<PAGE>
March 31, 1999 Semiannual Report
NUVEEN
Mutual Funds
Nuveen Income Fund
[PHOTO APPEARS HERE]
For investors seeking attractive current income and capital preservation.
Featuring Portfolio Management By Nuveen Investment Advisory Services
A Premier Adviser/(SM)/ for Income Investing
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
DEAR
Shareholder
This is the first shareholder report for the Nuveen Income Fund, and I would
like to take the opportunity to welcome you to the Nuveen family as well as
report on the performance of the Fund since its inception last November. The
Fund's objective is to provide attractive current income and capital
preservation by investing primarily in a diversified portfolio of investment-
grade quality fixed-income securities with intermediate effective maturities.
The Fund has started meeting its objective of providing attractive current
income, but market conditions have hampered the Fund's total return performance
for the period ended March 31, 1999. However, the total return for the Nuveen
Income Fund did outperform the appropriate Lehman Index and Lipper Peer Group.
The Fund's performance is something that will be addressed in the Portfolio
Manager's comments later in this report. Though the Fund has only been in
existence since November, we are excited about its prospects for the future.
"Expectations are for a stable Fed policy--and a stable interest rate
environment--throughout the remainder of 1999."
The Period in Review. During the past few months, the U.S. economy has continued
its pattern of non-inflationary growth, combined with relatively low interest
rates and unemployment levels. Much of this growth has been propelled by
consumer demand, which has helped the U.S. resist the downward pull of weaker
overseas markets. All indications point to a confident consumer who is
comfortable with the current state of the economy, especially the performance of
the housing, stock, and job markets.
At the same time, inflation in the U.S. continued to operate at benign
levels, with an increase of only 1.6% for the 12 months ended March 31, 1999. As
Federal Reserve Chairman Alan Greenspan has recently stated, the chief factor in
achieving today's peaceful coexistence of economic growth and low inflation has
been increased productivity. Improvements in productivity, spurred by
technological advances, have been largely responsible for offsetting wage and
other inflationary pressures that we would normally expect to see as part of a
growing economy.
Barring any unforeseen developments, expectations are for a stable Fed
policy and a stable interest rate environment throughout the remainder of 1999.
In the months ahead, we will continue to watch for indications from the Fed and
other factors that
1
<PAGE>
"Nuveen Mutual Funds are a diverse collection of investments featuring an
impressive ensemble of highly regarded asset management firms."
affect the economy's future, including wage and employment statistics, capital
equipment spending, and the progress of international economic recovery. We
believe these key components will influence the outlook for fixed-income markets
well into the new millennium.
The Value of Nuveen Expertise. Nuveen Mutual Funds are a diverse collection of
investments featuring an impressive ensemble of highly regarded asset
management firms--Premier Advisers/SM/--who direct the investment activities of
each portfolio.
The Premier Advisers are firms that have earned a reputation for excellence
in their field of expertise--whether it be blue-chip growth stocks, large-cap
value stocks, bonds, or international securities. They include: Nuveen
Investment Advisory Services for income investing, Rittenhouse Financial
Services for growth investing, and Institutional Capital Corporation for value
investing. For more information on our funds, contact your financial adviser for
a prospectus, or call Nuveen at (800) 621-7227. Please read the prospectus care-
fully before you invest or send money. We encourage you to talk with your
financial adviser about Nuveen's expanding array of investments and the ways
they can help you establish a diversified portfolio designed to build and
sustain long-term financial security.
The Income Fund is a prime example of the quality investments which embody
Nuveen's income investing expertise--carrying on a tradition which has been
established over Nuveen's 100-year history. Since 1898, John Nuveen & Co.
Incorporated has been synonymous with investments that withstand the test of
time. In fact, more than 1.3 million investors have trusted Nuveen to help them
build and sustain the wealth of a lifetime. We are grateful for the confidence
you have placed in us and are dedicated to maintaining your trust in the years
ahead.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
May 17, 1999
2
<PAGE>
NUVEEN INCOME FUND
Report from the Portfolio Manager
1998 marked the debut of the Nuveen Income Fund. To gather insights into the
fund's initial strategies and future prospects, we talked with Rick Huber, Vice
President, Portfolio Manager, at Nuveen Investment Advisory Services, Nuveen's
Premier Adviser for Income Investing.
What kind of bonds are selected for inclusion in the Nuveen Income Fund? The
Fund focuses on bonds with maturities of 5 to 10 years. These bonds tend to be
more stable than longer-term bonds during times of changing interest rates.
History shows that these bonds have provided a competitive level of total return
with a more moderated level of risk. In fact, according to Ibbotson Associates,
a company that has been providing financial data for over 20 years, for the past
10 years, intermediate-term bonds have provided 75% of the return of long-term
bonds with only 44% of the risk or volatility. By including bonds in their
portfolio mix, investors can achieve a comfortable balance of risk and return.
How has the Nuveen Income Fund performed since its inception? Since its November
1998 inception, the Nuveen Income Fund has posted a total return on Class A
shares on net asset value of -0.12%, as of March 31, 1999. This compares quite
favorably over the same period to the benchmark Lehman Brothers Aggregate Index,
which had a total return of -0.21%, and the Lipper Peer Group Average (made up
of intermediate investment-grade debt), which had a total return of -0.17%.
Total returns of the Fund were negatively impacted by the increase in
intermediate Treasury bond yields, which went from 4.64% to 5.24% since the
beginning of 1999.
Where were the most attractive values for the Fund? In addition, what were some
of the key portfolio holdings? The Fund benefited the most from the corporate
bond allocation of the portfolio. Several of the Fund's corporate holdings that
were held during the period performed substantially better than the overall
market. We purchased 10-year bonds issued by Seagram at a yield which was 2.30%
above the 10-year Treasury bond. This higher-than-normal yield for an investment
grade credit reflected uncertainty over Seagram's direction and its debt levels
after acquiring Polygram Records. Nuveen Research recommended the purchase based
on the company's sound fundamentals and positive outlook. As some of the
questions regarding Seagram's corporate strategy were later resolved favorably,
this spread narrowed to 1.67% above the 10-year Treasury, resulting in price
appreciation for the bonds.
A purchase of three-year bonds of Newcourt Credit Group at a yield of 2.15%
above Treasury bonds also proved successful.
Newcourt, which was rated Baa3/BBB, is now being acquired by the CIT Group,
which is rated Aa3/A+. The merger news contributed to an increase in the price
of Newcourt's bonds based on expectations of upgrades of its credit ratings.
What is your outlook for the Nuveen Income Fund? Overall, we're quite confident
that the Fund will continue to perform competitively over time. Our confidence
stems from Nuveen's sound and thorough investment process. The combination of
our fundamental and quantitative investment techniques provides us with an ideal
model to select securities, especially given the evolution of the fixed-income
market over the last 10 years. This process allows our team of portfolio
managers and research analysts to monitor continually which sectors offer the
best value and the best opportunities for exceptional income and total return.
"By including bonds in their portfolio mix, investors can achieve a comfortable
balance of risk and return."
3
<PAGE>
<TABLE>
<CAPTION>
FUND
Highlights as of March 31, 1999
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $19.58 $19.60 $19.60 $19.60
- ---------------------------------------------------------------------------------
Latest Monthly Dividend (03/01/99) $0.0990 $0.0865 $0.0865 $0.1030
- ---------------------------------------------------------------------------------
Fund Symbol n/a n/a n/a NIFRX
- ---------------------------------------------------------------------------------
CUSIP 67066D101 67066D200 67066D309 67066D408
- ---------------------------------------------------------------------------------
Inception Date 11/98 11/98 11/98 11/98
- ---------------------------------------------------------------------------------
Portfolio Statistics
Fund Net Assets $11.8 million
- ---------------------------------------------------------------------------------
Average Weighted Duration (Bonds) 4.81 years
- ---------------------------------------------------------------------------------
Effective Weighted Maturity 7.90 years
- ---------------------------------------------------------------------------------
Number of Bond Issues 21
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total Return*
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
<S> <C> <C> <C> <C> <C>
Since Inception -0.12% -4.88% -0.27% -0.27% 0.06%
- ---------------------------------------------------------------------------
</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, which is not
reflected in the return figures. 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 which is not reflected in the total return.
Bond Credit Quality**
[PIE CHART APPEARS HERE]
AAA.........35%
AA..........16%
A............8%
BBB.........33%
Other........8%
** as a % of total bond holdings
Portfolio Allocation
[PIE CHART APPEARS HERE]
. Corporate Bonds.............54%
. U.S. Treasury Bonds.........23%
. Mortgage-Backed Securities..14%
. Cash Equivalents.............9%
Top Five Corporate Bond Holdings***
Wal-Mart Stores 7.10%
- -----------------------------------
FMC Corporation Mtn Tranche 4.83%
- -----------------------------------
Noram Energy Corporation 4.79%
- -----------------------------------
Columbia/HCA Corporation 4.56%
- -----------------------------------
AT&T Capital Corporation 3.92%
- -----------------------------------
*** as a % of total bond holdings
Industry
Diversification****
[PIE CHART APPEARS HERE]
. Consumer Cyclical.............24%
. Natural Gas...................15%
. Brokerage.....................13%
. Real Estate Investment Trust..13%
. Chemicals......................8%
. Health Care....................8%
. Consumer Financial.............7%
. Electric Companies.............6%
. Construction/Metals............6%
**** as a % of corporate bond securities
4
<PAGE>
Portfolio of Investments (Unaudited)
Nuveen Income Fund
March 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS - 65.8%
Corporate Bonds - 52.7%
$ 600,000 AES China Generation Limited, Unsecured Notes, 10.125%, 12/01 at 105 1/16 BB- $ 387,000
12/15/06
400,000 AT&T Capital Corporation, Medium Term Notes, 6.875%, 1/16/01 No Opt. Call BBB 407,614
400,000 Cendant Corporation, Notes, 7.500%, 12/01/00 No Opt. Call Baa1 406,724
500,000 Columbia/HCA Healthcare Corporation, Medium Term Notes, 6.630%, 7/15/45 No Opt. Call BB+ 473,866
(Mandatory put on 7/15/02)
400,000 EOP Operating Limited Partnership, 6.800%, 1/15/09 No Opt. Call Baa1 397,053
400,000 Enron Corporation, 6.725%, 11/15/37 No Opt. Call BBB+ 407,120
500,000 FMC Corporation, Medium Term Notes, 7.125%, 11/25/02 No Opt. Call BBB 502,484
400,000 General Motors Acceptance Corporation, 5.750%, 11/10/03 No Opt. Call A 396,788
475,000 Interpool Capital Trust, 9.875%, 2/15/27 No Opt. Call BBB- 385,411
400,000 Merrill Lynch & Co., 6.375%, 10/15/08 No Opt. Call AA- 399,824
500,000 NorAm Energy Corporation, Term Enhanced Remarketable Securities, No Opt. Call Baa1 498,097
6.375%, 11/01/13
400,000 Transamerica Finance Corporation, Subordinated Notes, 6.750%, No Opt. Call A 403,662
6/01/00
400,000 United Dominion Realty Trust, Medium Term Notes, 7.600%, 1/25/02 No Opt. Call BBB 402,267
650,000 Wal-Mart Stores, Collateralized Pass Through Certificates, 8.620%, 1/01/10 No Opt. Call AA 737,818
-----------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities - 13.1%
500,000 Commercial Mortgage Trust, Series 99C1-A3, 6.640%, 9/17/10 No Opt. Call AAA 503,750
528,319 Morgan Stanley Capital I Incorporated, Commercial Mortgage Pass Through No Opt. Call AAA 534,735
Certificates, Series 1998-CF1, 6.330%, 10/15/07
500,000 Morgan Stanley Capital I Incorporated, Commercial Mortgage Pass Through No Opt. Call AA 509,650
Certificates, 1999-RM1, 6.810%, 11/15/08
- -----------------------------------------------------------------------------------------------------------------------------------
Total Corporate Obligations - (cost $7,836,504) 7,753,863
----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 22.5%
U.S. Treasury Bonds:
$ 500,000 12.375%, 5/15/04 No Opt. Call Aaa 656,250
500,000 11.625%, 11/15/04 No Opt. Call AAA 650,625
500,000 9.250%, 2/15/16 No Opt. Call Aaa 679,844
500,000 8.750%, 5/15/17 No Opt. Call Aaa 658,282
- -----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Obligations - (cost $2,752,022) 2,645,001
-----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 8.5%
$1,000,000 550 West 14th Place (Illinois), Series 1994, Variable Rate Taxable Bonds, No Opt. Call A-1+ 1,000,000
5.030%, 2/01/29+
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments - (cost $1,000,000) 1,000,000
-----------------------------------------------------------------------------------------------------------------------
Total Investments - (cost $11,588,526) - 96.8% 11,398,864
-----------------------------------------------------------------------------------------------------------------------
Other Assets less Liabilities - 3.2% 376,371
-----------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $11,775,235
=======================================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices of
the earliest optional call or redemption. There may be other call
provisions at varying prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a short-
term security. The rate disclosed is that currently in effect.
This rate changes periodically based on market conditions or a
specified market index.
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets (Unaudited)
Nuveen Income Fund
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investment securities, at market value (cost $11,588,526) (note 1) $11,398,864
Cash 115,141
Receivables:
Fund manager (note 5) 3,027
Interest 212,987
Shares sold 80,584
Other assets 388
- ------------------------------------------------------------------------------------------------------------------------
Total assets 11,810,991
- ------------------------------------------------------------------------------------------------------------------------
Liabilities
Accrued expenses:
12b-1 distribution and service fees (notes 1 and 5) 1,126
Other 32,408
Dividends payable 2,222
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 35,756
- ------------------------------------------------------------------------------------------------------------------------
Net assets (note 6) $11,775,235
========================================================================================================================
Class A Shares (note 1)
Net assets $ 498,238
Shares outstanding 25,443
Net asset value and redemption price per share $ 19.58
Offering price per share (net asset value per share plus maximum sales charge of 4.75% of offering price) $ 20.56
========================================================================================================================
Class B Shares (note 1)
Net assets $ 1,285,367
Shares outstanding 65,594
Net asset value, offering and redemption price per share $ 19.60
========================================================================================================================
Class C Shares (note 1)
Net assets $ 109,536
Shares outstanding 5,588
Net asset value, offering and redemption price per share $ 19.60
========================================================================================================================
Class R Shares (note 1)
Net assets $ 9,882,094
Shares outstanding 504,178
Net asset value, offering and redemption price per share $ 19.60
========================================================================================================================
</TABLE>
6 See accompanying notes to financial statements.
<PAGE>
Statement of Operations (Unaudited)
Nuveen Income Fund
For the Period November 30, 1998 (commencement of operations) through
March 31, 1999
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Investment Income (note 1) $ 248,923
- -------------------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 5) 21,059
12b-1 service fees - Class A (notes 1 and 5) 106
12b-1 distribution and service fees - Class B (notes 1 and 5) 1,389
12b-1 distribution and service fees - Class C (notes 1 and 5) 201
Shareholders' servicing agent fees and expenses 41
Custodian's fees and expenses 13,127
Trustees' fees and expenses (note 5) 673
Professional fees 3,298
Shareholders' reports - printing and mailing expenses 23,340
Federal and state registration fees 1,540
Other expenses 266
- -------------------------------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 65,040
Expense reimbursement (note 5) (35,265)
- -------------------------------------------------------------------------------------------------------------------------
Net expenses 29,775
- -------------------------------------------------------------------------------------------------------------------------
Net investment income 219,148
- -------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (notes 1 and 4) (21,271)
Net change in unrealized appreciation or depreciation of investments (189,662)
- -------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (210,933)
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 8,215
=========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
Statement of Changes in Net Assets (Unaudited)
Nuveen Income Fund
For the Period November 30, 1998 (commencement of operations) through
March 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Operations
Net investment income $ 219,148
Net realized gain (loss) from investment transactions (notes 1 and 4) (21,271)
Net change in unrealized appreciation or depreciation of investments (189,662)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 8,215
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (2,545)
Class B (6,046)
Class C (973)
Class R (207,256)
- ----------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (216,820)
- ----------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 11,831,564
Net proceeds from shares issued to shareholders due to reinvestment of distributions 52,276
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 11,883,840
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 11,675,235
Net assets at the beginning of period 100,000
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at the end of period $11,775,235
============================================================================================================================
Balance of undistributed net investment income at end of period $ 2,328
============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Notes to Financial Statements (Unaudited)
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 in the Portfolio of Investments
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
March 31, 1999, the Fund had no such outstanding purchase commitments.
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.
9
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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 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 March 31, 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.
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 March 31, 1999, were as follows:
<TABLE>
<CAPTION>
Shares Amount
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold:
Class A 24,187 $ 473,147
Class B 64,324 1,265,184
Class C 4,333 85,884
Class R 500,337 10,007,350
Shares issued to shareholders due to reinvestment of distributions:
Class A 6 124
Class B 20 388
Class C 5 108
Class R 2,591 51,656
- -------------------------------------------------------------------------------------------
Net increase 595,803 $11,883,841
===========================================================================================
</TABLE>
3. Distributions to Shareholders
The Fund declared a dividend distribution from its net investment income which
was paid May 3, 1999, to shareholders of record on April 9, 1999, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Dividend per share:
<S> <C>
Class A $.0990
Class B .0865
Class C .0865
Class R .1030
===========================================================================================
</TABLE>
10
<PAGE>
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 March 31, 1999, were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Purchases:
<S> <C>
Corporate obligations $ 10,569,873
U.S. government obligations 3,457,291
Short-term investments 25,484,073
Sales:
Corporate obligations 2,755,136
U.S. government obligations 660,900
Short-term investments 24,500,000
===============================================================================
</TABLE>
At March 31, 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 aggregated $189,662 of which $28,813 related to
appreciated securities and $218,475 related to depreciated securities.
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 asset value of the Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Asset Value 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,
1999, 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 March
31, 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 $3,500 of which approximately $3,000 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 March
31, 1999, the Distributor compensated authorized dealers directly with
approximately $46,000 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 March 31, 1999, the Distributor retained
$1,600 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 $700 of CDSC on share redemptions during the period November 30,
1998 (commencement of operations) through March 31, 1999.
6. Composition of Net Assets
At March 31, 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 $11,983,840
Balance of undistributed net investment income 2,328
Accumulated net realized gain (loss) from investment transactions (21,271)
Net unrealized appreciation (depreciation) of investments (189,662)
- -------------------------------------------------------------------------------
Net assets $11,775,235
===============================================================================
</TABLE>
11
<PAGE>
Financial Highlights (Unaudited)
Selected data for a share outstanding throughout the period November 30, 1998
(commencement of operations) through March 31, 1999, is as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
---------------------------------- ----------------------------
Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Asset ment Gain ment Capital Asset Total
Value Income (a) (Loss) Total Income Gains Total Value Return (b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (11/98)
1999 $20.00 $.37 $(.39) $(.02) $(.40) $ -- $(.40) $19.58 (.12)%
Class B (11/98)
1999 20.00 .33 (.38) (.05) (.35) -- (.35) 19.60 (.27)
Class C (11/98)
1999 20.00 .34 (.39) (.05) (.35) -- (.35) 19.60 (.27)
Class R (11/98)
1999 20.00 .41 (.40) .01 (.41) -- (.41) 19.60 .06
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------------
Ratio Ratio
of Net of Net
Ratio of Investment Ratio of Investment
Expenses Income Expenses Income to
to Average to Average to Average Average
Ending Net Assets Net Assets Net Assets Net Assets
Net Before Before After After Portfolio
Assets Reimburse- Reimburse- Reimburse- Reimburse- Turnover
(000) ment ment ment (a) ment (a) Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (11/98)
1999 $ 498 1.98%* 5.06%* 1.05%* 5.99%* 36%
Class B (11/98)
1999 1,285 2.74* 4.41* 1.80* 5.35* 36
Class C (11/98)
1999 110 2.79* 4.33* 1.80* 5.32* 36
Class R (11/98)
1999 9,882 1.81* 5.28* .80* 6.29* 36
================================================================================================
</TABLE>
* Annualized.
(a) After waiver of certain management fees or reimbursement of expenses by
Nuveen Institutional Advisory Corp.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
12
<PAGE>
Fund Information
Board of Trustees
James E. Bacon
Jack B. Evans
William T. Kissick
Thomas E. Leafstrand
Robert H. Lyon
Timothy R. Schwertfeger
Sheila Wellington
Fund Manager
Nuveen Institutional Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Transfer Agent and Shareholder Services
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
(800) 257-8787
Legal Counsel
Chapman and Cutler
Chicago, IL
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
13
<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
ESA-IF-3-99
