<PAGE>
NUVEEN
Investments
Nuveen
Income Fund
annual report september 30, 2000
[PHOTOS APPEAR HERE]
INVEST WELL
LOOK AHEAD
LEAVE YOUR MARK/SM/
<PAGE>
Fund Information
Board of Trustees
James E. Bacon
Jack B. Evans
William L. Kissick
Thomas E. Leafstrand
Timothy R. Schwertfeger
Shelia W. Wellington
Fund Manager
Nuveen Investment Management
333 West Wacker Drive
Chicago, IL 60606
Legal Counsel
Chapman and Cutler
Chicago, IL
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
Transfer Agent and Shareholder Services
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(800) 257-8787
Contents
1 Dear Shareholder
3 From the Portfolio Manager's Perspective
6 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
16 Financial Highlights
17 Report of Independent Public Accountants
Must be preceded by or accompanied by a prospectus.
<PAGE>
DEAR
Shareholder,
Harvard University, Tiffany's and Dom Perignon are each the Rolls-Royce of its
market. Each is synonymous with "quality." Each has established, reinforced and
marketed its brand as one that consistently delivers a quality product - be it
education, fine jewelry or champagne. Each has made a promise to its customers,
and each works hard to keep that promise, year after year.
Webster defines quality as the degree of excellence that a thing possesses.
Nuveen Investments defines quality by the excellence of our portfolio management
and products as well as of the financial advisors you, and our firm, work with.
Quality Portfolio Management and Products
Nuveen's income-oriented funds feature portfolio management by 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.
While you may be familiar with our income funds, you may not be aware of the
equity mutual funds we offer investors. Our two newest funds - Nuveen Innovation
and Nuveen International Growth - were launched in December 1999. These funds
are managed by Columbus Circle Investors (CCI), a firm that has been managing
money for more than 25 years and has used a single, disciplined investment
philosophy called "Positive Momentum and Positive Surprise." This philosophy is
based on the premise that:
. Strong companies tend to get stronger. CCI believes a company that
demonstrates positive momentum in its business fundamentals tends to generate
superior returns through rising stock prices. This represents the Positive
Momentum CCI seeks.
. Companies positively surprise when their business fundamentals and reported
results exceed investor and analyst expectations. CCI believes this is often
accompanied by strong, accelerating growth. This represents the Positive
Surprise CCI seeks.
Our Nuveen Rittenhouse Growth Fund is managed by Rittenhouse Financial Services,
Inc. The investment philosophy Rittenhouse established years ago remains firmly
in place today - pursue long-term growth with high-quality, large capitalization
blue chip stocks. This singular focus has translated into consistently strong
risk-adjusted returns and productive, long-lasting relationships.
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
Annual Report Page 1
<PAGE>
Your investment advisor can offer you the professional assistance that will help
bring to life your aspirations - for yourself and your family, today and in the
future.
We also offer several growth and income style funds, all managed by
Institutional Capital Corporation (ICAP). ICAP seeks out stocks it believes have
appreciation potential unrecognized by the general market for Nuveen Growth and
Income Stock Fund, Nuveen European Value Fund, Nuveen Balanced Stock and Bond
Fund and Nuveen Balanced Municipal and Stock Fund.
Quality Financial Advisors
Nuveen Investments works through financial advisors because we believe in
quality advice. Today, you face an unprecedented array of investment choices,
opportunities - and risks. Your investment advisor can offer you the
professional assistance that will help bring to life your aspirations - for
yourself and your family, today and in the future.
This Report
Please review the Fund Spotlight on page six to learn how your fund was
positioned as of its fiscal year ended September 30, 2000. Also, I invite you to
read the following interview with your portfolio manager to learn more about
your fund's performance for the annual period.
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
November 17, 2000
Annual Report Page 2
<PAGE>
NUVEEN INCOME FUND
From the Portfolio Manager's Perspective
--------------------------------------------------------------------------------
The strong economy during the fiscal year in which Nuveen Income Fund operated
resulted in a turnaround year for many bond funds. To help you understand Nuveen
Income Fund's performance during the fiscal year ended September 30, 2000, we
spoke with Rick Huber of Nuveen Investment Management, lead portfolio manager of
the fund.
Q: How has the strong domestic economy helped bond funds?
A: The economy has boosted bond investing in a couple of ways. With tax
revenues at all-time highs, a result of the economy's strength, the United
States Treasury was able to implement a partial debt-reduction program. As
the supply of long-term Treasury bonds declined, prices for these securities
rose relative to other taxable fixed-income securities, including corporate
and mortgage-backed bonds. And because price and yield move in opposite
directions, yields on Treasuries fell as their prices rose.
Those corporate and mortgage-backed bonds became relatively cheap as
corporations, boosted by the strong economy, added to their debt whenever
market conditions appeared conducive to it. As the supply of these bonds
rose, their prices fell and yields increased.
Q: How did you alter the portfolio's makeup to take advantage of this
situation?
A: We reduced the number of long-term Treasuries in the portfolio and moved
that money into corporate bonds and intermediate duration mortgage-backed
securities. These securities have the potential to provide more income to
the portfolio, and should provide greater price protection if Treasury bond
prices start to suffer.
Portfolio Allocation
-----------------------------------------------------------
U.S. Government & Agency Obligations 51%
-----------------------------------------------------------
Corporate Obligations 27%
-----------------------------------------------------------
Commercial Paper 20%
-----------------------------------------------------------
Taxable Municipal Bonds 2%
-----------------------------------------------------------
As a percentage of total holdings as of September 30, 2000.
Holdings are subject to change.
Q: What would have to happen to make Treasury bond prices "start to suffer"?
A: If this "soft landing" that the Federal Reserve has been engineering with
its series of interest rate hikes in 1999 and the first half of 2000 fails,
we would expect to see Treasury prices fall again. The Fed's efforts would
fail if the economy heats up again. We're closely monitoring oil prices and
other economic measurements for indications of the economy revving up.
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 fiscal year ended September 30, 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.
Annual Report page 3
<PAGE>
There is also the concern about the outcome of the November presidential
election and what effect it may have on the Treasury market.
*The Lipper Peer Group returns represent the average annualized total return of
the 295 funds in the Lipper Intermediate Investment Grade Debt Funds category
for the fiscal year ended September 30, 2000. The returns assume reinvestment of
dividends and do not reflect any applicable 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.
There is also the concern about the outcome of the November presidential
election and what effect it may have on the Treasury market.
For the period leading up to the November presidential elections, there was
the nagging question in the bond market as to whether or not the debt
reduction plan will continue under the next President and new Congress. Even
though each major party presidential candidate was proposing a tax intended
to slow debt reduction, the Treasury market appears to be significantly
discounting the degree to which either candidate's program will be
implemented. At the writing of this report, we believe there is some price
risk in long-term Treasuries simply due to political posturing by Congress
and the presidential candidates.
Q. How did the fund perform during the fiscal year?
A. For the one-year period ending September 30, 2000, the fund had a total
return of 4.74%, compared to the Lipper Intermediate Investment Grade Debt
category,* which returned 5.77%. The Lehman Brothers U.S. Aggregate Bond
Index** returned 6.99% for the same period.
Q. To what do you attribute the fund's performance during the period?
A. During the first half of the period, we were caught off guard with the
Treasury announcement and had been following a strategy through 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.
Diversification
----------------------------------------------------------
U.S. Government Agency Mortgage-Backed 31.5%
----------------------------------------------------------
U.S. Treasury Bonds/Notes 24.7%
----------------------------------------------------------
Electric 12.3%
----------------------------------------------------------
U.S. Government Agency 7.8%
----------------------------------------------------------
Commercial Mortgage-Backed 7.6%
----------------------------------------------------------
Capital Goods 3.9%
----------------------------------------------------------
Consumer Staples 2.7%
----------------------------------------------------------
Natural Gas 2.6%
----------------------------------------------------------
Technology 2.5%
----------------------------------------------------------
Transportation 2.3%
----------------------------------------------------------
Real Estate Investment Trust 2.1%
----------------------------------------------------------
As a percentage of total bond holdings as of September 30,
2000. Holdings are subject to change.
In the second half of the year, the reverse happened and the spread between
Treasuries and high quality corporate bonds widened. Treasuries outperformed all
other types of bonds for this period. We had focused on producing a higher
dividend yield and found ourselves underweighted in Treasuries. This had the
effect of hampering the fund's total return performance. However, we were
successful in improving the fund's dividend -- increasing it in February and
again in August. Our focus was and continues to be to provide income to our
clients. We also believe that over longer time periods, our performance will be
more in line with the market.
Annual Report page 4
<PAGE>
Q. What is your outlook for the fund and the fixed-income market as we move
into 2001?
A. The overriding question for bond investors is how much of the increase in
energy costs can corporations pass through to consumers. Recent anecdotal
evidence and our analysis of leading indicators suggest corporations would
have little success in passing on the costs on a sustained basis. Core
inflation has stayed relatively benign and monetary indicators such as the
dollar, gold and the balance between money supply and demand suggest we have
little to worry about in regards to inflation. Barring a full-fledged fuel
crisis, long-term core inflation could remain under wraps, despite the
prospect for some near-term bumps in our soft landing.
We will continue to watch how the economy and bond market react to energy
prices as well as to the election of a new president. (Editor's note: at the
writing of this report, a new president had not been determined.) We will
adjust the portfolio to try to take best advantage of yields to continue to
provide shareholders attractive current income while preserving their
capital.
The overriding question for bond investors is how much of the increase in energy
costs can corporations pass through to consumers.
Annual Report page 5
<PAGE>
NUVEEN INCOME FUND
Fund Spotlight as of September 30, 2000
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $18.66 $18.66 $18.70 $18.66
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Latest Capital Gain $0.00 $0.00 $0.00 $0.00
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CUSIP 67066D101 67066D200 67066D309 67066D408
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Latest Monthly Dividend* $0.1065 $0.0950 $0.0950 $0.1105
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Inception Date 11/98 11/98 11/98 11/98
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</TABLE>
*Paid October 2, 2000
<TABLE>
<CAPTION>
Total Returns+
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C> <C> <C> <C>
NAV Offer w/o CDSC w/ CDSC w/o CDSC w/ CDSC NAV
1 - Year 4.74% -0.25% 3.96% 0.03% 4.13% 4.13% 4.95%
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Since Inception* 2.53% -0.16% 1.76% -0.26% 1.88% 1.88% 2.79%
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6-Month 3.71% -1.23% 3.32% -1.68% 3.49% 2.49% 3.84%
------------------------------------------------------------------------------------------
YTD 4.60% -0.35% 3.96% -1.02% 4.18% 3.18% 4.74%
------------------------------------------------------------------------------------------
</TABLE>
*Annualized
+Returns reflect differences in sales charges and expenses among the share
classes. 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
convert to Class A shares after eight years. Class C shares have a 1% CDSC for
redemptions within one year.
<TABLE>
<CAPTION>
Top 5 Corporate Bond Holdings* Portfolio Statistics
<S> <C> <S> <C>
Monterrey Power S. A. 5.1% Fund Net Assets $18.2 million
------------------------------------------ ------------------------------------------
Interpool Capital Trust 3.9% Number of Bond Issues 27
------------------------------------------ ------------------------------------------
Viacom Inc. 2.7% Average Duration (Bonds) 4.46
------------------------------------------ ------------------------------------------
Nor Am Energy Corporation 2.6% Average Effective Maturity 6.52 years
------------------------------------------ ------------------------------------------
Williams Communications Group Inc. 2.5%
------------------------------------------
</TABLE>
*As a percentage of total bond holdings. Holdings are subject to change.
Index Comparison[ ] Bond Credit Quality**
[Line Graph Appears Here] [Pie Chart Appears Here]
Nuveen Income Fund Lehman Brothers AAA 69.1%
Date NAV Offer U.S Aggregate AA 2.6%
---- ------ ----- --------------- BBB 13.5%
10,000 9,525 10,000 NR 2.7%
12/31/98 10,075 9,596 10,030 Other 12.1%
1/31/99 10,120 9,639 10,101
2/28/99 9,912 9,442 9,924 **As a percentage of total
3/31/99 9,988 9,514 9,979 bond holdings. Holdings are
4/30/99 10,151 9,669 10,011 subject to change.
5/31/99 9,971 9,497 9,923
6/30/99 9,924 9,453 9,891
7/31/99 9,939 9,467 9,849
8/31/99 9,928 9,457 9,844
9/30/99 9,996 9,521 9,958
10/31/99 10,027 9,551 9,995
11/30/99 10,058 9,581 9,994
12/31/99 10,010 9,534 9,946
1/31/00 9,988 9,513 9,913
2/29/00 10,074 9,595 10,033
3/31/00 10,095 9,616 10,165
4/30/00 10,041 9,564 10,136
5/31/00 9,954 9,481 10,131
6/30/00 10,163 9,680 10,341
7/31/00 10,240 9,754 10,436
8/31/00 10,427 9,932 10,587
9/30/00 10,470 9,972 10,654
Nuveen Income Fund (Offer) $9,972
Nuveen Income Fund (NAV) $10,470
Lehman Brothers U.S Aggregate $10,654
[ ] The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares (on offer) of the Nuveen fund, adjusted for the maximum sales
charge (4.75%) and all ongoing fund expenses. It also shows Lehman Brothers U.S.
Aggregate, which do not reflect any initial or ongoing expenses. An index is not
available for direct investment.
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.
Terms To Know
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income investment
portfolio. The longer the duration, the greater a portfolio's sensitivity to
changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by subtracting
the fund's liabilities from its assets and dividing by the number of outstanding
shares.
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.
Annual Report page 6
<PAGE>
Portfolio of Investments
Nuveen Income Fund
September 30, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS - 34.7%
CORPORATE BONDS - 26.7%
Capital Goods - 4.0%
$1,000 Interpool Capital Trust, Unsecured Notes, Series B, 9.875%, 2/15/27 No Opt. Call BBB- $ 740,339
------------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 2.8%
500 Viacom Inc., Senior Notes, 7.700%, 7/30/10 No Opt. Call BBB+ 511,020
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Electric - 10.0%
600 AES China Generating Limited, Unsecured Notes, 10.125%, 12/15/06 12/01 at 105 1/16 BB- 411,000
500 CMS Energy Corporation, Unsecured Senior Notes, 7.500%, 1/15/09 No Opt. Call BB 448,739
1,000 Monterrey Power S.A., Secured Bonds, 9.625%, 11/15/09 No Opt. Call Ba1 967,500
------------------------------------------------------------------------------------------------------------------------------------
Natural Gas - 2.7%
500 NorAm Energy Corporation, Term Enhanced Remarketable Securities,
6.375%, 11/01/13 (Mandatory put 11/01/03) No Opt. Call Baa1 484,092
------------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trust - 2.2%
400 United Dominion Realty Trust, Medium Term Notes, 7.600%, 1/25/02 No Opt. Call BBB 400,460
------------------------------------------------------------------------------------------------------------------------------------
Technology - 2.6%
500 Williams Communications Group Inc., Senior Notes, 10.700%, 10/01/07 No Opt. Call BB- 468,750
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Transportation - 2.4%
500 Windsor Petroleum Transportation Corporation, Unsecured Notes,
7.840%, 1/15/21 No Opt. Call Baa3 429,039
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COMMERCIAL MORTGAGE-BACKED SECURITIES - 8.0%
1,000 Commercial Mortgage Asset Trust, Series 99C1-A3, 6.640%, 9/17/10
(Mandatory put 1/17/08) No Opt. Call AAA 964,472
500 Morgan Stanley Capital I Incorporated, Commercial Mortgage Pass
Through Certificates, Series 1999-RM1, 6.810%, 12/15/31 No Opt. Call AA 484,477
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$ 7,000 Total Corporate Obligations (cost $6,410,004) 6,309,888
============------------------------------------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS - 2.8%
$ 500 County of Cattaraugus, New York, Industrial Development Agency,
Industrial Development Revenue Bonds, Series 1999B, Laidlaw Energy
Inc. Project, 12.500%, 7/01/10 No Opt. Call N/R 509,585
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$ 500 Total Taxable Municipal Bonds (cost $502,804) 509,585
============------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT and AGENCY OBLIGATIONS - 66.8%
U.S. TREASURY BONDS/NOTES - 25.8%
$ 500 7.500%, 11/15/01 No Opt. Call Aaa 506,719
1,000 7.500%, 5/15/02 No Opt. Call AAA 1,022,188
500 5.750%, 11/30/02 No Opt. Call AAA 497,657
500 11.250%, 2/15/15 No Opt. Call AAA 743,125
500 8.875%, 8/15/17 No Opt. Call Aaa 643,281
500 9.125%, 5/15/18 No Opt. Call Aaa 659,531
500 8.125%, 8/15/21 No Opt. Call Aaa 617,188
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U.S. GOVERNMENT AGENCY OBLIGATIONS - 8.2%
Federal Home Loan Mortgage Corporation Bonds:
1,000 6.250%, 7/15/04 No Opt. Call Aaa 991,301
500 6.625%, 9/15/09 No Opt. Call Aaa 494,575
</TABLE>
7
<PAGE>
Portfolio of Investments
Nuveen Income Fund (continued)
September 30, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 32.8%
Federal National Mortgage Association:
$ 1,000 6.500%, 10/01/15 (WI, settling 10/19/00) No Opt. Call Aaa $ 981,250
1,000 7.000%, 10/01/30 (WI, settling 10/16/00) No Opt. Call Aaa 979,375
1,000 8.000%, 10/01/30 (WI, settling 10/16/00) No Opt. Call Aaa 1,013,438
1,000 Federal National Mortgage Association, Series 1993-20, Class GA, No Opt. Call N/R*** 988,775
6.500%, 9/25/19
1,000 Federal Home Loan Mortgage Corporation, 7.500%, 10/01/30 (WI, settling No Opt. Call Aaa 997,813
10/16/00)
983 Government National Mortgage Association, 8.500%, 11/15/29 No Opt. Call Aaa 1,011,546
------------------------------------------------------------------------------------------------------------------------------------
$11,483 Total U.S. Government and Agency Obligations (cost $12,036,223) 12,147,762
============------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER - 25.3%
$ 500 American Home Products, effective yield of 6.641%, 10/06/00 A-1 499,548
500 Barton Capital Corporation, effective yield of 6.644%, 10/05/00 A-1 499,634
500 Constellation Energy Group, effective yield of 6.646%, 10/03/00 A-1 499,819
500 Dow Chemical Company, effective yield of 6.641%, 10/06/00 A-1 499,547
500 ExxonMobil Australia Pty. Ltd., effective yield of 6.641%, 10/06/00 A-1 499,548
500 Florida Power Corporation, effective yield of 6.646%, 10/03/00 A-1 499,819
500 General Electric Capital Corporation, effective yield of 6.647%, 10/04/00 A-1 499,730
500 General Motors Acceptance Corporation, effective yield of 6.644%, 10/02/00 A-1 499,910
100 Grainger (W.W.) Inc., effective yield of 6.646%, 10/03/00 A-1 99,964
500 Hewlett-Packard Company, effective yield of 6.644%, 10/02/00 A-1 499,911
------------------------------------------------------------------------------------------------------------------------------------
$ 4,600 Total Commercial Paper (cost $4,597,430) 4,597,430
============------------------------------------------------------------------------------------------------------------------------
$23,583 Total Investments (cost $23,546,461) - 129.6% 23,564,665
============------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (29.6)% (5,385,978)
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $18,178,687
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent public
accountants): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices at
later dates.
** Ratings (not covered by the report of independent public accountants):
Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
Government or U.S. Government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
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
Nuveen Income Fund
September 30, 2000
<TABLE>
<S> <C>
-------------------------------------------------------------------------------
Assets
Investment securities, at market value (cost $23,546,461) $23,564,665
Receivables:
Fund manager 9,583
Interest 287,901
Shares sold 76,995
Other assets 285
-------------------------------------------------------------------------------
Total assets 23,939,429
-------------------------------------------------------------------------------
Liabilities
Cash overdraft 1,209,870
Payables:
Investments purchased 4,347,619
Shares redeemed 111,649
Accrued expenses:
12b-1 distribution and service fees 5,262
Other 75,895
Dividends payable 10,447
-------------------------------------------------------------------------------
Total liabilities 5,760,742
-------------------------------------------------------------------------------
Net assets $18,178,687
===============================================================================
Class A Shares
Net assets $ 1,714,212
Shares outstanding 91,886
Net asset value and redemption price per share $ 18.66
Offering price per share (net asset value per share
plus maximum sales charge of 4.75% of offering price) $ 19.59
===============================================================================
Class B Shares
Net assets $ 5,942,126
Shares outstanding 318,478
Net asset value, offering and redemption price per share $ 18.66
===============================================================================
Class C Shares
Net assets $ 831,929
Shares outstanding 44,494
Net asset value, offering and redemption price per share $ 18.70
===============================================================================
Class R Shares
Net assets $ 9,690,420
Shares outstanding 519,402
Net asset value, offering and redemption price per share $ 18.66
===============================================================================
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
Statement of Operations
Nuveen Income Fund
Year Ended September 30, 2000
<TABLE>
<S> <C>
-------------------------------------------------------------------------------------
Investment Income $1,324,153
-------------------------------------------------------------------------------------
Expenses
Management fees 102,228
12b-1 service fees - Class A 4,092
12b-1 distribution and service fees - Class B 48,743
12b-1 distribution and service fees - Class C 9,931
Shareholders' servicing agent fees and expenses 6,680
Custodian's fees and expenses 53,517
Trustees' fees and expenses 1,809
Professional fees 32,075
Shareholders' reports - printing and mailing expenses 36,913
Federal and state registration fees 71,121
Other expenses 2,352
-------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 369,461
Custodian fee credit (6,946)
Expense reimbursement (163,447)
-------------------------------------------------------------------------------------
Net expenses 199,068
-------------------------------------------------------------------------------------
Net investment income 1,125,085
-------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (861,449)
Net change in unrealized appreciation or depreciation of investments 508,593
-------------------------------------------------------------------------------------
Net gain (loss) from investments (352,856)
-------------------------------------------------------------------------------------
Net increase in net assets from operations $ 772,229
=====================================================================================
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
Statement of Changes in Net Assets
Nuveen Income Fund
<TABLE>
<CAPTION>
For the Period
11/30/98
(commencement
Year Ended of operations)
9/30/00 through 9/30/99
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 1,125,085 $ 676,191
Net realized gain (loss) from investment transactions (861,449) (161,888)
Net change in unrealized appreciation or depreciation of investments 508,593 (490,388)
-----------------------------------------------------------------------------------------------------
Net increase in net assets from operations 772,229 23,915
-----------------------------------------------------------------------------------------------------
Distributions to Shareholders
From undistributed net investment income:
Class A (106,264) (30,646)
Class B (280,180) (77,598)
Class C (56,050) (20,426)
Class R (647,561) (520,172)
-----------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (1,090,055) (648,842)
-----------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from sale of shares 4,755,961 16,814,394
Net proceeds from shares issued to shareholders due to reinvestment
of distributions 109,496 85,962
-----------------------------------------------------------------------------------------------------
4,865,457 16,900,356
Cost of shares redeemed (2,593,852) (150,521)
-----------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 2,271,605 16,749,835
-----------------------------------------------------------------------------------------------------
Net increase in net assets 1,953,779 16,124,908
Net assets at the beginning of year 16,224,908 100,000
-----------------------------------------------------------------------------------------------------
Net assets at the end of year $18,178,687 $16,224,908
=====================================================================================================
Balance of undistributed net investment income at the end of year $ 62,379 $ 27,349
=====================================================================================================
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Income Fund (the "Fund") is a series of the Nuveen Investment Trust
III (the "Trust") which was organized as a Massachusetts business trust in 1998.
The Trust is an open-end diversified management series investment company
registered under the Investment Company Act of 1940. Prior to commencement of
operations on November 30, 1998, the Trust had no operations other than those
related to organizational matters and the initial capital contribution of
$100,000 by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of The John Nuveen Company, for the issuance of shares on November
20, 1998.
The Fund invests primarily in a diversified portfolio of domestic investment
grade quality bonds of varying maturities as a source of current income and
capital preservation. The Fund may also buy non-investment grade bonds and
dollar denominated bonds of foreign issuers, subject to certain limitations. The
fund may also invest in other securities, such as preferred stock, that have
predominantly fixed-income characteristics. Also, the Fund may invest in cash
equivalents and short-term fixed income investments in order to preserve capital
or to enhance returns or as a temporary defensive measure.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with
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 asked 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 having
remaining maturities of 60 days or less when purchased are valued by amortized
cost.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
September 30, 2000, the Fund had outstanding when-issued purchase commitments of
$3,957,312.
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 accounting principles generally accepted in the United
States. 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 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
12
<PAGE>
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.
Mortgage Dollar Roll Transactions
The Fund is authorized to enter into portfolio lending transactions including
Mortgage Dollar Roll transactions ("Dollar Rolls"). The Fund would enter into
such a transaction to take advantage of imbalances in the supply and demand of
certain securities held in the Fund's portfolio and to enhance investment
earnings and total return. In a Dollar Roll transaction, the Fund sells a
mortgage-backed security to a third party and simultaneously enters into a
commitment to repurchase the same or substantially similar security at a future
date from the same party. The Fund and the counterparty may decide to extend a
Dollar Roll transaction at the end of the original contract. Dollar Rolls are
treated as financing transactions in which the Fund retains ownership of the
securities loaned. Such securities, together with any securities purchased with
the proceeds of the financing, are marked-to-market daily with the corresponding
unrealized gains or losses reflected in Fund operations. Interest earnings on
the original investment loaned are retained by the Fund as well as the interest
earned on the securities purchased with the proceeds of the loan. 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 repurchase commitments.
Although there are economic advantages of entering into a Dollar Roll
transaction, there are also additional risks. The Fund manages the risks
associated with Dollar Roll transactions by entering into contracts only with
firms the Adviser deems to be of good standing.
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 fiscal year ended September 30, 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 certain 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 accounting principles
generally accepted in the United States 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
(commencement of operations)
Year Ended 9/30/00 through 9/30/99
------------------------ ----------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 45,077 $ 834,879 73,650 $ 1,428,296
Class B 173,876 3,253,598 215,822 4,170,484
Class C 18,897 353,581 59,764 1,158,295
Class R 17,096 313,903 502,892 10,057,319
Shares issued to shareholders due
to reinvestment of distributions:
Class A 1,285 23,952 323 6,205
Class B 3,068 57,271 1,175 22,646
Class C 977 18,247 200 3,841
Class R 539 10,026 2,675 53,270
------------------------------------------------------------------------------------------------
260,815 4,865,457 856,501 16,900,356
------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (26,591) (487,412) (3,108) (60,180)
Class B (74,646) (1,381,209) (2,067) (39,437)
Class C (34,229) (636,786) (2,365) (45,366)
Class R (4,761) (88,445) (289) (5,538)
------------------------------------------------------------------------------------------------
(140,227) (2,593,852) (7,829) (150,521)
------------------------------------------------------------------------------------------------
Net increase 120,588 $ 2,271,605 848,672 $16,749,835
================================================================================================
</TABLE>
13
<PAGE>
Notes to Financial Statements (continued)
3. Distributions to Shareholders
The Fund declared a dividend distribution from its net investment income which
was paid November 1, 2000, to shareholders of record on October 9, 2000, as
follows:
<TABLE>
--------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $.1065
Class B .0950
Class C .0950
Class R .1105
================================================================================
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investment securities, U.S.
Government and agency obligations (excluding Dollar Roll transactions) and
short-term investments for the fiscal year ended September 30, 2000, were as
follows:
<TABLE>
--------------------------------------------------------------------------------
<S> <C>
Purchases:
Investment securities $ 5,263,375
U.S. Government and agency obligations 14,647,640
Short-term investments 188,170,663
Sales and maturities:
Investment securities 6,818,690
U.S. Government and agency obligations 11,840,720
Short-term investments 186,047,008
================================================================================
</TABLE>
At September 30, 2000, the identified cost of investments owned for federal
income tax purposes was $24,361,997. Net unrealized depreciation for federal
income tax purposes aggregated $797,332 of which $181,022 related to appreciated
securities and $978,354 related to depreciated securities.
At September 30, 2000, the Fund had unused capital loss carryforwards of
$206,834 available for federal income tax purposes to be applied against future
capital gains, if any. If not applied, $161,888 of the carryforward will expire
in the year 2007 and $44,946 will expire in the year 2008.
5. Management Fee and Other Transactions with Affiliates
Under the Fund's investment management agreement with the Adviser, the Fund pays
an annual management fee, payable monthly, which is based upon the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee
--------------------------------------------------------------------------------
<S> <C>
For the first $125 million .6000 of 1%
For the next $125 million .5875 of 1
For the next $250 million .5750 of 1
For the next $500 million .5625 of 1
For the next $1 billion .5500 of 1
For net assets over $2 billion .5250 of 1
================================================================================
</TABLE>
The Adviser has agreed to waive fees and reimburse expenses through July 31,
2001, 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 fiscal year ended September 30, 2000, Nuveen Investments (the
"Distributor"), a wholly owned subsidiary of The John Nuveen Company, collected
sales charges on purchases of Class A Shares of approximately $2,500 of which
approximately $2,200 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 fiscal year ended September 30, 2000, the Distributor compensated
authorized dealers directly with approximately $95,100 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 12b-1 service and distribution fees collected on Class C Shares
during the first year following a purchase are retained by the Distributor.
During the fiscal year ended September 30, 2000, the Distributor retained
approximately $51,600 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 $16,100 of CDSC on share redemptions during the fiscal
year ended September 30, 2000.
At September 30, 2000, The John Nuveen Company owned 502,024 shares of Class R.
14
<PAGE>
6. Composition of Net Assets
At September 30, 2000, 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 $19,120,473
Balance of undistributed net investment income 62,379
Accumulated net realized gain (loss) from investment transactions (1,022,369)
Net unrealized appreciation of investments 18,204
-------------------------------------------------------------------------------
Net assets $18,178,687
===============================================================================
</TABLE>
15
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
----------------------------------- ------------------------------
Net Realized/
Beginning Net Unrealized Net Ending
Year Ended Net Asset Investment Investment Investment Capital Net Asset Total
September 30, Value Income Gain (Loss) Total Income Gains Total Value Return(a)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (11/98)
2000 $19.00 $1.25 $ (.38) $ .87 $(1.21) $ -- $(1.21) $18.66 4.74%
1999 (e) 20.00 1.02 (1.03) (.01) (.99) -- (.99) 19.00 (.04)
Class B (11/98)
2000 19.00 1.11 (.38) .73 (1.07) -- (1.07) 18.66 3.96
1999 (e) 20.00 .90 (1.03) (.13) (.87) -- (.87) 19.00 (.68)
Class C (11/98)
2000 19.01 1.11 (.35) .76 (1.07) -- (1.07) 18.70 4.13
1999 (e) 20.00 .90 (1.02) (.12) (.87) -- (.87) 19.01 (.62)
Class R (11/98)
2000 19.01 1.30 (.39) .91 (1.26) -- (1.26) 18.66 4.95
1999 (e) 20.00 1.06 (1.02) .04 (1.03) -- (1.03) 19.01 .21
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
----------------------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
----------------------- ----------------------- -----------------------
Ratio Ratio Ratio
of Net of Net of Net
Ending Ratio of Investment Ratio of Investment Ratio of Investment
Net Expenses Income Expenses Income Expenses Income Portfolio
Year Ended Assets to Average to Average to Average to Average to Average to Average Turnover
September 30, (000) Net Assets Net Assets Net Assets Net Assets Net Assets Net Assets Rate(d)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (11/98)
2000 $1,714 2.06% 5.71% 1.09% 6.68% 1.05% 6.72% 112%
1999 (e) 1,370 1.88* 5.60* 1.08* 6.40* 1.05* 6.42* 67
Class B (11/98)
2000 5,942 2.80 4.97 1.84 5.93 1.80 5.97 112
1999 (e) 4,108 2.62* 4.85* 1.83* 5.65* 1.80* 5.67* 67
Class C (11/98)
2000 832 2.78 4.99 1.84 5.93 1.80 5.97 112
1999 (e) 1,119 2.62* 4.87* 1.83* 5.66* 1.80* 5.69* 67
Class R (11/98)
2000 9,690 1.80 5.97 .84 6.93 .80 6.97 112
1999 (e) 9,627 1.71* 5.62* .83* 6.50* .80* 6.53* 67
==========================================================================================================================
</TABLE>
* 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) Excluding Dollar Roll transactions.
(e) For the period November 30, 1998 (commencement of operations) through
September 30, 1999.
16
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Income Fund
We have audited the accompanying statement of net assets, including the
portfolio of investments, of Nuveen Income Fund (one of the portfolios
constituting the Nuveen Investment Trust III (a Massachusetts business trust)),
as of September 30, 2000, and the related statement of operations for the year
then ended, the statements of changes in net assets and the financial highlights
for the periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of September 30, 2000, by correspondence with the custodian and
brokers. As to securities purchased but not received, we requested confirmation
from brokers and, when replies were not received, we carried out alternative
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of the Nuveen
Income Fund as of September 30, 2000, and the results of its operations for the
year then ended, the change in its net assets and its financial highlights for
the periods indicated thereon in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 20, 2000
17
<PAGE>
Serving
Investors
For Generations
--------------------------------------------------------------------------------
[Photo Appears Here]
John Nuveen, Sr.
A 100-Year Tradition of Quality Investments
Since 1898, Nuveen Investments 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 Nuveen Investments
Investments 333 West Wacker Drive
Chicago, Illinois 60606-1286
www.nuveen.com EAN-IF-9-00
