a distribution
to its shareholders of all net tax-exempt income, investment company net
taxable income and net capital gain income, if any, prior to the end of its
fiscal year, which declaration will occur at or prior to the Effective Time.
FRACTIONAL SHARE INTERESTS
No fractional Acquiring Fund shares will be issued pursuant to the
Reorganization. Cash payments received by an Acquired Fund shareholder in lieu
of a fractional Acquiring Fund share will be treated as received by such
shareholder as a distribution in redemption by the Acquiring Fund of that
fractional share interest and will be treated as a distribution in full payment
in exchange for the fractional Acquiring Fund share interest, resulting in a
capital gain or loss for Federal income tax purposes and for California
personal income tax purposes, assuming the Acquired Fund shares exchanged for
cash in lieu of the fractional Acquiring Fund share were held as a capital
asset at the Effective Time.
DISSENTING SHAREHOLDERS
Cash payments received by an Acquired Fund shareholder as a result of the
exercise of his or her dissenters' rights of appraisal will be treated as
received by such shareholder as a distribution in redemption by the Acquired
Fund of his or her shares and will be treated as a distribution in full payment
in exchange for his or her shares, resulting in a capital gain or loss for
Federal income tax purposes and for California personal income tax purposes,
assuming the Acquired Fund Shares exchanged for cash as a result of the
exercise of his or her dissenters' rights were held as a capital asset at the
Effective Time.
THE FOREGOING IS INTENDED TO BE ONLY A SUMMARY OF THE PRINCIPAL FEDERAL
INCOME AND CALIFORNIA TAX CONSEQUENCES OF THE REORGANIZATION AND SHOULD NOT BE
CONSIDERED TO BE TAX ADVICE. THERE CAN BE NO ASSURANCE THAT THE INTERNAL
REVENUE SERVICE AND THE CALIFORNIA DIVISION OF TAXATION WILL CONCUR ON ALL OR
ANY OF THE ISSUES DISCUSSED ABOVE. ACQUIRED FUND SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES WITH RESPECT TO THE FOREGOING MATTERS AND ANY OTHER CONSIDERATIONS
WHICH MAY BE APPLICABLE TO THEM.
19
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Funds as
of July 31, 1995 and the pro forma combined capitalization of the combined Fund
as if the Reorganization had occurred on that date. The table reflects a pro
forma exchange ratio of approximately 1.1566528 shares of the Acquiring Fund
issued for each share of the Acquired Fund. If the Reorganization is
consummated, the actual exchange ratio may vary from the ratio indicated below.
See Pro Forma Financial Statements included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
ACQUIRING FUND ACQUIRED FUND ACQUIRING FUND
(ACTUAL) (ACTUAL) (AS ADJUSTED)
-------------- ------------- --------------
<S> <C> <C> <C>
Net Assets.......................... $193,134,759 $61,585,961 $254,435,233
Net Asset Value per Share........... $ 10.19 $ 11.82 $ 10.18
Shares Outstanding.................. 18,958,790 5,209,911 24,984,848
Shares Authorized................... 250,000,000 200,000,000 250,000,000
</TABLE>
COMPARATIVE PERFORMANCE INFORMATION
Comparative investment performance for the Funds for certain periods ended
July 31, 1995 are shown below:
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURN TOTAL RETURN ON NET
ON MARKET VALUE ASSET VALUE
---------------------------- ---------------------------
ONE THREE FIVE LIFE OF ONE THREE FIVE LIFE OF
YEAR YEARS YEARS FUND YEAR YEARS YEARS FUND
---- ----- ----- ------- ---- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Acquiring Fund.......... (.52)% 9.69% 35.17% 68.81% 6.63% 16.74% 39.62% 82.53%
Acquired Fund........... 3.24% 5.32% 25.97% 52.68% 5.88% 16.41% 39.31% 71.59%
</TABLE>
Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes in
price per share. Total Return on Net Asset Value is the combination of
reinvested dividend income, reinvested capital gains distributions, if any, and
changes in net asset value per share. Life of Fund is calculated from October
7, 1987 for the Acquiring Fund and April 20, 1988 from the Acquired Fund. Past
performance information is not necessarily indicative of future results.
PROPOSAL NO. 2--ELECTION OF DIRECTORS OF EACH FUND
Shareholders of each Fund are being asked to vote for the election of three
(3) directors of their Fund to serve for three years, as described below, and
until their successors have been duly elected and qualified or, in the case of
the Acquired Fund, until the earlier liquidation of the Acquired Fund.
It is the intention of the persons named in the enclosed proxy to vote the
shares represented thereby for the election of the nominees listed below unless
the proxy is marked otherwise. Each of the nominees listed below has agreed to
serve as a director of each Fund if elected; however, should any nominee become
unable or unwilling to accept nomination or election, the proxies for each Fund
will be voted for one or more substitute nominees designated by each Fund's
present Board.
Shareholders of each Fund will be entitled to one vote for each share held
for the election of directors. The affirmative vote of a majority of the shares
present and entitled to vote at the Annual Meeting of each Fund will be
required to elect the directors for that Fund.
The following table show each nominee's or continuing director's age,
address, principal occupation and other business affiliations as of July 31,
1995, the year in which each nominee or continuing director was first elected
or appointed a director of each Fund and the number of shares of each Fund and
of all funds managed by the Adviser (excluding money market funds) that each
nominee or continuing director beneficially owned as of July 31, 1995.
The Board of Directors of each Fund is divided into three classes with the
terms of each of the first, second and third classes expiring at the Annual
Meetings of the Funds in the years indicated below. The members of the Board
and the nominees for election to the Board are the same for each Fund. Lawrence
H. Brown, Anne E. Impellizzeri, Margaret K. Rosenheim and Timothy R.
Schwertfeger were last elected to the Board of Directors at the 1994 annual
meeting of shareholders. Richard J. Franke was last elected to the Board of
Directors at the 1993 annual meeting of shareholders. Peter R. Sawers was last
elected to the Board of Directors at the 1992 annual meeting of shareholders.
If the Reorganization is consummated, the directors of the Acquired Fund will
cease to serve as such upon the liquidation of the Acquired Fund.
20
<PAGE>
The members of the Board of Directors of each Fund mourn the recent passing
of John E. O'Toole, a director since 1989. Mr. O'Toole was a Class III
director of the Acquiring Fund and a Class II director of the Acquired Fund.
There is currently a vacancy on the Board of each Fund. Each Fund's nominating
committee is considering candidates for the vacancy.
NOMINEES FOR DIRECTOR OF EACH FUND
<TABLE>
<CAPTION>
FULL SHARES OF
COMMON STOCK
BENEFICIALLY OWNED
YEAR FIRST JULY 31, 1995
YEAR ELECTED OR --------------------
NAME, AGE AND ADDRESS PRINCIPAL TERM APPOINTED A THE ALL NUVEEN
AS OF JULY 31, 1995 OCCUPATION(/1/) EXPIRES DIRECTOR FUNDS FUNDS(/2/)
--------------------- --------------- ------- -------------- ------- -----------
<C> <S> <C> <C> <C> <C>
CLASS III, ACQUIRED FUND
CLASS I, ACQUIRING FUND
Director of the Funds; 1998 1993 0 3,475
retired in August 1989
Lawrence H. Brown (61) as Senior Vice Presi-
201 Michigan Ave. dent of The Northern
Highwood, IL 60040 Trust Company.
Peter R. Sawers (62) Director of the Funds; 1998 1991 0 7,934
22 The Landmark Adjunct Professor of
Northfield, IL 60093 Business and Economics,
University of Dubuque,
Iowa (since January
1991); Adjunct Profes-
sor, Lake Forest Gradu-
ate School of Manage-
ment, Lake Forest, Il-
linois (since January
1992); prior thereto,
Executive Director,
Towers Perrin Australia
(management consul-
tant); Chartered Finan-
cial Analyst; Certified
Management Consultant.
*Timothy R. Schwertfeger (46) Director and President 1998 1994 0 90,117
333 W. Wacker Drive of the Funds (since
Chicago, IL 60606 July 1994); Executive
Vice President and Di-
rector of The John
Nuveen Company (since
March 1992) and John
Nuveen & Co. Incorpo-
rated; Director of
Nuveen Advisory Corp.
(since October 1992)
and Nuveen Institu-
tional Advisory Corp.
(since October 1992).
CONTINUING DIRECTORS OF EACH FUND
CLASS I, ACQUIRED FUND
CLASS II, ACQUIRING FUND
Anne E. Impellizzeri (62) Director of the Funds; 1996 1994 0 2,000
3 W. 29th St. President and Chief Ex-
New York, NY 10001 ecutive Officer of
Blanton-Peale, Insti-
tutes of Religion and
Health (since December
1990); prior thereto,
Vice President of New
York City Partnership
(from 1988 to 1990) and
Vice President of Met-
ropolitan Life Insur-
ance Company (from 1980
to 1988).
Richard J. Franke (64) Chairman of the Board 1996 1987 - 0 20,695
333 W. Wacker Dr. and Director of the Acquiring Fund
Chicago, IL 60606 Funds, The John Nuveen 1988 -
Company (since March Acquired Fund
1992), John Nuveen &
Co. Incorporated,
Nuveen Advisory Corp.
and Nuveen Institu-
tional Advisory Corp.
(since April 1990);
Certified Financial
Planner.
CLASS II, ACQUIRED FUND
CLASS III, ACQUIRING FUND
Margaret K. Rosenheim (69) Director of the Funds; 1997 1987 - 0 5,091
969 E. 60th St. Helen Ross Professor of Acquiring Fund
Chicago, IL 60639 Social Welfare Policy, 1988 -
School of Social Serv- Acquired Fund
ice Administration,
University of Chicago.
</TABLE>
- -------
* "Interested person" as defined in the 1940 Act by reason of being an officer
or director of the Adviser.
(1) The nominees and continuing directors of the Funds are directors or
trustees, as the case may be, of 21 Nuveen open-end funds and 55 Nuveen
closed-end funds.
(2) The number shown reflects the aggregate number of shares beneficially
owned by the nominee or continuing director in all of the Nuveen-sponsored
funds referred to in note (1) above (excluding money market funds).
EACH FUND'S BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES FOR DIRECTOR OF EACH FUND.
The directors affiliated with Nuveen or the Adviser serve without any
compensation from either Fund. Directors who are not affiliated with Nuveen or
the Adviser receive a $45,000 annual retainer for serving as a director or
trustee, as the case may be, of all funds sponsored by Nuveen and managed by
the Adviser and a $1,000 fee per day plus expenses for attendance at all
meetings held on a day on which a regularly scheduled Board meeting
21
<PAGE>
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 telephone at a meeting of the
executive committee. The annual retainer, fees and expenses are allocated
among each Fund and the other funds managed by the Adviser on the basis of
relative net assets. The Funds have each adopted a Directors' Deferred
Compensation Plan pursuant to which a director may elect to have all or a
portion of his or her director's fee deferred. Directors may defer fees for
any calendar year by the execution of a Participation Agreement prior to the
beginning of the calendar year during which the director wishes to begin
deferral.
The table below shows, for each director who is not affiliated with Nuveen
or the Adviser, the aggregate compensation paid by each Fund for its fiscal
year ended August 31, 1994 and the total compensation that Nuveen funds
accrued for each director during the calendar year 1994, including any
interest accrued for directors on deferred compensation. The rate of earnings
on deferred compensation is equivalent to the average net earnings rate,
computed on a quarterly basis, on the shares of such Nuveen fund.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM THE
FUNDS
-------------------------------
TOTAL
COMPENSATION
NUVEEN FUNDS
ACQUIRING ACQUIRED ACCRUED FOR
NAME FUND FUND DIRECTORS(2)
- ---- --------- -------- ------------
<S> <C> <C> <C>
Lawrence H. Brown.............................. $290 $175 $56,500
Anne E. Impellizzeri(1)........................ 101 60 48,750
Margaret K. Rosenheim.......................... 424 252 64,404(3)
Peter R. Sawers................................ 400 244 56,000
</TABLE>
- -------
(1) Anne E. Impellizzeri was appointed a director in April 1994.
(2) Includes compensation for service on the boards of 21 Nuveen open-end
funds and 55 Nuveen closed-end funds. Also includes amounts for Nuveen
funds that existed for part of the year, estimated as if the funds had
existed for the entire year.
(3) Includes $1,404 in interest accrued on deferred compensation from prior
years.
Richard J. Franke, Timothy R. Schwertfeger and Margaret K. Rosenheim serve
as members of the executive committee of each Fund's Board. The executive
committee, which meets between regular meetings of the Board, is authorized to
exercise all of the powers of the Board. The executive committee of each Fund
held 12 meetings for the fiscal year ended August 31, 1994. Most of the
executive committee meetings for each Fund were held for the sole purpose of
declaring a dividend on the Fund's shares.
Each Fund's Board has an audit committee composed of Lawrence H. Brown, Anne
E. Impellizzeri, Margaret K. Rosenheim and Peter R. Sawers, directors of each
Fund who are not "interested persons." The audit committee reviews the work
and any recommendations of each Fund's independent auditors. Based on such
review, it is authorized to make recommendations to the Board. The audit
committee of each Fund held two meetings for the fiscal year ended August 31,
1994.
Nomination of those directors who are not "interested persons" of a Fund is
committed to a nominating committee composed of the directors who are not
"interested persons" of that Fund. It identifies and recommends individuals to
be nominated for election as non-interested directors. The nominating
committee of each Fund held one meeting for the fiscal year ended August 31,
1994. No policy or procedure has been established as to the recommendation of
director nominees by shareholders.
The Board of each Fund held six meetings for the fiscal year ended August
31, 1994. During the last fiscal year, each director attended 75% or more of
each Fund's Board meetings and the committee meetings (if a member thereof),
except that Mr. Franke was unable to attend certain executive committee
meetings held solely to declared dividends. His attendance at executive
committee meetings that he was scheduled to attend was less than 75%.
The Funds have the same executive officers. The following table sets forth
information as of September 15, 1995 with respect to each executive officer of
the Funds, other than executive officers who are directors and included in the
table relating to nominees for the Boards. The business address of each
executive officer listed below is 333 West Wacker Drive, Chicago, Illinois
60606. Officers of the Funds receive no compensation from the Funds. With
respect to each Fund, the term of office of all officers is expected to expire
at the meeting of the Board of such Fund, following the next regular meeting
of shareholders. In the case of the Acquired Fund, such term of office will
expire upon liquidation of the Acquired Fund in the event the Reorganization
is consummated.
22
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AGE WITH FUNDS PRINCIPAL OCCUPATIONS
---- --- -------------------------------- ---------------------
<C> <C> <C> <S>
Kathleen M. Flanagan 48 Vice President (since 1994) Vice President of John
Nuveen & Co.
Incorporated
J. Thomas Futrell 40 Vice President (since 1991) Vice President of Nuveen
Advisory Corp. (since
February 1991); prior
thereto, Assistant Vice
President of Nuveen
Advisory Corp. (from
August 1988 to February
1991); Chartered
Financial Analyst
Steven J. Krupa 38 Vice President (since 1990) Vice President of Nuveen
Advisory Corp. (since
October 1990); prior
thereto, Vice President
of John Nuveen & Co.
Incorporated (from
January 1989 to October
1990)
Anna R. Kucinskis 49 Vice President (since 1991) Vice President of John
Nuveen & Co.
Incorporated
Larry W. Martin 44 Vice President (since 1993) & Vice President (since
Assistant Secretary (since 1987) September 1992),
Assistant Secretary and
Assistant General
Counsel of John Nuveen
& Co. Incorporated;
Vice President (since
May 1993) and Assistant
Secretary of Nuveen
Advisory Corp.; Vice
President (since May
1993) and Assistant
Secretary (since
January 1992) of Nuveen
Institutional Advisory
Corp.; Assistant
Secretary (since
February 1993) of The
John Nuveen Company;
Director of Nuveen/Duff
& Phelps Investment
Advisors (since January
1995)
O. Walter Renfftlen 56 Vice President & Vice President and
Controller (since 1987) Controller of The John
Nuveen Company (since
March 1992), John
Nuveen & Co.
Incorporated, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp.
Thomas C. Spalding, Jr. 44 Vice President (since 1987) Vice President of Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp. (since
April 1990); Chartered
Financial Analyst
H. William Stabenow 61 Vice President & Vice President and
Treasurer (since 1988) Treasurer of The John
Nuveen Company (since
March 1992), John
Nuveen & Co.
Incorporated, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp. (since
January 1992)
George P. Thermos 63 Vice President (since 1987) Vice President of John
Nuveen & Co.
Incorporated
James J. Wesolowski 45 Vice President & Vice President, General
Secretary (since 1988) Counsel and Secretary
of The John Nuveen
Company (since March
1992), John Nuveen &
Co. Incorporated,
Nuveen Advisory Corp.
and Nuveen
Institutional Advisory
Corp.
Gifford R. Zimmerman 39 Vice President (since Vice President (since
1993) & Assistant September 1992),
Secretary (since 1988) Assistant Secretary and
Assistant General
Counsel of John Nuveen
& Co. Incorporated;
Vice President (since
May 1993) and Assistant
Secretary of Nuveen
Advisory Corp.; Vice
President (since May
1993) and Assistant
Secretary (since
January 1992) of Nuveen
Institutional Advisory
Corp.
</TABLE>
On July 31, 1995, directors and executive officers of the Funds as a group
beneficially owned 203,639 common shares of all funds managed by the Adviser
(excluding money market funds); they did not beneficially own any shares of
either the Acquiring Fund or the Acquired Fund. As of July 31, 1995, no person
is known to the Funds to have owned beneficially more than 5% of the shares of
either Fund.
Section 30(f) of the 1940 Act and Section 16(a) of the Exchange Act require
the Funds' directors and officers, investment adviser, affiliated persons of
the investment adviser and persons who own more than ten percent of a
registered class of either Fund's equity securities to file forms reporting
their affiliation with that Fund and reports of ownership and changes in
ownership of that Fund's shares with the Commission and the NYSE. These persons
and entities are required by Commission regulation to furnish each Fund with
copies of all Section 16(a) forms they file. Based on a review of these forms
furnished to each Fund, each Fund believes that for the fiscal year ended
August 31, 1994, all Section 16(a) filing requirements applicable to that
Fund's directors and officers, investment adviser and affiliated persons of the
investment adviser were complied with.
PROPOSAL NO. 3--SELECTION OF INDEPENDENT AUDITORS FOR THE FUNDS
The members of each Fund's Board who are not "interested persons" of that
Fund have unanimously selected Ernst & Young LLP, independent auditors, to
audit the books and records of that Fund for the fiscal year ending August 31,
1996. Ernst & Young LLP has served each Fund in this capacity since each Fund
was organized and has no direct or indirect financial interest in any Fund
except as independent auditors. The selection of Ernst & Young LLP as
independent auditors of each Fund is being submitted to the shareholders of
each Fund for ratification, which requires the affirmative vote of a majority
of the shares of each Fund present and entitled to vote on the matter. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meetings and will be available to respond to any appropriate questions raised
at the Annual Meetings and to make a statement if he or she wishes. EACH FUND'S
BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE
SELECTION OF THE INDEPENDENT AUDITORS.
23
<PAGE>
MANAGEMENT OF THE FUNDS
DIRECTORS AND OFFICERS
The same individuals constitute the Boards of both Funds, and the Funds have
the same officers. The management of each Fund, including general supervision
of the duties performed by the Adviser under the Investment Management
Agreement for each Fund, is the responsibility of its Board. There are
currently six directors of each Fund, two of whom are "interested persons" (as
defined in the 1940 Act) and four of whom are disinterested persons. The
continuing directors of the Acquiring Fund and those that are elected at the
Acquiring Fund's Annual Meeting will serve as directors of the Acquiring Fund
whether or not the Reorganization is approved and will hold office until their
successors have been duly elected and qualified. The continuing directors of
the Acquired Fund and those that are elected at the Acquired Fund's Annual
Meeting will hold office until their successors have been duly elected and
qualified or, if the Reorganization is consummated, the earlier liquidation of
the Acquired Fund. However, since the directors are the same for both Funds, if
the nominees for election at the Acquiring Fund's Annual Meeting are re-
elected, the Reorganization will not result in a change of directors for
shareholders of either Fund.
INVESTMENT ADVISER
The Adviser, located at 333 West Wacker Drive, Chicago, Illinois, serves as
investment adviser and manager for each Fund. The Adviser is a wholly-owned
subsidiary of Nuveen, 333 West Wacker Drive, Chicago, Illinois 60606. 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 at 385
Washington Street, St. Paul, Minnesota 55102, and is principally engaged in
providing property-liability insurance through subsidiaries. Nuveen acted as
co-managing underwriter for the Acquiring Fund in its initial public offering
of shares in October 1987, and for the Acquired Fund in its initial public
offering of shares in April 1988.
Under the Management Agreement for the Acquiring Fund, the Acquiring Fund has
agreed to pay an annual management fee equal to the sum of .35% of the average
weekly net assets and 4.125% of the gross interest income of the Acquiring
Fund.
Under the Management Agreement for the Acquired Fund, the Acquired Fund has
agreed to pay an annual management fee as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE SCHEDULE
---------------------------------------------
AVERAGE DAILY NET ASSETS RATE
------------------------ -----
<S> <C>
Up to $125 million.................... .6500%
$125 to $250 million.................. .6375
$250 to $500 million.................. .6250
$500 million to $1 billion............ .6125
$1 billion to $2 billion.............. .6000
$2 billion and over................... .5875
</TABLE>
The Acquiring Fund paid aggregate management fees of $1,256,174 for the
fiscal year ended August 31, 1994, for an effective management fee rate of
0.64%. The Acquired Fund paid aggregate management fees of $411,874 for the
fiscal year ended August 31, 1994, for an effective management fee rate of
0.65%.
PORTFOLIO MANAGEMENT
The Adviser places orders for the purchase and sale of portfolio securities
for the accounts of the Funds. Consistent with Rule 10f-3 under the 1940 Act,
portfolio securities may be purchased from Nuveen or its affiliates.
Thomas C. Spalding, Jr., a Vice President of the Acquiring Fund, the Acquired
Fund and the Adviser, has general supervisory responsibility with respect to
all Nuveen-sponsored open-end and exchange-traded funds managed by the Adviser.
Mr. Spalding has been employed by Nuveen since 1976 and by the Adviser since
1978.
The day to day management of each Fund is currently the responsibility of
John W. Gambla, an Assistant Portfolio Manager of the Adviser since 1992 and
portfolio manager of each Fund since September 1, 1993. Mr. Gambla currently
manages 8 Nuveen-sponsored investment companies.
24
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS
FINANCIAL HIGHLIGHTS
Selected data for a Common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
OPERATING PERFORMANCE
-----------------------
NET
REAL-
IZED &
UNREAL- TOTAL
NET IZED PER INVEST-
ASSET GAIN NET SHARE MENT TOTAL
VALUE NET (LOSS) DIVIDENDS ASSET MARKET RETURN RETURN
BEGIN- INVEST- FROM FROM NET DISTRIBUTIONS VALUE VALUE ON ON NET
NING OF MENT INVEST- INVESTMENT FROM CAPITAL END OF END OF MARKET ASSET
PERIOD INCOME MENTS INCOME GAINS PERIOD PERIOD VALUE** VALUE**
- ---------------------------------------------------------------------------------------------------------
ACQUIRING FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 Mos. Ended
2/28/95 (unaudited) $10.200 $.322 $(.038) $(.336) $(.008) $10.140 $10.250 (3.62)% 2.91%
Year ended 8/31,
1994 10.740 .653 (.514) (.669) (.010) 10.200 11.000 (.50) 1.32
1993 10.480 .667 .265 (.670) (.002) 10.740 11.750 13.37 9.21
1 Mo. ended
8/31/92 10.610 .056 (.130) (.056) -- 10.480 11.000 (1.74) (.71)
Year ended 7/31,
1992 10.250 .668 .379 (.664) (.023) 10.610 11.250 12.83 10.61
1991 10.120 .667 .123 (.660) -- 10.250 10.625 9.22 8.13
1990 10.190 .664 (.037) (.666) (.031) 10.120 10.375 7.10 6.45
1989 9.670 .664 .602 (.670) (.076) 10.190 10.375 11.82 13.70
10/7/87 to
7/31/88 9.350 .482 .259 (.421) -- 9.670 10.000 4.28 8.01
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
ACQUIRED FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 Mos. ended
2/28/95 (unaudited) 11.870 .361 (.105) (.376) -- 11.750 11.750 2.25 2.27
Year ended 8/31,
1994 12.480 .724 (.571) (.759) (.004) 11.870 11.875 (1.99) 1.24
1993 12.100 .752 .387 (.745) (.014) 12.480 12.875 4.22 9.76
9 Mos. ended
8/31/92 12.000 .580 .214 (.598) (.096) 12.100 13.125 12.02 6.83
Year ended
11/30/91 11.790 .800 .196 (.786) -- 12.000 12.375 13.40 8.75
1 Mo. ended
11/30/90 11.710 .067 .133 (.066) (.054) 11.790 11.625 2.10 1.71
Year ended 10/31,
1990 11.810 .794 (.016) (.797) (.081) 11.710 11.500 3.17 6.84
1989 11.640 .805 .184 (.813) (.006) 11.810 12.000 13.05 8.82
4/20/88 to
10/31/88 11.210 .356 .356 (.282) -- 11.640 11.375 (2.78) 6.45
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------
RATIO OF
NET
RATIO OF INVEST-
EXPENSES MENT PORT-
NET ASSETS TO INCOME FOLIO
END OF AVERAGE TO AVER- TURN-
PERIOD (IN NET AGE NET OVER
THOUSANDS) ASSETS ASSETS RATE
- ---------------------------------------------------------------------------------------------------------
ACQUIRING FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 Mos. Ended
2/28/95 (unaudited) $191,659 .76*% 6.51*% 5%
Year ended 8/31,
1994 192,237 .76 6.24 9
1993 200,828 .82 6.31 4
1 Mo. ended
8/31/92 194,430 .79* 6.25* --
Year ended 7/31,
1992 196,669 .83 6.46 6
1991 188,370 .88 6.62 5
1990 184,888 .91 6.62 2
1989 185,016 .94 6.75 27
10/7/87 to
7/31/88 174,645 .94* 6.29* 32
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
ACQUIRED FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 Mos. ended
2/28/95 (unaudited) 61,200 .86* 6.30* 3
Year ended 8/31,
1994 61,711 .86 5.93 13
1993 64,427 .90 6.16 5
9 Mos. ended
8/31/92 61,927 .82* 6.42* 11
Year ended
11/30/91 60,964 .73 6.75 9
1 Mo. ended
11/30/90 59,503 .70* 6.92* --
Year ended 10/31,
1990 59,091 .76 6.77 7
1989 59,343 .72 6.89 23
4/20/88 to
10/31/88 59,298 .74* 6.13* 11
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
**Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes
in stock price per share. Total Return on Net Asset Value is the combination
of reinvested dividend income, reinvested capital gains distributions, if any,
and changes in net asset value per share.
25
<PAGE>
GENERAL INFORMATION AND HISTORY
The Acquiring Fund and the Acquired Fund are closed-end, diversified
management investment companies. The Acquiring Fund and the Acquired Fund were
organized as corporations under the laws of the State of Minnesota on July 14,
1987 and February 26, 1988, respectively. Each Fund is registered under the
1940 Act. In October 1987, the Acquiring Fund issued an aggregate of 18,000,000
shares in an initial public offering and commenced operations. In April 1988,
the Acquired Fund issued an aggregate of 5,000,000 shares in an initial public
offering and commenced operations.
The following table sets forth the number of outstanding shares, and certain
other share information, of each Fund as of July 31, 1995.
<TABLE>
<CAPTION>
(3) (4)
AMOUNT HELD BY AMOUNT OUTSTANDING
(1) (2) FUND FOR ITS EXCLUSIVE OF AMOUNT
TITLE OF CLASS AMOUNT AUTHORIZED OWN ACCOUNT SHOWN UNDER (3)
- -------------- ----------------- -------------- -------------------
<S> <C> <C> <C>
ACQUIRING FUND
common stock 250,000,000 0 18,958,790
ACQUIRED FUND
common stock 200,000,000 0 5,209,911
</TABLE>
The Acquiring Fund shares are listed and trade on the NYSE under the symbol
NCA. The Acquired Fund shares are listed and trade on the NYSE under the symbol
NCM.
The following table sets forth the high and low sales prices for each Fund's
shares as reported on the consolidated transaction reporting system for the
periods indicated.
<TABLE>
<CAPTION>
ACQUIRING
FUND ACQUIRED FUND
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<C> <S> <C> <C> <C> <C>
1993 First Quarter.............................. 12 1/8 11 1/8 13 1/8 11 1/4
Second Quarter............................. 11 7/8 11 12 7/8 12 1/8
Third Quarter.............................. 11 7/8 11 13 3/8 12 5/8
Fourth Quarter............................. 11 3/4 11 1/8 13 3/8 12 1/2
1994 First Quarter.............................. 11 3/4 11 13 5/8 11 7/8
Second Quarter............................. 11 1/8 10 3/8 12 3/4 11 1/2
Third Quarter.............................. 11 1/8 10 5/8 12 3/8 11 1/2
Fourth Quarter............................. 10 7/8 9 3/8 11 7/8 10 3/8
1995 First Quarter.............................. 10 7/8 9 3/4 11 7/8 11
Second Quarter............................. 10 7/8 10 1/8 12 11 1/4
</TABLE>
On July 31, 1995, the closing sale prices of the Acquiring Fund shares and
Acquired Fund shares were $10.25 and $11.375, respectively. These prices
represent a premium to net asset value of the Acquiring Fund of 0.59% and a
discount to net asset value of the Acquired Fund of 3.76%.
During the period since the inception of the Funds, shares of both Funds have
generally traded at prices close to net asset value, with varying premiums or
discounts to net asset value being reflected in the market value of the shares
from time to time. As determined by the closing price at the end of each week
prices, for the Acquiring Fund shares have fluctuated between a maximum premium
of 11.92% and a maximum discount of 3.36% and for the Acquired Fund shares have
fluctuated between a maximum premium of 9.61% and a maximum discount of 6.43%.
It is not possible to state whether shares of the combined Fund will trade at a
premium or discount to net asset value following the Reorganization, or what
the extent of any such premium or discount might be.
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
Each Fund is a closed-end management investment company and as such its
shareholders will not have the right to cause the Fund to redeem their shares.
Instead, shares will trade in the open market at a price that will be a
function of several factors, including net asset value and yield. The Board of
each Fund has currently determined that, at least annually, in the event the
shares are then trading at a material discount from net asset value, it will
consider action that might be taken to reduce or eliminate such discount, which
may include the repurchase of shares in the open market or in private
transactions, the making of a tender offer for such Shares at net asset value,
or the conversion of the Fund to an open-end management investment company.
There can be no assurance, however, that either Fund's Board will decide to
take any of these actions, or that share repurchases or tender offers, if
undertaken will reduce market discount.
26
<PAGE>
If a Fund converted to an open-end management investment company, the shares
would no longer be listed on the NYSE. In contrast to a closed-end management
investment company, shareholders of an open-end management investment company
may require the company to redeem their shares at any time (except in certain
circumstances as authorized by or under the 1940 Act) at their net asset value,
less such redemption charge, if any, as might be in effect at the time of
redemption. See "Proposal No. 1--The Reorganization--Comparison of Rights of
Holders of Shares of the Acquiring Fund and the Acquired Fund" for a discussion
of the voting requirements applicable to the conversion of a Fund to an open-
end management investment company. See the Statement of Additional Information
under "Repurchase of Fund Shares; Conversion to Open-End Fund" for a further
discussion of conversion to an open-end management investment company.
Before deciding whether to take any action in response to a discount from net
asset value, the Board of each Fund would consider all relevant factors,
including the extent and duration of the discount, the liquidity of the Fund's
portfolio, the impact of any action that might be taken on the Fund or its
shareholders and market considerations. Based on these considerations, even if
the Fund's shares should trade at a discount, the Board may determine that, in
the interest of the Fund and its shareholders, no action should be taken. See
the Statement of Additional Information under "Repurchase of Fund Shares;
Conversion to Open-End Fund" for a further discussion of possible action to
reduce or eliminate such discount to net asset value.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
The Custodian of the assets of each Fund and the transfer agent and dividend
disbursing agent with respect to each Fund's shares is Chase, a trust company
organized under the laws of New York, with its principal place of business at
114 West 47th Street, New York, New York 10036 and its corporate transfer
office at 770 Broadway, New York, New York 10003.
TAX MATTERS ASSOCIATED WITH
INVESTMENT IN THE FUNDS
FEDERAL INCOME TAX MATTERS
The following is based upon the advice of Vedder, Price, Kaufman & Kammholz,
counsel to the Funds.
The tax implications for Acquired Fund shareholders who will own Acquiring
Fund shares after the Reorganization will be substantially the same as the tax
implications currently applicable to such shareholders with respect to their
ownership of Acquired Fund Shares. The Acquiring Fund and the Acquired Fund
qualify under Subchapter M of the Code as regulated investment companies and
satisfy conditions which enable dividends on shares that are attributable to
interest on Municipal Obligations to be exempt from Federal income tax in the
hands of owners of such shares, subject to the possible application of the
alternative minimum tax.
Each year each Fund distributes substantially all of its net tax-exempt
income from Municipal Obligations, any ordinary taxable income, recognized
market discount and net realized short-term capital gains, and net realized
long-term capital gains, if any. Although dividends generally will be treated
as distributed when paid, dividends 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 of
the year declared. For most shareholders, the sale or other disposition of
shares of a Fund will generally result in capital gain or loss.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not to certain tax-exempt organizations such as universities and non-profit
hospitals) 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
receives income from Municipal Obligations subject to the Federal alternative
minimum tax, a portion of the dividends paid by it, although otherwise exempt
from Federal income tax, will be taxable to its shareholders to the extent that
their tax liability is determined under the alternative minimum tax. Each Fund
will annually supply a report indicating the percentage of that Fund's income
attributable to Municipal Obligations subject to the Federal alternative
minimum tax. In addition, for certain corporations, alternative minimum taxable
income is increased by 75% of the difference between an alternative measure of
income ("adjusted current earnings") and
27
<PAGE>
the amount otherwise determined to be the alternative minimum taxable income.
Interest on all Municipal Obligations, and therefore all distributions by each
Fund that would otherwise be tax-exempt, is included in calculating a
corporation's adjusted current earnings.
The foregoing is a general, abbreviated summary. A more detailed summary of
the provisions of the Code and regulations thereunder appears in the Statement
of Additional Information. Shareholders are advised to consult their own tax
advisers for more detailed information concerning Federal income tax matters.
CALIFORNIA STATE AND LOCAL TAX MATTERS
The following is based upon the advice of Orrick, Herrington & Sutcliffe,
special California counsel to the Funds, and assumes that each Fund will be
qualified as a regulated investment company under subchapter M of the Code and
will be qualified thereunder to pay exempt-interest dividends.
The California tax implications for Acquired Fund shareholders who will own
Acquiring Fund shares after the Reorganization will be substantially the same
as the tax implications currently applicable to such shareholders with respect
to their ownership of shares of the Acquired Fund. Individual shareholders of
each Fund who are subject to California personal income taxation are not
required to include in their California gross income that portion of their
Federally tax-exempt dividends which such Fund clearly and accurately
identifies as directly attributable to interest earned on obligations the
interest on which is exempt from California personal income taxation, provided
that at least fifty percent of the value of such Fund's total assets consists
of such obligations. Other distributions representing income or gains realized
by each Fund are generally subject to California personal income tax at the
rates applicable to ordinary income. Corporate shareholders of each Fund which
are subject to the California franchise tax generally are required to include
all distributions of exempt-interest dividends, capital gains and other taxable
income, if any, as income subject to such tax.
A more detailed summary of certain of the provisions of California statutes
and administrative interpretations presently in effect governing the taxation
of shareholders of the Funds appears in the Statement of Additional
Information. These provisions are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult with their own tax
advisers for more detailed information concerning California tax matters.
LEGAL OPINIONS
Certain legal matters in connection with the shares of the Acquiring Fund to
be issued pursuant to the Reorganization will be passed upon by Vedder, Price,
Kaufman & Kammholz, Chicago, Illinois. Vedder, Price, Kaufman & Kammholz will
rely as to certain matters of Minnesota law on the opinion of Dorsey & Whitney,
P.L.L.P., Minneapolis, Minnesota. Orrick, Herrington & Sutcliffe, San
Francisco, California, is special California counsel to the Funds.
EXPERTS
The financial highlights of the Funds as of August 31, 1994 appearing in this
Joint Proxy Statement--Prospectus, and the financial statements of the Funds as
of August 31, 1994, appearing in the Statement of Additional Information, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing. Ernst & Young LLP audits and reports on the Funds' annual financial
statements, reviews certain regulatory reports and the Funds' Federal income
tax returns, and performs other professional accounting, auditing, tax and
advisory services when engaged to do so by the Funds.
SHAREHOLDER PROPOSALS
To be considered for presentation at a Fund's Annual Meeting of Shareholders
to be held in 1996, a shareholder proposal must be received at the offices of
such Fund, 333 West Wacker Drive, Chicago, Illinois 60606, not later than June
1, 1996.
28
<PAGE>
GENERAL
Management of the Funds does not intend to present and does not have reason
to believe that others will present any items of business at the Annual
Meetings, except as described in this Joint Proxy Statement--Prospectus.
However, if other matters are properly presented at the meetings for a vote,
the proxies will be voted upon such matters in accordance with the judgment of
the persons acting under the proxies.
A list of shareholders of each Fund entitled to be present and to vote at
that Fund's Annual Meeting will be available at the offices of the Funds, 333
West Wacker Drive, Chicago, Illinois, for inspection by any shareholder of that
Fund during regular business hours for ten days prior to the date of the Annual
Meetings.
Failure of a quorum to be present at either Fund's Annual Meeting will
necessitate adjournment and will subject such Fund to additional expense. The
persons named in the enclosed proxy may also move for an adjournment of the
meeting to permit further solicitation of proxies with respect to any of the
proposals if they determine that adjournment and further solicitation is
reasonable and in the best interests of the shareholders. Under each Fund's By-
Laws, an adjournment of a meeting requires the affirmative vote of a majority
of the shares present in person or represented by proxy at such meeting.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
James J. Wesolowski
Secretary
29
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION ("Agreement") is made as
of the first day of August, 1995, by and between Nuveen California Municipal
Value Fund, Inc. (the "Acquiring Fund"), a Minnesota corporation, and Nuveen
California Municipal Income Fund, Inc., a Minnesota corporation (the "Acquired
Fund" and, together with the Acquiring Fund, the "Funds"). Each of the Funds
maintains its principal place of business at 333 West Wacker Drive, Chicago,
Illinois 60606.
This Agreement is intended to be, and is adopted as, a plan of reorganization
(the "Reorganization") pursuant to Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"). The Reorganization will
consist of (a) the acquisition by the Acquiring Fund of substantially all of
the assets of the Acquired Fund in exchange solely for shares of common stock,
par value $.01 per share, of the Acquiring Fund ("Acquiring Fund Shares"), and
the assumption by the Acquiring Fund of substantially all of the liabilities of
the Acquired Fund; and (b) the pro rata distribution, after the Closing Date
hereinafter referred to, of such Acquiring Fund Shares to the shareholders of
the Acquired Fund in liquidation of the Acquired Fund as provided herein, all
upon the terms and conditions hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements set
forth herein, the parties covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR SHARES OF THE
ACQUIRING FUND AND ASSUMPTION OF LIABILITIES, IF ANY; LIQUIDATION OF THE
ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis of
the representations and warranties contained herein, the Acquired Fund
agrees to sell, assign, transfer and deliver, as of the close of
business on the Closing Date (the "Effective Time"), substantially all
of its assets as set forth in paragraph 1.2 to the Acquiring Fund, free
and clear of all liens and encumbrances, except as otherwise provided
herein, and in exchange therefor the Acquiring Fund agrees (a) to assume
substantially all of the liabilities, if any, of the Acquired Fund, as
set forth in paragraph 1.3 and (b) to issue and deliver to the Acquired
Fund, for distribution in accordance with paragraph 1.5 to the Acquired
Fund's shareholders, the number of Acquiring Fund Shares having an
aggregate net asset value equal to the value of the assets, less the
liabilities, of the Acquired Fund so transferred, assigned and
delivered, all determined in the manner and as of the date and time
provided in paragraph 2. Such transactions shall take place at the
closing provided for in paragraph 3.1 (the "Closing").
1.2 Except as otherwise provided herein, as of the Effective Time, the
Acquiring Fund shall acquire the assets of the Acquired Fund (consisting
without limitation of all cash, cash equivalents, municipal obligations
and other portfolio securities, receivables (including interest and
dividends receivable) and any deferred or prepaid expenses shown as
assets) as set forth in the respective Statement of Net Assets referred
to in paragraph 7.3 as of the Closing Date. Notwithstanding the
foregoing, the assets to be acquired will not include cash in the amount
necessary to pay expenses of the Acquired Fund in connection with the
transactions contemplated by this Agreement, to pay the dividends and/or
other distributions contemplated by paragraph 1.4 or held to pay
shareholders exercising dissenters' rights under Minnesota law. The
Acquired Fund has no plan or intent to sell or otherwise dispose of any
of its assets, other than in the ordinary course of business.
1.3 Except as otherwise provided herein, as of the Effective Time, the
Acquiring Fund will assume from the Acquired Fund all debts,
liabilities, obligations and duties of the Acquired Fund of whatever
kind or nature, whether absolute, accrued, contingent or otherwise,
arising in the ordinary course of business, whether or not determinable
as of the Effective Time and whether or not specifically referred to in
this Agreement. Notwithstanding the foregoing, the Acquiring Fund will
not assume the Acquired Fund's obligation to pay certain expenses
incurred by the Acquiring Fund in connection with the transactions
contemplated by this Agreement, to pay shareholders exercising
dissenters' rights to the extent of the cash held for such purpose as
contemplated by paragraph 1.2 hereof or assume the Acquired Fund's
obligation to pay the dividends and/or other distributions contemplated
by paragraph 1.4; and further provided that the Acquired Fund agrees to
utilize its best efforts to discharge all of its known debts,
liabilities, obligations and duties (other than pursuant to paragraph
1.4) prior to the Effective Time.
A-1
<PAGE>
1.4 Prior to the Effective Time, the Acquired Fund will declare a dividend
and/or other distribution to be paid within 30 days after the Closing
Date to its shareholders of record so that, upon such payment, it will
have distributed all of its investment company taxable income (computed
without regard to any deduction for dividends paid), net tax-exempt
income and realized net capital gains, if any, through and including the
Closing Date.
1.5 On a date as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Acquired Fund will liquidate and
distribute pro rata to its shareholders of record, determined as of the
Effective Time, the Acquiring Fund Shares received by the Acquired Fund
pursuant to paragraph 1.1 (together with any dividends declared with
respect thereto to holders of record as of a time after the Effective
Time and prior to the Liquidation Date ("Interim Dividends")), in
exchange for shares of the Acquired Fund held by the shareholders of
such Fund. Such liquidation and distribution will be accomplished by
opening accounts on the books of the Acquiring Fund in the names of the
shareholders of the Acquired Fund and transferring to each account such
shareholder's pro rata share of the Acquiring Fund Shares received by
the Acquired Fund (rounded down to the nearest whole Share).
1.6 After the Liquidation Date, each holder of an outstanding certificate or
certificates representing shares of the Acquired Fund will be entitled
to receive, upon surrender of his or her certificates, a certificate or
certificates representing the number of Acquiring Fund Shares, and a
check for cash in lieu of any fractional Acquiring Fund Share as
provided by paragraph 1.7, distributable with respect to the shares of
the Acquired Fund that are surrendered. No dividends or other
distributions payable to the holders of record of the Acquiring Fund
Shares as of a date on or after the Liquidation Date shall be paid to
any shareholder holding certificates representing shares of the Acquired
Fund ("Acquired Fund Share Certificates") as of the Closing Date until
the Acquiring Fund is notified by the Acquired Fund's transfer agent
that such shareholder has surrendered his or her outstanding Acquired
Fund Share Certificates or, in the event of lost, stolen or destroyed
Acquired Fund Share Certificates, posted adequate bond or submitted an
affidavit of lost certificate, or both. The Acquired Fund will, at its
expense, request its shareholders to surrender their outstanding
Acquired Fund Share Certificates, post adequate bond and/or submit an
affidavit of lost certificate, as the case may be. Upon the surrender of
Acquired Fund Share Certificates (or, if applicable, after the posting
of a bond and/or submission of an affidavit of lost certificate), there
shall be paid to the shareholder in whose name the Acquiring Fund Shares
shall be registered all dividends or other distributions that shall have
become payable with respect to such Acquiring Fund Shares between the
Liquidation Date and the time of such surrender. In no event shall the
shareholder entitled to receive such dividends and distributions be
entitled to receive interest thereon.
1.7 No certificates or scrip representing fractional Acquiring Fund Shares
shall be distributed upon the surrender for exchange of Acquired Fund
Share Certificates. In lieu of distributing any such fractional
Acquiring Fund Shares, the Acquired Fund's transfer agent shall, on
behalf of all holders of fractional Acquiring Fund Shares, on or before
the tenth business day following the Liquidation Date, aggregate all
such fractional Acquiring Fund Shares and sell the resulting whole
Acquiring Fund Shares on the New York Stock Exchange (the "NYSE") for
the accounts of such holders, and each such holder shall be entitled to
receive his or her respective pro rata share of the net proceeds of such
sale upon surrender of his or her Acquired Fund Share Certificates in
accordance with paragraph 1.6.
1.8 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund shares
surrendered in exchange therefor on the books of the Acquired Fund as of
that time shall be paid by the person to whom such Acquiring Fund Shares
are to be issued as a condition to the registration of such transfer.
1.9 Any reporting responsibility of the Acquired Fund with the Securities
and Exchange Commission (the "SEC"), the NYSE, or any state securities
commission is and shall remain the responsibility of the Acquired Fund
up to and including the Liquidation Date.
1.10 All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the rules and
regulations thereunder, shall be available to the Acquiring Fund from
and after the Closing Date and shall be turned over to the Acquiring
Fund on or prior to the Liquidation Date.
1.11 The Acquired Fund will apply to terminate its registration under the
Investment Company Act promptly following the Liquidation Date and
thereafter shall be dissolved.
A-2
<PAGE>
2. VALUATION
2.1 The value of the Acquired Fund's assets and liabilities to be acquired
and assumed, respectively, by the Acquiring Fund shall be computed as of
the Effective Time, using the valuation procedures set forth in the
Funds' Joint Proxy Statement--Prospectus (the "Joint Proxy Statement--
Prospectus") to be used in connection with the Reorganization.
2.2 The net asset value of an Acquiring Fund Share shall be computed as of
the Effective Time by dividing the value of the Acquiring Fund's total
assets, less liabilities by the number of Acquiring Fund Shares
outstanding (excluding shares issuable pursuant to the Reorganization),
using the valuation procedures set forth in the Joint Proxy Statement--
Prospectus.
2.3 The number of Acquiring Fund Shares to be issued in exchange for the
Acquired Fund's net assets shall be calculated by dividing the net asset
value of the Acquired Fund (determined in accordance with paragraph 2.1)
by the net asset value of an Acquiring Fund Share (determined in
accordance with paragraph 2.2).
2.4 All computations of net asset value shall be made by or under the
direction of The Chase Manhattan Bank, N.A. ("Chase") in accordance with
its regular practice as custodian of the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be January 8, 1996 or such later date as the
parties may agree in writing. All acts taking place at the Closing shall
be deemed to take place simultaneously as of the Effective Time unless
otherwise provided. The Closing shall be at the office of the Acquiring
Fund or at such other place as the parties may agree.
3.2 Chase, as custodian for the Acquired Fund, shall deliver to the
Acquiring Fund at the Closing a certificate of an authorized officer
stating that (a) the Acquired Fund's portfolio securities, cash and any
other assets have been transferred in proper form to the Acquiring Fund
on the Closing Date and (b) all necessary taxes, if any, have been paid,
or provision for payment has been made, in conjunction with the delivery
of portfolio securities.
3.3 In the event that on the proposed Closing Date (a) the NYSE is closed to
trading or trading thereon is restricted or (b) trading or the reporting
of trading on the NYSE or elsewhere is disrupted so that accurate
appraisal of the value of the net assets of the Acquired Fund or of the
net asset value per Acquiring Fund Share is impracticable, the Closing
Date shall be postponed until the first business day after the date when
such trading shall have been fully resumed and such reporting shall have
been restored.
3.4 The Acquired Fund shall deliver to the Acquiring Fund on or prior to the
Liquidation Date a list of the names and addresses of its shareholders
and the number of outstanding shares of the Acquired Fund owned by each
such shareholder (the "Shareholder Lists"), all as of the Effective
Time, certified by the Secretary or Assistant Secretary of the Acquired
Fund. The Acquiring Fund shall issue and deliver to the Acquired Fund at
the Closing a confirmation or other evidence satisfactory to the
Acquired Fund that Acquiring Fund Shares have been or will be credited
to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts and other documents as
such other party or its counsel may reasonably request to effect the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Fund represents and warrants as follows:
4.1.1 The Acquired Fund is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota and
has the power to own all of its properties and assets and, subject
to approval of the shareholders of the Acquired Fund, to carry out
the Agreement.
4.1.2 The Acquired Fund is a closed-end diversified management investment
company duly registered under the Investment Company Act, and such
registration is in full force and effect.
4.1.3 The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provision of the Articles of Incorporation or By-Laws of the
Acquired Fund or of any material agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquired Fund is
a party or by which the Acquired Fund is bound.
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4.1.4 The Acquired Fund has no material contracts or other commitments
(except this Agreement and the obligations to pay the dividends
and/or distributions contemplated by paragraph 1.4) that will not
be terminated on or prior to the Closing Date without any liability
or penalty to the Acquired Fund or the Acquiring Fund.
4.1.5 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or, to the knowledge of the Acquired Fund,
threatened against the Acquired Fund or any of its properties or
assets. The Acquired Fund knows of no facts that might form the
basis for the institution of such proceedings, and the Acquired
Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
4.1.6 The audited Statement of Net Assets, Statement of Operations,
Statement of Changes in Net Assets, Financial Highlights and
Portfolio of Investments of the Acquired Fund at August 31, 1994
and for the period then ended and the unaudited statement of Net
Assets, Statement of Operations, Statement of Changes in Net
Assets, Financial Highlights and Portfolio of Investments of the
Acquired Fund at February 28, 1995 and for the period then ended
(copies of which have been furnished to the Acquiring Fund) have
been prepared in accordance with generally accepted accounting
principles consistently applied and present fairly, in all material
respects, the financial condition of the Acquired Fund as of such
date, and there are no known material liabilities of the Acquired
Fund (contingent or otherwise) not disclosed therein.
4.1.7 Since February 28, 1995, there has not been any materially adverse
change in the Acquired Fund's financial condition, assets,
liabilities or business, other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund
of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this paragraph
4.1.7, a decline in net asset value or net asset value per share of
the Acquired Fund as a result of changes in the value of
investments held by the Acquired Fund or a distribution or payment
of dividends shall not constitute a materially adverse change.
4.1.8 All federal, state and other tax returns and reports of the
Acquired Fund required by law to have been filed or furnished by
the date hereof have been filed or furnished, and all federal,
state and other taxes, interest and penalties shown as due on said
returns and reports have been paid insofar as due, or provision has
been made for the payment thereof, and, to the best of the Acquired
Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns or
reports.
4.1.9 Since it commenced operations, the Acquired Fund has met the
requirements of Subchapter M of the Internal Revenue Code for
qualification and treatment as a regulated investment company and
intends to meet those requirements for the current taxable year.
4.1.10 The authorized capital of the Acquired Fund consists of
200,000,000 Acquired Fund shares of common stock. All issued and
outstanding shares of the Acquired Fund are duly and validly
issued and outstanding, fully paid and non-assessable. All issued
and outstanding shares of the Acquired Fund will, at the time of
the Closing, be held by the persons and in the amounts set forth
in the applicable Shareholder List submitted to the Acquiring Fund
in accordance with the provisions of paragraph 3.4. The Acquired
Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any shares of the Acquired
Fund, nor is there outstanding any security convertible into
shares of the Acquired Fund.
4.1.11 At the Closing Date, the Acquired Fund will have good and
marketable title to the assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.1 and full right, power and authority
to sell, assign, transfer and deliver such assets hereunder free
of any liens or other encumbrances, and, upon delivery and payment
for such assets, the Acquiring Fund will acquire good and
marketable title thereto.
4.1.12 The execution, delivery and performance of this Agreement has been
duly authorized by the Board of Directors of the Acquired Fund
(including the determinations required by Rule 17a-8(a) under the
Investment Company Act) and by all necessary action, other than
shareholder approval, on the part of the Acquired Fund, and,
subject to shareholder approval, this Agreement constitutes a
valid and binding obligation of the Acquired Fund.
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4.1.13 The information furnished and to be furnished by the Acquired Fund
for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection
with the transactions contemplated hereby is, and shall be,
accurate and complete in all material respects and is in
compliance, and shall comply, in all material respects with
applicable federal securities and other laws and regulations.
4.1.14 On the effective date of the Registration Statement referred to in
paragraph 5.5, at the time of the Annual Meeting of the Acquired
Fund's shareholders and on the Closing Date, the Joint Proxy
Statement--Prospectus (a) will comply in all material respects
with the provisions and regulations of the Securities Act of 1933,
as amended (the "1933 Act"), the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the Investment Company Act and
the rules and regulations thereunder and (b) will not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the
representations and warranties in this paragraph 4.1.14 shall not
apply to statements in or omissions from the Joint Proxy
Statement--Prospectus made in reliance upon and in conformity with
information furnished by the Acquiring Fund for use therein.
4.1.15 No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the 1934 Act
and the Investment Company Act, and such as may be required under
state securities laws.
4.1.16 There are no brokers or finder's fees payable on behalf of the
Acquired Fund in connection with the transactions provided for
herein.
4.2 The Acquiring Fund represents and warrants as follows:
4.2.1 The Acquiring Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Minnesota and has the power to own all of its properties and assets
and, subject to approval of the shareholders of the Acquiring Fund,
to carry out the Agreement.
4.2.2 The Acquiring Fund is a closed-end diversified management
investment company duly registered under the Investment Company
Act, and such registration is in full force and effect.
4.2.3 The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provision of the Articles of Incorporation or By-Laws of the
Acquiring Fund or of any material agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is
a party or by which the Acquiring Fund is bound.
4.2.4 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or, to the knowledge of the Acquiring Fund,
threatened against the Acquiring Fund or any of its properties or
assets. The Acquiring Fund knows of no facts that might form the
basis for the institution of such proceedings, and the Acquiring
Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
4.2.5 The audited Statement of Net Assets, Statement of Operations,
Statement of Changes in Net Assets, Financial Highlights and
Portfolio of Investments of the Acquiring Fund at August 31, 1994
and for the period then ended and the unaudited Statement of Net
Assets, Statement of Operations, Statement of Changes in Net
Assets, Financial Highlights and Portfolio of Investments of the
Acquiring Fund February 28, 1995 and for the period then ended
(copies of which have been furnished to the Acquired Fund) have
been prepared in accordance with generally accepted accounting
principles and present fairly, in all material respects, the
financial condition of the Acquiring Fund as of such date, and
there are no known material liabilities of the Acquiring Fund
(contingent or otherwise) not disclosed therein.
4.2.6 Since February 28, 1995, there has not been any materially adverse
change in the Acquiring Fund's financial condition, assets,
liabilities or business, other than changes occurring in the
ordinary course of business, or any incurrence by the Acquiring
Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquired Fund. For the purposes of this paragraph
4.2.6, a decline in net asset value or net asset value per
Acquiring Fund Share as a result of changes in the value of
investments held by the Acquiring Fund or a distribution or payment
of dividends shall not constitute a materially adverse change.
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4.2.7 All federal, state and other tax returns and reports of the
Acquiring Fund required by law to have been filed or furnished by
the date hereof have been filed or furnished, and all federal,
state and other taxes, interest and penalties shown as due on said
returns and reports have been paid insofar as due, or provision has
been made for the payment thereof, and, to the best of the
Acquiring Fund's knowledge, no such return is currently under audit
and no assessment has been asserted with respect to such returns or
reports.
4.2.8 Since it commenced operations, the Acquiring Fund has met the
requirements of Subchapter M of the Internal Revenue Code for
qualification and treatment as a regulated investment company and
intends to meet those requirements for the current taxable year.
4.2.9 The authorized capital of the Acquiring Fund consists of
250,000,000 Acquiring Fund Shares. All issued and outstanding
Acquiring Fund Shares are, and all Acquiring Fund Shares to be
issued in exchange for the net assets of the Acquired Funds
pursuant to this Agreement will be when so issued, duly and validly
issued and outstanding, fully paid and non-assessable. Except as
contemplated by this Agreement, the Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for
or purchase any Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares.
4.2.10 The execution, delivery and performance of this Agreement has been
duly authorized by the Board of Directors of the Acquiring Fund
(including the determinations required by Rule 17a-8(a) under the
Investment Company Act) and by all necessary action, other than
shareholder approval, on the part of the Acquiring Fund, and,
subject to shareholder approval, this Agreement constitutes a
valid and binding obligation of the Acquiring Fund.
4.2.11 The information furnished and to be furnished by the Acquiring
Fund for use in applications for orders, registration statements,
proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby is, and shall
be, accurate and complete in all material respects and is in
compliance, and shall comply, in all material respects with
applicable federal securities and other laws and regulations.
4.2.12 On the effective date of the Registration Statement, at the time
of the Annual Meeting of the Acquiring Fund shareholders and on
the Closing Date, the Registration Statement and the Joint Proxy
Statement--Prospectus (a) will comply in all material respects
with the provisions of the 1933 Act, the 1934 Act and the
Investment Company Act and the rules and regulations thereunder
and (b) will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
paragraph 4.2.12 shall not apply to statements in or omissions
from the Joint Proxy Statement--Prospectus and the Registration
Statement made in reliance upon and in conformity with information
furnished by the Acquired Fund for use therein.
4.2.13 No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the 1934 Act
and the Investment Company Act, and such as may be required under
state securities laws.
4.2.14 There are no brokers' or finders' fees payable on behalf of the
Acquiring Fund in connection with the transactions provided for
herein.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as may otherwise be required by paragraph 1.4, each Fund will
operate its respective business in the ordinary course between the date
hereof and the Closing Date, it being understood that the ordinary
course of business will include declaring and paying customary dividends
and other distributions.
5.2 Each Fund will call a shareholders' meeting to consider and act upon
this Agreement and the transactions contemplated herein and to take all
other action necessary to obtain approval of the transactions
contemplated hereby.
5.3 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund's shares.
5.4 Subject to the provisions of this Agreement, each Fund will take or
cause to be taken all action, and will do or cause to be done all
things, reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
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5.5 Each Fund will prepare and file with the SEC the Joint Proxy Statement--
Prospectus, and the Acquiring Fund will prepare and file with the SEC a
registration statement on Form N-14 relating to the Acquiring Fund
Shares to be issued hereunder (together with any amendments thereof and
supplements thereto, the "Registration Statement"), in compliance with
the 1933 Act, the 1934 Act and the Investment Company Act and the rules
and regulations thereunder.
5.6 Each Fund will, from time to time, as and when requested by the other
Fund, execute and deliver or cause to be executed and delivered all such
assignments and other instruments, and will take or cause to be taken
such further action, as the other Fund may deem necessary or desirable
in order to (a) vest in and confirm to the Acquiring Fund title to and
possession of all the assets of the Acquired Fund to be sold, assigned,
transferred and delivered to the Acquiring Fund pursuant to this
Agreement, (b) vest in and confirm to the Acquired Fund title to and
possession of all the Acquiring Fund Shares to be transferred to the
Acquired Fund pursuant to this Agreement, (c) assume all of the Acquired
Fund's liabilities in accordance with this Agreement, and (d) otherwise
to carry out the intent and purpose of this Agreement.
5.7 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the Investment
Company Act and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing
Date.
5.8 The expenses incurred by the Funds in connection with this Agreement and
the transactions contemplated hereby shall be allocated between the
Funds in a fair and equitable manner based upon estimated savings to
each Fund resulting from the transactions contemplated hereby, whether
or not the transactions contemplated hereby are consummated.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall, at its election, be subject to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and the following further conditions.
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same
force and effect as if made on and as of the Closing Date.
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by the President or a Vice President of
the Acquiring Fund, in form and substance satisfactory to the Acquired
Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Fund in this Agreement
are true and correct at and as of the Closing Date except as they may be
affected by the transactions contemplated by this Agreement, and as to
such other matters as the Acquired Fund shall reasonably request.
6.3 The Acquired Fund shall have received an opinion from Vedder, Price,
Kaufman & Kammholz, counsel to the Acquiring Fund, dated as of the
Closing Date, to the effect that:
6.3.1 The Acquiring Fund has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Minnesota with requisite power and authority to own its properties
and, to the knowledge of such counsel, to carry on its business as
presently conducted;
6.3.2 This Agreement has been duly authorized, executed and delivered by
the Acquiring Fund and, assuming due authorization, execution and
delivery of the Agreement by the Acquired Fund, constitutes a valid
and binding obligation of the Acquiring Fund enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights
and to general equitable principles;
6.3.3 The Acquiring Fund Shares to be distributed to shareholders of the
Acquired Fund under this Agreement will, when issued in exchange
for the net assets of the Acquired Fund as contemplated by this
Agreement, be validly issued and outstanding and fully paid and
non-assessable and free of preemptive rights;
6.3.4 Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby violate (i)
the Acquiring Fund's Articles of Incorporation or By-Laws or (ii)
any federal law of the United States, the laws of the State of
Illinois or the laws of the State of
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Minnesota applicable to the Acquiring Fund; provided, however, that
such counsel may state that it expresses no opinion with respect to
federal or state securities laws, other antifraud laws and fraudulent
transfer laws; and provided, further that insofar as performance by
the Acquiring Fund of its obligations under this Agreement is
concerned such counsel may state that it expresses no opinion as to
bankruptcy, insolvency, reorganization, moratorium or similar laws of
general applicability relating to or affecting creditors' rights;
6.3.5 All regulatory consents, authorizations, approvals and filings
required to be obtained or made by the Acquiring Fund under the
federal laws of the United States, the laws of the State of
Minnesota and state Blue Sky or securities laws for the
consummation of the transactions contemplated by this Agreement
have been obtained or made;
6.3.6 The Acquiring Fund has been registered with the SEC as an
investment company and, to the knowledge of such counsel, no order
has been issued or proceeding instituted to suspend such
registration; and
6.3.7 To the knowledge of such counsel, (a) no litigation or
administrative proceeding or investigation of or before any court
or governmental body is presently pending or threatened as to the
Acquiring Fund or any of its properties or assets, and (b) the
Acquiring Fund is not a party to or subject to the provision of any
order, decree or judgment of any court or governmental body, which
materially and adversely affects its business.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions provided
for herein with respect to the Acquired Fund shall, at its election, be subject
to the performance by the Acquired Fund of all the obligations to be performed
by it hereunder on or before the Closing Date and the following further
conditions:
7.1 All representations and warranties of the Acquired Fund contained in this
Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same
force and effect as if made on and as of the Closing Date.
7.2 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by the President or Vice President of
the Acquired Fund, in form and substance satisfactory to the Acquiring
Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquired Fund in this Agreement are
true and correct at and as of the Closing Date except as they may be
affected by the transactions contemplated by this Agreement, and as to
such other matters as the Acquiring Fund shall reasonably request.
7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a Statement of Net Assets, which Statement shall be prepared
in accordance with generally accepted accounting principles consistently
applied, together with a list of its portfolio securities showing the
adjusted tax bases and holding periods of such securities as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
7.4 On or immediately prior to the Closing Date, the Acquired Fund shall have
declared the dividends and/or distributions contemplated by paragraph
1.4.
7.5 The Acquiring Fund shall have received an opinion from Vedder, Price,
Kaufman & Kammholz, counsel to the Acquired Fund, dated as of the Closing
Date, to the effect that:
7.5.1 The Acquired Fund has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Minnesota with requisite power and authority to own its properties
and, to the knowledge of such counsel, to carry on its business as
presently conducted;
7.5.2 This Agreement has been duly authorized, executed and delivered by
the Acquired Fund and, assuming due authorization, execution and
delivery of the Agreement by the Acquiring Fund, constitutes a
valid and binding obligation of the Acquired Fund enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights
and to general equitable principles;
7.5.3 Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby violate (i)
the Acquired Fund's Articles of Incorporation or By-Laws or (ii)
any federal law of the United States, the laws of the State of
Illinois or the laws of the State of
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Minnesota applicable to the Acquired Fund; provided, however, that
such counsel may state that it expresses no opinion with respect to
federal or state securities laws, other antifraud laws and fraudulent
transfer laws; and provided, further that insofar as performance by
the Acquired Fund of its obligations under this Agreement is
concerned such counsel may state that it expresses no opinion as to
bankruptcy, insolvency, reorganization, moratorium or similar laws of
general applicability relating to or affecting creditors' rights;
7.5.4 All regulatory consents, authorizations, approvals and filings
required to be obtained or made by the Acquired Fund under the
federal laws of the United States, the laws of the State of
Minnesota and state Blue Sky or securities laws for the
consummation of the transactions contemplated by this Agreement
have been obtained or made;
7.5.5 The Acquired Fund has been registered with the SEC as an investment
company, and, to the knowledge of such counsel, no order has been
issued or proceeding instituted to suspend such registration; and
7.5.6 To the knowledge of such counsel, (a) no litigation or
administrative proceeding or investigation of or before any court
or governmental body is presently pending or threatened as to the
Acquired Fund or any of its properties or assets, and (b) the
Acquired Fund is not a party to or subject to the provision of any
order, decree or judgment of any court or governmental body, which
materially and adversely affects its business.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
The obligations of each Fund hereunder are subject to the further conditions
that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite votes of (a) the Board of Directors of the
Acquiring Fund and the Board of Directors of the Acquired Fund, including
as to the determinations required by Rule 17a-8(a) under the Investment
Company Act and (b) the holders of the outstanding shares of the
Acquiring Fund and the Acquired Fund in accordance with the provisions of
the Acquiring Fund's Articles of Incorporation and By-Laws and the
Acquired Fund's Articles of Incorporation and By-Laws and the
requirements of the NYSE; each Fund shall have delivered certified copies
of the resolutions evidencing such approvals to the other Fund; and the
Acquiring Fund shall have given the Depository Trust Company or its
successor, at least five business days notice of such approval.
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all consents, orders and permits of
federal, state and local regulatory authorities (including those of the
SEC and of state Blue Sky or securities authorities, including "no-
action" positions of such federal or state authorities) deemed necessary
by the Acquiring Fund or the Acquired Fund to permit consummation, in all
material respects, of the transactions contemplated hereby shall have
been obtained, except where failure to obtain any such consent, order or
permit would not involve a risk of a materially adverse effect on the
assets or properties of the Acquiring Fund or the Acquired Fund, provided
that either party hereto may waive any part of this condition as to
itself.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop order suspending the effectiveness thereof shall have
been issued, and, to the best knowledge of the Funds no investigation or
proceeding under the 1933 Act for that purpose shall have been instituted
or be pending, threatened or contemplated.
8.5 The Funds shall have received an opinion of Vedder, Price, Kaufman &
Kammholz satisfactory to the Funds and based on such reasonably requested
representations and warranties as requested by counsel, substantially to
the effect that, for federal income tax purposes:
8.5.1 The acquisition by the Acquiring Fund of substantially all the
assets of the Acquired Fund in exchange solely for Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Acquired
Fund's liabilities, if any, followed by the distribution by the
Acquired Fund of the Acquiring Fund Shares to the shareholders of
the Acquired Fund in exchange for their Acquired Fund shares in
complete liquidation of the Acquired Fund, will constitute a
"reorganization" within
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the meaning of Section 368(a)(1)(C) of the Internal Revenue Code, and
the Acquiring Fund and the Acquired Fund each will be "a party to a
reorganization" within the meaning of Section 368(b) of the Internal
Revenue Code;
8.5.2 The Acquired Fund's shareholders will recognize no gain or loss
upon the exchange of all of their Acquired Fund shares for
Acquiring Fund Shares in complete liquidation of the Acquired Fund,
except with respect to cash received for a fractional Acquiring
Fund Share, if any;
8.5.3 No gain or loss will be recognized by the Acquired Fund upon the
transfer of substantially all its assets to the Acquiring Fund in
exchange solely for Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Acquired Fund's liabilities, if any, and with
respect to the subsequent distribution of those Acquiring Fund
Shares to the Acquired Fund shareholders in complete liquidation of
the Acquired Fund;
8.5.4 No gain or loss will be recognized by the Acquiring Fund upon the
acquisition of substantially all the Acquired Fund's assets in
exchange solely for Acquiring Fund Shares and the assumption of the
Acquired Fund's liabilities, if any;
8.5.5 The basis of the assets acquired by the Acquiring Fund will be, in
each instance, the same as the basis of those assets when held by
the Acquired Fund immediately before the transfer, and the holding
period of such assets acquired by the Acquiring Fund will include
the holding period thereof when held by the Acquired Fund;
8.5.6 The basis of the Acquiring Fund Shares to be received by the
Acquired Fund's shareholders upon liquidation of the Acquired Fund
will be, in each instance, the same as the basis of the Acquired
Fund shares surrendered in exchange therefor, decreased by any cash
received and increased by the amount of gain recognized on the
exchange; and
8.5.7 The holding period of the Acquiring Fund Shares to be received by
the Acquired Fund's shareholders will include the period during
which the Acquired Fund shares to be surrendered in exchange
therefor were held, provided such Acquired Fund shares were held as
capital assets by those shareholders on the date of the exchange.
9. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
9.1 This Agreement constitutes the entire agreement between the Funds.
9.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereby.
10. TERMINATION
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of the shareholders of the Funds:
10.1 By mutual agreement of the Funds;
10.2 By either Fund, if a condition to the obligations of such Fund shall
not have been met and it reasonably appears that it will not or cannot
be met; or
10.3 By either Fund, if the Closing shall not have occurred on or before
March 31, 1996.
In the event of any such termination, there shall be no liability for damages
on the part of either Fund (other than the liability of the Funds to pay
expenses pursuant to paragraph 5.8) or any Director or officer of either Fund.
11. AMENDMENT
This Agreement may be amended, modified or supplemented only in writing by
the parties; provided, however, that following the shareholders' meetings
called by the Funds pursuant to paragraph 5.2, no such amendment may have the
effect of changing the provisions for determining the number of Acquiring Fund
Shares to be distributed to the Acquired Fund's shareholders under this
Agreement without their further approval and the further approval of the Funds'
Boards of Directors (including the determination required by Rule 17a-8(a)
under the Investment Company Act), and provided further that nothing contained
in this paragraph 11 shall be construed as requiring additional approval to
amend this Agreement to change the Closing Date or the Effective Time.
A-10
<PAGE>
12. NOTICES
Any notice, report, demand or other communication required or permitted by
any provision of this Agreement shall be in writing and shall be given by hand
delivery, prepaid certified mail or overnight delivery service addressed to
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois 60606,
Attention: James J. Wesolowski.
13. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
13.1 The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois.
13.4 This Agreement shall bind and inure to the benefit of the parties and
their respective successors and assigns, and no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by
either party without the written consent of the other party. Nothing
herein expressed or implied is intended or shall be construed to confer
upon or give any person, firm or corporation other than the parties and
their respective successors and assigns any rights or remedies under or
by reason of this Agreement.
13.5 All persons dealing with the Acquiring Fund must look solely to the
property of the Acquiring Fund for the enforcement of any claims
against the Acquiring Fund as neither the Directors, officers, agents
or shareholders of the Acquiring Fund assume any personal liability for
obligations entered into on behalf of the Acquiring Fund.
13.6 All persons dealing with the Acquired Fund must look solely to the
property of the Acquired Fund for the enforcement of any claims against
the Acquired Fund as neither the Directors, officers, agents or
shareholders of the Acquired Fund assume any personal liability for
obligations entered into on behalf of the Acquired Fund.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by the President or Vice President of each Fund.
NUVEEN CALIFORNIA MUNICIPAL VALUE NUVEEN CALIFORNIA MUNICIPAL INCOME
FUND, INC. FUND, INC.
/s/ Timothy R. Schwertfeger /s/ Timothy R. Schwertfeger
By:_________________________________ By:_________________________________
President
President
A-11
<PAGE>
ANNEX B
SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA BUSINESS CORPORATION ACT
RELATING TO THE ACQUIRED FUND DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS.--Subdivision 1. Actions creating
rights. A shareholder of a corporation may dissent from, and obtain payment for
the fair value of the shareholder's shares in the event of, any of the
following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or
new class or series with similar or different voting rights; except that
an amendment to the articles of an issuing public corporation that
provides that section 302A.671 does not apply to a control share
acquisition does not give rise to the right to obtain payment under this
section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court,
or a disposition for cash on terms requiring that all or substantially all
of the net proceeds of disposition be distributed to the shareholders in
accordance with their respective interests within one year after the date
of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B,
to which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their
shares.
Subdivision 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on
whose behalf the shareholder dissents. In that event, the rights of the
dissenter shall be determined as if the shares as to which the shareholder has
dissented and the other shares were registered in the names of different
shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subdivision 3. Rights not to apply. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
Subdivision 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
B-1
<PAGE>
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.--Subdivision 1.
Definitions. (a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1 up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subdivision 2. Notice of action. If a corporation calls a shareholder meeting
at which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subdivision 3. Notice of dissent. If a proposed action must be approved by
the shareholders, a shareholder who wishes to exercise dissenters' rights must
file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the
shareholder and must not vote the shares in favor of the proposed action.
Subdivision 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was
required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b) In order to received the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice was given, but the dissenter retains all other rights of a shareholder
until the proposed action takes effect.
Subdivision 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person
who was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under
B-2
<PAGE>
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision
4 and require deposit or restrict transfer at a later time.
Subdivision 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
Subdivision 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a petition requesting
that the court determine the fair value of the shares, plus interest. The
petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last
registered office of the constituent corporation was located. The petition
shall name as parties all dissenters who have demanded payment under
subdivision 6 and who have not reached agreement with the corporation. The
corporation shall, after filing the petition, serve all parties with a summons
and copy of the petition under the rules of civil procedure. Nonresidents of
this state may be served by registered or certified mail or by publication as
provided by law. Except as otherwise provided, the rules of civil procedure
apply to this proceeding. The jurisdiction of the court is plenary and
exclusive. The court may appoint appraisers, with powers and authorities the
court deems proper, to receive evidence on and recommend the amount of the fair
value of the shares. The court shall determine whether the shareholder or
shareholders in question have fully complied with the requirements of this
section, and shall determine the fair value of the shares, taking into account
any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter. The fair value of the
shares as determined by the court is binding on all shareholders, wherever
located. A dissenter is entitled to judgment in cash for the amount by which
the fair value of the shares as determined by the court, plus interest, exceeds
the amount, if any, remitted under subdivision 5, but shall not be liable to
the corporation for the amount, if any, by which the amount, if any, remitted
to the dissenter under subdivision 5 exceeds the fair value of the shares as
determined by the court, plus interest.
Subdivision 8. Costs; fees; expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously,
or not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
B-3
<PAGE>
NUVEEN CALIFORNIA MUNICIPAL
VALUE FUND, INC.
NUVEEN CALIFORNIA MUNICIPAL
INCOME FUND, INC.
- --------------------------------------------------------------------------------
JOINT PROXY STATEMENT--PROSPECTUS
- --------------------------------------------------------------------------------
SEPTEMBER , 1995
NCA 1195
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED SEPTEMBER 27, 1995
NUVEEN CALIFORNIA
MUNICIPAL VALUE FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of common
stock (the "Acquiring Fund Shares") to be issued by Nuveen California Municipal
Value Fund, Inc. (the "Acquiring Fund") pursuant to an Agreement and Plan of
Reorganization and Liquidation dated as of August 1, 1995 (the "Agreement") by
and between the Acquiring Fund and Nuveen California Municipal Income Fund,
Inc. (the "Acquired Fund" and, together with the Acquiring Fund, the "Funds"),
providing for a reorganization (the "Reorganization") in which, among other
things, the Acquiring Fund would (a) acquire substantially all of the assets of
the Acquired Fund in exchange for newly issued Acquiring Fund Shares and (b)
assume substantially all of the liabilities of the Acquired Fund. This
Statement of Additional Information does not constitute a prospectus, but
should be read in conjunction with the Joint Proxy Statement--Prospectus
relating to the Acquiring Fund Shares dated September , 1995. This Statement
of Additional Information does not include all information that a shareholder
should consider before voting on the proposals contained in the Joint Proxy
Statement--Prospectus, and shareholders should obtain and read the Joint Proxy
Statement--Prospectus prior to voting. A copy of the Joint Proxy Statement--
Prospectus may be obtained without charge by mailing a written request to
either of the Funds, Attention: Administration, 333 West Wacker Drive, Chicago,
Illinois 60606 or by calling (800) 257-8787.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies of the Funds............................ S- 2
Certain Trading Strategies of the Funds.................................... S-12
Management of the Funds.................................................... S-15
Portfolio Transactions of the Funds........................................ S-16
Repurchase of Fund Shares; Conversion to Open-End Fund..................... S-17
Tax Matters Associated with Investment in the Funds........................ S-18
Index to Financial Statements.............................................. F-1
Index to Pro Forma Financial Statements.................................... P-1
Ratings of Investments (ANNEX A)........................................... A-1
</TABLE>
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS SEPTEMBER , 1995.
S-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
THE ACQUIRING FUND
The Acquiring Fund's primary investment objective is to provide, through
investment in a professionally managed portfolio of tax-exempt California
Municipal Obligations, current interest income exempt from both Federal and
California income taxes. A secondary objective of the Acquiring Fund is to
achieve enhancement of portfolio value through investments in tax-exempt
California Municipal Obligations that, in the opinion of the Nuveen Advisory
Corp. (the "Adviser"), are underrated or represent municipal market sectors
that are undervalued. Underrated Municipal Obligations are those whose ratings
do not, in the Adviser's opinion, reflect their true value. Obligations may be
underrated because of the time that has elapsed since their most recent rating,
or because of positive factors that may not have been fully taken into account
by the rating agencies, or for other similar reasons. Undervalued municipal
market sectors, on the other hand, refers to Municipal Obligations of
particular types or purposes (e.g., hospital bonds, industrial revenue bonds,
or bonds issued by a particular municipal issuer) that, in the Adviser's
opinion, are worth more than the value assigned to them in the marketplace.
Obligations may be undervalued because there is a temporary excess of supply in
a particular market sector, or because of a general decline in the market price
of Municipal Obligations of a market sector for reasons that do not apply to
the particular Municipal Obligations that are considered undervalued. The
Acquiring Fund's investment in underrated or undervalued California Municipal
Obligations will be based on the Adviser's belief that the prices of such
Obligations should ultimately reflect their true value. Under certain market
conditions, such underrated or undervalued Municipal Obligations may realize
market appreciation, while in a declining market such Municipal Obligations may
experience less market depreciation than other Municipal Obligations.
Accordingly, "enhancement of portfolio value" does not merely refer to market
appreciation of portfolio securities, and the Acquiring Fund does not suggest
that capital appreciation is itself an objective of the Fund. Instead, the
objective of enhancement of portfolio value is one of seeking to outperform the
market by prudent selection of Municipal Obligations, regardless of which
direction the market may move. A shareholder of the Acquiring Fund will receive
taxable income upon the sale of shares at an appreciated value or in the event
of capital gains distributions by the Fund.
Except during temporary defensive periods, the Acquiring Fund will, as a
fundamental policy, invest 100% of its net assets in tax-exempt California
Municipal Obligations, of which 80% will be Municipal Obligations rated at the
time of purchase within the four highest grades (Baa or BBB or better) by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P"). Municipal Obligations rated Baa or BBB are considered "investment
grade" securities; Obligations rated Baa are considered medium grade
obligations which lack outstanding investment characteristics and in fact have
speculative characteristics as well, while Obligations rated BBB are regarded
as having an adequate capacity to pay principal and interest. A general
description of Moody's and S&P's ratings of Municipal Obligations is set forth
in Annex A hereto. The Acquiring Fund emphasizes investments in California
Municipal Obligations with long-term maturities, but the degree of such
emphasis will depend upon market conditions existing at the time of investment.
The Acquiring Fund may invest up to 20% of its net assets in unrated
California Municipal Obligations or in California Municipal Obligations rated
lower than the four highest grades, but no more than half of this amount (10%
of the Fund's net assets) will be invested in such lower rated California
Municipal Obligations. To the extent it does so, there may be somewhat greater
risk because such unrated or lower rated Municipal Obligations, although
generally offering a higher current yield than higher rated securities, are
generally less liquid and involve a greater risk of non-payment of principal
and interest than higher rated securities. The Acquiring Fund will only invest
in unrated California Municipal Obligations which, in the opinion of the
Adviser, have credit characteristics equivalent to Obligations rated Baa or BBB
or better. The Acquiring Fund will not invest in any rated California Municipal
Obligations that are rated lower than Ba by Moody's or BB by S&P at the time of
purchase.
During temporary defensive periods (e.g., times when temporary imbalances of
supply and demand or other temporary dislocations in the tax-exempt bond market
adversely affect the price at which California Municipal Obligations are
available), the Acquiring Fund may invest any percentage of its net assets in
taxable temporary investments, the income on which may be subject to California
income tax or to both Federal and California income taxes. The Acquiring Fund
will invest only in temporary investments which are U.S. Government securities
or securities rated within the two highest grades by Moody's or S&P (including
tax-exempt securities issued in states other than California), and which mature
within one year from the date of purchase. Temporary investments of the
Acquiring Fund may also include repurchase agreements. The foregoing
restrictions and other limitations
S-2
<PAGE>
discussed herein will apply only at the time of purchase of securities and will
not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of an acquisition of securities.
THE ACQUIRED FUND
The Acquired Fund's investment objective is to provide, through investment in
a professionally managed portfolio of tax-exempt California Municipal
Obligations, a high level of current interest income exempt from both Federal
and California income taxes. The Acquired Fund has not established any limit on
the percentage of its portfolio that may be invested in California Municipal
Obligations subject to the alternative minimum tax provisions of Federal tax
law, and a substantial portion of the income produced by the Acquired Fund may
be taxable under the alternative minimum tax. The Acquired Fund therefore would
not ordinarily be a suitable investment for investors who are subject to the
alternative minimum tax. The suitability of the Acquired Fund for these
investors will depend upon a comparison of the yield likely to be provided from
the Acquired Fund, from comparable tax-exempt investments not subject to the
alternative minimum tax, and from comparable fully taxable investments in light
of each such investor's tax position.
Except during temporary defensive periods, the Acquired Fund will, as a
fundamental policy, invest 100% of its net assets in tax-exempt California
Municipal Obligations, of which 75% will be Municipal Obligations rated at the
time of purchase within the four highest grades (Baa or BBB or better) by
Moody's or S&P, or unrated Municipal Obligations which, in the opinion of the
Adviser, have credit characteristics equivalent to, and will be of comparable
quality to, Obligations rated within the four highest grades by Moody's or S&P,
provided that the Acquired Fund may not invest more than 10% of its net assets
in such unrated Municipal Obligations. The Acquired Fund emphasizes investments
in California Municipal Obligations with long-term maturities, but the degree
of such emphasis will depend upon market conditions existing at the time of
investment.
The Acquired Fund may invest up to 25% of its net assets in California
Municipal Obligations rated Ba or B by Moody's or BB or B by S&P at the time of
purchase, or in unrated California Municipal Obligations that, in the Adviser's
opinion, have credit characteristics equivalent to Obligations so rated,
provided that no more than 10% of the Acquired Fund's net assets may be
invested in California Municipal Obligations rated B by Moody's or B by S&P, or
their unrated equivalents. To the extent the Acquired Fund invests in these
lower rated California Municipal Obligations, there may be somewhat greater
risk because such lower rated securities, although generally offering a higher
current yield than higher rated securities, are generally less liquid and
involve a greater risk of non-payment of principal and interest than higher
rated securities. Securities rated B by S&P have a greater vulnerability to
default but presently have the capacity to meet interest and principal
payments, while securities rated B by Moody's generally lack characteristics of
the desirable investment. The Acquired Fund will not invest in California
Municipal Obligations that are not rated at least B by either Moody's or S&P.
During temporary defensive periods (e.g., times when temporary imbalances of
supply and demand or other temporary dislocations in the tax-exempt bond market
adversely affect the price at which California Municipal Obligations are
available), the Acquired Fund may invest any percentage of its net assets in
taxable temporary investments, income on which may be subject to California
income tax or to both federal and California income taxes. The Acquired Fund
will invest only in temporary investments which are U.S. Government securities
or securities rated within the two highest grades by Moody's or S&P (including
tax-exempt securities issued in states other than California), and which mature
within one year from the date of purchase. Temporary investments of the
Acquired Fund may also include repurchase agreements. The foregoing
restrictions and other limitations discussed herein will apply only at the time
of purchase and will not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of an acquisition of
securities.
MUNICIPAL OBLIGATIONS
"Municipal Obligations" are debt obligations issued by states, cities and
local authorities to obtain funds for various public purposes, including the
construction and maintenance of such public facilities as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Municipal Obligations may be
issued include the refinancing of outstanding obligations and the obtaining of
funds for general operating expenses and for loans to other public institutions
and facilities. In addition, certain industrial development, private activity
and pollution control bonds may be included within the term Municipal
Obligations if the interest paid thereon qualifies as exempt from regular
Federal income tax. The two principal classifications of Municipal Obligations
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
S-3
<PAGE>
interest. Revenue bonds (e.g., industrial development bonds) are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source. Also included within the general category of Municipal Obligations are
participations in lease obligations or installment purchase contract
obligations of municipal authorities or entities.
Municipal Obligations also include participations in lease obligations or
installment purchase contract obligations (hereinafter collectively called
"Municipal Lease Obligations") of municipal authorities or entities. Although
Municipal Lease Obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a Municipal
Lease Obligation is ordinarily backed by the municipality's covenant to budget
for, appropriate and make the payments due under the Municipal Lease
Obligation. However, certain Municipal Lease Obligations contain "non-
appropriation" clauses which provide that the municipality has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. In the case of a "non-
appropriation" lease, a Fund's ability to recover under the lease in the event
of non-appropriation or default will be limited solely to the repossession of
the leased property, without recourse to the general credit of the lessee, and
disposition or releasing of the property might prove difficult. Each Fund seeks
to minimize these risks by not investing more than 5% of its total investment
assets in Municipal Lease Obligations that contain "non-appropriation" clauses,
and by only investing in those "non-appropriation" Municipal Lease Obligations
where (a) the nature of the leased equipment or property is such that its
ownership or use is essential to a governmental function of the municipality,
(b) the lease payments will commence amortization of principal at an early date
that results in an average life of seven years or less for the Municipal Lease
Obligation, (c) appropriate covenants will be obtained from the municipal
obligor prohibiting the substitution or purchase of similar equipment if lease
payments are not appropriated, (d) the lease obligor has maintained good market
acceptability in the past, (e) the investment is of a size that will be
attractive to institutional investors and (f) the underlying leased equipment
has elements of portability or use, or both, that enhance its marketability in
the event foreclosure on the underlying equipment were ever required.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed but varies with changes in
specified market rates or indexes, such as a bank prime rate or a tax-exempt
money market index. The term Municipal Obligations also includes obligations,
such as tax-exempt notes, municipal commercial paper and Municipal Lease
Obligations, having relatively short-term maturities, although, as noted above,
each Fund emphasizes investments in Municipal Obligations with long-term
maturities.
The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's and S&P
represent their opinions as to the quality of the Municipal Obligations which
they undertake to rate. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Consequently, Municipal
Obligations with the same maturity, coupon and rating may have different yields
while obligations of the same maturity and coupon with different ratings may
have the same yield. The market value of outstanding 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.
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 Bankruptcy Reform Act of 1978, as amended. In addition,
the obligations of such issuers may become subject to laws enacted in the
future by Congress, state legislatures or referenda extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is
also the possibility that, as a 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.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL OBLIGATIONS
As described above, except to the extent a Fund invests in temporary
investments, it invests substantially all of its net assets in California
Municipal Obligations. Each Fund is therefore susceptible to political,
economic and regulatory factors affecting issuers of California Municipal
Obligations. These include the possible adverse effects of certain California
constitutional amendments, legislative measures, voter initiatives and other
matters that are described below. The following information provides only a
brief summary of the complex factors affecting the financial situation in
California (the "State") and is derived from sources that are generally
available to investors and are believed to be accurate. No independent
verification has been made of the accuracy or completeness of any
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of the following information. It is based in part on information obtained from
various State and local agencies in California or contained in Official
Statements for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental finances
generally, will not adversely affect the market value of California Municipal
Obligations held in the portfolio of either Fund or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
ECONOMIC OVERVIEW
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 32 million represents
12.3% of the total United States population and grew by 27% in the 1980s. While
the State's substantial population growth during the 1980s stimulated local
economic growth and diversification and sustained a real estate boom between
1984 and 1990, it has increased strains on the State's limited water resources
and its infrastructure. Resultant traffic congestion, school overcrowding and
high housing costs have increased demands for government services and may
impede future economic growth. Population growth has slowed between 1991 and
1994 even while substantial immigration has continued, due to a significant
increase in outmigration by California residents. Generally the household
incomes of new residents have been substantially lower (and their education and
social service utilization higher) than those of departing households, which
may have a major long-term socioeconomic and fiscal impact. However, with the
California economy improving, the recent net outmigration within the
Continental U.S. is expected to decrease or be reversed.
From mid-1990 to late 1993, the State's economy suffered its worst recession
since the 1930s, with recovery starting later than for the nation as a whole.
The State has experienced the worst job losses of any post-war recession.
Prerecession job levels may not be realized until near the end of the decade.
The largest job losses have been in Southern California, led by declines in the
aerospace and construction industries. Weakness statewide occurred in
manufacturing, construction, services and trade. Additional military base
closures will have further adverse effects on the State's economy later in the
decade.
Since the start of 1994, the California economy has shown signs of steady
recovery and growth. The State Department of Finance reports net job growth,
particularly in construction and related manufacturing, wholesale and retail
trade, transportation, recreation and services. This growth has offset the
continuing but slowing job losses in the aerospace industry and restructuring
of the finance and utility sectors. Unemployment in the State was down
substantially in 1994 from its 10% peak in January, 1994, but still remains
higher than the national average rate. Retail sales were up strongly in 1994
from year-earlier figures. Delay or slowdown in recovery will adversely affect
State revenues.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS
Limitation on Taxes. Certain California Municipal Obligations may be
obligations of issuers which rely in whole or in part, directly or indirectly,
on ad valorem property taxes as a source of revenue. The taxing powers of
California local governments and districts are limited by Article XIIIA of the
California Constitution, enacted by the voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts the
reassessment of property to the rate of inflation, not to exceed 2% per year,
or decline in value, or in the case of new construction or change of ownership
(subject to a number of exemptions). Taxing entities may, however, raise ad
valorem taxes above the 1% limit to pay debt service on voter-approved bonded
indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13 and on June 18, 1992 the U.S. Supreme Court
announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed non-voter approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decision, the voters
of the State in 1986 adopted an initiative statute which imposed significant
new limits on the ability of local entities to raise or levy general taxes,
except by receiving majority local
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voter approval. Significant elements of this initiative, "Proposition 62," have
been overturned in recent court cases. An initiative proposed to re-enact the
provisions of Proposition 62 as a constitutional amendment was defeated by the
voters in November 1990, but such proposal may be renewed in the future.
Appropriations Limits. California and its local governments are subject to an
annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consists of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" excludes most State subventions to local governments. No limit is
imposed on appropriations of funds which are not "proceeds of taxes," such as
reasonable user charges or fees, and certain other non-tax funds, including
bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations limit
are (1) the debt service cost of bonds issued or authorized prior to January 1,
1979, or subsequently authorized by the voters, (2) appropriations arising from
certain emergencies declared by the Governor, (3) appropriations for qualified
capital outlay projects, (4) appropriations by the State of post-1989 increases
in gasoline taxes and vehicle weight fees, and (5) appropriations made in
certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in California's economy.
"Excess" revenues are now measured over a two-year cycle. With respect to
local governments, excess revenues must be returned by a revision of tax rates
or fee schedules within the two subsequent fiscal years. The appropriations
limit for a local government may be overridden by referendum under certain
conditions for up to four years at a time. With respect to the State, 50% of
any excess revenues is to be distributed to K-12 school districts and community
college districts (collectively, "K-14 districts") and the other 50% is to be
refunded to taxpayers. With more liberal annual adjustment factors since 1988,
and depressed revenues since 1990 because of the recession, few governments,
including the State, are currently operating near their spending limits, but
this condition may change over time. Local governments may by voter approval
exceed their spending limits for up to four years.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution, the ambiguities and possible inconsistencies in their terms, and
the impossibility of predicting future appropriations or changes in population
and cost of living, and the probability of continuing legal challenges, it is
not currently possible to determine fully the impact of Article XIIIA or
Article XIIIB on California Municipal Obligations or on the ability of
California or local governments to pay debt service on such California
Municipal Obligations. It is not presently possible to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of either Article XIIIA or Article XIIIB, or the impact of
any such determinations upon State agencies or local governments, or upon their
ability to pay debt service on their obligations. Future initiatives or
legislative changes in laws or the California Constitution may also affect the
ability of the State or local issuers to repay their obligations.
Obligations of the State of California. Under the California Constitution,
debt service on outstanding general obligation bonds is the second charge to
the General Fund after support of the public school system and public
institutions of higher education. Total outstanding general obligation bond and
lease purchase debt of the State increased from $9.4 billion at June 30, 1987
to $24.6 billion at June 30, 1995. In FY 1994-95, debt service on general
obligation bonds and lease purchase debt was approximately 5.2% of General Fund
revenues.
Recent Financial Results. The principal sources of General Fund revenues in
1993-94 were the California personal income tax (44% of total revenues), the
sales tax (38%), bank and corporation taxes (35%), and the gross premium tax on
insurance (3%). California maintains a Special Fund for Economic Uncertainties
(the "Economic Uncertainties Fund"), derived from General Fund revenues, as a
reserve to meet cash needs of the General Fund.
General. Throughout the 1980's, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were
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constrained by Proposition 13 and other laws. The largest State program is
assistance to local public school districts. In 1988, an initiative
(Proposition 98) was enacted which (subject to suspension by a two-thirds vote
of the Legislature and the Governor) guarantees local school districts and
community college districts a minimum share of State General Fund revenues
(currently about 33%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse economic,
fiscal, and budget conditions. The economic recession seriously affected State
tax revenues. It also caused increased expenditures for health and welfare
programs. The State is also facing a structural imbalance in its budget with
the largest programs supported by the General Fund (education, health, welfare
and corrections) growing at rates higher than the growth rates for the
principal revenue sources of the General Fund. These structural concerns will
be exacerbated in coming years by the expected need to substantially increase
capital and operating funds for corrections as a result of a "Three Strikes"
law enacted in 1994.
Recent Budgets. As a result of these factors, among others, from the late
1980's until 1992-93, the State had a period of nearly chronic budget
imbalance, with expenditures exceeding revenues in four out of six years, and
the State accumulated and sustained a budget deficit in the budget reserve, the
Special Fund for Economic Uncertainties ("SFEU") approaching $2.8 billion at
its peak at June 30, 1993. Starting in the 1990-91 Fiscal Year and for each
year thereafter, each budget required multibillion dollar actions to bring
projected revenues and expenditures into balance and to close large "budget
gaps" which were identified. The Legislature and Governor eventually agreed on
a number of different steps to produce Budget Acts in the years 1991-92 to
1994-95, including:
. significant cuts in health and welfare program expenditures;
. transfers of program responsibilities and funding from the State to local
governments, coupled with some reduction in mandates on local government;
. transfer of about $3.6 billion in annual local property tax revenues from
cities, counties, redevelopment agencies and some other districts to
local school districts, thereby reducing State funding for schools;
. reduction in growth of support for higher education programs, coupled
with increases in student fees;
. revenue increases (particularly in the 1991-92 Fiscal Year budget), most
of which were for a short duration;
. increased reliance on aid from the federal government to offset the costs
of incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less
federal aid than the State Administration has requested); and
. various one-time adjustments and accounting changes.
Despite these budget actions, the effects of the recession led to large,
unanticipated deficits in the SFEU, as compared to projected positive balances.
By the start of the 1993-94 Fiscal Year, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final retirement
of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures, and
the turnaround of the economy by late 1993, finally led to the restoration of
positive financial results. While General Fund revenues and expenditures were
essentially equal in FY 1992-93 (following two years of excess expenditures
over revenues), the General Fund had positive operating results in FY 1993-94
and 1994-95, which have reduced the accumulated budget deficit to around $600
million as of June 30, 1995.
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. When the Legislature and the Governor failed to adopt
a budget for the 1992-93 Fiscal Year by July 1, 1992, which would have allowed
the State to carry out its normal annual cash flow borrowing to replenish its
cash reserves, the State Controller was forced to issue registered warrants
("IOUs") to pay a variety of obligations representing prior years' or
continuing appropriations, and mandates from court orders. Available funds were
used to make constitutionally-mandated payments, such as debt service on bonds
and warrants. Between July 1 and September 4, 1992 the State Controller issued
a total of approximately $3.8 billion of registered warrants. After that date,
all remaining outstanding registered warrants (about $2.9 billion) were called
for redemption from proceeds of the issuance of 1992 Interim Notes after the
budget was adopted.
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The State's cash condition became so serious in late spring of 1992 that the
State Controller was required to issue revenue anticipation warrants maturing
in the following fiscal year in order to pay the State's continuing
obligations. The State was forced to rely increasingly on external debt markets
to meet its cash needs, as a succession of notes and warrants (both forms of
short-term cash flow financing) were issued in the period from June 1992 to
July 1994, often needed to pay previously-maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the
accumulated budget deficit over the end of a fiscal year.
The State issued $7.0 billion of short-term debt in July, 1994 to meet its
cash flow needs and to finance the deferral of part of the accumulated budget
deficit to the 1995-96 fiscal year. In order to assure repayment of $4 billion
of this borrowing which matures on April 25, 1996, the State enacted
legislation (the "Trigger Law") which can lead to automatic, across-the-board
cuts in General Fund expenditures in either the 1994-95 or 1995-96 fiscal years
if cash flow projections made at certain times during those years show
deterioration from the projections made in July 1994 when the borrowings were
made. On November 15, 1994, the State Controller as part of the Trigger Law
reported that the cash position of the General Fund on June 30, 1995 would be
about $580 million better than earlier projected, so no automatic budget
adjustments were required in 1994-95. The Controller's report showed that loss
of federal funds was offset by higher revenues, lower expenditures, and certain
other increases in cash resources.
Current Budget. For the first time in four years, the State entered the 1995-
96 fiscal year with strengthening revenues based on an improving economy. The
major feature of the Governor's proposed Budget, a 15% phased tax cut, was
rejected by the Legislature.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34 days
after the start of the fiscal year. The Budget Act projects General Fund
revenues and transfers of $44.1 billion, a 3.5 percent increase from the prior
year. Expenditures are budgeted at $43.4 billion, a 4 percent increase. The
Department of Finance projects that, after repaying the last of the carryover
budget deficit, there will be a positive balance of less than $30 million in
the budget reserve, the Special Fund for Economic Uncertainties, at June 30,
1996, providing no margin for adverse results during the year.
The Department of Finance projects cash flow borrowings in the 1995-96 Fiscal
Year will be the smallest in many years, comprising about $2 billion of notes
to be issued in April, 1996, and maturing by June 30, 1996. With full payment
of $4 billion of revenue anticipation warrants on April 25, 1996, the
Department sees no further need for borrowing over the end of the fiscal year.
The Department projects that available internal cash resources to pay State
obligations will be almost $2 billion at June 30, 1996. This "cushion" will be
re-examined by the State Controller on October 15, 1995, in the last step under
the "Trigger Law" process. If the Controller believes the available internal
cash resources on June 30, 1996 will, in fact, be zero or less, her report
would start a process which could lead to automatic budget cuts starting in
December, 1995.
The principal features of the 1995-96 Budget Act, in addition to those noted
above, are additional cuts in health and welfare expenditures (some of which
are subject to approvals or waivers by the federal government); assumed receipt
of an additional $473 million of federal aid for illegal immigrant costs; and
an increase in per-pupil funding for public schools and community colleges, the
first such significant increase in four years.
Bond Rating. State general obligation bonds ratings were reduced in July,
1994 to "A1" by Moody's and "A" by S&P. Both of these ratings were reduced from
"AAA" levels which the State held until late 1991. There can be no assurance
that such ratings will be maintained in the future. It should be noted that the
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California, and that there is no obligation on the part of the State to make
payment on such local obligations in the event of default.
Legal Proceedings. The State is involved in certain legal proceedings
(described in the State's recent financial statements) that, if decided against
the State, may require the State to make significant future expenditures or may
substantially impair revenues. Trial courts have recently entered tentative
decisions or injunctions which would overturn several parts of the state's
recent budget compromises. The matters covered by these lawsuits include a
deferral of payments by the State to the Public Employees Retirement System,
reductions in welfare payments, and the use of certain cigarette tax funds for
health costs. All of these cases are subject to further proceedings and
appeals, and if the State eventually loses, the final remedies may not have to
be implemented in one year.
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OBLIGATIONS OF OTHER ISSUERS
Other Issuers of California Municipal Obligations. There are a number of
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 the
obligations backed by the full faith and credit of the State.
State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of
the State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Through
1990-91, local assistance (including public schools) accounted for
approximately 75% of General Fund spending. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of all of the post-Proposition 13 "bailout" aid.
The largest share of these transfers came from counties, and the balance from
cities, special districts and redevelopment agencies. In order to make up this
shortfall, the Legislature proposed and voters approved in 1993 dedicating 0.5%
of the sales tax to counties and cities for public safety purposes. In
addition, the Legislature has changed laws to relieve local governments of
certain mandates, allowing them to reduce costs. However, the net result has
been to place greater fiscal stress on counties.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may be further reduced. Any such reductions in
State aid could compound the serious fiscal constraints already experienced by
many local governments, particularly counties. At least one rural county
(Butte) publicly announced that it might enter bankruptcy proceedings in August
1990, although such plans were put off after the Governor approved legislation
to provide additional funds for the county. Other counties have also indicated
in recent years that their budgetary condition is extremely grave. The Richmond
Unified School District (Contra Costa County) entered bankruptcy proceedings in
May 1991 but the proceedings have been dismissed.
Los Angeles County, the largest in the State, has reported severe fiscal
problems, leading to a nominal $1.2 billion deficit (half of which is in the
County Hospital Systems Enterprise) in its $12 billion budget for the 1995-96
Fiscal Year. To balance the budget, the County has imposed severe cuts in
services, particularly for health care. The Legislature is considering actions
to help alleviate the County's fiscal problems, but none were completed before
August 15, 1995. If additional State aid and federal aid relating to Medicare
cost waivers is not received, the County has stated it will impose further cuts
in health services by October 1, 1995. Both Moody's and S&P have reduced the
County's debt ratings in August, 1995 (to "A" and "A-", respectively), and the
County remains on S&P Credit Watch with negative implications. As a result of
its bankruptcy proceedings (discussed further below), Orange County also has
implemented stringent cuts in services and has laid off workers.
Assessment Bonds. California Municipal Obligations which are assessment bonds
may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured
by land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
California Long-Term Lease Obligations. Certain California long-term lease
obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being leased
is unavailable for beneficial use and occupancy by the municipality during the
term of the lease. Abatement is not a default, and there may be no remedies
available to the holders of the certificates evidencing the lease obligation in
the event abatement occurs. The most common cases of abatement are failure to
complete construction of the facility before the end of the period during which
lease payments have been capitalized and uninsured casualty losses to the
facility (e.g., due to earthquake). In the event abatement occurs with respect
to a lease obligation,
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lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the District's lease. The trial court has
upheld the validity of the lease and the case has been settled. Any ultimate
judgment in any future case against the position asserted by the Trustee in the
Richmond case may have adverse implications for lease transactions of similar
nature by other California entities.
Other Considerations. The repayment of industrial development securities
secured by real property may be affected by California laws limiting
foreclosure rights of creditors. Securities backed by health care and hospital
revenues may be affected by changes in State regulations governing cost
reimbursements to health care providers under Medi-Cal (the State's Medicaid
program), including risks related to the policy of awarding exclusive contracts
to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when
taxes on property in the project area are increased to repay voter-approved
bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to predict the extent to which any
such legislation will be enacted. Nor is it presently possible to determine the
impact of any such legislation on California Municipal Obligations in which the
Fund may invest, future allocations of state revenues to local governments or
the abilities of state or local governments to pay the interest on, or repay
the principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Funds could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained
by the inability of (i) an issuer to have obtained earthquake insurance
coverage at reasonable rates; (ii) an insurer to perform on its contracts of
insurance in the event of widespread losses; or (iii) the Federal or State
government to appropriate sufficient funds within their respective budget
limitations.
On January 17, 1994, a major earthquake with an estimated magnitude of 6.8 on
the Richter scale struck the Los Angeles area, causing significant property
damage to public and private facilities, presently estimated at $15-20 billion.
While over $9.5 billion of federal aid, and a projected $1.9 billion of State
aid, plus insurance proceeds, will reimburse much of that loss, there will be
some ultimate loss of wealth and income in the region, in addition to costs of
the disruption caused by the event. Short-term economic projections are
generally neutral, as the infusion
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of aid will restore billions of dollars to the local economy within a few
months; already the local construction industry has picked up. Although the
earthquake will hinder recovery from the recession in Southern California,
already hard-hit, its long-term impact is not expected to be material in the
context of the overall wealth of the region. Almost five years after the event,
there are few remaining effects of the 1989 Loma Prieta earthquake in northern
California (which, however, caused less severe damage than Northridge).
On December 6, 1994, Orange County, California (the "County"), together with
its pooled investment funds (the "Pools") filed for protection under Chapter 9
of the federal Bankruptcy Code, after reports that the Pools had suffered
significant market losses in its investments caused a liquidity crisis for the
Pools and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Pools. The County estimated
the Pools' loss at about $1.69 billion, or 23%, of its initial deposits of
around $7.5 billion. Many of the entities which kept moneys in the Pools,
including the County, faced cash flow difficulties because of the bankruptcy
filing and may be required to reduce programs or capital projects. Moody's and
Standard & Poor's have suspended, reduced to below investment grade levels, or
placed on "Credit Watch" various securities of the County and the entities
participating in the Pools.
On May 2, 1995, the Bankruptcy Court approved a settlement agreement covering
claims of the other participating entities against the County and the Pools.
Most participants have received in cash 80% (90% for school districts) of their
Pools' investment; the balance is to be paid in the future. The County
succeeded in deferring, by consent, until June 30, 1996, the repayment of $800
million of short-term obligations due in July and August, 1995; these notes
are, however, considered to be in default by Moody's and S&P. On June 27, 1995,
County voters turned down a proposal for a temporary 0.5% increase in the local
sales tax, making the County's fiscal recovery much harder. Unless a viable
financial plan can be implemented early in the 1995-96 Fiscal Year, which the
County believes will require legislation to transfer some moneys from other
local government entities to the County, the County may not be able to pay all
its creditors, including debt holders.
The State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities. The State
may be obligated to ensure that school districts have sufficient funds to
operate, and to ensure delivery of certain State-mandated services, but no such
activities have been deemed necessary as of August, 1995. All school districts
involved with the Pools were able to meet their obligations in the 1994-95
Fiscal Year.
INVESTMENT RESTRICTIONS
Neither Fund, as a fundamental policy, may, without the approval of the
holders of a "majority of the outstanding" shares:
(1) Issue senior securities, as defined in the 1940 Act, except to the
extent such issuance might be involved with respect to borrowings described
under subparagraph (3) below or with respect to transactions involving
futures contracts or the writing of options within the limits described
under "Certain Trading Strategies of the Funds--Financial Futures and
Options Transactions" below;
(2) Make short sales of securities or purchase any securities on margin
(except for such short-term credits as are necessary for the clearance of
transactions), or write or purchase put or call options, except to the
extent that the purchase of a standby commitment may be considered the
purchase of a put, and except for transactions involving options within the
limits described under "Certain Trading Strategies of the Funds--Financial
Futures and Options Transactions" below;
(3) Borrow money, except from banks for temporary or emergency purposes
or for repurchase of its shares, and then only in an amount not exceeding
one-third of the value of its total assets including the amount borrowed;
while any such borrowings exceed 5% of its total assets, no additional
purchases of investment securities will be made;
(4) Underwrite any issue of securities, except to the extent that the
purchase of Municipal Obligations in accordance with its investment
objective(s), policies and limitations may be deemed to be an underwriting;
(5) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitation shall not apply
to Municipal Obligations issued by governments or political subdivisions of
governments (except, in the case of the Acquired Fund, this limitation
shall apply to those Municipal Obligations backed only by the assets and
revenues of non-governmental users) and obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
S-11
<PAGE>
(6) Purchase or sell real estate, but this shall not prevent it from
investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security;
(7) Purchase or sell commodities or commodities contracts, except for
transactions involving futures contracts within the limits described under
"Certain Trading Strategies of the Funds--Financial Futures and Options
Transactions" below;
(8) 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(s), policies and limitations;
(9) Invest in securities other than California Municipal Obligations and
temporary investments as described under "Investment Objectives and
Policies of the Funds--Portfolio Investments" above;
(10) 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
U.S. government, its agencies and instrumentalities or to the investment of
25% of its total assets;
(11) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (3) above, it may pledge securities
having a market value at the time of pledge not exceeding 20% of the value
of its total assets;
(12) Invest more than 10% of its total assets in repurchase agreements
maturing in more than seven days; and
(13) Purchase or retain the securities of any issuer other than its own
securities if, to its knowledge, those of its directors or trustees, or
those officers and directors of the Adviser, 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 purposes of the foregoing, "majority of the outstanding," when used
with respect to particular shares of a particular Fund, means (i) 67% or more
of the shares present at a meeting, if the holders of more than 50% of the
shares are present or represented by proxy, or (ii) more than 50% of the
shares, whichever is less.
For the purpose of applying the limitation set forth in subparagraph (10)
above, an issuer shall be deemed a separate issuer when its assets and revenues
are separate from other governmental entities and its securities 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 obligations of
a superior governmental entity, it shall be included in the computation of
securities owned that are issued by such superior governmental entity. If
however, a security is guaranteed by a governmental entity or some other
entity, 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.
In addition to the foregoing restrictions, neither Fund will, as a matter of
operating policy, (i) invest more than 5% of its total assets in unsecured
obligations of issuers which, together with their predecessors, have been in
operation for less than three years, (ii) invest for the purpose of exercising
control or management, or (iii) invest more than 10% of its total assets in
unmarketable securities (including repurchase agreements maturing in more than
seven days). In addition, the Acquired Fund will not invest more than 20% of
its total assets in securities which are not readily marketable. These policies
are not fundamental and may be changed by either Fund without shareholder
approval.
The restrictions and other limitations set forth above will apply only at the
time of purchase of securities and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities.
CERTAIN TRADING STRATEGIES OF THE FUNDS
PORTFOLIO TRADING AND TURNOVER RATE
Portfolio trading will be undertaken to accomplish the investment objectives
of each Fund in relation to actual and anticipated movements in interest rates.
Each Fund may also engage to a limited extent in short-term trading consistent
with its investment objectives. Securities may be sold in anticipation of a
market decline (a rise in interest
S-12
<PAGE>
rates) or purchased in anticipation of a market rise (a decline in interest
rates) and later sold, but neither Fund will 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 the
Adviser believes to be a temporary disparity in the normal yield relationship
between the two securities.
Subject to the foregoing, each Fund will attempt to achieve its investment
objectives by prudent selection of California Municipal Obligations with a view
to holding them for investment. While there can be no assurance thereof, each
Fund anticipates that its annual portfolio turnover rate will generally not
exceed 100%. However, the rate of turnover will not be a limiting factor when a
Fund deems it desirable to sell or purchase securities. Therefore, depending
upon market conditions, the annual portfolio turnover rate of each Fund may
exceed 100% in particular years.
FINANCIAL FUTURES AND OPTIONS TRANSACTIONS
Each Fund may attempt to hedge its investment portfolio against market risk
by engaging in transactions in financial futures contracts, options on
financial futures or options that either are 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 the Adviser
to correlate with the prices of the Municipal Obligations owned by such Fund.
Neither Fund has any present intention to engage in such hedging transactions
and in no event does it expect that any material portion of its assets would be
so committed. To accomplish such hedging, a Fund may take an investment
position in a futures contract or in an option which is expected to move in the
opposite direction from the position being hedged. Hedging may be utilized to
reduce the risk that the value of securities owned by a Fund may decline on
account of an increase in interest rates and to hedge against increases in the
cost of the securities such Fund intends to purchase as a result of a decline
in interest rates. A Fund's use of futures and options for hedging purposes can
be expected to result in taxable income or gain to its shareholders. See "Tax
Matters Associated with Investment in the Funds."
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
of rising interest rates, whereas the purchase of financial futures or of call
options on financial futures or on debt securities or indexes is a means of
hedging a Fund's portfolio against an increase in the price of securities such
Fund intends to purchase. 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.
Although certain risks are involved in futures and options transactions (as
discussed under "Risks of Futures and Options Transactions" below), because
these transactions will be engaged in by a Fund only for hedging purposes,
these futures and options portfolio strategies should not subject such Fund to
those risks frequently associated with speculation in futures or options
transactions. Regulations of the Commodity Futures Trading Commission (the
"CFTC") applicable to each Fund require that transactions in futures and
options on futures be engaged in only for bona fide hedging purposes or if the
aggregate initial margin deposits and premiums paid by such Fund do not exceed
5% of the market value of its assets. Neither Fund will 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 unless the
long futures position is covered by the purchase of a put option. Neither Fund
will sell futures unless such 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 instruments or index
underlying the futures. In addition, each Fund is subject to the Federal income
tax requirement that it derive less than 30% of its gross income from the gain
on the sale or other 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, neither Fund will
purchase such options 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 securities or cash required to be delivered upon exercise
are held by such 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
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<PAGE>
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 instruments and financial indexes are traded on securities
markets regulated by the Commission. Although futures contracts and options on
specified financial instruments call for settlement by delivery of the
financial 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
settlement only.
RISKS OF FUTURES AND OPTIONS TRANSACTIONS. There are certain risks associated
with the use of financial futures and options to hedge investment portfolios.
There may be an imperfect correlation between price movements of the futures
and options and price movements of the portfolio securities being hedged.
Losses may be incurred in hedging transactions, which could reduce the
portfolio gains that might have been realized if the hedging transactions had
not been entered into. The ability to close out positions in futures and
options depends upon the existence of a liquid secondary market, which may not
exist for all futures and options at all times. If a Fund engages in futures
transactions or in the writing of options on futures, it will be required to
maintain initial margin and maintenance margin and may be required to make
daily variation margin payments in accordance with applicable rules of the
exchanges and the CFTC. If a Fund purchases a financial futures contract or a
call option or writes a put option in order to hedge the anticipated purchase
of Municipal Obligations, and if such Fund fails to complete the anticipated
purchase transaction, such Fund may experience a loss or a gain on the futures
or options transaction that will not be offset by price movements in the
Municipal Obligations that were the subject of the anticipatory hedge. The cost
of put options on debt securities or indexes effectively increases the cost of
the securities subject to them, thereby reducing the yield otherwise available
from such securities. If a Fund decides to use futures contracts or options on
futures contracts for hedging purposes, such Fund will be required to establish
an account for such purposes with one or more CFTC-registered futures
commission merchants. A futures commission merchant could establish initial and
maintenance margin requirements for a Fund that are greater than those which
would otherwise be applicable to such Fund under applicable rules of the
exchanges and the CFTC.
REPURCHASE AGREEMENTS
As temporary investments, a Fund may invest in repurchase agreements. A
repurchase agreement is a contractual agreement whereby the seller of
securities (U.S. government securities 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
such Fund's holding period. Repurchase agreements are considered to be loans
collateralized by the underlying security that is the subject of the repurchase
contract. Income generated from transactions in repurchase agreements by a Fund
is taxable to shareholders of that Fund. See "Tax Matters Associated with
Investment in the Funds." A Fund will enter into repurchase agreements only
with registered securities dealers or domestic banks that, in the opinion of
the Adviser, present minimal credit risk. The risk to a Fund is limited to the
ability of the issuer to pay the agreed-upon repurchase price on the delivery
date; however, although the value of the underlying collateral at the time the
transaction is entered into always equals or exceeds the agreed-upon repurchase
price, if the value of the collateral declines, there is a risk of loss of both
principal and interest. In the event of default, the collateral may be sold but
a Fund might incur a loss if the value of the collateral declines, and might
incur disposition costs or experience delays in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the security, realization upon the collateral by a Fund may be
delayed or limited. The Adviser will monitor the value of the 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 such value
always equals or exceeds the agreed-upon repurchase price. In the event the
value of the collateral declines below the repurchase price, the Adviser will
demand additional collateral from the issuer to increase the value of the
collateral to at least that of the repurchase price, including interest.
S-14
<PAGE>
MANAGEMENT OF THE FUNDS
The Management Agreements provide that the Adviser shall act as investment
adviser for each Fund, manage the Funds' respective investments, administer
their business affairs, provide office facilities and equipment and certain
clerical, bookkeeping and administrative services, and permit any of its
officers and employees to serve without compensation as directors and officers
of the Funds if elected to such positions. Under its respective Management
Agreement, each Fund has agreed to pay all other costs and expenses of its
operations, including the compensation of its directors (other than those
affiliated with the investment adviser), custodian, transfer, dividend
disbursing and service agent expenses, legal fees, expenses of independent
auditors, costs of acquiring and disposing of portfolio securities, expenses of
preparing, printing and distributing reports to shareholders and governmental
agencies, and taxes, if any.
The Adviser is a wholly-owned subsidiary of John Nuveen & Co. Incorporated
("Nuveen"), located at 333 West Wacker Drive, Chicago, Illinois 60606, the
oldest and largest investment banking firm specializing in the underwriting and
distribution of tax-exempt securities. Nuveen, which maintains the largest
research department of all investment banking firms devoted exclusively to
municipal securities, has issued over $34 billion of tax-exempt unit trusts
since 1961 and currently sponsors 76 management investment company portfolios
(including the Funds) with approximately $30 billion in tax-exempt securities
under management. Over 1,000,000 individuals have invested to date in Nuveen's
tax-exempt funds and trusts. Founded in 1898, Nuveen is a majority-owned
subsidiary of The John Nuveen Company, which, in turn, is approximately 75%
owned by The St. Paul Companies, Inc., 385 Washington Street, St. Paul,
Minnesota 55102, a management company of St. Paul, Minnesota, principally
engaged in providing property-liability insurance through subsidiaries. Nuveen
acted as co-managing underwriter for the Acquiring Fund in its initial public
offering of shares in October 1987, and for the Acquired Fund in its initial
public offering of shares in April 1988.
Under the Management Agreement for the Acquiring Fund, the Acquiring Fund has
agreed to pay an annual management fee in an amount equal to the sum of .35% of
the average weekly net assets and 4.125% of the gross interest income of the
Acquiring Fund.
Under the Management Agreement for the Acquired Fund, the Acquired Fund has
agreed to pay an annual management fee as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE SCHEDULE
---------------------------------------------
AVERAGE DAILY NET ASSETS RATE
------------------------ -----
<S> <C>
Up to $125 million.................... .6500%
$125 to $250 million.................. .6375
$250 to $500 million.................. .6250
$500 million to $1 billion............ .6125
$1 billion to $2 billion.............. .6000
$2 billion and over................... .5875
</TABLE>
The Acquiring Fund paid aggregate management fees of $1,256,174 for the
fiscal year ended August 31, 1994, for an effective management fee rate of
0.64%. The Acquired Fund paid aggregate management fees of $411,874 for the
fiscal year ended August 31, 1994, for an effective management fee rate of
0.65%. For the fiscal years ended August 31, 1993 and August 31, 1992, the
Acquiring Fund paid aggregate management fees of $1,267,060 and $106,230 (1
month) and the Acquired Fund paid aggregate management fees of $407,998 and
$261,063 (9 months).
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<PAGE>
The names, addresses and principal occupations of the principal executive
officers and the directors of the Adviser are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATIONS
---------------- ---------------------
<S> <C>
Richard J. Franke......................... Chairman of the Board
Chairman of the Board and Director and Director,
(Principal Executive Officer) John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
Donald E. Sveen........................... President and Director,
President and Director John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
Anthony T. Dean........................... Executive Vice President
Executive Vice President and Director and Director,
333 West Wacker Drive John Nuveen & Co. Incorporated
Chicago, Illinois 60606
Timothy R. Schwertfeger................... Executive Vice President
Executive Vice President and Director and Director,
333 West Wacker Drive John Nuveen & Co. Incorporated
Chicago, Illinois 60606
John P. Amboian........................... Executive Vice President,
Executive Vice President John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
</TABLE>
Messrs. Franke and Schwertfeger, directors of each Fund, are "interested
persons" of the Adviser. The remaining directors and nominees to the Board of
each Fund are not "interested persons" of the Adviser. The other officers of
the Funds are officers or employees of the Adviser. See also "Proposal No. 2--
Election of Directors of Each Fund" in the Joint Proxy Statement--Prospectus.
PORTFOLIO TRANSACTIONS OF THE FUNDS
The Adviser, in effecting purchases and sales of portfolio securities for the
account of each Fund, places orders in such manner as, in the opinion of the
Adviser's management, offers the best price and market for the execution of
each transaction. Portfolio securities are normally 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 are not purchased from Nuveen or its
affiliates except in compliance with the 1940 Act.
Generally, all portfolio transactions are effected on a principal (as opposed
to an agency) basis and, accordingly, the Funds have not paid and do not expect
to pay any brokerage commissions. Purchases from underwriters include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers include the spread between the bid and asked price. Given the best
price and execution obtainable, it is the practice of each Fund to select
dealers which, in addition, furnish research information (primarily credit
analyses of issuers) and statistical and other services to the Adviser. It is
not possible to place a dollar value on information, statistical and other
services received from dealers. Since it is only supplementary to the Adviser's
own research efforts, the receipt of research information is not believed to
reduce significantly the Adviser's expenses. Any research benefits obtained are
available to all of the Adviser's other clients. While the Adviser is primarily
responsible for the placement of the business of each Fund, the policies and
practices of the Adviser in this regard must be consistent with the foregoing
and are at all times subject to review by the Board of each Fund.
The Adviser reserves the right to, and does, manage other investment accounts
and investment companies for other clients which may have investment objectives
similar or identical to those of the Funds. Subject to applicable laws and
regulations, the Adviser will attempt to allocate equitably portfolio
transactions among each Fund and the portfolios of its other clients purchasing
or selling securities whenever decisions are made to purchase or sell
securities by a Fund or Funds and one or more of such other clients
simultaneously. In making such allocations, the main factors to be considered
will be the respective investment objectives of the Funds and such other
clients, the relative size of the portfolio holdings of the same or comparable
securities, the availability of cash for investment by a Fund and such other
clients, the size of investment commitments generally held by such Fund and
such other clients and opinions of the persons responsible for recommending
investments to such 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 each Fund that the
benefits available from the Adviser's organization will outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
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<PAGE>
Notwithstanding the similarity of the investment objectives of the Funds with
those of other funds managed by the Adviser, each of these funds will be
separately managed and the composition of their investment portfolios will
differ. Accordingly, the investment performance of each of these funds will
likely not be the same.
Under the 1940 Act, a Fund may not purchase portfolio securities from any
underwriting syndicate of which Nuveen is a member except under certain limited
conditions set forth in Rule 10f-3. The Rule sets forth requirements relating
to, among other things, the terms of an issue of Municipal Obligations
purchased by a Fund, the amount of Municipal Obligations which may be purchased
in any one issue and the assets of such Fund which may be invested in a
particular issue. In addition, purchases of securities made pursuant to the
terms of the Rule must be approved at least quarterly by the Board of a Fund,
including a majority of the members thereof who are not interested persons of
such Fund.
For the fiscal years ended August 31, 1994, August 31, 1993 and August 31,
1992, neither Fund paid any brokerage commissions.
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
Each Fund is a closed-end investment company and as such its shareholders
will not have the right to cause such Fund to redeem their shares. Each Fund's
shares trade in the open market at a price that is a function of several
factors, including net asset value and yield. The shares of each Fund have
traded at both premiums and discounts to net asset value. The Board of each
Fund has currently determined that, at least annually, it will consider actions
that might be taken to reduce or eliminate any material discount from net asset
value in respect of such Fund's shares, which may include the repurchase of
such shares in the open market or in private transactions, the making of a
tender offer for such shares at net asset value or the conversion of such Fund
to an open-end investment company. There can be no assurance, however, that
either Fund's Board will decide to take any of these actions, or that share
repurchases or tender offers, if undertaken, will reduce market discount. The
staff of the Commission currently requires that any tender offer made by a
closed-end investment company for its shares must be at a price equal to the
net asset value of such shares on the close of business on the last day of the
tender offer. Any service fees incurred in connection with any tender offer
made by a Fund would be borne by that Fund and would not reduce the stated
consideration to be paid to tendering shareholders.
Subject to its investment limitations, either Fund may borrow to finance the
repurchase of its shares or to make a tender offer. Interest on any borrowings
to finance share repurchase transactions or the accumulation of cash by either
Fund in anticipation of share repurchases or tenders will reduce that Fund's
net income. Any share repurchase, tender offer or borrowing that might be
approved by a Fund's Board would have to comply with the Exchange Act and the
1940 Act and the rules and regulations thereunder.
Although the decision to take action in response to a discount from net asset
value will be made by a Fund's Board at the time it considers such issue, it is
each Board's present policy, which may be changed by such Board, not to
authorize repurchases of such Fund's shares or a tender offer for such shares
if (a) such transactions, if consummated, would (i) result in the delisting of
such shares from the NYSE, or (ii) impair such Fund's status as a regulated
investment company under the Code (which would make such Fund a taxable entity,
causing its income to be taxed at the corporate level in addition to the
taxation of shareholders who receive dividends from such Fund) or as a
regulated closed-end investment company under the 1940 Act; (b) such Fund would
not be able to liquidate portfolio securities in an orderly manner and
consistent with its investment objectives and policies in order to repurchase
shares; or (c) there is, in such Board's judgment, any (i) material legal
action or proceeding instituted or threatened challenging such transactions or
otherwise materially adversely affecting such Fund, (ii) general suspension of
or limitation on prices for trading securities on the NYSE, (iii) declaration
of a banking moratorium by Federal or state authorities or any suspension of
payment by United States or New York State banks in which such Fund invests,
(iv) material limitation affecting such Fund or the issuers of its portfolio
securities by Federal or State authorities on the extension of credit by
lending institutions or on the exchange of foreign currency, (v) commencement
of war, armed hostilities or other international or national calamity directly
or indirectly involving the United States, or (vi) other event or condition
which would have a materially adverse effect (including any adverse tax effect)
on such Fund or its shareholders if shares of such Fund were repurchased. The
Board of each Fund may in the future modify these conditions in light of
experience.
For each Fund, conversion to an open-end company would require the approval
of the holders of such Fund's outstanding shares. See "Proposal No. 1--The
Reorganization--Comparison of Rights of Holders of Shares of the
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<PAGE>
Acquiring Fund and the Acquired Fund" for a discussion of voting requirements
applicable to conversion of a Fund to an open-end company. In addition, such
Fund would be required to liquidate portfolio securities to meet required and
requested redemptions, and its shares would no longer be listed on the NYSE.
Shareholders of an open-end investment company may require the company to
redeem their shares at any time (except in certain circumstances as authorized
by or under the 1940 Act) at their net asset value, less such redemption
charge, if any, as might be in effect at the time of redemption. In order to
avoid maintaining large cash positions or liquidating favorable investments to
meet redemptions, open-end companies typically engage in a continuous offering
of their shares. Open-end companies are thus subject to periodic asset in-flows
and out-flows that can complicate portfolio management. The Board of either
Fund may at any time propose conversion of such Fund to an open-end company
depending upon its judgment as to the advisability of such action in light of
circumstances then prevailing.
The repurchase by a Fund of its shares at prices below net asset value would
result in an increase in the net asset value of those shares that remain
outstanding. However, there can be no assurance that share repurchases or
tenders at or below net asset value would result in a Fund's shares trading at
a price equal to their net asset value. Nevertheless, the fact that a Fund's
shares may be the subject of repurchase or tender offers at net asset value
from time to time, or that a Fund may be converted to an open-end company, may
reduce any spread between market price and net asset value that might otherwise
exist. Shares that have been repurchased by a Fund will be retired
automatically and shall have the status of authorized but unissued shares.
In addition, a purchase by a Fund of its shares will decrease that Fund's
total assets, which would likely have the effect of increasing such Fund's
expense ratio.
Before deciding whether to take any action in response to a discount from net
asset value, a Fund's Board would consider all relevant factors, including the
extent and duration of the discount, the liquidity of such Fund's portfolio,
the impact of any action that might be taken on such Fund or its shareholders
and market considerations. Based on these considerations, even if a Fund's
shares should trade at a discount, such Fund's Board may determine that, in the
interest of such Fund and its shareholders, no action should be taken.
TAX MATTERS ASSOCIATED WITH
INVESTMENT IN THE FUNDS
FEDERAL INCOME TAX MATTERS
The following is based upon the advice of Vedder, Price, Kaufman & Kammholz,
counsel to the Funds.
The Federal income tax implications for Acquired Fund shareholders who will
own Acquiring Fund Shares after the Reorganization will be substantially the
same as the Federal income tax implications currently applicable to such
shareholders with respect to their ownership of Acquired Fund Shares. The
Acquiring Fund and the Acquired Fund each qualify under Subchapter M of the
Code as regulated investment companies and satisfy conditions which enable
dividends on shares that are attributable to interest on Municipal Obligations
to be exempt from Federal income tax in the hands of owners of such shares,
subject to the possible application of the alternative minimum tax.
To qualify under Subchapter M for tax treatment as a regulated investment
company, each Fund must, among other things: (a) distribute to its shareholders
at least 90% of its investment company taxable income (as that term is defined
in the Code determined without regard to the deduction for dividends paid) and
90% of its net tax-exempt income; (b) derive less than 30% of its annual gross
income from the sale or other disposition of stock, securities, options,
futures, or forward contracts held for less than three months; and (c)
diversify its holdings so that, at the end of each fiscal quarter of such Fund
(i) at least 50% of the market value of such Fund's assets is represented by
cash, cash items, U.S. government securities and securities of other regulated
investment companies, and other securities, with these other securities
limited, with respect to any one issuer, to an amount not greater in value than
5% of such 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 market
value of such Fund's assets is invested in the securities of any one issuer
(other than U.S. government securities or securities of other regulated
investment companies). In meeting these requirements of Subchapter M of the
Code, each Fund may be restricted in the selling of portfolio securities held
for less than three months and in the utilization of certain of the investment
techniques described under "Investment Objectives and Policies of the Funds"
above. If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, that Fund would incur a regular
Federal corporate income tax upon its taxable income for that year, and
distributions to its shareholders would be taxable
S-18
<PAGE>
to such holders as ordinary income to the extent of the earnings and profits of
such Fund. A regulated investment company that fails to distribute, by the
close of each calendar year, an amount equal to the sum of 98% of its ordinary
taxable income for such year and 98% of its capital gain net income for the one
year period ending October 31 in such year, plus any shortfalls from the prior
year's required distribution, is liable for a 4% excise tax on the portion of
the undistributed amount of such income that is less than the required amount
for such distributions. To avoid the imposition of this excise tax, each Fund
generally makes the required distributions of its ordinary taxable income, if
any, and its capital gain net income, to the extent possible, by the close of
each calendar year.
Each Fund intends to qualify to pay "exempt-interest" dividends on its shares
as defined under the Code. Under the Code, at the close of each quarter of its
taxable year, if at least 50% of the value of its total assets consists of
Municipal Obligations, each Fund shall be qualified to pay exempt-interest
dividends to its shareholders. Exempt-interest dividends are dividends or any
part thereof (other than a capital gain dividend) paid by each Fund which are
attributable to interest on Municipal Obligations and are so designated by the
Fund. Exempt-interest dividends will be exempt from Federal income tax, subject
to the possible application of the Federal alternative minimum tax. Insurance
proceeds received by each Fund under any insurance policies in respect of
scheduled interest payments on defaulted Municipal Obligations, as described
herein, will be excludable from Federal gross income under Section 103(a) of
the Code. In the case of non-appropriation by a political subdivision, however,
there can be no assurance that payments made by the issuer representing
interest on such "non-appropriation" Municipal Lease Obligations will be
excludable from gross income for Federal income tax purposes. See "Investment
Objectives and Policies of the Funds--Municipal Obligations" above. Gains of a
Fund that are attributable to market discount on certain Municipal Obligations
acquired after April 30, 1993 are treated as ordinary income. Distributions to
shareholders by each Fund of net income received, if any, from taxable
temporary investments and net short-term capital gains, if any, realized by
such Fund will be taxable to its shareholders as ordinary income. Distributions
by each Fund of net capital gains, if any, are taxable as long-term capital
gains, regardless of the length of time the shareholder has owned shares of
such Fund and regardless of whether the distribution is received in additional
shares or in cash. As long as a Fund qualifies as a regulated investment
company under the Code, no part of its distributions to shareholders will
qualify for the dividends-received deduction for corporations.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry a Fund's shares to which exempt-interest dividends are
allocated 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 or ownership of shares may be considered to
have been made with borrowed funds even though such funds are not directly used
for the purchase or ownership of such shares.
The interest on private activity bonds in most instances is not Federally
tax-exempt to a person who is a "substantial user" of a facility financed by
such bonds or a "related person" of such "substantial user." As a result, a
Fund 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. In general, a "substantial user" of a facility includes a "non-exempt
person who regularly uses a part of such facility in his trade or business."
"Related persons" are in general defined to include persons among whom there
exists a relationship, either by family or business, which would result in a
disallowance of losses in transactions among them under various provisions of
the Code (or if they are members of the same controlled group of corporations
under the Code), including a partnership and each of its partners (and their
spouses and minor children), an S corporation and each of its shareholders (and
their spouses and minor children) and various combinations of these
relationships. The foregoing is not a complete statement of all of the
provisions of the Code covering the definitions of "substantial user" and
"related person."
Nonresident alien individuals and certain foreign corporations and other
entities ("foreign investors") generally are subject to U.S. withholding tax at
the rate of 30% (or possibly a lower rate provided by an applicable tax treaty)
on distributions of taxable net investment income and net short-term capital
gains. To the extent received by foreign investors, exempt-interest dividends
and distributions of net long-term capital gains generally are exempt from U.S.
taxation. Different tax consequences may result if the owner is engaged in a
trade or business in the United States or is present in the United States for
more than 182 days during a taxable year.
Although dividends generally will be treated as distributed when paid,
dividends 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 of the year declared.
S-19
<PAGE>
The sale or other disposition of shares of a Fund will normally result in
capital gain or loss to shareholders. Generally, a shareholder's gain or loss
will be a long-term gain or loss if the shares have been held for more than one
year. Present law taxes both long-term and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, under current law net capital gains will be taxed at a
maximum rate of 28%, while short-term capital gains and other ordinary income
will be taxed at a maximum rate of 39.6%. However, 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. Losses realized by a shareholder on the sale 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 received with respect to such
shares, and, if not disallowed, such losses are treated as long-term capital
losses to the extent of any distribution of long-term capital gain received
with respect to such shares.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not to certain tax-exempt organizations such as universities and non-profit
hospitals) 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
receives income from Municipal Obligations subject to the Federal alternative
minimum tax, a portion of the dividends paid by it, although otherwise exempt
from Federal income tax, will be taxable to its shareholders to the extent that
their tax liability is determined under the alternative minimum tax. Each Fund
will annually supply a report indicating the percentage of that Fund's income
attributable to Municipal Obligations subject to the Federal alternative
minimum tax.
In addition, for certain corporations, alternative minimum taxable income is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by each Fund that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
For taxable years beginning before 1996, the Code imposes a separate tax on
corporations (other than regulated investment companies such as the Funds) at a
rate of 0.12% on the excess of such corporation's "modified alternative minimum
taxable income" over $2,000,000. A portion of the tax-exempt interest,
including exempt-interest dividends from the Funds, is includable in modified
alternative minimum taxable income. This tax will be imposed even if the
corporation is not required to pay an alternative minimum tax because the
corporation's regular income tax liability exceeds its minimum tax liability.
Tax-exempt income, including exempt-interest dividends paid by each Fund, is
taken into account in calculating the amount of social security and railroad
retirement benefits that may be subject to Federal income tax.
Each Fund is required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of that
Fund's shares who do not furnish to that Fund their correct taxpayer
identification number (in the case of individuals, their social security
number) and certain certifications, or who are otherwise subject to backup
withholding.
The Code provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of tax-exempt
interest received during the taxable year, including any exempt-interest
dividends received from each Fund.
The value of shares acquired pursuant to a Fund's Dividend Reinvestment Plan
will generally be excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income.
The foregoing is a general, abbreviated summary of the provisions of the Code
and regulations thereunder presently in effect as they directly govern the
Federal income taxation of each Fund and its shareholders. These provisions are
subject to change by legislative or administrative action, and any such change
may be retroactive with respect to each Fund's transactions. Moreover, the
foregoing does not address many of the factors that may be determinative of
whether an investor will be liable for the alternative minimum tax.
Shareholders are advised to consult their own tax advisers for more detailed
information concerning Federal income tax matters.
S-20
<PAGE>
CALIFORNIA STATE AND LOCAL TAX MATTERS
The following is based upon the advice of Orrick, Herrington & Sutcliffe,
special California counsel to the Funds, and assumes that each Fund will be
qualified as a regulated investment company under subchapter M of the Code and
will be qualified thereunder to pay exempt-interest dividends.
The California tax implications for Acquired Fund shareholders who will own
Acquiring Fund shares after the Reorganization will be substantially the same
as the tax implications currently applicable to such shareholders with respect
to their ownership of Acquired Fund Shares. Individual shareholders of each
Fund who are subject to California personal income taxation will not be
required to include in their California gross income that portion of their
Federally tax-exempt dividends which such Fund clearly and accurately
identifies as directly attributable to interest earned on obligations the
interest on which is exempt from California personal income taxation, provided
that at least 50 percent of the value of such Fund's total assets consists of
such obligations. Distributions to individual shareholders derived from
interest on Municipal Obligations issued by governmental authorities in states
other than California and short-term capital gains will be taxed as dividends
for purposes of California personal income taxation. A Fund's long-term capital
gains for Federal income tax purposes that are distributed to the Fund's
shareholders will be taxed as long-term capital gains to individual
shareholders of the Fund for purposes of California personal income taxation.
Gain or loss, if any, resulting from a sale or redemption of shares will be
recognized in the year of the sale or redemption. Present California law taxes
both long-term and short-term capital gains at the rates applicable to ordinary
income. Interest on indebtedness incurred or continued by a shareholder in
connection with the purchase of shares of a Fund will not be deductible for
California personal income tax purposes.
Generally corporate shareholders of a Fund subject to the California
franchise tax will be required to include any gain on a sale or redemption of
shares and all distributions of exempt-interest, capital gains and other
taxable income, if any, as income subject to such tax.
Neither Fund will be subject to California franchise or corporate income tax
on interest income or net capital gain distributed to its shareholders.
Shares of each Fund will be exempt from local property taxes in California.
Shares of a Fund will not be excludable from the taxable estates of deceased
California resident shareholders for purposes of the California estate and
generation-skipping taxes. California estate and generation-skipping taxes are
creditable against the corresponding Federal taxes.
The foregoing is a general, abbreviated summary of certain of the provisions
of the California Revenue and Taxation Code presently in effect as it directly
governs the taxation of shareholders of the Fund. These provisions are subject
to change in legislative or administrative action, and any such change may be
retroactive with respect to Fund transactions. Shareholders are advised to
consult with their own tax advisers for more detailed information concerning
California tax matters.
S-21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Statements of Net Assets of the Funds............................ F-2
Unaudited Statements of Operations of the Funds............................ F-3
Unaudited Statements of Changes in Net Assets of the Funds................. F-4
Notes to Unaudited Financial Statements of the Funds....................... F-5
Unaudited Portfolio of Investments of the Acquiring Fund................... F-9
Unaudited Portfolio of Investments of the Acquired Fund.................... F-11
Report of Independent Auditors of the Funds................................ F-14
Audited Statements of Net Assets of the Funds.............................. F-15
Audited Statements of Operations of the Funds.............................. F-16
Audited Statements of Changes in Net Assets of the Funds................... F-17
Notes to Audited Financial Statements of the Funds......................... F-18
Audited Portfolio of Investments of the Acquiring Fund..................... F-22
Audited Portfolio of Investments of the Acquired Fund...................... F-25
</TABLE>
F-1
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
STATEMENT OF NET ASSETS
FEBRUARY 28, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NCA NCM
------------ -----------
<S> <C> <C>
ASSETS
Investments in municipal securities, at market value
(note 1)............................................. $185,506,716 $59,354,809
Temporary investments in short-term municipal
securities, at amortized cost
(note 1)............................................. 4,500,000 700,000
Cash.................................................. 51,757 654,212
Interest receivables.................................. 2,870,856 920,094
------------ -----------
Total assets...................................... 192,929,329 61,629,115
------------ -----------
LIABILITIES
Accrued expenses:
Management fees (note 6)............................ 97,067 30,260
Other............................................... 114,984 75,382
Share dividends payable............................... 1,058,649 323,014
------------ -----------
Total liabilities................................. 1,270,700 428,656
------------ -----------
Net assets (note 7)................................... $191,658,629 $61,200,459
============ ===========
Shares outstanding.................................... 18,904,441 5,209,911
============ ===========
Net asset value per share outstanding (net assets
divided by shares outstanding)....................... $ 10.14 $ 11.75
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NCA NCM
---------- ----------
<S> <C> <C>
INVESTMENT INCOME
Interest income (note 1)............................... $6,795,039 $2,135,240
---------- ----------
Expenses:
Management fees (note 6)............................. 607,446 193,922
Shareholders' servicing agent fees and expenses...... 29,602 8,715
Custodian's fees and expenses........................ 26,024 20,323
Directors' fees and expenses (note 6)................ 2,506 548
Professional fees.................................... 4,421 5,306
Shareholders' reports--printing and mailing expenses. 18,555 12,364
Stock exchange listing fees.......................... 7,140 6,295
Investor relations expense........................... 3,269 1,087
Other expenses....................................... 7,639 6,985
---------- ----------
Total expenses..................................... 706,602 255,545
---------- ----------
Net investment income............................ 6,088,437 1,879,695
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investment transactions
(note 3).............................................. (25,725) 95,991
Net change in unrealized appreciation or depreciation
of investments........................................ (724,988) (634,898)
---------- ----------
Net gain (loss) from investments................. (750,713) (538,907)
---------- ----------
Net increase in net assets from operations............. $5,337,724 $1,340,788
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NCA NCM
--------------------------- --------------------------
6 MONTHS ENDED 6 MONTHS ENDED
2/28/95 YEAR ENDED 2/28/95 YEAR ENDED
(UNAUDITED) 8/31/94 (UNAUDITED) 8/31/94
-------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income.. $ 6,088,437 $ 12,271,907 $ 1,879,695 $ 3,756,890
Net realized gain
(loss) from investment
transactions.......... (25,725) 155,583 95,991 (22,126)
Net change in
unrealized
appreciation or
depreciation of
investments........... (724,988) (10,005,121) (634,898) (3,007,494)
------------ ------------ ----------- -----------
Net increase
(decrease) in net
assets from
operations........ 5,337,724 2,422,369 1,340,788 727,270
------------ ------------ ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS (note 1)
From undistributed net
investment income..... (6,347,218) (12,561,847) (1,958,344) (3,935,170)
From accumulated net
realized gains from
investment
transactions.......... (155,016) (193,055) -- (18,116)
------------ ------------ ----------- -----------
Decrease in net
assets from
distributions to
shareholders...... (6,502,234) (12,754,902) (1,958,344) (3,953,286)
------------ ------------ ----------- -----------
CAPITAL SHARE
TRANSACTIONS (note 2)
Net proceeds from
shares issued to
shareholders due to
reinvestment of
distributions from net
investment income and
from net realized
gains from investment
transactions.......... 586,323 1,741,483 106,605 510,660
------------ ------------ ----------- -----------
Net increase in net
assets derived from
capital share
transactions........ 586,323 1,741,483 106,605 510,660
------------ ------------ ----------- -----------
Net increase
(decrease) in net
assets............ (578,187) (8,591,050) (510,951) (2,715,356)
Net assets at beginning
of period............. 192,236,816 200,827,866 61,711,410 64,426,766
------------ ------------ ----------- -----------
Net assets at end of
period................ $191,658,629 $192,236,816 $61,200,459 $61,711,410
============ ============ =========== ===========
Balance of
undistributed net
investment income at
end of period......... $ 597,642 $ 856,423 $ 95,683 $ 174,332
============ ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
At February 28, 1995, the California Funds (the "Funds") covered in this
report and their corresponding New York Stock Exchange symbols are Nuveen
California Municipal Value Fund, Inc. (NCA) and Nuveen California Municipal
Income Fund, Inc. (NCM).
The Funds are registered under the Investment Company Act of 1940 as closed-
end, diversified management investment companies.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
Portfolio securities for which market quotations are readily available are
valued at the mean between the quoted bid and asked prices or the yield
equivalent. Portfolio securities for which market quotations are not readily
available are valued at fair value by consistent application of methods
determined in good faith by the Board of Directors. Temporary investments in
securities that have variable rate and demand features qualifying them as
short-term securities are traded and valued at amortized cost.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. The securities so
purchased are subject to market fluctuation during this period. The Funds have
instructed the custodian to segregate assets in a separate account with a
current value at least equal to the amount of their purchase commitments. At
February 28, 1995, there were no such purchase commitments in either of the
Funds.
Interest Income
Interest income is determined on the basis of interest accrued and discount
earned, adjusted for amortization of premiums or discounts on long-term debt
securities when required for federal income tax purposes.
Income Taxes
The Funds intend to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies by distributing all of their net
investment income, in addition to any significant amounts of net realized gains
from investments, to shareholders. The Funds currently consider significant net
realized gains as amounts in excess of $.01 per share. Furthermore, each Fund
intends to satisfy conditions which will enable interest from municipal
securities, which is exempt from regular federal and California state income
taxes, to retain such tax-exempt status when distributed to shareholders of the
Funds.
Dividends and Distributions to Shareholders
Net investment income is declared as a dividend monthly and payment is made
or reinvestment is credited to shareholder accounts after month-end. Net
realized gains from investment transactions are distributed to shareholders not
less frequently than annually only to the extent they exceed available capital
loss carryovers.
Distributions to shareholders of net investment income and net realized
capital gains are recorded on the ex-dividend date. The amount and timing of
such distributions are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
Accordingly, temporary over-distributions as a result of these differences may
result and will be classified as either distributions in excess of net
investment income or distributions in excess of accumulated net realized gains
from investment transactions, if applicable.
F-5
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. FUND SHARES
Transactions in shares were as follows:
<TABLE>
<CAPTION>
NCA NCM
------------------------- -------------------------
6 MONTHS ENDED YEAR ENDED 6 MONTHS ENDED YEAR ENDED
2/28/95 8/31/94 2/28/95 8/31/94
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Shares issued to
shareholders due to
reinvestment of
distributions from net
investment income and
from net realized
gains from investment
transactions.......... 54,903 154,976 9,073 40,087
====== ======= ===== ======
</TABLE>
3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments during the six months ended
February 28, 1995, were as follows:
<TABLE>
<CAPTION>
NCA NCM
----------- ----------
<S> <C> <C>
PURCHASES
Investments in municipal securities............... $ 9,817,640 $2,047,977
Temporary municipal investments................... 17,500,000 7,300,000
SALES AND MATURITIES
Investments in municipal securities............... 18,654,114 2,952,490
Temporary municipal investments................... 13,300,000 6,600,000
=========== ==========
</TABLE>
At February 28, 1995, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for each Fund.
At August 31, 1994, the Fund's last fiscal year end, NCM had a $22,126 unused
capital loss carryovers available for federal income tax purposes to be applied
against future security gains, if any. If not applied, the carryover will
expire in the year 2002.
4. DISTRIBUTIONS TO SHAREHOLDERS
On March 1, 1995, the Funds declared dividend distributions from their
ordinary income that were paid April 3, 1995, to shareholders of record on
March 15, 1995, as follows:
<TABLE>
<CAPTION>
NCA NCM
------ ------
<S> <C> <C>
Dividend per share.......................................... $.0560 $.0620
====== ======
</TABLE>
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of
investments at February 28, 1995, were as follows:
<TABLE>
<CAPTION>
NCA NCM
----------- ----------
<S> <C> <C>
Gross unrealized:
Appreciation................................... $15,357,062 $3,368,710
Depreciation................................... (1,003,452) (556,704)
----------- ----------
Net unrealized appreciation...................... $14,353,610 $2,812,006
=========== ==========
</TABLE>
F-6
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Funds' investment management agreements with Nuveen Advisory Corp.
("the Adviser"), a wholly owned subsidiary of The John Nuveen Company, each
Fund pays to the Adviser an annual management fee, payable monthly at the rates
set forth below which are based upon the average daily net asset value of each
Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE NCA
---------------------------------------------------------------------------
<S> <C>
For the first $500,000,000.................................... .35 of 1%
For the next $500,000,000..................................... .325 of 1
For net assets over $1,000,000,000............................ .3 of 1
<CAPTION>
AVERAGE DAILY NET ASSET VALUE NCM
---------------------------------------------------------------------------
<S> <C>
For the first $125,000,000.................................... .65 of 1%
For the next $125,000,000..................................... .6375 of 1
For the next $250,000,000..................................... .625 of 1
For the next $500,000,000..................................... .6125 of 1
For the next $1,000,000,000................................... .6 of 1
For net assets over $2,000,000,000............................ .5875 of 1
<CAPTION>
GROSS INTEREST INCOME NCA
---------------------------------------------------------------------------
<S> <C>
For the first $50,000,000..................................... 4.125%
For the next $50,000,000...................................... 4.000
For the gross income over $100,000,000........................ 3.875
</TABLE>
The fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Funds pay no
compensation directly to those Directors who are affiliated with the Adviser or
to their officers, all of whom receive remuneration for their services to the
Funds from the Adviser.
7. COMPOSITION OF NET ASSETS
At February 28, 1995, net assets consisted of:
<TABLE>
<CAPTION>
NCA NCM
------------ ------------
<S> <C> <C>
Shares, $.01 par value per share.............. $ 189,044 $ 52,099
Paid-in surplus............................... 176,544,058 58,166,806
Balance of undistributed net investment
income....................................... 597,642 95,683
Accumulated net realized gain (loss) from
investment transactions...................... (25,725) 73,865
Net unrealized appreciation or depreciation of
investments.................................. 14,353,610 2,812,006
------------ ------------
Net assets................................ $191,658,629 $ 61,200,459
============ ============
Authorized shares............................. 250,000,000 200,000,000
============ ============
</TABLE>
F-7
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
8. INVESTMENT COMPOSITION
Each fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At February 28, 1995, the revenue sources by
municipal purpose for these investments, expressed as a percent of total
investments, were as follows:
<TABLE>
<CAPTION>
NCA NCM
--- ---
<S> <C> <C>
Revenue Bonds:
Health Care Facilities........................................ 15% 18%
Lease Rental Facilities....................................... 1 --
Housing Facilities............................................ 15 10
Water/Sewer Facilities........................................ 5 7
Transportation................................................ -- --
Pollution Control Facilities.................................. 2 7
Electrical Utilities.......................................... 1 6
Educational Facilities........................................ 2 --
Other......................................................... 20 20
General Obligation Bonds........................................ 2 3
Escrowed Bonds.................................................. 37 29
--- ---
100% 100%
=== ===
</TABLE>
Certain long-term and intermediate investments owned by the Funds are covered
by insurance issued by several private insurers or are backed by an escrow or
trust containing U.S. Government or U.S. Government agency securities, either
of which ensure the timely payment of principal and interest in the event of
default (48% for NCA, and 37% for NCM. Such insurance or escrow, however, does
not guarantee the market value of the municipal securities or the value of any
of the Funds' shares.
Certain temporary investments in short-term municipal securities have credit
enhancements (letters of credit, guarantees or insurance) issued by third party
domestic or foreign banks or other institutions (80% for NCA, and 100% for
NCM).
For additional information regarding each investment security, refer to the
Portfolio of Investments of each Fund.
F-8
<PAGE>
NUVEEN CALIFORNIA MUNICIPAL VALUE FUND, INC. (NCA)
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL
AMOUNT DESCRIPTION PROVISIONS* RATINGS** MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,250,000 California Department of
Veterans Affairs, Home
Purchase, Alternative
Minimum Tax, 8.300%,
8/01/19................ 8/98 at 102 Aa $ 5,476,065
890,000 California Educational
Facilities Authority
(University of San
Diego Projects),
9.125%, 10/01/10 (Pre-
refunded to 10/01/95).. 10/95 at 102 Aaa 930,655
1,500,000 California Health
Facilities Authority
(Sutter Health System),
8.000%, 1/01/16 (Pre-
refunded to 1/01/97)... 1/97 at 102 A1 1,613,745
California Health
Facilities Authority
(The Whittier Institute
For Diabetes and
Endocrinology), Scripps
Memorial Hospitals:
1,545,000 8.000%, 12/01/00....... 12/98 at 102 N/R 1,674,286
1,500,000 8.400%, 12/01/08....... 12/98 at 102 N/R 1,651,845
1,500,000 California Health
Facilities Financing
Authority (St. Joseph
Health),
7.000%, 7/01/10 (Pre-
refunded to 7/01/01)... 7/01 at 102 AA 1,676,160
8,500,000 California Housing
Finance Agency, Home
Mortgage, 8.200%,
8/01/17................ 8/97 at 102 AA- 8,979,910
California Housing
Finance Agency, Home
Mortgage Alternative
Minimum Tax:
2,180,000 8.600%, 8/01/19........ 8/98 at 102 AA- 2,346,421
400,000 8.150%, 8/01/19........ 8/98 at 102 AA- 423,208
2,090,000 California Housing
Finance Agency,
Alternative Minimum
Tax,
8.200%, 2/01/20........ 8/98 at 102 Aaa 2,238,244
1,500,000 California Pollution
Control Financing
Authority (Pacific Gas
and Electric Company),
Alternative Minimum
Tax, 8.875%, 1/01/10... 12/97 at 102 A2 1,648,470
1,140,000 California Public
Capital Improvement
Authority, Pooled
Projects,
8.125%, 3/01/95........ No Opt. Call Baa 1,140,000
5,000,000 California Statewide
Communities Development
Corporation (Pacific
Homes), Certificates of
Participation, 6.000%,
4/01/17................ 4/03 at 102 A 4,742,200
2,250,000 ABAG Finance Authority
for Nonprofit
Corporations (United
Way of Santa Clara
County), Certificates
of Participation,
7.200%, 7/01/11........ 7/01 at 102 Aa2 2,382,548
5,000,000 Arcadia Hospital Revenue
(Methodist Hospital of
Southern California),
7.875%, 8/01/10........ 8/97 at 102 A 5,352,300
7,085,000 Brea Public Financing
Authority, 8.100%,
10/01/14............... 10/95 at 102 1/2 N/R 7,265,738
2,750,000 Campbell Union School
District, General
Obligation, 6.250%,
8/01/19................ 8/04 at 102 Aaa 2,776,648
5,000,000 Castaic Lake Water
Agency, Certificates of
Participation, 6.300%,
8/01/20................ 8/04 at 102 Aaa 5,068,750
Colma Improvement Bonds,
Local Improvement
District No. 1,
Reassessment Project:
870,000 8.125%, 9/02/03........ No Opt. Call N/R 898,014
1,140,000 8.125%, 9/02/04........ No Opt. Call N/R 1,175,956
1,240,000 8.125%, 9/02/05........ No Opt. Call N/R 1,279,556
1,500,000 Cucamonga School
District, Certificates
of Participation,
8.350%, 1/01/08........ 1/96 at 102 Baa 1,546,095
Duarte Redevelopment
Agency, Huntington
Drive Phase II, Tax
Allocation:
1,170,000 7.900%, 10/01/02....... 10/97 at 102 N/R 1,269,345
3,745,000 8.000%, 10/01/10....... 10/97 at 102 N/R 3,958,465
1,470,000 El Paso de Robles
Redevelopment Agency,
Tax Allocation,
7.250%, 7/01/21........ 7/00 at 102 BBB 1,509,881
2,000,000 Emeryville Public
Financing Authority,
Redevelopment Project,
Subordinated Lien,
8.100%, 2/01/18 (Pre-
refunded to 2/01/97)... 2/97 at 102 A- 2,160,220
980,000 Inglewood Public Finance
Authority, 7.000%,
5/01/22................ 5/02 at 102 BBB 980,519
3,000,000 Los Angeles Community
Redevelopment Agency,
Tax Allocation (Central
Business District),
6.750%, 7/01/10........ 7/96 at 102 A- 3,079,770
8,515,000 Los Angeles Convention
and Exhibition Center,
Certificates of
Participation, 9.000%,
12/01/20 (Pre-refunded
to 12/01/05)........... 12/05 at 100 Aaa 10,982,306
5,500,000 Los Angeles Department
of Water and Power,
Electric Plant,
8.000%, 2/15/26........ 2/96 at 103 AA 5,826,150
365,000 Los Angeles Single
Family Home Mortgage
(GNMA and FNMA),
Alternative Minimum
Tax, 6.875%, 6/01/25... 12/01 at 102 AAA 376,191
7,965,000 Los Angeles Wastewater
System, 8.125%,
11/01/17 (Pre-refunded
to 11/01/97)........... 11/97 at 102 AAA 8,776,713
3,465,000 Los Angeles County
Transportation
Commission, Sales Tax,
7.900%, 7/01/08 (Pre-
refunded to 7/01/97)... 7/97 at 102 Aaa 3,768,361
2,635,000 Menlo Park Community
Development Agency, FHA
Insured, Multi-Family
Housing, 8.250%,
12/01/28............... 6/97 at 103 Aa 2,815,577
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL
AMOUNT DESCRIPTION PROVISIONS* RATINGS** MARKET VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 8,500,000 Orange County Public
Facilities Corporation,
Certificates of
Participation, 8.250%,
12/01/18 (Pre-refunded
to 12/01/97)........... 12/97 at 102 AAA $ 9,423,015
5,000,000 Orange County Sanitation
District Nos. 1, 2, and
3,
7.100%, 8/01/11 (Pre-
refunded to 8/01/96)... 8/96 at 102 Aaa 5,266,100
8,565,000 Palmdale Single Family
(GNMA), 0.000%,
3/01/17................ No Opt. Call Aaa 1,882,587
4,430,000 Sacramento Public
Facilities,
Certificates of
Participation, 8.250%,
8/01/12 (Pre-refunded
to 8/01/97)............ 8/97 at 102 1/2 AAA 4,886,246
5,000,000 Sacramento Sanitation
District Finance
Authority, 4.750%,
12/01/23............... 12/03 at 102 AA 3,942,900
10,000,000 San Bernardino County,
Single Family Mortgage
(GNMA), Alternative
Minimum Tax, 0.000%,
9/01/21................ No Opt. Call Aaa 1,612,700
San Diego Community
College District,
Certificates of
Participation:
1,000,000 8.625%, 12/01/09 (Pre-
refunded to 12/01/97).. 12/97 at 102 N/R 1,117,070
1,000,000 8.625%, 12/01/09 (Pre-
refunded to 12/01/97).. 12/97 at 102 AAA 1,115,420
4,000,000 San Francisco Public
Utility Commission,
Water System,
8.000%, 11/01/11....... 11/97 at 102 AA 4,366,640
3,000,000 San Francisco City and
County Redevelopment
Agency, GNMA (South
Beach Marina), 5.700%,
3/01/29................ 3/04 at 102 Aaa 2,729,520
5,000,000 San Jose Redevelopment
Agency, Tax Allocation,
5.000%, 8/01/20........ 2/04 at 102 Aaa 4,276,600
5,500,000 Santa Rosa (Kaiser
Permanente), 9.000%,
12/01/15............... 12/95 at 102 Aa2 5,767,740
1,955,000 Southern California Home
Financing Authority,
Single Family Mortgage
(GNMA), Alternative
Minimum Tax, 8.125%,
2/01/21................ No Opt. Call AAA 2,298,024
5,015,000 Southern California
Public Power Authority,
Transmission Project,
7.875%, 7/01/18 (Pre-
refunded to 7/01/96)... 7/96 at 103 AAA 5,368,056
3,000,000 Southern California
Public Power Authority,
5.000%, 7/01/22........ 7/03 at 100 Aaa 2,552,850
2,000,000 Turlock Irrigation
District, 7.750%,
1/01/18 (Pre-refunded
to 1/01/96)............ 1/96 at 102 A 2,098,280
2,000,000 University of California
(UCLA Central
Chiller/Cogeneration),
5.500%, 11/01/17....... 11/03 at 102 Aa 1,794,740
2,675,000 University of
California, 6.875%,
9/01/16 (Pre-refunded
to 9/01/02)............ 9/02 at 102 A- 2,990,516
2,000,000 University of
California, Housing
System, 5.500%,
11/01/18............... 11/03 at 102 Aaa 1,852,860
8,270,000 Upland Hospital (San
Antonio Community
Hospital), 7.125%,
1/01/11................ 1/96 at 102 A 8,505,777
3,590,000 Walnut Valley Unified
School District,
Certificates of
Participation,
8.200%, 1/01/13 (Pre-
refunded to 1/01/97)... 1/97 at 102 N/R 3,868,763
- -------------------------------------------------------------------------------
$192,140,000 Total Investments--(cost
$171,153,106)--96.8%... 185,506,716
- -------------------------------------------------------------------------------
- ------------
TEMPORARY INVESTMENTS IN
SHORT-TERM MUNICIPAL
SECURITIES--2.3%
$ 2,000,000 California Statewide
Communities Development
Authority (St. Joseph
Health System),
Certificates of
Participation, Variable
Rate Demand Bonds,
3.700%, 7/01/24+....... VMIG-1 $ 2,000,000
2,100,000 Santa Ana Health
Facilities Authority
(Town & Country),
Variable Rate Demand
Bonds, 3.600%,
10/01/20+.............. A-1 2,100,000
400,000 Santa Clara County
Transit District,
Refunding Equipment,
Trust Certificates,
Variable Rate Demand
Bonds, 3.850%,
6/01/15+............... VMIG-1 400,000
- -------------------------------------------------------------------------------
$ 4,500,000 Total Temporary Investments--2.3%........ 4,500,000
- ------------
--------------------------------------------------------------------------
- ------------
Other Assets Less Liabilities--0.9%...... 1,651,913
--------------------------------------------------------------------------
Net Assets--100%......................... $191,658,629
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
STANDARD & POOR'S MOODY'S OF ISSUES MARKET VALUE PERCENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF RATINGS** AAA Aaa 20 $ 78,181,846 42%
PORTFOLIO OF INVESTMENTS AA+, AA, AA- Aa1, Aa, Aa2, Aa3 12 45,798,059 25
(EXCLUDING TEMPORARY A+ A1 1 1,613,745 1
INVESTMENTS): A, A- A, A2, A3 8 30,577,533 16
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 4 5,176,495 3
Non-rated Non-rated 10 24,159,038 13
- ------------------------------------------------------------------------------------------------
Total 55 $185,506,716 100%
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
*Optional Call Provisions: Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
**Ratings: Using the higher of Standard & Poor's or Moody's rating.
N/R--Investment is not rated.
+The security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate disclosed
is that currently in effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
F-10
<PAGE>
NUVEEN CALIFORNIA MUNICIPAL INCOME FUND, INC. (NCM)
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,750,000 California Department of
Veterans Affairs, Home
Purchase, Alternative
Minimum Tax, 8.300%,
8/01/19.................. 8/98 at 102 Aa $ 2,868,415
1,885,000 California General
Obligation, 7.000%,
8/01/08.................. No Opt. Call A1 2,086,412
2,115,000 California Health
Facilities Authority (The
Whittier Institute For
Diabetes and
Endocrinology), Scripps
Memorial Hospitals,
8.400%, 12/01/08......... 12/98 at 102 N/R 2,329,101
1,000,000 California Health
Facilities Financing
Authority (Health
Dimensions, Inc.),
7.375%, 5/01/07.......... 5/00 at 102 Baa1 1,033,220
1,225,000 California Housing Finance
Agency, Alternative
Minimum Tax, 8.350%,
8/01/19.................. 8/98 at 102 AA- 1,305,397
1,575,000 California Pollution
Control (Pacific Gas and
Electric Company),
7.500%, 5/01/16.......... 6/96 at 102 A2 1,632,251
685,000 California Rural Mortgage
Finance Authority, Single
Family Mortgage,
Alternative Minimum Tax,
7.950%, 12/01/24......... No Opt. Call Aaa 824,288
1,000,000 Arcadia (Methodist
Hospital of Southern
California), 6.500%,
11/15/12................. 11/02 at 102 A 1,005,590
2,000,000 Barstow Wastewater
Reclamation, Certificates
of Participation, 5.250%,
10/01/18................. 10/04 at 102 Aaa 1,795,600
2,000,000 Cerritos Public Finance
Authority (Los Cerritos
Redevelopment Project),
6.000%, 11/01/13......... 11/03 at 102 A 1,915,420
2,065,000 Contra Costa County, Home
Mortgage (GNMA),
Alternative Minimum Tax,
8.250%, 6/01/21.......... No Opt. Call Aaa 2,632,524
1,600,000 Emeryville Public
Financing Authority,
Redevelopment Project,
Subordinated Lien,
8.100%, 2/01/18 (Pre-
refunded to 2/01/97)..... 2/97 at 102 A- 1,728,176
975,000 Inglewood Public Finance
Authority (In-Town,
Manchester Redevelopment
Projects), 7.000%,
5/01/22.................. 5/02 at 102 A- 979,436
2,490,000 Lassen Municipal Utility
District, Certificates of
Participation,
Alternative Minimum Tax,
8.250%, 5/01/98.......... 5/96 at 102 1/2 N/R 2,618,534
2,000,000 Long Beach Redevelopment
Agency, Downtown
Redevelopment Project,
Tax Allocation, 8.300%,
11/01/10 (Pre-refunded to
5/01/98)................. 5/98 at 102 N/R 2,232,400
2,000,000 Los Angeles Community
Redevelopment Agency, Tax
Allocation (Central
Business District),
6.750%, 7/01/10.......... 7/96 at 102 A- 2,053,180
Los Angeles Department of
Water and Power, Electric
Plant:...................
2,280,000 8.000%, 2/15/26.......... 2/96 at 103 AA 2,415,204
1,100,000 7.125%, 5/15/30 (Pre-
refunded to 5/15/00)..... 5/00 at 102 AA 1,205,974
2,500,000 Los Angeles County
Transportation
Commission, Sales Tax,
8.000%, 7/01/16 (Pre-
refunded to 7/01/97)..... 7/97 at 102 Aaa 2,726,100
2,425,000 Pasadena Health Facilities
(Pacific Clinics),
8.200%, 6/01/18.......... 6/95 at 102 A 2,493,603
2,320,000 Pittsburg Redevelopment
Agency, Los Medanos
Community Development
Project, 7.750%, 8/01/08
(Pre-refunded to
8/01/96)................. 8/96 at 102 AAA 2,463,701
2,500,000 Redding Joint Powers
Financing Authority,
Water System, 5.500%,
6/15/23.................. 6/03 at 102 Aaa 2,289,350
1,265,000 San Benito Hospital
District, 6.750%,
12/01/21................. 12/01 at 102 A 1,261,711
10,415,000 San Bernardino County,
Single Family Mortgage
(GNMA), Alternative
Minimum Tax, 0.000%,
9/01/21.................. No Opt. Call Aaa 1,679,627
2,500,000 San Diego Industrial
Development (San Diego
Gas and Electric
Company), 7.625%,
7/01/21.................. 7/96 at 102 Aa3 2,585,050
2,000,000 San Diego Redevelopment
Agency (Horton Plaza
Project), Tax Allocation,
8.125%, 7/01/08.......... 7/98 at 102 Baa1 2,096,140
2,000,000 San Francisco Public
Utility Commission, Water
System, 8.000%, 11/01/11. 11/97 at 102 AA 2,183,320
2,500,000 Santa Rosa (Kaiser
Permanente), 9.000%,
12/01/15................. 12/95 at 102 Aa2 2,621,700
680,000 Southern California Home
Financing Authority,
Single Family Mortgage
(GNMA), Alternative
Minimum Tax, 8.125%,
2/01/21.................. No Opt. Call AAA 799,313
1,000,000 Southern California Public
Power Authority, 4.750%,
7/01/16.................. 7/04 at 102 Aaa 838,940
2,375,000 University of California,
6.875%, 9/01/16 (Pre-
refunded to 9/01/02)..... 9/02 at 102 A- 2,655,132
- -------------------------------------------------------------------------------
$65,225,000 Total Investments--(cost
$56,542,803)--97.0%...... 59,354,809
- -----------
--------------------------------------------------------------------------
- -----------
TEMPORARY INVESTMENTS IN
SHORT-TERM MUNICIPAL
SECURITIES--1.1%
$ 300,000 California Health
Facilities Financing
Authority (Sutter
Health), Series 1990B,
Variable Rate Demand
Bonds, 3.600%, 3/01/20+.. VMIG-1 300,000
200,000 California Pollution
Control Finance
Authority, Pollution
Control (Exxon Project),
Variable Rate Demand
Bonds, 3.800%, 12/01/12+. A-1+ 200,000
200,000 Santa Clara County Transit
District, Refunding
Equipment Trust
Certificates, Variable
Rate Demand Bonds,
3.850%, 6/01/15+......... VMIG-1 200,000
- -------------------------------------------------------------------------------
$ 700,000 Total Temporary
Investments--1.1%........ 700,000
- -----------
--------------------------------------------------------------------------
- -----------
Other Assets Less
Liabilities--1.9%........ 1,145,650
--------------------------------------------------------------------------
Net Assets--100%.......... $61,200,459
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
STANDARD & POOR'S MOODY'S OF ISSUES MARKET VALUE PERCENT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF AAA Aaa 9 $16,049,443 27%
RATINGS** AA+, AA, AA- Aa1, Aa, Aa2, Aa3 7 15,185,060 26
PORTFOLIO OF A+ A1 1 2,086,412 4
INVESTMENTS A, A- A, A2, A3 9 15,724,499 26
(EXCLUDING BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 2 3,129,360 5
TEMPORARY Non-rated Non-rated 3 7,180,035 12
INVESTMENTS):
- -------------------------------------------------------------------------------------
Total 31 $59,354,809 100%
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
*Optional Call Provisions: Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
**Ratings: Using the higher of Standard & Poor's or Moody's rating.
N/R--Investment is not rated.
+The security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate disclosed
is that currently in effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
F-12
<PAGE>
Selected data for a Common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
OPERATING PERFORMANCE
-----------------------
NET
REAL-
IZED &
UNREAL- TOTAL
NET IZED PER INVEST-
ASSET GAIN NET SHARE MENT TOTAL
VALUE NET (LOSS) DIVIDENDS ASSET MARKET RETURN RETURN
BEGIN- INVEST- FROM FROM NET DISTRIBUTIONS VALUE VALUE ON ON NET
NING OF MENT INVEST- INVESTMENT FROM CAPITAL END OF END OF MARKET ASSET
PERIOD INCOME MENTS INCOME GAINS PERIOD PERIOD VALUE** VALUE**
- ---------------------------------------------------------------------------------------------------------
NCA
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 Mos. Ended
2/28/95 (Unaudited) $10.200 $.322 $(.038) $(.336) $(.008) $10.140 $10.250 (3.62)% 2.91%
Year ended 8/31,
1994 10.740 .653 (.514) (.669) (.010) 10.200 11.000 (.50) 1.32
1993 10.480 .667 .265 (.670) (.002) 10.740 11.750 13.37 9.21
1 Mo. ended
8/31/92 10.610 .056 (.130) (.056) -- 10.480 11.000 (1.74) (.71)
Year ended 7/31,
1992 10.250 .668 .379 (.664) (.023) 10.610 11.250 12.83 10.61
1991 10.120 .667 .123 (.660) -- 10.250 10.625 9.22 8.13
1990 10.190 .664 (.037) (.666) (.031) 10.120 10.375 7.10 6.45
1989 9.670 .664 .602 (.670) (.076) 10.190 10.375 11.82 13.70
10/7/87 to
7/31/88 9.350 .482 .259 (.421) -- 9.670 10.000 4.28 8.01
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
NCM
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 Mos. ended
2/28/95 (Unaudited) 11.870 .361 (.105) (.376) -- 11.750 11.750 2.25 2.27
Year ended 8/31,
1994 12.480 .724 (.571) (.759) (.004) 11.870 11.875 (1.99) 1.24
1993 12.100 .752 .387 (.745) (.014) 12.480 12.875 4.22 9.76
9 Mos. ended
8/31/92 12.000 .580 .214 (.598) (.096) 12.100 13.125 12.02 6.83
Year ended
11/30/91 11.790 .800 .196 (.786) -- 12.000 12.375 13.40 8.75
1 Mo. ended
11/30/90 11.710 .067 .133 (.066) (.054) 11.790 11.625 2.10 1.71
Year ended 10/31,
1990 11.810 .794 (.016) (.797) (.081) 11.710 11.500 3.17 6.84
1989 11.640 .805 .184 (.813) (.006) 11.810 12.000 13.05 8.82
4/20/88 to
10/31/88 11.210 .356 .356 (.282) -- 11.640 11.375 (2.78) 6.45
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------
RATIO OF
NET
RATIO OF INVEST-
EXPENSES MENT PORT-
NET ASSETS TO INCOME FOLIO
END OF AVERAGE TO AVER- TURN-
PERIOD (IN NET AGE NET OVER
THOUSANDS) ASSETS ASSETS RATE
- ---------------------------------------------------------------------------------------------------------
NCA
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 Mos. Ended
2/28/95 (Unaudited) $191,659 .76*% 6.51*% 5%
Year ended 8/31,
1994 192,237 .76 6.24 9
1993 200,828 .82 6.31 4
1 Mo. ended
8/31/92 194,430 .79* 6.25* --
Year ended 7/31,
1992 196,669 .83 6.46 6
1991 188,370 .88 6.62 5
1990 184,888 .91 6.62 2
1989 185,016 .94 6.75 27
10/7/87 to
7/31/88 174,645 .94* 6.29* 32
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
NCM
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 Mos. ended
2/28/95 (Unaudited) 61,200 .86* 6.30* 3
Year ended 8/31,
1994 61,711 .86 5.93 13
1993 64,427 .90 6.16 5
9 Mos. ended
8/31/92 61,927 .82* 6.42* 11
Year ended
11/30/91 60,964 .73 6.75 9
1 Mo. ended
11/30/90 59,503 .70* 6.92* --
Year ended 10/31,
1990 59,091 .76 6.77 7
1989 59,343 .72 6.89 23
4/20/88 to
10/31/88 59,298 .74* 6.13* 11
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
**Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes
in stock price per share. Total Return on Net Asset Value is the combination
of reinvested dividend income, reinvested capital gains distributions, if any,
and changes in net asset value per share.
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Nuveen California Municipal Value Fund, Inc.
Nuveen California Municipal Income Fund, Inc.
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen California Municipal Value Fund, Inc. and
Nuveen California Municipal Income Fund, Inc. as of August 31, 1994, and the
related statements of operations, changes in net assets and the financial
highlights for the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Nuveen California Municipal Value Fund, Inc. and Nuveen California Municipal
Income Fund, Inc. at August 31, 1994, and the results of their operations,
changes in their net assets and financial highlights for the periods indicated
therein in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
October 7, 1994
F-14
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
STATEMENT OF NET ASSETS
AUGUST 31, 1994
<TABLE>
<CAPTION>
NCA NCM
------------ -----------
<S> <C> <C>
ASSETS
Investments in municipal securities, at market value
(note 1)............................................. $195,027,520 $60,765,969
Temporary investments in short-term municipal
securities, at market value which equals cost (note
1)................................................... 300,000 --
Cash.................................................. 98,345 407,446
Interest receivable................................... 3,106,996 974,384
Other assets.......................................... 8,112 6,669
------------ -----------
Total assets...................................... 198,540,973 62,154,468
------------ -----------
LIABILITIES
Payable for investments purchased..................... 5,005,875 --
Accrued expenses:
Management fees (note 6)............................ 103,953 34,033
Other............................................... 138,755 76,171
Share dividends payable............................... 1,055,574 332,854
------------ -----------
Total liabilities................................. 6,304,157 443,058
------------ -----------
Net assets (note 7)................................... $192,236,816 $61,711,410
============ ===========
Shares outstanding.................................... 18,849,538 5,200,838
============ ===========
Net asset value per share outstanding (net assets
divided by shares outstanding)....................... $ 10.20 $ 11.87
============ ===========
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
NCA NCM
----------- ----------
<S> <C> <C>
INVESTMENT INCOME
Interest income (note 1).............................. $13,761,174 $4,302,147
----------- ----------
Expenses:
Management fees (note 6)............................ 1,256,174 411,874
Shareholders' servicing agent fees and expenses..... 58,635 17,488
Custodian's fees and expenses....................... 53,698 42,324
Board members' fees and expenses (note 6)........... 3,872 1,744
Professional fees................................... 13,485 14,139
Shareholders' reports--printing and mailing
expenses........................................... 59,663 34,135
Stock exchange listing fees......................... 24,592 15,807
Investor relations expense.......................... 14,447 5,767
Other expenses...................................... 4,701 1,979
----------- ----------
Total expenses.................................... 1,489,267 545,257
----------- ----------
Net investment income........................... 12,271,907 3,756,890
----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investment transactions
(note 3)............................................. 155,583 (22,126)
Net change in unrealized appreciation or depreciation
of investments....................................... (10,005,121) (3,007,494)
----------- ----------
Net gain (loss) from investments................ (9,849,538) (3,029,620)
----------- ----------
Net increase (decrease) in net assets from operations. $ 2,422,369 $ 727,270
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
STATEMENT OF CHANGES
<TABLE>
<CAPTION>
NCA NCM
-------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
8/31/94 8/31/93 8/31/94 8/31/93
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income.... $ 12,271,907 $ 12,425,978 $ 3,756,890 $ 3,872,220
Net realized gain (loss)
from investment
transactions............ 155,583 240,249 (22,126) 105,004
Net change in unrealized
appreciation or
depreciation of
investments............. (10,005,121) 4,557,258 (3,007,494) 1,884,418
------------ ------------ ----------- -----------
Net increase (decrease)
in net assets from
operations............ 2,422,369 17,223,485 727,270 5,861,642
------------ ------------ ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS (note 1)
From net investment
income.................. (12,561,847) (12,479,522) (3,935,170) (3,831,033)
From net realized gains
from investment
transactions (193,055) (33,472) (18,116) (73,411)
------------ ------------ ----------- -----------
Decrease in net assets
from distributions to
shareholders.......... (12,754,902) (12,512,994) (3,953,286) (3,904,444)
------------ ------------ ----------- -----------
CAPITAL SHARE
TRANSACTIONS (note 2)
Net proceeds from shares
issued to shareholders
due to reinvestment of
distributions from net
investment income and
from net realized gains
from investment
transactions............ 1,741,483 1,687,449 510,660 542,380
------------ ------------ ----------- -----------
Net increase in net
assets derived from
capital share
transactions............ 1,741,483 1,687,449 510,660 542,380
------------ ------------ ----------- -----------
Net increase (decrease)
in net assets......... (8,591,050) 6,397,940 (2,715,356) 2,499,578
Net assets at beginning
of year................. 200,827,866 194,429,926 64,426,766 61,927,188
------------ ------------ ----------- -----------
Net assets at end of
year.................... $192,236,816 $200,827,866 $61,711,410 $64,426,766
============ ============ =========== ===========
Balance of undistributed
net investment income at
end of year............. $ 856,423 $ 1,146,363 $ 174,332 $ 352,612
============ ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
At August 31, 1994, the California Funds (the "Funds") covered in this report
and their corresponding New York Stock Exchange symbols are Nuveen California
Municipal Value Fund, Inc. (NCA) and Nuveen California Municipal Income Fund,
Inc. (NCM).
The Funds are registered under the Investment Company Act of 1940 as closed-
end, diversified management investment companies.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
Portfolio securities for which market quotations are readily available are
valued at the mean between the quoted bid and asked prices or the yield
equivalent. Portfolio securities for which market quotations are not readily
available are valued at fair value by consistent application of methods
determined in good faith by the Board members. Temporary investments in
securities that have variable rate and demand features qualifying them as
short-term securities are traded and valued at principal amount.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. The securities so
purchased are subject to market fluctuation during this period. The Funds have
instructed the custodian to segregate assets in a separate account with a
current value at least equal to the amount of their purchase commitments. At
August 31, 1994, NCA had outstanding purchase commitments that amounted to
$5,005,875. There were no such purchase commitments in NCM.
Interest Income
Interest income is determined on the basis of interest accrued and discount
earned, adjusted for amortization of premiums or discounts on long-term debt
securities when required for federal income tax purposes.
Income Taxes
The Funds intend to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies by distributing all of their net
investment income, in addition to any significant amounts of net realized gains
from investments, to shareholders. The Funds currently consider significant net
realized gains as amounts in excess of $.01 per share. Furthermore, each Fund
intends to satisfy conditions which will enable interest from municipal
securities, which is exempt from regular federal and California state income
taxes, to retain such tax-exempt status when distributed to shareholders of the
respective Funds. All income dividends paid during the year ended August 31,
1994, have been designated Exempt Interest Dividends.
Dividends and Distributions to Shareholders
Net investment income is declared as a dividend monthly and payment is made
or reinvestment is credited to shareholder accounts after month-end. Net
realized gains from securities transactions are distributed to shareholders not
less frequently than annually only to the extent they exceed available capital
loss carryovers.
F-18
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Distributions to shareholders of net investment income and net realized
capital gains are recorded on the ex-dividend date. The amount and timing of
such distributions are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
Accordingly, temporary over-distributions as a result of these differences may
result and will be classified as either distributions in excess of net
investment income or distributions in excess of accumulated net realized
capital gains, if applicable.
2. FUND SHARES
Transactions in Common shares were as follows:
<TABLE>
<CAPTION>
NCA NCM
--------------------- ---------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
8/31/94 8/31/93 8/31/94 8/31/93
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares issued to shareholders
due to reinvestment of
distributions from net
investment income and from
net realized gains from
investment transactions..... 154,976 150,437 40,087 43,019
======= ======= ====== ======
</TABLE>
3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments during the year ended August 31,
1994, were as follows:
<TABLE>
<CAPTION>
NCA NCM
----------- -----------
<S> <C> <C>
PURCHASES
Investments in municipal securities.............. $24,087,955 $ 8,898,670
Temporary municipal investments.................. 16,800,000 16,200,000
SALES AND MATURITIES
Investments in municipal securities.............. 17,039,660 8,253,615
Temporary municipal investments.................. 18,600,000 16,900,000
=========== ===========
</TABLE>
At August 31, 1994, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for each Fund.
At August 31, 1994, NCM had a $22,126 unused capital loss carryovers
available for federal income tax purposes to be applied against future security
gains, if any. If not applied, the carryover will expire in the year 2002.
4. DISTRIBUTIONS TO SHAREHOLDERS
On September 1, 1994, the Funds declared dividend distributions from their
ordinary income that were paid October 3, 1994, to shareholders of record on
September 15, 1994, as follows:
<TABLE>
<CAPTION>
NCA NCM
------ ------
<S> <C> <C>
Dividend per share.......................................... $.0560 $.0640
====== ======
</TABLE>
F-19
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of
investments at August 31, 1994, were as follows:
<TABLE>
<CAPTION>
NCA NCM
----------- ----------
<S> <C> <C>
Gross unrealized:
Appreciation................................... $16,535,583 $4,033,766
Depreciation................................... (1,456,985) (586,863)
----------- ----------
Net unrealized appreciation.................. $15,078,598 $3,446,903
=========== ==========
</TABLE>
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Funds' investment management agreements with Nuveen Advisory Corp.
("the Adviser"), a wholly owned subsidiary of The John Nuveen Company, each
Fund pays to the Adviser an annual management fee, payable monthly, at the
rates set forth below which are based upon the average daily net asset value of
each Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE NCA
----------------------------- ----------
<S> <C>
For the first $500,000,000.................................... .35 of 1%
For the next $500,000,000..................................... .325 of 1%
For assets over $1,000,000,000................................ .3 of 1%
<CAPTION>
AVERAGE DAILY NET ASSET VALUE NCM
----------------------------- ----------
<S> <C>
For the first $125,000,000.................................... .65 of 1%
For the next $125,000,000..................................... .6375 of 1
For the next $250,000,000..................................... .625 of 1
For the next $500,000,000..................................... .6125 of 1
For the next $1,000,000,000................................... .6 of 1
For assets over $2,000,000,000................................ .5875 of 1
</TABLE>
In addition, NCA pays to the Adviser a management fee based on gross interest
income. The management fee in effect throughout the year was as follows:
<TABLE>
<CAPTION>
GROSS INTEREST INCOME NCA
--------------------- -----
<S> <C>
For the first $50,000,000.......................................... 4.125%
For the next $50,000,000........................................... 4.000
For income over $100,000,000....................................... 3.875
</TABLE>
The fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Funds pay no
compensation directly to those Board members who are affiliated with the
Adviser or to their officers, all of whom receive remuneration for their
services to the Funds from the Adviser.
7. COMPOSITION OF NET ASSETS
At August 31, 1994, net assets consisted of:
<TABLE>
<CAPTION>
NCA NCM
------------ -----------
<S> <C> <C>
Shares, $.01 par value per share............... $ 188,495 $ 52,008
Paid-in surplus................................ 175,957,717 58,060,293
Undistributed net investment income............ 856,423 174,332
Undistributed net realized gain (loss) from
investment transactions....................... 155,583 (22,126)
Net unrealized appreciation of investments..... 15,078,598 3,446,903
------------ -----------
Net assets................................. $192,236,816 $61,711,410
============ ===========
Authorized shares.............................. 250,000,000 200,000,000
============ ===========
</TABLE>
F-20
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INVESTMENT COMPOSITION
Each Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At August 31, 1994, the revenue sources by
municipal purpose for these investments, expressed as a percent of total
investments, were as follows:
<TABLE>
<CAPTION>
NCA NCM
--- ---
<S> <C> <C>
Revenue Bonds:
Health Care Facilities........................................ 12% 18%
Lease Rental Facilities....................................... 3 3
Housing Facilities............................................ 14 10
Water/Sewer Facilities........................................ 4 7
Pollution Control Facilities.................................. 3 7
Electric Utilities............................................ -- 6
Educational Facilities........................................ 2 --
Other......................................................... 17 16
General Obligation Bonds........................................ 2 --
Escrowed Bonds.................................................. 43 33
--- ---
100% 100%
=== ===
</TABLE>
Certain long-term and intermediate-term investments owned by the Funds are
covered by insurance issued by several private insurers or are backed by an
escrow or trust containing U.S. Government or U.S. Government agency
securities, either of which ensure the timely payment of principal and interest
in the event of default (51% for NCA and 41% for NCM). Such insurance or
escrow, however, does not guarantee the market value of the municipal
securities or the value of any of the Funds' shares.
All of the temporary investments in short-term municipal securities have
credit enhancements (letters of credit, guarantees or insurance) issued by
third party domestic or foreign banks or other institutions.
For additional information regarding each investment security, refer to the
Portfolio of Investments of each Fund.
F-21
<PAGE>
NUVEEN CALIFORNIA MUNICIPAL VALUE FUND, INC. (NCA)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,250,000 California Department of
Veterans Affairs, Home
Purchase, Alternative
Minimum Tax, 8.300%,
8/01/19.................. 8/98 at 102 AA $5,343,503
890,000 California Educational
Facilities Authority
(University of San Diego
Projects), 9.125%,
10/01/10 (Pre-refunded to
10/01/95)................ 10/95 at 102 Aaa 952,513
1,500,000 California Health
Facilities Authority
(Sutter Health System),
8.000%, 1/01/16 (Pre-
refunded to 1/01/97)..... 1/97 at 102 A1 1,642,305
California Health
Facilities Authority (The
Whittier Institute For
Diabetes and
Endocrinology), Scripps
Memorial Hospitals:
1,740,000 8.000%, 12/01/00......... 12/98 at 102 N/R 1,876,573
1,500,000 8.400%, 12/01/08......... 12/98 at 102 N/R 1,663,470
1,500,000 California Health
Facilities Financing
Authority (St. Joseph
Health),
7.000%, 7/01/10 (Pre-
refunded to 7/01/01)..... 7/01 at 102 AA- 1,695,645
8,500,000 California Housing Finance
Agency, Home Mortgage,
8.200%, 8/01/17.......... 8/97 at 102 Aa 8,856,575
California Housing Finance
Agency, Home Mortgage,
Alternative Minimum Tax:
2,230,000 8.600%, 8/01/19.......... 8/98 at 102 Aa 2,324,775
400,000 8.150%, 8/01/19.......... 8/98 at 102 Aa 412,392
2,440,000 8.200%, 2/01/20.......... 8/98 at 102 Aaa 2,497,998
1,500,000 California Pollution
Control Financing
Authority (Pacific Gas
and Electric Company),
Alternative Minimum Tax,
8.875%, 1/01/10.......... 12/97 at 102 A1 1,667,070
1,000,000 California Pollution
Control Finance Authority
(Pacific Gas and Electric
Company), 5.850%,
12/01/23................. 12/03 at 102 A1 916,490
1,140,000 California Public Capital
Improvement Authority,
Pooled Projects,
8.125%, 3/01/95.......... No Opt. Call Baa 1,167,086
5,000,000 California Statewide
Communities Development
Corporation (Pacific
Homes), Certificates of
Participation, 6.000%,
4/01/17.................. 4/03 at 102 A+ 4,635,450
2,250,000 ABAG Finance Authority for
Nonprofit Corporations,
Certificates of
Participation (United Way
of Santa Clara County),
7.200%, 7/01/11.......... 7/01 at 102 Aa2 2,372,850
1,900,000 CSAC Excess Insurance
Authority, Certificates
of Participation,
8.250%, 9/01/07 (Pre-
refunded to 9/01/94)..... 9/94 at 103 N/R 1,959,850
5,000,000 Arcadia Hospital Revenue
(Methodist Hospital of
Southern California),
7.875%, 8/01/10.......... 8/97 at 102 A 5,425,650
7,085,000 Brea Public Financing
Authority, 8.100%,
10/01/14................. 10/95 at 102 1/2 N/R 7,404,250
2,750,000 Campbell Union School
District, General
Obligation, 6.250%,
8/01/19.................. 8/04 at 102 Aaa 2,763,557
5,000,000 Castaic Lake Water Agency,
Certificates of
Participation,
6.300%, 8/01/20 (WI)..... 8/04 at 102 Aaa 5,045,500
Colma Improvement Bonds,
Local Improvement
District No. 1,
Reassessment Project:
870,000 8.125%, 9/02/03.......... 9/94 at 103 N/R 899,510
1,140,000 8.125%, 9/02/04.......... 9/94 at 103 N/R 1,173,459
1,240,000 8.125%, 9/02/05.......... 9/94 at 103 N/R 1,280,511
1,500,000 Cucamonga School District,
Certificates of
Participation, 8.350%,
1/01/08.................. 1/96 at 102 Baa 1,588,380
Duarte Redevelopment
Agency, Huntington Drive
Phase II, Tax Allocation:
1,170,000 7.900%, 10/01/02......... 10/97 at 102 N/R 1,261,810
3,745,000 8.000%, 10/01/10......... 10/97 at 102 N/R 4,020,707
1,470,000 El Paso de Robles
Redevelopment Agency, Tax
Allocation, 7.250%,
7/01/21.................. 7/00 at 102 BBB 1,501,987
2,000,000 Emeryville Public
Financing Authority,
Redevelopment Project,
Subordinated Lien,
8.100%, 2/01/18 (Pre-
refunded to 2/01/97)..... 2/97 at 102 A- 2,199,420
980,000 Inglewood Public Finance
Authority, 7.000%,
5/01/22.................. 5/02 at 102 BBB 1,003,265
3,000,000 Los Angeles Community
Redevelopment Agency, Tax
Allocation (Central
Business District),
6.750%, 7/01/10.......... 7/96 at 102 A- 3,056,040
8,515,000 Los Angeles Convention and
Exhibition Center,
Certificates of
Participation, 9.000%,
12/01/20 (Pre-refunded to
12/01/05)................ 12/05 at 100 Aaa 11,047,957
5,500,000 Los Angeles Department of
Water and Power, Electric
Plant, 8.000%, 2/15/26... 2/96 at 103 AA 5,948,030
500,000 Los Angeles Single Family
Home Mortgage (GNMA and
FNMA), Alternative
Minimum Tax, 6.875%,
6/01/25.................. 12/01 at 102 AAA 508,705
7,965,000 Los Angeles Wastewater
System,
8.125%, 11/01/17 (Pre-
refunded to 11/01/97).... 11/97 at 102 AAA 8,956,005
3,465,000 Los Angeles County
Transportation
Commission, Sales Tax,
7.900%, 7/01/08 (Pre-
refunded to 7/01/97)..... 7/97 at 102 Aaa 3,831,944
2,635,000 Menlo Park Community
Development Agency, FHA-
Insured Multi-Family
Housing, 8.250%,
12/01/28................. 6/97 at 103 Aa 2,827,908
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL
AMOUNT DESCRIPTION PROVISIONS* RATINGS** MARKET VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000,000 Mountain View Shoreline
Regional Park
Commission, Tax
Allocation,
8.375%, 7/01/16 (Pre-
refunded to 7/01/95)... 7/95 at 102 AAA $ 2,107,320
8,500,000 Orange County Public
Facilities Corporation,
Certificates of
Participation, 8.250%,
12/01/18 (Pre-refunded
to 12/01/97)........... 12/97 at 102 AAA 9,607,890
5,000,000 Orange County Sanitation
District Nos. 1, 2, and
3,
7.100%, 8/01/11 (Pre-
refunded to 8/01/96)... 8/96 at 102 Aaa 5,351,650
8,565,000 Palmdale Single Family
(GNMA), 0.000%,
3/01/17................ No Opt. Call Aaa 1,965,496
4,430,000 Sacramento Public
Facilities,
Certificates of
Participation,
8.250%, 8/01/12 (Pre-
refunded to 8/01/97)... 8/97 at 102 1/2 AAA 4,980,782
4,850,000 Sacramento Municipal
Utility District,
8.625%, 7/01/10 (Pre-
refunded to 7/01/95)... 7/95 at 102 AAA 5,122,134
10,000,000 San Bernardino County,
Single Family Mortgage
(GNMA), Alternative
Minimum Tax, 0.000%,
9/01/21................ No Opt. Call Aaa 1,696,300
San Diego Community
College District,
Certificates of
Participation:
1,000,000 8.625%, 12/01/09 (Pre-
refunded to 12/01/97).. 12/97 at 102 N/R 1,140,620
1,000,000 8.625%, 12/01/09 (Pre-
refunded to 12/01/97).. 12/97 at 102 AAA 1,140,580
4,000,000 San Francisco City and
County Sewer System,
5.375%, 10/01/22....... 10/02 at 102 Aaa 3,534,400
4,000,000 San Francisco Public
Utility Commission,
Water System, 8.000%,
11/01/11............... 11/97 at 102 AA 4,455,360
3,000,000 San Francisco City and
County Redevelopment
Agency, GNMA (South
Beach Marina), 5.700%,
3/01/29................ 3/04 at 102 Aaa 2,656,500
5,500,000 Santa Rosa (Kaiser
Permanente), 9.000%,
12/01/15............... 12/95 at 102 Aa2 5,866,740
1,955,000 Southern California Home
Financing Authority,
Single Family Mortgage
(GNMA), Alternative
Minimum Tax, 8.125%,
2/01/21................ No Opt. Call AAA 2,188,955
4,250,000 Southern California
Public Power Authority,
Palo Verde Project,
8.125%, 7/01/15 (Pre-
refunded to 7/01/96)... 7/96 at 103 Aaa 4,655,153
5,015,000 Southern California
Public Power Authority,
Transmission Project,
7.875%, 7/01/18 (Pre-
refunded to 7/01/96)... 7/96 at 103 AAA 5,478,236
2,000,000 Turlock Irrigation
District, 7.750%,
1/01/18 (Pre-refunded
to 1/01/96)............ 1/96 at 102 A 2,134,400
2,000,000 University of California
(UCLA Central
Chiller/Cogeneration),
5.500%, 11/01/17....... 11/03 at 102 Aa 1,797,220
2,675,000 University of
California, 6.875%,
9/01/16 (Pre-refunded
to 9/01/02)............ 9/02 at 102 A 3,017,587
2,000,000 University of
California, Housing
System, 5.500%,
11/01/18............... 11/03 at 102 Aaa 1,823,300
8,270,000 Upland Hospital (San
Antonio Community
Hospital), 7.125%,
1/01/11................ 1/96 at 102 A 8,631,234
3,590,000 Walnut Valley Unified
School District,
Certificates of
Participation,
8.200%, 1/01/13 (Pre-
refunded to 1/01/97)... 1/97 at 102 N/R 3,946,523
- ---------------------------------------------------------------------------------
$197,870,000 Total Investments--(cost
$179,948,922)--101.4%.. 195,027,520
- ---------------------------------------------------------------------------------
----------------------------------------------------------------------------
- ------------
TEMPORARY INVESTMENTS IN
SHORT-TERM MUNICIPAL
SECURITIES--0.2%
$ 300,000 Irvine Assessment
============= District No. 89-10,
Variable Rate Demand
Bonds,
2.800%, 9/02/15+....... VMIG-1 300,000
---------------------------------------------------------------------------
Other Assets Less
Liabilities--(1.6)%.... (3,090,704)
---------------------------------------------------------------------------
Net Assets--100%........ $192,236,816
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
STANDARD & POOR'S MOODY'S OF ISSUES MARKET VALUE PERCENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF RATINGS* AAA Aaa 22 $ 87,912,875 45%
PORTFOLIO OF INVESTMENTS AA+, AA, AA- Aa1, Aa, Aa2, Aa3 11 41,900,998 21
(EXCLUDING TEMPORARY A+ A1 4 8,861,315 4
INVESTMENTS): A, A- A, A2, A3 6 24,464,331 13
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 4 5,260,718 3
Non-rated Non-rated 11 26,627,283 14
- ------------------------------------------------------------------------------------------------
Total 58 $195,027,520 100%
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
*Optional Call Provisions (not covered by the report of independent auditors):
Dates (month and year) and prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at later dates.
**Ratings (not covered by the report of independent auditors): Using the higher
of Standard & Poor's or Moody's rating.
N/R--Investment is not rated.
(WI) Security purchased on a when-issued basis (note 1).
+The security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate disclosed
is that currently in effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
F-24
<PAGE>
NUVEEN CALIFORNIA MUNICIPAL INCOME FUND, INC. (NCM)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,750,000 California Department of
Veterans Affairs, Home
Purchase, Alternative
Minimum Tax, 8.300%,
8/01/19................. 8/98 at 102 AA $ 2,798,978
2,115,000 California Health
Facilities Authority
(The Whittier Institute
For Diabetes and
Endocrinology), Scripps
Memorial Hospitals,
8.400%, 12/01/08........ 12/98 at 102 N/R 2,345,493
1,000,000 California Health
Facilities Financing
Authority (Health
Dimensions, Inc.),
7.375%, 5/01/07......... 5/00 at 102 Baa1 1,028,890
1,230,000 California Housing
Finance Agency,
Alternative Minimum Tax,
8.350%, 8/01/19......... 8/98 at 102 Aa 1,267,872
1,575,000 California Pollution
Control (Pacific Gas and
Electric Company),
7.500%, 5/01/16......... 6/96 at 102 A1 1,656,947
1,000,000 California Rural Mortgage
Finance Authority,
Single Family Mortgage,
Alternative Minimum Tax,
7.950%, 12/01/24........ No Opt. Call Aaa 1,149,430
2,500,000 California State
Department of Water
Resources (Central
Valley Project), Power
Facilities, 8.000%,
12/01/16 (Pre-refunded
to 12/01/95)............ 12/95 at 101 1/2 Aaa 2,648,575
1,000,000 Arcadia (Methodist
Hospital of Southern
California), 6.500%,
11/15/12................ 11/02 at 102 A 1,002,110
2,000,000 Barstow Wastewater
Reclamation,
Certificates of
Participation, 5.250%,
10/01/18 10/04 at 102 Aaa 1,736,940
2,000,000 Cerritos Public Finance
Authority (Los Cerritos
Redevelopment Project),
6.000%, 11/01/13........ 11/03 at 102 A- 1,915,120
2,065,000 Contra Costa County, Home
Mortgage (GNMA),
Alternative Minimum Tax,
8.250%, 6/01/21......... No Opt. Call Aaa 2,734,122
1,600,000 Emeryville Public
Financing Authority,
Redevelopment Project,
8.100%, 2/01/18 (Pre-
refunded to 2/01/97).... 2/97 at 102 A- 1,759,536
975,000 Inglewood Public Finance
Authority (In-Town,
Manchester Redevelopment
Projects), 7.000%,
5/01/22................. 5/02 at 102 A- 994,685
2,490,000 Lassen Municipal Utility
District, Certificates
of Participation,
Alternative Minimum Tax,
8.250%, 5/01/98......... 5/96 at 102 1/2 N/R 2,628,021
2,000,000 Long Beach Redevelopment
Agency (Downtown
Redevelopment Project),
Tax Allocation, 8.300%,
11/01/10 (Pre-refunded
to 5/01/98)............. 5/98 at 102 N/R 2,272,720
2,000,000 Los Angeles Community
Redevelopment Agency
(Central Business
District), Tax
Allocation, 6.750%,
7/01/10................. 7/96 at 102 A- 2,037,360
Los Angeles Department of
Water and Power,
Electric Plant:
2,280,000 8.000%, 2/15/26......... 2/96 at 103 AA 2,465,729
1,100,000 7.125%, 5/15/30 (Pre-
refunded to 5/15/00).... 5/00 at 102 AA 1,221,990
2,500,000 Los Angeles County
Transportation
Commission, Sales Tax,
8.000%, 7/01/16 (Pre-
refunded to 7/01/97).... 7/97 at 102 Aaa 2,775,575
2,425,000 Pasadena Health
Facilities (Pacific
Clinics), 8.200%,
6/01/18................. 6/95 at 102 A+ 2,531,288
2,320,000 Pittsburg Redevelopment
Agency, Los Medanos
Community Development
Project, 7.750%, 8/01/08
(Pre-refunded to
8/01/96)................ 8/96 at 102 AAA 2,507,386
2,500,000 Redding Joint Powers
Financing Authority,
Water System,
5.500%, 6/15/23......... 6/03 at 102 Aaa 2,263,050
1,265,000 San Benito Hospital
District, 6.750%,
12/01/21................ 12/01 at 102 A+ 1,280,560
10,415,000 San Bernardino County
Single Family Mortgage
(GNMA),
Alternative Minimum Tax,
0.000%, 9/01/21......... No Opt. Call Aaa 1,766,696
2,500,000 San Diego Industrial
Development (San Diego
Gas and Electric
Company), 7.625%,
7/01/21................. 7/96 at 102 Aa3 2,647,675
2,000,000 San Diego Redevelopment
Agency (Horton Plaza
Project), Tax
Allocation, 8.125%,
7/01/08................. 7/97 at 102 Baa1 2,174,860
2,000,000 San Francisco Public
Utility Commission,
Water System, 8.000%,
11/01/11................ 11/97 at 102 AA 2,227,680
2,500,000 Santa Rosa (Kaiser
Permanente), 9.000%,
12/01/15................ 12/95 at 102 Aa2 2,666,700
680,000 Southern California Home
Financing Authority,
Single Family Mortgage
(GNMA), Alternative
Minimum Tax, 8.125%,
2/01/21................. No Opt. Call AAA 761,376
1,000,000 Southern California
Public Power Authority,
4.750%, 7/01/16......... 7/04 at 102 Aaa 819,440
2,375,000 University of California,
6.875%, 9/01/16 (Pre-
refunded to 9/01/02).... 9/02 at 102 A 2,679,165
- -------------------------------------------------------------------------------
$66,160,000 Total Investments--(cost
$57,319,066)--98.5%..... 60,765,969
- -------------------------------------------------------------------------------
- -----------
Other Assets Less
Liabilities--1.5%....... 945,441
--------------------------------------------------------------------------
Net Assets--100%......... $61,711,410
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
NUMBER MARKET
STANDARD & POOR'S MOODY'S OF ISSUES MARKET VALUE PERCENT
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF RATINGS** AAA Aaa 10 $19,162,590 32%
PORTFOLIO OF
INVESTMENTS: AA+, AA, AA- Aa1, Aa, Aa2, Aa3 7 15,296,624 25
A+ A1 3 5,468,795 9
A, A- A, A2, A3 6 10,387,976 17
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 2 3,203,750 5
Non-rated Non-rated 3 7,246,234 12
- --------------------------------------------------------------------------------------------
Total 31 $60,765,969 100%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
*Optional Call Provisions (not covered by the report of independent auditors):
Dates (month and year) and prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at later dates.
**Ratings (not covered by the report of independent auditors): Using the higher
of Standard & Poor's or Moody's rating.
N/R--Investment is not rated.
See accompanying notes to financial statements.
F-26
<PAGE>
NUVEEN EXCHANGE-TRADED FUNDS
FINANCIAL HIGHLIGHTS
Selected data for a Common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
OPERATING PERFORMANCE
--------------------------------
NET
REALIZED PER
AND NET SHARE TOTAL TOTAL
NET ASSET UNREALIZED DIVIDENDS ASSET MARKET INVESTMENT RETURN
VALUE NET GAIN (LOSS) FROM NET DISTRIBUTIONS VALUE VALUE RETURN ON ON NET
BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF END OF MARKET ASSET
OF PERIOD INCOME INVESTMENTS INCOME GAINS PERIOD PERIOD VALUE** VALUE**
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NCA
- -------------------------------------------------------------------------------------------------------------------
Year ended 8/31/94 $10.740 $.653 $(.514) $(.669) $(.010) $10.200 $11.000 (.50)% 1.32%
Year ended 8/31/93 10.480 .667 .265 (.670) (.002) 10.740 11.750 13.37 9.21
1 Mo. ended 8/31/92 10.610 .056 (.130) (.056) -- 10.480 11.000 (1.74) (.71)
Year ended 7/31,
1992 10.250 .668 .379 (.664) (.023) 10.610 11.250 12.83 10.61
1991 10.120 .667 .123 (.660) -- 10.250 10.625 9.22 8.13
1990 10.190 .664 (.037) (.666) (.031) 10.120 10.375 7.10 6.45
1989 9.670 .664 .602 (.670) (.076) 10.190 10.375 11.82 13.70
10/7/87 to 7/31/88 9.350 .482 .259 (.421) -- 9.670 10.000 4.28 8.01
- -------------------------------------------------------------------------------------------------------------------
NCM
- -------------------------------------------------------------------------------------------------------------------
Year ended 8/31/94 12.480 .724 (.571) (.759) (.004) 11.870 11.875 (1.99) 1.24
Year ended 8/31/93 12.100 .752 .387 (.745) (.014) 12.480 12.875 4.22 9.76
9 Mos. ended 8/31/92 12.000 .580 .214 (.598) (.096) 12.100 13.125 12.02 6.83
Year ended 11/30/91 11.790 .800 .196 (.786) -- 12.000 12.375 13.40 8.75
1 Mo. ended 11/30/90 11.710 .067 .133 (.066) (.054) 11.790 11.625 2.10 1.71
Year ended 10/31/90 11.810 .794 (.016) (.797) (.081) 11.710 11.500 3.17 6.84
Year ended 10/31/89 11.640 .805 .184 (.813) (.006) 11.810 12.000 13.05 8.82
4/20/88 to 10/31/88 11.210 .356 .356 (.282) -- 11.640 11.375 (2.78) 6.45
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------
RATIO OF
NET
NET ASSETS RATIO OF INVESTMENT
END OF EXPENSES INCOME TO PORTFOLIO
PERIOD (IN TO AVERAGE AVERAGE TURNOVER
THOUSANDS) NET ASSETS NET ASSETS RATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NCA
- -------------------------------------------------------------------------------------------------------------------
Year ended 8/31/94 $192,237 .76% 6.24% 9%
Year ended 8/31/93 200,828 .82 6.31 4
1 Mo. ended 8/31/92 194,430 .79* 6.25* 0
Year ended 7/31,
1992 196,669 .83 6.46 6
1991 188,370 .88 6.62 5
1990 184,888 .91 6.62 2
1989 185,016 .94 6.75 27
10/7/87 to 7/31/88 174,645 .94* 6.29* 32
- -------------------------------------------------------------------------------------------------------------------
NCM
- -------------------------------------------------------------------------------------------------------------------
Year ended 8/31/94 61,711 .86 5.93 13
Year ended 8/31/93 64,427 .90 6.16 5
9 Mos. ended 8/31/92 61,927 .82* 6.42* 11
Year ended 11/30/91 60,964 .73 6.75 9
1 Mo. ended 11/30/90 59,503 .70* 6.92* 0
Year ended 10/31/90 59,091 .76 6.77 7
Year ended 10/31/89 59,343 .72 6.89 23
4/20/88 to 10/31/88 59,298 .74* 6.13* 11
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
**Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and changes
in stock price per share. Total Return on Net Asset Value is the combination
of reinvested dividend income, reinvested capital gains distributions, if any,
and changes in net asset value per share.
F-27
<PAGE>
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Pro Forma Portfolio of Investments.......................................... P-2
Pro Forma Financial Information............................................. P-6
Pro Forma Capitalization.................................................. P-6
Pro Forma Condensed Balance Sheet......................................... P-7
Pro Forma Condensed Income Statement...................................... P-7
</TABLE>
P-1
<PAGE>
PRO FORMA PORTFOLIO OF INVESTMENTS AS OF JULY 31, 1995 (UNAUDITED)
ACQUIRING FUND (AS ADJUSTED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 8,000,000 California Department of
Veterans Affairs, Home
Purchase, Alternative
Minimum Tax, 8.300%,
8/01/19................ 8/98 at 102 Aa $ 8,336,720
890,000 California Educational
Facilities Authority
(University of San
Diego Projects),
9.125%, 10/01/10 (Pre-
refunded to 10/01/95).. 10/95 at 102 Aaa 915,944
1,885,000 California General
Obligation, 7.000%,
8/01/08................ No Opt. Call A1 2,137,628
California Health
Facilities Authority
(The Whittier Institute
For Diabetes and
Endocrinology), Scripps
Memorial Hospitals:
1,545,000 8.000%, 12/01/00....... 12/98 at 102 N/R 1,709,728
3,615,000 8.400%, 12/01/08....... 12/98 at 102 N/R 4,059,681
1,500,000 California Health
Facilities Financing
Authority (Sutter
Health System), 8.000%,
1/01/16 (Pre-refunded
to 1/01/97)............ 1/97 at 102 A1 1,610,115
1,500,000 California Health
Facilities Financing
Authority (St. Joseph
Health), 7.000%,
7/01/10 (Pre-refunded
to 7/01/01)............ 7/01 at 102 AA 1,709,145
1,000,000 California Health
Facilities Financing
Authority (Health
Dimensions, Inc.),
7.375%, 5/01/07........ 5/00 at 102 Ba 1,024,590
8,500,000 California Housing
Finance Agency, Home
Mortgage,
8.200%, 8/01/17........ 8/97 at 102 Aa 9,041,620
California Housing
Finance Agency, Home
Mortgage, Alternative
Minimum Tax:
2,025,000 8.600%, 8/01/19........ 8/98 at 102 Aa 2,172,076
1,150,000 8.350%, 8/01/19........ 8/98 at 102 Aa 1,230,029
380,000 8.150%, 8/01/19........ 8/98 at 102 Aa 406,437
2,090,000 8.200%, 2/01/20........ 8/98 at 102 Aaa 2,256,719
1,500,000 California Pollution
Control Financing
Authority (Pacific Gas
and Electric Company),
Alternative Minimum
Tax,
8.875%, 1/01/10........ 12/97 at 102 A2 1,673,895
1,575,000 California Pollution
Control (Pacific Gas
and Electric Company),
7.500%, 5/01/16........ 6/96 at 102 A2 1,636,819
685,000 California Rural
Mortgage Finance
Authority, Single
Family Mortgage,
Alternative Minimum
Tax, 7.950%, 12/01/24.. No Opt. Call Aaa 825,706
5,000,000 California Statewide
Communities Development
Corporation (Pacific
Homes), Certificates of
Participation,
6.000%, 4/01/17........ 4/03 at 102 A 4,780,850
2,175,000 ABAG Finance Authority
for Nonprofit
Corporations (United
Way of Santa Clara
County), Certificates
of Participation,
7.200%, 7/1/11......... 7/01 at 102 Aa2 2,287,100
Arcadia (Methodist
Hospital of Southern
California):
5,000,000 7.875%, 8/01/10........ 8/97 at 102 A 5,374,850
1,000,000 6.500%, 11/15/12....... 11/02 at 102 A 1,015,880
2,000,000 Barstow Wastewater
Reclamation,
Certificates of
Participation, 5.250%,
10/01/18............... 10/04 at 102 Aaa 1,794,960
Brea Public Financing
Authority:
7,085,000 8.100%, 10/01/14....... 10/95 at 102 1/2 N/R 7,312,074
2,750,000 Campbell Union School
District, General
Obligation,
6.250%, 8/1/19......... 8/04 at 102 Aaa 2,791,498
5,000,000 Castaic Lake Water
Agency, Certificates of
Participation, 6.300%,
8/1/20................. 8/04 at 102 Aaa 5,083,250
2,000,000 Cerritos Public Finance
Authority (Los Cerritos
Redevelopment Project),
6.000%, 11/01/13....... 11/03 at 102 A-- 1,914,340
Colma Improvement Bonds,
Local Improvement
District No. 1,
Reassessment Project:
870,000 8.125%, 9/02/03........ 9/95 at 103 N/R 899,310
1,140,000 8.125%, 9/02/04........ 9/95 at 103 N/R 1,177,916
1,240,000 8.125%, 9/02/05........ 9/95 at 103 N/R 1,282,768
</TABLE>
P-2
<PAGE>
ACQUIRING FUND (AS ADJUSTED) (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,065,000 Contra Costa County Home
Mortgage, GNMA,
Alternative Minimum Tax,
8.250%, 6/01/21......... No Opt. Call Aaa $ 2,734,432
1,500,000 Cucamonga School
District, Certificates
of Participation,
8.350%, 1/01/08......... 1/96 at 102 Baa 1,551,720
Duarte Redevelopment
Agency, Huntington
Drive, Tax Allocation:
1,170,000 7.900%, 10/01/02........ 10/97 at 102 N/R 1,269,848
3,745,000 8.000%, 10/01/10........ 10/97 at 102 N/R 3,950,675
1,470,000 El Paso de Robles
Redevelopment Agency,
Tax Allocation, 7.250%,
7/01/21................. 7/00 at 102 BBB 1,524,493
3,600,000 Emeryville Public
Financing Authority,
Redevelopment Project,
Subordinated Lien,
8.100%, 2/01/18 (Pre-
refunded to 2/01/97).... 2/97 at 102 A-- 3,880,656
970,000 Inglewood Public Finance
Authority, 7.000%,
5/01/22................. 5/02 at 102 Baa 986,325
960,000 Inglewood Public Finance
Authority (In-Town,
Manchester Redevelopment
Projects), 7.000%,
5/01/22................. 5/02 at 102 A-- 984,432
1,950,000 Lassen Municipal Utility
District, Certificates
of Participation
Alternative Minimum Tax,
8.250%, 5/01/98......... 5/96 at 102 1/2 N/R 2,051,751
2,000,000 Long Beach Redevelopment
Agency, Downtown
Redevelopment Project
Tax Allocation, 8.300%,
11/01/10 (Pre-refunded
to 5/01/98)............. 5/98 at 102 N/R 2,246,900
5,000,000 Los Angeles Community
Redevelopment Agency Tax
Allocation (Central
Business District),
6.750%, 7/01/10......... 7/96 at 102 A-- 5,124,150
8,515,000 Los Angeles Convention
and Exhibition Center,
Certificates of
Participation, 9.000%,
12/01/20 (Pre-refunded
to 12/01/05)............ 12/05 at 100 Aaa 11,417,338
Los Angeles Department of
Water and Power Electric
Plant:
7,780,000 8.000%, 2/15/26......... 2/96 at 103 Aa 8,177,248
1,100,000 7.125%, 5/15/30 (Pre-
refunded to 5/15/00).... 5/00 at 102 Aa 1,228,183
100,000 Los Angeles Single Family
Home Mortgage (GNMA and
FNMA), Alternative
Minimum Tax, 6.875%,
6/01/25................. 12/01 at 102 AAA 103,084
7,965,000 Los Angeles Wastewater
System, 8.125%, 11/01/17
(Pre-refunded to
11/01/97)............... 11/97 at 102 AAA 8,839,398
Los Angeles County
Transportation
Commission, Sales Tax:
3,465,000 7.900%, 7/01/08 (Pre-
refunded to 7/01/97).... 7/97 at 102 Aaa 3,784,092
2,500,000 8.000%, 7/01/16 (Pre-
refunded to 7/01/97).... 7/97 at 102 Aaa 2,735,775
2,635,000 City of Menlo Park
Community Development
Agency, Multi-Family
Housing, 8.250%,
12/01/28................ 6/97 at 103 Aa 2,849,463
4,000,000 Modesto Irrigation
District, 5.750%,
9/01/22................. 9/05 at 102 Aaa 3,795,040
8,500,000 Orange County Public
Facilities Corporation,
Certificates of
Participation, 8.250%,
12/01/18 (Pre-refunded
to 12/01/97)............ 12/97 at 102 AAA 9,483,790
5,000,000 Orange County Sanitation
District Nos. 1, 2, and
3,
7.100%, 8/01/11 (Pre-
refunded to 8/01/96).... 8/96 at 102 Aaa 5,262,300
8,565,000 Palmdale Single Family
(GNMA), 0.000%, 3/01/17. No Opt. Call Aaa 1,958,816
2,425,000 Pasadena Health
Facilities (Pacific
Clinics), 8.200%,
6/01/18................. 6/97 at 100 A 2,480,290
2,225,000 Pittsburg Redevelopment
Agency, Los Medanos
Community Development
Project, 7.750%, 8/01/08
(Pre-refunded to
8/01/96)................ 8/96 at 102 AAA 2,356,698
2,500,000 Redding Joint Powers
Financing Authority,
Water System, 5.500%,
6/15/23................. 6/03 at 102 Aaa 2,299,950
4,430,000 Sacramento Public
Facilities, Certificates
of Participation,
8.250%, 8/01/12 (Pre-
refunded to 8/01/97).... 8/97 at 102 1/2 AAA 4,905,295
7,750,000 Sacramento Sanitation
District Finance
Authority,
4.750%, 12/01/23........ 12/03 at 102 Aa 6,214,570
1,265,000 San Benito Hospital
District, 6.750%,
12/01/21................ 12/01 at 102 A 1,286,568
20,415,000 San Bernardino County
Single Family Mortgage
(GNMA), Alternative
Minimum Tax, 0.000%,
9/01/21................. No Opt. Call Aaa 3,601,206
</TABLE>
P-3
<PAGE>
ACQUIRING FUND (AS ADJUSTED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
San Diego Community
College District,
Certificates of
Participation:
$ 1,000,000 8.625%, 12/01/09 (Pre-
refunded to 12/01/97)... 12/97 at 102 N/R $ 1,120,200
1,000,000 8.625%, 12/01/09 (Pre-
refunded to 12/01/97)... 12/97 at 102 AAA 1,124,030
2,500,000 San Diego Industrial
Development Authority
(San Diego Gas and
Electric Company),
7.625%, 7/01/21......... 7/96 at 102 Aa3 2,594,925
2,000,000 San Diego Redevelopment
Agency (Horton Plaza
Project), Tax
Allocation, 8.125%,
7/01/08................. 7/98 at 102 Baa1 2,123,020
6,000,000 San Francisco Public
Utility Commission,
Water System,
8.000%, 11/01/11........ 11/97 at 102 Aa 6,620,700
3,000,000 San Francisco City and
County Redevelopment
Agency (GNMA--South
Beach Marina), 5.700%,
3/01/29................. 3/04 at 102 Aaa 2,789,010
5,000,000 San Jose Redevelopment
Agency, Tax Allocation,
5.000%, 8/01/20......... 2/04 at 102 Aaa 4,316,250
8,000,000 Santa Rosa (Kaiser
Permanente), 9.000%,
12/01/15................ 12/95 at 102 Aa2 8,267,440
2,635,000 Southern California Home
Financing Authority,
Single Family Mortgage
(GNMA), Alternative
Minimum Tax,
8.125%, 2/01/21......... No Opt. Call AAA 2,985,217
5,015,000 Southern California
Public Power Authority,
Transmission Project,
7.875%, 7/01/18 (Pre-
refunded to 7/01/96).... 7/96 at 103 AAA 5,348,647
Southern California
Public Power Authority:
1,000,000 4.750%, 7/01/16......... 7/04 at 102 Aaa 843,690
3,000,000 5.000%, 7/01/22......... 7/03 at 100 Aaa 2,576,760
2,000,000 Turlock Irrigation
District, 7.750%,
1/01/18 (Pre-refunded to
1/01/96)................ 1/96 at 102 A 2,073,880
2,000,000 University of California
(UCLA Central
Chiller/Cogeneration),
5.500%, 11/01/17........ 11/03 at 102 Aa 1,796,480
5,050,000 University of California,
6.875%, 9/01/16 (Pre-
refunded to 9/01/02).... 9/02 at 102 A-- 5,834,012
2,000,000 University of California
Housing System, 5.500%,
11/01/18................ 11/03 at 102 Aaa 1,856,400
8,270,000 City of Upland Hospital
(San Antonio Community
Hospital), 7.125%,
1/01/11................. 1/96 at 102 A 8,505,115
3,590,000 Walnut Valley Unified
School District,
Certificates of
Participation, 8.200%,
1/01/13 (Pre-refunded to
1/01/97)................ 1/97 at 102 N/R 3,860,756
- -------------------------------------------------------------------------------
$261,725,000 Total Investments--(cost
$231,392,951)--98.3%................... 250,182,666
============ ----------------------------------------------------------------
TEMPORARY INVESTMENTS IN SHORT-TERM
MUNICIPAL SECURITIES--1.8%
$ 100,000 California Health Facilities Financing
Authority (St. Joseph Health System),
Series A, Variable Rate Demand Bonds,
3.750%, 7/01/13+....................... VMIG-1 100,000
820,000 California Health Facilities Financing
Authority (St. Joseph Health System),
Series B, Variable Rate Demand Bonds,
3.750%, 7/01/13+....................... VMIG-1 820,000
1,500,000 California Health Facilities Financing
Authority (St. Francis Memorial
Hospital), Series 1993B, Variable Rate
Demand Bonds, 3.800%, 11/01/19+........ P-1 1,500,000
370,000 California Statewide Communities
Development Authority (St. Joseph
Health System), Certificates of
Participation, Variable Rate Demand
Bonds,
3.750%, 7/01/24+....................... VMIG-1 370,000
300,000 California Statewide Community
Development Authority, Certificates of
Participation, Series 1993, Variable
Rate Demand Bonds, 3.950%, 12/01/18+... A-1+ 300,000
300,000 California Statewide Communities
Development Authority (St. Joseph
Health System), Certificates of
Participation, Variable Rate Demand
Bonds,
3.750%, 7/01/24+....................... VMIG-1 300,000
1,000,000 Santa Ana Health Facilities Authority
(Town & Country), Variable Rate Demand
Bonds, 3.950%, 10/01/20+............... A-1 1,000,000
- -------------------------------------------------------------------------------
$ 4,390,000 Total Temporary Investments--1.8%....... 4,390,000
============ ----------------------------------------------------------------
Other Assets Less Liabilities--(0.1)%... (137,433)
----------------------------------------------------------------
Net Assets--100%........................ $254,435,233
================================================================
</TABLE>
P-4
<PAGE>
ACQUIRING FUND (AS ADJUSTED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
STANDARD & POOR'S MOODY'S OF ISSUES MARKET VALUE PERCENT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF
RATINGS** AAA Aaa 28 $ 98,785,295 39%
PORTFOLIO OF AA+, AA, AA- Aa1, Aa, Aa2, Aa3 15 62,932,136 25
INVESTMENTS A+ A1 2 3,747,743 2
(EXCLUDING A,A- A, A2, A3 14 46,565,737 19
TEMPORARY BBB+,BBB, BBB- Baa1, Baa, Baa2, Baa3 4 6,185,558 2
INVESTMENTS): BB+, BB, BB- Ba1, Ba, Ba2, Ba3 1 1,024,590 1
Non-rated Non-rated 12 30,941,607 12
- -------------------------------------------------------------------------------------
TOTAL 76 $250,182,666 100%
- -------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
* Optional Call Provisions: Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
**Ratings: Using the higher of Standard & Poor's or Moody's rating.
N/R--Investment is not rated.
+ The security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate disclosed
is that currently in effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
P-5
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following tables set forth the unaudited capitalization, net asset value
per share and income of the Funds as of July 31, 1995 and for the eleven-month
period then ended and as adjusted to give effect to the Reorganization, as well
as the unaudited portfolio of investments as of July 31, 1995 as adjusted to
give effect to the Reorganization.
PRO FORMA CAPITALIZATION AS OF JULY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING FUND ACQUIRED FUND ACQUIRING FUND
(ACTUAL) (ACTUAL) (AS ADJUSTED)(/1/)
-------------- ------------- ------------------
<S> <C> <C> <C>
Shareholders' Equity:
Common shares, $.01 par
value per share;
250,000,000 shares
authorized: 18,958,790
shares outstanding for
Acquiring Fund (Actual);
5,209,911 shares
outstanding for Acquired
Fund (Actual); 24,984,848
shares outstanding for
Acquiring Fund (As
Adjusted)................. $ 189,588 $ 52,099 $ 249,849(/2/)
Paid-in surplus............ 177,114,034 58,166,806 235,096,587(/3/)
Undistributed net
investment income......... 323,691 34,905 323,691(/4/)
Net realized gain (loss)
from investment
transactions.............. (24,609) 74,491 (24,609)(/5/)
Net unrealized
appreciation of
investments............... 15,532,055 3,257,660 18,789,715
------------ ----------- ------------
Net Assets............... $193,134,759 $61,585,961 $254,435,233
============ =========== ============
</TABLE>
- --------
(1) The adjusted balances are presented as if the Reorganization were effective
as of July 31, 1995 for information purposes only. The actual Effective
Time of the Reorganization is expected to be January 8, 1996, at which time
the results would be reflective of the actual composition of shareholders'
equity at that date.
(2) Assumes the issuance of 6,026,058 Acquiring Fund common shares in exchange
for the net assets of the Acquired Fund, which number is based on the net
asset value of the Acquiring Fund common shares, and the net asset value of
the Acquired Fund, as of July 31, 1995, after adjustment for the
distributions referred to in (4) and (5) below. The issuance of such number
of Acquiring Fund common shares would result in the distribution of
1.1566528 Acquiring Fund common shares for each Acquired Fund common share
upon liquidation of the Acquired Fund.
(3) Includes the impact of (a) estimated Reorganization costs of $176,091 and
(b) $(8,162) due to the effect of the exchange ratio on the value of new
shares issued in excess of the value of shares liquidated. None of the
estimated Reorganization costs described in (a) above, of which $71,466 of
this amount is an expense of the Acquiring Fund and $104,625 is an expense
of the Acquired Fund, are recurring expenses.
(4) Assumes the Acquired Fund distributes all of its undistributed net
investment income to its shareholders.
(5) Assumes the Acquired Fund distributes all of its net realized gains from
investment transactions.
P-6
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET AS OF JULY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING FUND ACQUIRED FUND PRO FORMA ACQUIRING FUND
(ACTUAL) (ACTUAL) ADJUSTMENTS (AS ADJUSTED)
-------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Investments in municipal
securities, at market
value.................. $191,082,596 $59,100,070 $ -- $250,182,666
Temporary investments in
short-term municipal
securities, at market
value.................. 3,100,000 1,595,000 (305,000)(/1/) 4,390,000
Cash.................... (56,793) 44,651 19,513 (/2/) 7,371
Other assets less
liabilities............ (991,044) 846,240 -- (144,804)
------------ ----------- --------- ------------
Net assets.............. $193,134,759 $61,585,961 $(285,487) $254,435,233
============ =========== ========= ============
Common shares
outstanding............ 18,958,790 5,209,911 816,147(/3/) 24,984,848
============ =========== ========= ============
Net asset value per
common shares:
As of July 31, 1995.... $ 10.19 $ 11.82
============ ===========
After distribution of
ordinary income....... $ 10.19 $ 11.80
============ ===========
After Reorganization
related expenses...... $ 10.18 $ 11,78 $ 10.18
============ =========== ============
</TABLE>
- -------
(1) See note (1) to Pro Forma Capitalization table on preceding page as to the
Effective Time of the Reorganization. Assumes sales of investments in
municipal securities and temporary investments to provide additional cash
needed to make distributions of ordinary income and to pay estimated
Reorganization related expenses.
(2) Net effect on cash after sales of temporary investments, payment of
estimated Reorganization costs and distribution of net investment income
and net realized gain of the Acquired Fund. None of the Reorganization
costs, estimated to be $176,091 ($71,466 of which is an expense of the
Acquiring Fund and $104,625 of which is an expense of the Acquired Fund),
are recurring expenses.
(3) See note (1) to Pro Forma Capitalization table. Based on the issuance of
6,026,058 additional Acquiring Fund common shares and the cancellation of
5,209,911 Acquired Fund common shares.
PRO FORMA CONDENSED INCOME STATEMENT FOR THE ELEVEN MONTHS ENDED JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUIRING FUND ACQUIRED FUND PRO FORMA ACQUIRING FUND
(ACTUAL) (ACTUAL) ADJUSTMENTS (AS ADJUSTED)
-------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Investment Income:
Interest income........ $12,372,550 $3,883,749 $ -- $16,256,299
----------- ---------- -------- -----------
Expenses:
Management fees(/1/)... 1,120,663 361,663 (6,727) 1,475,599
All other expenses..... 190,349 103,726 (53,815)(/2/) 240,260
----------- ---------- -------- -----------
Total expenses....... 1,311,012 465,389 (60,542) 1,715,859
----------- ---------- -------- -----------
Net investment
income............ 11,061,538 3,418,360 60,542 14,540,440
----------- ---------- -------- -----------
Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain
(loss) from
investment
transactions.......... (24,609) 96,617 (96,617) (24,609)
Net change in
unrealized
appreciation or
depreciation of
investments........... 453,457 (189,244) -- 264,213
----------- ---------- -------- -----------
Net gain on
investments....... 428,848 (92,627) (96,617) 239,604
----------- ---------- -------- -----------
Net Increase in Net
Assets from Operations. $11,490,386 $3,325,733 $(36,075) $14,780,044
=========== ========== ======== ===========
</TABLE>
- -------
(1) Reflects the management fee of .35% of net assets and 4.125% of gross
interest income for the Acquiring Fund and .65% of net assets for the
first $125 million for the Acquired Fund.
(2) Represents estimated reduction in operating expenses, including audit,
legal, custodian, stock exchange and report printing. The Acquiring Fund
(As Adjusted) would have a much larger asset base than either Fund
currently has. Certain operating expenses would have been reduced had they
been applied to the larger asset base for one Fund, rather than to two
smaller separate Funds.
P-7
<PAGE>
ANNEX A
RATINGS OF INVESTMENTS
STANDARD & POOR'S CORPORATION--A brief description of the applicable Standard
& Poor's Corporation ("S&P") rating symbols and their meanings (as published by
S&P) follows:
LONG TERM DEBT
An S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees. The debt rating is not a recommendation to purchase, sell, or hold
a security, inasmuch as it does not comment as to market price or suitability
for a particular investor. The ratings are based on current information
furnished by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances. The ratings are based,
in varying degrees, on the following considerations:
1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
INVESTMENT GRADE
AAA Debt rated "AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated "AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated "BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
SPECULATIVE GRADE RATING
Debt rated "BB', "B', "CCC', "CC' and "C' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. "BB' indicates the least degree of speculation and "C' the highest.
While such debt will likely have some quality and protective characteristics
these are outweighed by major uncertainties or major exposures to adverse
conditions.
BB Debt rated "BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "BBB-' rating.
B Debt rated "B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal.
The "B' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "B' or "BB-' rating.
A-1
<PAGE>
CCC Debt rated "CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it
is not likely to have the capacity to pay interest and repay principal.
The "CCC' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "B' or "B-' rating.
CC The rating "CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC' debt rating.
C The rating "C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-' debt rating. The "C' rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI The rating "CI' is reserved for income bonds on which no interest is
being paid.
D Debt rated "D' is in payment default. The "D' rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The "D' rating
also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA' to "CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project financed
by the debt being rated and indicates that payment of debt service requirements
is largely or entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood of, or the
risk of default upon failure of, such completion. The investor should exercise
judgment with respect to such likelihood and risk.
L The letter "L' indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is
federally insured and interest is adequately collateralized.* In the case
of certificates of deposit the letter "L' indicates that the deposit,
combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the
federal insurance limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by a successor
insured institution, upon maturity.
- --------
* Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement or closing documentation confirming investments
and cash flow.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
--Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
NOTE RATING SYMBOLS ARE AS FOLLOWS:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
A-2
<PAGE>
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a security
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.
COMMERCIAL PAPER
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designation.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability
for a particular investor. The ratings are based on current information
furnished to S&P by the issuer or obtained by S&P from other sources it
considers reliable. S&P does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended, or withdrawn as a result of changes in or unavailability
of such information or based on other circumstances.
MOODY'S INVESTORS SERVICE, INC.--A brief description of the applicable
Moody's Investors Service, Inc. ("Moody's") rating symbols and their meanings
(as published by Moody's) follows:
MUNICIPAL BONDS
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A-3
<PAGE>
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
BAA Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
CON(...) Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination
of basis of condition.
NOTE: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, Ba1 and B1.
SHORT-TERM LOANS
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less
well-established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
S.G. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
A-4
<PAGE>
COMMERCIAL PAPER
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
--Leading market positions in well established industries.
--High rates of return on funds employed.
--Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
A-5
<PAGE>
PART C--OTHER INFORMATION
ITEM 15: INDEMNIFICATION
Article EIGHTH of the Registrant's Articles of Incorporation provides as
follows:
EIGHTH: To the maximum extent permitted by the Minnesota Business
Corporation Act, as from time to time amended, the Corporation shall
indemnify its currently acting and its former directors, officers,
employees and agents, and those persons who, at the request of the
Corporation, serve or have served another corporation, partnership, joint
venture, trust or other enterprise in one or more such capacities. The
indemnification provided for herein shall not be deemed exclusive of any
other rights to which those seeking indemnification may otherwise be
entitled.
Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding (including costs connected with the
preparation of a settlement) may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding, if authorized by
the Board of Directors in the specific case, upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent to repay that
amount of the advance which exceeds the amount which it is ultimately
determined that he is entitled to receive from the Corporation by reason of
indemnification as authorized herein; provided, however, that prior to
making any such advance at least one of the following conditions shall have
been met: (1) the indemnitee shall provide a security for his undertaking,
(2) the Corporation shall be insured against losses arising by reason of
any lawful advances, or (3) a majority of a quorum of the disinterested,
non-party directors of the Corporation, or an independent legal counsel in
a written opinion, shall determine, based on a review of readily available
facts, that there is reason to believe that the indemnitee ultimately will
be found entitled to indemnification.
Nothing in these Articles of Incorporation or in the By-Laws shall be
deemed to protect or provide indemnification to any director or officer of
the Corporation against any liability to the Corporation or to its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office ("disabling conduct"), and the
Corporation shall not indemnify any of its officers or directors against
any liability to the Corporation or to its security holders unless a
determination shall have been made in the manner provided hereafter that
such liability has not arisen from such officer's or director's disabling
conduct. A determination that an officer or director is entitled to
indemnification shall have been properly made if it is based upon (1) a
final decision on the merits by a court or other body before whom the
proceeding was brought that the indemnitee was not liable by reason of
disabling conduct or, (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnitee was
not liable by reason of disabling conduct, by (a) the vote of a majority of
a quorum of directors who are neither "interested persons" of the
Corporation as defined in the Investment Company Act of 1940 nor parties to
the proceeding, or (b) an independent legal counsel in a written opinion.
The directors and officers of the Registrant are covered by an Investment
Trust Errors and Omission policy in the aggregate amount of $20,000,000 (with a
maximum deductible of $350,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involve willful acts, bad faith, gross negligence and willful
disregard of duty (i.e., where the insured did not act in good faith for a
purpose he or she reasonably believed to be in the best interest of Registrant
or where he or she had reasonable cause to believe this conduct was unlawful).
ITEM 16: EXHIBITS
The exhibits to this Registration Statement are set forth on the Index to
Exhibits attached hereto.
ITEM 17: UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
PART C-1
<PAGE>
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such directors, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
PART C-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THIS
REGISTRATION STATEMENT TO BE SIGNED ON BEHALF OF THE UNDERSIGNED THEREUNTO DULY
AUTHORIZED, IN THIS CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE 26TH DAY OF
SEPTEMBER, 1995.
Nuveen California Municipal Value Fund,
Inc.
/s/ Larry W. Martin
________________________________________
Larry W. Martin, Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ O. Walter Renfftlen Vice President and
- ------------------------ Controller
O. Walter Renfftlen (Principal Financial
and Accounting
Officer) September 26, 1995
Richard J. Franke Chairman of the
Board and Director
(Principal
Executive Officer)
By /s/ Larry W. Martin
--------------------
Larry W. Martin,
Attorney-in-Fact
Timothy R. Schwertfeger President and Director September 26, 1995
Lawrence H. Brown Director
Anne E. Impellizzeri Director
Margaret K. Rosenheim Director
Peter R. Sawers Director
POWERS OF ATTORNEY AUTHORIZING RICHARD J. FRANKE, TIMOTHY R. SCHWERTFEGER,
JAMES J. WESOLOWSKI, LARRY W. MARTIN, GIFFORD R. ZIMMERMAN AND MORRISON C.
WARREN, AND EACH OF THEM, TO EXECUTE THIS REGISTRATION STATEMENT, AND
AMENDMENTS THERETO, FOR EACH OF THE OFFICERS AND DIRECTORS OF REGISTRANT ON
WHOSE BEHALF THIS REGISTRATION STATEMENT IS FILED, HAVE BEEN EXECUTED AND FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION.
PART C-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------------------------------------------------------ ------------
<C> <S> <C>
1.1 Articles of Incorporation of Registrant, as amended*..
2. By-Laws of Registrant, as amended*....................
3. Not Applicable........................................
4.1 Form of Agreement and Plan of Reorganization
(incorporated by reference to Annex A to the Joint
Proxy Statement--Prospectus)..........................
5. Terms and Conditions of the Dividend Reinvestment
Plan*.................................................
6.1 Investment Management Agreement, dated May 1, 1989, by
and between Registrant and Nuveen Advisory Corp. as
amended and renewed as of May 9, 1995*................
7. Not Applicable........................................
8. Directors' Deferred Compensation Plan*................
9.1 Mutual Fund Custody Agreement, dated January 1, 1991,
by and between Registrant and United States Trust
Company of New York as amended and renewed as of
February 25, 1991*....................................
9.2 Fund Accounting Agreement, dated January 1, 1991, by
and between Registrant and United States Trust Company
of New York*..........................................
9.3 Shareholder Transfer Agency Agreement, dated January
1, 1991, by and between Registrant and United States
Trust Company of New York*............................
10. Not Applicable........................................
11.1 Opinion and consent of Vedder, Price, Kaufman &
Kammholz*.............................................
11.2 Opinion and consent of Dorsey & Whitney, P.L.L.P.*....
12. Tax opinion and consent of Vedder, Price, Kaufman &
Kammholz*.............................................
13. Not Applicable........................................
14.1 Consent of Ernst & Young LLP*.........................
14.2 Consent of Orrick, Herrington & Sutcliffe*............
15. Not Applicable........................................
16.1 Power of Attorney of Richard J. Franke*...............
16.2 Power of Attorney of Timothy R. Schwertfeger*.........
16.3 Power of Attorney of Lawrence H. Brown*...............
16.4 Power of Attorney of Anne E. Impellizzeri*............
16.5 Power of Attorney of Margaret K. Rosenheim*...........
16.6 Power of Attorney of Peter R. Sawers*.................
17.1 Form of Proxy for the Acquiring Fund shareholders.....
17.2 Form of Proxy for the Acquired Fund shareholders......
</TABLE>
- --------
*Incorporated by reference to Registrant's Registration Statement on Form N-14
which was filed on August 23, 1995.
<PAGE>
EXHIBIT 17.1
At the upcoming Annual Meeting, all shareholders will be asked to consider and
approve a very important proposal. Subject to shareholder approval, Nuveen
California Municipal Value Fund, Inc. (the "Fund") will acquire substantially
all of the assets and assume substantially all of the liabilities of Nuveen
California Municipal Income Fund, Inc. in exchange for newly issued shares of
the Fund.
The reorganization should lead to efficiencies of scale, providing such benefits
as:
[ ] Lower Administrative Expenses
[ ] Improved Portfolio Management Flexibility
[ ] Increased Trading Liquidity
WHETHER OR NOT YOU PLAN TO JOIN US, PLEASE COMPLETE, DATE AND SIGN YOUR PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE COUNTED.
|----------Please fold at perforation before detaching---------|
- -------------------------------------------------------------------------------
PROXY BALLOT
NUVEEN CALIFORNIA MUNICIPAL VALUE FUND, INC.
COMMON SHARES
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 16, 1995
The undersigned hereby appoints Richard J. Franke, Timothy R. Schwertfeger and
James J. Wesolowski, and each of them, with full power of substitution, Proxies
for the undersigned to represent and vote the common shares of the undersigned
at the Annual Meeting of Shareholders of Nuveen California Municipal Value Fund,
Inc. (the "Fund") to be held on November 16, 1995, or any adjournment or
adjournments thereof. The following items are to be considered:
1. Approval of the issuance of additional common shares of the Fund in
connection with an Agreement and Plan of Reorganization and Liquidation
between the Fund and Nuveen California Municipal Income Fund, Inc.
2. Election of Directors:
NOMINEES: Lawrence H. Brown, Peter R Sawers, Timothy R. Schwertfeger.
3. Ratification of the selection of Ernst & Young LLP as independent auditors.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
- -------------------------------------------------------------------------------
You are encouraged to specify your choices by marking the appropriate
boxes ON THE REVERSE SIDE. If you do not mark any boxes, your Proxy will
be voted in accordance with the Board of Directors' recommendations.
Please sign date and return this Proxy card promptly using the enclosed
envelope.
- -------------------------------------------------------------------------------
SEE REVERSE SIDE CAV895
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND PROPOSALS:
Please mark your votes as in this example [X]
- --------------------------------------------------------------------------------
1. APPROVAL OF THE ISSUANCE OF ADDITIONAL FOR AGAINST ABSTAIN
COMMON SHARES OF THE FUND IN CONNECTION [_] [_] [_]
WITH AN AGREEMENT AND PLAN OF
REORGANIZATION AND LIQUIDATION BETWEEN
THE FUND AND NUVEEN CALIFORNIA MUNICIPAL
INCOME FUND, INC.
2. ELECTION OF [_] FOR [_] WITHHOLD [_] WITHHOLD
DIRECTORS: all authority authority to vote
(SEE REVERSE nominees to vote for for nominees
FOR NOMINEES) all nominees indicated below:
_____________________
INSTRUCTIONS:
To grant authority to vote FOR ALL nominees,
mark the box on the left above OR do not
mark any box above.
To WITHHOLD authority to vote FOR ALL
nominees, mark the box in the middle above.
To WITHHOLD authority to vote FOR ANY ONE
OR MORE of the nominees, mark the box on the
right above AND write each nominee's name in
the space provided.
3. Ratification of the selection of Ernst
& Young LLP as independent auditors. [_] [_] [_]
4. In their discretion, the Proxies are
authorized to vote upon such other
business as may properly come before
the Annual Meeting.
- --------------------------------------------------------------------------------
The shares to which this Proxy relates will be voted as specified. If no
specification is made, such shares will be voted for the election of Directors
and for the proposals set forth on this Proxy.
------------------------------
_______ Please be sure to sign and
| date this Proxy
|
- -----------------------------------------------
- -Shareholder
sign here __________________ Date _________
- -Co-owner
sign here __________________ Date _________
NOTE: Please sign exactly as your name appears
on this Proxy. If signing for estates, trusts
or corporations, title or capacity should be
stated. If shares are held jointly, each
holder should sign. ------------------------------
[_] BK CAV895 CAV895
<PAGE>
EXHIBIT 17.2
At the upcoming Annual Meeting, all shareholders will be asked to consider and
approve a very important proposal. Subject to shareholder approval, Nuveen
California Municipal Income Fund, Inc. will transfer substantially all of its
assets and substantially all of its liabilities to Nuveen California Municipal
Value Fund, Inc. (the "Acquiring Fund") in exchange for newly issued shares of
the Acquiring Fund, which will be distributed to shareholders of the Fund.
The reorganization should lead to efficiencies of scale, providing such benefits
as:
[ ] Lower Administrative Expenses
[ ] Improved Portfolio Management Flexibility
[ ] Increased Trading Liquidity
WHETHER OR NOT YOU PLAN TO JOIN US, PLEASE COMPLETE, DATE AND SIGN YOUR PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE COUNTED.
|----------Please fold at perforation before detaching---------|
- -------------------------------------------------------------------------------
PROXY BALLOT
NUVEEN CALIFORNIA MUNICIPAL INCOME FUND, INC.
COMMON SHARES
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 16, 1995
The undersigned hereby appoints Richard J. Franke, Timothy R. Schwertfeger and
James J. Wesolowski, and each of them, with full power of substitution, Proxies
for the undersigned to represent and vote the common shares of the undersigned
at the Annual Meeting of Shareholders of Nuveen California Municipal Income
Fund, Inc. (the "Fund") to be held on November 16, 1995, or any adjournment or
adjournments thereof. The following items are to be considered:
1. Approval of an Agreement and Plan of Reorganization and Liquidation
between the Fund and Nuveen California Municipal Value Fund, Inc.
2. Election of Directors:
NOMINEES: Lawrence H. Brown, Peter R. Sawers, Timothy R. Schwertfeger.
3. Ratification of the selection of Ernst & Young LLP as independent auditors.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
- -------------------------------------------------------------------------------
You are encouraged to specify your choices by marking the appropriate
boxes ON THE REVERSE SIDE. If you do not mark any boxes, your Proxy will
be voted in accordance with the Board of Directors' recommendations.
Please sign date and return this Proxy card promptly using the enclosed
envelope.
- -------------------------------------------------------------------------------
SEE REVERSE SIDE CAI895
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND PROPOSALS:
Please mark your votes as in this example [X]
- --------------------------------------------------------------------------------
1. APPROVAL OF AN AGREEMENT AND PLAN OF FOR AGAINST ABSTAIN
REORGANIZATION AND LIQUIDATION [_] [_] [_]
BETWEEN THE FUND AND NUVEEN CALIFORNIA
MUNICIPAL VALUE FUND, INC.
2. ELECTION OF [_] FOR [_] WITHHOLD [_] WITHHOLD
DIRECTORS: all authority authority to vote
(SEE REVERSE nominees to vote for for nominees
FOR NOMINEES) all nominees indicated below:
_____________________
INSTRUCTIONS:
To grant authority to vote FOR ALL nominees,
mark the box on the left above OR do not
mark any box above.
To WITHHOLD authority to vote FOR ALL
nominees, mark the box in the middle above.
To WITHHOLD authority to vote FOR ANY ONE
OR MORE of the nominees, mark the box on the
right above AND write each nominee's name in
the space provided.
3. Ratification of the selection of Ernst
& Young LLP as independent auditors. [_] [_] [_]
4. In their discretion, the Proxies are
authorized to vote upon such other
business as may properly come before
the Annual Meeting.
- --------------------------------------------------------------------------------
The shares to which this Proxy relates will be voted as specified. If no
specification is made, such shares will be voted for the election of Directors
and for the proposals set forth on this Proxy.
------------------------------
_______ Please be sure to sign and
| date this Proxy
|
- -----------------------------------------------
- -Shareholder
sign here __________________ Date _________
- -Co-owner
sign here __________________ Date _________
NOTE: Please sign exactly as your name appears
on this Proxy. If signing for estates, trusts
or corporations, title or capacity should be
stated. If shares are held jointly, each
holder should sign. ------------------------------
[_] BK CAI895 CAI895
