UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21407
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Nuveen Diversified Dividend and Income Fund
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2004
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT December 31, 2004
Nuveen Investments
Closed-End
Exchange-Traded
Funds
Nuveen
Diversified
Dividend and
Income Fund
JDD
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HIGH CURRENT INCOME AND TOTAL RETURN FROM A PORTFOLIO OF DIVIDEND-PAYING COMMON
STOCKS, REIT STOCKS, EMERGING MARKETS SOVEREIGN DEBT, AND SENIOR LOANS
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Timothy R. Schwertfeger
Chairman of the Board
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Chairman's
LETTER TO SHAREHOLDERS
I am very pleased to report that over the year ended December 31, 2004, your
Fund continued to provide you with attractive monthly distributions and
diversified exposure to a variety of important market sectors and asset classes.
Portfolio diversification is a recognized way to reduce some of the risk that
comes with investing. Since one part of your portfolio may be going up when
another is going down, portfolio diversification may help smooth your investment
returns over time. Your Fund, with its holdings of dividend-paying stocks, REIT
stocks, emerging markets sovereign debt and senior corporate loans, is
specifically designed to help
"YOUR FUND, WITH ITS HOLDINGS OF DIVIDEND-PAYING STOCKS, REIT STOCKS, EMERGING
MARKETS SOVEREIGN DEBT AND SENIOR CORPORATE LOANS, IS SPECIFICALLY DESIGNED TO
HELP YOU ACHIEVE GREATER PORTFOLIO DIVERSIFICATION."
you achieve greater portfolio diversification. Your financial advisor can
explain the potential advantages of portfolio diversification in more detail. I
urge you to contact him or her soon for more information on this important
investment strategy.
I also urge you to consider receiving future Fund reports and other Fund
information faster by using e-mail and the Internet. Sign up is quick and easy -
see the inside front cover of this report for instructions.
For more than 100 years, Nuveen has specialized in offering quality investments
such as your Fund to those seeking to accumulate and preserve wealth. Our
mission continues to be to assist you and your financial advisor by offering the
investment solutions and services that can help you secure your long-term
financial goals. We thank you for choosing us as a partner as you work toward
that objective.
Sincerely,
/s/Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2005
Nuveen Diversified Dividend and Income Fund
(JDD)
Portfolio Managers'
PERSPECTIVE
The Nuveen Diversified Dividend and Income Fund features portfolio management by
teams at four subadvisers:
NWQ Investment Management Company, LLC, an affiliate of Nuveen Investments,
invests its portion of the Fund's assets in dividend-paying common stocks. Jon
Bosse, Chief Investment Officer of NWQ, leads the Fund's management team at that
firm. He has more than 18 years of investment management experience.
Security Capital Research & Management Incorporated, a part of JPMorgan Fleming
Asset Management, which is the asset management business of JPMorgan Chase &
Co., invests its portion of the Fund's assets in REIT common stocks. Tony Manno
and Ken Statz, who each have more than 21 years' experience in managing real
estate investments, lead the team.
Wellington Management Company, LLP invests its portion of the Fund's assets in
emerging markets sovereign debt. James W. Valone, who has more than 10 years of
investment management experience, heads the team.
Symphony Asset Management LLC, an affiliate of Nuveen Investments, invests its
portion of the Fund's assets in senior loans. The Symphony team is led by
Gunther Stein and Lenny Mason, who have more than 25 years of combined
investment management experience.
Here representatives from NWQ, Security Capital, Wellington Management and
Symphony talk about general economic conditions, their management strategies and
the performance of the Fund for the 12-month period ended December 31, 2004.
WHAT WERE THE GENERAL MARKET CONDITIONS OVER THE 12-MONTH PERIOD ENDED DECEMBER
31, 2004?
Generally, the U.S. economy presented a slowly improving picture in 2004. The
Gross Domestic Product (GDP) grew at a preliminary estimate of 4.4% over the
course of the year. Inflation remained largely in check as the Consumer Price
Index rose 3.3% due primarily to increased energy costs. Corporate profits grew
by an average of about 20%, and there was an increase of approximately 2 million
jobs with the unemployment rate dropping to 5.4% at the end of 2004 from 5.7% at
the beginning of the year. The fourth quarter stock market rally seemed to
reflect a belief by some that the economic recovery had become more
self-sustaining.
In the domestic equity markets, almost all equity indices posted strong,
double-digit returns in 2004, confounding many market observers. While many were
expecting issues such as a weak U.S. dollar, significant increases in almost all
commodity prices, and large
4
trade and budget deficits to hurt equity returns, the market did not seem to be
significantly affected by these factors. During the spring and summer of 2004,
the U.S. stock market was stuck in a very tight trading range as investors
worried about the likely outcome of U.S. elections, the risk of a terrorist
event disrupting the elections, and the rising price of oil. However, once the
election uncertainty was gone - and helped by some weakness in oil prices -
stocks surged higher, with many ending the year at or near their highs. Through
the first nine months the S&P 500 was basically unchanged, but this widely
followed index ended 2004 up over 10% with nearly all of the gains occurring in
the fourth quarter. This occurred despite the Federal Reserve raising short-term
interest rates twice in the fourth quarter and five times between June and
December 2004. (On February 2, 2005, after the close of this reporting period,
the Federal Reserve raised the fed funds rate by another 0.25% to 2.50%.)
In the real estate market, many sectors performed well as the Dow Jones Wilshire
Real Estate Securities Index rose more than 34% over the course of 2004. Malls
and smaller shopping centers, which tend to be more influenced by consumer
behavior, continued experience healthy operating fundamentals. In contrast,
those sectors for which business investment and job creation play a key role in
creating and sustaining marginal demand--such as office buildings and
hotels--experienced some stress. Overall, new supply additions had remained
largely in balance, leading some to believe that any increases in demand as the
economy improves may ultimately lead to higher occupancy levels, increased cash
flow and better dividend coverage for many real estate operating companies.
Emerging markets sovereign debt, as measured by the JP Morgan EMBI Global
Diversified Index, had a strong year in 2004, posting a total return of 11.6%.
The asset class benefited from a positive global capital market environment and
improving fundamentals in emerging countries. Abundant global liquidity created
opportunities for governments to continue obtaining financing on relatively
favorable terms. In addition, high commodity prices provided a boost for
commodity exporters. As a result, oil producing exporters such as Ecuador and
Venezuela were among the top performing countries for the year. In addition, the
emerging markets sovereign debt asset class was boosted by prudent government
policies in many countries and generally healthy balance-of-payments results.
The credit rating agencies responded favorably to these developments, and market
returns were helped by a healthy ratio of upgrades to down-
5
grades. Among the 31 countries in JP Morgan's EMBI Global Diversified Index,
Moody's made 5 upgrades and 2 downgrades in 2004, while S&P made 14 upgrades and
only one downgrade.
The senior loan market maintained its upward momentum during the fourth quarter
of 2004, capping off a strong performance for the year. While volatile petroleum
prices and commodity costs remained a central concern, leveraged loan assets as
measured by the CSFB Leveraged Loan Index posted a 5.60% return for the year.
Investor sentiment remained upbeat, sustained by the steady flow of positive
macroeconomic data. M&A-related institutional transactions climbed to $65
billion for the year, more than double the 2003 level.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE 12-MONTH PERIOD ENDED DECEMBER
31, 2004?
For the portion of the Fund's assets earmarked for dividend-paying common
stocks, we continued to employ an opportunistic, bottom-up strategy that focused
on identifying attractively valued companies that we thought possessed favorable
risk/reward characteristics and emerging catalysts that we believed could unlock
value or improve profitability. These catalysts included management changes,
restructuring efforts, recognition of hidden assets, or a positive change in the
underlying fundamentals. We also continued to focus on downside protection, and
paid a great deal of attention to a company's balance sheet and cash flow
statement, not just the income statement. We believed that cash flow analysis
offered a more objective and truer picture of a company's financial position
than an evaluation based on earnings alone.
We generally maintained a long-term horizon in our equity selection process.
However, we did reduce or eliminate several positions from the portfolio during
the year because we thought their risk/reward profiles had become less
attractive. This especially was true in the energy and utility sectors due to
share price appreciation. At the same time, we made several opportunistic
purchases in companies such as Altria Group, Citigroup and Fannie Mae when price
weakness had made these valuations more compelling in our view. We also added
cyclical stocks early in the year with stakes in industrial commodity companies
like Alumina Ltd and DSM NV.
For our REIT investments, achieving the appropriate balance of current income
and long-term appreciation potential was a critical component of our investment
strategy. To
6
optimally position the portfolio for both of these objectives, we focused on the
common stock of companies that, in our view, owned high quality real estate and
presented the highest long-term total return potential. Typically, these
securities did not feature relatively high current yields. To augment the income
of the portfolio, we also maintained an allocation to preferred stocks issued by
similarly high quality companies, especially those that we believed had
improving credit outlooks. Importantly, we also steered clear of stocks that
offered high current yield, but in our view presented inferior risk-adjusted
long-term appreciation potential.
For the emerging markets sovereign debt portion of the portfolio, we sought to
add value by identifying countries and securities with what we thought were
attractive risk and return profiles. In our view, Latin America was a region
where key countries showed improving credit trends and attractive valuations,
and we held relatively overweighted positions in Brazil, Columbia and Peru. In
Central and Eastern Europe, we maintained a relatively overweighted position in
Russia due to what we identified as an appealing combination of strong credit
trends, improving fundamental prospects and attractive prices. We also found
some attractive opportunities in Turkey, where sound economic policies were
anchored by their desire to join the European Union. We maintained underweighted
positions or had no exposure to most Asian and Middle Eastern countries due to
valuation considerations. However, we did have a relatively overweighted
position in South African bonds due to our expectations of credit upgrades and
attractive valuations relative to other investment grade alternatives in the
market.
For the senior loan portion of the portfolio, our core strategies were to seek
opportunities to upgrade the portfolio by purchasing loans with what we thought
were strong asset protection and attractive coupons, reduce exposure to
companies with what we believed were inadequate asset protection, negative
earnings volatility or inadequate liquidity, and selectively add discount loans
that we thought offered value. With the continued robust level of new issues and
repricings, we focused on buying new loans with strong asset coverage,
attractive coupons and call protection, and selectively sold lower coupon loans.
Industry sectors that we found attractive included food and beverage/consumer
products, industrials and gaming. Industry sectors where we were cautious
included automotive, telecom and finance.
7
HOW DID THE FUND PERFORM?
Fund performance results, as well as the performance of a relevant benchmark,
are shown in the accompanying table.
TOTAL RETURNS ON NET ASSET VALUE
For the 12 months ended December 31, 2004
JDD 20.44%
--------------------------------------------------------------------------------
Comparative benchmark1 17.48%
--------------------------------------------------------------------------------
Past performance does not guarantee future results. Returns do not reflect the
deduction of taxes that a shareholder may have to pay on Fund distributions or
upon the sale of Fund shares.
For the 12 months ended December 31, 2004, the Fund outperformed its comparative
benchmark. One of the primary factors benefiting the performance of the Fund
relative to that of the unmanaged benchmark was the Fund's use of financial
leverage. While leveraging can add volatility to the Fund's NAV and share price,
especially during periods of rising interest rates, this strategy can also
provide opportunities for additional income and total returns for common
shareholders when short-term interest rates remain relatively low and long-term
rates fall or remain relatively constant, as they did during this reporting
period.
Over this period, the dividend-paying common stock portion of the Fund's
portfolio benefited from both the combination of a bullish period for stocks and
favorable stock selection. As a group, our energy sector investments had the
greatest impact on performance, with each of our six energy holdings
appreciating over the course of the full year, despite some declines late in the
period. Our telecommunication stocks also did well, reflecting the growth in
cellular phone usage and improved wireline fundamentals that resulted from some
much needed regulatory relief for regional bell companies. In the defense
industry sector, Lockheed Martin and Raytheon Corp. gained on the strength of
their improving fundamentals and attractive valuations. Our investment in Tate &
Lyle plc (United Kingdom) surged higher over the course of the year on the
success of their new calorie-free sweetener called Sucralose. Utility stocks
Korea Electric Power (Korea), and United Utilities plc (United Kingdom) also
contributed positively to the Fund's results.
On the other hand, our investment in insurance-broker Aon Corp. underperformed
due to an investigation of the insurance industry by New York Attorney General
Eliot Spitzer. Under scrutiny is the practice of contingent commissions --
compensating brokers for steering business to certain insurance providers -- and
bid rigging. Although we have
1 Benchmark performance is a blended return consisting 1) 18.75% of the
return of the Russell 3000 Value Index, which measures the performance of
those Russell 3000 Index companies with lower price-to-book ratios and
lower forecasted growth values, 2) 6.25% of the return of the MSCI EAFE
ex-Japan Value Index, a capitalization-weighted index that selects the
lower 50% of the price-to-book ranked value stocks traded in the developed
markets of Europe, Asia and the Far East, excluding Japan, 3) 25% of the
return of the Dow Jones Wilshire Real Estate Securities Index, an
unmanaged, market-capitalization-weighted index comprised of publicly
traded REITs and real estate companies, 4) 25% of the return of the JP
Morgan EMBI Global Diversified Index, which tracks total returns for
U.S.-dollar-denominated debt instruments issued by emerging markets
sovereign and quasi-sovereign entities, and 5) 25% of the return of the
CSFB Leveraged Loan Index, which consists of approximately $150 billion of
tradable term loans with at least one year to maturity and rated BBB or
lower. Index returns do not include the effects of any sales charges or
management fees. It is not possible to invest directly in an index.
8
not heard of any evidence that AON colluded with insurance providers to set bid
prices (i.e., bid rigging), the company did accept contingent commissions which
were disclosed to clients. As of the end of this reporting period, the
contingent commissions had been eliminated. Our investment in insurance provider
Hartford Financial Services also declined significantly on the news of the
investigation, but recovered later as it became apparent it would have minimal
impact on their operating results. Rising short-term interest rates had a
negative impact on our investment in MFA Mortgage Investments as the flattening
yield curve pressured net interest spreads. Political pressures contributed to
the decline in Fannie Mae as its government regulator (OFHEO) released a report
critical of the company's accounting practices. Shares of auto parts supplier
Delphi Corp. declined for the year as rising commodity prices and lower
production volumes resulted in disappointing operating results.
Looking at the real estate portion of the portfolio, our focus on common stocks
of cyclically sensitive real estate companies such as mall and apartment
companies worked well, especially in conjunction with our further focus on the
long term value creation capabilities of the individual companies' real estate
portfolios and management teams.
The Fund owned a significant allocation of real estate preferred stocks during
this period, an environment in which real estate common stocks enjoyed
remarkably high total returns. As a result, our real estate preferred stock
holdings did create a drag on performance relative to a REIT common stock-only
benchmark.
In the emerging markets sovereign debt portion of the Fund's portfolio, we were
able to generate positive results from country allocations as well as individual
security selection. We decided to overweight (relative to our benchmark) Peru
and some types of Argentine bonds, and to underweight debt from Hungary,
Thailand, Morocco, China and Pakistan that did not perform as well over the
course of the year. In each case, these decisions helped this portion of the
portfolio outperform its counterpart within the comparative benchmark. The Fund
also had strong security selection in Turkey, Mexico and Peru.
Some areas of relative weakness in the sovereign debt area during the year were
our relative overweight positions in South Africa and Korea. These holdings
proved to be a relative drag on overall Fund performance.
In the senior loan sector, most of the loans we held performed in line with
their sector and industry benchmarks. Some of the more noteworthy purchases over
the course
9
of the year included loans issued by Graham Packaging Company, L.P., Stone
Container Corporation, Vought Aircraft Industries, Inc. and R.H. Donnelley, Inc.
We sold loans issued by United States Can Company and Meridian Automotive
Systems, Inc., among others.
WHAT ABOUT FUND DIVIDENDS AND SHARE PRICES?
In addition to owning preferred stocks, the Fund has issued its own preferred
shares, called FundPreferredTM. These shares provide a degree of financial
leverage that can increase share price volatility, but also in favorable
circumstances can enhance the Fund's returns and supplement the income available
to pay common shareholder distributions. This leveraging strategy provided
incremental income and helped enhance shareholder distributions over this
reporting period.
Since its inception, the Fund has followed a managed distribution policy. Under
this policy, the Fund's monthly distribution is determined based not only on
investment income generated by its underlying securities, but also on realized
capital gains and, to the extent that distributions over the year exceed the
amount of such income and net realized gains, on returns of capital representing
(in most circumstances) unrealized capital gains. As a result, the Fund's
monthly distribution remained stable at $0.1025 per share over the entire
12-month period.
Due at least in part to the Fund's investment in securities issued by REITs,
which generally do not inform their investors about the tax character of their
distributions for a calendar year until well after the end of that year, the
Fund did not know, as of the date of this report, the precise amounts of
ordinary income, capital gains and/or return of capital contained in the Fund's
2004 distributions. This information will be sent separately to shareholders
once the tax characteristics of the Fund's 2004 distributions have been
determined.
As of December 31, 2004, the Fund was trading at a -7.60% discount to its net
asset value. This discount was greater than the average -4.52% discount the Fund
exhibited over the course of the entire reporting period.
10
Nuveen Diversified Dividend and Income Fund
JDD
Performance
OVERVIEW As of December 31, 2004
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
Real Estate Investment Trust Common
Stocks and Preferred Stocks 27.6%
Emerging Markets Sovereign Debt 22.5%
Common Stocks 23.7%
Variable Rate Senior
Loan Interests 17.0%
U.S. Corporate Bonds 3.5%
Euro Time Deposit 4.3%
Other 1.4%
Bar Chart:
2004 MONTHLY DISTRIBUTIONS PER SHARE
Jan 0.1025
Feb 0.1025
Mar 0.1025
Apr 0.1025
May 0.1025
Jun 0.1025
Jul 0.1025
Aug 0.1025
Sep 0.1025
Oct 0.1025
Nov 0.1025
Dec 0.1025
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
1/1/04 15.42
15.57
15.8
15.9
15.77
15.85
15.9
15.76
15.9
15.77
15.7
15.7
15.53
15.43
15.43
15.45
15.7
15.77
15.8
15.8
15.8
15.88
16.1
15.96
15.99
16
15.97
16.01
16
15.9
15.96
15.85
15.85
15.86
15.75
15.89
15.65
15.82
15.87
15.9
15.9
15.9
15.98
15.9
15.94
16.09
16.09
16.1
16.12
15.9
15.75
15.88
15.88
15.76
15.82
15.86
15.81
15.85
15.78
15.64
15.74
15.8
15.85
15.85
15.89
15.9
15.7
15.6
15.65
15.63
15.55
14.85
14.35
14.45
14.9
14.9
14.92
14.8
14.77
14.59
14.06
14.12
14.19
14.5
14.5
14.58
14.4
14.58
14.22
13.8
12.74
13
13.13
13.3
13.27
13.05
13.42
13.65
13.63
13.46
13.15
13.38
13.7
13.62
13.88
13.88
14.22
14.05
13.98
14.25
14.22
14.2
14.2
14.15
13.68
13.43
13.49
13.5
13.46
13.5
13.4
13.56
13.45
13.34
13.45
13.41
13.3
13.36
13.48
13.44
13.39
13.39
13.43
13.5
13.46
13.43
13.42
13.39
13.59
13.52
13.42
13.42
13.36
13.39
13.42
13.44
13.41
13.45
13.45
13.56
13.67
13.79
13.91
14.09
14.23
14.29
14.22
14.19
14.28
14.29
14.17
14.27
14.3
14.41
14.48
14.51
14.57
14.66
14.6
14.75
14.84
14.92
14.85
14.95
14.9
14.93
15
15
14.95
14.8
14.61
14.64
14.75
14.73
14.72
14.75
14.84
14.9
14.83
14.85
14.99
14.81
14.92
14.94
14.94
14.99
15
15.06
15.06
15.06
15.04
15.03
15.07
15
14.92
14.93
14.9
14.99
14.91
14.72
14.78
14.95
15.07
15.07
15.04
15.09
15.12
15.29
14.99
14.9
14.83
15.06
15.06
15.12
15.23
15.45
15.49
15.5
15.57
15.44
15.39
15.28
15.37
15.35
15.3
15.38
15.43
15.47
15.56
15.62
15.48
15.5
15.62
15.53
15.37
15.35
15.33
15.2
15.31
15.3
15.29
15.3
15.3
15.28
15.37
15.5
12/31/04 15.57
FUND SNAPSHOT
------------------------------------
Share Price $15.57
------------------------------------
Common Share
Net Asset Value $16.85
------------------------------------
Premium/(Discount) to NAV -7.60%
------------------------------------
Market Yield1 7.90%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $339,446
------------------------------------
ANNUALIZED TOTAL RETURN
(Inception 9/25/03)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 8.04% 20.44%
------------------------------------
Since
Inception 11.11% 22.19%
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Real Estate 30.0%
------------------------------------
Sovereign Debt 22.5%
------------------------------------
Hotels, Restaurants & Leisure 4.3%
------------------------------------
Media 3.8%
------------------------------------
Oil & Gas 3.6%
------------------------------------
Diversified Telecommunication
Services 3.2%
------------------------------------
Auto Components 2.7%
------------------------------------
Metals & Mining 2.6%
------------------------------------
Aerospace and Defense 2.2%
------------------------------------
Diversified Financial Services 1.9%
------------------------------------
Tobacco 1.9%
------------------------------------
Containers & Packaging 1.6%
------------------------------------
Insurance 1.6%
------------------------------------
Euro Time Deposit 4.3%
------------------------------------
Other 13.8%
------------------------------------
REAL ESTATE INVESTMENT TRUST
TOP FIVE SUB-INDUSTRIES
(as a % of total investments)
------------------------------------
Apartments 8.4%
------------------------------------
Office Property 7.3%
------------------------------------
Healthcare 2.8%
------------------------------------
Shopping Center 2.8%
------------------------------------
Industrial 1.5%
------------------------------------
EMERGING MARKETS SOVEREIGN DEBT
TOP FIVE COUNTRIES
(as a % of total investments)
------------------------------------
Mexico 2.0%
------------------------------------
Russia 1.9%
------------------------------------
Peru 1.4%
------------------------------------
South Africa 1.3%
------------------------------------
Turkey 1.2%
------------------------------------
1 Market yield is based on the Fund's current annualized monthly distribution
divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the
amount of the Fund's distributions, a tax return of capital.
11
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
NUVEEN DIVERSIFIED DIVIDEND AND INCOME FUND
We have audited the accompanying statement of assets and liabilities of Nuveen
Diversified Dividend and Income Fund (the "Fund"), including the portfolio of
investments, as of December 31, 2004, and the related statements of operations
and cash flows for the year then ended and the statement of changes in net
assets and the financial highlights for the year then ended and for the period
from September 25, 2003 (commencement of operations) to December 31, 2003. 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 the standards of the Public Company
Accounting Oversight Board (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 consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of December 31,
2004, by correspondence with the custodian and selling or agent banks or by
other appropriate auditing procedures where replies from selling or agent banks
were not received. 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 financial position of Nuveen
Diversified Dividend and Income Fund at December 31, 2004, the results of its
operations and its cash flows for the year then ended and the changes in its net
assets and the financial highlights for the year then ended and for the period
from September 25, 2003 (commencement of operations) to December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 17, 2005
12
Nuveen Diversified Dividend and Income Fund (JDD)
Portfolio of
INVESTMENTS December 31, 2004
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 32.1% (23.7% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 1.8%
50,000 Lockheed Martin Corporation $ 2,777,500
85,000 Raytheon Company 3,300,550
------------------------------------------------------------------------------------------------------------------------------------
6,078,050
------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.7%
245,600 Delphi Automotive System Corporation 2,215,313
------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.7%
143,000 DSM NV 2,345,200
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 1.0%
69,200 Bank of America Corporation 3,251,708
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.9%
65,000 Pitney Bowes Inc. 3,008,200
------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.7%
106,300 Packaging Corporation of America 2,503,365
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 2.6%
50,000 Citigroup Inc. 2,409,000
94,100 IndyMac Bancorp, Inc. 3,241,745
85,000 JPMorgan Chase & Co. 3,315,850
------------------------------------------------------------------------------------------------------------------------------------
8,966,595
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.4%
90,000 KT Corporation 1,962,900
110,500 SBC Communications Inc. 2,847,585
135,000 Sprint Corporation 3,354,750
52,500 Telecom Italia SpA, Sponsored ADR 2,145,675
110,600 Verizon Communications Inc. 4,480,406
------------------------------------------------------------------------------------------------------------------------------------
14,791,316
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.9%
220,000 Korea Electric Power Corporation 2,912,800
------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 1.3%
135,000 Albertson's Inc. 3,223,800
60,812 J Sainsbury plc, Sponsored ADR 1,289,214
------------------------------------------------------------------------------------------------------------------------------------
4,513,014
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.7%
67,000 Tate and Lyle plc 2,468,950
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.6%
77,000 Newell Rubbermaid Inc. 1,862,630
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.9%
48,000 Kimberly-Clark Corporation 3,158,880
13
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS December 31, 2004
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 1.6%
145,000 Aon Corporation $ 3,459,700
30,000 Hartford Financial Services Group, Inc. 2,079,300
------------------------------------------------------------------------------------------------------------------------------------
5,539,000
------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 1.7%
146,000 Alumina Limited 2,706,840
26,500 Rio Tinto plc, Sponsored ADR 3,159,065
------------------------------------------------------------------------------------------------------------------------------------
5,865,905
------------------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 0.6%
73,400 May Department Stores Company 2,157,960
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 0.6%
82,800 United Utilities plc, Sponsored ADR 2,033,568
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 4.8%
33,000 ChevronTexaco Corporation 1,732,830
20,900 ConocoPhillips 1,814,747
23,000 Eni S.p.A., Sponsored ADR 2,894,320
80,000 Kerr-McGee Corporation 4,623,200
30,000 Total SA, Sponsored ADR 3,295,200
49,500 Unocal Corporation 2,140,380
------------------------------------------------------------------------------------------------------------------------------------
16,500,677
------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.5%
55,500 International Paper Company 2,331,000
54 Neenah Paper Inc. 1,760
40,000 Weyerhaeuser Company 2,688,800
------------------------------------------------------------------------------------------------------------------------------------
5,021,560
------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.5%
71,600 Fannie Mae 5,098,636
------------------------------------------------------------------------------------------------------------------------------------
TOBACCO - 2.6%
88,200 Altria Group, Inc. 5,389,020
113,000 Loews Corporation - Carolina Group 3,271,350
------------------------------------------------------------------------------------------------------------------------------------
8,660,370
------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost $87,004,216) 108,953,697
------------------------------------------------------------------------------------------------------------------------------------
RATINGS**
----------------
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 0.9% (0.6% OF TOTAL INVESTMENTS)
SPECIALTY RETAIL - 0.9%
57,000 Toys "R" Us, Inc. 6.250% NR NR 3,021,000
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stock (cost $2,002,026) 3,021,000
------------------------------------------------------------------------------------------------------------------------------------
14
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST COMMON STOCKS - 33.2% (24.6% OF TOTAL INVESTMENTS)
APARTMENTS - 9.0%
242,800 AMLI Residential Properties Trust $ 7,769,600
114,900 Archstone-Smith Trust 4,400,670
57,500 AvalonBay Communities, Inc. 4,329,750
74,500 Camden Property Trust 3,799,500
129,600 Gables Residential Trust 4,638,384
164,400 Post Properties, Inc. 5,737,560
------------------------------------------------------------------------------------------------------------------------------------
30,675,464
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED - 0.8%
202,200 Sprint Finance Corporation 2,557,830
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 3.8%
310,900 Nationwide Health Properties, Inc. 7,383,875
293,800 Senior Housing Properties Trust 5,564,572
------------------------------------------------------------------------------------------------------------------------------------
12,948,447
------------------------------------------------------------------------------------------------------------------------------------
HOTELS - 1.1%
338,736 Hersha Hospitality Trust 3,878,527
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 2.0%
159,000 Brandywine Realty Trust 4,673,010
50,000 First Industrial Realty Trust, Inc. 2,036,500
------------------------------------------------------------------------------------------------------------------------------------
6,709,510
------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE - 0.5%
200,000 MFA Mortgage Investments, Inc. 1,764,000
------------------------------------------------------------------------------------------------------------------------------------
OFFICE PROPERTY - 9.1%
180,300 Arden Realty, Inc. 6,800,916
140,700 CRT Properties Inc. 3,357,102
594,600 HRPT Properties Trust 7,628,718
158,900 Mack-Cali Realty Corporation 7,314,167
104,500 Maguire Properties, Inc. 2,869,570
95,900 Reckson Associates Realty Corporation 3,146,479
------------------------------------------------------------------------------------------------------------------------------------
31,116,952
------------------------------------------------------------------------------------------------------------------------------------
REGIONAL MALLS - 1.5%
32,400 Simon Property Group, Inc. 2,095,308
49,900 The Macerich Company 3,133,720
------------------------------------------------------------------------------------------------------------------------------------
5,229,028
------------------------------------------------------------------------------------------------------------------------------------
SHOPPING CENTER - 3.5%
183,900 Cedar Shopping Centers Inc. 2,629,770
73,500 Federal Realty Investment Trust 3,796,275
160,000 Kite Realty Group Trust 2,444,800
107,100 New Plan Excel Realty Trust 2,900,268
------------------------------------------------------------------------------------------------------------------------------------
11,771,113
------------------------------------------------------------------------------------------------------------------------------------
STORAGE - 1.9%
77,700 Shurgard Storage Centers, Inc., Class A 3,419,577
165,800 U-Store It Trust 2,876,630
------------------------------------------------------------------------------------------------------------------------------------
6,296,207
------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Investment Trust Common Stocks (cost $88,111,852) 112,947,078
--------------------------------------------------------------------------------------------------------------------
15
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS December 31, 2004
SHARES DESCRIPTION(1) COUPON VALUE
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST PREFERRED STOCKS - 4.0%
(3.0% OF TOTAL INVESTMENTS)
APARTMENTS - 2.3%
48,000 Apartment Investment & Management Company, Series Q 10.100% $ 1,275,360
103,000 Apartment Investment & Management Company, Series R 10.000% 2,742,890
150,000 Apartment Investment & Management Company, Series U 7.750% 3,732,000
------------------------------------------------------------------------------------------------------------------------------------
7,750,250
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED - 0.7%
103,800 Crescent Real Estate Equities Company, Series A 6.750% 2,313,702
------------------------------------------------------------------------------------------------------------------------------------
OFFICE PROPERTY - 0.7%
35,000 Brandywine Realty Trust, Series D 7.375% 880,250
64,000 Maguire Properties, Inc., Series A 7.625% 1,638,400
------------------------------------------------------------------------------------------------------------------------------------
2,518,650
------------------------------------------------------------------------------------------------------------------------------------
SHOPPING CENTER - 0.3%
40,000 Cedar Shopping Centers Inc. 8.875% 1,067,500
------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Investment Trust Preferred Stocks (cost $13,537,714) 13,650,102
------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED RATINGS**
PRINCIPAL AVERAGE STATED -------------------
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY* MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS(2) - 23.1%
(17.0% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 1.2%
$ 1,979 K & F Industries, Inc., Term Loan B 4.931% 11/18/12 B2 B+ $2,013,596
2,000 Vought Aircraft Industries, Inc., Term Loan (WI) TBD 12/22/11 Ba3 B+ 2,032,500
------------------------------------------------------------------------------------------------------------------------------------
4,046,096
------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 3.0%
2,000 Federal-Mogul Corporation, Term Loan (WI) TBD TBD B1 NR 2,011,250
2,500 Federal-Mogul Corporation, Term Loan A (a) 4.650% 2/24/04 NR NR 2,369,688
1,990 Mark IV Industries, Inc., Term Loan B 5.372% 6/23/11 B1 BB- 2,022,338
1,762 Metaldyne Company LLC, Term Loan D 6.563% 12/31/09 B2 BB- 1,755,206
1,366 Tenneco Automotive, Inc., Term Loan B 5.407% 12/12/10 B1 B+ 1,391,689
621 Tenneco Automotive, Inc., Term Loan B-1 5.280% 12/12/10 B1 B+ 632,586
------------------------------------------------------------------------------------------------------------------------------------
10,182,757
------------------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS- 0.6%
1,995 Nortek, Inc., Term Loan B 4.767% 8/27/11 B1 B+ 2,030,743
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.9%
2,907 Allied Waste North America, Inc., Term Loan B 5.125% 1/15/10 B1 BB 2,953,805
------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 1.5%
3,000 Graham Packaging Company L.P., Term Loan B 4.910% 10/7/11 B2 B 3,044,465
175 Stone Container Corporation, Deposit-Funded 4.300% 11/1/11 Ba3 BB- 177,535
Commitment
1,396 Stone Container Corporation, Term Loan B 4.521% 11/1/11 Ba3 BB- 1,418,007
429 Stone Container Corporation, Term Loan C 4.396% 11/1/11 Ba3 BB- 436,404
------------------------------------------------------------------------------------------------------------------------------------
5,076,411
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.6%
1,713 Sensus Metering Systems Inc., Term Loan B-1 4.406% 12/17/10 B2 B+ 1,725,534
257 Sensus Metering Systems Inc., Term Loan B-2 4.406% 12/17/10 B2 B+ 258,830
------------------------------------------------------------------------------------------------------------------------------------
1,984,364
------------------------------------------------------------------------------------------------------------------------------------
16
WEIGHTED RATINGS**
PRINCIPAL AVERAGE STATED -------------------
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY* MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.4%
$ 1,215 Alimentation Couche-Tard Inc., Term Loan 4.188% 12/17/10 Ba2 BB $1,232,776
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.8%
2,758 Michael Foods, Inc., Term Loan B 5.066% 11/20/10 B1 B+ 2,803,558
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 0.4%
1,452 Kinetic Concepts, Inc., Term Loan B-2 4.310% 8/11/10 B1 BB- 1,464,062
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 1.5%
1,975 Beverly Enterprises, Inc., Term Loan B 4.529% 10/22/08 Ba3 BB 2,007,094
2,926 Triad Hospitals, Inc., Term Loan B 4.670% 9/30/08 Ba2 BB 2,970,061
------------------------------------------------------------------------------------------------------------------------------------
4,977,155
------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 3.2%
3,970 24 Hour Fitness Worldwide, Inc., Term Loan B 6.250% 7/1/09 B1 B 4,022,106
2,631 Alliance Gaming Corporation, Term Loan B 5.650% 9/5/09 Ba3 BB- 2,647,762
2,591 Venetian Casino Resort, Term Loan B 4.900% 6/15/11 B1 B+ 2,638,949
409 Venetian Casino Resort, Delayed Draw, Term Loan (b) .75% 2/22/05 B1 B+ 6,051
1,561 Wyndham International, Inc., Term Loan II 8.125% 4/1/06 NR NR 1,576,241
------------------------------------------------------------------------------------------------------------------------------------
10,891,109
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.6%
1,920 Conseco, Inc., Term Loan 5.918% 6/22/10 B2 BB- 1,957,200
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 5.1%
1,990 Charter Communications Operating, LLC, Term Loan B 5.380% 4/7/11 B2 B 1,994,146
1,630 Dex Media West, LLC, Term Loan B 4.169% 3/9/10 Ba2 BB- 1,648,247
2,000 Emmis Operating Company, Term Loan 4.100% 11/10/11 Ba2 B+ 2,022,778
1,995 Loews Cineplex Corporation, Term Loan B 4.430% 6/30/11 B1 B 2,023,834
1,995 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B 5.060% 4/26/11 NR NR 2,003,479
1,748 R.H. Donnelley Inc., Tranche D 4.240% 6/30/11 Ba3 BB 1,767,853
2,000 Rainbow Media Holdings LLC, Term Loan 5.190% 3/31/12 NR NR 2,034,166
1,925 Regal Cinemas Corporation, Term Loan 4.560% 11/10/10 Ba3 BB- 1,945,629
1,985 WMG Acquisition Corp., Term Loan 5.209% 2/27/11 B1 B+ 2,013,948
------------------------------------------------------------------------------------------------------------------------------------
17,454,080
------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.6%
1,831 Amsted Industries Incorporated, Term Loan B 4.972% 10/15/10 B1 BB- 1,860,165
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 1.2%
2,000 General Growth Properties, Term Loan B 4.530% 11/12/08 Ba2 BB+ 2,008,011
2,000 LNR Property Corporation, Term Loan (WI) TBD 1/15/07 B2 B+ 2,010,000
------------------------------------------------------------------------------------------------------------------------------------
4,018,011
------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.8%
2,807 Laidlaw Inc., Term Loan B-1 6.170% 6/19/09 Ba3 BB+ 2,824,318
------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.7%
2,475 Nextel Finance Company, Term Loan E 4.688% 12/15/10 Ba1 BB+ 2,479,508
------------------------------------------------------------------------------------------------------------------------------------
Total Variable Rate Senior Loan Interests (cost $77,607,252) 78,236,118
------------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKET SOVEREIGN DEBT - 30.5%
(22.5% OF TOTAL INVESTMENTS)
RATINGS**
PRINCIPAL ------------------
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
ARGENTINA - 0.5%
1,855 Argentina Republic 1.980% 8/3/12 Caa1 CCC+ 1,587,628
------------------------------------------------------------------------------------------------------------------------------------
BRAZIL - 1.5%
500 Braskem SA 11.750% 1/22/14 NA BB- 590,000
17
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS December 31, 2004
RATINGS**
PRINCIPAL ------------------
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
BRAZIL (continued)
$ 600 Brazil Republic 12.000% 4/15/10 B1 BB- $ 744,000
1,950 Brazil Republic 8.000% 4/15/14 B2 BB- 2,007,804
950 Brazil Republic 10.500% 7/14/14 B1 BB- 1,128,125
800 Brazil Republic 0.000% 4/15/24 B1 BB- 746,550
------------------------------------------------------------------------------------------------------------------------------------
5,216,479
------------------------------------------------------------------------------------------------------------------------------------
BULGARIA - 1.0%
2,133 Bulgaria Republic 1.000% 7/28/12 Ba1 BBB- 2,138,916
1,100 Bulgaria Republic 8.250% 1/15/15 Ba2 BBB- 1,385,890
------------------------------------------------------------------------------------------------------------------------------------
3,524,806
------------------------------------------------------------------------------------------------------------------------------------
CAYMAN ISLANDS - 0.2%
540 CSN Islands IX Corporation, 144A 10.000% 1/15/15 B1 BB- 582,525
------------------------------------------------------------------------------------------------------------------------------------
CHILE - 0.8%
550 Chile Republic 6.875% 4/28/09 Baa1 A 613,140
430 Codelco Inc., 144A 5.500% 10/15/13 A2 A 448,598
600 Coldelco Inc., Reg S 6.375% 11/30/12 A2 A- 664,332
1,100 Corporation Nacional del Cobre 4.750% 10/15/14 A2 A 1,080,773
------------------------------------------------------------------------------------------------------------------------------------
2,806,843
------------------------------------------------------------------------------------------------------------------------------------
COLUMBIA - 1.2%
376 Columbia Republic 9.750% 4/9/11 Ba2 BB+ 433,957
500 Columbia Republic 10.000% 1/23/12 Ba2 BB 580,000
575 Columbia Republic 8.250% 12/22/14 Ba2 BB 606,625
600 Columbia Republic 11.750% 2/25/20 Ba2 BB 774,000
1,360 Columbia Republic 10.375% 1/28/33 Ba2 BB 1,577,600
------------------------------------------------------------------------------------------------------------------------------------
3,972,182
------------------------------------------------------------------------------------------------------------------------------------
ECUADOR - 1.2%
550 Ecuador Republic, Reg S 12.000% 11/15/12 Caa1 CCC+ 561,201
3,900 Ecuador Republic, Reg S 7.000% 8/15/30 Caa1 CCC+ 3,378,375
------------------------------------------------------------------------------------------------------------------------------------
3,939,576
------------------------------------------------------------------------------------------------------------------------------------
EL SALVADOR - 0.9%
1,500 El Salvador Republic 8.500% 7/25/11 Baa3 BB+ 1,726,314
1,080 El Salvador Republic 7.750% 1/24/23 Baa3 BB+ 1,184,338
------------------------------------------------------------------------------------------------------------------------------------
2,910,652
------------------------------------------------------------------------------------------------------------------------------------
GUATEMALA - 0.4%
490 Guatemala Government, Reg S 9.250% 8/1/13 Ba2 BB- 561,506
880 Republic of Guatemala, 144A 8.125% 10/6/34 Ba2 BB- 915,200
------------------------------------------------------------------------------------------------------------------------------------
1,476,706
------------------------------------------------------------------------------------------------------------------------------------
HONG KONG - 0.3%
890 Hong Kong, 144A 5.125% 8/1/14 A1 A+ 917,680
------------------------------------------------------------------------------------------------------------------------------------
INDIA - 0.1%
450 Vedanta Resources PLC 6.625% 2/22/10 Ba2 BB 455,949
------------------------------------------------------------------------------------------------------------------------------------
INDONESIA - 1.2%
1,100 Republic of Indonesia 6.750% 3/10/14 B2 B 1,106,954
3,000 Republic of Indonesia, 144A 6.750% 3/10/14 B2 B+ 3,015,000
------------------------------------------------------------------------------------------------------------------------------------
4,121,954
------------------------------------------------------------------------------------------------------------------------------------
18
RATINGS**
PRINCIPAL ------------------
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
KAZAKHSTAN - 0.4%
$ 800 Development Bank of Kazakhstan 7.375% 11/12/13 Baa3 BBB- $ 865,120
600 Kazkommerts International BV 7.000% 11/3/09 Baa2 BB- 606,000
------------------------------------------------------------------------------------------------------------------------------------
1,471,120
------------------------------------------------------------------------------------------------------------------------------------
LUXEMBOURG - 0.4%
300 Tengizchevroil LLP 6.124% 11/15/14 Baa3 BBB- 302,250
1,000 VTB Capital SA, 144A 7.500% 10/12/11 Baa2 BB+ 1,072,500
------------------------------------------------------------------------------------------------------------------------------------
1,374,750
------------------------------------------------------------------------------------------------------------------------------------
MALAYSIA - 1.5%
600 Malaysia Republic 8.750% 6/1/09 A3 A- 712,518
500 Malaysia Republic 7.500% 7/15/11 A3 A- 585,041
3,300 Petronas Capital Limited 7.000% 5/22/12 A2 A- 3,777,979
------------------------------------------------------------------------------------------------------------------------------------
5,075,538
------------------------------------------------------------------------------------------------------------------------------------
MEXICO - 2.7%
700 Conproca SA, Reg S 12.000% 12/16/10 Baa3 BBB- 885,696
1,100 Empresa Nacional del Petroleo, 144A 4.875% 3/15/14 Baa1 A 1,076,645
1,000 Pemex Project F, Reg S 7.375% 12/15/14 Baa1 BBB- 1,114,000
1,200 Pemex Project Funding Master Trust 8.500% 2/15/08 Baa1 BBB- 1,356,000
1,000 Pemex Project Funding Master Trust 9.500% 9/15/27 Baa1 BBB- 1,262,500
2,420 United Mexican States 6.625% 3/3/15 Baa1 BBB- 2,605,130
220 United Mexican States 8.125% 12/30/19 Baa1 BBB- 258,720
400 United Mexican States 8.300% 8/15/31 Baa1 BBB- 469,800
------------------------------------------------------------------------------------------------------------------------------------
9,028,491
------------------------------------------------------------------------------------------------------------------------------------
NETHERLANDS - 0.2%
510 TuranAlem Financial, 144A 7.875% 6/2/10 Baa2 BB- 512,550
------------------------------------------------------------------------------------------------------------------------------------
PANAMA - 1.0%
650 Panama Republic 9.625% 2/8/11 Ba1 BB 770,250
460 Panama Republic 9.375% 1/16/23 Ba1 BB 533,600
1,850 Panama Republic 9.375% 4/1/29 Ba1 BB 2,183,000
------------------------------------------------------------------------------------------------------------------------------------
3,486,850
------------------------------------------------------------------------------------------------------------------------------------
PERU - 1.9%
1,300 Peru Republic 9.125% 2/21/12 Ba3 BB 1,521,000
450 Peru Republic 9.875% 2/6/15 Ba3 BB 553,500
800 Peru Republic 8.375% 5/3/16 Ba3 BB 900,000
1,950 Peru Republic 4.250% 3/7/17 Ba3 BB 1,839,572
528 Peru Republic 5.000% 3/7/17 Ba3 BB 508,715
950 Peru Republic 8.750% 11/21/33 Ba3 BB 1,035,500
------------------------------------------------------------------------------------------------------------------------------------
6,358,287
------------------------------------------------------------------------------------------------------------------------------------
PHILIPPINES - 0.9%
1,143 Philippines Republic 8.375% 2/15/11 Ba2 BB 1,147,286
1,000 Philippines Republic 9.375% 1/18/17 Ba2 BB- 1,043,750
900 Philippines Republic 10.625% 3/16/25 Ba2 BB- 965,250
------------------------------------------------------------------------------------------------------------------------------------
3,156,286
------------------------------------------------------------------------------------------------------------------------------------
POLAND - 0.2%
500 Poland Republic 5.250% 1/15/14 A2 BBB+ 516,875
------------------------------------------------------------------------------------------------------------------------------------
QATAR - 0.1%
458 Ras Laffan Liquefied Natural Gas Company Limited, 144A3.437% 9/15/09 Baa1 A- 450,220
------------------------------------------------------------------------------------------------------------------------------------
19
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS December 31, 2004
RATINGS**
PRINCIPAL ------------------
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
RUSSIA - 2.6%
$ 375 Alrosa Finance, 144A 8.875% 11/17/14 B2 B $ 387,188
500 Aries, 144A 9.600% 10/25/14 Ba2 BB+ 617,500
500 Russia Federation 8.750% 7/24/05 Baa3 BB+ 514,450
1,300 Russia Federation 8.250% 3/31/10 Baa3 BB+ 1,445,340
750 Russia Federation 11.000% 7/24/18 Ba2 BB+ 1,052,878
1,125 Russia Federation 1.000% 3/31/30 Baa3 BB+ 1,164,825
3,200 Russia Ministry of Finance 3.000% 5/14/08 Ba2 BB+ 2,982,720
600 Russia Ministry of Finance 3.000% 5/14/11 Ba1 BB+ 507,480
------------------------------------------------------------------------------------------------------------------------------------
8,672,381
------------------------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA - 1.7%
4,950 South Africa Republic 9.125% 5/19/09 Baa1 BBB 5,878,125
------------------------------------------------------------------------------------------------------------------------------------
SOUTH KOREA - 0.6%
165 Export Import Bank of Korea, 144A 4.125% 2/10/09 A3 A- 164,736
1,000 Export-Import Bank of Korea 4.250% 11/27/07 A3 A- 1,006,077
435 Export-Import Bank of Korea 4.500% 8/12/09 A3 A- 439,178
500 LG Caltex Oil Corporation, 144A 5.500% 8/25/14 Baa2 BBB 515,161
------------------------------------------------------------------------------------------------------------------------------------
2,125,152
------------------------------------------------------------------------------------------------------------------------------------
THAILAND - 0.2%
250 Bangkok Bank Public Company Limited 9.025% 3/15/29 Baa2 BB- 302,639
290 PTT Public Company Limited, 144A 5.750% 8/1/14 Baa1 BBB+ 304,863
------------------------------------------------------------------------------------------------------------------------------------
607,502
------------------------------------------------------------------------------------------------------------------------------------
TUNISIA - 0.6%
1,700 Banque de Tunisie 7.375% 4/25/12 Baa2 BBB 1,950,750
------------------------------------------------------------------------------------------------------------------------------------
TURKEY - 1.6%
1,670 Turkey Republic 12.375% 6/15/09 B1 BB- 2,104,200
800 Turkey Republic 11.750% 6/15/10 B1 BB- 1,008,000
450 Turkey Republic 9.000% 6/30/11 B1 BB- 516,375
390 Turkey Republic 7.250% 3/15/15 B1 BB- 402,675
1,010 Turkey Republic 11.875% 1/15/30 B1 BB- 1,459,450
------------------------------------------------------------------------------------------------------------------------------------
5,490,700
------------------------------------------------------------------------------------------------------------------------------------
UKRAINE - 1.5%
2,600 Republic of Ukraine 0.000% 8/5/09 B1 B+ 2,759,120
800 Ukraine Cabinet Ministers, 144A 5.707% 8/5/09 B1 B+ 846,000
350 Ukraine Government 6.875% 3/4/11 B1 B+ 360,570
1,073 Ukraine Government, Reg S 11.000% 3/15/07 B1 B 1,154,081
------------------------------------------------------------------------------------------------------------------------------------
5,119,771
------------------------------------------------------------------------------------------------------------------------------------
URUGUAY - 1.2%
2,520 Uruguay Republic 7.875% 1/15/33 B3 B- 2,249,128
1,800 Uruguay Republic 7.250% 2/15/11 B3 B 1,791,000
------------------------------------------------------------------------------------------------------------------------------------
4,040,128
------------------------------------------------------------------------------------------------------------------------------------
VENEZUELA - 1.2%
2,600 Venezuela Republic 5.375% 8/7/10 Caa1 B- 2,422,883
861 Venezuela Republic 8.500% 10/8/14 B2 B 914,810
785 Venezuela Republic 9.250% 9/15/27 B2 B 830,138
------------------------------------------------------------------------------------------------------------------------------------
4,167,831
------------------------------------------------------------------------------------------------------------------------------------
VIETNAM - 0.7%
2,600 Socialist Republic of Vietnam 1.000% 3/14/16 B1 BB- 2,452,414
------------------------------------------------------------------------------------------------------------------------------------
Total Emerging Market Sovereign Debt (cost $97,064,158) 103,448,701
------------------------------------------------------------------------------------------------------------------------------------
20
RATINGS**
PRINCIPAL ------------------
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
U.S. CONVERTIBLE BONDS - 1.2% (0.8% OF TOTAL INVESTMENTS)
METALS & MINING - 1.2%
$ 5,000 Trizec Hahn Corporation 3.000% 1/29/21 Ba1 NR $4,081,250
------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Convertible Bonds (cost $3,598,515) 4,081,250
--------------------------------------------------------------------------------------------------------------------
U.S. CORPORATE BONDS - 4.8% (3.5% OF TOTAL INVESTMENTS)
HOTELS, RESTAURANTS & LEISURE - 2.6%
2,000 Aztar Corporation 9.000% 8/15/11 Ba3 B+ 2,215,000
2,150 Harrahs Entertainment 7.875% 12/15/05 Ba1 BB+ 2,241,375
2,000 MGM Mirage, Inc. 6.750% 8/1/07 Ba1 BB+ 2,110,000
2,000 Park Place Entertainment 7.875% 12/15/05 Ba2 BB- 2,080,000
------------------------------------------------------------------------------------------------------------------------------------
8,646,375
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 2.2%
2,000 D.R. Horton, Inc. 7.500% 12/1/07 Ba1 BB+ 2,177,500
2,000 KB Home 8.625% 12/15/08 Ba2 BB- 2,270,000
3,000 Standard Pacific Corporation 6.500% 10/1/08 Ba2 BB 3,142,500
------------------------------------------------------------------------------------------------------------------------------------
7,590,000
------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Corporate Bonds (cost $15,964,244) 16,236,375
--------------------------------------------------------------------------------------------------------------------
EURO TIME DEPOSITS - 5.8% (4.3% OF TOTAL INVESTMENTS)
$ 19,548,843 State Street Bank, 1.000%, 1/03/05 19,548,843
============= --------------------------------------------------------------------------------------------------------------------
Total Euro Time Deposits (cost $19,548,843) 19,548,843
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $404,438,820) - 135.6% 460,123,164
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (0.2)% (676,774)
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (35.4)% (120,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 339,446,390
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Senior Loans in which the Fund invests generally pay
interest at rates which are periodically adjusted by
reference to a base short-term, floating lending rate
plus a premium. These base lending rates are generally
(i) the lending rate referenced by the London
Inter-Bank Offered Rate ("LIBOR"), or (ii) the prime
rate offered by one or more major United States banks.
Senior loans may be considered restricted in that the
Fund ordinarily is contractually obligated to receive
approval from the Agent Bank and/or Borrower prior to
the disposition of a Senior Loan.
* Senior Loans in the Fund's portfolio generally are
subject to mandatory and/or optional prepayment.
Because of these mandatory prepayment conditions and
because there may be significant economic incentives
for a Borrower to prepay, prepayments of Senior Loans
in the Fund's portfolio may occur. As a result, the
actual remaining maturity of Senior Loans held in the
Fund's portfolio may be substantially less than the
stated maturities shown. The Fund estimates that the
actual average maturity of the Senior Loans held in its
portfolio will be approximately 18-24 months.
** Ratings (not covered by the report of independent
registered public accounting firm): Below Baa by
Moody's Investor Service, Inc. or BBB by Standard &
Poor's Group are considered to be below investment
grade.
ADR American Depositary Receipt.
(a) At or subsequent to December 31, 2004, this issue was
under the protection of the federal bankruptcy court.
(b) Position represents an unfunded loan commitment
outstanding at December 31, 2004.
144A 144A securities are those which are exempt from
registration under Rule 144A of the Securities Act of
1933, as amended. These securities may only be resold
in transactions exempt from registration which are
normally those transactions with qualified
institutional buyers.
Reg S Regulation S allows U.S. companies to sell securities
to persons or entities located outside of the U.S.
without registering those securities with the
Securities and Exchange Commission. Specifically, Reg S
provides a safe harbor from the registration
requirements of the Securities Act for the offers and
sales of securities by both foreign and domestic
issuers that are made outside the United States.
(WI) Investment purchased on a when-issued basis.
TBD Senior Loan purchased on a when-issued basis in the
primary market. Certain details associated with this
purchase are not known prior to the settlement date of
the transaction. At settlement, the borrower or
counterparty will provide the Fund with the final
weighted average coupon rate and maturity date.
NR Not rated.
See accompanying notes to financial statements.
21
Statement of
ASSETS AND LIABILITIES December 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $404,438,820) $460,123,164
Receivables:
Dividends 1,208,216
Interest 2,647,819
Investments sold 1,855,113
Reclaims 18,883
Other assets 7,025
------------------------------------------------------------------------------------------------------------------------------------
Total assets 465,860,220
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 6,000,000
Accrued expenses:
Management fees 221,537
Other 170,566
FundPreferred share dividends payable 21,727
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 6,413,830
------------------------------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 120,000,000
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $339,446,390
====================================================================================================================================
Common shares outstanding 20,145,123
====================================================================================================================================
Net asset value per Common share outstanding (net assets applicable to
Common shares, divided by Common shares outstanding) $ 16.85
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 201,451
Paid-in surplus 284,737,772
Undistributed (Over-distribution of) net investment income (1,030,538)
Accumulated net realized gain from investments (146,639)
Net unrealized appreciation of investments 55,684,344
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $339,446,390
====================================================================================================================================
Authorized shares:
Common Unlimited
FundPreferred shares Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
22
Statement of
OPERATIONS Year Ended December 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $99,666) $ 7,765,074
Interest (net of foreign tax withheld of $14,578) 11,676,872
Fees 99,626
------------------------------------------------------------------------------------------------------------------------------------
Total investment income $19,541,572
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 3,882,007
FundPreferred shares - auction fees 299,999
FundPreferred shares - dividend disbursing agent fees 13,854
Shareholders' servicing agent fees and expenses 1,967
Custodian's fees and expenses 139,675
Trustees' fees and expenses 15,214
Professional fees 89,381
Shareholders' reports - printing and mailing expenses 117,425
Stock exchange listing fees 13,983
Investor relations expense 57,716
Other expenses 75,793
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 4,707,014
Custodian fee credit (7,498)
Expense reimbursement (1,384,093)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,315,423
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 16,226,149
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
Net realized gain from investments 9,195,966
Change in net unrealized appreciation of investments 35,806,329
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 45,002,295
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (1,200,397)
From accumulated net realized gains from investments (601,610)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to FundPreferred shareholders (1,802,007)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations $59,426,437
====================================================================================================================================
See accompanying notes to financial statements.
23
Statement of
CHANGES IN NET ASSETS
FOR THE
PERIOD 9/25/03
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
12/31/04 THROUGH 12/31/03
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 16,226,149 $ 3,570,123
Net realized gain from investments 9,195,966 253,308
Change in net unrealized appreciation of investments 35,806,329 19,878,015
Distributions to FundPreferred shareholders:
From net investment income (1,200,397) (148,176)
From accumulated net realized gains from investments (601,610) (14,008)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares
from operations 59,426,437 23,539,262
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (16,301,063) (3,529,495)
From accumulated net realized gains from investments (8,284,807) (345,168)
Tax return of capital (187,892) (249,105)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (24,773,762) (4,123,768)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares -- 287,415,270
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 411,807 85,737
FundPreferred shares offering costs (4,868) (2,630,000)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from
capital share transactions 406,939 284,871,007
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares 35,059,614 304,286,501
Net assets applicable to Common shares at the beginning of period 304,386,776 100,275
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $339,446,390 $304,386,776
====================================================================================================================================
Undistributed (Over-distribution of) net investment income at the end of period $ (1,030,538) $ (197,395)
====================================================================================================================================
See accompanying notes to financial statements.
24
Statement of
CASH FLOWS Year Ended December 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS $ 59,426,437
Adjustments to Reconcile the Net Increase in Net Assets Applicable to Common Shares from Operations
to Net Cash Provided by Operating Activities:
Purchases of investment securities (192,228,928)
Purchases of short-term investment securities, net (5,697,843)
Proceeds from disposition of investment securities 201,783,460
Accretion/Amortization of discounts and premiums, net 419,799
Increase in dividends receivable (82,690)
Increase in interest receivable (28,708)
Decrease in receivable from investments sold 716,078
Increase in reclaims receivable (18,883)
Increase in other assets (7,025)
Decrease in payable for investments purchased (557,411)
Increase in management fees payable 15,173
Increase in other liabilities 72,890
Increase in FundPreferred share dividends payable 16,959
Net realized gain from investments (9,195,966)
Change in net unrealized appreciation of investments (35,806,329)
Net realized loss from paydowns 184,285
Capital gain and return of capital distributions from investments 3,373,402
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 22,384,700
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to Common shareholders (24,361,955)
Organization and offering costs payable (162,875)
Net proceeds from sale of FundPreferred shares (4,868)
------------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (24,529,698)
------------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (2,144,998)
Cash at the beginning of period 2,144,998
------------------------------------------------------------------------------------------------------------------------------------
CASH AT THE END OF PERIOD $ --
====================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash financing activities not included herein consist of reinvestments of
Common share distributions of $411,807.
See accompanying notes to financial statements.
25
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Diversified Dividend and Income Fund (the "Fund") is a diversified,
closed-end management investment company registered under the Investment Company
Act of 1940, as amended. The Fund's Common shares are listed on the New York
Stock Exchange and trade under the ticker symbol "JDD." The Fund was organized
as a Massachusetts business trust on July 18, 2003.
Prior to the commencement of operations, the Fund had no operations other than
those related to organizational matters, the initial capital contribution of
$100,275 by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Nuveen Investments, Inc. ("Nuveen"), and the recording of the
organization expenses ($11,500) and their reimbursement by Nuveen Investments,
LLC, also a wholly owned subsidiary of Nuveen.
The Fund seeks to provide high current income and total return by investing
primarily in a portfolio of dividend-paying common stocks, securities issued by
Real Estate Investment Trusts ("REITs"), debt securities and other non-equity
instruments that are issued by, or that are related to, government,
government-related and supernational issuers located, or conducting their
business, in emerging market countries ("emerging markets sovereign debt") and
senior loans.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. The prices of fixed-income securities and senior
loans are generally provided by an pricing service approved by the Fund's Board
of Trustees and based on the mean between the bid and asked prices. When price
quotes are not readily available, the pricing service or, in the absence of a
pricing service for a particular security, the Board of Trustees of the Fund, or
its designee, may establish fair market value using a wide variety of market
data including yields or prices of investments of comparable quality, type of
issue, coupon, maturity and rating, indications of value from security dealers,
evaluations of anticipated cash flows or collateral, general market conditions
and other information and analysis, including the obligor's credit
characteristics considered relevant by the pricing service or the Board of
Trustee's designee. Short-term securities are valued at amortized cost, which
approximates market value.
The senior loans in which the Fund invests are not listed on an organized
exchange and the secondary market for such investments may be less liquid
relative to markets for other fixed income securities. Consequently, the value
of senior loans, determined as described above, may differ significantly from
the value that would have been determined had there been an active market for
that senior loan.
Investment Transactions
Investment transactions are recorded on a trade date basis. Trade date for
senior loans purchased in the "primary market" is considered the date on which
the loan allocations are determined. Trade date for senior loans purchased in
the "secondary market" is the date on which the transaction is entered into.
Realized gains and losses from transactions are determined on the specific
identification method. Investments purchased on a when-issued or delayed
delivery basis may have extended settlement periods. Any investments so
purchased are subject to market fluctuation during this period. The Fund
maintains liquid assets with a current value at least equal to the amount of the
when-issued and delayed delivery purchase commitments. At December 31, 2004, the
Fund had outstanding when-issued purchase commitments of $6,000,000.
26
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities,
when information is available. Interest income, which includes the amortization
of premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis. Interest income also includes paydown gains and
losses on senior loans. Fee income consists primarily of amendment fees.
Amendment fees are earned as compensation for evaluating and accepting changes
to the original loan agreement and are recognized when received.
Income Taxes
The Fund intends to distribute substantially all net investment income and net
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 income tax provision is required.
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders 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 U.S. generally accepted accounting
principles.
The Fund intends to make monthly cash distributions to Common Shareholders of a
stated dollar amount based primarily on the Fund's net investment income but
also secondarily on net realized capital gains and/or on net unrealized capital
gains in the Fund's portfolio (stated in terms of a fixed cents per Common Share
dividend rate) ("Managed Distribution Policy"). The Fund seeks to maintain a
stable dividend level, subject to approval and oversight by the Fund's Board of
Trustees. Distributions will be made only after paying any accrued dividends or
making any redemption or liquidation payments to FundPreferred shares, if any,
and interest and required principal payments on borrowings, if any. Under a
Managed Distribution Policy, if, for any monthly distribution, net investment
income and net realized capital gain were less than the amount of the
distribution, the difference would be distributed from the Fund's assets and
would be treated by shareholders as a return of capital for tax purposes. The
final determination of the source of all distributions for the year are made
after the end of the year and reflected in the accompanying financial
statements.
REIT distributions received by the Fund are generally comprised of investment
income, long-term and short-term capital gains, and a return of REIT capital.
The actual character of amounts received during the period are not known until
after the fiscal year-end. For the twelve months ended December 31, 2004, the
character of distributions to the Fund from the REITs was 51.30% ordinary
income, 28.25% long-term and short-term capital gains, and 20.45% return of REIT
capital. For the twelve months ended December 31, 2003, the character of
distributions to the Fund from the REITs was 68.53% ordinary income, 9.62%
long-term and short-term capital gains, and 21.85% return of REIT capital.
For the fiscal periods ended December 31, 2004 and December 31, 2003, the Fund
applied the actual character of distributions reported by the REITs in which the
Fund invests to its receipts from the REITS. If a REIT held in the portfolio of
investments did not report the actual character of its distributions during the
period, the Fund treated the distributions as ordinary income.
FundPreferred Shares
Effective November 21, 2003, the Fund issued 2,400 Series T and 2,400 Series W
FundPreferred shares, $25,000 stated value per share, as a means of effecting
financial leverage. The dividend rate on each Series is determined every seven
days, pursuant to a dutch auction process overseen by the auction agent, and is
payable weekly at the end of each rate period.
Derivative Financial Instruments
The Fund may use derivatives or other transactions for the purpose of hedging
the portfolio's exposure to common stock risk, high yield credit risk, foreign
currency exchange risk and the risk of increases in interest rates. Although the
Fund is authorized to invest in such financial instruments, and may do so in the
future, it did not make any such investment during the fiscal year ended
December 31, 2004.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
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.
27
Notes to
FINANCIAL STATEMENTS (continued)
Organization and Offering Costs
Nuveen Investments, LLC has agreed to reimburse all organization expenses
(approximately $11,500) and pay all Common share offering costs (other than the
sales load) that exceed $.03 per Common share. The Fund's share of Common share
offering costs of $603,180 was recorded as a reduction of the proceeds from the
sale of Common shares.
Costs incurred by the Fund in connection with its offering of FundPreferred
shares ($2,634,868) were recorded as a reduction to paid-in surplus.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. 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 applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
During the fiscal year ended December 31, 2004, 26,242 Common shares were issued
to shareholders due to reinvestment of distributions.
During the period September 25, 2003 (commencement of operations) through
December 31, 2003, 20,106,000 Common shares and 4,800 FundPreferred shares were
sold. In addition, 5,881 Common shares were issued to shareholders due to
reinvestment of distributions during the period September 25, 2003 (commencement
of operations) through December 31, 2003.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) during the
fiscal year ended December 31, 2004, aggregated $192,228,928 and $201,783,460,
respectively.
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and federal income tax purposes are
primarily due to the treatment of paydown gains and losses, recognition of
premium amortization on debt securities, recognition of income on REIT
securities, and timing differences in recognizing certain gains and losses on
security transactions.
At December 31, 2004, the cost of investments was as follows:
--------------------------------------------------------------------------------
Cost of investments $405,594,209
================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments
at December 31, 2004, were as follows:
--------------------------------------------------------------------------------
Gross unrealized:
Appreciation $55,412,177
Depreciation (883,222)
--------------------------------------------------------------------------------
Net unrealized appreciation of investments $54,528,955
================================================================================
28
The tax components of undistributed net ordinary income and net realized gains
at December 31, 2004, were as follows:
--------------------------------------------------------------------------------
Undistributed net ordinary income * $--
Undistributed net long-term capital gains --
================================================================================
*Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
The tax character of distributions paid during the fiscal year ended December
31, 2004 and for the period September 25, 2003 (commencement of operations)
through December 31, 2003, was designated for purposes of the dividends paid
deduction as follows:
FISCAL YEAR ENDED DECEMBER 31, 2004
--------------------------------------------------------------------------------
Distributions from net ordinary income * $22,551,616
Distributions from net long-term capital gains 3,819,302
Tax return of capital 187,892
================================================================================
FISCAL PERIOD ENDED DECEMBER 31, 2003
--------------------------------------------------------------------------------
Distributions from net ordinary income * $3,899,231
Distributions from net long-term capital gains 132,847
Tax return of capital 249,105
================================================================================
*Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
The Fund designated as a long-term capital gain dividend, pursuant to Internal
Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and
profits of the Fund related to net capital gain to zero for the tax period ended
December 31, 2004.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
As approved by the Board of Trustees, effective August 1, 2004, a complex-wide
management fee structure was adopted for all funds sponsored by the Adviser and
its affiliates. This fee structure separates each fund's management fee into two
components - a complex-level component, based on the aggregate amount of all
funds assets managed by the Adviser and its affiliates, and a specific
fund-level component, based only on the amount of assets within each individual
fund. This pricing structure enables Nuveen fund shareholders to benefit from
growth in the assets within each individual fund as well as from growth in the
amount of complex-wide assets managed by the Adviser and its affiliates. Under
no circumstances will this pricing structure result in a fund paying management
fees at a rate higher than would otherwise have been applicable had the
complex-wide management fee structure not been implemented. As a consequence of
this new management fee structure, the funds' effective management fees were
reduced by approximately .009% as of January 31, 2005.
Effective August 1, 2004, the annual fund-level fee, payable monthly, for the
Fund is based upon the average daily Managed Assets of the Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
================================================================================
Effective August 1, 2004, the annual complex-level fee, payable monthly, which
is additive to the fund-level fee, for all Nuveen sponsored funds in the U.S.,
is based on the aggregate amount of total fund assets managed as follows:
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion (2) .1400
================================================================================
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds
in the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level
fee rate for such complex-wide Managed Assets shall be .1400% until such
time as a different rate or rates is determined.
29
Notes to
FINANCIAL STATEMENTS (continued)
The Fund paid through July 31, 2004, an annual management fee, payable monthly,
at the rates set forth below, which were based upon the average daily Managed
Assets of each Fund as follows:
AVERAGE DAILY MANAGED ASSETS MANAGEMENT FEE RATE
--------------------------------------------------------------------------------
For the first $500 million .9000%
For the next $500 million .8750
For the next $500 million .8500
For the next $500 million .8250
For Managed Assets over $2 billion .8000
================================================================================
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with NWQ Investment Management Company, LLC
("NWQ"), Security Capital Research & Management Incorporated ("Security
Capital"), Symphony Asset Management, LLC ("Symphony") and Wellington Management
Company, LLP ("Wellington"). Nuveen owns a controlling interest in NWQ while key
management of NWQ owns a non-controlling minority interest. Symphony is an
indirect wholly owned subsidiary of Nuveen. NWQ manages the portion of the
Fund's investment portfolio allocated to dividend-paying common stocks including
American Depositary Receipts ("ADRs"). Security Capital manages the portion of
the investment portfolio allocated to securities issued by real estate companies
including REITs. Symphony manages the portion of the Fund's investment portfolio
allocated to senior loans. Wellington manages the portion of the Fund's
investment portfolio allocated to emerging markets sovereign debt. NWQ, Security
Capital, Symphony and Wellington are compensated for their services to the Fund
from the management fee paid to the Adviser.
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 or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
30
For the first eight years of the Fund's operations, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily Managed Assets, for fees
and expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------------------------
2003* .32% 2008 .32%
2004 .32 2009 .24
2005 .32 2010 .16
2006 .32 2011 .08
2007 .32
================================================================================
*From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond September 30, 2011.
Sub-Adviser Acquisition
On November 24, 2003, Banc One Investment Advisors Corporation, an indirect,
wholly-owned subsidiary of Bank One Corporation acquired Security Capital.
Pursuant to the Investment Company Act of 1940, the change in ownership of
Security Capital caused the existing sub-advisory agreement to terminate, and
shareholders of the Fund were required to approve a new sub-advisory agreement
with Security Capital. At the Fund's annual shareholder meeting on January 20,
2004, shareholders approved the new sub-advisory agreement.
On July 1, 2004, Bank One Corporation was merged with JPMorgan Chase & Co. As a
result of the merger, Security Capital became part of JPMorgan Fleming Asset
Management. JPMorgan Fleming Asset Management is the marketing name for the
asset management business of JPMorgan Chase & Co. Those businesses include
JPMorgan Investment Management Inc. and its affiliates, including, without
limitation, Banc One Investment Advisors Corporation, Banc One High Yield
Partners, LLC, Security Capital Research & Management Incorporated, and JPMorgan
Alternative Asset Management, Inc. As the merger was not deemed to cause a
change in control of the Fund's Sub-Adviser, shareholder approval of a new
sub-advisory agreement was not necessary.
6. COMMITMENTS
Pursuant to the terms of certain of the variable rate senior loan agreements,
the Fund may have unfunded senior loan commitments. The Fund will maintain with
its custodian, cash, liquid securities and/or liquid senior loans having an
aggregate value at least equal to the amount of unfunded senior loan
commitments. At December 31, 2004, the Fund had unfunded loan commitments of
$409,091.
7. SENIOR LOAN PARTICIPATION COMMITMENTS
With respect to the senior loans held in the Fund's portfolio, the Fund may: 1)
invest in assignments; 2) act as a participant in primary lending syndicates; or
3) invest in participations. If the Fund purchases a participation of a senior
loan interest, the Fund would typically enter into a contractual agreement with
the lender or other third party selling the participation, rather than directly
with the Borrower. As such, the Fund not only assumes the credit risk of the
Borrower, but also that of the Selling Participant or other persons
interpositioned between the Fund and the Borrower. At December 31, 2004, there
were no such outstanding participation commitments.
8. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Fund declared a distribution of $.1025 per Common share which was paid on
February 1, 2005, to shareholders of record on January 15, 2005.
Adviser Merger
Effective January 1, 2005, the Adviser and its affiliate, Nuveen Advisory Corp.
("NAC"), were merged into Nuveen Asset Management ("NAM"), also a wholly owned
subsidiary of Nuveen. As a result of the merger, NAM is now the adviser to all
funds previously advised by either NAC or the Adviser.
Announcement Regarding Parent Company of Adviser
After the close of trading on the New York Stock Exchange on January 31, 2005,
The St. Paul Travelers Companies, Inc. announced that it intended to explore
strategic alternatives to divest its equity stake in Nuveen.
31
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
Investment Operations
-------------------------------------------------------------------
Distributions Distributions
from Net from
Beginning Net Investment Capital
Common Realized/ Income to Gains to
Share Net Unrealized FundPreferred FundPreferred
Net Asset Investment Investment Share- Share-
Value Income(a) Gain holders+ holders+ Total
=======================================================================================================
Period Ended 12/31:
2004 $15.13 $.81 $2.23 $(.06) $(.03) $2.95
2003(b) 14.33 .18 1.01 (.01) -- 1.18
=======================================================================================================
Less Distributions Total Returns
------------------------------------------- --------------------
Based
Net Offering on
Investment Capital Costs and Ending Common
Income to Gains to Tax FundPreferred Common Based Share
Common Common Return Share Share Ending on Net
Share- Share- of Underwriting Net Asset Market Market Asset
holders holders Capital Total Discounts Value Value Value** Value**
====================================================================================================================================
Period Ended 12/31:
2004 $(.81) $(.41) $(.01) $(1.23) $ -- $16.85 $15.57 8.04% 20.44%
2003(b) (.18) (.02) (.01) (.21) (.17) 15.13 15.65 5.76 7.04
====================================================================================================================================
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
----------------------------- ------------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
========================================================================================================================
Period Ended 12/31:
2004 $339,446 1.50% 4.74% 1.06% 5.19% 46%
2003(b) 304,387 1.26* 4.51* .87* 4.89* 28
========================================================================================================================
FundPreferred Shares at End of Period
------------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
==================================================================
Period Ended 12/31:
2004 $120,000 $25,000 $95,718
2003(b) 120,000 25,000 88,414
==================================================================
* Annualized.
** Total Investment Return on Market Value is the combination of changes in
the market price per share and the effect of reinvested dividend income and
reinvested capital gains distributions, if any, at the average price paid
per share at the time of reinvestment. Total Return on Common Share Net
Asset Value is the combination of changes in Common Share net asset value,
reinvested dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders; income ratios reflect income earned on assets attributable to
FundPreferred shares.
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) For the period September 25, 2003 (commencement of operations) through
December 31, 2003.
See accompanying notes to financial statements.
32-33 SPREAD
Board Members
AND OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Funds is currently set
at eight. None of the board members who are not "interested" persons of the
Funds has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger (1) Chairman of 1994 Chairman and Director (since 1996) of Nuveen Investments, 153
3/28/49 the Board Inc. and Nuveen Investments, LLC; Director (since 1992) and
333 W. Wacker Drive and Trustee Chairman (since 1996) of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp. (3); Chairman and Director (since
1997) of Nuveen Asset Management; Director (since 1996)
of Institutional Capital Corporation; Chairman and Director
(since 1999) of Rittenhouse Asset Management, Inc.;
Chairman of Nuveen Investments Advisers Inc. (since 2002).
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Board member 1997 Private Investor and Management Consultant. 153
8/22/40
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (1989) as Senior Vice President of The Northern 153
7/29/34 Trust Company; Director, Community Advisory Board for
333 W. Wacker Drive Highland Park and Highwood, United Way of the North
Chicago, IL 60606 Shore (since 2002).
------------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a private philanthropic 153
10/22/48 corporation (since 1996); Director and Vice Chairman, United
333 W. Wacker Drive Fire Group, a publicly held company; Adjunct Faculty Member,
Chicago, IL 60606 University of Iowa; Director, Gazette Companies; Life Trustee
of Coe College; Director, Iowa College Foundation; formerly,
Director, Federal Reserve Bank of Chicago; formerly, President
and Chief Operating Officer, SCI Financial Group, Inc., a regional
financial services firm.
------------------------------------------------------------------------------------------------------------------------------------
William C. Hunter Board member 2004 Dean and Distinguished Professor of Finance, School of 153
3/6/48 Business at the University of Connecticut (since 2003);
333 W. Wacker Drive previously Senior Vice President and Director of Research
Chicago, IL 60606 at the Federal Reserve Bank of Chicago (1995-2003);
Director, Credit Research Center at Georgetown University;
Director of Xerox Corporation (since 2004).
34
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Chairman, formerly, Senior Partner and Chief Operating 153
9/24/44 Officer, Miller-Valentine Partners Ltd., a real estate
333 W. Wacker Drive investment company; formerly, Vice President, Miller-Valentine
Chicago, IL 60606 Realty, a construction company; Director, Chair of the Finance
Committee and Member of the Audit Committee of Premier
Health Partners, the not-for-profit parent company of Miami
Valley Hospital; President of the Dayton Philharmonic Orchestra
Association; Director and Immediate Past Chair, Dayton
Development Coalition; formerly, Member, Community
Advisory Board, National City Bank, Dayton, Ohio and
Business Advisory Council, Cleveland Federal Reserve Bank.
------------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy Donnelley 153
12/29/47 Foundation (since 1994); prior thereto, Executive Director,
333 W. Wacker Drive Great Lakes Protection Fund (from 1990 to 1994)
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine Board member 2005 Senior Vice President for Business and Finance (since 1997), 153
1/22/50 Northwestern University; Director (since 2003), Chicago
333 W. Wacker Drive Board of Options Exchange; Director (since 2003), National
Chicago, IL 60606 Mentor Holdings, a privately-held, national provider of home
and community-based services; Chairman (since 1997), Board
of Directors, Rubicon, an insurance company owned by
Northwestern University; Director (since 1997), Evanston
of Commerce and Evanston Inventure, a business development
organization.
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary and 153
9/9/56 Administrative Associate General Counsel, formerly, Vice President and
333 W. Wacker Drive Officer Assistant General Counsel of Nuveen Investments, LLC;
Chicago, IL 60606 Managing Director (since 2002), General Counsel and
Assistant Secretary, formerly, Vice President of Nuveen
Advisory Corp. and Nuveen Institutional Advisory Corp. (3);
Managing Director (since 2002), Assistant Secretary
and Associate General Counsel, formerly, Vice President
(since 2000), of Nuveen Asset Management; Managing
Director (since 2004) and Assistant Secretary (since
1994) of Nuveen Investments, Inc.; Assistant Secretary
of NWQ Investment Management Company, LLC (since 2002);
Vice President and Assistant Secretary of Nuveen
Investments Advisers Inc. (since 2002); Managing
Director, Associate General Counsel and Assistant
Secretary of Rittenhouse Asset Management, Inc.
(since 2003); Chartered Financial Analyst.
35
Board Members
AND OFFICERS (CONTINUED)
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
Julia L. Antonatos Vice President 2004 Managing Director (since 2005), previously, Vice President 153
9/22/63 (since 2002), formerly, Assistant Vice President (since 1999)
333 W. Wacker Drive of Nuveen Investments, LLC; Chartered Financial Analyst.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant Vice 153
2/3/66 and Assistant President (since 2000), previously, Associate of Nuveen
333 W. Wacker Drive Secretary Investments, LLC.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999), 153
11/28/67 and Treasurer prior thereto, Assistant Vice President (since 1997); Vice
333 W. Wacker Drive President and Treasurer of Nuveen Investments, Inc. (since
Chicago, IL 60606 1999); Vice President and Treasurer of Nuveen Advisory Corp.
and Nuveen Institutional Advisory Corp (since 1999) (3); Vice
President and Treasurer of Nuveen Asset Management
(since 2002) and of Nuveen Investments Advisers Inc. (since
2002); Assistant Treasurer of NWQ Investment Management
Company, LLC (since 2002); Vice President and Treasurer of
Nuveen Rittenhouse Asset Management, Inc. (since 2003);
Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant General Counsel 153
9/24/64 and Secretary (since 1998), formerly, Assistant Vice President (since 1998) of
333 W. Wacker Drive Nuveen Investments, LLC; Vice President (since 2002)
Chicago, IL 60606 and Assistant Secretary (since 1998), formerly, Assistant
Vice President of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp. (3); Vice President and Assistant
Secretary (since 2002) of Nuveen Asset Management.
------------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004) formerly, Vice President of 153
10/24/45 Nuveen Investments, LLC; Managing Director (since 2004)
333 W. Wacker Drive formerly, Vice President (since 1998) of Nuveen Advisory Corp.
Chicago, IL 60606 and Nuveen Institutional Advisory Corp. (3); Managing Director
(since 2005) of Nuveen Asset Management.
------------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 153
3/2/64 LLC; Managing Director (since 2001), formerly Vice President
333 W. Wacker Drive of Nuveen Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp. (since 1995) (3); Managing Director of Nuveen Asset
Management (3) (since 2001); Vice President of Nuveen
Investment Advisers Inc. (since 2002); Chartered Financial
Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 1998) 153
5/31/54 and Controller of Nuveen Investments, LLC and, formerly, Vice President and
333 W. Wacker Drive Funds Controller (since 1998) of Nuveen Investments, Inc.;
Chicago, IL 60606 Certified Public Accountant.
36
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, 153
3/22/63 LLC, previously Assistant Vice President (since 1999);
333 W. Wacker Drive prior thereto, Associate of Nuveen Investments, LLC;
Chicago, IL 60606 Certified Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, Assistant Vice 153
8/27/61 President (since 1993) of Nuveen Investments, LLC.
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant General 153
7/27/51 and Assistant Counsel of Nuveen Investments, LLC; Vice President and
333 W. Wacker Drive Secretary Assistant Secretary of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp. (3); Assistant Secretary of Nuveen
Investments, Inc. and (since 1997) Nuveen Asset Management,
Vice President (since 2000), Assistant Secretary and Assistant
General Counsel (since 1998) of Rittenhouse Asset
Management, Inc.; Vice President and Assistant
Secretary of Nuveen Investments Advisers Inc.
(since 2002); Assistant Secretary of NWQ Investment
Management Company, LLC (since 2002).
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member
of the Adviser.
(2) Board members serve an indefinite term until his/her successor is elected.
The year first elected or appointed represents the year in which the board
member was first elected or appointed to any fund in the Nuveen Complex.
(3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were
reorganized into Nuveen Asset Management, effective January 1, 2005.
(4) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
37
Reinvest Automatically
EASILY AND CONVENIENTLY
Sidebar text: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET
UP YOUR REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
38
Other Useful
INFORMATION
Effective Jan. 1, 2005, the asset management services and operations of Nuveen
Advisory Corp. (NAC) and Nuveen Institutional Advisory Corp (NIAC) became part
of Nuveen Asset Management (NAM). This internal consolidation is intended to
simplify the delivery of services to the investment management clients of Nuveen
Investments. It does not affect the investment objectives or portfolio
management of any Fund.
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
The Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
most recent 12-month period ended June 30, 2004, and (iii) a description of the
policies and procedures that the Fund used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
DIVIDEND INFORMATION
The Nuveen Diversified Dividend and Income Fund designates 15.45% of dividends
declared from net investment income as dividends qualifying for the 70%
dividends received deduction for corporations, and 19.96% as qualified dividend
income for individuals under the Jobs and Growth Tax Relief Reconciliation Act
of 2003.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
MARKET YIELD: Market yield is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Funds'
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any MuniPreferred shares
issued in order to leverage the Fund) from its total assets and then dividing
the remainder by the number of shares outstanding. Fund NAVs are calculated at
the end of each business day.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
The Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the period covered by this report. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
39
Nuveen Investments:
SERVING Investors
For GENERATIONS
Photo of: 2 women looking at a photo album.
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS.
Managing more than $115 billion in assets, Nuveen Investments offers access to a
number of different asset classes and investing solutions through a variety of
products. Nuveen Investments markets its capabilities under four distinct
brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in
value-style equities; Rittenhouse, a leader in growth-style equities; and
Symphony, a leading institutional manager of market-neutral alternative
investment portfolios.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should consider the
investment objective and policies, risk considerations, charges and expenses of
the Fund carefully before investing. The prospectus contains this and other
information relevant to an investment in the Fund. For a prospectus, please
contact your securities representative or Nuveen Investments, 333 W. Wacker Dr.,
Chicago, IL 60606. Please read the prospectus carefully before you invest or
send money.
o Share prices
Learn more o Fund details
about Nuveen Funds at o Daily financial news
WWW.NUVEEN.COM/ETF o Investor education
o Interactive planning tools
Logo: NUVEEN Investments
EAN-B-1204D
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. There were no amendments to or waivers
from the Code during the period covered by this report. The registrant has
posted the code of ethics on its website at www.nuveen.com/etf. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then click on Code of Conduct.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors or Trustees determined that the registrant
has at least one "audit committee financial expert" (as defined in Item 3 of
Form N-CSR) serving on its Audit Committee. The registrant's audit committee
financial expert is Jack B. Evans, Chairman of the Audit Committee, who is
"independent" for purposes of Item 3 of Form N-CSR. Mr. Evans has served as the
registrant's audit committee financial expert from July 26, 2004 to the end of
the reporting period on December 31, 2004.
Prior to July 26, 2004, William E. Bennett, who was "independent" for purposes
of Item 3 of Form N-CSR, served as the audit committee financial expert. Mr.
Bennett unexpectedly resigned from the Board effective April 30, 2004.
Accordingly for this reporting period, the registrant did not have a designated
"audit committee financial expert" from July 1, 2004 to July 26, 2004.
Mr. Evans was formerly President and Chief Operating Officer of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
Mr. Bennett was formerly Executive Vice President and Chief Credit Officer of
First Chicago Corporation and its principal subsidiary, The First National Bank
of Chicago. As part of his role as Chief Credit Officer, Mr. Bennett set policy
as to accrual of assets/loans; designated performing/non-performing assets; set
the level of reserves against the credit portfolio; and determined the carrying
value of credit related assets and exposure. Among other things, Mr. Bennett was
also responsible for the oversight of the internal analysis function including
setting ground rules for the review and preparation of financial analysis and
financial statements for use in making credit and risk decisions for clients.
Mr. Bennett has significant experience reviewing, analyzing and evaluating
financial statements of domestic and international companies in a variety of
industries with complex accounting issues.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Nuveen Diversified Dividend and Income Fund
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP entered into on or after May 6, 2003, the
Audit Committee approved in advance all audit services and non-audit services
that Ernst & Young LLP provided to the Fund, except for those non-audit services
that were subject to the pre-approval exception under Rule 2-01 of Regulation
S-X (the "pre-approval exception"). The pre-approval exception for services
provided directly to the Fund waives the pre-approval requirement for services
other than audit, review or attest services if: (A) the aggregate amount of all
such services provided constitutes no more than 5% of the total amount of
revenues paid by the Fund to its accountant during the fiscal year in which the
services are provided; (B) the Fund did not recognize the services as non-audit
services at the time of the engagement; and (C) the services are promptly
brought to the Audit Committee's attention, and the Committee (or its delegate)
approves the services before the audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 $ 25,000 $ 0 $ 785 $ 900
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2003 $ 19,300 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
The above "All Other Fees" are fees paid to audit firms to perform agreed
upon procedures required by the rating agencies to rate fund preferred shares.
The above "Tax Fees" were billed for professional services for tax advice, tax
compliance and tax planning.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Institutional Advisory Corp. ("NIAC" or the "Adviser"), and any entity
controlling, controlled by or under common control with NIAC ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two full fiscal years.
The table also shows the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2003 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A N/A N/A
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP's independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES
BILLED TO ADVISER AND
AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES
PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND
RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE
TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 $ 1,685 $ 0 $ 0 $ 1,685
December 31, 2003 $ 0 $ 0 $ 0 $ 0
Audit Committee Pre-Approval Policies and Procedures. Generally, the audit
committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the audit committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the audit committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the audit committee at
the next audit committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board of Directors or Trustees has a separately designated
audit committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (15 U.S.C.
78c(a)(58)(A)). The members of the audit committee are Robert P. Bremner,
Lawrence H. Brown, Jack B. Evans and William J. Schneider.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Schedule I in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
In the rare event that a municipal issuer held by the Fund were to issue a proxy
or that the Fund were to receive a proxy issued by a cash management security,
the Adviser would either engage an independent third party to determine how the
proxy should be voted or vote the proxy with the consent, or based on the
instructions, of the Fund's Board of Directors or Trustees or its
representative. In the case of a conflict of interest, the proxy would be
submitted to the applicable Fund's Board to determine how the proxy should be
voted. A member of the Adviser's legal department would oversee the
administration of the voting, and ensure that records were maintained in
accordance with Rule 204-2(c)(2) under the Investment Advisers Act of 1940 (17
CFR 275.204-2(c)(2)), reports were filed with the SEC on Form N-PX, and the
results were provided to the Board of Directors or Trustees and made available
to shareholders as required by applicable rules.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In the event of a vacancy on the Board, the nominating and governance committee
receives suggestions from various sources, including shareholders, as to
suitable candidates. Suggestions should be sent in writing to Lorna Ferguson,
Vice President for Board Relations, Nuveen Investments, 333 West Wacker Drive,
Chicago, IL 60606. The nominating and governance committee sets appropriate
standards and requirements for nominations for new directors or trustees and
reserves the right to interview all candidates and to make the final selection
of any new directors or trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
(17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf. and
there were no amendments during the period covered by this report (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then Code of Conduct.).
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Diversified Dividend and Income Fund
-----------------------------------------------------------
By (Signature and Title)* /s/ Jessica R. Droeger
----------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: March 10, 2005
-------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
----------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: March 10, 2005
-------------------------------------------------------------------
By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: March 10, 2005
-------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.