<PAGE>
NUVEEN MUTUAL FUNDS
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SEMIANNUAL REPORT MARCH 31, 2000
Nuveen
Income
Fund
[PHOTO APPEARS HERE]
For investors seeking attractive current income and capital preservation.
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INVEST WELL
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LOOK AHEAD
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LEAVE YOUR MARK
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NUVEEN
Investments
<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 Building a Better Portfolio
17 Fund Information
<PAGE>
DEAR
Shareholder,
[Photo of Timothy R. Schwertfeger appears here]
Timothy R. Schwertfeger
Chairman of the Board
Setting financial goals is an important first step toward building wealth. At
Nuveen Investments, we believe those goals should not be considered ends in
themselves. Rather, you and your financial advisor's focus should be on
realizing your life's dreams -- the things that matter most to you and how you
can make them happen -- or make them better.
Through a well-crafted financial plan, you have the chance to shape future
generations -- to broaden your sphere of influence -- to leave your legacy.
As you develop that plan, you'll want to consider the different ways your
success can benefit others. You may find that you want to create a new set of
goals to achieve this. Working with your financial advisor, you have the ability
to make those dreams a reality -- for yourself and future generations.
A Trusted Resource As you face some of the most important, lasting decisions you
and your family will make, you'll want to draw upon the support, counsel and
objectivity of a trusted advisor. That's because your financial advisor has the
expertise and access to other professionals who can help you make informed
choices -- choices that affect not only your loved ones today, but those your
legacy will touch in the future.
Your financial advisor can provide sound financial insight, an integrated
approach to your investments and can serve as a knowledgeable friend with your
family's best interests at heart.
Family Wealth Management Too often, family wealth management is thought of in
one dimension -- as the stewardship of your household's financial resources. At
Nuveen Investments, we think of family wealth management as the map to help you
reach your financial, and your life's, destinations. It's a multi-faceted
strategy to plan for not just your needs, but the needs of future generations.
We are dedicated to helping you and your financial advisor develop a family
wealth management strategy unique to you and your goals and values.
The Economic Environment You may be reading this report at the suggestion of
your financial advisor. We've prepared the following interview to let you know
what the investment and research management teams have done during your fund's
six month period. Before we get to that, I want to briefly report on the
economic environment in which your Nuveen investment performed.
The end of your fund's six month period, March 31, 2000, marked the 108th
month of continued economic expansion. The only period to rival that length was
the 106-month expansion from February 1961 to December 1969, a period known best
for its military conflicts, domestic unrest and soaring inflation.
That was then; this is now.
We finished 1999 and entered 2000 with near perfection in the economy and
markets, in a textbook sense -- low inflation and unemployment coupled with
strong continued economic growth. Nothing seemed to dampen the markets in 1999
-- but that changed as we entered the new millenium.
SEMIANNUAL REPORT page 1
<PAGE>
Amid the strong economic news, both the Dow Jones Industrials and the tech-
heavy Nasdaq began a roller coaster ride soon after January 1, taking turns
falling sharply, then recovering, only to fall again. The end result left the
Dow down 5% and the Nasdaq up 12.37% from year-end 1999 to March 31, 2000.
Other than the Microsoft antitrust trial, there was a surprising lack of
big news that has historically triggered such market routs (the case resulted in
a ruling by the U.S. Department of Justice that may force the company to split).
The interest rate hikes by Greenspan's Federal Reserve began in 1999 and
continued with two additional increases in 2000, on February 2 and March 21. A
third increase, this one 50 basis points (all others were 25 basis points) came
April 16th. These increases were an accepted fact in the markets; the only
unknown was the magnitude of each increase. That, of course, depended on any
economic information that would indicate where inflation was going, and
essentially there were no definite indications on that front either. Therefore,
every nugget of information (oil prices, earnings reports and the like) sent
investors either jumping on the bandwagon or scampering for the exits. The
effect of all of this may be that investors are much more selective about which
companies they invest in, possibly seeking out those that show the potential for
positive and sustainable earnings growth.
Where did all this leave the fixed income market? Bonds made a bit of a
comeback in the first quarter as many investors fled the stock market for bonds.
An unexpected rally in U.S. Treasuries occurred when the government announced a
historic plan to buy back its bonds (read the interview with Portfolio Manager
Rick Huber for more details) at the end of 1999. The resulting spike in demand
for and prices of Treasury bonds caught many bond market investors off guard.
Longer term, we believe there's still faith in the emerging paradigm,
which holds that improvements in productivity enable us to have economic growth
and low inflation at the same time. The 1960's 106-month expansion that I noted
earlier was fueled by government spending. Today's economy has been fueled by
consumer spending, improved productivity, increased globalization and the growth
of the Internet and other technology-related developments.
What Can You Do? We believe the potential presence of inflation and price swings
in the markets reinforce the importance of working with an advisor, staying
focused on the long term and adhering to your financial plan. With a sound plan
in place, you may be better positioned to weather the markets' ups and downs.
For more information on any Nuveen investment, including a prospectus,
contact your financial advisor. 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.
Thank you for your continued confidence.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
May 17, 2000
SEMIANNUAL REPORT page 2
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NUVEEN INCOME FUND
From the Portfolio Manager's Perspective
Nuveen Income Fund features portfolio management by Nuveen Investment
Management, a team of portfolio managers and research analysts committed to a
disciplined, research-oriented investment strategy. To help you understand the
fund's performance during the six-month period ending March 31, 2000, we spoke
with Rick Huber of Nuveen Institutional Advisory Corp., lead portfolio manager
of the fund.
Q The fund's six month period -- October 1, 1999 through March 31, 2000 -- was
an interesting time for bonds. After sluggish behavior in the bond market
throughout the first part of the period, bonds rallied during the first three
months of 2000. Why did things change from the end of 1999 to the beginning of
2000?
RICK The Federal Reserve (the Fed) began a series of interest rate hikes in
1999 to try to cool off the economy, which predictably caused a slowdown in the
bond markets. It continued the rate hikes by implementing two more in the first
quarter of 2000 alone, but interestingly, the surging economy and scant signs of
inflation sparked a renewed confidence from investors that buoyed the bond
markets. It seemed to indicate a belief on the part of investors that the Fed's
continued interest rate increases may not happen as aggressively as once
thought.
Another major contributor to the unique environment, was an announcement by
the U.S. Treasury in late 1999 that it would begin a buyback of its own bond
issues beginning in 2000. This historical announcement triggered a surge in
demand for Treasury bonds, raising prices and causing a drop in yields.
Q Why was this announcement so significant, and how did it affect the fund?
RICK That announcement represented the first time in 70 years that the
government has repurchased national debt. The record economic growth we've been
experiencing prompted the government to take advantage of the strong tax
receipts to help reduce the national debt. Its plan is to reduce the issuance of
its long-term debt by as much as $30 billion this year. That was a magnitude
that took many by surprise, including us. So dramatic was the 30-year bond's
resulting drop in supply, that it could lose its status as a recognized
benchmark due to its lower liquidity. The 10-year Treasury bond may be the new
benchmark for markets and investors.
Treasuries had underperformed other fixed-income securities through 1999;
then, within about three to four weeks beginning in January, they completely
turned around. Although we were caught off guard and were not able to
participate as much as we would have liked, we were able to sell two bonds from
the portfolio back to the U.S. Treasury at very attractive yields: around 6.90%,
compared to the 5.84% yield as of March 31, 2000.
The Treasury buybacks are expected to continue throughout the next few
months, although we expect there will be far less effect than with the first
announcement with the element of surprise already past.
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within their
specific areas of expertise. Nuveen has chosen them for their rigorously
disciplined investment approaches and their 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 advisor for income investing is Nuveen Investment Management (NIM). NIM
follows a disciplined, research-driven investment approach to uncover income
securities that combine exceptional relative value with above-average return
potential. Drawing on 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 of 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 six months ended March 31, 2000. The views expressed reflect
those of the portfolio management team and are subject to change at any time,
based on market and other conditions.
SEMIANNUAL REPORT page 3
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Portfolio Allocation
U.S. Government & Agencies Obligations 47%
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Corporate Obligations 37%
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Commercial Paper 15%
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Taxable Municipal Bonds 1%
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As a percentage of total holdings as of March 31, 2000. Holdings are subject
to change.
"The Nuveen fund held a higher proportion of corporate obligations than, for
example, the Lehman Brothers Index**, so we were not in an ideal position to
take full advantage of the surprise Treasury announcement."
Q How did the fund perform over the six-month fiscal period ended March 31?
RICK The fund had a total return of 1.00% for the six-month period ended March
31, 2000. For the one-year period, the fund returned 1.08%, and during the
period since its inception in November 1998, it returned 0.72%. By comparison,
the Lipper Intermediate Investment Grade Debt category returned 1.61% for the
six-month period, 0.99% for the one-year, and 0.63% since the fund's inception*.
The Lehman Brothers U.S. Aggregate Bond Index returned 2.08% for the six-month
period, 1.87% for the one-year, and 1.25% since the fund's inception**.
We were caught off guard with the Treasury announcement and had been
following a strategy throughout the period that anticipated a tightening yield
spread between Treasury bonds and corporate bonds. A tightening spread would
have involved lower yields and therefore rising prices on corporate bonds.
However, Treasuries also experienced rising prices and falling yields, so the
gap did not narrow as we had expected.
As a result, the Nuveen fund held a higher proportion of corporate
obligations than, for example, the Lehman Brothers Index (37% for the fund vs.
35% for the index), so we were not in an ideal position to take full advantage
of the surprise Treasury announcement. However, our international holdings
helped enhance returns, since international corporate debt performed well where
domestic corporate debt was lacking.
Domestic corporate bond issuance also slowed down considerably at the end
of 1999, and thus far in 2000 issuance has been lethargic. There were two
reasons for that: one, companies had less need for cash in the strong economy;
two, it was not cost-effective for companies to issue debt in the rising rate
environment, particularly when they could issue stock in the booming equity
market.
Q You mentioned international corporate holdings. Can you give us some
examples?
RICK We hold international debt in the form of what are called Yankee corporate
bonds. Yankee corporates are actually the debt of foreign companies denominated
in U.S. dollars. They generally represent the debt of state-supported utilities
that are the dominant or only utility in a country or region.
Yankee corporates from third world utilities in particular can be
attractive because, although these countries tend to have more volatile
governments, the debt is dependent upon cash flows rather than the political
environment. We believe people will always demand oil and electricity,
regardless of what is happening politically.
Some examples of Yankee corporate holdings that performed well over the
period were issues from Petreleos de Venezuela, an oil company; Windsor
Petroleum, a transportation agency; and AES China Generation Limited, an issue
of a power plant in China in which AES, a U.S. company, has a large stake.
* The Lipper Peer Group returns represent the average annualized total return
of the 297 funds in the Lipper Intermediate Investment Grade Debt Funds
category for the six-month period ended March 31, 2000, 284 funds for the
one-year period, and 268 funds for the period since the Nuveen Income
Fund's inception on 11/30/98. The returns assume reinvestment of dividends
and do not reflect any a pplicable sales charges.
** The Lehman Brothers U.S. 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.
SEMIANNUAL REPORT page 4
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Q Did the fund invest in any government securities of foreign countries?
RICK Not in this period, although the fund may do so. Foreign government
securities are very useful to observe as a benchmark to gauge our international
options, but during the period we felt that liquidity was generally better with
U.S. government securities.
Diversification*
U.S. Government Agencies Mortgage-Backed 27.8%
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U.S. Treasury Bonds/Notes 14.4%
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U.S. Government Agencies 13.4%
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Electric 8.8%
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Commercial Mortgage-Backed 8.0%
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Real Estate Investment Trust 4.3%
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Retail 3.9%
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Transportation 3.8%
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Communications 2.8%
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Chemicals 2.7%
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Energy 2.7%
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Healthcare 2.7%
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Natural Gas 2.7%
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Capital Goods 2.0%
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*As a percentage of total bond holdings as of March 31, 2000. Holdings are
subject to change.
Q During the period, we experienced a phenomenon known as the inverted yield
curve. Can you explain what this means to investors?
RICK An inverted yield curve simply means that interest rates paid on long-term
securities (generally 10 years or more) may be lower than rates paid on
intermediate-term (one to 10 years) or even short-term (less than one year)
securities. Investors ideally would want to be compensated in the form of higher
yields for having their investment tied up for a long period of time, so an
inverted yield curve means longer-term securities may be less attractive.
During the fund's fiscal period, for example, intermediate rates did not
fall as much as yields on the longer end, so intermediate bonds were generally
more attractive. We keep the current yield curve and our expectations for future
rates constantly in mind when managing the portfolio.
Q You increased the fund's holdings in Fannie Mae and Freddie Mac, the two U.S.
mortgage agencies, over the period. Why were these attractive?
RICK These agency mortgage securities were attractive because they were less
sensitive to increases in interest rates than were long-term Treasury bonds.
Agency mortgages (as opposed to "pass-throughs," which are straight mortgages)
are mortgages that are bought by and are obligations of the U.S. government. We
increased our holdings in these agency securities as we redeployed the proceeds
from the sale of the fund's Treasury bonds.
Q What is your outlook for the fund and the fixed-income market?
RICK The Fed has indicated it will continue to raise interest rates, regardless
of market activity, until the economy finally begins to cool off. Until the
rate increases start to "catch" in the markets, we expect the inverted yield
curve to continue. We plan to maintain our focus on intermediate-term
investments, at least throughout the next few months, for this reason.
We expect to reduce corporate exposure, but only slightly. Our long-term
view is that spreads will tighten again, bringing corporate bonds back into
favor.
SEMIANNUAL REPORT page 5
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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.
Fannie Mae Federal National Mortgage Association. A privately owned
corporation that provides a secondary market for federally guaranteed or insured
mortgages as well as conventional mortgages. Its stock trades on the NYSE and
issues a number of different mortgage-backed securities.
Federal Funds Rates The interest rate charged by banks that lend to other
banks needing overnight loans; this figure is the most sensitive indicator of
the direction of interest rates.
Freddie Mac Federal Home Loan Mortgage Corporation. Provides a secondary
market for conventional residential mortgages. It issues a number of mortgage-
backed securities.
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.
Total Return Total Return is a measure of a fund's performance that takes into
account income dividends, capital gains distribution and change in net asset
value.
NUVEEN INCOME FUND
Fund Spotlight as of March 31, 2000
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
Inception Date 11/98 11/98 11/98 11/98
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Net Asset Value (NAV) $18.59 $18.59 $18.60 $18.59
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Latest Monthly Dividend* $0.1005 $0.0890 $0.0890 $0.1045
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Latest Capital Gain 0 0 0 0
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Fund Symbol N/A N/A N/A NIFRX
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CUSIP 67066D101 67066D200 67066D309 67066D408
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</TABLE>
*Paid April 3, 2000
<TABLE>
<CAPTION>
Total Returns/1/
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC w/CDSC w/o CDSC w/CDSC NAV
<S> <C> <C> <C> <C> <C> <C> <C>
6-Month 1.00% -3.81% 0.62% -4.27% 0.62% -0.36% 1.07%
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Year-to-date 0.86% -3.91% 0.62% -4.34% 0.67% -0.32% 0.87%
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One-Year 1.08% -3.74% 0.21% -3.58% 0.26% 0.26% 1.23%
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Since Inception* 0.72% -2.90% -0.04% -2.85% -0.01% -0.01% 0.97%
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</TABLE>
*Annualized
/1/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, which is not reflected
in the one-year and since inception total returns.
Top Five Corporate Bond Holdings*
Wal-Mart Stores 3.9%
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Vodafone Airtouch plc 2.8%
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FMC Corporation 2.7%
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PDVSA Finance Limited 2.7%
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Columbia/HCA Healthcare Corporation 2.7%
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Portfolio Statistics
Fund Net Assets $17.2 million
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Number of
Bond Issues 34
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Average Duration
(Bonds) 4.21
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Average Effective
Maturity (Bonds) 7.37 years
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*As a percentage of total bond holdings.
Bond Credit Quality**
[PIE CHART APPEARS HERE]
AAA 66.4%
AA 5.6%
A 4.8%
BBB 13.3%
Other 9.9%
**As a percentage of total bond holdings as of March 31, 2000. Holdings are
subject to change.
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.
SEMIANNUAL REPORT page 6
<PAGE>
Portfolio of Investments (Unaudited)
Nuveen Income Fund
March 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
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<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 44.4%
CORPORATE BONDS -- 36.2%
Capital Goods -- 2.1%
$ 475 Interpool Capital Trust, 9.875%, 2/15/27 No Opt. Call BBB- $ 356,404
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Chemicals -- 2.8%
500 FMC Corporation, Medium Term Notes, 7.125%, 11/25/02 No Opt. Call BBB 486,739
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Communications -- 2.9%
500 Vodafone AirTouch Public Limited Company, Notes, 7.750%, 2/15/10 No Opt. Call A 503,956
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Electric -- 7.6%
600 AES China Generation Limited, Unsecured Notes, 10.125%, 12/15/06 12/01 at 105 1/16 BB- 405,000
500 CMS Energy Corporation, Senior Note Unsecured, 7.500%, 1/15/09 No Opt. Call BB 438,152
500 Monterrey Powers S.A., Secured Bond, 9.625%, 11/15/09 No Opt. Call Ba1 470,000
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Energy -- 2.8%
500 PDVSA Finance Limited, Note, 9.375%, 11/15/07 No Opt. Call A3 486,549
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Healthcare -- 2.8%
500 Columbia/HCA Healthcare Corporation, Medium Term Notes,
6.630%, 7/15/45 (Mandatory put 7/15/02) No Opt. Call BB+ 475,429
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Natural Gas -- 2.8%
500 NorAm Energy Corporation, Term Enhanced Remarketable Securities,
6.375%, 11/01/13 (Mandatory put 11/01/03) No Opt. Call Baa1 474,284
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Real Estate Investment Trust -- 4.4%
400 EOP Operating Limited Partnership, 6.800%, 1/15/09 No Opt. Call Baa1 364,362
400 United Dominion Realty Trust, Medium Term Note, 7.600%, 1/25/02 No Opt. Call BBB 391,244
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Retail -- 4.0%
650 Wal-Mart Stores, Collateralized Pass Through Certificates,
8.620%, 1/01/10 No Opt. Call AA 690,375
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Transportation -- 4.0%
500 Laidlaw Inc., Debenture, 7.650%, 5/15/06 No Opt. Call BBB 267,500
500 Windsor Petroleum Transportation Corporation, Unsecured Note,
7.840%, 1/15/21 No Opt. Call Baa3 412,500
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COMMERCIAL MORTGAGE-BACKED SECURITIES -- 8.2%
500 Commercial Mortgage Trust Series 99C1-A3,
6.640%, 9/17/10 (Mandatory put 1/17/08) No Opt. Call AAA 468,294
490 Morgan Stanley Capital I Incorporated, Commercial Mortgage Pass
Through Certificates, Series 1998-CF1, Class A, 6.330%, 10/15/07 No Opt. Call AAA 470,793
500 Morgan Stanley Capital I Incorporated, Commercial Mortgage Pass
Through Certificates, Series 1999-RM1, Class B, 6.810%, 11/15/08 No Opt. Call AA 473,703
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$ 8,515 Total Corporate Obligations (cost $8,219,033) 7,635,284
===================-----------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Portfolio of Investments (Unaudited)
Nuveen Income Fund (continued)
March 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAXABLE MUNICIPAL BONDS -- 1.5%
$ 250 County of Cattaraugus, New York, Industrial Development Agency,
Tax-Exempt Industrial Development Revenue Bonds, Series 1999A
(Laidlaw Energy & Environmental, Inc. Project), 12.500%, 7/01/10 No Opt. Call N/R $ 252,190
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$ 250 Total Taxable Municipal Bonds (cost $250,000) 252,190
==============-----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT and AGENCY OBLIGATIONS -- 57.4%
U.S. TREASURY BONDS/NOTES -- 14.8%
$ 500 5.750%, 11/30/02 No Opt. Call AAA 490,937
500 12.375%, 5/15/04 No Opt. Call Aaa 606,562
500 11.250%, 2/15/15 No Opt. Call AAA 739,373
500 10.625%, 8/15/15 No Opt. Call AAA 714,061
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U.S. GOVERNMENT AGENCY OBLIGATIONS -- 13.9%
500 Federal Home Loan Mortgage Association Debentures, 5.000%, 1/15/04 No Opt. Call AAA 465,874
500 Federal Home Loan Mortgage Corporation Bonds, 6.625%, 9/15/09 No Opt. Call Aaa 481,670
Federal National Mortgage Association, Benchmark Notes:
500 5.125%, 2/13/04 No Opt. Call AAA 467,344
500 6.500%, 8/15/04 No Opt. Call AAA 489,320
500 6.375%, 6/15/09 No Opt. Call Aaa 472,394
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U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 28.7%
500 Federal Home Loan Mortgage Corporation, 7.000%, 4/01/30 (WI) No Opt. Call Aaa 480,469
1,000 Federal Home Loan Mortgage Corporation, 7.500%, 4/01/30 (WI) No Opt. Call Aaa 982,500
Federal National Mortgage Association:
1,000 7.500%, 4/01/15 (WI) No Opt. Call Aaa 982,500
500 6.500%, 4/01/30 (WI) No Opt. Call Aaa 468,594
500 7.500%, 4/01/30 (WI) No Opt. Call Aaa 491,250
500 8.000%, 4/01/30 (WI) No Opt. Call Aaa 500,938
1,000 Government National Mortgage Association, 8.000%, 4/01/30 (WI) No Opt. Call Aaa 1,010,625
-------------------------------------------------------------------------------------------------------------------------------
$ 9,500 Total U.S. Government and Agency Obligations (cost $9,891,544) 9,844,411
==============-----------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 17.4%
$ 1,000 Exxon Project Investment Corporation, 0.000%, 4/06/00 A-1 999,193
1,000 Falcon Asset Securitization Corporation, 0.000%, 4/06/00 A-1 999,160
1,000 Ford Motor Credit Corporation, 0.000%, 4/06/00 A-1 999,164
-------------------------------------------------------------------------------------------------------------------------------
$ 3,000 Total Commercial Paper -- (cost $2,997,517) 2,997,517
==============-----------------------------------------------------------------------------------------------------------------
$ 21,265 Total Investments -- (cost $21,358,094) -- 120.7% 20,729,402
==============-----------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- (20.7)% (3,551,071)
------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $17,178,331
=================================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
N/R Investment is not rated.
(WI) Security purchased on a when-issued basis.
See accompanying notes to financial statements.
8
<PAGE>
Statement of Net Assets (Unaudited)
Nuveen Income Fund
March 31, 2000
--------------------------------------------------------------------------------
Assets
Investment securities, at market value (cost $21,358,094) $20,729,402
Cash 864,135
Receivables:
Fund manager 4,233
Interest 247,492
Investments sold 969,618
Shares sold 28,000
Other assets 1,362
--------------------------------------------------------------------------------
Total assets 22,844,242
--------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased 5,400,651
Shares redeemed 120,278
Accrued expenses:
12b-1 distribution and service fees 5,576
Other 45,922
Dividends payable 93,484
--------------------------------------------------------------------------------
Total liabilities 5,665,911
--------------------------------------------------------------------------------
Net assets $17,178,331
================================================================================
Class A Shares
Net assets $ 1,725,945
Shares outstanding 92,845
Net asset value and redemption price per share $ 18.59
Offering price per share (net asset value per share plus
maximum sales charge of 4.75% of offering price) $ 19.52
================================================================================
Class B Shares
Net assets $ 4,991,228
Shares outstanding 268,448
Net asset value, offering and redemption price per share $ 18.59
================================================================================
Class C Shares
Net assets $ 976,542
Shares outstanding 52,506
Net asset value, offering and redemption price per share $ 18.60
================================================================================
Class R Shares
Net assets $ 9,484,616
Shares outstanding 510,156
Net asset value, offering and redemption price per share $ 18.59
================================================================================
See accompanying notes to financial statements.
9
<PAGE>
Statement of Operations (Unaudited)
Nuveen Income Fund
Six Months Ended March 31, 2000
--------------------------------------------------------------------------------
Investment Income $ 663,302
--------------------------------------------------------------------------------
Expenses
Management fees 51,200
12b-1 service fees -- Class A 1,973
12b-1 distribution and service fees -- Class B 24,101
12b-1 distribution and service fees -- Class C 5,605
Shareholders' servicing agent fees and expenses 3,289
Custodian's fees and expenses 21,480
Trustees' fees and expenses 105
Professional fees 20,216
Shareholders' reports -- printing and mailing expenses 9,674
Federal and state registration fees 35,981
Other expenses 736
--------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 174,360
Custodian fee credit (3,975)
Expense reimbursement (70,439)
--------------------------------------------------------------------------------
Net expenses 99,946
--------------------------------------------------------------------------------
Net investment income 563,356
--------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (271,193)
Net change in unrealized appreciation or depreciation of investments (138,304)
--------------------------------------------------------------------------------
Net gain (loss) from investments (409,497)
--------------------------------------------------------------------------------
Net increase in net assets from operations $ 153,859
================================================================================
See accompanying notes to financial statements.
10
<PAGE>
Statement of Changes in Net Assets (Unaudited)
Nuveen Income Fund
<TABLE>
<CAPTION>
For the Period
11/30/98
(commencement
Six Months of operations)
Ended through
3/31/00 9/30/99
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 563,356 $ 676,191
Net realized gain (loss) from investment transactions (271,193) (161,888)
Net change in unrealized appreciation or depreciation of investments (138,304) (490,388)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 153,859 23,915
-----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From undistributed net investment income:
Class A (49,679) (30,646)
Class B (135,665) (77,598)
Class C (31,371) (20,426)
Class R (317,453) (520,172)
-----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (534,168) (648,842)
-----------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from sale of shares 2,440,846 16,814,394
Net proceeds from shares issued to shareholders due to reinvestment of distributions 56,798 85,962
------------------------------------------------------------------------------------------------------------------------------------
2,497,644 16,900,356
Cost of shares redeemed (1,163,912) (150,521)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 1,333,732 16,749,835
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 953,423 16,124,908
Net assets at the beginning of period 16,224,908 100,000
------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of period $17,178,331 $16,224,908
====================================================================================================================================
Balance of undistributed net investment income at the end of period $ 56,537 $ 27,349
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
11
<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
accounting principles generally accepted in the United States.
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
March 31, 2000, the Fund had outstanding when-issued purchase commitments of
$5,400,651.
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 up on 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 six months ended March 31, 2000.
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 were as follows:
<TABLE>
<CAPTION>
For the Period 11/30/98
Six Months Ended (commencement of operations)
3/31/00 through 9/30/99
---------------------- -------------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 21,582 $ 404,347 73,650 $ 1,428,296
Class B 84,890 1,604,690 215,822 4,170,484
Class C 17,399 325,771 59,764 1,158,295
Class R 5,626 106,038 502,892 10,057,319
Shares issued to shareholders due to reinvestment of distributions:
Class A 612 11,506 323 6,205
Class B 1,709 32,152 1,175 22,646
Class C 530 9,983 200 3,841
Class R 168 3,157 2,675 53,270
-----------------------------------------------------------------------------------------------------------------------------------
132,516 2,497,644 856,501 16,900,356
-----------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,464) (27,363) (3,108) (60,180)
Class B (34,331) (643,044) (2,067) (39,437)
Class C (24,272) (452,843) (2,365) (45,366)
Class R (2,166) (40,662) (289) (5,538)
-----------------------------------------------------------------------------------------------------------------------------------
(62,233) (1,163,912) (7,829) (150,521)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase 70,283 $ 1,333,732 848,672 $16,749,835
===================================================================================================================================
</TABLE>
3. Distributions to Shareholders
The Fund declared a dividend distribution from its net investment income which
was paid May 1, 2000, to shareholders of record on April 7, 2000, as follows:
-------------------------------------------------------------------------------
Dividend per share:
Class A $ .1005
Class B .0890
Class C .0890
Class R .1045
===============================================================================
13
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
4. Securities Transactions
Purchases and sales (including maturities) of investment securities, U.S.
Government and agency obligations and short-term investments for the six months
ended March 31, 2000, were as follows:
---------------------------------------------------------------
Purchases:
Investment securities $ 1,707,919
U.S. Government and agency obligations 24,489,409
Short-term investments 74,019,164
Sales and maturities:
Investment securities 2,779,539
U.S. Government and agency obligations 20,405,585
Short-term investments 73,347,008
===============================================================
At March 31, 2000, the identified cost of investments owned for federal income
tax purposes was $21,358,094. Net unrealized depreciation for federal income
tax purposes aggregated $628,692 of which $81,927 related to appreciated
securities and $710,619 related to de preciated securities.
At September 30, 1999, the Fund's last fiscal year end, 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:
Average Daily Net Assets Management Fee
--------------------------------------------------------------------------------
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
================================================================================
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 six months ended March 31, 2000, 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 $1,100 of which
approximately $900 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 six months ended March 31, 2000, the Distributor compensated
authorized dealers directly with approximately $39,100 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 collected on Class B
Shares, and all 12 b-1 service and distribution fees collected on Class C Shares
during the first year following a purchase are retained by the Distributor.
During the six months ended March 31, 2000, the Distributor retained
approximately $28,200 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 $10,800 of CDSC on share redemptions during the six
months ended March 31, 2000.
6. Composition of Net Assets
At March 31, 2000, the Fund had an unlimited number of $.01 par value per share
common stock authorized. Net assets consisted of:
--------------------------------------------------------------------------------
Capital paid-in $ 18,183,567
Balance of undistributed net investment income 56,537
Accumulated net realized gain (loss) from investment transactions (433,081)
Net unrealized appreciation (depreciation) of investments (628,692)
--------------------------------------------------------------------------------
Net assets $ 17,178,331
================================================================================
14
<PAGE>
Financial Highlights (Unaudited)
Selected data for a share outstanding throughout each period:
Class (Inception Date)
<TABLE>
<CAPTION>
Investment Operations Less Distributions
----------------------------- -------------------------
Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
September 30, Value Income (Loss) Total Income Gains Total Value Return(a)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (11/98)
2000 (e) $19.00 $ .63 $ (.44) $ .19 $ (.60) $ -- $ (.60) $18.59 1.00%
1999 (d) 20.00 1.02 (1.03) (.01) (.99) -- (.99) 19.00 (.04)
Class B (11/98)
2000 (e) 19.00 .56 (.44) .12 (.53) -- (.53) 18.59 .62
1999 (d) 20.00 .90 (1.03) (.13) (.87) -- (.87) 19.00 (.68)
Class C (11/98)
2000 (e) 19.01 .56 (.44) .12 (.53) -- (.53) 18.60 .62
1999 (d) 20.00 .90 (1.02) (.12) (.87) -- (.87) 19.01 (.62)
Class R (11/98)
2000 (e) 19.01 .65 (.45) .20 (.62) -- (.62) 18.59 1.07
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 (b) Reimbursement (c)
---------------------- ------------------- --------------------
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)
2000 (e) $1,726 1.92%* 5.83%* 1.09%* 6.65%* 1.05%* 6.70%* 144%
1999 (d) 1,370 1.89* 5.59* 1.09* 6.39* 1.05* 6.42* 76
Class B (11/98)
2000 (e) 4,991 2.67* 5.09* 1.84* 5.91* 1.80* 5.96* 144
1999 (d) 4,108 2.63* 4.84* 1.83* 5.64* 1.80* 5.67* 76
Class C (11/98)
2000 (e) 977 2.66* 5.09* 1.84* 5.91* 1.80* 5.96* 144
1999 (d) 1,119 2.63* 4.85* 1.83* 5.65* 1.80* 5.69* 76
Class R (11/98)
2000 (e) 9,485 1.67* 6.09* .84* 6.91* .80* 6.95* 144
1999 (d) 9,627 1.72* 5.60* .83* 6.49* .80* 6.53* 76
===================================================================================================================
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) For the period November 30, 1998 (commencement of operations) through September 30, 1999.
(e) For the six months ended March 31, 2000.
</TABLE>
15
<PAGE>
Building a Better Portfolio
Can Make You a Successful Investor
Nuveen Family
of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth
International Growth Fund
Innovation Fund
Nuveen Rittenhouse Growth Fund
Growth and
Income
European Value Fund
Growth and
Income Stock Fund
Balanced Stock
and Bond Fund
Balanced Municipal
and Stock Fund
Dividend and
Growth Fund
Income
Income Fund
Floating Rate Fund(1)
Tax-Free Income
National Funds
High Yield
Long-Term
Insured Long Term
Intermediate-Term
Limited-Term
State Funds
Arizona
California(2)
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts(2)
Michigan
Missouri
New Jersey
New Mexico
New York(2)
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
Successful investors know that a well-diversified portfolio - one that balances
different types of investments, levels of risk and tax management - can be the
foundation for building and sustaining wealth. That's why Nuveen offers you and
your financial advisor a wide range of quality investments that can help you
build a better portfolio in the pursuit of your financial goals.
Mutual Funds
Nuveen offers a family of equity, balanced and municipal bond funds featuring
experienced investment managers including Institutional Capital Corporation,
Rittenhouse Financial Services, and Nuveen Advisory Corp. Each brings a
specialized expertise in a particular investment style or asset class, time-
tested investment strategies and a focus on consistent, long-term performance.
Nuveen's managers give you all the advantages of a family of funds plus the
benefits of specialized investment expertise.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more to invest. A range of actively managed growth, balanced and municipal
income-oriented portfolios are available, all based upon a disciplined
investment philosophy.
Defined Portfolios
Nuveen Defined Portfolios are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, while also offering
experienced, professional security selection and surveillance. In addition,
Nuveen Defined Portfolios provide daily liquidity at that day's net asset value
for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
quality municipal bonds. The fund shares are listed and traded on the New York
and American stock exchanges. Exchange-traded funds provide the investment
convenience, price visibility and liquidity of common stocks.
MuniPreferred(RM)
Nuveen MuniPreferred offers investors a AAA rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
1. This is a continuously-offered closed-end interval fund. As such,
redemptions are only available during quarterly repurchase periods. See
fund prospectus for additional information.
2. Long-term and insured long-term portfolios.
-----------
16
<PAGE>
Fund Information
Board of Trustees
James E. Bacon
Jack B. Evans
William L. Kissick
Thomas E. Leafstrand
Timothy R. Schwertfeger
Sheila W. Wellington
Fund Manager
Nuveen Institutional Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Transfer Agent and
Shareholder Services
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(800) 257-8787
Legal Counsel
Chapman and Cutler
Chicago, IL
Independent Public
Accountants
Arthur Andersen LLP
Chicago, IL
17
<PAGE>
Serving
Investors
For Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr
A 100-Year Tradition of Quality Investments
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.
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. We can help
you build a better, well-diversified portfolio.
Call Your Financial Advisor Today
To find out how Nuveen Mutual Funds might round out your investment portfolio,
contact your financial advisor today. Or call Nuveen at (800) 257-8787 for more
information. Ask your advisor or call for a prospectus, which details risks,
fees and expenses. Please read the prospectus carefully before you invest.
NUVEEN
Investments
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606-1286
www.nuveen.com
