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<SEC-DOCUMENT>0000950131-02-001155.txt : 20020415
<SEC-HEADER>0000950131-02-001155.hdr.sgml : 20020415
ACCESSION NUMBER:		0000950131-02-001155
CONFORMED SUBMISSION TYPE:	497
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20020326

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NUVEEN INSURED DIVIDEND ADVANTAGE MUNICIPAL FUND
		CENTRAL INDEX KEY:			0001090116
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			1031

	FILING VALUES:
		FORM TYPE:		497
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-59770
		FILM NUMBER:		02586459

	BUSINESS ADDRESS:	
		STREET 1:		JOHN NUVEEN & CO INC
		STREET 2:		333 WEST WACKER DRIVE
		CITY:			CHICAGO
		STATE:			IL
		ZIP:			60606
		BUSINESS PHONE:		3129177794

	MAIL ADDRESS:	
		STREET 1:		JOHN NUVEEN & CO INC
		STREET 2:		333 WEST WACKER DRIVE
		CITY:			CHICAGO
		STATE:			IL
		ZIP:			60606
</SEC-HEADER>
<DOCUMENT>
<TYPE>497
<SEQUENCE>1
<FILENAME>d497.txt
<DESCRIPTION>NUVEEN INSURED DIVIDEND ADVANTAGE MUNICIPAL FUND
<TEXT>
<PAGE>

PROSPECTUS
                               26,700,000 Shares

[LOGO] Nuveen Logo
                                Nuveen Insured
                       Dividend Advantage Municipal Fund

                                 Common Shares
                               $15.00 per share

                                 -------------

   Investment Objectives. The Fund is a newly organized, diversified,
closed-end management investment company. The Fund's investment objectives are:
   . to provide current income exempt from regular federal income tax; and
   . to enhance portfolio value relative to the municipal bond market by
     investing in tax-exempt municipal bonds that the Fund's investment adviser
     believes are underrated or undervalued or that represent municipal market
     sectors that are undervalued.

   Portfolio Contents. Under normal circumstances, the Fund will invest at
least 80% of its net assets in a portfolio of municipal bonds that are exempt
from regular federal income taxes and that are covered by insurance
guaranteeing the timely payment of principal and interest thereon. The Fund
also may invest up to 20% of its net assets in uninsured municipal bonds backed
by an escrow or trust account containing sufficient U.S. Government or U.S.
Government agency securities to ensure timely payment of principal and
interest, or other municipal bonds that are investment grade quality. Under
normal circumstances, the Fund expects to be fully invested in the tax-exempt
municipal bonds noted above. The Fund cannot assure you that it will achieve
its investment objectives.

   No Prior History. Because the Fund is newly organized, its common shares
have no history of public trading. Shares of closed-end investment companies
frequently trade at a discount from their net asset value. This risk may be
greater for investors expecting to sell their shares in a relatively short
period after completion of the public offering. The common shares have been
approved for listing on the American Stock Exchange, subject to notice of
issuance. The trading or "ticker" symbol of the common shares is expected to be
"NVG."

                                 -------------

   Investing in common shares involves certain risks. See "Risks" beginning on
page 21.

   Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

                                 -------------

<TABLE>
<CAPTION>
                                                      Per Share    Total
                                                      --------- ------------
    <S>                                               <C>       <C>
    Public Offering Price                              $15.000  $400,500,000
    Sales Load                                         $ 0.675  $ 18,022,500
    Proceeds to the Fund(1)                            $14.325  $382,477,500
</TABLE>
- --------
(1)Total expenses of issuance and distribution are estimated to be $416,400.

   The underwriters expect to deliver the common shares to purchasers on or
about March 28, 2002.

                                 -------------

Salomon Smith Barney                                         Nuveen Investments
<TABLE>
<CAPTION>
       A.G. Edwards & Sons, Inc.            Prudential Securities
                              UBS Warburg
       <S>                            <C>
       Fahnestock & Co. Inc.                  Ferris, Baker Watts
                                                 Incorporated
       Gruntal & Co., L.L.C.          Janney Montgomery Scott LLC
       Legg Mason Wood Walker           McDonald Investments Inc.
              Incorporated
       Raymond James                          RBC Capital Markets
       SunTrust Robinson Humphrey             Wachovia Securities
                      Wells Fargo Securities, LLC
</TABLE>

March 25, 2002

<PAGE>

   You should read this Prospectus, which contains important information about
the Fund, before deciding whether to invest and retain it for future reference.
A Statement of Additional Information, dated March 25, 2002 and as may be
supplemented, containing additional information about the Fund, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
its entirety into this Prospectus. You may request a free copy of the Statement
of Additional Information, the table of contents of which is on page 40 this
Prospectus, by calling (800) 257-8787 or by writing to the Fund, or you may
obtain a copy (and other information regarding the Fund) from the Securities
and Exchange Commission web site (http://www.sec.gov).

   The Fund's common shares do not represent a deposit or obligation of, and
are not guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.

   The underwriters named in this Prospectus may purchase up to 4,005,000
additional common shares from the Fund under certain circumstances.

                                      2

<PAGE>

   You should rely only on the information contained or incorporated by
reference in this Prospectus. The Fund has not authorized anyone to provide you
with different information. The Fund is not making an offer of these securities
in any state where the offer is not permitted. You should not assume that the
information contained in this Prospectus is accurate as of any date other than
the date on the front of this Prospectus.

                                 -------------

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                     Page
                                                                     ----
       <S>                                                           <C>
       Prospectus Summary...........................................   4
       Summary of Fund Expenses.....................................  10
       The Fund.....................................................  12
       Use of Proceeds..............................................  12
       The Fund's Investments.......................................  12
       MuniPreferred Shares and Leverage............................  19
       Risks........................................................  21
       How the Fund Manages Risk....................................  24
       Management of the Fund.......................................  25
       Net Asset Value..............................................  27
       Distributions................................................  27
       Dividend Reinvestment Plan...................................  27
       Description of Shares........................................  28
       Certain Provisions in the Declaration of Trust...............  31
       Repurchase of Fund Shares; Conversion to Open-End Fund.......  32
       Tax Matters..................................................  33
       Other Matters................................................  34
       Underwriting.................................................  36
       Custodian and Transfer Agent.................................  39
       Legal Opinions...............................................  39
       Table of Contents for the Statement of Additional Information  40
</TABLE>

                                 -------------

   Until April 19, 2002 (25 days after the date of this Prospectus), all
dealers that buy, sell or trade the common shares, whether or not participating
in this offering, may be required to deliver a Prospectus. This is in addition
to the dealers' obligation to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.

                                      3

<PAGE>

                              PROSPECTUS SUMMARY

   This is only a summary. You should review the more detailed information
contained elsewhere in this Prospectus and in the Statement of Additional
Information.

The Fund..............   Nuveen Insured Dividend Advantage Municipal Fund (the
                           "Fund") is a newly organized, diversified,
                           closed-end management investment company. See "The
                           Fund."

The Offering..........   The Fund is offering 26,700,000 common shares of
                           beneficial interest at $15.00 per share through a
                           group of underwriters (the "Underwriters") led by
                           Salomon Smith Barney Inc., Nuveen Investments
                           ("Nuveen"), A.G. Edwards & Sons, Inc., Prudential
                           Securities Incorporated, UBS Warburg LLC, Fahnestock
                           & Co. Inc., Ferris, Baker Watts, Inc., First Union
                           Securities, Inc., Gruntal & Co., L.L.C., Janney
                           Montgomery Scott LLC, Legg Mason Wood Walker,
                           Incorporated, McDonald Investments Inc., a KeyCorp
                           Company, Raymond James & Associates, Inc., RBC Dain
                           Rauscher, Inc., SunTrust Capital Markets, Inc., and
                           Wells Fargo Securities, LLC. The common shares of
                           beneficial interest are called "Common Shares" in
                           the rest of this Prospectus. You must purchase at
                           least 100 Common Shares. The Fund has given the
                           Underwriters an option to purchase up to 4,005,000
                           additional Common Shares to cover orders in excess
                           of 26,700,000 Common Shares. See "Underwriting."
                           Nuveen has agreed to pay (i) all organizational
                           expenses and (ii) offering costs (other than sales
                           load) that exceed $0.03 per Common Share.

Investment Objectives.   The Fund's investment objectives are to provide
                           current income exempt from regular federal income
                           tax and enhance portfolio value relative to the
                           municipal bond market by investing in tax-exempt
                           municipal bonds that the Fund's investment adviser
                           believes are underrated or undervalued or that
                           represent municipal market sectors that are
                           undervalued. Under normal circumstances, the Fund
                           will invest at least 80% of its net assets in a
                           portfolio of municipal bonds that are exempt from
                           regular federal income taxes and that are covered by
                           insurance guaranteeing the timely payment of
                           principal and interest thereon. The Fund also may
                           invest up to 20% of its net assets in (i) uninsured
                           municipal bonds that are backed by an escrow or
                           trust account containing sufficient U.S. Government
                           or U.S. Government agency securities to ensure
                           timely payment of principal and interest, or (ii)
                           other municipal bonds that are rated, at the time of
                           investment, within the four highest grades (Baa or
                           BBB or better by Moody's Investor Service, Inc.
                           ("Moody's"), Standard & Poor's, a division of The
                           McGraw-Hill Companies ("S&P") or Fitch Ratings
                           ("Fitch")), or bonds that are unrated but judged to
                           be of comparable quality by the Fund's investment
                           adviser. Under normal circumstances, the Fund
                           expects to be fully invested in the tax-

                                      4

<PAGE>

                           exempt municipal bonds noted above.  The Fund cannot
                           assure you that it will attain its investment
                           objectives. See "The Fund's Investments."

Special Considerations   The Fund expects that a substantial portion of its
                           investments will pay interest that is taxable under
                           the federal alternative minimum tax. If you are, or
                           as a result of investment in the Fund would become,
                           subject to the federal alternative minimum tax, the
                           Fund may not be a suitable investment for you. In
                           addition, distributions of ordinary taxable income
                           (including any net short-term capital gain) will be
                           taxable to shareholders as ordinary income, and
                           capital gain dividends will be subject to capital
                           gains taxes. See "Tax Matters."

Proposed Offering of
MuniPreferred(R) Shares  Subject to market conditions, approximately one to
                           three months after completion of this offering, the
                           Fund intends to offer preferred shares of beneficial
                           interest ("MuniPreferred Shares") representing
                           approximately 35% of the Fund's capital after their
                           issuance. The issuance of MuniPreferred Shares will
                           leverage your investment in Common Shares. Leverage
                           involves special risks. There is no assurance that
                           the Fund will issue MuniPreferred Shares or that, if
                           issued, the Fund's leveraging strategy will be
                           successful. See "Risks--Leverage Risk." The money
                           the Fund obtains by selling the MuniPreferred Shares
                           will be invested in long-term municipal bonds, which
                           generally will pay fixed rates of interest over the
                           life of the bond. The MuniPreferred Shares will pay
                           dividends based on shorter-term rates, which will be
                           reset frequently. So long as the rate of return, net
                           of applicable Fund expenses, on the long-term bonds
                           purchased by the Fund exceeds MuniPreferred Share
                           dividend rates as reset periodically, the investment
                           of the proceeds of the MuniPreferred Shares will
                           generate more income than will be needed to pay
                           dividends on the MuniPreferred Shares. If so, the
                           excess will be used to pay higher dividends to
                           holders of Common Shares ("Common Shareholders").
                           However, the Fund cannot assure you that the
                           issuance of MuniPreferred Shares will result in a
                           higher yield on your Common Shares. Once
                           MuniPreferred Shares are issued, the net asset value
                           and market price of the Common Shares and the yield
                           to Common Shareholders will be more volatile. See
                           "MuniPreferred Shares and Leverage" and "Description
                           of Shares--MuniPreferred Shares."

Investment Adviser....   Nuveen Advisory Corp. ("Nuveen Advisory") will be the
                           Fund's investment adviser. Nuveen Advisory will
                           receive an annual fee, payable monthly, in a maximum
                           amount equal to .65% of the Fund's average daily net
                           assets (including assets attributable to any
                           MuniPreferred Shares that may be outstanding), with
                           lower fee levels for assets that exceed $125
                           million. Nuveen Advisory has contractually agreed to
                           reimburse the Fund for fees and expenses in

                                      5

<PAGE>

                           the amount of .30% of average daily net assets of
                           the Fund for the first five full years of the Fund's
                           operations (through March 31, 2007), and for a
                           declining amount for an additional five years
                           (through March 31, 2012). Nuveen Advisory is a
                           wholly owned subsidiary of The John Nuveen Company.
                           See "Management of the Fund."

Distributions.........   Commencing with the Fund's first dividend, the Fund
                           intends to make regular monthly cash distributions
                           to Common Shareholders at a level rate based on the
                           projected performance of the Fund. The Fund's
                           ability to maintain a level Common Share dividend
                           rate will depend on a number of factors, including
                           dividends payable on the MuniPreferred Shares. As
                           portfolio and market conditions change, the rate of
                           dividends on the Common Shares and the Fund's
                           dividend policy could change. Over time, the Fund
                           will distribute all of its net investment income
                           (after it pays accrued dividends on any outstanding
                           MuniPreferred Shares). In addition, at least
                           annually, the Fund intends to distribute net capital
                           gain and taxable ordinary income, if any, to you so
                           long as the net capital gain and taxable ordinary
                           income are not necessary to pay accrued dividends
                           on, or redeem or liquidate, any MuniPreferred
                           Shares. Your initial distribution is expected to be
                           declared approximately 45 days, and paid
                           approximately 60 to 90 days, from the completion of
                           this offering, depending on market conditions. You
                           may elect to automatically reinvest some or all of
                           your distributions in additional Common Shares under
                           the Fund's Dividend Reinvestment Plan. See
                           "Distributions" and "Dividend Reinvestment Plan."

Listing...............   The Common Shares have been approved for listing on
                           the American Stock Exchange, subject to notice of
                           issuance. See "Description of Shares--Common
                           Shares." The trading or "ticker" symbol of the
                           Common Shares is expected to be "NVG."

Custodian.............   JPMorgan Chase Bank will serve as custodian of the
                           Fund's assets. See "Custodian and Transfer Agent."

Market Price of Shares   Shares of closed-end investment companies frequently
                           trade at prices lower than net asset value. Shares
                           of closed-end investment companies like the Fund
                           that invest predominately in investment grade
                           municipal bonds have during some periods traded at
                           prices higher than net asset value and during other
                           periods have traded at prices lower than net asset
                           value. The Fund cannot assure you that Common Shares
                           will trade at a price higher than net asset value in
                           the future. Net asset value will be reduced
                           immediately following the offering by the sales load
                           and the amount of organization and offering expenses
                           paid by the Fund. See "Use of Proceeds." In addition
                           to net asset value, market price may be affected by
                           such factors as dividend levels (which are in turn
                           affected by expenses), call protection, dividend
                           stability, portfolio credit quality and liquidity
                           and market supply and demand. See "MuniPreferred
                           Shares

                                      6

<PAGE>

                           and Leverage," "Risks," "Description of Shares,"
                           "Repurchase of Fund Shares; Conversion to Open-End
                           Fund" and the Statement of Additional Information
                           under "Repurchase of Fund Shares; Conversion to
                           Open-End Fund." The Common Shares are designed
                           primarily for long-term investors, and you should
                           not view the Fund as a vehicle for trading purposes.

Special Risk
Considerations........   No Operating History.  The Fund is a newly organized,
                           diversified, closed-end management investment
                           company with no history of operations.

                         Interest Rate Risk.  Generally, when market interest
                           rates fall, bond prices rise, and vice versa.
                           Interest rate risk is the risk that the municipal
                           bonds in the Fund's portfolio will decline in value
                           because of increases in market interest rates. The
                           prices of longer-term bonds fluctuate more than
                           prices of shorter-term bonds as interest rates
                           change. Conversely, the values of lower-rated and
                           comparable unrated debt securities are less likely
                           than those of investment grade and comparable
                           unrated debt securities to fluctuate inversely with
                           changes in interest rates. Because the Fund will
                           invest primarily in long-term bonds, the Common
                           Share net asset value and market price per share
                           will fluctuate more in response to changes in market
                           interest rates than if the Fund invested primarily
                           in shorter-term bonds. The Fund's use of leverage,
                           as described below, will tend to increase Common
                           Share interest rate risk. See "Risks--Interest Rate
                           Risk."

                         Credit Risk.  Credit risk is the risk that one or more
                           municipal bonds in the Fund's portfolio will decline
                           in price, or fail to pay interest or principal when
                           due, because the issuer of the bond experiences a
                           decline in its financial status. See "Risks--Credit
                           Risk."

                         Leverage Risk.  The use of leverage through the
                           issuance of MuniPreferred Shares creates an
                           opportunity for increased Common Share net income
                           and returns, but also creates special risks for
                           Common Shareholders. There is no assurance that the
                           Fund's leveraging strategy will be successful. It is
                           anticipated that MuniPreferred dividends will be
                           based on shorter-term municipal bond rates of return
                           (which would be redetermined periodically, pursuant
                           to an auction process), and that the Fund will
                           invest the proceeds of the MuniPreferred Shares
                           offering in long-term, typically fixed rate,
                           municipal bonds. So long as the Fund's municipal
                           bond portfolio provides a higher rate of return (net
                           of Fund expenses) than the MuniPreferred dividend
                           rate, as reset periodically, the leverage will cause
                           Common Shareholders to receive a higher current rate
                           of return than if the Fund were not leveraged. If,
                           however, long and/or short-term rates rise, the
                           MuniPreferred dividend rate could exceed the rate of
                           return on long-term bonds held by the Fund that were

                                      7

<PAGE>

                           acquired during periods of generally lower interest
                           rates, reducing return to Common Shareholders. In
                           addition, the Fund will pay (and Common Shareholders
                           will bear) any costs and expenses relating to the
                           issuance and ongoing maintenance of the
                           MuniPreferred Shares (for example, distribution
                           related expenses such as a participation fee paid at
                           what it expects will be an annual rate of 0.25% of
                           MuniPreferred Share liquidation preference to
                           broker-dealers participating in MuniPreferred Share
                           auctions). Leverage creates two major types of risks
                           for Common Shareholders:

                            .   the likelihood of greater volatility of net
                                asset value and market price of Common Shares,
                                because changes in the value of the Fund's bond
                                portfolio (including bonds bought with the
                                proceeds of the MuniPreferred Shares offering)
                                are borne entirely by the Common Shareholders;
                                and

                            .   the possibility either that Common Share income
                                will fall if the MuniPreferred dividend rate
                                rises, or that Common Share income will
                                fluctuate because the MuniPreferred dividend
                                rate varies.

                           See "Risks--Leverage Risk."

                         Municipal Bond Market Risk.  The amount of public
                           information available about the municipal bonds in
                           the Fund's portfolio is generally less than that for
                           corporate equities or bonds, and the investment
                           performance of the Fund may therefore be more
                           dependent on the analytical abilities of Nuveen
                           Advisory than if the Fund were a stock fund or
                           taxable bond fund. The secondary market for
                           municipal bonds also tends to be less well-developed
                           or liquid than many other securities markets, which
                           may adversely affect the Fund's ability to sell its
                           bonds at attractive prices. See "Risks--Municipal
                           Bond Market Risk."

                  MunicipalBond Insurance.  In the event Moody's, S&P or Fitch
                           (or all of them) should downgrade its assessment of
                           the claims-paying ability of a particular insurer,
                           it (or they) could also be expected to downgrade the
                           ratings assigned to municipal bonds insured by such
                           insurer, and municipal bonds insured under Portfolio
                           Insurance (as defined below) issued by such insurer
                           also would be of reduced quality in the portfolio of
                           the Fund. Any such downgrade could have an adverse
                           impact on the net asset value and market price of
                           the Common Shares.

                           In addition, the Fund may be subject to certain
                           restrictions on investments imposed by guidelines of
                           the insurance companies issuing Portfolio Insurance.
                           The Fund does not expect these guidelines to prevent
                           Nuveen Advisory from managing the Fund's portfolio
                           in accordance with the Fund's investment objective
                           and policies.

                                      8

<PAGE>

                         Anti-Takeover Provisions.  The Fund's Declaration of
                           Trust (the "Declaration") includes provisions that
                           could limit the ability of other entities or persons
                           to acquire control of the Fund or convert the Fund
                           to open-end status. The provisions of the
                           Declaration described above could have the effect of
                           depriving the Common Shareholders of opportunities
                           to sell their Common Shares at a premium over the
                           then current market price of the Common Shares. See
                           "Certain Provisions in the Declaration of Trust" and
                           "Risks--Anti-Takeover Provisions."

                                      9

<PAGE>

                           SUMMARY OF FUND EXPENSES

   The following table assumes the issuance of MuniPreferred Shares in an
amount equal to 35% of the Fund's capital (after their issuance), and shows
Fund expenses both as a percentage of net assets attributable to Common Shares
and as a percentage of total net assets.

<TABLE>
<S>                                                        <C>
Shareholder Transaction Expenses
Sales Load Paid by You (as a percentage of offering price)        4.50%
Dividend Reinvestment Plan Fees...........................        None(1)

                                                            Percentage of Net
                                                           Assets Attributable
                                                           to Common Shares(2)
                                                           -------------------
Annual Expenses
Management Fees...........................................         .98%
Other Expenses............................................         .31%

                                                                  ----
Total Annual Expenses.....................................        1.29%
Fee and Expense Reimbursement (Years 1-5).................        (.46%)(3)

                                                                  ----
Total Net Annual Expenses (Years 1-5).....................         .83%(3)

                                                                  ----
</TABLE>
- --------
(1)You will be charged a $2.50 service charge and pay brokerage charges if you
   direct the Plan Agent to sell your Common Shares held in a dividend
   reinvestment account.

(2)Stated as percentages of the Fund's total net assets, and again assuming the
   issuance of MuniPreferred Shares in an amount equal to 35% of the Fund's
   capital (after their issuance), the Fund's expenses would be estimated to be
   as follows:
<TABLE>
<CAPTION>
                                                                      Percentage
                                                                       of Total
                                                                         Net
                                                                        Assets
                                                                      ----------
<S>                                                                   <C>
Annual Expenses
Management Fees......................................................     .64%
Other Expenses.......................................................     .20%

                                                                         ----
Total Annual Expenses................................................     .84%
Fees and Expense Reimbursement (Years 1-5)...........................    (.30%)(3)

                                                                         ----
Total Net Annual Expenses (Years 1-5)................................     .54%(3)

                                                                         ----
</TABLE>

(3)Nuveen Advisory has contractually agreed to reimburse the Fund for fees and
   expenses in the amount of .30% of average daily net assets for the first 5
   full years of the Fund's operations, .25% of average daily net assets in
   year 6, .20% in year 7, .15% in year 8, .10% in year 9 and .05% in year 10.
   Without the reimbursement, "Total Net Annual Expenses" would be estimated to
   be 1.29% of average daily net assets attributable to Common Shares and .84%
   of average daily net assets. Nuveen has agreed to pay (i) all organizational
   expenses and (ii) offering costs (other than sales load) that exceed $0.03
   per Common Share (.20% of offering price).

   The purpose of the table above is to help you understand all fees and
expenses that you, as a Common Shareholder, would bear directly or indirectly.
The expenses shown in the table are based on estimated amounts for the Fund's
first year of operations and assume that the Fund issues approximately
15,000,000 Common Shares. See "Management of the Fund" and "Dividend
Reinvestment Plan."

                                      10

<PAGE>

   The following example illustrates the expenses (including the sales load of
$45) that you would pay on a $1,000 investment in Common Shares, assuming (1)
total net annual expenses of .83% of net assets attributable to Common Shares
in years 1 through 5, increasing to 1.22% in year 10 and (2) a 5% annual
return:(1)

                       1 Year 3 Years 5 Years 10 Years(2)
                       ------ ------- ------- -----------
                        $53     $70     $89      $158

   The example should not be considered a representation of future expenses.
Actual expenses may be higher or lower.
- --------
(1)The example assumes that the estimated Other Expenses set forth in the
   Annual Expenses table are accurate, that fees and expenses increase as
   described in note 2 below and that all dividends and distributions are
   reinvested at net asset value. Actual expenses may be greater or less than
   those assumed. Moreover, the Fund's actual rate of return may be greater or
   less than the hypothetical 5% return shown in the example. The Fund's
   expenses stated as a percentage of the Fund's total net assets and otherwise
   based on the assumptions in the example would be: 1 year $50; 3 years $62;
   5 years $74; and 10 years $120.
(2)Assumes reimbursement of fees and expenses of .25% of average daily net
   assets in year 6, .20% in year 7, .15% in year 8, .10% in year 9 and .05% in
   year 10. Nuveen Advisory has not agreed to reimburse the Fund for any
   portion of its fees and expenses beyond March 31, 2012. See "Management of
   the Fund--Investment Management Agreement."

                                      11

<PAGE>

                                   THE FUND

   The Fund is a newly organized, diversified, closed-end management investment
company registered under the 1940 Act. The Fund was organized as a
Massachusetts business trust on July 12, 1999, pursuant to a Declaration
governed by the laws of the Commonwealth of Massachusetts. As a newly organized
entity, the Fund has no operating history. The Fund's principal office is
located at 333 West Wacker Drive, Chicago, Illinois 60606, and its telephone
number is (800) 257-8787.

                                USE OF PROCEEDS

   The net proceeds of the offering of Common Shares will be approximately
$381,676,500 ($438,927,975 if the Underwriters exercise the over-allotment
option in full) after payment of the estimated organization and offering costs.
Nuveen has agreed to pay (i) all organizational expenses and (ii) offering
costs (other than sales load) that exceed $0.03 per Common Share. The Fund will
invest the net proceeds of the offering in accordance with the Fund's
investment objectives and policies as stated below. It is presently anticipated
that the Fund will be able to invest substantially all of the net proceeds in
municipal bonds that meet those investment objectives and policies within three
months after the completion of the offering. Pending such investment, it is
anticipated that the proceeds will be invested in short-term, tax-exempt
securities.

                            THE FUND'S INVESTMENTS

Investment Objectives and Policies

   The Fund's investment objectives are:

  .  to provide current income exempt from regular federal income tax; and

  .  to enhance portfolio value relative to the municipal bond market by
     investing in tax-exempt municipal bonds that Nuveen Advisory believes are
     underrated or undervalued or that represent municipal market sectors that
     are undervalued.

   Underrated municipal bonds are those whose ratings do not, in Nuveen
Advisory's opinion, reflect their true creditworthiness. Undervalued municipal
bonds are bonds that, in Nuveen Advisory's opinion, are worth more than the
value assigned to them in the marketplace. Nuveen Advisory may at times believe
that bonds associated with a particular municipal market sector (for example,
electric utilities), or issued by a particular municipal issuer, are
undervalued. Nuveen Advisory may purchase such a bond for the Fund's portfolio
because it represents a market sector or issuer that Nuveen Advisory considers
undervalued, even if the value of the particular bond appears to be consistent
with the value of similar bonds. Municipal bonds of particular types (e.g.,
hospital bonds, industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a temporary excess of
supply in that market sector, or because of a general decline in the market
price of municipal bonds of the market sector for reasons that do not apply to
the particular municipal bonds that are considered undervalued. The Fund's
investment in underrated or undervalued municipal bonds will be based on Nuveen
Advisory's belief that their yield is higher than that available on bonds
bearing equivalent levels of interest rate risk, credit risk and other forms of
risk, and that their prices will ultimately rise (relative to the market) to
reflect their true value. The Fund attempts to increase its portfolio value
relative to the municipal bond market by prudent selection of municipal bonds
regardless of the direction the market may move. Any capital appreciation
realized by the Fund will generally result in the distribution of taxable
capital gains to Common Shareholders.

                                      12

<PAGE>

   Under normal market conditions, the Fund will invest at least 80% of its net
assets in a portfolio of municipal bonds that are exempt from regular federal
income taxes and that are covered by insurance guaranteeing the timely payment
of principal and interest thereon. The Fund also may invest up to 20% of its
net assets in (i) uninsured municipal bonds that are backed by an escrow or
trust account containing sufficient U.S. Government or U.S. Government agency
securities to ensure timely payment of principal and interest, or (ii) other
municipal bonds that are rated, at the time of investment, within the four
highest grades (Baa or BBB or better by Moody's, S&P or Fitch) or are unrated
but judged to be of comparable quality by Nuveen Advisory. Under normal market
conditions, the Fund expects to be fully invested (at least 95% of its assets)
in such tax-exempt municipal bonds. The foregoing credit quality policy applies
only at the time a security is purchased, and the Fund is not required to
dispose of a security in the event that a rating agency downgrades its
assessment of the credit characteristics of a particular issue. In determining
whether to retain or sell such a security, Nuveen Advisory may consider such
factors as Nuveen Advisory's assessment of the credit quality of the issuer of
such security, the price at which such security could be sold and the rating,
if any, assigned to such security by other rating agencies. A general
description of Moody's, S&P's and Fitch's ratings of municipal bonds is set
forth in Appendix A to the Statement of Additional Information. The Fund may
also invest in securities of other open- or closed-end investment companies
that invest primarily in municipal bonds of the types in which the Fund may
invest directly. See "--Other Investment Companies."

   Each insured municipal bond that the Fund acquires will be (1) covered by an
insurance policy applicable to a specific security and obtained by the issuer
of the security or a third party at the time of original issuance ("Original
Issue Insurance"), (2) covered by an insurance policy applicable to a specific
security and obtained by the Fund or a third party subsequent to the time of
original issuance ("Secondary Market Insurance"), or (3) covered by a master
municipal insurance policy purchased by the Fund ("Portfolio Insurance"). The
Fund, as a non-fundamental policy that can be changed by the Board of Trustees,
only will buy Portfolio Insurance from insurers whose claims-paying ability
Moody's rates "Aaa" or S&P or Fitch rates "AAA."

   The Fund also may invest up to 20% of its net assets in uninsured municipal
bonds that are entitled to the benefit of an escrow or trust account that
contains securities issued or guaranteed by the U.S. Government or U.S.
Government agencies backed by the full faith and credit of the United States,
and sufficient in amount to ensure the payment of interest and principal on the
original interest payment and maturity dates ("collateralized obligations").
These collateralized obligations generally will not be insured and will
include, but are not limited to, municipal bonds that have been (1) advance
refunded where the proceeds of the refunding have been used to buy U.S.
Government or U.S. Government agency securities that are placed in escrow and
whose interest or maturing principal payments, or both, are sufficient to cover
the remaining scheduled debt service on that municipal bond; or (2) issued
under state or local housing finance programs that use the issuance proceeds to
fund mortgages that are then exchanged for U.S. Government or U.S. Government
agency securities and deposited with a trustee as security for those municipal
bonds. These collaterlized obligations are normally regarded as having the
credit characteristics of the underlying U.S. Government or U.S. Government
agency securities.

   The credit quality of companies that provide insurance on bonds will affect
the value of those bonds. Although the insurance feature reduces certain
financial risks, the premiums for insurance and the higher market price paid
for insured obligations may reduce the Fund's income. Insurance generally will
be obtained from insurers with a claims-paying ability rated Aaa by Moody's or
AAA by S&P or Fitch. The insurance feature does not guarantee the market value
of the insured obligations or the net asset value of the Common Shares.

                                      13

<PAGE>

   Upon Nuveen Advisory's recommendation, during temporary defensive periods
and in order to keep the Fund's cash fully invested, including the period
during which the net proceeds of the offering are being invested, the Fund may
invest up to 100% of its net assets in short-term investments including high
quality, short-term securities that may be either tax-exempt or taxable. The
Fund intends to invest in taxable short-term investments only in the event that
suitable tax-exempt short-term investments are not available at reasonable
prices and yields. Investment in taxable short-term investments would result in
a portion of your dividends being subject to regular federal income taxes. For
more information, see the Statement of Additional Information.

   The Fund cannot change its investment objectives without the approval of the
holders of a "majority of the outstanding" Common Shares and MuniPreferred
Shares voting together as a single class, and of the holders of a "majority of
the outstanding" MuniPreferred Shares voting as a separate class. When used
with respect to particular shares of the Fund, a "majority of the outstanding"
shares 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. See "Description of
Shares--MuniPreferred Shares--Voting Rights" and the Statement of Additional
Information under "Description of Shares--MuniPreferred Shares--Voting Rights"
for additional information with respect to the voting rights of holders of
MuniPreferred Shares.

   If you are, or as a result of investment in the Fund would become, subject
to the federal alternative minimum tax, the Fund may not be a suitable
investment for you because the Fund expects that a substantial portion of its
investments will pay interest that is taxable under the federal alternative
minimum tax. Special rules apply to corporate holders. In addition, capital
gain dividends will be subject to capital gains taxes. See "Tax Matters."

Municipal Bonds

   Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial
development and pollution control projects. General obligation bonds are backed
by the full faith and credit, or taxing authority, of the issuer and may be
repaid from any revenue source; revenue bonds may be repaid only from the
revenues of a specific facility or source. The Fund also may purchase municipal
bonds that represent lease obligations. These carry special risks because the
issuer of the bonds may not be obligated to appropriate money annually to make
payments under the lease. In order to reduce this risk, the Fund will only
purchase municipal bonds representing lease obligations where Nuveen Advisory
believes the issuer has a strong incentive to continue making appropriations
until maturity.

   The municipal bonds in which the Fund will invest are generally issued by
states, municipalities and local authorities and certain possessions and
territories of the United States (such as Puerto Rico or Guam), and pay
interest that, in the opinion of bond counsel to the issuer (or on the basis of
other authority believed by Nuveen Advisory to be reliable), is exempt from
regular federal income taxes, although the interest may be subject to the
federal alternative minimum tax. The Fund may invest in municipal bonds issued
by United States territories (such as Puerto Rico or Guam) that are exempt from
regular federal income taxes.

                                      14

<PAGE>

   The yields on municipal bonds depend on a variety of factors, including
prevailing interest rates and the condition of the general money market and the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The market value of municipal bonds
will vary with changes in interest rate levels and as a result of changing
evaluations of the ability of their issuers to meet interest and principal
payments.

   The Fund will primarily invest in municipal bonds with long-term maturities
in order to maintain a weighted average maturity of 15-30 years, but the
weighted average maturity of obligations held by the Fund may be shortened,
depending on market conditions. The Fund generally will select obligations
which may not be redeemed at the option of the issuer for approximately seven
to nine years.

Municipal Bond Insurance

   Each insured municipal bond the Fund acquires will be covered by Original
Issue Insurance, Secondary Market Insurance or Portfolio Insurance. The Fund
expects initially to emphasize investments in municipal bonds insured under
bond-specific insurance policies (i.e.,Original Issue or Secondary Market
Insurance). The Fund may obtain Portfolio Insurance from the insurers described
in Appendix C to the Statement of Additional Information. The Fund, as a
non-fundamental policy that can be changed by the Board of Trustees, will only
obtain policies of Portfolio Insurance issued by insurers whose claims-paying
ability is rated "Aaa" by Moody's or "AAA" by S&P or Fitch. There is no limit
on the percentage of the Fund's assets that may be invested in municipal bonds
insured by any one insurer.

   Municipal bonds covered by Original Issue Insurance or Secondary Market
Insurance are themselves typically assigned a rating of "Aaa" or "AAA", as the
case may be, by virtue of the rating of the "Aaa" or "AAA" claims-paying
ability of the insurer and would generally be assigned a lower rating if the
ratings were based primarily upon the credit characteristics of the issuer
without regard to the insurance feature. By way of contrast, the ratings, if
any, assigned to municipal bonds insured under Portfolio Insurance will be
based primarily upon the credit characteristics of the issuer, without regard
to the insurance feature, and generally will carry a rating that is below "Aaa"
or "AAA." While in the portfolio of the Fund, however, a municipal bond backed
by Portfolio Insurance will effectively be of the same credit quality as a
municipal bond issued by an issuer of comparable credit characteristics that is
backed by Original Issue Insurance or Secondary Market Insurance.

   The Fund's policy of investing in municipal bonds insured by insurers whose
claims-paying ability is rated "Aaa" or "AAA" applies only at the time of
purchase of a security, and the Fund will not be required to dispose of the
securities in the event Moody's, S&P or Fitch, as the case may be, downgrades
its assessment of the claims-paying ability of a particular insurer or the
credit characteristics of a particular issuer. In this connection, it should be
noted that in the event Moody's, S&P or Fitch (or all of them) should downgrade
its assessment of the claims-paying ability of a particular insurer, it (or
they) could also be expected to downgrade the ratings assigned to municipal
bonds insured by such insurer, and municipal bonds insured under Portfolio
Insurance issued by such insurer also would be of reduced quality in the
portfolio of the Fund. Moody's, S&P and Fitch continually assess the
claims-paying ability of insurers and the credit characteristics of issuers,
and there can be no assurance that they will not downgrade their assessments
subsequent to the time the Fund purchases securities.

   The value of municipal bonds covered by Portfolio Insurance that are in
default or in significant risk of default will be determined by separately
establishing a value for the municipal bond and a value for the Portfolio
Insurance.

                                      15

<PAGE>

   Original Issue Insurance. Original Issue Insurance is purchased with respect
to a particular issue of municipal bonds by the issuer thereof or a third party
in conjunction with the original issuance of such municipal bonds. Under this
insurance, the insurer unconditionally guarantees to the holder of the
municipal bond the timely payment of principal and interest on such obligations
when and as these payments become due but not paid by the issuer, except that
in the event of the acceleration of the due date of the principal by reason of
mandatory or optional redemption (other than acceleration by reason of a
mandatory sinking fund payment), default or otherwise, the payments guaranteed
may be made in the amounts and at the times as payment of principal would have
been due had there not been any acceleration. The insurer is responsible for
these payments less any amounts received by the holder from any trustee for the
municipal bond issuer or from any other source. Original Issue Insurance does
not guarantee payment on an accelerated basis, the payment of any redemption
premium (except with respect to certain premium payments in the case of certain
small issue industrial development and pollution control municipal bonds), the
value of the Fund's shares, the market value of municipal bonds, or payments of
any tender purchase price upon the tender of the municipal bonds. Original
Issue Insurance also does not insure against nonpayment of principal or
interest on municipal bonds resulting from the insolvency, negligence or any
other act or omission of the trustee or other paying agent for these bonds.

   Original Issue Insurance remains in effect as long as the municipal bonds it
covers remain outstanding and the insurer remains in business, regardless of
whether the Fund ultimately disposes of these municipal bonds. Consequently,
Original Issue Insurance may be considered to represent an element of market
value with respect to the municipal bonds so insured, but the exact effect, if
any, of this insurance on the market value cannot be estimated.

   Secondary Market Insurance. Subsequent to the time of original issuance of a
municipal bond, the Fund or a third party may, upon the payment of a single
premium, purchase insurance on that security. Secondary Market Insurance
generally provides the same type of coverage as Original Issue Insurance and,
as with Original Issue Insurance, Secondary Market Insurance remains in effect
as long as the municipal bonds it covers remain outstanding and the insurer
remains in business, regardless of whether the Fund ultimately disposes of
these municipal bonds.

   One of the purposes of acquiring Secondary Market Insurance with respect to
a particular municipal bond would be to enable the Fund to enhance the value of
the security. The Fund, for example, might seek to purchase a particular
municipal bond and obtain Secondary Market Insurance, for it if, in Nuveen
Advisory's opinion, the market value of the security, as insured, less the cost
of the Secondary Market Insurance would exceed the current value of the
security without insurance. Similarly, if the Fund owns but wishes to sell a
municipal bond that is then covered by Portfolio Insurance, the Fund might seek
to obtain Secondary Market Insurance for it if, in Nuveen Advisory's opinion,
the net proceeds of the Fund's sale of the security, as insured, less the cost
of the Secondary Market Insurance would exceed the current value of the
security. In determining whether to insure municipal bonds the Fund owns, an
insurer will apply its own standards, which correspond generally to the
standards it has established for determining the insurability of new issues of
municipal bonds. See "--Original Issue Insurance" above.

   Portfolio Insurance. Portfolio Insurance guarantees the payment of principal
and interest on specified eligible municipal bonds purchased by the Fund.
Except as described below, Portfolio Insurance generally provides the same type
of coverage as is provided by Original Issue Insurance or Secondary Market
Insurance. Municipal bonds insured under a Portfolio Insurance policy would

                                      16

<PAGE>

generally not be insured under any other policy. A municipal bond is eligible
for coverage under a policy if it meets certain requirements of the insurer.
Portfolio Insurance is intended to reduce financial risk, but the cost thereof
and compliance with investment restrictions imposed under the policy will
reduce the yield to shareholders of the Fund.

   If a municipal bond is already covered by Original Issue Insurance or
Secondary Market Insurance, then the security is not required to be
additionally insured under any Portfolio Insurance that the Fund may purchase.
All premiums respecting municipal bonds covered by Original Issue Insurance or
Secondary Market Insurance are paid in advance by the issuer or other party
obtaining the insurance.

   Portfolio Insurance policies are effective only as to municipal bonds owned
by and held by the Fund, and do not cover municipal bonds for which the
contract for purchase fails. A "when-issued" municipal obligation will be
covered under a Portfolio Insurance policy upon the settlement date of the
issue of such "when-issued" municipal bond.

   In determining whether to insure municipal bonds held by the Fund, an
insurer will apply its own standards, which correspond generally to the
standards it has established for determining the insurability of new issues of
municipal bonds. See "--Original Issue Insurance" above.

   Each Portfolio Insurance policy will be noncancellable and will remain in
effect so long as the Fund is in existence, the municipal bonds covered by the
policy continue to be held by the Fund, and the Fund pays the premiums for the
policy. Each insurer will generally reserve the right at any time upon 90 days'
written notice to the Fund to refuse to insure any additional bonds purchased
by the Fund after the effective date of such notice. The Fund's Board of
Trustees generally will reserve the right to terminate each policy upon seven
days' written notice to an insurer if it determines that the cost of such
policy is not reasonable in relation to the value of the insurance to the Fund.

   Each Portfolio Insurance policy will terminate as to any municipal bond that
has been redeemed from or sold by the Fund on the date of redemption or the
settlement date of sale, and an insurer will not have any liability thereafter
under a policy for any municipal bond, except that if the redemption date or
settlement date occurs after a record date and before the related payment date
for any municipal bond, the policy will terminate for that municipal bond on
the business day immediately following the payment date. Each policy will
terminate as to all municipal bonds covered thereby on the date on which the
last of the covered municipal bonds mature, are redeemed or are sold by the
Fund.

   One or more Portfolio Insurance policies may provide the Fund, pursuant to
an irrevocable commitment of the insurer, with the option to exercise the right
to obtain permanent insurance ("Permanent Insurance") for a municipal bond that
is sold by the Fund. The Fund would exercise the right to obtain Permanent
Insurance upon payment of a single, predetermined insurance premium payable
from the sale proceeds of the municipal bond. The Fund expects to exercise the
right to obtain Permanent Insurance for a municipal bond only if, in Nuveen
Advisory's opinion, upon the exercise the net proceeds from the sale of the
municipal bond, as insured, would exceed the proceeds from the sale of the
security without insurance.

   The Permanent Insurance premium for each municipal bond is determined based
upon the insurability of each security as of the date of purchase and will not
be increased or decreased for any change in the security's creditworthiness
unless the security is in default as to payment of principal or interest, or
both. If such event occurs, the Permanent Insurance premium will be subject to
an increase predetermined at the date of the Fund's purchase.

                                      17

<PAGE>

   The Fund generally intends to retain any insured bonds covered by Portfolio
Insurance that are in default or in significant risk of default and to place a
value on the insurance, which ordinarily will be the difference between the
market value of the defaulted bond and the market value of similar bonds of
minimum investment grade (that is, rated "Baa" or "BBB") that are not in
default. In certain circumstances, however, Nuveen Advisory may determine that
an alternative value for the insurance, such as the difference between the
market value of the defaulted bond and either its par value or the market value
of similar bonds that are not in default or in significant risk of default, is
more appropriate. Except as described above for bonds covered by Portfolio
Insurance that are in default or subject to significant risk of default, the
Fund will not place any value on the Portfolio Insurance in valuing the
municipal bonds it holds.

   Because each Portfolio Insurance policy will terminate for municipal bonds
sold by the Fund on the date of sale, in which event the insurer will be liable
only for those payments of principal and interest that are then due and owing
(unless Permanent Insurance is obtained by the Fund), the provision for this
insurance will not enhance the marketability of the Fund's bonds, whether or
not the bonds are in default or in significant risk of default. On the other
hand, because Original Issue Insurance and Secondary Market Insurance generally
will remain in effect as long as the municipal bonds they cover are
outstanding, these insurance policies may enhance the marketability of these
bonds even when they are in default or in significant risk of default, but the
exact effect, if any, on marketability, cannot be estimated. Accordingly, the
Fund may determine to retain or, alternatively, to sell municipal bonds covered
by Original Issue Insurance or Secondary Market Insurance that are in default
or in significant risk of default.

   Premiums for a Portfolio Insurance policy are paid monthly, and are adjusted
for purchases and sales of municipal bonds covered by the policy during the
month. The yield on the Fund is reduced to the extent of the insurance premiums
it pays. Depending upon the characteristics of the municipal bonds held by the
Fund, the annual premium rate for policies of Portfolio Insurance is estimated
to range from 12 to 18 basis points of the value of the municipal bonds covered
under the policy.

When-Issued and Delayed Delivery Transactions

   The Fund may buy and sell municipal bonds on a when-issued or delayed
delivery basis, making payment or taking delivery at a later date, normally
within 15 to 45 days of the trade date. This type of transaction may involve an
element of risk because no interest accrues on the bonds prior to settlement
and, because bonds are subject to market fluctuations, the value of the bonds
at time of delivery may be less (or more) than cost. A separate account of the
Fund will be established with its custodian consisting of cash, cash
equivalents, or liquid securities having a market value at all times at least
equal to the amount of the commitment.

Other Investment Companies

   The Fund may invest up to 10% of its net assets in securities of other open-
or closed-end investment companies that invest primarily in municipal bonds of
the types in which the Fund may invest directly. The Fund generally expects to
invest in other investment companies either during periods when it has large
amounts of uninvested cash, such as the period shortly after the Fund receives
the proceeds of the offering of its Common Shares or MuniPreferred Shares, or
during periods when

                                      18

<PAGE>

there is a shortage of attractive, high-yielding municipal bonds available in
the market. As a stockholder in an investment company, the Fund will bear its
ratable share of that investment company's expenses, and would remain subject
to payment of the Fund's advisory and administrative fees with respect to
assets so invested. Common Shareholders would therefore be subject to
duplicative expenses to the extent the Fund invests in other investment
companies. Nuveen Advisory will take expenses into account when evaluating the
investment merits of an investment in the investment company relative to
available municipal bond investments. In addition, the securities of other
investment companies may also be leveraged and will therefore be subject to the
same leverage risks described herein. As described in the section entitled
"Risks," the net asset value and market value of leveraged shares will be more
volatile and the yield to shareholders will tend to fluctuate more than the
yield generated by unleveraged shares.

                       MUNIPREFERRED SHARES AND LEVERAGE

   Subject to market conditions, approximately one to three months after the
completion of the offering of the Common Shares, the Fund intends to offer
MuniPreferred Shares representing approximately 35% of the Fund's capital
immediately after the issuance of the MuniPreferred Shares. The MuniPreferred
Shares will have complete priority upon distribution of assets over the Common
Shares. The issuance of MuniPreferred Shares will leverage the Common Shares.
Leverage involves special risks. There is no assurance that the Fund's
leveraging strategy will be successful. Although the timing and other terms of
the offering of the MuniPreferred Shares will be determined by the Fund's Board
of Trustees, the Fund expects to invest the proceeds of the MuniPreferred
Shares offering in long-term municipal bonds. The MuniPreferred Shares will pay
dividends based on shorter-term rates (which would be redetermined periodically
by an auction process). So long as the Fund's portfolio is invested in
securities that provide a higher rate of return than the dividend rate of the
MuniPreferred Shares (after taking expenses into consideration), the leverage
will cause you to receive a higher current rate of return than if the Fund were
not leveraged.

   Changes in the value of the Fund's bond portfolio (including bonds bought
with the proceeds of the MuniPreferred Shares offering) will be borne entirely
by the Common Shareholders. If there is a net decrease (or increase) in the
value of the Fund's investment portfolio, the leverage will decrease (or
increase) the net asset value per Common Share to a greater extent than if the
Fund were not leveraged. During periods in which the Fund is using leverage,
the fees paid to Nuveen Advisory for advisory services will be higher than if
the Fund did not use leverage because the fees paid will be calculated on the
basis of the Fund's total net assets, including the proceeds from the issuance
of MuniPreferred Shares.

   For tax purposes, the Fund is currently required to allocate net capital
gain and other taxable income, if any, between the Common Shares and
MuniPreferred Shares in proportion to total dividends paid to each class for
the year in which the net capital gain or other taxable income is realized. If
net capital gain or other taxable income is allocated to MuniPreferred Shares
(instead of solely tax-exempt income), the Fund will likely have to pay higher
total dividends to MuniPreferred Shareholders or make special payments to
MuniPreferred Shareholders to compensate them for the increased tax liability.
This would reduce the total amount of dividends paid to the Common
Shareholders, but would increase the portion of the dividend that is
tax-exempt. On an after-tax basis, Common Shareholders may still be better off
than if they had been allocated all of the Fund's net capital gain or other
taxable income (resulting in a higher amount of total dividends), but received
a lower amount of tax-exempt income. If

                                      19

<PAGE>

the increase in dividend payments or the special payments to MuniPreferred
Shareholders are not entirely offset by a reduction in the tax liability of,
and an increase in the tax-exempt dividends received by, the Common
Shareholders, the advantage of the Fund's leveraged structure to Common
Shareholders will be reduced.

   Under the 1940 Act, the Fund is not permitted to issue preferred shares
unless immediately after such issuance the value of the Fund's total net assets
is at least 200% of the liquidation value of the outstanding preferred shares
(i.e., such liquidation value may not exceed 50% of the Fund's total net
assets). In addition, the Fund is not permitted to declare any cash dividend or
other distribution on its Common Shares unless, at the time of such
declaration, the value of the Fund's total net assets is at least 200% of such
liquidation value. If MuniPreferred Shares are issued, the Fund intends, to the
extent possible, to purchase or redeem MuniPreferred Shares from time to time
to the extent necessary in order to maintain coverage of any MuniPreferred
Shares of at least 200%. If the Fund has MuniPreferred Shares outstanding, two
of the Fund's trustees will be elected by the holders of MuniPreferred Shares,
voting separately as a class. The remaining trustees of the Fund will be
elected by holders of Common Shares and MuniPreferred Shares voting together as
a single class. In the event the Fund failed to pay dividends on MuniPreferred
Shares for two years, MuniPreferred Shareholders would be entitled to elect a
majority of the trustees of the Fund.

   The Fund may be subject to certain restrictions imposed by guidelines of one
or more rating agencies which may issue ratings for MuniPreferred Shares issued
by the Fund. These guidelines may impose asset coverage or portfolio
composition requirements that are more stringent than those imposed on the Fund
by the 1940 Act. It is not anticipated that these covenants or guidelines will
impede Nuveen Advisory from managing the Fund's portfolio in accordance with
the Fund's investment objectives and policies.

   The Fund may also borrow money for repurchase of its shares or as a
temporary measure for extraordinary or emergency purposes, including the
payment of dividends and the settlement of securities transactions which
otherwise might require untimely dispositions of Fund securities.

   Assuming that the MuniPreferred Shares will represent in the aggregate
approximately 35% of the Fund's capital and pay dividends at an annual average
rate of 2.15%, the incremental income generated by the Fund's portfolio (net of
estimated expenses) must exceed .75% in order to cover such dividend payments
and other expenses specifically related to the MuniPreferred Shares. It is
anticipated that there will be a 5.35% yield on the Fund's investment
portfolio, net of expenses. Of course, these numbers are merely estimates, used
for illustration. Actual MuniPreferred Share dividend rates and the actual
investment portfolio yield will vary frequently and may be significantly higher
or lower than the rate and yield, respectively, assumed above.

   The following table is furnished in response to requirements of the
Securities and Exchange Commission. It is designed to illustrate the effect of
leverage on Common Share total return, assuming investment portfolio total
returns (comprised of income and changes in the value of bonds held in the
Fund's portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment
portfolio returns are hypothetical figures and are not necessarily indicative
of the investment portfolio returns expected to be experienced by the Fund. The
table further reflects the issuance of MuniPreferred Shares representing 35% of
the Fund's total capital and the Fund's currently projected annual
MuniPreferred Share dividend rate of 2.15%. See "Risks" and "MuniPreferred
Shares and Leverage."

                                      20

<PAGE>

<TABLE>
<S>                            <C>      <C>     <C>     <C>   <C>
Assumed Portfolio Total Return (10.00)% (5.00)%  0.00 % 5.00% 10.00%
Common Share Total Return..... (16.54)% (8.85)% (1.16)% 6.53% 14.23%
</TABLE>

   Common Share total return is composed of two elements--the Common Share
dividends paid by the Fund (the amount of which is largely determined by the
net investment income of the Fund after paying dividends on MuniPreferred
Shares) and gains or losses on the value of the securities the Fund owns. As
required by Securities and Exchange Commission rules, the table assumes that
the Fund is more likely to suffer capital losses than to enjoy capital
appreciation. For example, to assume a total return of 0%, the Fund must assume
that the tax-exempt interest it receives on its municipal bond investments is
entirely offset by losses in the value of those bonds.

   Unless and until MuniPreferred Shares are issued, the Common Shares will not
be leveraged and this section will not apply.

                                     RISKS

   The net asset value of the Common Shares will fluctuate with and be affected
by, among other things, interest rate risk, credit risk, reinvestment risk and
leverage risk, and an investment in Common Shares will be subject to market
discount risk, inflation risk and municipal bond market risk, each of which is
more fully described below.

   Newly Organized. The Fund is a newly organized, diversified, closed-end
management investment company and has no operating history.

   Market Discount Risk. Shares of closed-end management investment companies
frequently trade at a discount from their net asset value.

   Interest Rate Risk. Interest rate risk is the risk that bonds (and the
Fund's net assets) will decline in value because of changes in interest rates.
Generally, municipal bonds will decrease in value when interest rates rise and
increase in value when interest rates decline. This means that the net asset
value of the Common Shares will fluctuate with interest rate changes and the
corresponding changes in the value of the Fund's municipal bond holdings. The
value of the longer-term bonds in which the Fund generally invests fluctuates
more in response to changes in interest rates than does the value of
shorter-term bonds. Conversely, the values of lower-rated and comparable
unrated debt securities are less likely than those of investment grade and
comparable unrated debt securities to fluctuate inversely with changes in
interest rates. Because the Fund will invest primarily in long-term bonds, the
Common Share net asset value and market price per share will fluctuate more in
response to changes in market interest rates than if the Fund invested
primarily in shorter-term bonds. The Fund's use of leverage, as described
below, will tend to increase Common Share interest rate risk.

   Credit Risk. Credit risk is the risk that one or more municipal bonds in the
Fund's portfolio will decline in price, or fail to pay interest or principal
when due, because the issuer of the bond experiences a decline in its financial
status. In general, lower rated municipal bonds carry a greater degree of risk
that the issuer will lose its ability to make interest and principal payments,
which could have a negative impact on the Fund's net asset value or dividends.
Securities rated in the fourth highest category are considered investment grade
but they also may have some speculative characteristics.


                                      21

<PAGE>

   Municipal Bond Market Risk. Investing in the municipal bond market involves
certain risks. The amount of public information available about the municipal
bonds in the Fund's portfolio is generally less than that for corporate
equities or bonds, and the investment performance of the Fund may therefore be
more dependent on the analytical abilities of Nuveen Advisory than if the Fund
were a stock fund or taxable bond fund. The secondary market for municipal
bonds also tends to be less well-developed or liquid than many other securities
markets, which may adversely affect the Fund's ability to sell its bonds at
attractive prices or at prices approximating those at which the Fund currently
values them.

   The ability of municipal issuers to make timely payments of interest and
principal may be diminished during general economic downturns and as
governmental cost burdens are reallocated among federal, state and local
governments. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal and/or
interest, or impose other constraints on enforcement of such obligations, or on
the ability of municipalities to levy taxes. Issuers of municipal securities
might seek protection under the bankruptcy laws. In the event of bankruptcy of
such an issuer, the Fund could experience delays in collecting principal and
interest and the Fund may not, in all circumstances, be able to collect all
principal and interest to which it is entitled. To enforce its rights in the
event of a default in the payment of interest or repayment of principal, or
both, the Fund may take possession of and manage the assets securing the
issuer's obligations on such securities, which may increase the Fund's
operating expenses. Any income derived from the Fund's ownership or operation
of such assets may not be tax-exempt.

   Municipal Bond Insurance. In the event Moody's, S&P or Fitch (or all of
them) should downgrade its assessment of the claims-paying ability of a
particular insurer, it (or they) could also be expected to downgrade the
ratings assigned to municipal bonds insured by such insurer, and municipal
bonds insured under Portfolio Insurance issued by such insurer also would be of
reduced quality in the portfolio of the Fund. Any such downgrade could have an
adverse impact on the net asset value and market price of the Common Shares.
   In addition, the Fund may be subject to certain restrictions on investments
imposed by guidelines of the insurance companies issuing portfolio insurance.
The Fund does not expect these guidelines to prevent Nuveen Advisory from
managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies.

   Reinvestment Risk. Reinvestment risk is the risk that income from the Fund's
bond portfolio will decline if and when the Fund invests the proceeds from
matured, traded or called bonds at market interest rates that are below the
portfolio's current earnings rate. A decline in income could affect the Common
Shares' market price or their overall returns.

   Leverage Risk. Leverage risk is the risk associated with the issuance of the
MuniPreferred Shares to leverage the Common Shares. There can be no assurance
that the Fund's leveraging strategy will be successful. Once the MuniPreferred
Shares are issued, the net asset value and market value of Common Shares will
be more volatile, and the yield to Common Shareholders will tend to fluctuate
with changes in the shorter-term dividend rates on the MuniPreferred Shares.
Long-term municipal bond rates of return are typically, although not always,
higher than shorter-term municipal bond rates of return. If the dividend rate
on the MuniPreferred Shares approaches the net rate of return on the Fund's
investment portfolio, the benefit of leverage to Common Shareholders would be
reduced. If the dividend rate on the MuniPreferred Shares exceeds the net rate
of return on the Fund's portfolio, the leverage will result in a

                                      22

<PAGE>

lower rate of return to Common Shareholders than if the Fund were not
leveraged. Because the long-term bonds included in the Fund's portfolio will
typically pay fixed rates of interest while the dividend rate on the
MuniPreferred Shares will be adjusted periodically, this could occur even when
both long-term and short-term municipal rates rise. In addition, the Fund will
pay (and Common Shareholders will bear) any costs and expenses relating to the
issuance and ongoing maintenance of the MuniPreferred Shares (for example,
distribution related expenses such as a participation fee paid at what it
expects will be an annual rate of 0.25% of MuniPreferred Share liquidation
preference to broker-dealers participating in MuniPreferred Share auctions).
Accordingly, the Fund cannot assure you that the issuance of MuniPreferred
Shares will result in a higher yield or return to Common Shareholders.

   Similarly, any decline in the net asset value of the Fund's investments will
be borne entirely by Common Shareholders. Therefore, if the market value of the
Fund's portfolio declines, the leverage will result in a greater decrease in
net asset value to Common Shareholders than if the Fund were not leveraged.
Such greater net asset value decrease will also tend to cause a greater decline
in the market price for the Common Shares. The Fund might be in danger of
failing to maintain the required 200% asset coverage or of losing its expected
AAA/Aaa ratings on the MuniPreferred Shares or, in an extreme case, the Fund's
current investment income might not be sufficient to meet the dividend
requirements on the MuniPreferred Shares. In order to counteract such an event,
the Fund might need to liquidate investments in order to fund a redemption of
some or all of the MuniPreferred Shares. Liquidation at times of low municipal
bond prices may result in capital loss and may reduce returns to Common
Shareholders.

   While the Fund may from time to time consider reducing leverage in response
to actual or anticipated changes in interest rates in an effort to mitigate the
increased volatility of current income and net asset value associated with
leverage, there can be no assurance that the Fund will actually reduce leverage
in the future or that any reduction, if undertaken, will benefit the Common
Shareholders. Changes in the future direction of interest rates are very
difficult to predict accurately. If the Fund were to reduce leverage based on a
prediction about future changes to interest rates, and that prediction turned
out to be incorrect, the reduction in leverage would likely operate to reduce
the income and/or total returns to Common Shareholders relative to the
circumstance where the Fund had not reduced leverage. The Fund may decide that
this risk outweighs the likelihood of achieving the desired reduction to
volatility in income and share price if the prediction were to turn out to be
correct, and determine not to reduce leverage as described above.

   The Fund may invest in the securities of other investment companies. Such
securities may also be leveraged and will therefore be subject to the leverage
risks described above. Such additional leverage may in certain market
conditions serve to reduce the net asset value of the Fund's Common Shares and
the returns to Common Shareholders.

   Inflation Risk. Inflation risk is the risk that the value of assets or
income from investment will be worth less in the future as inflation decreases
the value of money. As inflation increases, the real value of the Common Shares
and distributions can decline. In addition, during any periods of rising
inflation, MuniPreferred Share dividend rates would likely increase, which
would tend to further reduce returns to Common Shareholders.

   Anti-Takover Provisions. The Fund's Declaration includes provisions that
could limit the ability of other entities or persons to acquire control of the
Fund or convert the Fund to open-end status. These provisions could have the
effect of depriving the Common Shareholders of opportunities to sell their
Common Shares at a premium over the then current market price of the Common
Shares.

                                      23

<PAGE>

                           HOW THE FUND MANAGES RISK

Investment Limitations

   The Fund has adopted certain investment limitations designed to limit
investment risk and maintain portfolio diversification. These limitations are
fundamental and may not be changed without the approval of the holders of a
"majority of the outstanding" Common Shares and, if issued, MuniPreferred
Shares voting together as a single class, and the approval of the holders of a
"majority of the outstanding" MuniPreferred Shares voting as a separate class.
When used with respect to particular shares of the Fund, a "majority of the
outstanding" shares 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. Among other
restrictions, the Fund may not invest more than 25% of total Fund assets in
securities of issuers in any one industry, except that this limitation does not
apply to municipal bonds backed by the assets and revenues of governments or
political subdivisions of governments.

   The Fund may become subject to guidelines which are more limiting than the
investment restriction set forth above in order to obtain and maintain ratings
from Moody's or S&P on the MuniPreferred Shares that it intends to issue. The
Fund does not anticipate that such guidelines would have a material adverse
effect on the Fund's Common Shareholders or the Fund's ability to achieve its
investment objectives. See "Investment Objectives" in the Statement of
Additional Information for information about these guidelines and a complete
list of the fundamental and non-fundamental investment policies of the Fund.

   The Fund seeks to reduce credit risk by buying bonds that are either covered
by insurance or backed by an escrow or trust account, each with the purpose of
ensuring timely payment of principal and interest. However, these municipal
bonds remain subject to market risk.

Limited Issuance of MuniPreferred Shares

   Under the 1940 Act, the Fund could issue MuniPreferred Shares having a total
liquidation value (original purchase price of the shares being liquidated plus
any accrued and unpaid dividends) of up to one-half of the value of the total
net assets of the Fund. If the total liquidation value of the MuniPreferred
Shares was ever more than one-half of the value of the Fund's total net assets,
the Fund would not be able to declare dividends on the Common Shares until the
liquidation value, as a percentage of the Fund's assets, was reduced. The Fund
intends to issue MuniPreferred Shares representing about 35% of the Fund's
total capital immediately after the time of issuance. This higher than required
margin of net asset value provides a cushion against later fluctuations in the
value of the Fund's portfolio and will subject Common Shareholders to less
income and net asset value volatility than if the Fund were more leveraged. The
Fund intends to purchase or redeem MuniPreferred Shares, if necessary, to keep
the liquidation value of the MuniPreferred Shares below one-half of the value
of the Fund's total net assets.

Management of Investment Portfolio and Capital Structure to Limit Leverage Risk

   The Fund may take certain actions if short-term interest rates increase or
market conditions otherwise change (or the Fund anticipates such an increase or
change) and the Fund's leverage begins (or is expected) to adversely affect
Common Shareholders. In order to attempt to offset such a negative

                                      24

<PAGE>

impact of leverage on Common Shareholders, the Fund may shorten the average
maturity of its investment portfolio (by investing in short-term, high quality
securities) or may extend the maturity of outstanding MuniPreferred Shares. The
Fund may also attempt to reduce the leverage by redeeming or otherwise
purchasing MuniPreferred Shares. As explained above under "Risks--Leverage
Risk," the success of any such attempt to limit leverage risk depends on Nuveen
Advisory's ability to accurately predict interest rate or other market changes.
Because of the difficulty of making such predictions, the Fund may never
attempt to manage its capital structure in the manner described above.

   If market conditions suggest that additional leverage would be beneficial,
the Fund may sell previously unissued MuniPreferred Shares or MuniPreferred
Shares that the Fund previously issued but later repurchased.

   Currently, the Fund may not invest in inverse floating rate securities,
which are securities that pay interest at rates that vary inversely with
changes in prevailing short-term tax-exempt interest rates and which represent
a leveraged investment in an underlying municipal bond. This restriction is a
non-fundamental policy of the Fund that may be changed by vote of the Fund's
Board of Trustees.

Hedging Strategies

   The Fund may use various investment strategies designed to limit the risk of
bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures or
options based on either an index of long-term municipal securities or on
taxable debt securities whose prices, in the opinion of Nuveen Advisory,
correlate with the prices of the Fund's investments. Successful implementation
of most hedging strategies would generate taxable income, and the Fund has no
present intention to use these strategies.

                            MANAGEMENT OF THE FUND

Trustees and Officers

   The Board of Trustees is responsible for the management of the Fund,
including supervision of the duties performed by Nuveen Advisory. There are
seven trustees of the Fund, one of whom is an "interested person" (as defined
in the 1940 Act) and six of whom are not "interested persons." The names and
business addresses of the trustees and officers of the Fund and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Fund" in the Statement of Additional Information.

Investment Adviser

   Nuveen Advisory, 333 West Wacker Drive, Chicago, Illinois 60606, serves as
the investment adviser to the Fund. In this capacity, Nuveen Advisory is
responsible for the selection and on-going monitoring of the municipal bonds in
the Fund's investment portfolio, managing the Fund's business affairs and
providing certain clerical, bookkeeping and administrative services. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$40 billion in assets under management. See the Statement of Additional
Information under "Investment Adviser."

   Nuveen Advisory is responsible for execution of specific investment
strategies and day-to-day investment operations. Nuveen Advisory manages the
Fund using a team of analysts and portfolio managers that focus on a specific
group of funds. Steven J. Krupa is the portfolio manager of the Fund and will
provide daily oversight for, and execution of, the Fund's investment
activities. Mr. Krupa has

                                      25

<PAGE>

been a portfolio manager and Vice President for Nuveen Advisory since 1990. He
currently manages investments for 9 Nuveen-sponsored investment companies.

   Nuveen Advisory is a wholly owned subsidiary of The John Nuveen Company, 333
West Wacker Drive, Chicago, Illinois 60606. Founded in 1898, The John Nuveen
Company and its affiliates have over $76 billion of net assets under management
or surveillance. The John Nuveen Company is a majority-owned subsidiary of The
St. Paul Companies, Inc., a publicly-traded company which is principally
engaged in providing property-liability insurance through subsidiaries.

Investment Management Agreement

   Pursuant to an investment management agreement between Nuveen Advisory and
the Fund, the Fund has agreed to pay for the services and facilities provided
by Nuveen Advisory an annual management fee, payable on a monthly basis,
according to the following schedule:

<TABLE>
<CAPTION>
                                                                    Management
        Average Daily Net Assets(1)                                    Fee
        ---------------------------                                 ----------
<S>                                                                 <C>
        Up to $125 million.........................................   .6500%
        $125 million to $250 million...............................   .6375%
        $250 million to $500 million...............................   .6250%
        $500 million to $1 billion.................................   .6125%
        $1 billion to $2 billion...................................   .6000%
        $2 billion and over........................................   .5750%
</TABLE>

- --------
(1)Including net assets attributable to MuniPreferred Shares.

   In addition to the fee of Nuveen Advisory, the Fund pays all other costs and
expenses of its operations, including compensation of its trustees (other than
those affiliated with Nuveen Advisory), custodian, transfer agency and dividend
disbursing expenses, legal fees, expenses of independent auditors, expenses of
repurchasing shares, expenses of issuing any MuniPreferred Shares, expenses of
preparing, printing and distributing shareholder reports, notices, proxy
statements and reports to governmental agencies, and taxes, if any.

   For the first ten years of the Fund's operation, Nuveen Advisory has
contractually agreed to reimburse the Fund for fees and expenses in the
amounts, and for the time periods, set forth below:

<TABLE>
<CAPTION>
                          Percentage                   Percentage
                          Reimbursed                   Reimbursed
                       (as a percentage             (as a percentage
           Year Ending of average daily Year Ending of average daily
            March 31    net assets)(1)   March 31    net assets)(1)
            --------   ----------------  --------   ----------------
           <S>         <C>              <C>         <C>
             2002/(2)/      0.30%       2008.......      0.25%
              2003....      0.30%       2009.......      0.20%
              2004....      0.30%       2010.......      0.15%
              2005....      0.30%       2011.......      0.10%
              2006....      0.30%       2012.......      0.05%
              2007....      0.30%
</TABLE>
- --------
(1)Including net assets attributable to MuniPreferred Shares.
(2)From the commencement of operations.

   Nuveen Advisory has not agreed to reimburse the Fund for any portion of its
fees and expenses beyond March 31, 2012.

                                      26

<PAGE>

                                NET ASSET VALUE

   The Fund's net asset value per share is determined as of the close of
regular session trading (normally 4:00 p.m. eastern time) on each day the New
York Stock Exchange is open for business. Net asset value is calculated by
taking the fair value of the Fund's total assets, including interest or
dividends accrued but not yet collected, less all liabilities, and dividing by
the total number of shares outstanding. The result, rounded to the nearest
cent, is the net asset value per share.

   In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are
valued at market value. The prices of municipal bonds are provided by a pricing
service and based on the mean between the bid and asked price. When price
quotes are not readily available (which is usually the case for municipal
bonds), the pricing service establishes a fair market value based on prices of
comparable municipal bonds. All valuations are subject to review by the Fund's
Board of Trustees or its delegate, Nuveen Advisory.

                                 DISTRIBUTIONS

   Commencing with the first dividend, the Fund intends to make regular monthly
cash distributions to Common Shareholders at a rate that reflects the past and
projected performance of the Fund. Distributions can only be made from net
investment income after paying any accrued dividends to MuniPreferred
Shareholders. The Fund's ability to maintain a level dividend rate will depend
on a number of factors, including dividends payable on the MuniPreferred
Shares. The net income of the Fund consists of all interest income accrued on
portfolio assets less all expenses of the Fund. Expenses of the Fund are
accrued each day. Over time, all the net investment income of the Fund will be
distributed. At least annually, the Fund also intends to distribute net capital
gain and ordinary taxable income, if any, after paying any accrued dividends or
making any liquidation payments to MuniPreferred Shareholders. Initial
distributions to Common Shareholders are expected to be declared approximately
45 days, and paid approximately 60 to 90 days, from the completion of this
offering, depending on market conditions. Although it does not now intend to do
so, the Board of Trustees may change the Fund's dividend policy and the amount
or timing of the distributions, based on a number of factors, including the
amount of the Fund's undistributed net investment income and historical and
projected investment income and the amount of the expenses and dividend rates
on the outstanding MuniPreferred Shares.

   To permit the Fund to maintain a more stable monthly distribution, the Fund
will initially distribute less than the entire amount of net investment income
earned in a particular period. The undistributed net investment income would be
available to supplement future distributions. As a result, the distributions
paid by the Fund for any particular monthly period may be more or less than the
amount of net investment income actually earned by the Fund during the period.
Undistributed net investment income will be added to the Fund's net asset value
and, correspondingly, distributions from undistributed net investment income
will be deducted from the Fund's net asset value.

                          DIVIDEND REINVESTMENT PLAN

   You may elect to have all dividends, including any capital gain dividends,
on your Common Shares automatically reinvested by JPMorgan Chase Bank, as agent
for the Common Shareholders (the "Plan Agent"), in additional Common Shares
under the Dividend Reinvestment Plan (the "Plan"). You may elect to participate
in the Plan by completing the Dividend Reinvestment Plan Application Form. If
you do not participate, you will receive all distributions in cash paid by
check mailed directly to you by JPMorgan Chase Bank as dividend paying agent.

                                      27

<PAGE>

   If you decide to participate in the Plan, the number of Common Shares you
will receive will be determined as follows:

      (1) If Common Shares are trading at or above net asset value at the time
   of valuation, the Fund will issue new shares at the then current market
   price; or

      (2) If Common Shares are trading below net asset value at the time of
   valuation, the Plan Agent will receive the dividend or distribution in cash
   and will purchase Common Shares in the open market, on the American Stock
   Exchange or elsewhere, for the participants' accounts. It is possible that
   the market price for the Common Shares may increase before the Plan Agent
   has completed its purchases. Therefore, the average purchase price per share
   paid by the Plan Agent may exceed the market price at the time of valuation,
   resulting in the purchase of fewer shares than if the dividend or
   distribution had been paid in Common Shares issued by the Fund. The Plan
   Agent will use all dividends and distributions received in cash to purchase
   Common Shares in the open market within 30 days of the dividend payment
   date. Interest will not be paid on any uninvested cash payments.

   You may withdraw from the Plan at any time by giving written notice to the
Plan Agent. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan and you will
receive a cash payment for any fraction of a share in your account. If you
wish, the Plan Agent will sell your shares and send you the proceeds, minus
brokerage commissions and a $2.50 service fee.

   The Plan Agent maintains all shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. Any proxy you receive will include all
Common Shares you have received under the Plan.

   There is no brokerage charge for reinvestment of your dividends or
distributions in Common Shares. However, all participants will pay a pro rata
share of brokerage commissions incurred by the Plan Agent when it makes open
market purchases.

   Automatically reinvesting dividends and distributions does not mean that you
do not have to pay income taxes due upon receiving dividends and distributions.

   The Fund reserves the right to amend or terminate the Plan if in the
judgment of the Board of Trustees the change is warranted. There is no direct
service charge to participants in the Plan; however, the 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
JPMorgan Chase Bank, P.O. Box 660086, Dallas, Texas 75266-0086, (800) 257-8787.

                             DESCRIPTION OF SHARES

Common Shares

   The Declaration authorizes the issuance of an unlimited number of Common
Shares. The Common Shares being offered have a par value of $0.01 per share
and, subject to the rights of holders of MuniPreferred Shares, have equal
rights to the payment of dividends and the distribution of assets upon
liquidation. The Common Shares being offered will, when issued, be fully paid
and, subject to matters discussed in "Certain Provisions in the Declaration of
Trust," non-assessable, and will have no pre-emptive or conversion rights or
rights to cumulative voting. Whenever MuniPreferred Shares are outstanding,
Common Shareholders will not be entitled to receive any distributions from the
Fund

                                      28

<PAGE>

unless all accrued dividends on MuniPreferred Shares have been paid, and unless
asset coverage (as defined in the 1940 Act) with respect to MuniPreferred
Shares would be at least 200% after giving effect to the distributions. See
"--MuniPreferred Shares" below.

   The Common Shares have been approved for listing on the American Stock
Exchange, subject to notice of issuance. The Fund intends to hold annual
meetings of shareholders so long as the Common Shares are listed on a national
securities exchange and such meetings are required as a condition to such
listing.

   The Fund's net asset value per share generally increases when interest rates
decline, and decreases when interest rates rise, and these changes are likely
to be greater because the Fund intends to have a leveraged capital structure.
Net asset value will be reduced immediately following the offering by the
amount of the sales load and organization and offering expenses paid by the
Fund. Nuveen has agreed to pay (i) all organizational expenses and (ii)
offering costs (other than sales load) that exceed $0.03 per Common Share. See
"Use of Proceeds."

   Unlike open-end funds, closed-end funds like the Fund do not continuously
offer shares and do not provide daily redemptions. Rather, if a shareholder
determines to buy additional Common Shares or sell shares already held, the
shareholder may conveniently do so by trading on the exchange through a broker
or otherwise. Shares of closed-end investment companies may frequently trade on
an exchange at prices lower than net asset value. Shares of closed-end
investment companies like the Fund that invest predominately in investment
grade municipal bonds have during some periods traded at prices higher than net
asset value and during other periods have traded at prices lower than net asset
value. Because the market value of the Common Shares may be influenced by such
factors as dividend levels (which are in turn affected by expenses), call
protection, dividend stability, portfolio credit quality, net asset value,
relative demand for and supply of such shares in the market, general market and
economic conditions, and other factors beyond the control of the Fund, the Fund
cannot assure you that Common Shares will trade at a price equal to or higher
than net asset value in the future. The Common Shares are designed primarily
for long-term investors, and investors in the Common Shares should not view the
Fund as a vehicle for trading purposes. See "MuniPreferred Shares and Leverage"
and the Statement of Additional Information under "Repurchase of Fund Shares;
Conversion to Open-End Fund."

MuniPreferred Shares

   The Declaration authorizes the issuance of an unlimited number of
MuniPreferred Shares, in one or more classes or series, with rights as
determined by the Board of Trustees, by action of the Board of Trustees without
the approval of the Common Shareholders.

   The Fund's Board of Trustees has indicated its intention to authorize an
offering of MuniPreferred Shares (representing approximately 35% of the Fund's
capital immediately after the time the MuniPreferred Shares are issued)
approximately one to three months after completion of the offering of Common
Shares. Any such decision is subject to market conditions and to the Board's
continuing belief that leveraging the Fund's capital structure through the
issuance of MuniPreferred Shares is likely to achieve the benefits to the
Common Shareholders described in this Prospectus. Although the terms of the
MuniPreferred Shares will be determined by the Board of Trustees (subject to
applicable law and the Fund's Declaration) if and when it authorizes a
MuniPreferred Shares offering, the Board has determined that the MuniPreferred
Shares, at least initially, would likely pay cumulative dividends at rates
determined over relatively shorter-term periods (such as 7 days), by providing
for the periodic redetermination of the dividend rate through an auction or
remarketing procedure. The Board of Trustees has indicated that the preference
on distribution, liquidation preference, voting rights and redemption
provisions of the MuniPreferred Shares will likely be as stated below.

                                      29

<PAGE>

   Limited Issuance of MuniPreferred Shares. Under the 1940 Act, the Fund could
issue MuniPreferred Shares with an aggregate liquidation value of up to
one-half of the value of the Fund's total net assets, measured immediately
after issuance of the MuniPreferred Shares. "Liquidation value" means the
original purchase price of the shares being liquidated plus any accrued and
unpaid dividends. In addition, the Fund is not permitted to declare any cash
dividend or other distribution on its Common Shares unless the liquidation
value of the MuniPreferred Shares is less than one-half of the value of the
Fund's total net assets (determined after deducting the amount of such dividend
or distribution) immediately after the distribution. If the Fund sells all the
Common Shares and MuniPreferred Shares discussed in this Prospectus, the
liquidation value of the MuniPreferred Shares is expected to be approximately
35% of the value of the Fund's total net assets. The Fund intends to purchase
or redeem MuniPreferred Shares, if necessary, to keep that fraction below
one-half.

   Distribution Preference. The MuniPreferred Shares have complete priority
over the Common Shares as to distribution of assets.

   Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Fund, holders of
MuniPreferred Shares will be entitled to receive a preferential liquidating
distribution (expected to equal the original purchase price per share plus
accumulated and unpaid dividends thereon, whether or not earned or declared)
before any distribution of assets is made to holders of Common Shares.

   Voting Rights. MuniPreferred Shares are required to be voting shares and to
have equal voting rights with Common Shares. Except as otherwise indicated in
this Prospectus or the Statement of Additional Information and except as
otherwise required by applicable law, holders of MuniPreferred Shares will vote
together with Common Shareholders as a single class.

   Holders of MuniPreferred Shares, voting as a separate class, will be
entitled to elect two of the Fund's trustees (following the establishment of
the Fund by an initial trustee, the Declaration provides for a total of no less
than two and no more than 12 trustees). The remaining trustees will be elected
by Common Shareholders and holders of MuniPreferred Shares, voting together as
a single class. In the unlikely event that two full years of accrued dividends
are unpaid on the MuniPreferred Shares, the holders of all outstanding
MuniPreferred Shares, voting as a separate class, will be entitled to elect a
majority of the Fund's trustees until all dividends in arrears have been paid
or declared and set apart for payment. In order for the Fund to take certain
actions or enter into certain transactions, a separate class vote of holders of
MuniPreferred Shares will be required, in addition to the single class vote of
the holders of MuniPreferred Shares and Common Shares. See the Statement of
Additional Information under "Description of Shares--MuniPreferred
Shares--Voting Rights."

   Redemption, Purchase and Sale of MuniPreferred Shares. The terms of the
MuniPreferred Shares may provide that they are redeemable at certain times, in
whole or in part, at the original purchase price per share plus accumulated
dividends. The terms may also state that the Fund may tender for or purchase
MuniPreferred Shares and resell any shares so tendered. Any redemption or
purchase of MuniPreferred Shares by the Fund will reduce the leverage
applicable to Common Shares, while any resale of shares by the Fund will
increase such leverage. See "MuniPreferred Shares and Leverage."

   The discussion above describes the Board of Trustees' present intention with
respect to a possible offering of MuniPreferred Shares. If the Board of
Trustees determines to authorize such an offering, the terms of the
MuniPreferred Shares may be the same as, or different from, the terms described
above, subject to applicable law and the Fund's Declaration.

                                      30

<PAGE>

                CERTAIN PROVISIONS IN THE DECLARATION OF TRUST

   Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration contains an express disclaimer of shareholder liability for debts
or obligations of the Fund and requires that notice of such limited liability
be given in each agreement, obligation or instrument entered into or executed
by the Fund or the trustees. The Declaration further provides for
indemnification out of the assets and property of the Fund for all loss and
expense of any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund would be
unable to meet its obligations. The Fund believes that the likelihood of such
circumstances is remote.

   The Declaration includes provisions that could limit the ability of other
entities or persons to acquire control of the Fund or to convert the Fund to
open-end status. Specifically, the Declaration requires a vote by holders of at
least two-thirds of the Common Shares and MuniPreferred Shares, voting together
as a single class, except as described below, to authorize (1) a conversion of
the Fund from a closed-end to an open-end investment company, (2) a merger or
consolidation of the Fund, or a series or class of the Fund, with any
corporation, association, trust or other organization or a reorganization or
recapitalization of the Fund, or a series or class of the Fund, (3) 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), (4) in certain
circumstances, a termination of the Fund, or a series or class of the Fund, or
(5) a removal of trustees by shareholders, and then only for cause, unless,
with respect to (1) through (4), such transaction has already been authorized
by the affirmative vote of two-thirds of the total number of trustees fixed in
accordance with the Declaration or the By-laws, in which case the affirmative
vote of the holders of at least a majority of the Fund's Common Shares and
MuniPreferred Shares outstanding at the time, voting together as a single
class, is required, provided, however, that where only a particular class or
series is affected (or, in the case of removing a trustee, when the trustee has
been elected by only one class), only the required vote by the applicable class
or series will be required. Approval of shareholders is not required, however,
for any transaction, whether deemed a merger, consolidation, reorganization or
otherwise whereby the Fund issues Shares in connection with the acquisition of
assets (including those subject to liabilities) from any other investment
company or similar entity. None of the foregoing provisions may be amended
except by the vote of at least two-thirds of the Common Shares and
MuniPreferred Shares, voting together as a single class. In the case of the
conversion of the Fund to an open-end investment company, or in the case of any
of the foregoing transactions constituting a plan of reorganization which
adversely affects the holders of MuniPreferred Shares, the action in question
will also require the affirmative vote of the holders of at least two-thirds of
the Fund's MuniPreferred Shares outstanding at the time, voting as a separate
class, or, if such action has been authorized by the affirmative vote of
two-thirds of the total number of trustees fixed in accordance with the
Declaration or the By-laws, the affirmative vote of the holders of at least a
majority of the Fund's MuniPreferred Shares outstanding at the time, voting as
a separate class. The votes required to approve the conversion of the Fund from
a closed-end to an open-end investment company or to approve transactions
constituting a plan of reorganization which adversely affects the holders of
MuniPreferred Shares are higher than those required by the 1940 Act. The Board
of Trustees believes that the provisions of the Declaration relating to such
higher votes are in the best interest of the Fund and its shareholders. See the
Statement of Additional Information under "Certain Provisions in the
Declaration of Trust."


                                      31

<PAGE>

   The provisions of the Declaration described above could have the effect of
depriving the Common Shareholders of opportunities to sell their Common Shares
at a premium over the then current market price of the Common Shares by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. The overall effect of these provisions is
to render more difficult the accomplishment of a merger or the assumption of
control by a third party. They provide, however, the advantage of potentially
requiring persons seeking control of the Fund to negotiate with its management
regarding the price to be paid and facilitating the continuity of the Fund's
investment objectives and policies. The Board of Trustees of the Fund has
considered the foregoing anti-takeover provisions and concluded that they are
in the best interests of the Fund and its Common Shareholders.

   Reference should be made to the Declaration on file with the Securities and
Exchange Commission for the full text of these provisions.

            REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND

   The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Common Shares will trade in the open market at a price that will be a function
of several factors, including dividend levels (which are in turn affected by
expenses), net asset value, call protection, dividend stability, portfolio
credit quality, relative demand for and supply of such shares in the market,
general market and economic conditions and other factors. Because shares of
closed-end investment companies may frequently trade at prices lower than net
asset value, the Fund's Board of Trustees has currently determined that, at
least annually, it will consider action that might be taken to reduce or
eliminate any material discount from net asset value in respect of Common
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 the Fund to an open-end investment company.
The Fund cannot assure you that its Board of Trustees will decide to take any
of these actions, or that share repurchases or tender offers will actually
reduce market discount.

   If the Fund converted to an open-end investment company, it would be
required to redeem all MuniPreferred Shares then outstanding (requiring in turn
that it liquidate a portion of its investment portfolio), and the Common Shares
would no longer be listed on the American Stock Exchange. In contrast to a
closed-end investment company, 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 any redemption charge that is in effect at the time of redemption. See the
Statement of Additional Information under "Certain Provisions in the
Declaration of Trust" for a discussion of the voting requirements applicable to
the conversion of the Fund to an open-end investment company.

   Before deciding whether to take any action if the Common Shares trade below
net asset value, the Board 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 of Trustees 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.

                                      32

<PAGE>

                                  TAX MATTERS

Federal Income Tax Matters

   The following discussion of federal income tax matters is based on the
advice of Bell, Boyd & Lloyd LLC, special counsel to the Fund.

   The discussions below and in the Statement of Additional Information provide
general tax information related to an investment in the Common Shares. Because
tax laws are complex and often change, you should consult your tax advisor
about the tax consequences of an investment in the Fund.

   The Fund intends to elect to be treated and to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and intends to distribute substantially all of its net
income and gains to its shareholders. Therefore, it is not expected that the
Fund will be subject to any federal income tax. The Fund primarily invests in
municipal bonds issued by states, municipalities and local authorities and
certain possessions and territories of the United States (such as Puerto Rico
or Guam) or in municipal bonds whose income is otherwise exempt from regular
federal income taxes. Thus, substantially all of the Fund's dividends to you
will qualify as "exempt-interest dividends." A shareholder treats an
exempt-interest dividend as interest on state and local bonds exempt from
regular federal income tax. Some or all of an exempt-interest dividend,
however, may be subject to federal alternative minimum tax imposed on the
shareholder. Different federal alternative minimum tax rules apply to
individuals and to corporations.

   Although the Fund does not seek to realize taxable income or capital gains,
the Fund may realize and distribute taxable income or capital gains from time
to time as a result of the Fund's normal investment activities. The Fund will
distribute at least annually any ordinary taxable income or net capital gain.
Distributions of net short-term capital gain are taxable as ordinary income.
Distributions of net capital gain (the excess of net long-term capital gain
over net short-term capital loss) are taxable as long-term capital gains
regardless of how long you have owned your investment. The Fund will allocate
distributions to shareholders that are treated as tax-exempt interest and as
long-term capital gain and ordinary income, if any, among the Common Shares and
MuniPreferred Shares in proportion to total dividends paid to each class for
the year. As long as the Fund qualifies as a regulated investment company,
distributions paid by the Fund generally will not be eligible for the dividends
received deduction allowed to corporations.

   Each year, you will receive a year-end statement that describes the tax
status of dividends paid to you during the preceding year, including the source
of investment income by state and the portion of income that is subject to the
federal alternative minimum tax. You will receive this statement from the firm
where you purchased your Common Shares if you hold your investment in street
name; the Fund will send you this statement if you hold your shares in
registered form.

   The tax status of your dividends is not affected by whether you reinvest
your dividends or receive them in cash.

   In order to avoid corporate taxation of its earnings and to pay tax-free
dividends, the Fund must meet certain Internal Revenue Service ("I.R.S.")
requirements that govern the Fund's sources of income, diversification of
assets and distribution of earnings to shareholders. The Fund intends to meet
these requirements. If the Fund failed to do so, the Fund would be required to
pay corporate taxes on its

                                      33

<PAGE>

earnings and all your distributions would be taxable as ordinary income to the
extent of the Fund's earnings and profits. In particular, in order for the Fund
to pay exempt-interest dividends, at least 50% of the value of the Fund's total
assets must consist of tax-exempt obligations at the close of each quarter of
its taxable year. The Fund intends to meet this requirement. If the Fund failed
to do so, it would not be able to pay exempt-interest dividends and your
distributions attributable to interest received by the Fund from any source
would be taxable as ordinary income.

   The sale or other disposition of Common Shares will result in capital gain
or loss to you if you hold such Common Shares as capital assets. 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, long-term
capital gains are eligible for reduced rates of taxation.

   The Fund may be required to withhold a percentage of certain of your
dividends if you have not provided the Fund with your correct taxpayer
identification number (normally your Social Security number) and certain
certifications, or if you are otherwise subject to backup withholding. The
backup withholding percentage will be 30% in 2002 and 2003, 29% in 2004 and
2005, and 28% thereafter until 2011, when the percentage will revert to 31%
unless amended by Congress. If you receive Social Security benefits, you should
be aware that exempt-interest dividends are taken into account in calculating
the amount of these benefits that may be subject to federal income tax. If you
borrow money to buy Fund shares, you may not deduct the interest on that loan.
Under I.R.S. rules, Fund shares may be treated as having been bought with
borrowed money even if the purchase of the Fund shares cannot be traced
directly to borrowed money.

   If you are subject to the federal alternative minimum tax, a portion of your
regular monthly dividends may be taxable.

   The exemption from federal income tax for tax-exempt dividends does not
necessarily result in exemption for such dividends under the income or other
tax laws of any state or local taxing authority. You are advised to consult
with your tax adviser about state and local tax matters. Please refer to the
Statement of Additional Information for more detailed information.

                                 OTHER MATTERS

   A lawsuit brought in June 1996 (Green et al. v. Nuveen Advisory Corp., et
al.) by certain individual common shareholders of six leveraged closed-end
funds sponsored by Nuveen is currently pending in the Seventh Circuit Court of
Appeals. The plaintiffs alleged that the leveraged closed-end funds engaged in
certain practices that violated various provisions of the 1940 Act and common
law. The plaintiffs also alleged, among other things, breaches of fiduciary
duty by the funds' directors and Nuveen Advisory and various misrepresentations
and omissions in prospectuses and shareholder reports relating to the use of
leverage through the issuance and periodic auctioning of preferred stock and
the basis of the calculation and payment of management fees to Nuveen Advisory
and Nuveen. Plaintiffs also filed a motion to certify defendant and plaintiff
classes. The defendants filed motions to dismiss the entire lawsuit asserting
that the claims are without merit and to oppose certification of any classes.
On March 30, 1999, the court entered a memorandum opinion and order (1)
granting the defendants' motion to dismiss all of plaintiffs' counts against
the defendants other than Nuveen Advisory, (2) granting Nuveen Advisory's
motion to dismiss all of plaintiffs' counts against it other than breach of
fiduciary duty under Section 36(b) of the 1940 Act, and (3) denying the
plaintiffs' motion to certify a plaintiff class and a

                                      34

<PAGE>

defendant class. No appeal was made by plaintiffs of this decision, and the
remaining Section 36(b) count against Nuveen Advisory is discussed below.

   As to alleged damages, plaintiffs have claimed as damages the portion of all
advisory compensation received by Nuveen Advisory from the funds during the
period from June 21, 1995 to the present that is equal to the proportion of
each of such fund's preferred stock to its total assets. The preferred stock
constitutes approximately one third of the funds' assets so the amount claimed
would equal approximately one third of management fees received by Nuveen
Advisory for managing the funds during this period, or more than $60 million.
Nuveen Advisory believes that it has no liability and the plaintiffs have
suffered no damages and filed a motion for summary judgment as to both
liability and damages. Plaintiffs filed a partial motion for summary judgment
as to liability only. In a memorandum opinion and order dated September 6,
2001, the court granted Nuveen Advisory's motion for summary judgment and
denied plaintiffs' motion for partial summary judgment, thereby terminating the
litigation before the court. Plaintiffs appealed this decision on October 8,
2001.

   While the Fund cannot assure you that the litigation will be decided in
Nuveen Advisory's favor upon appeal, Nuveen Advisory believes a decision, if
any, against it would have no material adverse effect on the Fund, its Common
Shares, or the ability of Nuveen Advisory to perform its duties under the
investment management agreement.

                                      35

<PAGE>

                                 UNDERWRITING

   Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each Underwriter named below has severally agreed to
purchase, and the Fund has agreed to sell to such Underwriter, the number of
Common Shares set forth opposite the name of such Underwriter.

<TABLE>
<CAPTION>
                                                                      Number of
Underwriters                                                           Shares
- ------------                                                          ----------
<S>                                                                   <C>
Salomon Smith Barney Inc.............................................  1,246,500
Nuveen Investments...................................................  1,244,500
A.G. Edwards & Sons, Inc.............................................  1,244,500
Prudential Securities Incorporated...................................  1,244,500
UBS Warburg LLC......................................................  1,244,500
Fahnestock & Co. Inc.................................................  1,244,500
Ferris, Baker Watts, Inc.............................................  1,244,500
First Union Securities, Inc..........................................  1,244,500
Gruntal & Co., L.L.C.................................................  1,244,500
Janney Montgomery Scott LLC..........................................  1,244,500
Legg Mason Wood Walker, Incorporated.................................  1,244,500
McDonald Investments Inc., a KeyCorp Company.........................  1,244,500
Raymond James & Associates, Inc......................................  1,244,500
RBC Dain Rauscher, Inc...............................................  1,244,500
SunTrust Capital Markets, Inc........................................  1,244,500
Wells Fargo Securities, LLC..........................................  1,244,500
CIBC World Markets Corp..............................................    400,000
Deutsche Banc Alex. Brown............................................    400,000
U.S. Bancorp Piper Jaffray Inc.......................................    400,000
Advest, Inc..........................................................    294,000
Robert W. Baird & Co. Incorporated...................................    294,000
BB&T Capital Markets, a division of Scott & Stringfellow.............    294,000
Crowell, Weedon & Co.................................................    294,000
D.A. Davidson & Co...................................................    294,000
Johnston, Lemon & Co. Incorporated...................................    294,000
Parker/Hunter Incorporated...........................................    294,000
Quick & Reilly, Inc..................................................    294,000
Stephens Inc.........................................................    294,000
Stifel, Nicolaus & Company, Incorporated.............................    294,000
Wedbush Morgan Securities, Inc.......................................    294,000
Anderson & Strudwick Incorporated....................................    147,000
H&R Block Financial Advisors, Inc....................................    147,000
J.J.B. Hilliard, W.L. Lyons, Inc.....................................    147,000
Howe Barnes Investments, Inc.........................................    147,000
Wayne Hummer & Co....................................................    147,000
Kirkpatrick, Pettis, Smith, Polian Inc...............................    147,000
Lasalle St. Securities Inc...........................................    147,000
Mesirow Financial, Inc...............................................    147,000
Moors & Cabot, Inc...................................................    147,000
David A. Noyes & Company.............................................    147,000
Sands Brothers & Co., Ltd............................................    147,000
Charles Schwab & Co., Inc............................................    147,000
M.L. Stern & Co., Inc................................................    147,000
Sterne, Agee & Leach, Inc............................................    147,000
SWS Securities, Inc..................................................    147,000
TD Waterhouse Investor Services, Inc.................................    147,000
                                                                      ----------
   Total............................................................. 26,700,000

                                                                      ==========
</TABLE>

                                      36

<PAGE>

   The underwriting agreement provides that the obligations of the several
Underwriters to purchase the Common Shares included in this offering are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to purchase all the Common Shares
(other than those covered by the over-allotment option described below) if they
purchase any of the Common Shares. The representatives have advised the Fund
that the Underwriters do not intend to confirm any sales to any accounts over
which they exercise discretionary authority.

   The Underwriters, for whom Salomon Smith Barney Inc., Nuveen Investments,
A.G. Edwards & Sons, Inc., Prudential Securities Incorporated, UBS Warburg LLC,
Fahnestock & Co. Inc., Ferris, Baker Watts, Inc., First Union Securities, Inc.,
Gruntal & Co., L.L.C., Janney Montgomery Scott LLC, Legg Mason Wood Walker,
Incorporated, McDonald Investments Inc., a KeyCorp Company, Raymond James &
Associates, Inc., RBC Dain Rauscher, Inc., SunTrust Capital Markets, Inc., and
Wells Fargo Securities, LLC are acting as representatives, propose to offer
some of the Common Shares directly to the public at the public offering price
set forth on the cover page of this Prospectus and some of the Common Shares to
certain dealers at the public offering price less a concession not in excess of
$0.45 per Common Share. The sales load the Fund will pay of $0.675 per share is
equal to 4.5% of the initial offering price. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $0.10 per Common Share
on sales to certain other dealers. Certain dealers acting in the capacity of
sub-underwriters may receive additional compensation for acting in such a
capacity. If all of the Common Shares are not sold at the initial offering
price, the representatives may change the public offering price and other
selling terms. Investors must pay for any Common Shares purchased on or before
March 28, 2002. In connection with this offering, Nuveen may perform clearing
services without charge for brokers and dealers for whom it regularly provides
clearing services that are participating in the offering as members of the
selling group.

   The Fund has granted to the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to 4,005,000 additional Common
Shares at the public offering price less the sales load. The Underwriters may
exercise such option solely for the purpose of covering over-allotments, if
any, in connection with this offering. To the extent such option is exercised,
each Underwriter will be obligated, subject to certain conditions, to purchase
a number of additional Common Shares approximately proportionate to such
Underwriter's initial purchase commitment.

   The Fund and Nuveen Advisory have agreed that, for a period of 180 days from
the date of this Prospectus, they will not, without the prior written consent
of Salomon Smith Barney Inc., on behalf of the Underwriters, dispose of or
hedge any Common Shares or any securities convertible into or exchangeable for
Common Shares. Salomon Smith Barney Inc. in its sole discretion may release any
of the securities subject to these agreements at any time without notice.

   Prior to the offering, there has been no public market for the Common
Shares. Consequently, the initial public offering price for the Common Shares
was determined by negotiation among the Fund, Nuveen Advisory and the
representatives. There can be no assurance, however, that the price at which
the Common Shares will sell in the public market after this offering will not
be lower than the price at which they are sold by the Underwriters or that an
active trading market in the Common Shares will develop and continue after this
offering. The Common Shares have been approved for listing on the American
Stock Exchange, subject to official notice of issuance.

   The Fund and Nuveen Advisory have each agreed to indemnify the several
Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act of 1933, as amended.

                                      37

<PAGE>

   Nuveen has agreed to pay (i) all organizational expenses and (ii) offering
costs (other than sales load) that exceed $0.03 per share.

   In addition, the Fund has agreed to reimburse the Underwriters for certain
expenses incurred by the Underwriters in the offering.

   In connection with the requirements for listing the Fund's Common Shares on
the American Stock Exchange, the Underwriters have undertaken to sell lots of
100 or more Common Shares to a minimum of 400 beneficial owners in the United
States. The minimum investment requirement is 100 Common Shares.

   Certain Underwriters may make a market in the Common Shares after trading in
the Common Shares has commenced on the American Stock Exchange. No Underwriter
is, however, obligated to conduct market-making activities and any such
activities may be discontinued at any time without notice, at the sole
discretion of the Underwriter. No assurance can be given as to the liquidity
of, or the trading market for, the Common Shares as a result of any
market-making activities undertaken by any Underwriter. This Prospectus is to
be used by any Underwriter in connection with the offering and, during the
period in which a prospectus must be delivered, with offers and sales of the
Common Shares in market-making transactions in the over-the-counter market at
negotiated prices related to prevailing market prices at the time of the sale.

   The Underwriters have advised the Fund that, pursuant to Regulation M under
the Securities Exchange Act of 1934, as amended, certain persons participating
in the offering may engage in transactions, including stabilizing bids,
covering transactions or the imposition of penalty bids, which may have the
effect of stabilizing or maintaining the market price of the Common Shares on
the American Stock Exchange at a level above that which might otherwise prevail
in the open market. A "stabilizing bid" is a bid for or the purchase of the
Common Shares on behalf of an Underwriter for the purpose of fixing or
maintaining the price of the Common Shares. A "covering transaction" is a bid
for or purchase of the Common Shares on behalf of an Underwriter to reduce a
short position incurred by the Underwriters in connection with the offering.  A
"penalty bid" is a contractual arrangement whereby if, during a specified
period after the issuance of the Common Shares, the Underwriters purchase
Common Shares in the open market for the account of the underwriting syndicate
and the Common Shares purchased can be traced to a particular Underwriter or
member of the selling group, the underwriting syndicate may require the
Underwriter or selling group member in question to purchase the Common Shares
in question at the cost price to the syndicate or may recover from (or decline
to pay to) the Underwriter or selling group member in question any or all
compensation (including, with respect to a representative, the applicable
syndicate management fee) applicable to the Common Shares in question. As a
result, an Underwriter or selling group member and, in turn, brokers may lose
the fees that they otherwise would have earned from a sale of the Common Shares
if their customer resells the Common Shares while the penalty bid is in effect.
The Underwriters are not required to engage in any of these activities, and any
such activities, if commenced, may be discontinued at any time.

   The underwriting agreement provides that it may be terminated in the
absolute discretion of the representatives without liability on the part of any
Underwriter to the Fund or Nuveen Advisory if, prior to delivery of and payment
for the Common Shares, (i) trading in the Common Shares or securities generally
on the New York Stock Exchange, American Stock Exchange, Nasdaq National Market
or the Nasdaq Stock Market shall have been suspended or materially limited,
(ii) additional material

                                      38

<PAGE>

governmental restrictions not in force on the date of the underwriting
agreement have been imposed upon trading in securities generally or a general
moratorium on commercial banking activities in New York shall have been
declared by either federal or state authorities or (iii) any outbreak or
material escalation of hostilities or other international or domestic calamity,
crisis or change in political, financial or economic conditions, occurs, the
effect of which is such as to make it, in the judgment of the representatives,
impracticable or inadvisable to commence or continue the offering of the Common
Shares at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Common Shares by the
Underwriters.

   The Fund anticipates that from time to time the representatives of the
Underwriters and certain other Underwriters may act as brokers or dealers in
connection with the execution of the Fund's portfolio transactions after they
have ceased to be Underwriters and, subject to certain restrictions, may act as
brokers while they are Underwriters.

   Prior to the public offering of Common Shares, Nuveen Advisory purchased
Common Shares from the Fund in an amount satisfying the net worth requirements
of Section 14(a) of the 1940 Act.

   Nuveen, 333 West Wacker Drive, Chicago, Illinois, 60606, one of the
representatives of the Underwriters, is the parent company of Nuveen Advisory.

   The principal business address of Salomon Smith Barney Inc. is 388 Greenwich
Street, New York, New York 10013.

   First Union Securities, Inc., a subsidiary of Wachovia Corporation, conducts
its investment banking, institutional, and capital markets businesses under the
trade name of Wachovia Securities. Any references to "Wachovia Securities" in
this prospectus, however, do not include Wachovia Securities, Inc., a separate
broker-dealer subsidiary of Wachovia Corporation and sister affiliate of First
Union Securities, Inc., which may or may not be participating as a separate
selling dealer in the distribution of the securities.

                         CUSTODIAN AND TRANSFER AGENT

   The custodian of the assets of the Fund is JPMorgan Chase Bank,
P.O. Box 660086, Dallas, Texas 75266-0086. The Custodian performs custodial,
fund accounting and portfolio accounting services. The Fund's transfer,
shareholder services and dividend paying agent is also JPMorgan Chase Bank.

                                LEGAL OPINIONS

   Certain legal matters in connection with the Common Shares will be passed
upon for the Fund by Bell, Boyd & Lloyd LLC, Chicago, Illinois, and for the
Underwriters by Simpson Thacher & Bartlett, New York, New York. Bell, Boyd &
Lloyd LLC and Simpson Thacher & Bartlett may rely as to certain matters of
Massachusetts law on the opinion of Bingham Dana LLP, Boston, Massachusetts.

                                      39

<PAGE>

                           TABLE OF CONTENTS FOR THE
                      STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
                                                                       Page
                                                                       ----
     <S>                                                               <C>
     Use of Proceeds..................................................   3
     Investment Objectives............................................   5
     Investment Policies and Techniques...............................  10
     Other Investment Policies and Techniques.........................  18
     Management of the Fund...........................................  21
     Investment Adviser...............................................  27
     Portfolio Transactions...........................................  28
     Distributions....................................................  29
     Description of Shares............................................  30
     Certain Provisions in the Declaration of Trust...................  33
     Repurchase of Fund Shares; Conversion to Open-End Fund...........  34
     Tax Matters......................................................  37
     Performance Related and Comparative Information..................  40
     Experts..........................................................  41
     Custodian........................................................  41
     Additional Information...........................................  41
     Report of Independent Auditors...................................  43
     Financial Statements.............................................  44
     Appendices
        Appendix A--Ratings of Investments............................ A-1
        Appendix B--Taxable Equivalent Yield Tables................... B-1
        Appendix C--Description of Insurers........................... C-1
        Appendix D--Hedging Strategies and Risks...................... D-1
        Appendix E--Performance Related and Comparative Information... E-1
</TABLE>

                                      40

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                               26,700,000 Shares

               Nuveen Insured Dividend Advantage Municipal Fund

                                 Common Shares

                                   --------

                                  PROSPECTUS

                                March 25, 2002

                                   --------

                             Salomon Smith Barney
                              Nuveen Investments
                           A.G. Edwards & Sons, Inc.
                             Prudential Securities
                                  UBS Warburg
                             Fahnestock & Co. Inc.
                              Ferris, Baker Watts
                                 Incorporated
                             Gruntal & Co., L.L.C.
                          Janney Montgomery Scott LLC
                            Legg Mason Wood Walker
                                 Incorporated
                           McDonald Investments Inc.
                                 Raymond James
                              RBC Capital Markets
                          SunTrust Robinson Humphrey
                              Wachovia Securities
                          Wells Fargo Securities, LLC


- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>



                Nuveen Insured Dividend Advantage Municipal Fund

                      STATEMENT OF ADDITIONAL INFORMATION



     Nuveen Insured Dividend Advantage Municipal Fund (the "Fund") is a newly
organized, diversified closed-end management investment company.

     This Statement of Additional Information relating to common shares of the
Fund ("Common Shares") does not constitute a prospectus, but should be read in
conjunction with the Fund's Prospectus relating thereto dated March 25, 2002
(the "Prospectus"). This Statement of Additional Information does not include
all information that a prospective investor should consider before purchasing
Common Shares, and investors should obtain and read the Fund's Prospectus prior
to purchasing such shares. A copy of the Fund's Prospectus may be obtained
without charge by calling (800) 257-8787. You may also obtain a copy of the
Fund's Prospectus on the Securities and Exchange Commission's web site
(http://www.sec.gov). Capitalized terms used but not defined in this Statement
of Additional Information have the meanings ascribed to them in the Prospectus.

                                       1

<PAGE>


                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                  Page
                                                                --------
<S>                                                             <C>
Use of Proceeds                                                        3
Investment Objectives                                                  5
Investment Policies and Techniques                                    10
Other Investment Policies and Techniques                              18
Management of the Fund                                                21
Investment Adviser                                                    27
Portfolio Transactions                                                28
Distributions                                                         29
Description of Shares                                                 30
Certain Provisions in the Declaration of Trust                        33
Repurchase of Fund Shares; Conversion to Open-End Fund                34
Tax Matters                                                           37
Performance Related and Comparative Information                       40
Experts                                                               41
Custodian                                                             41
Additional Information                                                41
Report of Independent Auditors                                        43
Financial Statements                                                  44
Ratings of Investments (Appendix A)                                  A-1
Taxable Equivalent Yield Tables (Appendix B)                         B-1
Description of Insurers (Appendix C)                                 C-1
Hedging Strategies and Risks (Appendix D)                            D-1
Performance Related and Comparative Information (Appendix E)         E-1
</TABLE>


This Statement of Additional Information is dated March 25, 2002

                                       2

<PAGE>


                                USE OF PROCEEDS

     The net proceeds of the offering of Common Shares of the Fund will be
approximately: $381,676,500 ($438,927,975 if the Underwriters exercise the
over-allotment option in full) after payment of organization and offering costs.

                                       3



<PAGE>


        For the Fund, Nuveen Advisory has agreed to pay (i) all organizational
expenses and (ii) offering costs (other than sales load) that exceed $0.03 per
Common Share.

     Pending investment in municipal bonds that meet the Fund's investment
objectives and policies, the net proceeds of the offering will be invested in
high quality, short-term tax-exempt money market securities or in high quality
municipal bonds with relatively low volatility (such as pre-refunded and
intermediate-term bonds), to the extent such securities are available. If
necessary to invest fully the net proceeds of the offering immediately, the Fund
may also purchase, as temporary investments, short-term taxable investments of
the type described under "Investment Policies and Techniques--Investment in
Municipal Bonds--Portfolio Investments," the income on which is subject to
regular federal income tax and securities of other open or closed-end investment
companies that invest primarily in municipal bonds of the type in which the Fund
may invest directly.

                                       4

<PAGE>

                             INVESTMENT OBJECTIVES


The Fund's investment objective is to provide current income exempt from regular
federal income tax, and to enhance portfolio value relative to the municipal
bond market by investing in tax-exempt municipal bonds that the Fund's
investment adviser believes are underrated or undervalued or that represent
municipal market sectors that are undervalued.


                                       5

<PAGE>

     The Fund's investment in underrated or undervalued municipal bonds will be
based on Nuveen Advisory's belief that their yield is higher than that available
on bonds bearing equivalent levels of interest rate risk, credit risk and other
forms of risk, and that their prices will ultimately rise (relative to the
market) to reflect their true value. The Fund attempts to increase its
portfolio value relative to the municipal bond market by prudent selection of
municipal bonds regardless of the direction the market may move. Any capital
appreciation realized by the Fund will

                                       6

<PAGE>

generally result in the distribution of taxable capital gains to holders of
Common Shares. The Fund's investment objectives are fundamental policies of the
Fund.


     Under normal circumstances, the Fund seeks to achieve its investment
objectives by investing at least 80% of its net assets in a portfolio of
tax-exempt municipal bonds that are covered by insurance guaranteeing the timely
payment of principal and interest thereon. The Fund will notify shareholders at
least 60 days prior to any change in this 80% policy. The Fund also may invest
up to 20% of its net assets in (i) uninsured municipal bonds that are backed by
an escrow or trust account containing sufficient U.S. Government or U.S.
Government agency securities to ensure timely payment of principal and interest,
or (ii) other municipal bonds that are rated, at the time of investment, within
the four highest grades (Baa or BBB or better by Moody's, S&P or Fitch), or are
unrated but judged to be of comparable quality by Nuveen Advisory.


     The Fund has not established any limit on the percentage of its portfolio
that may be invested in municipal bonds subject to the alternative minimum tax
provisions of federal tax law, and the Fund expects that a substantial portion
of the income it produces will be includable in alternative minimum taxable
income. Common Shares therefore would not ordinarily be a suitable investment
for investors who are subject to the federal alternative minimum tax or who
would become subject to such tax by purchasing Common Shares. The suitability of
an investment in Common Shares will depend upon a comparison of the after-tax
yield likely to be provided from the Fund with that 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.
Special considerations apply to corporate investors. See "Tax Matters."

Investment Restrictions

     Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding Common
Shares and, if issued, MuniPreferred Shares (as hereinafter defined) voting
together as a single class, and of the holders of a majority of the outstanding
MuniPreferred Shares voting as a separate class:


          (1) Under normal circumstances, invest less than 80% of the Fund's net
     assets (plus any borrowings for investment purposes) in investments the
     income from which is exempt from regular federal income tax;


          (2) Issue senior securities, as defined in the Investment Company Act
     of 1940, other than MuniPreferred Shares, except to the extent permitted
     under the Investment Company Act of 1940 and except as otherwise described
     in the Prospectus;

          (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 the Fund's total assets (including the
     amount borrowed) less the Fund's liabilities (other than borrowings);

          (4) Act as underwriter of another issuer's securities, except to the
     extent that the Fund may be deemed to be an underwriter within the meaning
     of the Securities Act of 1933 in connection with the purchase and sale of
     portfolio securities;

          (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 bonds other than those municipal bonds backed only by
     the assets and revenues of non-governmental users;

                                       7

<PAGE>


          (6) Purchase or sell real estate, but this shall not prevent the Fund
     from investing in municipal bonds secured by real estate or interests
     therein or foreclosing upon and selling such security;

          (7) Purchase or sell physical commodities unless acquired as a result
     of ownership of securities or other instruments (but this shall not prevent
     the Fund from purchasing or selling options, futures contracts, derivative
     instruments or from investing in securities or other instruments backed by
     physical commodities);

          (8) Make loans, other than by entering into repurchase agreements and
     through the purchase of municipal bonds or short-term investments in
     accordance with its investment objectives, policies and limitations; and

          (9) Invest more than 5% of its total assets in securities of any one
     issuer, except that this limitation shall not apply to bonds issued by the
     United States Government, its agencies and instrumentalities or to the
     investment of 25% of its total assets.


     For purposes of the foregoing and "Description of Shares--MuniPreferred
Shares--Voting Rights" below, "majority of the outstanding," when used with
respect to particular shares of the 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 (9)
above, an issuer shall be deemed the sole issuer of a security when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a non-
governmental issuer, 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 issuer, then such non-governmental issuer would be deemed
to be the sole issuer. Where a security is also backed by the enforceable
obligation of a superior or unrelated governmental or other entity (other than a
bond insurer), it shall also be included in the computation of securities owned
that are issued by such governmental or other entity. Where a security is
guaranteed by a governmental entity or some other facility, such as a bank
guarantee or letter of credit, such a guarantee or letter of credit would be
considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such municipal bond will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of the Fund's assets that may be invested in municipal
bonds insured by any given insurer.

     Under the Investment Company Act of 1940, the Fund may invest only up to
10% of its total assets in the aggregate in shares of other investment companies
and only up to 5% of its total assets in any one investment company, provided
the investment does not represent more than 3% of the voting stock of the
acquired investment company at the time such shares are purchased. As a
stockholder in any investment company, the Fund will bear its ratable share
of

                                       8

<PAGE>

that investment company's expenses, and would remain subject to payment of the
Fund's management, advisory and administrative fees with respect to assets so
invested. Holders of Common Shares would therefore be subject to duplicative
expenses to the extent the Fund invests in other investment companies. In
addition, the securities of other investment companies may also be leveraged and
will therefore be subject to the same leverage risks described herein. As
described in the Prospectus in the section entitled "Risks", the net asset value
and market value of leveraged shares will be more volatile and the yield to
shareholders will tend to fluctuate more than the yield generated by unleveraged
shares.

     In addition to the foregoing fundamental investment policies, the Fund is
also subject to the following non-fundamental restrictions and policies, which
may be changed by the Board of Trustees. The Fund may not:

          (1) Sell securities short, unless the Fund owns or has the right to
     obtain securities equivalent in kind and amount to the securities sold at
     no added cost, and provided that transactions in options, futures
     contracts, options on futures contracts, or other derivative instruments
     are not deemed to constitute selling securities short.

          (2) Purchase securities of open-end or closed-end investment companies
     except in compliance with the Investment Company Act of 1940 or any
     exemptive relief obtained thereunder.

          (3) Enter into futures contracts or related options or forward
     contracts, if more than 30% of the Fund's net assets would be represented
     by futures contracts or more than 5% of the Fund's net assets would be
     committed to initial margin deposits and premiums on futures contracts and
     related options.

          (4) Purchase securities when borrowings exceed 5% of its total assets
     if and so long as MuniPreferred Shares are outstanding.

          (5) Purchase securities of companies for the purpose of exercising
     control.

          (6) Invest in inverse floating rate securities (which are securities
     that pay interest at rates that vary inversely with changes in prevailing
     short-term tax-exempt interest rates and which represent a leveraged
     investment in an underlying municipal bond).

     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.

     The Fund intends to apply for ratings for its preferred shares (called
"MuniPreferred Shares" herein) from Moody's and/or S&P. In order to obtain and
maintain the required ratings, the Fund may be required to comply with
investment quality, diversification and other guidelines established by Moody's
or S&P. Such guidelines will likely be more restrictive than the restrictions
set forth above. The Fund does not anticipate that such guidelines would have a
material

                                       9

<PAGE>

adverse effect on its Common Shareholders or its ability to achieve its
investment objectives. The Fund presently anticipates that any MuniPreferred
Shares that it intends to issue would be initially given the highest ratings by
Moody's ("Aaa") or by S&P ("AAA"), but no assurance can be given that such
ratings will be obtained. No minimum rating is required for the issuance of
MuniPreferred Shares by the Fund. Moody's and S&P receive fees in connection
with their ratings issuances.

                      INVESTMENT POLICIES AND TECHNIQUES

     The following information supplements the discussion of the Fund's
investment objectives, policies, and techniques that are described in the Fund's
Prospectus.

Investment in Municipal Bonds

     Portfolio Investments


     The Fund will invest its net assets in a portfolio of municipal bonds that
are exempt from regular federal income tax.

     Under normal circumstances, and except for the temporary investments
described below, the Fund expects to be fully invested (at least 95% of its
                    assets) in such tax-exempt municipal bonds described herein.

     Under normal circumstances, the Fund will invest at least 80% of its net
assets (plus any borrowings for investment purposes) in a portfolio of municipal
bonds that are exempt from regular federal income taxes and that are covered by
insurance guaranteeing the timely payment of principal and interest thereon. The
Fund also may invest up to 20% of its net assets in (i) uninsured municipal
bonds that are backed by an escrow or trust account containing sufficient U.S.
Government or U.S. Government agency securities to ensure timely payment of
principal and interest, or (ii) other municipal bonds that are rated, at the
time of investment, within the four highest grades (Baa or BBB or better by
Moody's, S&P or Fitch), or bonds that are unrated but judged to be of comparable
quality by Nuveen Advisory.


                                      10

<PAGE>

     A general description of Moody's, S&P's and Fitch's ratings of municipal
bonds is set forth in Appendix A hereto. The ratings of Moody's, S&P and Fitch
represent their opinions as to the quality of the municipal bonds they rate. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, municipal bonds 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.


     Except to the extent that the Fund buys temporary investments as described
herein, the Fund will invest at least 80% of its net assets (plus any borrowings
for investment purposes) in tax-exempt municipal bonds that are covered by
insurance guaranteeing the timely payment of principal and interest on the
bonds. The Fund also may invest up to 20% of its net assets in (i) uninsured
municipal bonds that are backed by an escrow or trust account containing
sufficient U.S. Government or U.S. Government agency securities to ensure timely
payment of principal and interest, or (ii) other municipal bonds that are rated,
at the time of investment, within the four highest grades (Baa or BBB or better
by Moody's, S&P or Fitch), or are unrated but judged to be of comparable quality
by Nuveen Advisory.


     Each insured municipal bond that the Fund holds will either be (1) covered
by an insurance policy applicable to a specific security and obtained by the
issuer of the security or a third party at the time of original issuance
("Original Issue Insurance"), (2) covered by an insurance policy applicable to a
specific security and obtained by the Fund and/or a third party subsequent to
the time of original issuance ("Secondary Market Insurance"), or (3) covered by
a master municipal insurance policy purchased by the Fund ("Portfolio
Insurance"). The Fund, as a non-fundamental policy that can be changed by the
Board of Trustees, will only buy Portfolio Insurance from insurers whose
claims-paying ability Moody's rates "Aaa" or S&P or Fitch rates "AAA."


     Information about the various municipal bond insurers with whom the Fund
intends to maintain specific insurance policies for particular municipal bonds
or policies of Portfolio Insurance is set forth in Appendix C hereto.


     The Fund also may invest up to 20% of its net assets in uninsured municipal
bonds that are entitled to the benefit of an escrow or trust account that
contains securities issued or guaranteed by the U.S. Government or U.S.
Government agencies, backed by the full faith and credit of the United States,
and sufficient in amount to ensure the payment of interest and principal on the
original interest payment and maturity dates ("collateralized obligations").
These collateralized obligations generally will not be insured and will include,
but are not limited to municipal bonds that have been (1) advance refunded where
the proceeds of the refunding have been used to buy U.S. Government or U.S.
Government agency securities that are placed in escrow and whose interest or
maturing principal payments, or both, are sufficient to cover the remaining
scheduled debt service on that municipal bond; or (2) issued under state or
local housing finance programs that use the issuance proceeds to fund mortgages
that are then exchanged for U.S. Government or U.S. Government agency securities
and deposited with a trustee as security for those municipal bonds. These
collateralized obligations are normally regarded as having the credit
characteristics of the underlying U.S. Government or U.S. Government agency
securities.


                                      11

<PAGE>

     The Fund will primarily invest in municipal bonds with long-term maturities
in order to maintain a weighted average maturity of 15-30 years, but the average
weighted maturity of obligations held by the Fund may be shortened, depending on
market conditions. As a result, the Fund's portfolio at any given time may
include both long-term and intermediate-term municipal bonds. Moreover, during
temporary defensive periods (e.g., times when, in Nuveen Advisory's opinion,
temporary imbalances of supply and demand or other temporary dislocations in the
tax-exempt bond market adversely affect the price at which long-term or
intermediate-term municipal bonds are available), and in order to keep the
Fund's cash fully invested, including the period during which the net proceeds
of the offering are being invested, the Fund may invest any percentage of its
net assets in short-term investments including high quality, short-term
securities that may be either tax-exempt or taxable and up to 10% of its net
assets in securities of other open or closed-end investment companies that
invest primarily in municipal bonds of the type in which the Fund may invest
directly. The Fund intends to invest in taxable short-term investments only in
the event that suitable tax-exempt short-term investments are not available at
reasonable prices and yields. Tax-exempt short-term investments include various
obligations issued by state and local governmental issuers, such as tax-exempt
notes (bond anticipation notes, tax anticipation notes and revenue anticipation
notes or other such municipal bonds maturing in three years or less from the
date of issuance) and municipal commercial paper. The Fund will invest only in
taxable short-term investments which are U.S. Government securities or
securities rated within the highest grade by Moody's, S&P or Fitch, and which
mature within one year from the date of purchase or carry a variable or floating
rate of interest. See Appendix A for a general description of Moody's, S&P's and
Fitch's ratings of securities in such categories. Taxable short-term investments
of the Fund may include certificates of deposit issued by U.S. banks with assets
of at least $1 billion, or commercial paper or corporate notes, bonds or
debentures with a remaining maturity of one year or less, or repurchase
agreements. See "Other Investment Policies and Techniques--Repurchase
Agreements." To the extent the Fund invests

                                      12

<PAGE>

in taxable investments, the Fund will not at such times be in a position to
achieve its investment objective of tax-exempt income.

     The foregoing policies as to ratings of portfolio investments will apply
only at the time of the purchase of a security, and the Fund will not be
required to dispose of securities in the event Moody's, S&P or Fitch downgrades
its assessment of the credit characteristics of a particular issuer.

     Nuveen Advisory seeks to enhance portfolio value relative to the municipal
bond market by investing in tax-exempt municipal bonds that it believes are
underrated or undervalued or that represent municipal market sectors that are
undervalued. Underrated municipal bonds are those whose ratings do not, in
Nuveen Advisory's opinion, reflect their true creditworthiness. Undervalued
municipal bonds are bonds that, in Nuveen Advisory's opinion, are worth more
than the value assigned to them in the marketplace. Nuveen Advisory may at times
believe that bonds associated with a particular municipal market sector (for
example, electric utilities), or issued by a particular municipal issuer, are
undervalued. Nuveen Advisory may purchase such a bond for the Fund's portfolio
because it represents a market sector or issuer that Nuveen Advisory considers
undervalued, even if the value of the particular bond is consistent with the
value of similar bonds. Municipal bonds of particular types or purposes (e.g.,
hospital bonds, industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a temporary excess of
supply in that market sector, or because of a general decline in the market
price of municipal bonds of the market sector for reasons that do not apply to
the particular municipal bonds that are considered undervalued. The Fund's
investment in underrated or undervalued municipal bonds will be based on Nuveen
Advisory's belief that their yield is higher than that available on bonds
bearing equivalent levels of interest rate risk, credit risk and other forms of
risk, and that their prices will ultimately rise (relative to the market) to
reflect their true value.

     The Fund has not established any limit on the percentage of its portfolio
investments that may be invested in municipal bonds subject to the federal
alternative minimum tax provisions of federal tax law, and the Fund expects that
a substantial portion of the current income it produces will be includable in
alternative minimum taxable income. Special considerations apply to corporate
investors. See "Tax Matters."

     Also included within the general category of municipal bonds described in
the Fund's Prospectus are participations in lease obligations or installment
purchase contract obligations (hereinafter collectively called "Municipal Lease
Obligations") of municipal authorities or entities. Although a Municipal Lease
Obligation does not constitute a general obligation 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, the 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. In order to reduce this risk, the Fund will only

                                      13

<PAGE>

purchase Municipal Lease Obligations where Nuveen Advisory believes the issuer
has a strong incentive to continue making appropriations until maturity.

     Upon Nuveen Advisory's recommendation, during temporary defensive periods
and in order to keep the Fund's cash fully invested, including the period during
which the net proceeds of the offering are being invested, the Fund may invest
up to 100% of its net assets in short-term investments including high quality,
short-term securities that may be either tax-exempt or taxable. To the extent
the Fund invests in taxable short-term investments, the Fund will not at such
times be in a position to achieve that portion of its investment objective of
seeking current income exempt from regular federal income tax. For further
information, see, "Short-Term Investments" below.

     Obligations of issuers of municipal bonds are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to the laws enacted in the future
by Congress, state 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 bonds may be materially affected.

     The Fund also may invest up to 10% of its net assets in securities of other
open or closed-end investment companies that invest primarily in municipal bonds
of the type in which the Fund may invest directly. The Fund will generally
select obligations which may not be redeemed at the option of the issuer for
approximately seven to nine years.

Additional Information on Municipal Bond Insurance

     Original Issue Insurance. If interest or principal on a municipal bond is
due, but the issuer fails to pay it, the insurer will make payments in the
amount due to the fiscal agent no later than one business day after the insurer
has been notified of the issuer's nonpayment. The fiscal agent will pay the
amount due to the Fund after the fiscal agent receives evidence of the Fund's
right to receive payment of the principal and/or interest, and evidence that all
of the rights of payment due shall thereupon vest in the insurer. When the
insurer pays the Fund the payment due from the issuer, the insurer will succeed
to the Fund's rights to that payment.

     Portfolio Insurance. Each portfolio insurance policy will be noncancellable
and will remain in effect so long as the Fund is in existence, the Fund
continues to own the municipal bonds covered by the policy, and the Fund pays
the premiums for the policy. Each insurer generally will reserve the right at
any time upon 90 days' written notice to the Fund to refuse to insure any
additional bonds the Fund buys after the effective date of the notice. The
Fund's Board of Trustees will generally reserve the right to terminate each
policy upon seven day's written notice to an insurer if it determines that the
cost of the policy is not reasonable in relation to the value of the insurance
to the Fund.

                                      14

<PAGE>

Short-Term Investments

     Short-Term Taxable Fixed Income Securities

     For temporary defensive purposes or to keep cash on hand fully invested,
the Fund may invest up to 100% of its net assets in cash equivalents and short-
term taxable fixed-income securities, although the Fund intends to invest in
taxable short-term investments only in the event that suitable tax-exempt short-
term investments are not available at reasonable prices and yields. Short-term
taxable fixed income investments are defined to include, without limitation, the
following:

          (1)  U.S. government securities, including bills, notes and bonds
     differing as to maturity and rates of interest that are either issued or
     guaranteed by the U.S. Treasury or by U.S. government agencies or
     instrumentalities. U.S. government agency securities include securities
     issued by (a) the Federal Housing Administration, Farmers Home
     Administration, Export-Import Bank of the United States, Small Business
     Administration, and the Government National Mortgage Association, whose
     securities are supported by the full faith and credit of the United States;
     (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
     Tennessee Valley Authority, whose securities are supported by the right of
     the agency to borrow from the U.S. Treasury; (c) the Federal National
     Mortgage Association, whose securities are supported by the discretionary
     authority of the U.S. government to purchase certain obligations of the
     agency or instrumentality; and (d) the Student Loan Marketing Association,
     whose securities are supported only by its credit. While the U.S.
     government provides financial support to such U.S. government-sponsored
     agencies or instrumentalities, no assurance can be given that it always
     will do so since it is not so obligated by law. The U.S. government, its
     agencies, and instrumentalities do not guarantee the market value of their
     securities. Consequently, the value of such securities may fluctuate.

          (2)  Certificates of Deposit issued against funds deposited in a bank
     or a savings and loan association. Such certificates are for a definite
     period of time, earn a specified rate of return, and are normally
     negotiable. The issuer of a certificate of deposit agrees to pay the amount
     deposited plus interest to the bearer of the certificate on the date
     specified thereon. Under current FDIC regulations, the maximum insurance
     payable as to any one certificate of deposit is $100,000; therefore,
     certificates of deposit purchased by the Fund may not be fully insured.

          (3)  Repurchase agreements, which involve purchases of debt
     securities. At the time the Fund purchases securities pursuant to a
     repurchase agreement, it simultaneously agrees to resell and redeliver such
     securities to the seller, who also simultaneously agrees to buy back the
     securities at a fixed price and time. This assures a predetermined yield
     for the Fund during its holding period, since the resale price is always
     greater than the purchase price and reflects an agreed-upon market rate.
     Such actions afford an opportunity for the Fund to invest

                                      15

<PAGE>


     temporarily available cash. The Fund may enter into repurchase agreements
     only with respect to obligations of the U.S. government, its agencies or
     instrumentalities; certificates of deposit; or bankers' acceptances in
     which the Fund may invest. Repurchase agreements may be considered loans to
     the seller, collateralized by the underlying securities. The risk to the
     Fund is limited to the ability of the seller to pay the agreed-upon sum on
     the repurchase date; in the event of default, the repurchase agreement
     provides that the Fund is entitled to sell the underlying collateral. If
     the seller defaults under a repurchase agreement when the value of the
     underlying collateral is less than the repurchase price, the Fund could
     incur a loss of both principal and interest. The investment adviser
     monitors the value of the collateral at the time the action is entered into
     and at all times during the term of the repurchase agreement. The
     investment adviser does so in an effort to determine that the value of the
     collateral always equals or exceeds the agreed-upon repurchase price to be
     paid to the Fund. If the seller were to be subject to a federal bankruptcy
     proceeding, the ability of the Fund to liquidate the collateral could be
     delayed or impaired because of certain provisions of the bankruptcy laws.

          (4) Commercial paper, which consists of short-term unsecured
     promissory notes, including variable rate master demand notes issued by
     corporations to finance their current operations. Master demand notes are
     direct lending arrangements between the Fund and a corporation. There is no
     secondary market for such notes. However, they are redeemable by the Fund
     at any time. Nuveen Advisory will consider the financial condition of the
     corporation (e.g., earning power, cash flow, and other liquidity measures)
     and will continuously monitor the corporation's ability to meet all of its
     financial obligations, because the Fund's liquidity might be impaired if
     the corporation were unable to pay principal and interest on demand.
     Investments in commercial paper will be limited to commercial paper rated
     in the highest categories by a major rating agency and which mature within
     one year of the date of purchase or carry a variable or floating rate of
     interest.

     Short-Term Tax-Exempt Fixed Income Securities

     Short-term tax-exempt fixed-income securities are securities that are
exempt from regular federal income tax and mature within three years or less
from the date of issuance. Short-term tax-exempt fixed income securities are
defined to include, without limitation, the following:

     Bond Anticipation Notes ("BANs") are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing for
projects that will eventually be funded through the sale of long-term debt
obligations or bonds. The ability of an issuer to meet its obligations on its
BANs is primarily dependent on the issuer's access to the long-term municipal
bond market and the likelihood that the proceeds of such bond sales will be used
to pay the principal and interest on the BANs.

                                      16

<PAGE>

     Tax Anticipation Notes ("TANs") are issued by state and local governments
to finance the current operations of such governments. Repayment is generally to
be derived from specific future tax revenues. TANs are usually general
obligations of the issuer. A weakness in an issuer's capacity to raise taxes due
to, among other things, a decline in its tax base or a rise in delinquencies,
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs.

     Revenue Anticipation Notes ("RANs") are issued by governments or
governmental bodies with the expectation that future revenues from a designated
source will be used to repay the notes. In general, they also constitute general
obligations of the issuer. A decline in the receipt of projected revenues, such
as anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.

     Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained from
the Federal Housing Administration.

     Bank Notes are notes issued by local government bodies and agencies, such
as those described above to commercial banks as evidence of borrowings.  The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These notes
may have risks similar to the risks associated with TANs and RANs.

     Tax-Exempt Commercial Paper ("Municipal Paper") represents very short-term
unsecured, negotiable promissory notes issued by states, municipalities and
their agencies. Payment of principal and interest on issues of municipal paper
may be made from various sources, to the extent the funds are available
therefrom. Maturities of municipal paper generally will be shorter than the
maturities of TANs, BANs or RANs. There is a limited secondary market for issues
of Municipal Paper.

     Certain municipal bonds 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 indices, such as a bank prime rate or a tax-exempt money market
index.

     While the various types of notes described above as a group represent the
major portion of the short-term tax-exempt note market, other types of notes are
available in the marketplace and the Fund may invest in such other types of
notes to the extent permitted under its investment objectives, policies and
limitations. Such notes may be issued for different purposes and may be secured
differently from those mentioned above.

Hedging Strategies

     The Fund may periodically engage in hedging transactions. Hedging is a
term used for various methods of seeking to preserve portfolio capital value by
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in

                                      17

<PAGE>

financial futures and index futures as well as related put and call options on
such instruments. Both parties entering into an index or financial futures
contract are required to post an initial deposit of 1% to 5% of the total
contract price. Typically, option holders enter into offsetting closing
transactions to enable settlement in cash rather than take delivery of the
position in the future of the underlying security. The Fund will only sell
covered futures contracts, which means that the Fund segregates assets equal to
the amount of the obligations.

     These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in the Fund's
portfolio. In addition, futures and options markets may not be liquid in all
circumstances. As a result, in volatile markets, the Fund may not be able to
close out the transaction without incurring losses substantially greater than
the initial deposit. Finally, the potential deposit requirements in futures
contracts create an ongoing greater potential financial risk than do options
transactions, where the exposure is limited to the cost of the initial premium.
Losses due to hedging transactions will reduce yield. Net gains, if any, from
hedging and other portfolio transactions will be distributed as taxable
distributions to shareholders. The Fund will not make any investment (whether an
initial premium or deposit or a subsequent deposit) other than as necessary to
close a prior investment if, immediately after such investment, the sum of the
amount of its premiums and deposits would exceed 5% of the Fund's net assets.
The Fund will invest in these instruments only in markets believed by Nuveen
Advisory to be active and sufficiently liquid. Successful implementation of most
hedging strategies would generate taxable income, and the Fund has no present
intention to use these strategies. For further information regarding these
investment strategies and risks presented thereby, see Appendix D to this
Statement of Additional Information.



                    OTHER INVESTMENT POLICIES AND TECHNIQUES

Illiquid Securities

     The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable), including, but not limited to, restricted securities
(securities the disposition of which is restricted under the federal securities
laws), securities that may only be resold pursuant to Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"); and repurchase
agreements with maturities in excess of seven days.


                                       18

<PAGE>

     Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the Fund
might obtain a less favorable price than that which prevailed when it decided to
sell. Illiquid securities will be priced at a fair value as determined in good
faith by the Board of Trustees or its delegate.

Portfolio Trading and Turnover Rate

     Portfolio trading may be undertaken to accomplish the investment objectives
of the Fund in relation to actual and anticipated movements in interest rates.
In addition, a security may be sold and another of comparable quality purchased
at approximately the same time to take advantage of what Nuveen Advisory
believes to be a temporary price disparity between the two securities. Temporary
price disparities between two comparable securities may result from supply and
demand imbalances where, for example, a temporary oversupply of certain bonds
may cause a temporarily low price for such bonds, as compared with other bonds
of like quality and characteristics. The 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
rates) or purchased in anticipation of a market rise (a decline in interest
rates) and later sold, but the Fund will not engage in trading solely to
recognize a gain.

     Subject to the foregoing, the Fund will attempt to achieve its investment
objectives by prudent selection of municipal bonds with a view to holding them
for investment. While there can be no assurance thereof, the 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 the Fund deems it
desirable to sell or purchase securities. Therefore, depending upon market
conditions, the annual portfolio turnover rate of the Fund may exceed 100% in
particular years.

Other Investment Companies

     The Fund may invest in securities of other open or closed-end investment
companies that invest primarily in municipal bonds of the types in which the
Fund may invest directly. The Fund generally expects to invest in other
investment companies either during periods when it has large amounts of
uninvested cash, such as the period shortly after the Fund receives the proceeds
of the offering of its Common Shares or MuniPreferred Shares, or during periods
when there is a shortage of attractive, high-yielding municipal bonds available
in the market. As a stockholder in an investment company, the Fund will bear its
ratable share of that investment company's expenses and would remain subject to
payment of the Fund's management, advisory and administrative fees with respect
to assets so invested. Common Shareholders would therefore be subject to
duplicative expenses to the extent the Fund invests in other investment
companies. Nuveen Advisory will take expenses into account when evaluating the
investment merits of an investment in the investment company relative to
available municipal bond investments. In addition, the securities of other
investment companies may also be leveraged and will therefore be subject to the
same leverage risks described herein. As described in the Fund's Prospectus in
the section entitled "Risks," the net asset value and market value of leveraged
shares will be more

                                       19

<PAGE>

volatile and the yield to shareholders will tend to fluctuate more than the
yield generated by unleveraged shares.

When-Issued and Delayed Delivery Transactions

     The Fund may buy and sell municipal bonds on a when-issued or delayed
delivery basis, making payment or taking delivery at a later date, normally
within 15-45 days of the trade date. On such transactions the payment obligation
and the interest rate are fixed at the time the buyer enters into the
commitment. Beginning on the date the Fund enters into a commitment to purchase
securities on a when-issued or delayed delivery basis, the Fund is required
under rules of the Securities and Exchange Commission to maintain in a separate
account liquid assets, consisting of cash, cash equivalents or liquid securities
having a market value at all times of at least equal to the amount of the
commitment. Income generated by any such assets which provide taxable income for
federal income tax purposes is includable in the taxable income of the Fund. The
Fund may enter into contracts to purchase municipal bonds on a forward basis
(i.e., where settlement will occur more than 60 days from the date of the
transaction) only to the extent that the Fund specifically collateralizes such
obligations with a security that is expected to be called or mature within sixty
days before or after the settlement date of the forward transaction. The
commitment to purchase securities on a when-issued, delayed delivery or forward
basis may involve an element of risk because no interest accrues on the bonds
prior to settlement and at the time of delivery the market value may be less
than cost.

Repurchase Agreements

     As temporary investments, the Fund may invest in repurchase agreements. A
repurchase agreement is a contractual agreement whereby the seller of securities
(U.S. Government securities or municipal bonds) 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 the Fund's holding
period. Repurchase agreements are considered to be loans collateralized by the
underlying security that is the subject of the repurchase contract. Income
generated from transactions in repurchase agreements will be taxable. See "Tax
Matters" for information relating to the allocation of taxable income between
Common Shares and MuniPreferred Shares, if any. The Fund will only enter into
repurchase agreements with registered securities dealers or domestic banks that,
in the opinion of Nuveen Advisory, present minimal credit risk. The risk to the
Fund is limited to the ability of the issuer to pay the agreed-upon repurchase
price on the delivery date; however, although the value of the underlying
collateral at the time the transaction is entered into always equals or exceeds
the agreed-upon repurchase price, if the value of the collateral declines there
is a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but the Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the Fund may be delayed or limited. Nuveen
Advisory will monitor the value of 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, Nuveen Advisory will

                                       20

<PAGE>

demand additional collateral from the issuer to increase the value of the
collateral to at least that of the repurchase price, including interest.

Zero Coupon Bonds


     The Fund may invest in zero coupon bonds. A zero coupon bond is a bond
that does not pay interest for its entire life. The market prices of zero coupon
bonds are affected to a greater extent by changes in prevailing levels of
interest rates and thereby tend to be more volatile in price than securities
that pay interest periodically. In addition, because the Fund accrues income
with respect to these securities prior to the receipt of such interest, it may
have to dispose of portfolio securities under disadvantageous circumstances in
order to obtain cash needed to pay income dividends in amounts necessary to
avoid unfavorable tax consequences.

                            MANAGEMENT OF THE FUND

Trustees and Officers

     The management of the Fund, including general supervision of the duties
performed for the Fund under the Management Agreement, is the responsibility of
the Board of Trustees of the Fund. The number of trustees of the Fund is
currently set at seven, one of whom is an "interested person" (as the term is
defined in the Investment Company Act of 1940) and six of whom are not
interested persons. None of the trustees who are not interested persons of the
Fund has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the trustees and officers of the
Fund, their principal occupations and other affiliations during the past five
years, the number of portfolios each oversees and other directorships they have
held are set forth below.

<TABLE>
<CAPTION>

Name, Birthdate            Positions and                       Principal Occupations                   Number of
- ---------------            -------------                       ---------------------                   ---------
 and Address               Offices with                           Including Other                      Portfolios
 -----------               ------------                           ---------------                      ----------
                           the Fund and                            Directorships                        in Fund
                           ------------                            -------------                        -------
                            Year First                         During Past Five Years               Complex Overseen
                            ----------                         ----------------------               ----------------
                            Elected or                                                                 by Trustee
                            ---------                                                                  ----------
<S>                       <C>                         <C>                                          <C>
Trustee who is an interested person of the Fund:

Timothy R. Schwertfeger*  Chairman of the             Chairman and Director (since July 1996) of          121
3/28/49                    Board, President           The John Nuveen Company, Nuveen Investments,
333 West Wacker Drive      and Trustee                Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606         1994                        Institutional Advisory Corp.; prior thereto,
                                                      Executive Vice President and Director of The
                                                      John Nuveen Company and Nuveen Investments;
                                                      Director (since 1992) and Chairman (since 1996)
                                                      of Nuveen Advisory Corp. and Nuveen
                                                      Institutional Advisory Corp.; Chairman and
                                                      Director (since January 1997) of Nuveen Asset
                                                      Management, Inc.; Director (since 1996) of
                                                      Institutional Capital Corporation; Chairman
                                                      and Director (since 1999) of Rittenhouse
                                                      Financial Services Inc.; Chief Executive
                                                      Officer (since September 1999) of Nuveen
                                                      Senior Loan Asset Management Inc.
</TABLE>

*Mr. Schwertfeger is an "interested person" of the Fund, as defined in the
Investment Company Act of 1940 because he is an officer and director of Nuveen
Advisory.

                                       21

<PAGE>


<TABLE>
<CAPTION>

Name, Birthdate            Positions and                       Principal Occupations                   Number of
- ---------------            -------------                       ---------------------                   ---------
 and Address               Offices with                           Including Other                      Portfolios
 -----------               ------------                           ---------------                      ----------
                           the Fund and                            Directorships                        in Fund
                           ------------                            -------------                        -------
                            Year First                         During Past Five Years               Complex Overseen
                            ----------                         ----------------------               ----------------
                            Elected or                                                                 by Trustee
                            ----------                                                                 ----------
                            Appointed
                            ---------

Trustees who are not interested persons of the Fund:

<S>                       <C>                         <C>                                           <C>
Robert P. Bremner         Trustee                     Private Investor and Management Consultant.           104
8/22/40                    1997
3725 Huntington
Street, N.W.
Washington, D.C. 20015

Lawrence H. Brown         Trustee                     Retired (August 1989) as Senior Vice President        104
7/29/34                    1993                       of The Northern Trust Company.
201 Michigan Avenue
Highwood, IL 60040

Anne E. Impellizzeri      Trustee                     Executive Director (since 1998) of Manitoga           104
1/26/33                    1994                       (Center for Russel Wright's Design with Nature);
3 West 29th Street                                    formerly, President and Chief Executive
New York, NY 10001                                    Officer of Blanton-Peale Institutes of Religion
                                                      and Health (since December 1990); prior thereto,
                                                      Vice President, Metropolitan Life Insurance Co.

Peter R. Sawers           Trustee                     Adjunct Professor of Business and Economics,          104
4/3/33                    1991                        University of Dubuque, Iowa; formerly (1991-2000)
22 The Landmark                                       Adjunct Professor, Lake Forest Graduate School of
Northfield, IL 60093                                  Management, Lake Forest, Illinois; prior thereto,
                                                      Executive Director, Towers Perrin Australia, a
                                                      management consulting firm; Chartered Financial
                                                      Analyst; Certified Management Consultant.

William J. Schneider      Trustee                     Senior Partner and Chief Operating Officer,           104
9/24/44                    1997                       Miller-Valentine Group, Vice President,
4000 Miller-Valentine Ct.                             Miller-Valentine Realty, a development and
P. O. Box 744                                         contract company; Chair, Miami Valley Hospital;
Dayton, OH 45401                                      Vice Chair, Miami Valley Economic Development
                                                      Coalition; formerly, Member, Community Advisory
                                                      Board, National City Bank, Dayton, Ohio and
                                                      Business Advisory Council, Cleveland Federal
                                                      Reserve Bank.

Judith M. Stockdale       Trustee                     Executive Director, Gaylord and Dorothy Donnelley     104
12/29/47                   1997                       Foundation (since 1994); prior thereto, Executive
35 E. Wacker Drive                                    Director, Great Lakes Protection Fund (from 1990
Suite 2600                                            to 1994).
Chicago, IL 60601

</TABLE>
                                      22

<PAGE>

<TABLE>
<CAPTION>

Name, Birthdate            Positions and                       Principal Occupations                   Number of
- ---------------            -------------                       ---------------------                   ---------
 and Address               Offices with                           Including Other                      Portfolios
 -----------               ------------                           ---------------                      ----------
                           the Fund and                            Directorships                        in Fund
                           ------------                            -------------                        -------
                            Year First                         During Past Five Years               Complex Overseen
                            ----------                         ----------------------               ----------------
                            Elected or                                                                 by Officer
                            ----------                                                                 ----------
                            Appointed
                            ---------
Officers of the Fund:
<S>                       <C>                         <C>                                           <C>
Michael T. Atkinson       Vice President              Vice President (since January 2002),                 119
2/3/66                    2002                        formerly, Assistant Vice President
333 W. Wacker Drive                                   (since 2000), previously, associate
Chicago, IL   60606                                   of Nuveen Investments.

Paul L. Brennan           Vice President              Vice President (since January 2002),                 119
11/10/66                  2002                        formerly, Assistant Vice President
333 W. Wacker Drive                                   (since 1997), of Nuveen Advisory Corp.;
Chicago, IL   60606                                   prior thereto, portfolio manager of
                                                      Flagship Financial Inc.

Peter H. D'Arrigo         Vice President and          Vice President of Nuveen Investments                 121
11/28/67                   Treasurer                  (since January 1999), prior thereto,
333 W. Wacker Drive       1999                        Assistant Vice President (from January
Chicago, IL   60606                                   1997); formerly, Associate of Nuveen
                                                      Investments; Vice President and
                                                      Treasurer (since September 1999) of
                                                      Nuveen Senior Loan Asset Management
                                                      Inc.; Chartered Financial Analyst.

Michael S. Davern         Vice President              Vice President of Nuveen Advisory                    119
6/26/57                   1997                        Corp. (since January 1997); prior
333 W. Wacker Drive                                   thereto, Vice President and Portfolio
Chicago, IL   60606                                   Manager of Flagship Financial.

Susan M. DeSanto          Vice President              Vice President of Nuveen Advisory Corp.              121
9/8/54                    2001                        (since August 2001); previously, Vice
333 W. Wacker Drive                                   President of Van Kampen Investment
Chicago, IL   60606                                   Advisory Corp. (since 1998); prior thereto,
                                                      Assistant Vice President of Van Kampen
                                                      Investment Advisory Corp. (since 1994).

Jessica R. Droeger        Vice President              Vice President (since January 2002),                 121
9/24/64                   2002                        formerly Assistant Vice President and
333 W. Wacker Drive                                   Assistant General Counsel (since May 1998)
Chicago, IL   60606                                   of Nuveen Investments; Assistant Vice
                                                      President and Assistant Secretary (since
                                                      1998) of Nuveen Advisory Corp. and Nuveen
                                                      Institutional Advisory Corp.; prior thereto,
                                                      Associate at the law firm D'Ancona Partners LLC

Lorna C. Ferguson         Vice President              Vice President of Nuveen Investments;                121
10/24/45                  1998                        Vice President (since January 1998) of
333 W. Wacker Drive                                   Nuveen Advisory Corp. and Nuveen
Chicago, IL   60606                                   Institutional Advisory Corp.

William M. Fitzgerald     Vice President              Vice President of Nuveen Advisory                    119
3/2/64                    1995                        Corp. (since December 1995);
333 W. Wacker Drive                                   Assistant Vice President of Nuveen
Chicago, IL   60606                                   Advisory Corp. (from September 1992
                                                      to December 1995); prior thereto,
                                                      Assistant Portfolio Manager of Nuveen
                                                      Advisory Corp.; Chartered Financial
                                                      Analyst.

Stephen D. Foy            Vice President and          Vice President of Nuveen Investments                 121
5/31/54                    Controller                 and (since May 1998) The John Nuveen
333 W. Wacker Drive       1998                        Company; Vice President (since
Chicago, IL   60606                                   September 1999) of Nuveen Senior Loan
                                                      Management Inc.; Certified Public
                                                      Accountant.

</TABLE>

                                       23

<PAGE>

<TABLE>
<CAPTION>

Name, Birthdate            Positions and                       Principal Occupations                   Number of
- ---------------            -------------                       ---------------------                   ---------
 and Address               Offices with                           Including Other                      Portfolios
 -----------               ------------                           ---------------                      ----------
                           the Fund and                            Directorships                        in Fund
                           ------------                            -------------                        -------
                            Year First                         During Past Five Years               Complex Overseen
                            ----------                         ----------------------               ----------------
                            Elected or                                                                 by Officer
                            ----------                                                                 ----------
                            Appointed
                            ---------
<S>                       <C>                         <C>                                          <C>
J. Thomas Futrell         Vice President              Vice President of Nuveen Advisory                    119
7/5/55                    1992                        Corp.; Chartered Financial Analyst.
333 W. Wacker Drive
Chicago, IL 60606

Richard A. Huber          Vice President              Vice President of Nuveen Institutional               119
3/26/63                       1997                    Advisory Corp. (since March 1998) and
333 W. Wacker Drive                                   Nuveen Advisory Corp. (since January
Chicago, IL 60606                                     1997); prior thereto, Vice President
                                                      and Portfolio Manager of Flagship
                                                      Financial, Inc.

Steven J. Krupa           Vice President              Vice President of Nuveen Advisory Corp.              119
8/21/57                       1990
333 W. Wacker Drive
Chicago, IL 60606

David J. Lamb             Vice President              Vice President (since March 2000) of Nuveen          121
3/22/63                       2000                    Investments, previously Assistant Vice
333 W. Wacker Drive                                   President (since January 1999); prior thereto,
Chicago, IL 60606                                     Associate of Nuveen Investments; Certified
                                                      Public Accountant.

Larry W. Martin           Vice President and          Vice President, Assistant Secretary                  121
7/27/51                    Assistant Secretary        and Assistant General Counsel of
333 W. Wacker Drive           1988                    Nuveen Investments; Vice President and
Chicago, IL 60606                                     Assistant Secretary of Nuveen Advisory
                                                      Corp. and Nuveen Institutional Advisory
                                                      Corp.; Assistant Secretary of the John
                                                      Nuveen Company and (since January 1997)
                                                      Nuveen Asset Management, Inc.; Vice
                                                      President and Assistant Secretary
                                                      (since September 1999) of Nuveen Senior
                                                      Loan Asset Management Inc.

Edward F. Neild, IV       Vice President              Vice President (since September 1996),               119
7/7/65                        1996                    previously Assistant Vice President
333 W. Wacker Drive                                   (since December 1993) of Nuveen
Chicago, IL 60606                                     Advisory Corp., Portfolio Manager
                                                      prior thereto; Vice President (since
                                                      September 1996), previously Assistant
                                                      Vice President (since May 1995), of
                                                      Nuveen Institutional Advisory Corp.,
                                                      Portfolio Manager prior thereto;
                                                      Chartered Financial Analyst.

Thomas J. O'Shaughnessy   Vice President              Vice President (since January 2002),                 119
9/4/60                        2002                    formerly, Assistant Vice President
333 W. Wacker Drive                                   (since 1998), of Nuveen Advisory Corp.;
Chicago, IL 60606                                     prior thereto, portfolio manager.
</TABLE>

                                       24

<PAGE>


<TABLE>
<CAPTION>
 Name, Birthdate          Positions and          Principal Occupations                           Number of
 ---------------          -------------          ---------------------                           ---------
   and Address            Offices with              Including Other                              Portfolios
   -----------            ------------              ---------------                              ----------
                          the Fund and               Directorships                                in Fund
                          ------------               -------------                                -------
                           Year First            During Past Five Years                      Complex Overseen
                           ----------            ----------------------                      ----------------
                           Elected or                                                            by Officer
                           ----------                                                            ----------
                           Appointed
                           ---------
<S>                       <C>                    <C>                                         <C>
Thomas C. Spalding, Jr.   Vice President         Vice President of Nuveen Advisory                  119
7/31/51                       1982               Corp. and Nuveen Institutional
333 W. Wacker Drive                              Advisory Corp.; Chartered Financial
Chicago, IL 60606                                Analyst.

Gifford R. Zimmerman      Vice President and     Vice President, Assistant Secretary                121
9/9/56                     Secretary             and Associate General Counsel, formerly
333 W. Wacker Drive           1988               Assistant General Counsel, of Nuveen
Chicago, IL 60606                                Investments; Vice President and
                                                 Assistant Secretary of Nuveen Advisory
                                                 Corp. and Nuveen Institutional Advisory
                                                 Corp.; Vice President and Assistant
                                                 Secretary of The John Nuveen Company
                                                 (since May 1994); Vice President and
                                                 Assistant Secretary (since September
                                                 1999) of Nuveen Senior Loan Asset
                                                 Management Inc.; Chartered Financial
                                                 Analyst.
</TABLE>

     The Board of Trustees has four standing committees: the executive
committee, the audit committee, the nominating and governance committee and the
dividend and valuation committee.

     Peter R. Sawers and Timothy R.Schwertfeger, Chair, serve as members of the
executive committee of the Board of Trustees of the Fund. The executive
committee, which meets between regular meetings of the Board of Trustees, is
authorized to exercise all of the powers of the Board of Trustees.

     The audit committee monitors the accounting and reporting policies and
practices of the Funds, the quality and integrity of the financial statements of
the Funds, compliance by the Funds with legal and regulatory requirements and
the independence and performance of the external and internal auditors. The
members of the audit committee are William J. Schneider, Chair, Robert P.
Bremner, Lawrence H. Brown, Anne E.Impellizzeri, Peter R. Sawers and Judith M.
Stockdale.

     The nominating and governance committee is responsible for Board selection
and tenure; selection and review of committees; and Board education and
operations. In addition, the committee monitors performance of legal counsel and
other service providers; periodically reviews and makes recommendations about
any appropriate changes to trustee compensation; and has the resources and
authority to discharge its responsibilities--including retaining special counsel
and other experts or consultants at the expense of the Fund. In the event of a
vacancy on the Board, the nominating and governance committee receives
suggestions from various sources as to suitable candidates. Suggestions should
be sent in writing to Lorna Ferguson, Vice President for Board Relations, Nuveen
Investments, 333 West Wacker Drive, Chicago, IL 60606. The nominating and
governance committee sets appropriate standards and requirements for nominations
for new trustees and reserves the right to interview all candidates and to make
the final selection of any new trustees. The members of the nominating and
governance committee are Anne E. Impellizzeri, Chair, Robert P. Bremner,
Lawrence H. Brown, Peter R. Sawers, William J. Schneider and Judith M.
Stockdale.

     The dividend and valuation committee is authorized to declare distributions
on the Fund's shares including, but not limited to regular and special
dividends, capital gains and ordinary income distributions. The committee also
oversees the Fund's Pricing Procedures including, but not limited to, the review
and approval of fair value pricing determinations made by Nuveen's Valuation
Group. The members of the dividend and valuation committee are Timothy R.
Schwertfeger, Chair, and Lawrence H. Brown.

     The trustees of the Fund are also directors or trustees, as the case may
be, of 30 Nuveen open-end funds and 74 Nuveen closed-end funds advised by Nuveen
Advisory Corp. Mr. Schwertfeger is a director or trustee, as the case may be, of
15 Nuveen open-end and closed-end funds advised by Nuveen Institutional Advisory
Corp. and two funds advised by Nuveen Senior Loan Asset Management Inc. None of
the independent trustees nor any of their immediate family members has ever been
a director, officer, or employee of, or a consultant to, Nuveen Advisory, Nuveen
or their affiliates.


                                       25

<PAGE>


     The Common Shareholders of the Fund will elect trustees at the next annual
meeting of Common Shareholders, unless any MuniPreferred Shares are outstanding
at that time, in which event holders of MuniPreferred Shares, voting as a
separate class, will elect two trustees and the remaining trustees shall be
elected by Common Shareholders and holders of MuniPreferred Shares, voting
together as a single class. Holders of MuniPreferred Shares will be entitled to
elect a majority of the Fund's trustees under certain circumstances. See
"Description of Shares - MuniPreferred Shares - Voting Rights."


     The following table sets forth the dollar range of equity securities
beneficially owned by each trustee as of December 31, 2001:


<TABLE>
<CAPTION>

                                                        Aggregate Dollar Range
                                                        of Equity Securities
                                                           in All Registered
                                                         Investment Companies
                             Dollar Range of Equity       Overseen by Trustee
                             Securities in the              in Family of
       Name of Trustee              Fund                Investment Companies
    ---------------------    --------------------       ---------------------
<S>                          <C>                        <C>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Robert P. Bremner                   $0                      over $100,000
- ----------------------------------------------------------------------------
Lawrence H. Brown                   $0                      over $100,000
- ----------------------------------------------------------------------------
Anne E. Impellizzeri                $0                      over $100,000
- ----------------------------------------------------------------------------
Peter R. Sawers                     $0                      over $100,000
- ----------------------------------------------------------------------------
William J. Schneider                $0                      over $100,000
- ----------------------------------------------------------------------------
Timothy R. Schwertfeger             $0                      over $100,000
- ----------------------------------------------------------------------------
Judith M. Stockdale                 $0                      over $100,000
- ----------------------------------------------------------------------------
</TABLE>



     No trustee who is not an interested person of the Fund owns beneficially or
of record, any security of Nuveen Advisory, Nuveen or any person (other than a
registered investment company) directly or indirectly controlling, controlled by
or under common control with Nuveen Advisory or Nuveen.

     The following table sets forth estimated compensation to be paid by the
Fund projected during the Fund's first full fiscal year after commencement of
operation. The Fund does not have a retirement or pension plan. The officers and
trustees affiliated with Nuveen serve without any compensation from the Fund.
The Fund has a deferred compensation plan (the "Plan") that permits any trustee
who is not an "interested person" of the Fund to elect to defer receipt of all
or a portion of his or her compensation as a trustee. The deferred compensation
of a participating trustee is credited to a book reserve account of the Trust
when the compensation would otherwise have been paid to the trustee. The value
of the trustee's deferral account at any time is equal to the value that the
account would have had if contributions to the account had been invested and
reinvested in shares of one or more of the eligible Nuveen funds. At the time
for commencing distributions from a trustee's deferral account, the trustee may
elect to receive distributions in a lump sum or over a period of five years. The
Fund will not be liable for any other fund's obligations to make distributions
under the Plan.

<TABLE>
<CAPTION>
                                                                            Amount of Total
                                  Aggregate         Total Compensation     Compensation that
                                 Compensation          from Fund and             Has Been
       Name of Trustee            From Fund*           Fund Complex**            Deferred
    ---------------------    --------------------   --------------------    ------------------
<S>                          <C>                    <C>                     <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Robert P. Bremner                   $1,332                $72,500               $ 8,280
- ----------------------------------------------------------------------------------------------
Lawrence H. Brown                   $1,368                $78,500               $     0
- ----------------------------------------------------------------------------------------------
Anne E. Impellizzeri                $1,332                $72,500               $55,200
- ----------------------------------------------------------------------------------------------
Peter R. Sawers                     $1,332                $73,000               $54,788
- ----------------------------------------------------------------------------------------------
William J. Schneider                $1,332                $72,500               $55,200
- ----------------------------------------------------------------------------------------------
Judith M. Stockdale                 $1,332                $72,500               $13,800
- ----------------------------------------------------------------------------------------------
</TABLE>

                                      26

<PAGE>

- --------------------

     *  Based on the estimated compensation to be earned by the independent
trustees for the period from inception through the end of the Fund's first full
fiscal year for services to the Fund.

     **Based on the compensation paid to the trustees for the one year period
ending 12/31/01 for services to the open-end and closed-end funds advised by
Nuveen Advisory.

     On February 20, 2001, the Board of Trustees approved the Investment
Management Agreement between the Fund and Nuveen Advisory Corp. In approving
this agreement, the trustees considered, among other things, the nature and
quality of services to be provided by Nuveen Advisory, the profitability to
Nuveen Advisory of its relationship with the Fund, fall-out benefits from that
relationship, economies of scale and comparative fees and expense ratios.

     The Fund has no employees. Its officers are compensated by Nuveen Advisory
or The John Nuveen Company.



                              INVESTMENT ADVISER

     Nuveen Advisory acts as investment adviser to the Fund, with
responsibility for the overall management of the Fund. Its address is 333 West
Wacker Drive, Chicago, Illinois 60606. Nuveen Advisory is also responsible for
managing the Fund's business affairs and providing day-to-day administrative
services to the Fund. For additional information regarding the management
services performed by Nuveen Advisory, see "Management of the Fund" in the
Fund's Prospectus.

     Nuveen Advisory is a wholly owned subsidiary of The John Nuveen Company.
Over 1,300,000 individuals have invested to date in The John Nuveen Company's
funds and trusts. Founded in 1898, The John Nuveen Company brings over a century
of expertise to the municipal bond market. According to data from CDA
Wiesenberger, The John Nuveen Company is the leading sponsor of exchange-traded
municipal bond funds as measured by number of funds (79) and fund assets under
management ($31 billion) as of December 31, 2001. Overall, The John Nuveen
Company and its affiliates have over $76 billion in assets under management or
surveillance. The John Nuveen Company is approximately 77% owned by The St. Paul
Companies, Inc. ("St. Paul"). St. Paul is a publicly-traded company

                                      27

<PAGE>


located in St. Paul, Minnesota, and is principally engaged in providing
property-liability insurance through subsidiaries.


     Pursuant to an investment management agreement between Nuveen Advisory and
the Fund, the Fund has agreed to pay for the services and facilities provided by
Nuveen Advisory an annual management fee, payable on a monthly basis, according
to the following schedule:

<TABLE>
<CAPTION>
Average Daily Net Assets(1)                                     Management Fee
- -----------------------------                                 ------------------
<S>                                                           <C>
Up to $125 million                                                  .6500%
$125 million to $250 million                                        .6375%
$250 million to $500 million                                        .6250%
$500 million to $1 billion                                          .6125%
$1 billion to $2 billion                                            .6000%
$2 billion and over                                                 .5750%
</TABLE>

(1) Including net assets attributable to MuniPreferred Shares.

     All fees and expenses are accrued daily and deducted before payment of
dividends to investors. The investment management agreement has been approved by
a majority of the disinterested trustees of the Fund and the sole shareholder of
the Fund.

     For the first ten years of the Fund's operation, Nuveen Advisory has
contractually agreed to reimburse the Fund for fees and expenses in the amounts,
and for the time periods, set forth below:

<TABLE>
<CAPTION>

                         Percentage                             Percentage
                         Reimbursed                             Reimbursed
      Year Ending    (as a percentage of    Year Ending    (as a percentage of
        March 31     daily net assets)(1)     March 31     daily net assets)(1)
      ------------   --------------------   -----------    --------------------
<S>                       <C>               <C>              <C>
         2002(2)             .30%               2008              .25%
         2003                .30%               2009              .20%
         2004                .30%               2010              .15%
         2005                .30%               2011              .10%
         2006                .30%               2012              .05%
         2007                .30%
</TABLE>
- -----------------------

     (1) Including net assets attributable to MuniPreferred Shares.
     (2) From the commencement of operations.


     Reducing Fund expenses in this manner will tend to increase the amount of
income available for the Common Shareholders. Nuveen Advisory has not agreed to
reimburse the Fund for any portion of its fees and expenses beyond
March 31, 2012.

     The Fund, Nuveen Advisory, Nuveen, Salomon Smith Barney Inc., and other
related entities have adopted codes of ethics which essentially prohibit certain
of their personnel, including the Nuveen fund portfolio manager, from engaging
in personal investments which compete or interfere with, or attempt to take
advantage of a client's, including the Fund's, anticipated or actual portfolio
transactions, and are designed to assure that the interests of clients,
including Fund shareholders, are placed before the interests of personnel in
connection with personal investment transactions. Text-only versions of the
codes of ethics can be viewed online or downloaded from the EDGAR Database on
the SEC's internet web site at www.sec.gov. You may also review and copy those
documents by visiting the SEC's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 202-942-8090. In addition, copies of the codes of ethics may
be obtained, after mailing the appropriate duplicating fee, by writing to the
SEC's Public Reference Section, 450 5th Street, N.W., Washington, DC 20549-0102
or by e-mail request at publicinfo@sec.gov.


                            PORTFOLIO TRANSACTIONS

     Nuveen Advisory is responsible for decisions to buy and sell securities for
the Fund and for the placement of the Fund's securities business, the
negotiation of the prices to be paid for principal trades and the allocation of
its transactions among various dealer firms. Portfolio securities will normally
be purchased directly from an underwriter or in the over-the-counter market from
the principal dealers in such securities, unless it appears that a better price
or

                                      28

<PAGE>


execution may be obtained through other means.  Portfolio securities will not
be purchased from Nuveen or its affiliates except in compliance with the 1940
Act.

     The Fund expects that substantially all portfolio transactions will be
effected on a principal (as opposed to an agency) basis and, accordingly, does
not expect to pay any brokerage commissions. Purchases from underwriters will
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers will include the spread between the bid and asked price.
On occasion, the Fund may clear portfolio transactions through Nuveen. It is the
policy of Nuveen Advisory to seek the best execution under the circumstances of
each trade. Nuveen Advisory evaluates price as the primary consideration, with
the financial condition, reputation and responsiveness of the dealer considered
secondary in determining best execution. Given the best execution obtainable, it
will be Nuveen Advisory's practice to select dealers which, in addition, furnish
research information (primarily credit analyses of issuers and general economic
reports) and statistical and other services to Nuveen Advisory. It is not
possible to place a dollar value on information and statistical and other
services received from dealers. Since it is only supplementary to Nuveen
Advisory's own research efforts, the receipt of research information is not
expected to reduce significantly Nuveen Advisory's expenses. While Nuveen
Advisory will be primarily responsible for the placement of the business of the
Fund, the policies and practices of Nuveen Advisory in this regard must be
consistent with the foregoing and will, at all times, be subject to review by
the Board of Trustees of the Fund.

     Nuveen Advisory may manage other investment accounts and investment
companies for other clients which have investment objectives similar to those of
the Fund. Subject to applicable laws and regulations, Nuveen Advisory seeks to
allocate portfolio transactions equitably whenever concurrent decisions are made
to purchase or sell securities by the Fund and another advisory account. In
making such allocations the main factors to be considered will be the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment and the size of
investment commitments generally held. While this procedure could have a
detrimental effect on the price or amount of the securities available to the
Fund from time to time, it is the opinion of the Board of Trustees that the
benefits available from Nuveen Advisory's organization will outweigh any
disadvantage that may arise from exposure to simultaneous transactions.

     Under the 1940 Act, the Fund may not purchase portfolio securities from any
underwriting syndicate of which Nuveen is a member except under certain limited
conditions set forth in Rule 10f-3. The rule sets forth requirements relating
to, among other things, the terms of an issue of municipal bonds purchased by
the Fund, the amount of municipal bonds which may be purchased in any one issue
and the assets of the Fund that may be invested in a particular issue. In
addition, purchases of securities made pursuant to the terms of the Rule must be
approved at least quarterly by the Board of Trustees of the Fund, including a
majority of the members thereof who are not interested persons of the Fund.

                                 DISTRIBUTIONS

     As described in the Fund's Prospectus, initial distributions to Common
Shareholders are expected to be declared approximately 45 days, and paid
approximately 60 to 90 days, from the completion of the offering of the Common
Shares, depending on market conditions. To permit the Fund to maintain a

                                      29

<PAGE>

more stable monthly distribution, the Fund will initially (prior to its first
distribution), and may from time to time thereafter, 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 the Fund's monthly net income due to fluctuations in investment
income or expenses, or due to an increase in the dividend rate on the Fund's
outstanding MuniPreferred Shares. As a result, the distributions paid by the
Fund for any particular period may be more or less than the amount of net
investment income actually earned by the Fund during such period. Undistributed
net investment income will be added to the Fund's net asset value and,
correspondingly, distributions from undistributed net investment income will be
deducted from the Fund's net asset value.

     For tax purposes, the Fund is currently required to allocate net capital
gain and other taxable income, if any, between Common Shares and MuniPreferred
Shares in proportion to total dividends paid to each class for the year in
which such net capital gain or other taxable income is realized. For information
relating to the impact of the issuance of MuniPreferred Shares on the
distributions made by a Fund to Common Shareholders, see the Fund's Prospectus
under "MuniPreferred Shares and Leverage."

     While any MuniPreferred Shares are outstanding, the Fund may not declare
any cash dividend or other distribution on its Common Shares unless at the time
of such declaration (1) all accumulated dividends on the MuniPreferred Shares
have been paid and (2) the net asset value of the Fund's portfolio (determined
after deducting the amount of such dividend or other distribution) is at least
200% of the liquidation value of any outstanding MuniPreferred Shares. This
latter limitation on the Fund's ability to make distributions on its Common
Shares could under certain circumstances impair the ability of the Fund to
maintain its qualification for taxation as a regulated investment company. See
"Tax Matters."

                             DESCRIPTION OF SHARES

Common Shares


     The Fund's Declaration of Trust (the "Declaration") authorizes the issuance
of an unlimited number of Common Shares. The Common Shares being offered have a
par value of $0.01 per share and, subject to the rights of holders of
MuniPreferred Shares, have equal rights as to the payment of dividends and the
distribution of assets upon liquidation of the Fund. The Common Shares being
ofered will, when issued, be fully paid and, subject to matters discussed in
"Certain Provisions in the Declaration of Trust," non-assessable, and will have
no pre-emptive or conversion rights or rights to cumulative voting. At any time
when the Fund's MuniPreferred Shares are outstanding, Common Shareholders will
not be entitled to receive any distributions from the Fund unless all accrued
dividends on MuniPreferred Shares have been paid, and unless asset coverage (as
defined in the 1940 Act) with respect to MuniPreferred Shares would be at least
200% after giving effect to such distributions. See "MuniPreferred Shares"
below.

     The Common Shares have been approved for listing on the American Stock
Exchange, subject to notice of issuance. The Fund intends to hold annual
meetings of shareholders so long as the Common Shares are listed on a national
securities exchange and such meetings are required as a condition to such
listing.

                                      30

<PAGE>


     Shares of closed-end investment companies may frequently trade at prices
lower than net asset value. Shares of closed-end investment companies like the
Fund that invest predominately in municipal bonds covered by insurance have
during some periods traded at prices higher than net asset value and during
other periods have traded at prices lower than net asset value. There can be no
assurance that Common Shares or shares of other municipal funds will trade at a
price higher than net asset value in the future. Net asset value will be reduced
immediately following the offering after payment of the sales load and
organization and offering expenses. Net asset value generally increases when
interest rates decline, and decreases when interest rates rise, and these
changes are likely to be greater in the case of a fund having a leveraged
capital structure. Whether investors will realize gains or losses upon the sale
of Common Shares will not depend upon a Fund's net asset value but will depend
entirely upon whether the market price of the Common Shares at the time of sale
is above or below the original purchase price for the shares. Since the market
price of the Fund's Common Shares will be determined by factors beyond the
control of the Fund, the Fund cannot predict whether the Common Shares will
trade at, below, or above net asset value or at, below or above the initial
public offering price. Accordingly, the Common Shares are designed primarily for
long-term investors, and investors in the Common Shares should not view the Fund
as a vehicle for trading purposes. See "Repurchase of Fund Shares; Conversion to
Open-End Fund" and the Fund's Prospectus under "MuniPreferred Shares and
Leverage" and "The Fund's Investments--Municipal Bonds."


MuniPreferred Shares

     The Declaration authorizes the issuance of an unlimited number of
MuniPreferred Shares in one or more classes or series, with rights as determined
by the Board of Trustees of the Fund, by action of the Board of Trustees without
the approval of the Common Shareholders.

     The Fund's Board of Trustees has indicated its intention to authorize an
offering of MuniPreferred Shares (representing approximately 35% of the Fund's
capital immediately after the time the MuniPreferred Shares are issued) within
approximately one to three months after completion of the offering of Common
Shares, subject to market conditions and to the Board's continuing belief that
leveraging the Fund's capital structure through the issuance of MuniPreferred
Shares is likely to achieve the benefits to the Common Shareholders described in
this Statement of Additional Information. Although the terms of the
MuniPreferred Shares, including their dividend rate, voting rights, liquidation
preference and redemption provisions, will be determined by the Board of
Trustees (subject to applicable law and the Fund's Declaration) if and when it
authorizes a MuniPreferred Shares offering, the Board has stated that the
initial series of MuniPreferred Shares would likely pay cumulative dividends at
relatively shorter-term periods (such as 7 days); by providing for the periodic
redetermination of the dividend rate through an auction or remarketing
procedure. The Board of Trustees of the Fund has indicated that the liquidation
preference, preference on distribution, voting rights and redemption provisions
of the MuniPreferred Shares will likely be as stated below.


     Limited Issuance of MuniPreferred Shares.  Under the 1940 Act, the Fund
could issue MuniPreferred Shares with an aggregate liquidation value of up to
one-half of the value of the Fund's total net assets, measured immediately after
issuance of the MuniPreferred Shares. "Liquidation value" means the original
purchase price of the shares being liquidated plus any accrued and unpaid
dividends. In addition, the Fund is not permitted to declare any cash dividend
or other distribution on its Common Shares unless the liquidation value of the
MuniPreferred Shares is less than one-half of the value of the Fund's total net
assets (determined after deducting the amount of such dividend or distribution)
immediately after the distribution. If the Fund sells all the Common Shares and
MuniPreferred Shares discussed in this Prospectus, the liquidation value of the
MuniPreferred Shares is expected to be approximately 35% of the value of the
Fund's total net assets. The Fund intends to purchase or redeem MuniPreferred
Shares, if necessary, to keep that fraction below one-half.


     Distribution Preference.  The MuniPreferred Shares have complete priority
over the Common Shares as to distribution of assets.

                                      31

<PAGE>


     Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Fund, holders of
MuniPreferred Shares will be entitled to receive a preferential liquidating
distribution (expected to equal the original purchase price per share plus
accumulated and unpaid dividends thereon, whether or not earned or declared)
before any distribution of assets is made to holders of Common Shares. After
payment of the full amount of the liquidating distribution to which they are
entitled, holders of MuniPreferred Shares will not be entitled to any further
participation in any distribution of assets by the Fund. A consolidation or
merger of the Fund with or into any Massachusetts business trust or corporation
or a sale of all or substantially all of the assets of the Fund shall not be
deemed to be a liquidation, dissolution or winding up of the Fund.

     Voting Rights. In connection with any issuance of MuniPreferred Shares, the
Fund must comply with Section 18(i) of the 1940 Act which requires, among other
things, that MuniPreferred Shares be voting shares and have equal voting rights
with Common Shares. Except as otherwise indicated in this Statement of
Additional Information and except as otherwise required by applicable law,
holders of MuniPreferred Shares will vote together with Common Shareholders as a
single class.


     In connection with the election of the Fund's trustees, holders of
MuniPreferred Shares, voting as a separate class, will be entitled to elect two
of the Fund's trustees, and the remaining trustees shall be elected by Common
Shareholders and holders of MuniPreferred Shares, voting together as a single
class. In addition, if at any time dividends on the Fund's outstanding
MuniPreferred Shares shall be unpaid in an amount equal to two full years'
dividends thereon, the holders of all outstanding MuniPreferred Shares, voting
as a separate class, will be entitled to elect a majority of the Fund's trustees
until all dividends in arrears have been paid or declared and set apart for
payment.

     The affirmative vote of the holders of a majority of the Fund's outstanding
MuniPreferred Shares of any class or series, as the case may be, voting as a
separate class, will be required to, among other things, (1) take certain
actions which would affect the preferences, rights, or powers of such class or
series or (2) authorize or issue any class or series ranking prior to the
MuniPreferred Shares. Except as may otherwise be required by law, (1) the
affirmative vote of the holders of at least two-thirds of the Fund's
MuniPreferred Shares outstanding at the time, voting as a separate class, will
be required to approve any conversion of the Fund from a closed-end to an
open-end investment company and (2) the affirmative vote of the holders of at
least two-thirds of the outstanding MuniPreferred Shares, voting as a separate
class, shall be required to approve any plan of reorganization (as such term is
used in the 1940 Act) adversely affecting such shares, provided however, that
such separate class vote shall be a majority vote if the action in question has
previously been approved, adopted or authorized by the affirmative vote of
two-thirds of the total number of Trustees fixed in accordance with the
Declaration or the By-laws. The affirmative vote of the holders of a majority of
the outstanding MuniPreferred Shares, voting as a separate class, shall be
required to approve any action not described in the preceding sentence requiring
a vote of security holders under Section 13(a) of the 1940 Act including, among
other things, changes in a Fund's investment objectives or changes in the
investment restrictions described as fundamental policies under "Investment
Objectives and Policies--Investment Restrictions." The class or series vote of
holders of MuniPreferred Shares described

                                      32

<PAGE>

above shall in each case be in addition to any separate vote of the
requisite percentage of Common Shares and MuniPreferred Shares necessary to
authorize the action in question.

     The foregoing voting provisions will not apply with respect to the Fund's
MuniPreferred Shares if, at or prior to the time when a vote is required, such
shares shall have been (1) redeemed or (2) called for redemption and sufficient
funds shall have been deposited in trust to effect such redemption.

     Redemption, Purchase and Sale of MuniPreferred Shares by the Fund. The
terms of the MuniPreferred Shares may provide that they are redeemable at
certain times, in whole or in part, at the original purchase price per share
plus accumulated dividends, that the Fund may tender for or purchase
MuniPreferred Shares and that the Fund may subsequently resell any shares so
tendered for or purchased. Any redemption or purchase of MuniPreferred Shares by
the Fund will reduce the leverage applicable to Common Shares, while any resale
of shares by the Fund will increase such leverage.

     The discussion above describes the Fund's Board of Trustees' present
intention with respect to a possible offering of MuniPreferred Shares.  If the
Board of Trustees determines to authorize such an offering, the terms of the
MuniPreferred Shares may be the same as, or different from, the terms described
above, subject to applicable law and the Fund's Declaration.

                 CERTAIN PROVISIONS IN THE DECLARATION OF TRUST

     Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Declaration contains an express disclaimer of shareholder liability for debts or
obligations of the Fund and requires that notice of such limited liability be
given in each agreement, obligation or instrument entered into or executed by
the Fund or the trustees. The Declaration further provides for indemnification
out of the assets and property of the Fund for all loss and expense of any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund would be unable to meet
its obligations. The Fund believes that the likelihood of such circumstances is
remote.


     The Declaration includes provisions that could limit the ability of other
entities or persons to acquire control of the Fund or to convert the Fund to
open-end status. Specifically, the Declaration requires a vote by holders of at
least two-thirds of the Common Shares and MuniPreferred Shares, voting together
as a single class, except as described below, to authorize (1) a conversion of
the Fund from a closed-end to an open-end investment company, (2) a merger or
consolidation of the Fund, or a series or class of the Fund, with any
corporation, association, trust or other organization or a reorganization or
recapitalization of the Fund, or a series or class of the Fund, (3) 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), (4) in certain
circumstances, a termination of the Fund, or a series or class of the Fund or
(5) removal of trustees, and then only for cause, unless, with respect to (1)
through (4), such transaction has already been authorized by the affirmative
vote of two-thirds of the total number of trustees fixed in accordance with the
Declaration or the By-laws, in which case the affirmative vote of the holders of
at least a majority of the Fund's Common Shares and MuniPreferred Shares


                                       33

<PAGE>


outstanding at the time, voting together as a single class, is required,
provided, however, that where only a particular class or series is affected (or,
in the case of removing a trustee, when the trustee has been elected by only one
class), only the required vote by the applicable class or series will be
required. Approval of shareholders is not required, however, for any
transaction, whether deemed a merger, consolidation, reorganization or otherwise
whereby the Fund issues shares in connection with the acquisition of assets
(including those subject to liabilities) from any other investment company or
similar entity. None of the foregoing provisions may be amended except by the
vote of at least two-thirds of the Common Shares and MuniPreferred Shares,
voting together as a single class. In the case of the conversion of the Fund to
an open-end investment company, or in the case of any of the foregoing
transactions constituting a plan of reorganization which adversely affects the
holders of MuniPreferred Shares, the action in question will also require the
affirmative vote of the holders of at least two-thirds of the Fund's
MuniPreferred Shares outstanding at the time, voting as a separate class, or, if
such action has been authorized by the affirmative vote of two-thirds of the
total number of trustees fixed in accordance with the Declaration or the By-
laws, the affirmative vote of the holders of at least a majority of the Fund's
MuniPreferred Shares outstanding at the time, voting as a separate class. The
votes required to approve the conversion of the Fund from a closed-end to an
open-end investment company or to approve transactions constituting a plan of
reorganization which adversely affects the holders of MuniPreferred Shares are
higher than those required by the 1940 Act. The Board of Trustees believes that
the provisions of the Declaration relating to such higher votes are in the best
interest of the Fund and its shareholders.


     The provisions of the Declaration described above could have the effect of
depriving the Common Shareholders of opportunities to sell their Common Shares
at a premium over market value by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar transaction. The overall
effect of these provisions is to render more difficult the accomplishment of a
merger or the assumption of control by a third party. They provide, however, the
advantage of potentially requiring persons seeking control of a Fund to
negotiate with its management regarding the price to be paid and facilitating
the continuity of the Fund's investment objectives and policies. The Board of
Trustees of the Fund has considered the foregoing anti-takeover provisions and
concluded that they are in the best interests of the Fund and its Common
Shareholders.

     Reference should be made to the Declaration on file with the Securities and
Exchange Commission for the full text of these provisions.

     The Declaration provides that the obligations of the Fund are not binding
upon the trustees of the Fund individually, but only upon the assets and
property of the Fund, and that the trustees shall not be liable for errors of
judgment or mistakes of fact or law. Nothing in the Declaration, however,
protects a trustee against any liability 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.

             REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND

     The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares.  Instead, the
Fund's Common Shares will trade in the open market at a price that will be a
function of several factors, including dividend levels (which are in turn
affected by expenses), net asset value, call protection, price, dividend
stability, relative demand for and supply of such shares in the market, general
market and economic

                                       34

<PAGE>


conditions and other factors. Because shares of a closed-end investment company
may frequently trade at prices lower than net asset value, the Fund's Board of
Trustees has currently determined that, at least annually, it will consider
action that might be taken to reduce or eliminate any material discount from net
asset value in respect of Common 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 the Fund
to an open-end investment company. There can be no assurance, however, that the
Board of Trustees will decide to take any of these actions, or that share
repurchases or tender offers, if undertaken, will reduce market discount.

     Notwithstanding the foregoing, at any time when the Fund's MuniPreferred
Shares are outstanding, the Fund may not purchase, redeem or otherwise acquire
any of its Common Shares unless (1) all accrued MuniPreferred Shares dividends
have been paid and (2) at the time of such purchase, redemption or acquisition,
the net asset value of the Fund's portfolio (determined after deducting the
acquisition price of the Common Shares) is at least 200% of the liquidation
value of the outstanding MuniPreferred Shares (expected to equal the original
purchase price per share plus any accrued and unpaid dividends thereon). The
staff of the Securities and Exchange 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 the Fund will be borne by the Fund and will not reduce
the stated consideration to be paid to tendering shareholders.

     Subject to its investment limitations, the Fund may borrow to finance the
repurchase of shares or to make a tender offer.  Interest on any borrowings to
finance share repurchase transactions or the accumulation of cash by the Fund in
anticipation of share repurchases or tenders will reduce the Fund's net income.
Any share repurchase, tender offer or borrowing that might be approved by the
Board of Trustees would have to comply with the Securities Exchange Act of 1934,
as amended, 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 the Board of the Fund at the time it considers such
issue, it is the Board's present policy, which may be changed by the Board, not
to authorize repurchases of Common Shares or a tender offer for such shares if
(1) such transactions, if consummated, would (a) result in the delisting of the
Common Shares from the American Stock Exchange, or (b) impair the Fund's status
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code") (which would make the Fund a taxable entity, causing the
Fund's income to be taxed at the corporate level in addition to the taxation of
shareholders who receive dividends from the Fund) or as a registered closed-end
investment company under the 1940 Act; (2) the Fund would not be able to
liquidate portfolio securities in an orderly manner and consistent with the
Fund's investment objectives and policies in order to repurchase shares; or (3)
there is, in the Board's judgment, any (a) material legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Fund, (b) general suspension of or limitation on prices
for trading securities on the American Stock Exchange, (c) declaration of a
banking moratorium by Federal or state authorities or any suspension of payment
by United States or state banks in which the Fund invests, (d) material
limitation affecting the 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


                                       35

<PAGE>


foreign currency, (e) commencement of war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States, or (f) other event or condition which would have a material adverse
effect (including any adverse tax effect) on the Fund or its shareholders if
shares were repurchased. The Board of Trustees of the Fund may in the future
modify these conditions in light of experience.



     Conversion to an open-end company would require the approval of the holders
of at least two-thirds of the Fund's Common Shares and MuniPreferred Shares
outstanding at the time, voting together as a single class, and of the holders
of at least two-thirds of the Fund's MuniPreferred Shares outstanding at the
time, voting as a separate class, provided however, that such separate class
vote shall be a majority vote if the action in question has previously been
approved, adopted or authorized by the affirmative vote of two-thirds of the
total number of trustees fixed in accordance with the Declaration or By-laws.
See the Prospectus under "Certain Provisions in the Declaration of Trust" for a
discussion of voting requirements applicable to conversion of the Fund to an
open-end company. If the Fund converted to an open-end company, it would be
required to redeem all MuniPreferred Shares then outstanding, and the Fund's
Common Shares would no longer be listed on the American Stock Exchange.
Shareholders of an open-end investment company may require the company to redeem
their shares on any business day (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 Trustees of the
Fund may at any time propose conversion of the Fund to an open-end company
depending upon their judgment as to the advisability of such action in light of
circumstances then prevailing.



     The repurchase by the Fund of its shares at prices below net asset value
will 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 will result in the Fund's shares trading at
a price equal to their net asset value. Nevertheless, the fact that the Fund's
shares may be the subject of repurchase or tender offers at net asset value from
time to time, or that the Fund may be converted to an open-end company, may
reduce any spread between market price and net asset value that might otherwise
exist.

     In addition, a purchase by the Fund of its Common Shares will decrease the
Fund's total assets which would likely have the effect of increasing the Fund's
expense ratio.  Any purchase by the Fund of its Common Shares at a time when
MuniPreferred Shares are outstanding will increase the leverage applicable to
the outstanding Common Shares then remaining.  See the Fund's Prospectus under
"Risks--Concentration Risk" and "Risks--Leverage Risk."

     Before deciding whether to take any action if the Fund's Common Shares
trade below net asset value, the Board of the 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 of Trustees may
determine that, in the interest of the Fund and its shareholders, no action
should be taken.

                                       36

<PAGE>

                                  TAX MATTERS

Federal Income Tax Matters

     The following discussion of federal income tax matters is based upon the
advice of Bell, Boyd & Lloyd LLC, special counsel to the Fund.

     The Fund intends to qualify under Subchapter M of the Code, for tax
treatment as a regulated investment company and to satisfy certain conditions
which will enable interest from municipal obligations, which is exempt from
regular federal income taxes in the hands of the Fund, to qualify as "exempt-
interest dividends" when distributed to the Fund's shareholders. In order to
qualify for tax treatment as a regulated investment company, the Fund must
satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to shareholders.
First, the Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies, or other income (including but not limited to
gains from options, futures and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "90% gross
income test"). Second, the Fund must diversify its holdings so that, at the
close of each quarter of its taxable year, (i) at least 50% of the value of its
total assets is comprised of cash, cash items, United States Government
securities, securities of other regulated investment companies and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total assets is invested in the securities of any one issuer
(other than United States Government securities and securities of other
regulated investment companies) or two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses.


     As a regulated investment company, the Fund will not be subject to federal
income tax in any taxable year with respect to "net investment income" (i.e.,
its "investment company taxable income," as that term is defined in the Code,
determined without reference to the deduction for dividends paid) and "net
capital gain" (i.e., the excess of the Fund's net long-term capital gain over
its net short-term capital loss), provided that it distributes at least 90% of
the sum of (i) its investment company taxable income (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of net
long-term capital loss, and any other taxable income other than net capital gain
and is reduced by deductible expenses) and (ii) its net tax-exempt interest (the
excess of its gross tax-exempt interest income over certain disallowed
deductions). The Fund may retain for investment its net capital gain. However,
if the Fund retains any net capital gain or any investment company taxable
income, it will be subject to tax at regular corporate rates on the amount
retained. If the Fund retains any net capital gain, it may designate the
retained amount as undistributed capital gains in a notice to its shareholders
who, if subject to federal income tax on long-term capital gains, (i) will be
required to include in income for federal income tax purposes, as long-term
capital gain, their share of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of the tax paid by the Fund on
such undistributed amount against their federal income tax liabilities, if any,
and to claim refunds to the extent the credit exceeds such liabilities. For
federal income tax purposes, the tax basis of shares owned by a shareholder of
the Fund will be increased by an amount equal under current law to the
difference between the amount of undistributed capital gains included in the
shareholder's gross income and the tax deemed paid by the shareholder under
clause (ii) of the preceding sentence. The


                                      37

<PAGE>


Fund intends to distribute at least annually to its shareholders all or
substantially all of its net tax-exempt interest and any investment company
taxable income and net capital gain.


     Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, to elect (unless it
has made a taxable year election for excise tax purposes) to treat all or part
of any net capital loss, any net long-term capital loss or any net foreign
currency loss incurred after October 31 as if it had been incurred in the
succeeding year.

     The Fund intends to qualify to pay "exempt-interest dividends" by
satisfying the requirement that at the close of each quarter of the Fund's
taxable year at least 50% of the value of its total assets consist of tax-exempt
municipal obligations. Distributions from the Fund will constitute exempt-
interest dividends to the extent of its tax-exempt interest income (net of
expenses and amortized bond premium). Exempt-interest dividends distributed to
Common Shareholders are excluded from gross income for federal income tax
purposes, although they are required to be reported on the Common Shareholders'
federal income tax returns. Gain from the sale or redemption of Common Shares,
however, will be taxable to the Common Shareholders as capital gain (provided
such Common Shares were held as capital assets) even though the increase in
value of such Common Shares is attributable to tax-exempt interest income. In
addition, gain realized by the Fund from the disposition of a tax-exempt
municipal obligation that was purchased at a price less than the principal
amount of the bond will be taxable to the Fund's shareholders as ordinary income
to the extent of accrued market discount. Under the Code, interest on
indebtedness incurred or continued to purchase or carry Common Shares, which
interest is deemed to relate to exempt-interest dividends, will not be
deductible by Common Shareholders for federal income tax purposes. Moreover,
while exempt-interest dividends are excluded from gross income for federal
income tax purposes, they may be subject to alternative minimum tax ("AMT") and
may have other collateral tax consequences. Taxpayers that may be subject to the
AMT should consult their advisers before investing in Common Shares.

     Distributions by the Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gain realized by the Fund, if any, will be taxable to Common
Shareholders as ordinary income whether received in cash or additional shares.
Any net long-term capital gain realized by the Fund and distributed to Common
Shareholders in cash or additional shares will be taxable to Common Shareholders
as long-term capital gain regardless of the length of time investors have owned
shares of the Fund. Taxable distributions will not be eligible for the dividends
received deduction allowed to corporations. Distributions by the Fund to Common
Shareholders that do not constitute ordinary income dividends, capital gain
dividends or exempt-interest dividends will be treated as a return of capital to
the extent of (and in reduction of) the Common Shareholder's tax basis in his or
her shares. Any excess will be treated as gain from the sale of his or her
shares, as discussed below.

     The Internal Revenue Service's position in a published revenue ruling
indicates that the Fund is required to designate distributions paid with respect
to its Common Shares and its MuniPreferred Shares as consisting of a portion of
each type of income distributed by the Fund. The portion of each type of income
deemed received by the holders of each class of shares will be equal to the
portion of total Fund dividends received by such class. Thus, the Fund will
designate dividends paid as exempt-interest dividends in a manner that allocates
such dividends between the holders of the Common Shares and the holders of
MuniPreferred Shares, in proportion to the total dividends paid to each such
class during or with respect to the taxable year, or otherwise as required by
applicable law. Capital gain dividends and ordinary income dividends will
similarly be allocated between the two classes.

     If the Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to the Fund, defer the Fund's losses, cause
adjustments in the holding periods of the Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses.  These rules could therefore affect the
amount, timing and character of distributions to Common Shareholders.


     Prior to purchasing shares in the Fund, an investor should carefully
consider the impact of dividends or distributions which are expected to be or
have been declared, but not paid. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution.

     Although dividends generally will be treated as distributed when paid,
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 the Fund (and received by
the shareholders) on December 31.

     The sale or exchange of Common Shares normally will result in capital gain
or loss to the Common Shareholders who hold their Common Shares as capital
assets. However, any loss on the sale or exchange of a Common Share that has
been held for six months or less will be disallowed to the extent of any
distribution of exempt-interest dividends received with respect to such Common
Share. Generally, a Common Shareholder's gain or loss will be long-term gain or
loss if the shares have been held for more than one year. If a shareholder sells
or otherwise disposes of Common Shares before holding them for more than six
months, however, any loss on the sale or other disposition of such Common Shares
shall be treated as a long-term capital loss to the extent of any capital gain
dividends received by the Common Shareholder (or amounts credited to the Common
Shareholder as an undistributed capital gain) with respect to such Common
Shares. Present law taxes both long- and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) with respect to securities is taxed at a
maximum rate of 20%, while short-term capital gain and other ordinary income is
taxed at a maximum

                                      38

<PAGE>


rate of 38.6% in 2002 and 2003, 37.6% in 2004 and 2005, and 35% thereafter until
2011, when the maximum rate on ordinary income will revert to 39.6% unless
amended by Congress. The maximum long-term capital gain rate is 18% for capital
assets that are held for more than five years and whose holding periods begin
after December 31, 2000. Because of the limitations on itemized deductions and
the deduction for personal exemptions applicable to higher income taxpayers, the
effective tax rate may be higher in certain circumstances.


     All or a portion of a sales charge paid in purchasing Common Shares cannot
be taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of the Fund or another fund are subsequently acquired without payment of
a sales charge pursuant to a reinvestment right. Any disregarded portion of such
charge will result in an increase in the Common Shareholder's tax basis in the
shares subsequently acquired. In addition, no loss will be allowed on the
redemption or exchange of Common Shares if the Common Shareholder purchases
other shares of the Fund (whether through reinvestment of distributions or
otherwise) or the Common Shareholder acquires or enters into a contract or
option to acquire securities that are substantially identical to shares of the
Fund within a period of 61 days beginning 30 days before and ending 30 days
after such redemption or exchange. If disallowed, the loss will be reflected in
an adjustment to the basis of the shares acquired.

     In order to avoid a 4% federal excise tax, the Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of its capital gain net
income (the excess of its realized capital gains over its realized capital
losses, generally computed on the basis of the one-year period ending on October
31 of such year) and 100% of any taxable ordinary income and any excess of
realized capital gains over realized capital losses for the prior year that was
not distributed during such year and on which the Fund paid no federal income
tax. For purposes of the excise tax, a regulated investment company may reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year. The Fund intends to make timely
distributions in compliance with these requirements and consequently it is
anticipated that it generally will not be required to pay the excise tax.

     If in any year the Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year, and distributions to
its Common Shareholders would be taxable to Common Shareholders as ordinary
dividend income for federal income tax purposes to the extent of the Fund's
earnings and profits.

     The Fund is required in certain circumstances to withhold a percentage of
taxable dividends and certain other payments paid to non-corporate holders of
shares who have not furnished to the Fund their correct taxpayer identification
numbers (in the case of individuals, their Social Security number) and certain
certifications, or who are otherwise subject to backup withholding. The backup
withholding percentage will be 30% in 2002 and 2003, 29% in 2004 and 2005, and
28% thereafter until 2011, when the percentage will revert to 31% unless amended
by Congress. Backup withholding is not an additional tax and any amounts
withheld may be credited against the shareholder's federal income tax liability.

     The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its Common Shareholders.  For complete provisions,
reference should be made to the pertinent Code sections and Treasury
Regulations.  The Code and Treasury Regulations are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to Fund transactions.  Common Shareholders are advised to consult
their own tax

                                      39

<PAGE>


advisors for more detailed information concerning the federal taxation of the
Fund and the income tax consequences to its Common Shareholders.

                 PERFORMANCE RELATED AND COMPARATIVE INFORMATION


     The Fund may be a suitable investment for a shareholder who is thinking of
adding bond investments to his portfolio to balance the appreciated stocks that
the shareholder is holding. Because the Fund expects that a substantial portion
of its investments will pay interest that is taxable under the federal
alternative minimum tax, the Fund may not be a suitable investment for
shareholders that are subject to the federal alternative minimum tax.

     The Fund may quote certain performance-related information and may compare
certain aspects of its portfolio and structure to other substantially similar
closed-end funds as categorized by Lipper, Inc. ("Lipper"), Morningstar Inc. or
other independent services. Comparison of the Fund to an alternative investment
should be made with consideration of differences in features and expected
performance. The Fund may obtain data from sources or reporting services, such
as Bloomberg Financial ("Bloomberg") and Lipper, that the Fund believes to be
generally accurate.

     Past performance is not indicative of future results.  At the time Common
Shareholders sell their shares, they may be worth more or less than their
original investment.

     See Appendix B for taxable equivalent yield information and Appendix E for
additional performance related and comparative information.


                                      40

<PAGE>


                                    EXPERTS


     The Financial Statements of the Fund as of March 7, 2002, appearing in
this Statement of Additional Information have been audited by Ernst & Young LLP,
233 South Wacker Drive, Chicago, Illinois 60606, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and is included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. Ernst & Young LLP provides accounting and auditing
services to the Fund.



                                    CUSTODIAN

     The custodian of the assets of the Fund is JPMorgan Chase Bank, P.O. Box
660086, Dallas, Texas 75266-0086. The custodian performs custodial, fund
accounting and portfolio accounting services.


                            ADDITIONAL INFORMATION

     A Registration Statement on Form N-2, including amendments thereto,
relating to the shares of the Fund offered hereby, has been filed by the Fund
with the Securities and Exchange Commission (the "Commission"), Washington, D.C.
The Fund's Prospectus and this Statement of Additional Information do not
contain all of the information set forth in the Registration Statement,
including any exhibits and schedules thereto. For further information with
respect to the Fund and the shares offered hereby, reference is made to the
Fund's Registration Statement. Statements contained in the Fund's Prospectus and
this Statement of Additional Information as to the contents of any contract or
other document referred to are not

                                      41

<PAGE>


necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. Copies of
the Registration Statement may be inspected without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the Commission upon the payment of certain fees prescribed by
the Commission.

                                      42

<PAGE>


                        REPORT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholder
Nuveen Insured Dividend Advantage Municipal Fund


We have audited the accompanying statement of net assets of Nuveen Insured
Dividend Advantage Municipal Fund (the "Fund") as of March 7, 2002 and the
related statement of operations for the period from July 12, 1999 (date of
organization) through March 7, 2002. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Fund at March 7, 2002, and
results of its operations for the period from July 12, 1999 (date of
organization) through March 7, 2002, in conformity with accounting principles
generally accepted in the United States.


                                       /s/ ERNST & YOUNG LLP

Chicago, Illinois
March 8, 2002


                                      43

<PAGE>


                NUVEEN INSURED DIVIDEND ADVANTAGE MUNICIPAL FUND
                              FINANCIAL STATEMENTS

                Nuveen Insured Dividend Advantage Municipal Fund
                            Statement of Net Assets
                                 March 7, 2002

<TABLE>
<S>                                                                       <C>
Assets:
    Cash................................................................. $100,275
    Offering costs.......................................................  450,000
    Receivable from Adviser..............................................   11,500
                                                                          --------
       Total assets......................................................  561,775
                                                                          --------

Liabilities:
    Accrued offering costs...............................................  450,000
    Payable to Adviser for organization costs............................   11,500
                                                                          --------
       Total liabilities.................................................  461,500
                                                                          --------

Net Assets............................................................... $100,275
                                                                          ========

Net asset value per Common Share outstanding ($100,275 divided
    by 7,000 Common Shares outstanding).................................. $ 14.325
                                                                          ========
Net Assets Represent:
    Cumulative Preferred Shares, $25,000 liquidation value; unlimited
       number of shares authorized, no shares outstanding................ $      -
    Common Shares, $.01 par value; unlimited number of shares
       authorized, 7,000 shares outstanding..............................       70
    Paid-in surplus......................................................  100,205
                                                                          --------
                                                                          $100,275
                                                                          ========
</TABLE>

                                      44

<PAGE>



                Nuveen Insured Dividend Advantage Municipal Fund
                            Statement of Operations
    Period from July 12, 1999 (date of organization) through March 7, 2002

<TABLE>
<S>                                                                   <C>
Investment income.................................................... $      -
                                                                      --------

Expenses:
   Organization costs................................................   11,500
   Expense reimbursement.............................................  (11,500)
                                                                      --------
      Total expenses.................................................        -
                                                                      --------
Net investment income................................................ $      -
                                                                      ========
</TABLE>

Note 1: Organization

The Fund was organized as a Massachusetts business trust on July 12, 1999, and
has been inactive since that date except for matters relating to its
organization and registration as a diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended, and the sale of 7,000 Common Shares to
Nuveen Advisory Corp., the Fund's investment adviser (the "Adviser"), a wholly
owned subsidiary of The John Nuveen Company.

Nuveen Investments, also a wholly owned subsidiary of The John Nuveen Company,
has agreed to reimburse all organization expenses (approximately $11,500) and
pay all offering costs (other than the sales load) that exceed $.03 per Common
Share.

The Fund is authorized by its Declaration of Trust to issue Preferred Shares
("MuniPreferred Shares") having a liquidation value of $25,000 per share in one
or more classes or series, with dividend, liquidation preference and other
rights as determined by the Fund's Board of Trustees without approval of the
Common Shareholders.

Note 2: Accounting Policies

The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the use of
management estimates. Actual results may differ from those estimates.

The Fund's share of offering costs will be recorded as a reduction of the
proceeds from the sale of Common Shares upon the commencement of Fund
operations. The offering costs reflected above assume the sale of 15,000,000
Common Shares.

Note 3: Investment Management Agreement

Pursuant to an investment management agreement between the Adviser and the Fund,
the Fund, upon commencement of Fund operations, has agreed to pay a management
fee, payable on a monthly basis, at an annual rate ranging from 0.6500% of the
first $125 million of the average daily net assets (including net assets
attributable to MuniPreferred Shares) to 0.5750% of the average daily net assets
(including net assets attributable to MuniPreferred Shares) in excess of $2
billion.

                                       45

<PAGE>


In addition to the reimbursement and waiver of organization and offering costs
discussed in Note 1, the Adviser has contractually agreed to reimburse the Fund
for fees and expenses during the first 10 years of operations. These reductions
range from 0.3000% of the average daily net assets (including net assets
attributable to MuniPreferred Shares) during the first year of operations,
declining to 0.0500% of the average daily net assets (including net assets
attributable to MuniPreferred Shares) during the tenth year. The Adviser has not
agreed to reimburse the Fund for any portion of its fees and expenses beyond
March 31, 2012.

Note 4: Income Taxes

The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its tax-
exempt net investment income, in addition to any significant amounts of net
realized capital gains and/or market discount realized from investment
transactions.

                                      46

<PAGE>

                                   APPENDIX A

Ratings of Investments


Standard & Poor's Corporation--A brief description of the applicable Standard &
Poor's Corporation ("Standard & Poor's" or "S&P") rating symbols and their
meanings (as published by S&P) follows:


A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program. It
takes into consideration the creditworthiness of guarantors, insurers, or other
forms of credit enhancement on the obligation. The issue credit rating is not a
recommendation to purchase, sell, or hold a financial obligation, inasmuch as it
does not comment as to market price or suitability for a particular investor.

Issue credit ratings are based on current information furnished by the obligors
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any credit rating
and may, on occasion, rely on unaudited financial information. Credit ratings
may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.


Issue credit ratings can be either long-term or short-term. Short-term ratings
are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days - including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term ratings address the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.


Long-term Issue Credit Ratings

Issue credit ratings are based in varying degrees, on the following
considerations:

      1.  Likelihood of payment - capacity and willingness of the obligor
          to meet its financial commitment on an obligation in accordance
          with the terms of the obligation;
      2.  Nature of and provisions of the obligation; and
      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.

The issue ratings definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.

AAA
An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial

                                    A-1






<PAGE>

     commitment on the obligation is extremely strong.

     AA

     An obligation rated `AA' differs from the highest-rated obligations only in
     small degree. The obligor's capacity to meet its financial commitment on
     the obligation is very strong.

     A

     An obligation rated `A' is somewhat more susceptible to the adverse effects
     of changes in circumstances and economic conditions than obligations in
     higher-rated categories. However, the obligor's capacity to meet its
     financial commitment on the obligation is still strong.

     BBB

     An obligation rated `BBB' exhibits adequate protection parameters. However,
     adverse economic conditions or changing circumstances are more likely to
     lead to a weakened capacity of the obligor to meet its financial commitment
     on the obligation.

     BB, B, CCC, CC, And C

     Obligations rated `BB', `B', `CCC', `CC', and `C' are regarded as having
     significant speculative characteristics. `BB' indicates the least degree of
     speculation and `C' the highest. While such obligations will likely have
     some quality and protective characteristics, these may be outweighed by
     large uncertainties or major exposures to adverse conditions.

     BB

     An obligation rated `BB' is less vulnerable to nonpayment than other
     speculative issues. However, it faces major ongoing uncertainties or
     exposure to adverse business, financial, or economic conditions, which
     could lead to the obligor's inadequate capacity to meet its financial
     commitment on the obligation.

     B

     An obligation rated `B' is more vulnerable to nonpayment than obligations
     rated `BB', but the obligor currently has the capacity to meet its
     financial commitment on the obligation. Adverse business, financial, or
     economic conditions will likely impair the obligor's capacity or
     willingness to meet its financial commitment on the obligation.

     CCC

     An obligation rated `CCC' is currently vulnerable to nonpayment and is
     dependent upon favorable business, financial, and economic conditions for
     the obligor to meet its financial commitment on the obligation. In the
     event of adverse business, financial, or economic conditions, the obligor
     is not likely to have the capacity to meet its financial commitment on the
     obligation.

     CC

     An obligation rated `CC' is currently highly vulnerable to nonpayment.



                                 A-2


<PAGE>


C

The `C' rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.

D

An obligation rated `D' is in payment default. The `D' rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's 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 or the taking of a similar action
if payments on an obligation 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.

c    The `c' subscript is used to provide additional information to investors
     that the bank may terminate its obligation to purchase tendered bonds if
     the long-term credit rating of the issuer is below an investment-grade
     level and/or the issuer's bonds are deemed taxable.

p    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, 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 his own judgment with respect to such likelihood and risk.

*    Continuance of the ratings is contingent upon Standard & Poor's receipt of
     an executed copy of the escrow agreement or closing documentation
     confirming investments and cash flows.

r    The `r' highlights derivative, hybrid, and certain other obligations that
     Standard & Poor's believes may experience high volatility or high
     variability in expected returns as a result of noncredit risks. Examples of
     such obligations are securities with principal or interest return indexed
     to equities, commodities, or currencies; certain swaps and options; and
     interest-only and principal-only mortgage securities. The absence of an `r'
     symbol should not be taken as an indication that an obligation will exhibit
     no volatility or variability in total return.

N.R. Not rated.

Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (`AAA', `AA', `A', `BBB', commonly known as investment-grade ratings)
generally are regarded as eligible for bank investment. Also, the laws of
various states governing legal investments impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies, and fiduciaries in general.

Short-Term Issue Credit Ratings

Notes

A Standard & Poor's note ratings reflects the liquidity factors and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three 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; and

     .  Source of payment -- the more dependent the issue is on the market for
        its refinancing, the more likely it will be treated as a note.

Note rating symbols are as follows:

SP-1 Strong capacity to pay principal and interest. An issue determined to
     possess a very strong capacity to pay debt service is given a plus (+)
     designation.

SP-2 Satisfactory capacity to pay principal and interest, with some
     vulnerability to adverse financial and economic changes over the term of
     the notes.

SP-3 Speculative capacity to pay principal and interest.

                                      A-3

<PAGE>

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  A short-term obligation rated `A-1' is rated in the highest category by
     Standard & Poor's. The obligor's capacity to meet its financial commitment
     on the obligation is strong. Within this category, certain obligations are
     designated with a plus sign (+). This indicates that the obligor's capacity
     to meet its financial commitment on these obligations is extremely strong.

A-2  A short-term obligation rated `A-2' is somewhat more susceptible to the
     adverse effects of changes in circumstances and economic conditions than
     obligations in higher rating categories. However, the obligor's capacity to
     meet its financial commitment on the obligation is satisfactory.

A-3  A short-term obligation rated `A-3' exhibits adequate protection
     parameters. However, adverse economic conditions or changing circumstances
     are more likely to lead to a weakened capacity of the obligor to meet its
     financial commitment on the obligation.

B    A short-term obligation rated `B' is regarded as having significant
     speculative characteristics. The obligor currently has the capacity to meet
     its financial commitment on the obligation; however, it faces major ongoing
     uncertainties which could lead to the obligor's inadequate capacity to meet
     its financial commitment on the obligation.

C    A short-term obligation rated `C' is currently vulnerable to nonpayment and
     is dependent upon favorable business, financial, and economic conditions
     for the obligor to meet its financial commitment on the obligation.

D    A short-term obligation rated `D' is in payment default. The `D' rating
     category is used when payments on an obligation are not made on the date
     due even if the applicable grace period has not expired, unless Standard &
     Poor's 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
     or the taking of a similar action if payments on an obligation are
     jeopardized.

A commercial 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.

                                      A-4

<PAGE>

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 edged." 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    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.

                                      A-5

<PAGE>


Issues that are secured by escrowed funds held in trust, reinvested in direct,
non-callable U.S. government obligations or non-callable obligations
unconditionally guaranteed by the U.S. Government or Resolution Funding
Corporation are identified with a # (hatchmark) symbol, e.g., #Aaa.

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.
             The parenthetical rating denotes probable credit stature upon
             completion of construction or elimination of the basis of the
             condition.

Note:        Moody's applies numerical modifiers 1, 2 and 3 in each generic
             rating classification from Aa through Caa. The modifier 1 indicates
             that the obligation ranks in the higher end of its generic rating
             category; the modifier 2 indicates a mid-range ranking; and the
             modifier 3 indicates a ranking in the lower end of that generic
             rating category.

Short-Term Loans

MIG 1/VMIG 1  This designation denotes superior credit quality. Excellent
              protection is afforded by established cash flows, highly reliable
              liquidity support, or demonstrated broad-based access to the
              market for refinancing.

MIG 2/VMIG 2  This designation denotes strong credit quality. Margins of
              protection are ample, although not as large as in the preceding
              group.

MIG 3/VMIG 3  This designation denotes acceptable credit quality. Liquidity and
              cash-flow protection may be narrow, and market access for
              refinancing is likely to be less well-established.

SG            This designation denotes speculative-grade credit quality. Debt
              instruments in this category may lack sufficient margins of
              protection.

Commercial Paper

Issuers rated Prime-1 (or related supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability 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.

                                      A-6

<PAGE>

     --   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
ability for repayment of senior short-term debt 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
ability for repayment of senior short-term debt 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.

     Fitch Ratings--A brief description of the applicable Fitch Ratings
("Fitch") ratings symbols and meanings (as published by Fitch) follows:

Long-Term Credit Ratings

Investment Grade

AAA  Highest credit quality. `AAA' ratings denote the lowest expectation of
     credit risk. They are assigned only in case of exceptionally strong
     capacity for timely payment of financial commitments. This capacity is
     highly unlikely to be adversely affected by foreseeable events.

AA   Very high credit quality. `AA' ratings denote a very low expectation of
     credit risk. They indicate very strong capacity for timely payment of
     financial commitments. This capacity is not significantly vulnerable to
     foreseeable events.

A    High credit quality. `A' ratings denote a low expectation of credit risk.
     The capacity for timely payment of financial commitments is considered
     strong. This capacity may, nevertheless, be more vulnerable to changes in
     circumstances or in economic conditions than is the case for higher
     ratings.

BBB  Good credit quality. `BBB' ratings indicate that there is currently a low
     expectation of credit risk. The capacity for timely payment of financial
     commitments is considered adequate, but adverse changes in circumstances
     and in economic conditions are more likely to impair this capacity. This
     is the lowest investment-grade category.

Speculative Grade

BB   Speculative. `BB' ratings indicate that there is a possibility of credit
     risk developing, particularly as the result of adverse economic change over
     time; however, business or

                                      A-7

<PAGE>


     financial alternatives may be available to allow financial commitments to
     be met. Securities rated in this category are not investment grade.

B    Highly speculative. `B' ratings indicate that significant credit risk is
     present, but a limited margin of safety remains. Financial commitments are
     currently being met; however, capacity for continued payment is contingent
     upon a sustained, favorable business and economic environment.

CCC, CC, C High default risk. Default is a real possibility. Capacity for
     meeting financial commitments is solely reliant upon sustained, favorable
     business or economic developments. A `CC' rating indicates that default of
     some kind appears probable. `C' ratings signal imminent default.

DDD, DD, and D Default. The ratings of obligations in this category are based on
     their prospects for achieving partial or full recovery in a reorganization
     or liquidation of the obligor. While expected recovery values are highly
     speculative and cannot be estimated with any precision, the following serve
     as general guidelines. `DDD' obligations have the highest potential for
     recovery, around 90%-100% of outstanding amounts and accrued interest. `DD'
     indicates potential recoveries in the range of 50%-90%, and `D' the lowest
     recovery potential, i.e., below 50%. Entities rated in this category have
     defaulted on some or all of their obligations. Entities rated `DDD' have
     the highest prospect for resumption of performance or continued operation
     with or without a formal reorganization process. Entities rated `DD' and
     `D' are generally undergoing a formal reorganization or liquidation
     process; those rated `DD' are likely to satisfy a higher portion of their
     outstanding obligations, while entities rated `D' have a poor prospect for
     repaying all obligations.

Short-Term Credit Ratings

A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.

F1   Highest credit quality. Indicates the strongest capacity for timely payment
     of financial commitments; may have an added "+" to denote any exceptionally
     strong credit feature.

F2   Good credit quality. A satisfactory capacity for timely payment of
     financial commitments, but the margin of safety is not as great as in the
     case of the higher ratings.

F3   Fair credit quality. The capacity for timely payment of financial
     commitments is adequate; however, near-term adverse changes could result in
     a reduction to non-investment grade.

B    Speculative. Minimal capacity for timely payment of financial commitments,
     plus vulnerability to near-term adverse changes in financial and economic
     conditions.

                                      A-8

<PAGE>

C    High default risk. Default is a real possibility. Capacity for meeting
     financial commitments is solely reliant upon a sustained, favorable
     business and economic environment.

D    Default. Denotes actual or imminent payment default.

Notes:

"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the `AAA' long-term rating
category, to categories below `CCC', or to short-term ratings other than `F1'.


`NR' indicates that Fitch does not rate the issuer or issue in question.

`Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.


Rating Watch: Ratings are placed on Rating Watch to notify investors that there
is a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. Rating Watch is typically resolved over a relatively
short period.

A Rating Outlook indicates the direction a rating is likely to move over a one
to two year period. Outlooks may be positive, stable, or negative. A positive or
negative Rating Outlook does not imply a rating change is inevitable. Similarly,
companies whose outlooks are `stable' could be downgraded before an outlook
moves to positive or negative if circumstances warrant such an action.
Occasionally, Fitch may be unable to identify the fundamental trend. In these
cases, the Rating Outlook may be described as evolving.

                                      A-9

<PAGE>

                                  APPENDIX B

                        TAXABLE EQUIVALENT YIELD TABLES


     The taxable equivalent yield is the current yield you would need to earn on
a taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the Fund with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields assuming
the stated marginal Federal tax rates for 2002 listed below:


Taxable Equivalent of Tax-Free Yields

Tax Free Yields


<TABLE>
Tax Rate       4.00%        4.50%       5.00%       5.50%      6.00%      6.50%
- -------------------------------------------------------------------------------
<S>            <C>          <C>         <C>         <C>        <C>       <C>
  10.00%       4.44%        5.00%       5.56%       6.11%      6.67%      7.22%
  15.00%       4.71%        5.29%       5.88%       6.47%      7.06%      7.65%
  27.00%       5.48%        6.16%       6.85%       7.53%      8.22%      8.90%
  30.00%       5.71%        6.43%       7.14%       7.86%      8.57%      9.29%
  35.00%       6.15%        6.92%       7.69%       8.46%      9.23%     10.00%
  38.60%       6.51%        7.33%       8.14%       8.96%      9.77%     10.59%
</TABLE>



                                      B-1


<PAGE>

                                  APPENDIX C

                            DESCRIPTION OF INSURERS

     Set forth below is information about the various municipal bond insurers
with whom the Fund intends to maintain specific insurance policies for
particular municipal bonds or policies of portfolio insurance. The information
in this Appendix is based on information supplied by the insurers, and the Fund
cannot verify its accuracy and completeness.

AMBAC ASSURANCE CORPORATION ("AMBAC ASSURANCE")


Payment Pursuant to Financial Guaranty Insurance Policy

Ambac Assurance has made a commitment to issue a financial guaranty insurance
policy (the "Financial Guaranty Insurance Policy") relating to the bonds
effective as of the date of issuance of the bonds. Under the terms of the
Financial Guaranty Insurance Policy, Ambac Assurance will pay to The Bank of New
York, in New York, New York or any successor thereto (the "Insurance Trustee")
that portion of the principal of and interest on the bonds which shall become
Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor (as
such terms are defined in the Financial Guaranty Insurance Policy). Ambac
Assurance will make such payments to the Insurance Trustee on the later of the
date on which such principal and interest becomes Due for Payment or within one
business day following the date on which Ambac Assurance shall have received
notice of Nonpayment from the Trustee/Paying Agent. The insurance will
extend for the term of the bonds and, once issued, cannot be canceled by Ambac
Assurance.

     The Financial Guaranty Insurance Policy will insure payment only on stated
maturity dates and on mandatory sinking fund installment dates, in the case of
principal, and on stated dates for payment, in the case of interest. If the
bonds become subject to mandatory redemption and insufficient funds are
available for redemption of all outstanding bonds, Ambac Assurance will remain
obligated to pay principal of and interest on outstanding bonds on the
originally scheduled interest and principal payment dates including mandatory
sinking fund redemption dates. In the event of any acceleration of the principal
of the bonds, the insured payments will be made at such times and in such
amounts as would have been made had there not been an acceleration.

     In the event the Bond Registrar has notice that any payment of principal of
or interest on a bond which has become Due for Payment and which is made to a
Holder by or on behalf of the Obligor has been deemed a preferential transfer
and theretofore recovered from its registered owner pursuant to the United
States Bankruptcy Code in accordance with a final, nonappealable order of a
court of competent jurisdiction, such registered owner will be entitled to
payment from Ambac Assurance to the extent of such recovery if sufficient funds
are not otherwise available.

     The Financial Guaranty Insurance Policy does not insure any risk other than
Nonpayment, as defined in the Policy. Specifically, the Financial Guaranty
Insurance Policy does not cover:

          1. payment on acceleration, as a result of a call for redemption
     (other than mandatory sinking fund redemption) or as a result of any other
     advancement of maturity.

          2. payment of any redemption, prepayment or acceleration premium.

          3. nonpayment of principal or interest caused by the insolvency or
     negligence of any Trustee or Paying Agent, if any.

     If it becomes necessary to call upon the Financial Guaranty Insurance
Policy, payment of principal requires surrender of bonds to the Insurance
Trustee together with an appropriate instrument of assignment so as to permit
ownership of such bonds to be registered in the name of Ambac Assurance to the
extent of the payment under the Financial Guaranty Insurance Policy. Payment of
interest pursuant to the Financial Guaranty Insurance Policy requires proof of
Holder entitlement to interest payments and an appropriate assignment of the
Holder's right to payment to Ambac Assurance.

     Upon payment of the insurance benefits, Ambac Assurance will become the
owner of the bond, appurtenant coupon, if any, or right to payment of principal
or interest on such bond and will be fully subrogated to the surrendering
Holder's rights to payment.

Ambac Assurance

     Ambac Assurance Corporation ("Ambac Assurance") is a Wisconsin-domiciled
stock insurance corporation regulated by the Office of the Commissioner of
Insurance of the State of Wisconsin and licensed to do business in 50 states,
the District of Columbia, the Territory of Guam and the Commonwealth of Puerto
Rico, with admitted assets of approximately $4,988,000,000 (unaudited) and
statutory capital of approximately $2,693,000,000 (unaudited) as of September
30, 2001. Statutory capital consists of Ambac Assurance's policyholders' surplus
and statutory contingency reserve. Standard & Poor's Credit Markets Services, a
division of The McGraw-Hill Companies, Moody's Investors Service and Fitch, Inc.
have each assigned a triple-A financial strength rating to Ambac Assurance.
Ambac Assurance has obtained a ruling from the Internal Revenue Service to the
effect that the insuring of an obligation to Ambac Assurance will not affect the
treatment for federal income tax purposes of interest on such obligation and
that insurance proceeds representing maturing interest paid by Ambac Assurance
under policy provisions substantially identical to those contained in its
municipal bond insurance policy shall be treated for federal income tax purposes
in the same manner as if such payments were made by the issuer of the bonds.


     Ambac Assurance makes no representation regarding the bonds or the
advisability of investing in the bonds and makes no representation regarding,
nor has it participated in the preparation of, the Prospectus and Statement of
Additional Information, other than the information supplied by Ambac Assurance
and presented under this heading "Ambac Assurance Corporation."


Available Information

     The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the
"Company"), is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the aforementioned material may also be inspected at the
offices of the New York Stock Exchange, Inc. (the "NYSE") at 20 Broad Street,
New York, New York 10005. The Company's Common Stock is listed on the NYSE.

     Copies of Ambac Assurance's financial statements prepared in accordance
with statutory accounting standards are available from Ambac Assurance. The
address of Ambac Assurance's administrative offices and its telephone number are
One State Street Plaza, 19th Floor, New York, New York 10004 and (212) 668-0340.

Incorporation of Certain Documents by Reference

     The following documents filed by the Company with the Commission (File
No. 1-10777) are incorporated by reference in this Statement of Additional
Information:

     1)   The Company's Current Report on Form 8-K dated January 24, 2001 and
          filed on January 24, 2001;

     2)   The Company's Current Report on Form 8-K dated March 19, 2001 and
          filed on March 19, 2001;

     3)   The Company's Annual Report on Form 10-K for the fiscal year ended
          December 31, 2000 and filed on March 28, 2001;

     4)   The Company's Quarterly Report on Form 10-Q for the fiscal quarterly
          period ended March 31, 2001 and filed on May 15, 2001;

     5)   The Company's Current Report on Form 8-K dated July 18, 2001 and filed
          on July 23, 2001;

     6)   The Company's Quarterly Report on Form 10-Q for the fiscal quarterly
          period ended June 30, 2001 and filed on August 10, 2001;

     7)   The Company's Current Report on Form 8-K dated and filed on
          September 17, 2001;

     8)   The Company's Current Report on Form 8-K dated and filed on
          September 19, 2001;

     9)   The Company's Current Report on Form 8-K dated and filed on
          October 22, 2001; and

    10)   The Company's Quarterly Report on Form 10-Q for the fiscal quarterly
          period ended September 30, 2001 and filed on November 14, 2001.

     All documents subsequently filed by the Company pursuant to the
requirements of the Exchange Act after the date of this Statement of Additional
Information will be available for inspection in the same manner as described
above in "Available Information".


FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY")


Bond Insurance Policy
- ---------------------

     Concurrently with the issuance of the bonds, Financial Security Assurance
Inc. ("Financial Security") will issue its Municipal Bond Insurance Policy for
the bonds (the "Policy"). The Policy guarantees the scheduled payment of
principal of and interest on the bonds when due.

     The Policy is not covered by any insurance security or guaranty fund
established under New York, California, Connecticut or Florida insurance law.

Financial Security Assurance Inc.
- ---------------------------------

     Financial Security is a New York domiciled insurance company and a wholly
owned subsidiary of Financial Security Assurance Holdings Ltd. ("Holdings").
Holdings is an indirect subsidiary of Dexia, S.A., a publicly held Belgian
corporation. Dexia, S.A., through its bank subsidiaries, is primarily engaged in
the business of public finance in France, Belgium and other European countries.
No shareholder of Holdings or Financial Security is liable for the obligations
of Financial Security.


     At December 31, 2001, Financial Security's total policyholders' surplus and
contingency reserves were approximately $1,593,569,000 and its total unearned
premium reserve was approximately $810,898,000 in accordance with statutory
accounting principles. At December 31, 2001, Financial Security's total
shareholders' equity was approximately $1,698,672,000 and its total net unearned
premium reserve was approximately $669,534,000 in accordance with generally
accepted accounting principles.

     The financial statements included as exhibits to the annual and quarterly
reports filed by Holdings with the Securities and Exchange Commission are hereby
incorporated herein by reference. Also incorporated herein by reference are any
such financial statements so filed from the date of this Statement of Additional
Information until the termination of the offering of the bonds. Copies of
materials incorporated by reference will be provided upon request to Financial
Security Assurance Inc.: 350 Park Avenue, New York, New York 10022, Attention:
Communications Department (telephone (212) 826-0100).

     The policy does not protect investors against changes in market value of
the bonds, which market value may be impaired as a result of changes in
prevailing interest rates, changes in applicable ratings or other causes.
Financial Security makes no representation regarding the bonds or the
advisability of investing in the bonds. Financial Security makes no
representation regarding the Prospectus or Statement of Additional Information,
nor has it participated in the preparation thereof, except that Financial
Security has provided to the Fund the information presented under this caption
for inclusion in the Statement of Additional Information.


                                      C-1

<PAGE>


MBIA INSURANCE CORPORATION ("MBIA")

The MBIA Insurance Corporation Insurance Policy

     The following information has been furnished by MBIA Insurance Corporation
("MBIA") for use in this Statement of Additional Information.

     MBIA's policy unconditionally and irrevocably guarantees the full and
complete payment required to be made by or on behalf of the Issuer to the Paying
Agent or its successor of an amount equal to (i) the principal of (either at the
stated maturity or by an advancement of maturity pursuant to a mandatory sinking
fund payment) and interest on, the bonds as such payments shall become due but
shall not be so paid (except that in the event of any acceleration of the due
date of such principal by reason of mandatory or optional redemption or
acceleration resulting from default or otherwise, other than any advancement of
maturity pursuant to a mandatory sinking fund payment, the payments guaranteed
by MBIA's policy shall be made in such amounts and at such times as such
payments of principal would have been due had there not been any such
acceleration); and (ii) the reimbursement of any such payment which is
subsequently recovered from any owner of the bonds pursuant to a final judgment
by a court of competent jurisdiction that such payment constitutes an avoidable
preference to such owner within the meaning of any applicable bankruptcy law
(a "Preference").

     MBIA's policy does not insure against loss of any prepayment premium which
may at any time be payable with respect to any bonds. MBIA's policy does not,
under any circumstance, insure against loss relating to: (i) optional or
mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any
payments to be made on an accelerated basis; (iii) payments on the purchase
price of bonds upon tender by an owner thereof; or (iv) any Preference relating
to (i) through (iii) above. MBIA's policy also does not insure against
nonpayment of principal of or interest on the bonds resulting from the
insolvency, negligence or any other act or omission of the Paying Agent or any
other paying agent for the bonds.

     Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by MBIA from the Paying Agent or any
owner of a bond the payment of an insured amount for which is then due, that
such required payment has not been made, MBIA on the due date of such payment or
within one business day after receipt of notice of such nonpayment, whichever is
later, will make a deposit of funds, in an account with State Street Bank and
Trust Company, N.A., in New York, New York, or its successor, sufficient for the
payment of any such insured amounts which are then due. Upon presentment and
surrender of such bonds or presentment of such other proof of ownership of the
bonds, together with any appropriate instruments of assignment to evidence the
assignment of the insured amounts due to the bonds as are paid by MBIA, and
appropriate instruments to effect the appointment of MBIA as agent for such
owners of the bonds in any legal proceeding related to payment of insured
amounts on the bonds, such instruments being in a form satisfactory to State
Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A.
shall disburse to such owners or the Paying Agent payment of the insured amounts
due on such bonds, less any amount held by the Paying Agent for the payment of
such insured amounts and legally available therefor.

MBIA

     MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary
of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The
Company is not obligated to pay the debts of or claims against MBIA. MBIA is
domiciled in the State of New York and licensed to do business in and subject to
regulation under the laws of all 50 states, the District of Columbia, the
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands,
the Virgin Islands of the United States and the Territory of Guam. MBIA has
three branches, one in the Republic of France, one in the Republic of Singapore
and one in the Kingdom of Spain. New York has laws prescribing minimum capital
requirements, limiting classes and concentrations of investments and requiring
the approval of policy rates and forms. State laws also regulate the amount of
both the aggregate and individual risks that may be insured, the payment of
dividends by MBIA, changes in control and transactions among affiliates.
Additionally, MBIA is required to maintain contingency reserves on its
liabilities in certain amounts and for certain periods of time.

     MBIA does not accept any responsibility for the accuracy or completeness of
this Prospectus or Statement of Additional Information or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the policy and MBIA set forth under the
heading "MBIA Insurance Corporation". Additionally, MBIA makes no representation
regarding the bonds or the advisability of investing in the bonds.

     The Financial Guarantee Insurance Policies are not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.

MBIA Information

     The following documents filed by the Company with the Securities and
Exchange Commission (the "SEC") are incorporated herein by reference:

(1)  The Company's Annual Report on Form 10-K for the year ended December 31,
     2000;

(2)  The Company's Quarterly Report on Form 10-Q for the quarter ended September
     30, 2001; and

(3)  The report on Form 8-K filed by the Company on January 30, 2001.

     Any documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act of 1934, as amended, after the date of this Statement
of Additional Information and prior to the termination of the offering of the
securities offered hereby shall be deemed to be incorporated by reference in
this Statement of Additional Information and to be a part hereof. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein, or contained in this Statement of Additional Information, shall be
deemed to be modified or superseded for purposes of this Statement of Additional
Information to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Statement of Additional Information.

     The Company files annual, quarterly and special reports, information
statements and other information with the SEC under File No. 1-9583. Copies of
the SEC filings (including (1) the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, (2) the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001, and (3) the report on Form 8-K filed
by the Company on January 30, 2001) are available (i) over the Internet at the
SEC's web site at http://www.sec.gov; (ii) at the SEC's public reference room in
Washington D.C.; (iii) over the Internet at the Company's web site at
http://www.mbia.com; and (iv) at no cost, upon request to MBIA Insurance
Corporation, 113 King Street, Armonk, New York 10504. The telephone number of
MBIA is (914) 273-4545.

     As of December 31, 2000, MBIA had admitted assets of $7.6 billion
(audited), total liabilities of $5.2 billion (audited), and total capital and
surplus of $2.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulaltory
authorities. As of September 30, 2001, MBIA had admitted assets of $8.4 billion
(unaudited), total liabilities of $6.0 billion (unaudited), and total capital
and surplus of $2.4 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities.

Financial Strength Ratings of MBIA

     Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa."

     Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the
financial strength of MBIA "AAA."

     Fitch Ratings. rates the financial strength of MBIA "AAA."

     Each rating of MBIA should be evaluated independently. The ratings reflect
the respective rating agency's current assessment of the creditworthiness of
MBIA and its ability to pay claims on its policies of insurance. Any further
explanation as to the significance of the above ratings may be obtained only
from the applicable rating agency.

     The above ratings are not recommendations to buy, sell or hold the bonds,
and such ratings may be subject to revision or withdrawal at any time by the
rating agencies. Any downward revision or withdrawal of any of the above ratings
may have an adverse effect on the market price of the bonds. MBIA does not
guaranty the market price of the bonds nor does it guaranty that the ratings on
the bonds will not be revised or withdrawn.


                                      C-2


<PAGE>

FINANCIAL GUARANTY INSURANCE COMPANY ("FINANCIAL GUARANTY")

     The Portfolio Insurance Policy is non-cancellable except for failure to pay
the premium. The premium rate for each purchase of a security covered by the
Portfolio Insurance Policy is fixed for the life of the Insured Bond. The
insurance premiums are payable monthly by the Fund and are adjusted for
purchases, sales and payments prior to maturity of Insured Bonds during the

                                      C-3

<PAGE>

month. In the event of a sale of any Insured Bond by the Fund or payment thereof
prior to maturity, the Portfolio Insurance policy terminates as to such Insured.
Under the provisions of the Portfolio Insurance Policy, Financial Guaranty
unconditionally and irrevocably agrees to pay to State Street Bank and Trust
Company, or its successor, as its agent (the "Fiscal Agent"), that portion of
the principal of and interest on the Insured Bonds which shall become due for
payment but shall be unpaid by reason of nonpayment by the issuer of the Insured
Bonds. The term "due for payment" means, when referring to the principal of an
Insured Bond, its stated maturity date or the date on which it shall have been
called for mandatory sinking fund redemption and does not refer to any earlier
date on which payment is due by reason of call for redemption (other than by
mandatory sinking fund redemption), acceleration or other advancement of
maturity and means, when referring to interest on an Insured Bond, the stated
date for payment of interest. In addition, the Portfolio Insurance Policy covers
nonpayment by the issuer that results from any payment of principal or interest
made by such issuer on the Insured Bond to the Fund which has been recovered
from the Fund or its shareholders pursuant to the United States Bankruptcy Code
by a trustee in bankruptcy in accordance with a final, nonappealable order of a
court having competent jurisdiction.

     Financial Guaranty will make such payments to the Fiscal Agent on the date
such principal or interest becomes due for payment or on the business day next
following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse the Trustee the
face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the issuer, but only upon receipt by the
Fiscal Agent of (i) evidence of the Trustee's right to receive payment of the
principal or interest due for payment and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of such
principal or interest due for payment thereupon shall vest in Financial
Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of
the Insured Bond, appurtenant coupon or right to payment of principal or
interest on such Insured Bond and shall be fully subrogated to all of the
Trustee's rights thereunder, including the right to payment, thereof.

     In determining whether to insure municipal securities held in the Fund,
Financial Guaranty will apply its own standards which are not necessarily the
same as the criteria used in regard to the selection of securities by the Fund.

     Certain of the municipal securities under the Portfolio Insurance Policy
may also be insured under an insurance policy obtained by the issuer of such
municipal securities. The premium for any insurance policy or policies obtained
by an issuer or Insured Bonds has been paid in advance by such issuer and any
such policy or policies are non-cancellable and will continue in force so long
as the Insured Bonds so insured are outstanding. Financial Guaranty has also
agreed, if requested by the Funds on or before the fifth day preceding the 1st
day of any month, to insure to maturity Insured Bonds sold by the Trustee during
the month immediately following such request of the Funds. The premium for any
such insurance to maturity provided by Financial Guaranty is paid by the Fund
and any such insurance is non-cancellable and will continue in force so long as
the Bonds so insured are outstanding.


     Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a subsidiary of
General


                                      C-4

<PAGE>


Electric Capital Corporation ("GE Capital"). Neither the Corporation nor GE
Capital is obligated to pay the debts of or the claims against Financial
Guaranty. Financial Guaranty is a monoline financial guaranty insurer domiciled
in the State of New York and subject to regulation by the State of New York
Insurance Department. As of September 30, 2001, the total capital and surplus of
Financial Guaranty was $1.033 billion. Financial Guaranty prepares financial
statements on the basis of both statutory accounting principles and generally
accepted accounting principles. Copies of such financial statements may be
obtained by writing to Financial Guaranty at 125 Park Avenue, New York, New York
10017, Attention: Communications Department (telephone number: (212) 312-3000)
or to the New York State Insurance Department at 25 Beaver Street, New York, New
York 10004-2319, Attention: Financial Condition Property/Casualty Bureau
(telephone number: (212) 480-5187).


     The policies of insurance obtained by the Fund from Financial Guaranty and
the negotiations in respect thereof represent the only relationship between
Financial Guaranty and the Fund. Otherwise neither Financial Guaranty nor its
parent, FGIC Corporation, or any affiliate thereof has any significant
relationship, direct or indirect, with the Fund or the Board of Directors of the
Fund.

RATINGS

     The above municipal bond insurers have insurance claims-paying ability
ratings of AAA from S&P and Aaa from Moody's. Financial Guaranty also has an
insurance claims-paying ability rating of AAA from Fitch. An S&P insurance
claims-paying ability rating is an assessment of an operating insurance
company's financial capacity to meet obligations under an insurance policy in
accordance with its terms. An insurer with an insurance claims-paying ability
rating of AAA has the highest rating assigned by S&P. Capacity to honor
insurance contracts is adjudged by S&P to be extremely strong and highly likely
to remain so over a long period of time. A Moody's insurance claims-paying
ability rating is an opinion of the ability of an insurance company to repay
punctually senior policyholder obligations and claims. An insurer with an
insurance claims-paying ability rating of Aaa is adjudged by Moody's to be of
the best quality. In the opinion of Moody's, the policy obligations of an
insurance company with an insurance claims-paying ability rating of Aaa carry
the smallest degree of credit risk and, while the financial strength of these
companies is likely to change, such changes as can be visualized are most
unlikely to impair the company's fundamentally strong position.

     An insurance claims-paying ability rating by S&P or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment, nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).

     The assignment of ratings by S&P or Moody's to debt issues that are fully
or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.

     S&P's and Moody's ratings are not recommendations to buy, sell or hold the
municipal bonds insured by policies issued by AMBAC Assurance, Financial
Security, MBIA or Financial Guaranty and such ratings may be subject to revision
or withdrawal at any time by the rating

                                      C-5

<PAGE>

agencies. Any downward revision or withdrawal of either or both ratings may have
an adverse effect on the market price of the municipal bonds insured by policies
issued by AMBAC Assurance, Financial Security, MBIA or Financial Guaranty.

     S&P's ratings of AMBAC Assurance, Financial Security, MBIA and Financial
Guaranty should be evaluated independent of Moody's ratings. Any further
explanation as to the significance of the ratings may be obtained only from the
applicable rating agency. See Appendix A for more information about ratings by
Moody's and S&P.

                                      C-6

<PAGE>

                                   APPENDIX D

                          HEDGING STRATEGIES AND RISKS

     Set forth below is additional information regarding the various defensive
hedging techniques.

Futures and Index Transactions

 Financial Futures

     A financial future is an agreement between two parties to buy and sell a
security for a set price on a future date.  They have been designed by boards of
trade which have been designated "contracts markets" by the Commodity Futures
Trading Commission ("CFTC").

     The purchase of financial futures is for the purpose of hedging the Fund's
existing or anticipated holdings of long-term debt securities.  When the Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount.  Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market.  The Fund must make
additional payments to cover debits to its account and has the right to withdraw
credits in excess of the liquidity, the Fund may close out its position at any
time prior to expiration of the financial future by taking an opposite position.
At closing a final determination of debits and credits is made, additional cash
is paid by or to the Fund to settle the final determination and the Fund
realizes a loss or gain depending on whether on a net basis it made or received
such payments.

     The sale of financial futures is for the purpose of hedging the Fund's
existing or anticipated holdings of long-term debt securities.  For example, if
the Fund owns long-term bonds and interest rates were expected to increase, it
might sell financial futures.  If interest rates did increase, the value of
long-term bonds in the Fund's portfolio would decline, but the value of the
Fund's financial futures would be expected to increase at approximately the same
rate thereby keeping the net asset value of the Fund from declining as much as
it otherwise would have.

     Among the risks associated with the use of financial futures by the Fund as
a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.

     Thus, if the price of the financial future moves less or more than the
price of the securities which are the subject of the hedge, the hedge will not
be fully effective.  To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the financial
futures.  Conversely, the Fund may enter into fewer financial futures if the
historical volatility of the price of the securities being hedged is less than
the historical volatility of the financial futures.

                                      D-1

<PAGE>

     The market prices of financial futures may also be affected by factors
other than interest rates. One of these factors is the possibility that rapid
changes in the volume of closing transactions, whether due to volatile markets
or movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.

 Options on Financial Futures

     The Fund may also purchase put or call options on financial futures which
are traded on a U.S. Exchange or board of trade and enter into closing
transactions with respect to such options to terminate an existing position.
Currently, options can be purchased with respect to financial futures on U.S.
Treasury Bonds on The Chicago Board of Trade. The purchase of put options on
financial futures is analogous to the purchase of put options by the Fund on its
portfolio securities to hedge against the risk of rising interest rates. As with
options on debt securities, the holder of an option may terminate his position
by selling an option of the Fund. There is no guarantee that such closing
transactions can be effected.

Index Contracts

 Index Futures

     A tax-exempt bond index which assigns relative values to the tax-exempt
bonds included in the index is traded on the Chicago Board of Trade. The index
fluctuates with changes in the market values of all tax-exempt bonds included
rather than a single bond. An index future is a bilateral agreement pursuant to
which two parties agree to take or make delivery of an amount of cash-rather
than any security-equal to a specified dollar amount times the difference
between the index value at the close of the last trading day of the contract and
the price at which the index future was originally written. Thus, an index
future is similar to traditional financial futures except that settlement is
made in cash.

 Index Options

     The Fund may also purchase put or call options on U.S. Government or tax-
exempt bond index futures and enter into closing transactions with respect to
such options to terminate an existing position.  Options on index futures are
similar to options on debt instruments except that an option on an index future
gives the purchaser the right, in return for the premium paid, to assume a
position in an index contract rather than an underlying security at a specified
exercise price at any time during the period of the option.  Upon exercise of
the option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance of the writer's futures margin account which represents the amount by
which the market price of the index futures contract, at exercise, is less than
the exercise price of the option on the index future.

     Bond index futures and options transactions would be subject to risks
similar to transactions in financial futures and options thereon as described
above.  No series will enter into transactions in index or financial futures or
related options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.

                                      D-2

<PAGE>


                                  APPENDIX E

                PERFORMANCE RELATED AND COMPARATIVE INFORMATION

     The Fund may be a suitable investment for a shareholder that is thinking of
adding bond investments to his portfolio to balance the appreciated stocks that
the shareholder is holding. Municipal bonds can provide tax-free income (exempt
from regular federal income taxes). Because the Fund expects that a substantial
portion of its investments will pay interest that is taxable under the federal
alternative minimum tax, the Fund may not be a suitable investment for
shareholders that are subject to the federal alternative minimum tax.


     The Fund may quote certain performance-related information and may compare
certain aspects of its portfolio and structure to other substantially similar
closed-end funds as categorized by Lipper, Inc. ("Lipper"), Morningstar or other
independent services. Comparison of the Fund to an alternative investment should
be made with consideration of differences in features and expected performance.
The Fund may obtain data from sources or reporting services, such as Bloomberg
Financial ("Bloomberg") and Lipper, that the Fund believes to be generally
accurate. According to CDA Wiesenberger, The John Nuveen Company is the leading
sponsor of municipal closed-end exchange-traded bond funds measured by the
number of funds (79) and fund assets under management ($31 billion) as of
December 31, 2001.



                                      E-1


<PAGE>

     Past performance is not indicative of future results. At the time Common
Shareholders sell their shares, they may be worth more or less than their
original investment.


Features of Municipal Closed-End ETFs


<TABLE>
<S>                                                   <C>
Monthly Dividends
Enhanced income potential through leverage*
Automatic dividend reinvestment*
Exchange listing
Widespread price visibility
Convenient intra-day trading*
Professional management
Low minimum investment
</TABLE>

*As outlined elsewhere in this SAI, share prices will fluctuate. Systematic
reinvestment does not ensure a profit, nor does it protect you against a loss in
a declining market.

According to the Investment Company Institute, open-end municipal bond funds
experienced positive cash inflows that totaled more than $11.6 billion in 2001.
By contrast, these funds exhibited net outflows of $14.770 during calendar year
2000. [Source: Investment Company Institute, Trends in Mutual Fund Investing,
December 2000 and December 2001]

As further evidence of investor demand for municipal exchange-traded closed-end
funds, Nuveen and other sponsors have successfully offered about $5 billion of
new municipal fund common stock during 2001, while no new closed-end municipal
funds were offered in 2000.

[GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
Numbers in Billions:
                                                                                        U.S. HOUSEHOLD HOLDINGS OF BONDS
            U.S. HOUSEHOLD HOLDINGS OF BONDS             HOUSEHOLD FINANCIAL ASSETS         % HOUSEHOLD FINANCIAL ASSETS
<S>         <C>                                          <C>                            <C>
1955:1                                 112.8                                  947.4                                 11.9
1955:2                                 114.7                                  976.1                                 11.8
1955:3                                 117.1                                 1004.2                                 11.7
1955:4                                 118.5                                 1018.9                                 11.6
1956:1                                 122.0                                 1052.0                                 11.6
1956:2                                 123.4                                 1050.9                                 11.7
1956:3                                 125.5                                 1058.2                                 11.9
1956:4                                 126.0                                 1087.8                                 11.6
1957:1                                 129.1                                 1085.2                                 11.9
1957:2                                 130.0                                 1111.7                                 11.7
1957:3                                 132.4                                 1095.4                                 12.1
1957:4                                 133.2                                 1099.0                                 12.1
1958:1                                 134.6                                 1132.8                                 11.9
1958:2                                 133.8                                 1155.0                                 11.6
1958:3                                 132.8                                 1201.8                                 11.1
1958:4                                 134.2                                 1230.0                                 10.9
1959:1                                 137.4                                 1251.6                                 11.0
1959:2                                 138.6                                 1273.6                                 10.9
1959:3                                 141.9                                 1279.5                                 11.1
1959:4                                 144.7                                 1309.8                                 11.1
1960:1                                 151.7                                 1301.4                                 11.7
1960:2                                 153.1                                 1318.4                                 11.6
1960:3                                 153.3                                 1302.9                                 11.8
1960:4                                 153.1                                 1359.4                                 11.3
1961:1                                 153.6                                 1416.2                                 10.8
1961:2                                 154.4                                 1427.4                                 10.8
1961:3                                 156.0                                 1454.3                                 10.7
1961:4                                 157.5                                 1503.9                                 10.5
1962:1                                 159.2                                 1508.5                                 10.6
1962:2                                 159.5                                 1407.3                                 11.3
1962:3                                 161.7                                 1444.2                                 11.2
1962:4                                 161.1                                 1546.8                                 10.4
1963:1                                 158.9                                 1583.6                                 10.0
1963:2                                 159.7                                 1618.6                                  9.9
1963:3                                 161.0                                 1652.4                                  9.7
1963:4                                 162.9                                 1644.8                                  9.9
1964:1                                 165.3                                 1689.0                                  9.8
1964:2                                 167.0                                 1725.3                                  9.7
1964:3                                 168.2                                 1764.3                                  9.5
1964:4                                 169.6                                 1798.4                                  9.4
1965:1                                 172.6                                 1832.5                                  9.4
1965:2                                 173.1                                 1826.3                                  9.5
1965:3                                 174.7                                 1899.6                                  9.2
1965:4                                 174.5                                 1965.3                                  8.9
1966:1                                 182.5                                 1966.7                                  9.3
1966:2                                 185.7                                 1966.2                                  9.4
1966:3                                 192.9                                 1924.2                                 10.0
1966:4                                 196.5                                 1989.2                                  9.9
1967:1                                 196.4                                 2087.8                                  9.4
1967:2                                 192.0                                 2113.8                                  9.1
1967:3                                 196.0                                 2183.8                                  9.0
1967:4                                 201.3                                 2240.1                                  9.0
1968:1                                 207.1                                 2213.3                                  9.4
1968:2                                 209.2                                 2338.8                                  8.9
1968:3                                 212.2                                 2379.9                                  8.9
1968:4                                 211.7                                 2506.4                                  8.4
1969:1                                 193.4                                 2490.9                                  7.8
1969:2                                 193.1                                 2471.3                                  7.8
1969:3                                 211.6                                 2474.6                                  8.6
1969:4                                 222.9                                 2472.4                                  9.0
1970:1                                 233.6                                 2475.1                                  9.4
1970:2                                 229.2                                 2353.3                                  9.7
1970:3                                 225.4                                 2472.8                                  9.1
1970:4                                 222.5                                 2567.0                                  8.7
1971:1                                 216.2                                 2694.5                                  8.0
1971:2                                 211.8                                 2724.4                                  7.8
1971:3                                 215.0                                 2762.9                                  7.8
1971:4                                 210.0                                 2859.4                                  7.3
1972:1                                 210.9                                 2971.9                                  7.1
1972:2                                 208.3                                 3009.0                                  6.9
1972:3                                 207.4                                 3072.0                                  6.8
1972:4                                 205.6                                 3274.5                                  6.3
1973:1                                 208.7                                 3261.3                                  6.4
1973:2                                 211.6                                 3237.6                                  6.5
1973:3                                 222.0                                 3382.5                                  6.6
1973:4                                 227.5                                 3282.2                                  6.9
1974:1                                 237.0                                 3338.2                                  7.1
1974:2                                 240.3                                 3297.3                                  7.3
1974:3                                 260.3                                 3200.3                                  8.1
1974:4                                 269.4                                 3251.8                                  8.3
1975:1                                 269.3                                 3456.1                                  7.8
1975:2                                 265.3                                 3643.5                                  7.3
1975:3                                 275.9                                 3619.2                                  7.6
1975:4                                 285.5                                 3712.9                                  7.7
1976:1                                 283.5                                 3887.6                                  7.3
1976:2                                 287.6                                 3997.2                                  7.2
1976:3                                 289.5                                 4092.7                                  7.1
1976:4                                 287.3                                 4205.9                                  6.8
1977:1                                 296.3                                 4253.4                                  7.0
1977:2                                 297.1                                 4354.4                                  6.8
1977:3                                 301.2                                 4415.5                                  6.8
1977:4                                 300.9                                 4471.5                                  6.7
1978:1                                 309.4                                 4546.2                                  6.8
1978:2                                 318.8                                 4732.2                                  6.7
1978:3                                 326.3                                 4927.4                                  6.6
1978:4                                 341.4                                 5007.4                                  6.8
1979:1                                 358.3                                 5204.8                                  6.9
1979:2                                 372.0                                 5357.5                                  6.9
1979:3                                 381.7                                 5579.8                                  6.8
1979:4                                 413.1                                 5746.4                                  7.2
1980:1                                 430.0                                 5767.2                                  7.5
1980:2                                 419.1                                 6019.5                                  7.0
1980:3                                 426.4                                 6309.1                                  6.8
1980:4                                 439.6                                 6607.2                                  6.7
1981:1                                 440.8                                 6721.1                                  6.6
1981:2                                 440.7                                 6815.6                                  6.5
1981:3                                 453.1                                 6779.1                                  6.7
1981:4                                 461.2                                 7029.7                                  6.6
1982:1                                 484.9                                 7046.9                                  6.9
1982:2                                 509.8                                 7132.4                                  7.1
1982:3                                 529.4                                 7356.0                                  7.2
1982:4                                 527.1                                 7640.9                                  6.9
1983:1                                 540.7                                 7921.5                                  6.8
1983:2                                 568.4                                 8248.0                                  6.9
1983:3                                 604.9                                 8365.4                                  7.2
1983:4                                 619.2                                 8429.2                                  7.3
1984:1                                 637.4                                 8435.3                                  7.6
1984:2                                 700.2                                 8512.1                                  8.2
1984:3                                 740.4                                 8794.9                                  8.4
1984:4                                 737.0                                 8994.3                                  8.2
1985:1                                 815.9                                 9316.6                                  8.8
1985:2                                 833.9                                 9566.4                                  8.7
1985:3                                 866.9                                 9593.3                                  9.0
1985:4                                 955.9                                10159.4                                  9.4
1986:1                                 958.9                                10595.6                                  9.1
1986:2                                 988.8                                10856.0                                  9.1
1986:3                                1025.5                                10775.9                                  9.5
1986:4                                1073.5                                11254.0                                  9.5
1987:1                                1129.0                                11904.2                                  9.5
1987:2                                1190.9                                12106.7                                  9.8
1987:3                                1244.2                                12457.0                                 10.0
1987:4                                1264.8                                11937.2                                 10.6
1988:1                                1277.6                                12293.6                                 10.4
1988:2                                1329.1                                12589.2                                 10.6
1988:3                                1400.8                                12749.4                                 11.0
1988:4                                1478.6                                13122.3                                 11.3
1989:1                                1525.6                                13438.6                                 11.4
1989:2                                1532.0                                13803.2                                 11.1
1989:3                                1564.7                                14258.9                                 11.0
1989:4                                1582.4                                14515.4                                 10.9
1990:1                                1617.3                                14513.9                                 11.1
1990:2                                1661.6                                14783.9                                 11.2
1990:3                                1731.6                                14389.6                                 12.0
1990:4                                1837.8                                14929.5                                 12.3
1991:1                                1848.9                                15511.2                                 11.9
1991:2                                1898.5                                15530.0                                 12.2
1991:3                                1934.6                                15838.6                                 12.2
1991:4                                1975.7                                16427.7                                 12.0
1992:1                                1993.2                                16420.0                                 12.1
1992:2                                2022.8                                16412.9                                 12.3
1992:3                                2058.7                                16623.7                                 12.4
1992:4                                2105.8                                17235.8                                 12.2
1993:1                                2158.7                                17570.4                                 12.3
1993:2                                2161.9                                17732.3                                 12.2
1993:3                                2134.5                                18059.8                                 11.8
1993:4                                2203.8                                18417.4                                 12.0
1994:1                                2276.7                                18362.9                                 12.4
1994:2                                2349.3                                18472.9                                 12.7
1994:3                                2394.6                                18880.8                                 12.7
1994:4                                2477.7                                19102.6                                 13.0
1995:1                                2456.2                                19680.2                                 12.5
1995:2                                2414.5                                20325.3                                 11.9
1995:3                                2485.0                                21072.8                                 11.8
1995:4                                2465.1                                21741.9                                 11.3
1996:1                                2493.7                                22399.4                                 11.1
1996:2                                2604.4                                22942.6                                 11.4
1996:3                                2650.1                                23306.2                                 11.4
1996:4                                2678.9                                24107.2                                 11.1
1997:1                                2658.3                                24261.9                                 11.0
1997:2                                2655.3                                25981.9                                 10.2
1997:3                                2663.5                                27004.6                                  9.9
1997:4                                2706.0                                27488.4                                  9.8
1998:1                                2740.8                                29279.9                                  9.4
1998:2                                2849.3                                29660.2                                  9.6
1998:3                                2859.8                                28129.0                                 10.2
1998:4                                2759.9                                30537.4                                  9.0
1999:1                                2850.1                                31245.3                                  9.1
1999:2                                2908.2                                32361.0                                  9.0
1999:3                                2970.5                                31682.6                                  9.4
1999:4                                3081.4                                35175.3                                  8.8
2000:1                                3010.3                                35967.7                                  8.4
2000:2                                3019.7                                35081.0                                  8.6
2000:3                                2986.2                                34975.3                                  8.5
2000:4                                2980.6                                33351.6                                  8.9
2001:1                                2905.7                                31628.1                                  9.2
2001:2                                2740.0                                32203.6                                  8.5
2001:3                                2726.8                                30403.0                                  9.0

                  Household Financial Assets                          30.4 trillion
                         Fixed-Income Assets                           2.7 trillion
                Value of 1% shift into bonds                            304 billion

                          [GRAPH APPEARS HERE]

1994                                  2276.7                                18362.9                                 12.4
1994                                  2349.3                                18472.9                                 12.7
1994                                  2394.6                                18880.8                                 12.7
1994                                  2477.7                                19102.6                                 13.0
1995                                  2456.2                                19680.2                                 12.5
1995                                  2414.5                                20325.3                                 11.9
1995                                  2485.0                                21072.8                                 11.8
1995                                  2465.1                                21741.9                                 11.3
1996                                  2493.7                                22399.4                                 11.1
1996                                  2604.4                                22942.6                                 11.4
1996                                  2650.1                                23306.2                                 11.4
1996                                  2678.9                                24107.2                                 11.1
1997                                  2658.3                                24261.9                                 11.0
1997                                  2655.3                                25981.9                                 10.2
1997                                  2663.5                                27004.6                                  9.9
1997                                  2706.0                                27488.4                                  9.8
1998                                  2740.8                                29279.9                                  9.4
1998                                  2849.3                                29660.2                                  9.6
1998                                  2859.8                                28129.0                                 10.2
1998                                  2759.9                                30537.4                                  9.0
1999                                  2850.1                                31245.3                                  9.1
1999                                  2908.2                                32361.0                                  9.0
1999                                  2970.5                                31682.6                                  9.4
1999                                  3081.4                                35175.3                                  8.8
2000                                  3010.3                                35967.7                                  8.4
2000                                  3019.7                                35081.0                                  8.6
2000                                  2986.2                                34975.3                                  8.5
2000                                  2980.6                                33351.6                                  8.9
2001                                  2905.7                                31628.1                                  9.2
2001                                  2740.0                                32203.6                                  8.5
</TABLE>

According to data from the Federal Reserve, the overall percentage of bonds held
in individual investors' portfolios has decreased over the past seven years.
[Source: Federal Reserve Flow of Funds, Q3 2001]. This chart compares the
aggregate amount of all fixed-income securities held by households with the
total value of all household investments for the specific quarterly time periods
shown. The quarter-to-quarter values and trends depicted here are not
necessarily representative of other time periods. No representation is made, nor
should any inference be drawn, to any standard, correct or historical average
amount of household fixed-income investment.

Municipal Bond/Equity Portfolios May
Provide Attractive Returns and Reduced Risk

Nuveen research shows that, over the past 20 years, a portfolio of 20% municipal
bonds and 80% stocks produced 99% of the annual after-tax return of an all-
equity portfolio, with measurably less risk.

These conclusions are based on research done by Nuveen Investments using the
following portfolio assumptions: Municipal bonds are represented by the Lehman
Brothers Long Municipal Index. Treasury Bonds are represented by Lehman Brothers
Long Treasury Index. Equities are the S&P 500 stocks as tracked by the Ibbotson
Associates Large Company Stock Index. It is not possible to invest directly in
any of these indexes. Hypothetical portfolios using varying percentages of
municipal bonds and equities, in each case totaling 100%, were constructed, and
the investment results and volatility determined for every year from 1982
through 2001.

All investment income generated by the portfolio was considered to be reinvested
annually, along with the after-tax proceeds of an arbitrarily assumed 20%
annualized turnover rate. The allocation between the two assets was allowed to
fluctuate within a 5% band around its target before rebalancing. No provision
was made for investment fees or commissions. Investment income was taxed at the
historically appropriate rate for an individual with $100,000 in taxable income
in year 2001 dollars. Net capital gains taxes, if any, were deducted at the rate
appropriate for the period. At the end of 2001, the portfolios were fully
liquidated to recognize the existing tax liability.

This study was based on historical data gathered from sources Nuveen Investments
considers to be reliable and consistent. The results produced by this study in
no way should be considered representative of the past performance of any actual
investment product or predictive of future investment expectations and
performance for the municipal market or any actual investment products.

20 Yr. Horizon Data Tables
1-Balanced Portfolios with Large Cap Equities

After-Tax Returns

[GRAPH APPEARS HERE]

 Bond           Long Municipals         Long Treasuries         Long Corporates
Portion        Risk       Return       Risk       Return       Risk       Return
   0%         15.29%      11.94%      15.29%      11.94%      15.29%      11.94%
   5%         14.65%      11.94%      14.67%      11.82%      14.67%      11.81%
  10%         14.03%      11.89%      14.06%      11.66%      14.06%      11.65%
  15%         13.42%      11.85%      13.48%      11.50%      13.47%      11.49%
  20%         12.81%      11.79%      12.91%      11.33%      12.88%      11.31%
  25%         12.22%      11.74%      12.37%      11.16%      12.31%      11.14%
  30%         11.64%      11.67%      11.85%      10.98%      11.74%      10.96%
  35%         11.08%      11.61%      11.36%      10.79%      11.20%      10.77%
  40%         10.55%      11.54%      10.90%      10.60%      10.68%      10.58%
  45%         10.04%      11.46%      10.49%      10.40%      10.18%      10.39%
  50%          9.56%      11.38%      10.12%      10.20%       9.72%      10.19%
  55%          9.12%      11.30%       9.80%      10.00%       9.29%       9.99%
  60%          8.72%      11.21%       9.53%       9.79%       8.89%       9.79%
  65%          8.37%      11.12%       9.33%       9.58%       8.54%       9.58%
  70%          8.07%      11.03%       9.19%       9.37%       8.24%       9.38%
  75%          7.83%      10.94%       9.11%       9.15%       8.00%       9.17%
  80%          7.65%      10.84%       9.10%       8.94%       7.81%       8.96%
  85%          7.54%      10.74%       9.16%       8.72%       7.68%       8.75%
  90%          7.50%      10.64%       9.28%       8.50%       7.62%       8.54%
  95%          7.53%      10.54%       9.46%       8.28%       7.63%       8.34%
 100%          7.63%      10.43%       9.70%       8.05%       7.70%       8.11%


     Market price is affected by many factors, including market interest rates,
income tax rates, the common shares' net asset value and dividend stability, the
portfolio's duration, call protection and credit quality, analyst
recommendations, and other market factors. Any of these factors individually or
collectively may, at any given time, be as or more important to market price
than annualized dividend rates. A positive correlation does not necessarily mean
that higher dividends cause or result in higher market prices, and you should
not assume that any particular level of dividends will result in any particular
market price. In addition, the positive correlation between dividends and market
price of this group of funds does not necessarily mean that every fund in the
group exhibits a positive correlation between dividend and market price, and it
is possible that the Fund may not exhibit such a correlation. There can be no
assurance that the correlation suggested by the above data will continue in the
future.

On Average Nuveen Funds Have Traded At Greater Premiums or Smaller Discounts
than Competing Funds

[Graph Appears Here]

28-Jun-96       0.044572079
 5-Jul-96       0.042336686
12-Jul-96       0.046633142
19-Jul-96       0.046412596
26-Jul-96       0.046913793
 2-Aug-96       0.042839559
 9-Aug-96       0.044755029
16-Aug-96       0.043179598
23-Aug-96       0.043758381
30-Aug-96       0.042936303
 6-Sep-96       0.041913793
13-Sep-96       0.044113506
20-Sep-96       0.043598898
27-Sep-96       0.042846126
 4-Oct-96       0.046550393
11-Oct-96       0.04325735
18-Oct-96       0.04116951
25-Oct-96       0.044694979
 1-Nov-96       0.042641379
 8-Nov-96       0.043968421
15-Nov-96       0.042849728
22-Nov-96       0.040592257
29-Nov-96       0.041107804
 6-Dec-96       0.038137689
13-Dec-96       0.037551361
20-Dec-96       0.034563339
27-Dec-96       0.043577132
 3-Jan-97       0.041022747
10-Jan-97       0.041572293
17-Jan-97       0.041860617
24-Jan-97       0.040527284
31-Jan-97       0.037549788
 7-Feb-97       0.033932486
14-Feb-97       0.033059528
21-Feb-97       0.03422069
28-Feb-97       0.034364912
 7-Mar-97       0.033644283
14-Mar-97       0.03599516
21-Mar-97       0.036175318
27-Mar-97       0.039503811
 4-Apr-97       0.040944707
11-Apr-97       0.041985239
18-Apr-97       0.041149304
25-Apr-97       0.039921718
 2-May-97       0.041944484
 9-May-97       0.042504206
16-May-97       0.039914924
23-May-97       0.04066186
30-May-97       0.041939438
 6-Jun-97       0.042596972
13-Jun-97       0.041836097
20-Jun-97       0.040601538
27-Jun-97       0.040865297
 3-Jul-97       0.044411539
11-Jul-97       0.037568569
18-Jul-97       0.034234
25-Jul-97       0.038522115
 8-Aug-97       0.035379787
15-Aug-97       0.03273153
22-Aug-97       0.04029108
29-Aug-97       0.037233259
 5-Sep-97       0.041429825
12-Sep-97       0.042412528
19-Sep-97       0.042494317
26-Sep-97       0.043137061
 3-Oct-97       0.041079948
10-Oct-97       0.036549511
17-Oct-97       0.037820911
24-Oct-97       0.036572942
31-Oct-97       0.036296244
 7-Nov-97       0.036971035
14-Nov-97       0.037746733
21-Nov-97       0.036235724
28-Nov-97       0.034928058
 5-Dec-97       0.03759602
12-Dec-97       0.03694678
19-Dec-97       0.039660897
26-Dec-97       0.039236665
 2-Jan-98       0.039619687
 9-Jan-98       0.044366773
16-Jan-98       0.038933121
23-Jan-98       0.037478394
30-Jan-98       0.040981632
 6-Feb-98       0.044253503
13-Feb-98       0.048217687
20-Feb-98       0.045418904
27-Feb-98       0.045606483
 6-Mar-98       0.05044092
13-Mar-98       0.053888158
20-Mar-98       0.054673246
27-Mar-98       0.053675439
 3-Apr-98       0.055637624
 9-Apr-98       0.052235894
17-Apr-98       0.054192034
24-Apr-98       0.050518374
 8-May-98       0.049896385
15-May-98       0.051353821
22-May-98       0.051483104
29-May-98       0.045881903
 5-Jun-98       0.055602496
12-Jun-98       0.055573296
19-Jun-98       0.053353468
26-Jun-98       0.050081479
 2-Jul-98       0.050875309
10-Jul-98       0.05453185
17-Jul-98       0.049196788
24-Jul-98       0.048390204
31-Jul-98       0.051474744
 7-Aug-98       0.049411162
14-Aug-98       0.049813964
21-Aug-98       0.05188779
28-Aug-98       0.051906354
 4-Sep-98       0.050087127
11-Sep-98       0.04917935
18-Sep-98       0.046593528
25-Sep-98       0.047709123
 2-Oct-98       0.057751133
 9-Oct-98       0.054570175
16-Oct-98       0.056760965
23-Oct-98       0.048675439
30-Oct-98       0.049666667
 6-Nov-98       0.046473684
20-Nov-98       0.043697368
27-Nov-98       0.042625
 4-Dec-98       0.048682018
11-Dec-98       0.047938596
18-Dec-98       0.045574561
24-Dec-98       0.044484649
 8-Jan-99       0.040269737
15-Jan-99       0.032574561
22-Jan-99       0.032019737
29-Jan-99       0.032486842
 5-Feb-99       0.042296053
12-Feb-99       0.042750239
19-Feb-99       0.043902073
26-Feb-99       0.044498884
 5-Mar-99       0.04725933
19-Mar-99       0.054052316
26-Mar-99       0.053597122
 1-Apr-99       0.058263788
 9-Apr-99       0.049830129
16-Apr-99       0.059694926
23-Apr-99       0.060500788
30-Apr-99       0.059889169
 7-May-99       0.057512974
14-May-99       0.056063872
21-May-99       0.051220927
28-May-99       0.05302889
 4-Jun-99       0.05539521
11-Jun-99       0.057811171
18-Jun-99       0.06445
25-Jun-99       0.067863095
 2-Jul-99       0.068096429
 9-Jul-99       0.071166667
16-Jul-99       0.076167857
23-Jul-99       0.081947619
30-Jul-99       0.082119048
 6-Aug-99       0.077934884
20-Aug-99       0.07645155
27-Aug-99       0.074089922
 3-Sep-99       0.074571839
10-Sep-99       0.076186207
17-Sep-99       0.069099425
24-Sep-99       0.070118571
 1-Oct-99       0.055396667
 8-Oct-99       0.063321841
15-Oct-99       0.060172669
22-Oct-99       0.057560767
29-Oct-99       0.056708398
 5-Nov-99       0.057400231
12-Nov-99       0.052517238
19-Nov-99       0.052458398
26-Nov-99       0.050856895
10-Dec-99       0.029167111
17-Dec-99       0.022930972
23-Dec-99       0.031247988
31-Dec-99       0.030041852
 7-Jan-00       0.034098191
14-Jan-00       0.02985598
21-Jan-00       0.030763375
28-Jan-00       0.036890351
 4-Feb-00       0.043249219
11-Feb-00       0.042941578
18-Feb-00       0.037741596
25-Feb-00       0.037772843
 3-Mar-00       0.031488401
10-Mar-00       0.035108011
17-Mar-00       0.040553742
24-Mar-00       0.046507843
31-Mar-00       0.0504471
 7-Apr-00       0.047919915
14-Apr-00       0.045770233
20-Apr-00       0.041533157
28-Apr-00       0.041838665
 5-May-00       0.046265678
12-May-00       0.042325106
19-May-00       0.046130932
26-May-00       0.04666536
 2-Jun-00       0.047785911
 9-Jun-00       0.049809534
16-Jun-00       0.048623199
23-Jun-00       0.044137394
30-Jun-00       0.040320869
 7-Jul-00       0.045994597
14-Jul-00       0.038319492
21-Jul-00       0.037719386
28-Jul-00       0.042682839
 4-Aug-00       0.044612288
11-Aug-00       0.042435805
18-Aug-00       0.037838661
25-Aug-00       0.040834263
 1-Sep-00       0.043817958
 8-Sep-00       0.042935636
15-Sep-00       0.038175499
22-Sep-00       0.041251663
29-Sep-00       0.040976185
 6-Oct-00       0.04203186
13-Oct-00       0.031649968
20-Oct-00       0.034736966
27-Oct-00       0.044490667
 3-Nov-00       0.052386183
17-Nov-00       0.053132482
24-Nov-00       0.054112744
 1-Dec-00       0.023133662
 8-Dec-00       0.048791139
15-Dec-00       0.051525316
22-Dec-00       0.048712615
29-Dec-00       0.051922656
 5-Jan-01       0.058615104
12-Jan-01       0.056114246
19-Jan-01       0.054739501
26-Jan-01       0.055520134
 2-Feb-01       0.058139048
 9-Feb-01       0.051868149
16-Feb-01       0.051985582
23-Feb-01       0.054773168
 2-Mar-01       0.037264033
 9-Mar-01       0.056907458
16-Mar-01       0.05181887
23-Mar-01       0.046485198
30-Mar-01       0.051052429
 6-Apr-01       0.053114011
12-Apr-01       0.057032542
20-Apr-01       0.057815266
27-Apr-01       0.058606757
 4-May-01       0.073973346
11-May-01       0.047453979
18-May-01       0.072847939
25-May-01       0.068227804
 1-Jun-01       0.071706711
 8-Jun-01       0.071167402
15-Jun-01       0.062091156
22-Jun-01       0.072736735
29-Jun-01       0.060622449
 6-Jul-01       0.075916
13-Jul-01       0.061898
20-Jul-01       0.073488
27-Jul-01       0.072848
 3-Aug-01       0.072396
10-Aug-01       0.071645
17-Aug-01       0.069541
24_Aug-01       0.067018
31-Aug-01       0.056737
 7-Sep-01       0.061211
10-Sep-01       0.0605
21-Sep-01       0.055704
28-Sep-01       0.054845
 5-Oct-01       0.057874
12-Oct-01       0.053677
19-Oct-01       0.053425
26-Oct-01       0.056936
 2-Nov-01       0.055613
 9-Nov-01       0.053192
16-Nov-01       0.051534
23-Nov-01       0.056095
30-Nov-01       0.057148
 7-Dec-01       0.061395
14-Dec-01       0.064372
21-Dec-01       0.057279
28-Dec-01       0.055627
 4-Jan-02       0.051193
11-Jan-02       0.053965
18-Jan-02       0.053611
25-Jan-02       0.039327
 1-Feb-02       0.034753

This chart shows the week-by-week difference between the average premium or
discount for all Nuveen municipal closed-end funds and all non-Nuveen municipal
closed-end funds as reported by Lipper for the five-year period from
September 27, 1996 through February 1, 2002. The weekly averages include all
Nuveen and non-Nuveen funds in existence during that week over the course of
this measurement period. As of February 1, 2002, there were 71 Nuveen funds and
146 non-Nuveen funds included in the Lipper database. Past trading history is no
guarantee of future results, and is no guarantee of how these new Funds may
trade.

                                      E-2

<PAGE>


<TABLE>
<S>                                                  <C>
Nuveen Insured Dividend Advantage Municipal Fund 26,700,000 Common Shares
</TABLE>



                  ------------------------------------------

                      STATEMENT OF ADDITIONAL INFORMATION

                  ------------------------------------------

                                 March 25, 2002

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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