<PAGE>
September 30, 1999 Annual Report
NUVEEN
Mutual Funds
Nuveen Income Fund
For investors
seeking
attractive
[PHOTO APPEARS HERE]
current income
and capital
preservation.
Featuring Portfolio Management By Nuveen Investment Advisory Services
A Premier Adviser/SM/ for Income Investing
<PAGE>
Contents
1 Dear Shareholder
3 From the Portfolio Manager's Perspective
6 Nuveen Income Fund Spotlight
7 Portfolio of Investments
9 Statement of Net Assets
10 Statement of Operations
11 Statement of Changes in Net Assets
12 Notes to Financial Statements
15 Financial Highlights
16 Report of Independent Public Accountants
17 Fund Information
<PAGE>
DEAR
Shareholder
At this writing, we're just a month away from the much-talked-about millennium.
Besides trying to decide where it is we want to be when the clock strikes
midnight, this whole event puts the concept of time in front of us all. We
think: "Where did the time go?"
We think about how old, 25 years ago, we thought we would be when the calendar
turned January 1, 2000. (And we realize, now, it is really not that old at all.)
We think about all the things we thought we would have accomplished before 1999
became 2000.
Most likely, one of your millennium goals was financial. Whether it was to fully
fund your retirement accounts or set up trusts for your grandchildren, the fact
that you're working with a financial adviser and reading this report are
positive signs that you're well on your way to achieving your goal.
I'm pleased to report we're meeting our goals, too. In addition to the goals we
have established for each mutual fund we manage, we have had to set goals in
preparation for the millennium. Briefly, the year 2000, or Y2K, problem stems
from concerns that computers and other date-sensitive systems could malfunction
or stop before, on, or after January 1, 2000. Many older systems use a two-digit
number to represent a year. To a computer, "00" may mean the year 1900 instead
of 2000. If this were to happen, some computers might shut down or not work
correctly.
All efforts to safeguard critical systems are right on schedule at Nuveen.
It's a goal we set more than 10 years ago. Nuveen's trading, fund management and
pricing -- systems that affect you and your investments -- have been updated or
replaced to be able to deal accurately with Y2K.
We continue to work closely with our service providers, transfer agent,
custodian and trustee to monitor the readiness of their systems, as well as
address any remaining internal systems issues. We expect January 3, 2000, the
first business day of the year, to be "business as usual."
The Securities and Exchange Commission (SEC), which oversees the securities
industry, has taken significant steps to help the financial industry make a
smooth transition to the Y2K. First, the SEC required all public companies,
investment advisers, investment companies and municipal securities issuers to
disclose their ability to operate their systems at and after the turn of the
century.
In addition, the SEC mandated that tests be conducted on various financial
systems to test the ability of exchanges and broker/dealer firms to handle
transactions effectively. We participated successfully in those tests.
While we cannot anticipate all possibilities, our systems are in place and
ready to handle Y2K. We look forward to helping you achieve your financial goals
in the new millennium.
The Economic Environment. I want to briefly report on the economic environment
in which your Nuveen investment performed. Read on, as we've conducted an in-
depth interview with a representative from the Nuveen Income Fund portfolio
management team, describing how that team of investment and research
professionals directed the portfolio during its inaugural period, through
September 30, 1999.
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
"All efforts to safeguard critical systems are right on schedule at
Nuveen."
ANNUAL REPORT page 1
<PAGE>
"Your financial adviser can serve as a valuable resource in helping you
determine if adjustments are needed in your current asset allocation plan."
Until fairly recently, the U.S. economy has been characterized by robust
growth, generally low interest rates and unemployment levels that remain among
the lowest in three decades.
Concerns, however, about the continued pace of the economy's expansion have
begun to test the "new paradigm," which holds that improvements in productivity
enable us to have both economic growth and low inflation at the same time. With
investors and the various markets watching -- and reacting to -- every
announcement concerning economic statistics, volatility has increased,
especially in the equity markets.
We have entered a different economic environment from that of 12 months ago.
This shift has occurred in response to two factors:
. the Asian financial crisis of 1998 did not produce the U.S. economic
slowdown that was widely expected to keep economic growth from becoming
overly robust;
. evidence of accelerating prices, most obvious in the sudden spikes in the
April and September 1999 Consumer Price Index, contributed to the
reemergence of the specter of inflation, accompanied by predictions of
higher interest rates.
In an effort to preempt this inflation threat, the Federal Reserve has moved
to raise the federal funds rate -- to 5.50%. The upward adjustments to this
rate, which represents the amount banks charge one another on overnight loans,
mark the first increases since March 1997 and stand in sharp contrast to the
three reductions made last fall.
Keeping the Balance. The increased volatility in the markets highlights the
importance of maintaining balance in your investment portfolio. With a properly
balanced portfolio of equities, bonds and cash, your assets are better
positioned to weather the markets' ups and downs. A balanced portfolio can also
help you increase your opportunities for capital growth while reducing risk.
Your financial adviser can serve as a valuable resource in helping you determine
if adjustments are needed in your current asset allocation plan.
For more information on any Nuveen investment, including a prospectus,
contact your financial adviser. Or call Nuveen at (800) 621-7227 or visit our
Internet site at www.nuveen.com. Please read the prospectus carefully before you
invest or send money.
Since 1898, Nuveen has been synonymous with investments that stand the test
of time. As we look ahead to a new millennium, we are committed to maintaining
that reputation and finding the best ways to serve your evolving investment
needs. Thank you for your continued confidence.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
November 16, 1999
ANNUAL REPORT page 2
<PAGE>
NUVEEN INCOME FUND
From the Portfolio Manager's Perspective
The Nuveen Income Fund began operations in November 1998 amid mixed economic
signals, especially concerning the direction of interest rates. James Lumberg,
director of income funds at Nuveen, recently spoke with Portfolio Manager Rick
Huber about the fund's performance during its first fiscal year ended September
30, 1999. Jim and Rick also discussed the investment process used in managing
the fund, explained the economic environment in which the fund performed and
gave an outlook for the fund's next fiscal year. We'll share those discussions
with you in this report.
JIM During the first 10 months in the life of the Nuveen Income Fund, the bond
market experienced uncertainty amid mixed signals about the direction of
interest rates. Please tell us a little about the economic environment of the
period. How did the fund respond to such a challenging market?
RICK After the Federal Reserve (the Fed) raised interest rates in the first
part of the year, economic indicators were sending mixed signals that hindered
even the most educated guesses as to where interest rates would go next. That
brought volatility to the bond markets and caused the "spread" -- or the
difference between the yield on corporate bonds and the yield on Treasury bonds
- -- to widen significantly. Interest rates are important to bond investors; when
they go down, the value of bonds rise, because rates move in the opposite
direction of bond prices. Conversely, when rates go up, bond values tend to
fall -- generally not welcome news for those who own bonds. However, a rise in
rates does tend to present attractive buying opportunities.
The Nuveen Income Fund held its own quite well in a difficult environment.
Although the fund's total returns were negatively impacted by the increase in
bond yields, its strong overweighting in corporate bonds -- which performed well
in the first part of the period -- helped moderate losses and led to
outperformance of the benchmark and the Lipper average. Later in the period,
however, when the yield spread between corporate bonds and Treasury bonds
widened, which tends to lead to underperformance among corporate bonds, we
trimmed back the fund's corporate positions.
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within their
specific areas of expertise. We call them Premier Advisers/sm/ -- a select group
of asset management firms who direct the investment activities of the Nuveen
Mutual Funds. Nuveen has chosen them for their rigorously disciplined investment
approaches and their focus on consistent long-term performance.
Drawing on decades of experience and specialized knowledge, these skilled asset
managers have earned reputations for excellence in their fields of expertise,
whether it is blue-chip growth stocks, large-cap value stocks, bonds or
international securities.
Nuveen's Premier Adviser/sm/ for income investing is Nuveen Investment Advisory
Services (NIAS). NIAS follows a disciplined, research-driven investment approach
to uncover income securities that combine exceptional relative value with above-
average return potential. Drawing upon 300 combined years of investment
experience, the Nuveen team of portfolio managers and research analysts offers:
. A commitment to exhaustive research
. An active, value-oriented investment style
. The unmatched presence and trading leverage of a market leader.
This disciplined, research-oriented approach has paid off for investors, and is
a key investment strategy for Nuveen Income Fund.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the fund's fiscal year ended September 30, 1999. The views expressed
reflect those of the portfolio management team and are subject to change at any
time, based on market and other conditions.
ANNUAL REPORT page 3
<PAGE>
Since its November 1998 inception, the fund has posted a loss of 0.04%. Over
that period, the Lehman Brothers Aggregate Bond Index/1/ reported a loss of
0.40%, and the Lipper Intermediate Investment Grade Debt Funds Index/2/ had a
loss of 0.36%.
Portfolio Allocation
Corporate Bonds 42%
U.S. Treasury Bonds/Notes 25%
Mortgage-Backed Securities 20%
Commercial Paper 13%
"With market
uncertainty and imbalance comes
opportunity."
JIM What is your investment process for Nuveen Income Fund?
RICK Nuveen follows a team approach to foster open communication and the
sharing of ideas. The process is essentially a combination top-down / bottom-up
approach.
The fixed-income team first meets in order to assess overall economic
conditions, globally and in the U.S., and to try to determine where interest
rates are headed. That's the "top-down" analysis.
We then seek to identify those sectors of the market that present
opportunity using relative value models. Results of these models, along with a
thorough qualitative assessment of the fixed income markets, help direct our
bottom-up research efforts. Intense bottom-up analysis enables us to identify
what we believe to be exceptional value on a security-by-security basis.
Discussions concerning changes to our broader economic and market
assessment are conducted on a weekly basis, and the value of individual
securities are discussed regularly, as analysts and portfolio managers share
their research and experiences. In some cases, individual bond stories are so
strong they can override our view on the overall market and economy. It is in
instances such as these that the true value of a combined top-down / bottom-up
strategy makes itself felt.
JIM Tell us about the types of strategies a portfolio manager can employ in a
volatile bond market. Is it better to wait it out or to take active steps to
participate wherever possible?
RICK Very often, with market uncertainty and imbalance comes opportunity.
Again, when yields are up, prices are down, and thorough research can turn up
some attractive buys. Couple that with a marked increase in the number of new
corporate bond issues, which were up 35% in the third quarter over the same
period last year, and significant buying opportunities await those who put forth
the effort to find them.
Even in a tough market, we are constantly looking for bonds with high
quality and what we see as good value -- times like these give us the chance to
make savvy purchases and to prepare the fund for the future.
We made active, diligent efforts to divine good stories during the year. Our
research efforts uncovered promising opportunities that eventually performed
better than the overall market.
One example is Seagram. In the second quarter of 1999 there was uncertainty
surrounding Seagram's acquisition of Polygram, so those bonds were offering very
attractive yields. We determined through our research that Seagram had sound
fundamentals and a positive outlook, so we added it to the portfolio. Soon
after, questions as to their corporate strategy were resolved favorably, and the
bonds rallied.
1 The Lehman Brothers Aggregate Bond Index covers the U.S. investment grade
fixed-rate bond market, including government and corporate securities,
agency mortgage pass-through securities, and asset-backed securities.
2 The Lipper Peer Group returns reflect the performance of the Lipper
Intermediate Investment Grade Debt Funds Index, which represents the average
returns of the 30 largest funds in the Lipper category. The returns assume
investment dividends, but do not include any initial or ongoing expenses.
ANNUAL REPORT page 4
<PAGE>
JIM Which sectors performed well for the fund over the last year?
RICK In the corporate sector, real estate investment trusts, or REITs, and
Yankee Corporate bonds, which is debt of foreign corporations denominated in
dollars, were particularly strong for the fund and remain attractive going into
the next fiscal year. Both of these instruments offer substantial income and
total return potential.
At the beginning of the fund's operations, Nuveen Research identified the
energy, finance and telecommunications sectors as ripe for outperformance, so we
increased the fund's positions in such companies. As expected, these sectors
proved themselves and performed well in the second quarter. Determining that
they had become expensive, we trimmed our positions in the third quarter and
were able to add positions in mortgage-backed securities.
The mortgage sector also did well as we increased our exposure to both
traditional agency pass-through securities and high-rated commercial mortgage-
backed securities. Commercial mortgage-backed instruments have offered
especially strong value relative to other mortgage sectors, with equivalent
quality and a better structure. Despite their high quality, some managers are
reluctant to purchase this fairly new class, but as it gains widespread
acceptance we fully expect that values will appreciate.
We saw significant value in government agency bonds in the second half of the
period, and have therefore increased our allocation to this sector. As interest
rate spreads widened, agency bonds became very inexpensive in our opinion.
JIM You've mentioned the Fed interest rate increases that took place earlier
this year, and there are still mixed signals about where rates are headed going
into the next year. How is the fund positioned to handle more uncertainty?
RICK Uncertainty as to what and when the Fed's next move would be has created
the recent market volatility, but we believe that slower growth and reasonable
inflation levels, coupled with Fed concerns about the effects of Y2K, will
likely hold off any rate hikes before 2000.
We have positioned the fund to capitalize on what we feel will be an improving
and attractive market in the months ahead. The fund has a neutral stance on
interest rates, and its short-term, liquid assets are ready for deployment to
the new opportunities that we fully expect to surface. As always, we will keep a
watchful eye on the economy and any possibility for an interest rate move and
will prepare the fund accordingly.
The bond market looks more attractive to us going into the new fiscal year.
U.S. Treasury rates are high and spreads are still relatively wide, so we still
think there are buying opportunities. Going forward, we expect the yield spread
between corporates and Treasuries to stay on course or tighten, so we plan to
increase our exposure to the corporate and mortgage sectors.
Diversification*
Electric 2.2%
Natural Gas 2.5%
Consumer Cyclical 2.6%
Health Care 3.2%
Basic Materials 3.3%
Consumer Non-Cyclical 3.3%
Financials 3.3%
Insurance 3.3%
Retail/General 4.7%
Real Estate Investment Trust 5.1%
Transportation 8.6%
Energy 9.4%
Commercial Mortgage-Bank 9.6%
Mortgage-Backed 9.8%
U.S. Guaranteed 29.1%
* As a percentage of total bond holdings.
ANNUAL REPORT page 5
<PAGE>
NUVEEN INCOME FUND
Fund Spotlight as of September 30, 1999
Terms To Know
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income
investment portfolio. The longer the duration, the greater a portfolio's
sensitivity to changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by
subtracting the fund's liabilities from its assets and dividing by the number of
shares outstanding.
Quick Facts
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
Inception Date 11/98 11/98 11/98 11/98
- ----------------------------------------------------------------------------------
Net Asset Value (NAV) $19.00 $19.00 $19.01 $19.01
- ----------------------------------------------------------------------------------
Latest Monthly Dividend (9/30/99) $0.0990 $0.0870 $0.0870 $0.103
- ----------------------------------------------------------------------------------
Latest Capital Gain 0 0 0 0
- ----------------------------------------------------------------------------------
CUSIP 67066D101 67066D200 67066D309 67066D408
- ----------------------------------------------------------------------------------
</TABLE>
Cumulative Total Returns/+/
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
NAV Offer W/CDSC W/O CDSC W/CDSC W/O CDSC NAV
<S> <C> <C> <C> <C> <C> <C> <C>
Since Inception -0.04% -4.80% -5.43% -0.68 -1.58% -0.62 0.21%
- -----------------------------------------------------------------------------------------------
</TABLE>
/+/ Class A shares have a 4.75% maximum sales charge. Class B shares have a
CDSC that begins at 5% for redemptions during the first year after purchase
and declines periodically to 0% over the following five years. Class B
shares automatically convert to Class A shares eight years after purchase.
Class C shares have a 1% CDSC for redemptions within one year.
Top Five Corporate Bond Holdings*
Wal-Mart Stores 4.7%
- -----------------------------------------------
British Sky Broadcasting Group p/c 3.3%
- -----------------------------------------------
FMC Corporation 3.3%
- -----------------------------------------------
Royal & Sun Alliance Insurance Group p/c 3.3%
- -----------------------------------------------
NorAm Energy Corporation 3.2%
- -----------------------------------------------
* As a percentage of total bond holdings.
Bond Credit Quality**
[PIE CHART APPEARS HERE]
AAA........ 48.7%
AA......... 7.8%
A.......... 6.4%
BBB........ 28.6%
Other...... 8.5%
** As a percentage of total bond holdings.
Portfolio Statistics
Fund Net Assets $16.2 million
- --------------------------------
Number of
Bond Issues 28
- --------------------------------
Average Duration
(Bonds) 4.81
- --------------------------------
Average Effective
Maturity (Bonds) 9.07 years
- --------------------------------
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
ANNUAL REPORT page 6
<PAGE>
Portfolio of Investments
Nuveen Income Fund
September 30, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS - 66.1%
Corporate Bonds - 44.9%
$ 600,000 AES China Generation Limited, Unsecured Notes, 10.125%, 12/15/06 12/01 at 105 1/16 BB- $ 339,000
500,000 British Sky Broadcasting Group Public Limited Corporation, Notes,
8.200%, 7/15/09 No Opt. Call Baa2 496,166
500,000 CMS Energy Corporation, Senior Note Unsecured, 7.500%, 1/15/09 No Opt. Call BB 460,475
400,000 Cendant Corporation, Notes, 7.500%, 12/01/00 No Opt. Call Baa1 401,748
500,000 Columbia/HCA Healthcare Corporation, Medium Term Notes, 6.630%, No Opt. Call BB+ 478,574
7/15/45 (Mandatory put 7/15/02)
400,000 EOP Operating Limited
Partnership, 6.800%,
1/15/09 No Opt. Call Baa1 370,865
400,000 Enron Corporation, 6.725%, 11/15/37 (Mandatory put 11/17/08) No Opt. Call BBB+ 382,315
500,000 FMC Corporation, Medium Term Notes, 7.125%, 11/25/02 No Opt. Call BBB 495,835
475,000 Interpool Capital Trust, 9.875%, 2/15/27 No Opt. Call BBB- 416,081
500,000 Laidlaw Inc., Debenture, 7.650%, 5/15/06 No Opt. Call BBB 476,521
500,000 NorAm Energy Corporation, Term Enhanced Remarketable Securities, No Opt. Call Baa1 482,343
6.375%, 11/01/13 (Mandatory put 11/01/03)
500,000 PDVSA Finance Limited, Note, 9.375%, 11/15/07 No Opt. Call A3 478,031
500,000 Royal & Sun Alliance Insurance Group Public Limited Company, No Opt. Call A1 493,085
Subordinate Guaranteed Bonds, 8.950%, 10/15/29 (WI)
400,000 United Dominion Realty Trust, Medium Term Notes, 7.600%, 1/25/02 No Opt. Call BBB 396,476
650,000 Wal-Mart Stores, Collateralized Pass Through Certificates, No Opt. Call AA 708,087
8.620%, 1/01/10
500,000 Windsor Petroleum Transportation Corporation, Unsecured Note, 7.840%, No Opt. Call Baa3 410,000
1/15/21
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities - 21.2%
500,000 Commercial Mortgage Trust, Series 99C1-A3, 6.640%, 9/17/10 No Opt. Call AAA 478,020
500,000 Federal Home Loan Mortgage Corporation Bonds, 6.625%, 9/15/09 No Opt. Call Aaa 498,284
500,000 Federal National Mortgage Association, Benchmark Notes, 6.500%, 8/15/04 No Opt. Call Aaa 502,717
508,889 Morgan Stanley Capital I Incorporated, Commercial Mortgage Pass Through No Opt. Call AAA 498,678
Certificates, Series 1998-CF1, Class A, 6.330%, 10/15/07
500,000 Morgan Stanley Capital I Incorporated, Commercial Mortgage Pass Through No Opt. Call AA 470,000
Certificates, Series 1999-RM1, Class B, 6.810%, 11/15/08
Federal Home Loan Mortgage Corporation Mortgage Pool (Freddie Mac Gold):
500,000 6.500%, 11/01/14 (WI) No Opt. Call Aaa 491,094
500,000 7.500%, 10/01/29 (WI) No Opt. Call Aaa 501,748
- ------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Obligations - (cost $11,055,985) 10,726,143
---------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 27.1%
U.S. Treasury Bonds/Notes:
1,000,000 12.375%, 5/15/04 No Opt. Call Aaa 1,254,063
500,000 11.625%, 11/15/04 No Opt. Call AAA 621,719
750,000 6.625%, 5/15/07 No Opt. Call AAA 773,905
500,000 9.250%, 2/15/16 No Opt. Call Aaa 639,687
1,000,000 7.500%, 11/15/16 No Opt. Call AAA 1,107,500
- ------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Obligations - (cost $4,557,420) 4,396,874
---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Portfolio of Investments
Nuveen Income Fund (continued)
September 30,1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER - 13.9%
$ 750,000 Ford Motor Credit Corporation, 5.240%, 10/01/99 No Opt. Call A-1 $ 750,000
750,000 Merrill Lynch & Co., Inc., 5.260%, 10/01/99 No Opt. Call A-1 750,000
750,000 MetLife Funding, Inc., 5.290%, 10/01/99 No Opt. Call A-1 750,000
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,250,000 Total Commercial Paper - (cost $2,250,000) 2,250,000
===========-------------------------------------------------------------------------------------------------------------------------
Total Investments - (cost $17,863,405) - 107.1% 17,373,017
---------------------------------------------------------------------------------------------------------------------
Other Assets less Liabilities - (7.1)% (1,148,109)
---------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $16,224,908
=====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent public
accountants): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices at
later dates.
** Ratings (not covered by the report of independent public accountants):
Using the higher of Standard & Poor's or Moody's rating.
(WI) Security purchased on a when-issued basis (note 1).
See accompanying notes to financial statements.
8
<PAGE>
Statement of Net Assets
Nuveen Income Fund
September 30, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investment securities, at market value (cost $17,863,405) (note 1) $17,373,017
Cash 418,487
Receivables:
Fund manager (note 5) 1,654
Interest 291,171
Shares sold 103,107
Other assets 71,905
- ------------------------------------------------------------------------------------------------------------------------
Total assets 18,259,341
- ------------------------------------------------------------------------------------------------------------------------
Liabilities
Payable for investments purchased 1,958,082
Accrued expenses:
12b-1 distribution and service fees (notes 1 and 5) 4,412
Other 64,642
Dividends payable 7,297
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,034,433
- ------------------------------------------------------------------------------------------------------------------------
Net assets (note 6) $16,224,908
========================================================================================================================
Class A Shares (note 1)
Net assets $ 1,370,326
Shares outstanding 72,115
Net asset value and redemption price per share $ 19.00
Offering price per share (net asset value per share plus maximum sales charge of 4.75% of offering price) $ 19.95
========================================================================================================================
Class B Shares (note 1)
Net assets $ 4,108,388
Shares outstanding 216,180
Net asset value, offering and redemption price per share $ 19.00
========================================================================================================================
Class C Shares (note 1)
Net assets $ 1,118,729
Shares outstanding 58,849
Net asset value, offering and redemption price per share $ 19.01
========================================================================================================================
Class R Shares (note 1)
Net assets $ 9,627,465
Shares outstanding 506,528
Net asset value, offering and redemption price per share $ 19.01
========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
Statement of Operations
Nuveen Income Fund
For the Period November 30, 1998 (commencement of operations) through September
30, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C>
Investment Income (note 1) $ 781,543
- -----------------------------------------------------------------------------------------------------
Expenses
Management fees (note 5) 63,718
12b-1 service fees - Class A (notes 1 and 5) 1,269
12b-1 distribution and service fees - Class B (notes 1 and 5) 15,050
12b-1 distribution and service fees - Class C (notes 1 and 5) 4,075
Shareholders' servicing agent fees and expenses 188
Custodian's fees and expenses 37,710
Trustees' fees and expenses (note 5) 1,834
Professional fees 8,133
Shareholders' reports - printing and mailing expenses 57,959
Federal and state registration fees 9,757
Other expenses 1,149
- -----------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 200,842
Custodian fee credit (note 1) (3,673)
Expense reimbursement (note 5) (91,817)
- -----------------------------------------------------------------------------------------------------
Net expenses 105,352
- -----------------------------------------------------------------------------------------------------
Net investment income 676,191
- -----------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (notes 1 and 4) (161,888)
Net change in unrealized appreciation or depreciation of investments (490,388)
- -----------------------------------------------------------------------------------------------------
Net gain (loss) from investments (652,276)
- -----------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 23,915
=====================================================================================================
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
Statement of Changes in Net Assets
Nuveen Income Fund
For the Period November 30, 1998 (commencement of operations) through September
30, 1999
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Operations
Net investment income $ 676,191
Net realized gain (loss) from investment transactions (notes 1 and 4) (161,888)
Net change in unrealized appreciation or depreciation of investments (490,388)
- ----------------------------------------------------------------------------------------------------
Net increase in net assets from operations 23,915
- ----------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (30,646)
Class B (77,598)
Class C (20,426)
Class R (520,172)
- ----------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (648,842)
- ----------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 16,814,394
Net proceeds from shares issued to shareholders due to reinvestment of distributions 85,962
- ----------------------------------------------------------------------------------------------------
16,900,356
Cost of shares redeemed (150,521)
- ----------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 16,749,835
- ----------------------------------------------------------------------------------------------------
Net increase in net assets 16,124,908
Net assets at the beginning of period 100,000
- ----------------------------------------------------------------------------------------------------
Net assets at the end of period $16,224,908
====================================================================================================
Balance of undistributed net investment income at the end of period $ 27,349
====================================================================================================
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Income Fund (the "Fund") is a series of the Nuveen Investment Trust
III (the "Trust") which was organized as a Massachusetts business trust in 1998.
The Trust is an open-end diversified management series investment company
registered under the Investment Company Act of 1940. Prior to commencement of
operations on November 30, 1998, the Trust had no operations other than those
related to organizational matters and the initial capital contribution of
$100,000 by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of The John Nuveen Company, for the issuance of shares on November
20, 1998.
The Fund invests primarily in a diversified portfolio of domestic investment
grade quality bonds of varying maturities as a source of current income and
capital preservation. The Fund may also buy non-investment grade bonds and
dollar denominated bonds of foreign issuers, subject to certain limitations. The
Fund may also invest in other securities, such as preferred stock, that have
predominantly fixed-income characteristics. Also, the Fund may invest in cash
equivalents and short-term fixed income investments in order to preserve capital
or to enhance returns or as a temporary defensive measure.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices used to value fixed-income securities are based on the mean between
the bid and ask prices as provided by an independent pricing service. When price
quotes are not readily available, the pricing service establishes fair market
value based on prices of comparable securities.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
September 30, 1999, the Fund had outstanding when-issued purchase commitments of
$1,486,893.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
accretion of discounts. Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders
Net investment income is declared monthly as a dividend and payment is made or
reinvestment is credited to shareholder accounts on the first business day after
month-end. Net realized capital gains from investment transactions, if any, are
declared and distributed to shareholders not less frequently than annually.
Furthermore, capital gains are distributed only to the extent they exceed
available capital loss carryforwards.
Distributions to shareholders of net investment income and net realized capital
gains are recorded on the ex-dividend date. The amount and timing of
distributions are determined in accordance with federal income tax regulations,
which may differ from generally accepted accounting principles. Accordingly,
temporary over-distributions as a result of these differences may occur and will
be classified as either distributions in excess of net investment income and/or
distributions in excess of net realized gains from investment transactions,
where applicable.
Federal Income Taxes
The Fund intends to distribute all taxable income and capital gains to
shareholders and to otherwise comply with the requirements of Subchapter M of
the Internal Revenue Code applicable to regulated investment companies.
Therefore, no federal tax provision is required.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class A Share purchases of $1
million or more are sold at net asset value without an up-front sales charge but
may be subject to a contingent deferred sales charge ("CDSC") if redeemed within
18 months of purchase. Class B Shares are sold without a sales charge but
12
<PAGE>
incur annual 12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a CDSC of up to 5% depending upon the length of time the
shares are held by the investor (CDSC is reduced to 0% at the end of six years).
Class B Shares convert to Class A Shares eight years after purchase. Class C
Shares are sold without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1%
if Class C Shares are redeemed within one year of purchase. Class R Shares are
not subject to any sales charge or 12b-1 distribution or service fees. Class R
Shares are available only under limited circumstances, or by specified classes
of investors.
Derivative Financial Instruments
The Fund may invest in futures, swap and option contracts, which are sometimes
referred to as derivative transactions. Although the Fund is authorized to
invest in such financial instruments, and may do so in the future, it did not
make any such investments during the period November 30, 1998 (commencement of
operations) through September 30, 1999.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby the custodian fees
and expenses are reduced by credits earned on the Fund's cash on deposit with
the bank. Such deposit arrangements are an alternative to overnight investments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results may differ
from those estimates.
2. Fund Shares
Transactions in Fund shares for the period November 30, 1998 (commencement of
operations) through September 30, 1999, were as follows:
<TABLE>
<CAPTION>
Shares Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold:
Class A 73,650 $ 1,428,296
Class B 215,822 4,170,484
Class C 59,764 1,158,295
Class R 502,892 10,057,319
Shares issued to shareholders due to reinvestment of distributions:
Class A 323 6,205
Class B 1,175 22,646
Class C 200 3,841
Class R 2,675 53,270
- --------------------------------------------------------------------------------------------
856,501 16,900,356
- --------------------------------------------------------------------------------------------
Shares redeemed:
Class A (3,108) (60,180)
Class B (2,067) (39,437)
Class C (2,365) (45,366)
Class R (289) (5,538)
- --------------------------------------------------------------------------------------------
(7,829) (150,521)
- --------------------------------------------------------------------------------------------
Net increase 848,672 $16,749,835
============================================================================================
</TABLE>
3. Distributions to Shareholders
The Fund declared a dividend distribution from its net investment income which
was paid November 1, 1999, to shareholders of record on October 8, 1999, as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Dividend per share:
<S> <C>
Class A $.0990
Class B .0870
Class C .0870
Class R .1030
- ---------------------------------------------------------------------
</TABLE>
13
<PAGE>
Notes to Financial Statements (continued)
4. Securities Transactions
Purchases and sales (including maturities) of corporate obligations, U.S.
government obligations and short-term investments for the period November 30,
1998 (commencement of operations) through September 30, 1999, were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Purchases:
<S> <C>
Corporate obligations $16,672,458
U.S. government obligations 7,738,272
Short-term investments 80,442,144
Sales:
Corporate obligations 5,591,646
U.S. government obligations 3,040,464
Short-term investments 78,250,000
============================================================================
</TABLE>
At September 30, 1999, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes.
Net unrealized depreciation for federal income tax purposes aggregated $490,388
of which $37,862 related to appreciated securities and $528,250 related to
depreciated securities.
At September 30, 1999, the Fund had an unused capital loss carryforward of
$161,888 available for federal income tax purposes to be applied against future
capital gains, if any. If not applied, the carryforward will expire in the year
2007.
5. Management Fee and Other Transactions with Affiliates
Under the Fund's investment management agreement with the Adviser, the Fund pays
an annual management fee, payable monthly, which is based upon the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee
- -----------------------------------------------------------------------------
<S> <C>
For the first $125 million .6000 of 1%
For the next $125 million .5875 of 1
For the next $250 million .5750 of 1
For the next $500 million .5625 of 1
For the next $1 billion .5500 of 1
For net assets over $2 billion .5250 of 1
=============================================================================
</TABLE>
The Adviser has agreed to waive fees and reimburse expenses through July 31,
2000, in order to prevent total operating expenses (excluding any 12b-1
distribution or service fees and extraordinary expenses) from exceeding .80% of
the average daily net asset value of any class of Fund shares.
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Fund pays no
compensation directly to those of its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Fund from the Adviser.
During the period November 30, 1998 (commencement of operations) through
September 30, 1999, John Nuveen & Co. Incorporated (the "Distributor"), a wholly
owned subsidiary of The John Nuveen Company, collected sales charges on
purchases of Class A Shares of approximately $16,100 of which approximately
$14,000 were paid out as concessions to authorized dealers. The Distributor also
received 12b-1 service fees on Class A Shares, substantially all of which were
paid to compensate authorized dealers for providing services to shareholders
relating to their investments.
During the period November 30, 1998 (commencement of operations) through
September 30, 1999, the Distributor compensated authorized dealers directly with
approximately $151,200 in commission advances at the time of purchase. To
compensate for commissions advanced to authorized dealers, all 12b-1 service
fees collected on Class B Shares during the first year following a purchase, all
12b-1 distribution fees on Class B Shares, and all 12b-1 service and
distribution fees on Class C Shares during the first year following a purchase
are retained by the Distributor. During the period November 30, 1998
(commencement of operations) through September 30, 1999, the Distributor
retained $18,800 of such 12b-1 fees. The remaining 12b-1 fees charged to the
Fund were paid to compensate authorized dealers for providing services to
shareholders relating to their investments. The Distributor also collected and
retained approximately $800 of CDSC on share redemptions during the period
November 30, 1998 (commencement of operations) through September 30, 1999.
6. Composition of Net Assets
At September 30, 1999, the Fund had an unlimited number of $.01 par value per
share common stock authorized. Net assets consisted of:
<TABLE>
- ---------------------------------------------------------------------------------------
<S> <C>
Capital paid-in $16,849,835
Balance of undistributed net investment income 27,349
Accumulated net realized gain (loss) from investment transactions (161,888)
Net unrealized appreciation (depreciation) of investments (490,388)
- ---------------------------------------------------------------------------------------
Net assets $16,224,908
=======================================================================================
</TABLE>
14
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ --------------------------
Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net Total
Year Ended Asset ment Gain ment Capital Asset Return
September 30, Value Income (Loss) Total Income Gains Total Value (c)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (11/98)
1999 (d) $20.00 $1.02 $(1.03) $(.01) $ (.99) $ -- $ (.99) $19.00 (.04)%
Class B (11/98)
1999 (d) 20.00 .90 (1.03) (.13) (.87) -- (.87) 19.00 (.68)
Class C (11/98)
1999 (d) 20.00 .90 (1.02) (.12) (.87) -- (.87) 19.01 (.62)
Class R (11/98)
1999 (d) 20.00 1.06 (1.02) .04 (1.03) -- (1.03) 19.01 .21
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> Ratios/Supplemental Data
-----------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (a) Reimbursement (b)
-------------- ----------------- -----------------
Ratio Ratio Ratio
of Net of Net of Net
Invest- Invest- Invest-
Ratio of ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Year Ended Assets Net Net Net Net Net Net Turnover
September 30, (000) Assets Assets Assets Assets Assets Assets Rate
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (11/98)
1999 (d) $1,370 1.89%* 5.59%* 1.09%* 6.39%* 1.05%* 6.42%* 76%
Class B (11/98)
1999 (d) 4,108 2.63* 4.84* 1.83* 5.64* 1.80* 5.67* 76
Class C (11/98)
1999 (d) 1,119 2.63* 4.85* 1.83* 5.65* 1.80* 5.69* 76
Class R (11/98)
1999 (d) 9,627 1.72* 5.60* .83* 6.49* .80* 6.53* 76
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
(a) After expense reimbursement from the investment adviser (note 4).
(b) After custodian fee credit and expense reimbursement from the investment
adviser (notes 1 and 5).
(c) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(d) For the period November 30, 1998 (commencement of operations) through
September 30, 1999.
15
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Income Fund
We have audited the accompanying statement of net assets, including the
portfolio of investments, of Nuveen Income Fund (one of the portfolios
constituting the Nuveen Investment Trust III (a Massachusetts business trust)),
as of September 30, 1999, and the related statement of operations, the statement
of changes in net assets and the financial highlights for the period indicated
thereon. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of September 30, 1999,
by correspondence with the custodian and brokers. As to securities purchased but
not received, we requested confirmation from brokers and, when replies were not
received, we carried out alternative auditing procedures. 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 and financial highlights referred to
above present fairly, in all material respects, the net assets of the Nuveen
Income Fund as of September 30, 1999, the results of its operations, the change
in its net assets and its financial highlights for the period indicated thereon
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 15, 1999
16
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Institutional Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Transfer Agent and
Shareholder Services
Chase Global Fund Services Company
P.O. Box 5186
New York, NY 10274
(800) 257-8787
Legal Counsel
Chapman & Cutler
Chicago, IL
Independent Public
Accountants
Arthur Andersen LLP
Chicago, IL
17
<PAGE>
SERVING
Investors for Generations
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today we offer a broad range of
quality investments designed for individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them pursue their financial goals.
The cornerstone of Nuveen's investment philosophy is a commitment to
disciplined long-term investment strategies whose aim is to provide consistent,
competitive performance over time -- with moderated risk. We emphasize quality
securities carefully chosen through in-depth research, and we follow those
securities closely over time to ensure that they continue to meet our exacting
standards.
Whether your focus is long-term growth, dependable income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. Our growth,
growth and income, income, and tax-free funds, along with our defined portfolios
and private asset management, can help you build a better, well-diversified
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
EAN-IF-9-99
