-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OFQYR4B+vHV5G+rgoi+gyJoKkCGZJ08SeOLI/MscYEZSQoNmpgtADPpJOAbDXfPE IgI0Sm/j2K2JIj05Q6nY+A== 0000950137-06-009868.txt : 20060908 0000950137-06-009868.hdr.sgml : 20060908 20060908103547 ACCESSION NUMBER: 0000950137-06-009868 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060908 DATE AS OF CHANGE: 20060908 EFFECTIVENESS DATE: 20060908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUVEEN DIVERSIFIED DIVIDEND & INCOME FUND CENTRAL INDEX KEY: 0001255821 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-21407 FILM NUMBER: 061080637 BUSINESS ADDRESS: STREET 1: 333 WEST WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 N-CSRS 1 c07139nvcsrs.txt FORM N-CSRS 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 ------------------- NUVEEN DIVERSIFIED DIVIDEND AND INCOME FUND - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Jessica R. Droeger Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (312) 917-7700 --------------------- Date of fiscal year end: December 31 ------------------- Date of reporting period: June 30, 2006 --------------------- 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. SEMIANNUAL REPORT JUNE 30, 2006 NUVEEN INVESTMENTS EXCHANGE-TRADED CLOSED-END FUNDS NUVEEN DIVERSIFIED DIVIDEND AND INCOME FUND JDD HIGH CURRENT INCOME AND TOTAL RETURN FROM A PORTFOLIO OF DIVIDEND-PAYING COMMON STOCKS, REIT STOCKS, EMERGING MARKETS SOVEREIGN DEBT, AND SENIOR LOANS NUVEEN LOGO COVER PHOTO INSIDE COVER PHOTO NOW YOU CAN RECEIVE YOUR NUVEEN FUND REPORTS FASTER. NO MORE WAITING. SIGN UP TODAY TO RECEIVE NUVEEN FUND INFORMATION BY E-MAIL. It only takes a minute to sign up for E-Reports. Once enrolled, you'll receive an e-mail as soon as your Nuveen Investments Fund information is ready -- no more waiting for delivery by regular mail. Just click on the link within the e-mail to see the report, and save it on your computer if you wish. IT'S FAST, EASY & FREE: DELIVERY DIRECT TO YOUR E-MAIL IN-BOX WWW.INVESTORDELIVERY.COM OR WWW.NUVEEN.COM/ACCOUNTACCESS if you get your Nuveen Fund if you get your Nuveen Fund dividends and statements from dividends and statements directly your financial advisor or from Nuveen. brokerage account. (Be sure to have the address sheet that accompanied this report handy. You'll need it to complete the enrollment process.)
NUVEEN LOGO (TIMOTHY SCHWERTFEGER PHOTO) Timothy R. Schwertfeger Chairman of the Board CHAIRMAN'S LETTER TO SHAREHOLDERS Dear Shareholder: I am very pleased to report that over the six-month period covered by this report, your Fund continued to provide you with attractive monthly distributions and diversified exposure to a variety of important market sectors and asset classes. For more information on your Fund's performance, please read the Portfolio Managers' Comments, the Distribution and Share Price Information, and the Performance Overview sections of this report. Portfolio diversification is a recognized way to try 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. In addition to providing regular monthly income, an investment like your Fund may help you achieve and benefit from greater portfolio diversification. Your financial advisor can explain these potential advantages in more detail. I urge you to contact him or her soon for more information on this important investment strategy. "IN ADDITION TO PROVIDING REGULAR MONTHLY INCOME, AN INVESTMENT LIKE YOUR FUND MAY HELP YOU ACHIEVE AND BENEFIT FROM GREATER PORTFOLIO DIVERSIFICATION." At Nuveen Investments, our mission continues to be to assist you and your financial advisor by offering investment services and products that can help you to secure your financial objectives. We are grateful that you have chosen us as a partner as you pursue your financial goals, and we look forward to continuing to earn your trust in the months and years ahead. Sincerely, (TIMOTHY SCHWERTFEGER SIG) Timothy R. Schwertfeger Chairman of the Board August 11, 2006 Nuveen Investments Exchange-Traded Closed-End Funds (JDD) PORTFOLIO MANAGERS' COMMENTS THE NUVEEN DIVERSIFIED DIVIDEND AND INCOME FUND FEATURES PORTFOLIO MANAGEMENT BY TEAMS AT FOUR SUBADVISERS: NWQ Investment Management Company, LLC, ("NWQ") 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 22 years of corporate finance and investment management experience. The real estate portion of the Fund is managed by a team at Security Capital Research & Management Incorporated ("Security Capital"), a wholly-owned subsidiary of J. P. Morgan Chase & Co. Anthony R. Manno Jr. and Kenneth D. Statz, who each have more than 22 years experience in managing real estate investments, lead the team. Wellington Management Company, LLP ("Wellington") invests its portion of the Fund's assets in emerging markets sovereign debt. James W. Valone, who has more than 18 years of investment management experience, heads the team. Symphony Asset Management, LLC, ("Symphony") an affiliate of Nuveen Investments, invests its portion of the Fund's assets primarily 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 and Symphony talk about the markets, their management strategies and the performance of the Fund for the six-month period ended June 30, 2006. WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006? We continue to view the leveraged loan market favorably with near historic low default rates over the past 24 months, improved market liquidity and new companies coming to market. Strong investor demand, however has allowed many deals to be structured with aggressive leverage levels. We continue to position the portfolio in a defensive manner, avoiding credits we feel are too aggressively leveraged or do not have a strong credit profile. The volatility experienced during the second quarter has presented new opportunities in the new-issue market. Recently, we have found an increase in new deals with attractive pricing, solid collateral and appropriate covenants. A combination of these characteristics has been less prevalent recently in a strong market environment. For the dividend-paying common stock portion of the Fund's portfolio, there were no changes to our management strategy as the portfolio's assets continue to be well-diversified, and invested in dividend producing securities. We employ an opportunistic approach to investing, utilizing a bottom-up strategy that is focused on identifying 4 attractively valued companies which possess favorable risk/reward characteristics and emerging catalysts that we believe could unlock value or improve profitability. These catalysts include management changes, restructuring efforts, recognition of hidden assets/free options, or a turn in the underlying fundamentals. We also continue to focus on downside protection, and pay a great deal of attention to a company's balance sheet and cash flow statement, not just the income statement. We focus on cash flow analysis believing it offers a more objective and truer picture of a company's financial position than an evaluation based on earnings alone. During the period, we took new positions in five common stock securities, and added to our stakes in several existing holdings. The new investments include CBS Corporation, Clear Channel Communications, Inc., Pfizer Inc., Stora Enso Oyj, and Vodafone Group PLC. Our analysis indicated these companies possessed solid fundamentals, compelling valuations, and an attractive risk/reward relationship. Conversely, we eliminated our positions in Albertson's, Inc., Arkema, Embarq Corp., Kerr-McGee Corporation, Sprint-Nextel Corporation, and Tronox Inc. In the emerging markets debt sleeve of the Fund, we sought to add value by identifying countries and securities with attractive risk and return profiles. In Central and Eastern Europe, we maintained an overweight to Russia as the country continued to use fiscal and current account surpluses to reduce debt, thereby boosting its credit profile. We were underweight countries with relatively weak fundamentals and valuations, such as Hungary and Turkey. In Latin America, our overweight to Argentina was based on the country's strong macroeconomic performance and continued improvement in the country's debt servicing capacity. We were overweight Brazil as the country was well positioned from a credit perspective, since its government is actively reducing its external debt. In Asia, we found attractive valuations in the debt of the Philippines and Indonesia. Economic policy frameworks have improved in both countries and debt markets are only slowly reflecting the associated reductions in credit risk. Other Asian countries remain fundamentally strong, but valuations limit upside potential. 5 Finally, in anticipation of higher market volatility brought on by a combination of rising inflation and slower economic growth, we moved the portfolio into a moderately defensive position in the second quarter. We favored higher quality countries and increased our allocation to cash during this period. We remain constructive on the fundamental outlook of emerging markets, and look for opportunities to add risk following the recent market sell-off. As of June 30, 2006, the real estate portion of the portfolio was predominately invested in common stocks. We continued to focus on finding what we believed would be the best opportunities to generate sustainable income and potential price appreciation over the long-run. In particular, we sought to maintain significant diversification within the real estate sector while taking into account company credit quality, sector and geographic exposure and security-type allocations. Every investment decision was based on a multi-layered analysis of the company, the real estate it owns, its management and the relative price of the security. HOW DID THE FUND PERFORM DURING THE PERIOD? TOTAL RETURNS ON NET ASSET VALUE For the six-months ended June 30, 2006 JDD 7.38% - -------------------------------------------------------------------------------------------- Comparative Benchmark(1) 6.36% - --------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 1 Comparative benchmark performance is a blended return consisting of: 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. - -------------------------------------------------------------------------------- Past performance does not guarantee future results. Current performance may be higher or lower than the data shown. 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. See the Performance Overview Page for additional information. One security that positively impacted the performance of the senior loan component of the Fund over the period was the Federal-Mogul Corporation term loan. The Federal-Mogul Corporation term loan traded up during the period due to the expectation that the company will emerge out of bankruptcy soon. Successful restructuring efforts and financial results show they are making progress on their emergence from chapter 11. The Fund had several common equity investments that produced double-digit gains for the period. With a gain of over 50% for the period, our best performing holding was Kerr-McGee as the company received an all-cash takeover offer from Anadarko Petroleum Corp. Our remaining energy investments posted returns of 5-13% as high oil prices and increased production volumes are driving record earnings and cash flows. Increased 6 industry consolidation and positive fundamentals also contributed to the 35% rise in our shares of Korean-based steel manufacturer, POSCO. The portfolio's investment in iron-ore manufacturer, Rio Tinto PLC, also posted a double-digit gain. Other notable investments during the period include IndyMac Bancorp Inc. as the company continues to show strong fundamental trends despite the current headwinds of rising interest rates and a slowing mortgage origination market; Carolina Group appreciated due to an improving litigation environment and higher operating results; and our stakes in AT&T Inc. and Verizon Communications appreciated given their attractive valuations and improving trends in the telecommunications sector. In the emerging markets sovereign debt portion of the portfolio, the Fund benefited from decisions to overweight Argentina and the Philippines and to underweight Turkey and Hungary. A move to increase cash positions and exposure to high-quality credits in the second quarter was additive to performance results. For the six-month period ended June 30, 2006, the real estate portion of the Fund modestly outperformed a commonly followed industry benchmark. Over this period, we favored real estate companies with high quality management teams, strong balance sheets and potential for price appreciation, with property portfolios generally situated in urban markets characterized by high barriers-to-entry. Performance benefited from the increased representation of investments in apartment and lodging companies, sectors characterized by short-duration lease terms, and thus the ability to rapidly raise rents in an improving economy. The Fund had several holdings that constrained the Fund's performance over this reporting period. One corporate bond position that had a negative impact on the portfolio was KB Homes. The KB Home 8.625% bond traded down during the period due to the decrease in new home orders and investor concern about a severe slowdown in homebuilding activity. This concern has been caused by increasing mortgage rates and a slowdown in new home orders. In the equity portfolio, our investments in International Paper Co. and Packaging Corp. of America posted modest declines of 4% due to rising cost pressures and weak demand characteristics in the paper industry. Alumina Ltd declined 8% on rising cost 7 pressures and concerns of increased Chinese production, and our investments in insurance broker, Aon Corp., struggled modestly after reporting core operating earnings that were slightly below expectations. The stock had appreciated strongly in the past year, moving its valuation a bit ahead of itself. Notwithstanding the recent softness in the stock price, we believe the Aon story remains very compelling as the company is well-positioned to generate strong revenue growth and margin expansion through ongoing restructuring initiatives and the possible monetization of its underwriting businesses. In its emerging markets sovereign debt sleeve, relative detractors from performance were primarily due to overweightings to Russia, Mexico and Malaysia and security selection in Argentina. In the real estate portion of the Fund, in seeking to maintain the income and sector diversification objectives of the Fund, our investments in the higher yielding, but historically defensive healthcare sector underperformed the Benchmark as a whole. 8 DISTRIBUTION AND SHARE PRICE INFORMATION In addition to owning preferred stocks, the Fund has issued its own preferred shares, called FundPreferred(TM). FundPreferred provides a degree of financial leverage that can enhance the Fund's returns and supplement the income available to pay common shareholder distributions, but also can increase share price volatility. This leveraging strategy provided incremental income and helped enhance shareholder distributions over this reporting period. The Fund has a managed distribution policy designed to provide relatively stable monthly cash flow to investors. Under this policy, the Fund's monthly distributions will be paid from net investment income generated by its underlying investments as well as from net realized capital gains and/or returns of capital, generally representing net unrealized capital gains. During the six-month period, the Fund maintained its monthly distribution of $0.110 per share. As of June 30, 2006, the Fund was trading at a -3.26% discount to its net asset value. This discount was less than the average -3.69% discount the Fund exhibited over the course of the six-month reporting period. We are providing shareholders with an estimate of the source of the Fund's monthly distribution as of June 30, 2006. These estimates may, and likely will, vary over time based on the investment activities of the Fund and changes in the value of portfolio investments. The final determination of the source and tax characteristics of all distributions will be made after December 31, 2006 and reported to you on Form 1099-DIV early in 2007. More details about the Fund's distributions are available monthly on www.nuveen.com/cef. The Fund estimates that its monthly distribution is comprised of 65% net investment income and, pursuant to the Fund's managed distribution policy, 35% capital appreciation consisting of either net realized capital gains and/or a return of capital (generally representing net unrealized capital gains). The components of the Fund's net investment income are estimated to be 86% ordinary income, 8% capital gains, and 6% return of capital. A portion of the Fund's net investment income represents distribution payments received from securities of real estate investment trusts (REITs) which may be re-characterized by the REITs for tax purposes after calendar year-end. 9 The foregoing presents information about the expected tax characteristics of the Fund's distributions, to conform to a federal securities law requirement that any fund paying distributions from any sources other than net income disclose to shareholders the distribution portions attributable to such other sources. The Fund provides this type of information on a tax basis, instead of on a generally accepted accounting principles (GAAP) basis, because experience has shown that Fund shareholders are most concerned about the tax character of their distributions (and might well be confused by information about distribution characteristics that differed from the tax-based characteristics), and because the Fund also believes that the distributions' tax characteristics fairly represent the economic basis of the Fund's distributions and returns. The breakdown of distribution characteristics according to GAAP likely would differ from the expected tax characteristics shown above. 10 Nuveen Diversified Dividend and Income Fund JDD PERFORMANCE OVERVIEW As of June 30, 2006
PORTFOLIO APPLICATION (as a % of total investments) - ------------------------------------------------------------------------------------- Real Estate Investment Trust Common Stocks, $25 Par (or similar) Securities and Convertible Bonds 30.2% - ------------------------------------------------------------------------------------- Common Stocks 26.0% - ------------------------------------------------------------------------------------- Emerging Markets Sovereign Debt and Foreign Corporate Bonds 20.8% - ------------------------------------------------------------------------------------- Variable Rate Senior Loan Interests 18.9% - ------------------------------------------------------------------------------------- Short-Term Investments 2.3% - ------------------------------------------------------------------------------------- Corporate Bonds 1.8% - -------------------------------------------------------------------------------------
BAR CHART: 2005-2006 MONTHLY DISTRIBUTIONS PER SHARE Jul 0.1025 Aug 0.1025 Sep 0.1075 Oct 0.1075 Nov 0.1075 Dec 0.1075 Jan 0.1100 Feb 0.1100 Mar 0.1100 Apr 0.1100 May 0.1100 Jun 0.1100
Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 7/01/05 15.27 15.33 15.48 15.65 15.53 15.58 15.60 15.44 15.45 15.77 15.72 15.64 15.67 15.56 15.66 15.65 15.94 15.99 16.00 16.00 16.00 16.05 16.14 16.16 16.16 16.20 15.93 15.79 15.90 15.86 15.80 15.71 15.77 15.86 15.88 16.00 15.94 15.99 15.93 15.65 15.53 15.44 15.43 15.59 15.84 15.90 16.12 16.23 16.12 16.24 16.39 16.19 16.05 15.95 15.92 15.90 15.94 15.80 15.72 15.76 15.74 15.68 15.77 15.95 15.82 16.03 16.10 16.00 15.83 16.05 16.08 16.08 15.70 15.35 15.24 15.10 15.00 14.94 14.72 14.84 15.11 15.11 15.00 15.06 15.12 15.49 15.32 15.49 15.54 15.75 15.70 15.82 15.90 15.92 15.55 15.50 15.54 15.62 15.48 15.71 15.56 15.45 15.45 15.64 15.90 15.82 16.05 16.04 15.90 15.93 16.15 16.02 16.10 16.05 16.24 16.05 16.00 16.05 16.12 15.80 15.90 16.03 15.87 16.03 15.90 16.01 16.24 16.35 16.35 16.44 16.21 16.16 16.34 16.75 16.70 16.85 16.92 16.81 16.69 16.45 16.65 16.65 16.83 16.84 16.62 16.61 16.71 16.70 16.62 16.80 16.80 16.75 16.86 16.84 16.99 16.80 17.00 16.65 16.55 16.58 16.67 16.72 16.82 16.84 16.70 16.84 16.98 17.00 16.95 16.95 17.08 17.05 17.15 17.13 17.04 17.17 16.98 17.04 16.99 16.95 16.90 16.92 16.91 17.00 16.95 17.05 16.90 17.06 16.97 16.95 16.93 16.90 17.11 17.19 17.14 17.13 16.98 16.67 16.63 16.67 16.25 16.30 16.79 16.84 16.84 16.94 16.97 16.98 16.97 16.95 16.95 17.09 17.01 17.00 16.95 17.13 17.18 17.22 17.17 17.24 17.05 16.94 16.91 16.49 16.74 16.66 16.48 16.65 16.45 16.87 16.84 16.62 16.60 16.74 16.98 17.00 16.94 16.79 16.88 16.99 17.01 16.81 16.83 17.00 16.78 16.62 16.58 16.41 16.25 16.34 16.47 16.35 16.40 16.60 6/30/06 16.89
FUND SNAPSHOT - ---------------------------------------------------------------------- Common Share Price $16.89 - ---------------------------------------------------------------------- Common Share Net Asset Value $17.46 - ---------------------------------------------------------------------- Premium/(Discount) to NAV -3.26% - ---------------------------------------------------------------------- Current Distribution Rate(1) 7.82% - ---------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $351,808 - ----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (Inception 9/25/03)
- ------------------------------------------------------------------------------------- ON SHARE PRICE ON NAV - ------------------------------------------------------------------------------------- 6-Month (Cumulative) 7.40% 7.38% - ------------------------------------------------------------------------------------- 1-Year 22.72% 14.22% - ------------------------------------------------------------------------------------- Since Inception 13.75% 16.51% - -------------------------------------------------------------------------------------
INDUSTRIES (as a % of total investments) - ------------------------------------------------------------------- Real Estate Investment Trust 30.2% - ------------------------------------------------------------------- Sovereign Debt 20.8% - ------------------------------------------------------------------- Media 4.7% - ------------------------------------------------------------------- Diversified Telecommunication Services 3.3% - ------------------------------------------------------------------- Hotels, Restaurants & Leisure 3.1% - ------------------------------------------------------------------- Oil, Gas & Consumable Fuels 3.0% - ------------------------------------------------------------------- Aerospace & Defense 2.9% - ------------------------------------------------------------------- Tobacco 2.4% - ------------------------------------------------------------------- Diversified Financial Services 1.8% - ------------------------------------------------------------------- Thrifts & Mortgage Finance 1.8% - ------------------------------------------------------------------- Containers & Packaging 1.7% - ------------------------------------------------------------------- Metals & Mining 1.7% - ------------------------------------------------------------------- Electric Utilities 1.5% - ------------------------------------------------------------------- Commercial Banks 1.5% - ------------------------------------------------------------------- Household Durables 1.5% - ------------------------------------------------------------------- Commercial Services & Supplies 1.4% - ------------------------------------------------------------------- Short-Term Investments 2.3% - ------------------------------------------------------------------- Other 14.4% - -------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST TOP FIVE SUB-INDUSTRIES (as a % of total investments) - ------------------------------------------------------------------- Office 10.3% - ------------------------------------------------------------------- Residential 6.3% - ------------------------------------------------------------------- Specialized 6.0% - ------------------------------------------------------------------- Retail 4.5% - ------------------------------------------------------------------- Diversified 1.7% - -------------------------------------------------------------------
EMERGING MARKETS SOVEREIGN DEBT AND FOREIGN CORPORATE BONDS TOP FIVE COUNTRIES (as a % of total investments) - ------------------------------------------------------------------ Russian Federation 1.9% - ------------------------------------------------------------------ Argentina 1.6% - ------------------------------------------------------------------ Peru 1.3% - ------------------------------------------------------------------ Mexico 1.1% - ------------------------------------------------------------------ Malaysia 1.1% - ------------------------------------------------------------------
1 Current Distribution Rate 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 Shareholder MEETING REPORT The shareholder meeting was held in the offices of Nuveen Investments on March 29, 2006.
- ------------------------------------------------------------------------------------------ APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS: Common and Preferred Preferred shares voting shares voting together together as a class as a class - ------------------------------------------------------------------------------------------ Robert P. Bremner For 18,933,136 -- Withhold 160,013 -- - ------------------------------------------------------------------------------------------ Total 19,093,149 -- - ------------------------------------------------------------------------------------------ Lawrence H. Brown For 18,924,556 -- Withhold 168,593 -- - ------------------------------------------------------------------------------------------ Total 19,093,149 -- - ------------------------------------------------------------------------------------------ Jack B. Evans For 18,951,934 -- Withhold 141,215 -- - ------------------------------------------------------------------------------------------ Total 19,093,149 -- - ------------------------------------------------------------------------------------------ William C. Hunter For 18,951,849 -- Withhold 141,300 -- - ------------------------------------------------------------------------------------------ Total 19,093,149 -- - ------------------------------------------------------------------------------------------ William J. Schneider For -- 4,174 Withhold -- 38 - ------------------------------------------------------------------------------------------ Total -- 4,212 - ------------------------------------------------------------------------------------------ Timothy R. Schwertfeger For -- 4,174 Withhold -- 38 - ------------------------------------------------------------------------------------------ Total -- 4,212 - ------------------------------------------------------------------------------------------ Judith M. Stockdale For 18,942,510 -- Withhold 150,639 -- - ------------------------------------------------------------------------------------------ Total 19,093,149 -- - ------------------------------------------------------------------------------------------ Eugene S. Sunshine For 18,951,474 -- Withhold 141,675 -- - ------------------------------------------------------------------------------------------ Total 19,093,149 -- - ------------------------------------------------------------------------------------------
12 Nuveen Diversified Dividend and Income Fund (JDD) Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE - --------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS - 34.7% (26.0% OF TOTAL INVESTMENTS) AEROSPACE & DEFENSE - 2.1% 50,000 Lockheed Martin Corporation $ 3,587,000 85,000 Raytheon Company 3,788,450 - --------------------------------------------------------------------------------------------------------------------------- Total Aerospace & Defense 7,375,450 -------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 1.9% 69,200 Bank of America Corporation 3,328,520 65,000 Wachovia Corporation 3,515,200 - --------------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 6,843,720 -------------------------------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES - 1.2% 105,000 Pitney Bowes Inc. 4,336,500 - --------------------------------------------------------------------------------------------------------------------------- CONTAINERS & PACKAGING - 0.9% 146,300 Packaging Corp. of America 3,221,526 - --------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 2.4% 100,000 Citigroup Inc. 4,824,000 85,000 JPMorgan Chase & Co. 3,570,000 - --------------------------------------------------------------------------------------------------------------------------- Total Diversified Financial Services 8,394,000 -------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 3.6% 175,500 AT&T Inc. 4,894,695 90,000 KT Corporation, Sponsored ADR 1,930,500 52,500 Telecom Italia S.p.A., Sponsored ADR 1,465,800 131,100 Verizon Communications Inc. 4,390,539 - --------------------------------------------------------------------------------------------------------------------------- Total Diversified Telecommunication Services 12,681,534 -------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES - 1.4% 67,100 EDP -- Energias de Portugal, S.A., Sponsored ADR 2,638,372 118,000 Korea Electric Power Corporation (KEPCO), 2,237,280 Sponsored ADR - --------------------------------------------------------------------------------------------------------------------------- Total Electric Utilities 4,875,652 -------------------------------------------------------------------------------------------------------------- FOOD & STAPLES RETAILING - 0.4% 60,812 J. Sainsbury PLC, Sponsored ADR 1,489,894 - --------------------------------------------------------------------------------------------------------------------------- HOUSEHOLD DURABLES -- 0.8% 112,000 Newell Rubbermaid Inc. 2,892,960 - --------------------------------------------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS - 1.3% 73,000 Kimberly-Clark Corporation 4,504,100 - --------------------------------------------------------------------------------------------------------------------------- INSURANCE - 1.5% 76,300 Aon Corporation 2,656,766 30,000 Hartford Financial Services Group, Inc. 2,538,000 - --------------------------------------------------------------------------------------------------------------------------- Total Insurance 5,194,766 -------------------------------------------------------------------------------------------------------------- MEDIA - 1.3% 55,000 CBS Corporation, Class B 1,487,750 57,300 Clear Channel Communications, Inc. 1,773,435 33,900 Dow Jones & Company, Inc. 1,186,839 - --------------------------------------------------------------------------------------------------------------------------- Total Media 4,448,024 -------------------------------------------------------------------------------------------------------------- METALS & MINING - 1.8% 84,900 Alumina Limited, Sponsored ADR 1,706,490 33,000 POSCO, ADR 2,207,700 12,100 Rio Tinto PLC, Sponsored ADR 2,537,491 - --------------------------------------------------------------------------------------------------------------------------- Total Metals & Mining 6,451,681 --------------------------------------------------------------------------------------------------------------
13 Nuveen Diversified Dividend and Income Fund (JDD) (continued) Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE - --------------------------------------------------------------------------------------------------------------------------- MULTI-UTILITIES - 1.4% 37,800 Dominion Resources, Inc. $ 2,827,062 82,800 United Utilities PLC, Sponsored ADR 1,963,188 - --------------------------------------------------------------------------------------------------------------------------- Total Multi-Utilities 4,790,250 -------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 3.4% 33,000 Chevron Corporation 2,047,980 41,800 ConocoPhillips 2,739,154 57,500 Eni S.p.A., Sponsored ADR 3,378,125 60,000 Total SA, Sponsored ADR 3,931,200 - --------------------------------------------------------------------------------------------------------------------------- Total Oil, Gas & Consumable Fuels 12,096,459 -------------------------------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS - 1.4% 105,500 International Paper Company 3,407,650 97,000 Stora Enso Oyj, Sponsored ADR 1,356,060 - --------------------------------------------------------------------------------------------------------------------------- Total Paper & Forest Products 4,763,710 -------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS - 1.6% 110,000 Merck & Co. Inc. 4,007,300 71,000 Pfizer Inc. 1,666,370 - --------------------------------------------------------------------------------------------------------------------------- Total Pharmaceuticals 5,673,670 -------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 2.3% 81,600 Fannie Mae 3,924,960 94,100 IndyMac Bancorp, Inc. 4,314,485 - --------------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage Finance 8,239,445 -------------------------------------------------------------------------------------------------------------- TOBACCO - 3.2% 88,200 Altria Group, Inc. 6,476,525 91,000 Loews Corp -- Carolina Group 4,674,670 - --------------------------------------------------------------------------------------------------------------------------- Total Tobacco 11,151,195 -------------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES - 0.8% 126,000 Vodafone Group PLC 2,683,800 - --------------------------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (COST $96,433,547) 122,108,336 -------------------------------------------------------------------------------------------------------------- SHARES DESCRIPTION (1) VALUE - --------------------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST COMMON STOCKS - 38.5% (28.8% OF TOTAL INVESTMENTS) DIVERSIFIED - 2.2% 455,000 Newkirk Realty Trust Inc. $ 7,898,799 - --------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL - 1.1% 106,000 First Industrial Realty Trust, Inc. 4,021,640 - --------------------------------------------------------------------------------------------------------------------------- MORTGAGE - 0.9% 45,000 American Home Mortgage Investment Corp. 1,658,700 220,000 MFA Mortgage Investments, Inc. 1,513,600 - --------------------------------------------------------------------------------------------------------------------------- Total Mortgage 3,172,300 -------------------------------------------------------------------------------------------------------------- OFFICE - 12.9% 200,300 Brandywine Realty Trust 6,443,651 219,100 Equity Office Properties Trust 7,999,336 192,000 Glenborough Realty Trust Incorporated 4,135,680 435,600 HRPT Properties Trust 5,035,536 158,900 Mack-Cali Realty Corporation 7,296,687 146,800 Maguire Properties, Inc. 5,162,956 115,400 Reckson Associates Realty Corporation 4,775,252 416,000 Republic Property Trust 4,110,080 - --------------------------------------------------------------------------------------------------------------------------- Total Office 44,959,178 -------------------------------------------------------------------------------------------------------------- RESIDENTIAL - 7.4% 114,900 Archstone-Smith Trust 5,844,963 57,500 AvalonBay Communities, Inc. 6,360,650 86,200 Camden Property Trust 6,340,010 164,400 Post Properties, Inc. 7,453,895 - --------------------------------------------------------------------------------------------------------------------------- Total Residential 25,999,518 --------------------------------------------------------------------------------------------------------------
14
SHARES DESCRIPTION (1) VALUE - --------------------------------------------------------------------------------------------------------------------------- RETAIL - 6.0% 252,900 Cedar Shopping Centers Inc. $ 3,722,688 73,500 Federal Realty Investment Trust 5,145,000 221,000 Kite Realty Group Trust 3,445,390 49,900 Macerich Company 3,502,980 107,100 New Plan Excel Realty Trust 2,644,299 32,400 Simon Property Group, Inc. 2,687,256 - --------------------------------------------------------------------------------------------------------------------------- Total Retail 21,147,613 -------------------------------------------------------------------------------------------------------------- SPECIALIZED - 8.0% 78,500 Cogdell Spencer Inc. 1,531,535 350,000 DiamondRock Hospitality Company 5,183,500 338,736 Hersha Hospitality Trust 3,146,857 166,000 Nationwide Health Properties, Inc. 3,736,660 293,800 Senior Housing Properties Trust 5,261,958 90,700 Shurgard Storage Centers, Inc., Class A 5,668,750 190,400 U-Store-It Trust 3,590,944 - --------------------------------------------------------------------------------------------------------------------------- Total Specialized 28,120,204 -------------------------------------------------------------------------------------------------------------- TOTAL REAL ESTATE INVESTMENT TRUST COMMON STOCKS 135,319,252 (COST $101,800,369) -------------------------------------------------------------------------------------------------------------- SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST $25 PAR (OR SIMILAR) SECURITIES - 1.0% (0.8% OF TOTAL INVESTMENTS) RESIDENTIAL - 1.0% 150,000 Apartment Investment & Management Company, Series 7.750% Ba3 $ 3,690,000 U - ----------------------------------------------------------------------------------------------------------------------------- TOTAL REAL ESTATE INVESTMENT TRUST $25 PAR (OR SIMILAR) SECURITIES (COST 3,690,000 $3,750,000) ----------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT RATINGS (000) DESCRIPTION (1) COUPON MATURITY (2) VALUE - ---------------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST CONVERTIBLE BONDS - 1.0% (0.6% OF TOTAL INVESTMENTS) OFFICE - 1.0% $ 3,715 Trizec Hahn Corporation 3.000% 1/29/21 N/R $ 3,394,581 - ---------------------------------------------------------------------------------------------------------------------- $ 3,715 TOTAL REAL ESTATE INVESTMENT TRUST CONVERTIBLE 3,394,581 BONDS (COST $2,711,748) - ---------------------------------------------------------------------------------------------------------------------- PRINCIPAL WEIGHTED AMOUNT AVERAGE MATURITY RATINGS (000) DESCRIPTION (1) COUPON (3) (2) VALUE - ---------------------------------------------------------------------------------------------------------------------- VARIABLE RATE SENIOR LOAN INTERESTS - 25.2% (18.9% OF TOTAL INVESTMENTS) (4) AEROSPACE & DEFENSE - 1.8% $ 2,460 Hexcel Corporation, Term Loan B 6.813% 3/01/12 BB- $ 2,467,615 1,817 K&F Industries, Inc., Term Loan C 7.110% 11/18/12 B2 1,820,452 1,613 Vought Aircraft Industries, Inc., Term Loan 8.000% 12/22/11 B+ 1,627,378 364 Vought Aircraft Industries, Inc., Tranche B, 7.329% 12/22/10 B+ 365,682 Letter of Credit - ---------------------------------------------------------------------------------------------------------------------- 6,254 Total Aerospace & Defense 6,281,127 - ---------------------------------------------------------------------------------------------------------------------- AUTO COMPONENTS - 1.7% 2,500 Federal-Mogul Corporation, Term Loan A, (5) 7.600% 2/24/04 N/R 2,425,521 1,874 Gen Tek Inc., Term Loan B 7.524% 12/31/10 B2 1,888,409 1,217 Tenneco Automotive Inc., Term Loan B 7.190% 12/12/10 BB- 1,228,429 534 Tenneco Automotive Inc., Term Loan B-1 7.346% 12/12/10 BB- 539,627 - ---------------------------------------------------------------------------------------------------------------------- 6,125 Total Auto Components 6,081,986 - ---------------------------------------------------------------------------------------------------------------------- BUILDING PRODUCTS - 1.1% 1,965 Nortek, Inc., Term Loan B 7.350% 8/27/11 B 1,965,308 987 Stile Acquisition Corp. , Canadien Term Loan 7.111% 4/08/13 B2 978,880 988 Stile Acquisition Corp., Term Loan B 7.111% 4/08/13 B2 980,548 - ---------------------------------------------------------------------------------------------------------------------- 3,940 Total Building Products 3,924,736 - ---------------------------------------------------------------------------------------------------------------------- CHEMICALS - 0.6% 1,980 Rockwood Specialties Group, Inc., Term Loan E 7.126% 7/30/12 B+ 1,986,325 - ---------------------------------------------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES - 0.7% 670 Allied Waste North America, Inc., Letter of Credit 5.750% 3/21/12 B1 668,307 1,723 Allied Waste North America, Inc., Term Loan B 6.759% 1/15/12 B1 1,717,958 - ---------------------------------------------------------------------------------------------------------------------- 2,393 Total Commercial Services & Supplies 2,386,265 - ----------------------------------------------------------------------------------------------------------------------
15 Nuveen Diversified Dividend and Income Fund (JDD) (continued) Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
WEIGHTED PRINCIPAL AVERAGE AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE - ------------------------------------------------------------------------------------------------------------------------------- CONTAINERS & PACKAGING - 1.4% $ 2,955 Graham Packaging Company, L.P., Term Loan B 7.215% 10/07/11 B $ 2,963,126 175 Smurfit-Stone Container Corporation, 7.584% 11/01/11 B+ 175,570 Deposit-Funded Commitment 1,250 Smurfit-Stone Container Corporation, Term Loan B 7.984% 11/01/11 B+ 1,256,713 424 Smurfit-Stone Container Corporation, Term Loan C 7.459% 11/01/11 B+ 426,332 133 Smurfit-Stone Container Corporation, Tranche C-1 7.375% 11/01/11 B+ 133,782 - ------------------------------------------------------------------------------------------------------------------------------- 4,937 Total Containers & Packaging 4,955,523 - ------------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8% 1,000 Cebridge III LLC., Term Loan B 7.379% 11/05/13 B+ 995,536 1,970 Intelsat, Ltd., Term Loan B 8.750% 7/06/11 B 1,974,104 - ------------------------------------------------------------------------------------------------------------------------------- 2,970 Total Diversified Telecommunication Services 2,969,640 - ------------------------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES - 0.6% 1,990 Mirant Corporation, Term Loan 7.100% 1/03/13 BB- 1,988,756 - ------------------------------------------------------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT - 0.5% 1,583 Sensus Metering Systems Inc., Term Loan B-1 6.929% 12/17/10 B2 1,585,576 210 Sensus Metering Systems Inc., Term Loan B-2 7.351% 12/17/10 B2 210,612 - ------------------------------------------------------------------------------------------------------------------------------- 1,793 Total Electrical Equipment 1,796,188 - ------------------------------------------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.3% 1,000 Sensata Technologies B.V., Term Loan 6.860% 4/27/13 B1 995,179 - ------------------------------------------------------------------------------------------------------------------------------- FOOD PRODUCTS -- 0.8% 2,926 Michael Foods, Inc., Term Loan B 7.514% 11/20/10 B+ 2,939,775 - ------------------------------------------------------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 0.2% 668 Kinteic Concepts, Inc., Term Loan B-2 7.250% 8/11/10 Ba3 673,095 - ------------------------------------------------------------------------------------------------------------------------------- HEALTH CARE PROVIDERS & SERVICES -- 1.7% 1,805 Davita Inc., Term Loan B 7.153% 10/05/12 B1 1,810,624 2,085 LifePoint Hospitals Holdings, Inc., Term Loan B 7.125% 4/15/12 Ba3 2,084,577 1,995 Quintiles Transnational Corporation, Term Loan B 7.500% 3/31/13 B1 1,996,559 - ------------------------------------------------------------------------------------------------------------------------------- 5,885 Total Health Care Providers & Services 5,891,760 - ------------------------------------------------------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE - 3.0% 1,995 24 Hour Fitness Worldwide, Inc., Term Loan B 7.809% 6/08/12 B 2,010,586 2,582 Burger King Corporation, Term Loan B 7.000% 6/30/12 B+ 2,580,903 122 Cracker Barrel Delayed Draw Term Loan B-2, (6) (7) 0.750% 4/28/13 BB (229) 878 Cracker Barrel Term Loan B-1 6.630% 4/28/18 BB 876,724 1,985 Penn National Gaming, Inc., Term Loan B 6.911% 10/03/12 BB 1,993,271 3,000 Venetian Casino Resort, LLC, Term Loan 7.250% 6/15/11 BB- 3,007,032 - ------------------------------------------------------------------------------------------------------------------------------- 10,562 Total Hotels, Restaurants & Leisure 10,468,287 - ------------------------------------------------------------------------------------------------------------------------------- INSURANCE - 0.3% 1,180 Conseco, Inc., Term Loan 6.958% 6/22/10 BB- 1,182,451 - ------------------------------------------------------------------------------------------------------------------------------- IT SERVICES - 1.1% 1,730 Fidelity National Information Services, Term Loan 6.920% 3/09/13 BB+ 1,731,149 B 1,980 SunGard Data Systems Inc., Term Loan B 7.660% 2/11/13 B+ 1,989,075 - ------------------------------------------------------------------------------------------------------------------------------- 3,710 Total IT Services 3,720,224 - ------------------------------------------------------------------------------------------------------------------------------- MEDIA - 4.8% 1,995 Cablevision Systems Corporation, Incremental Term 6.886% 3/24/13 Ba3 1,987,311 Loan 2,000 Charter Communications Operating, LLC, Term Loan B 7.755% 4/28/13 B 2,006,324 1,371 Dex Media West, LLC, Term Loan B 6.771% 3/09/10 BB 1,366,899 798 Emmis Operating Company, Term Loan 7.047% 11/10/11 B+ 800,910 1,995 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B 7.749% 4/08/12 B+ 2,007,016 1,722 R. H. Donnelley Inc., Tranche D 6.840% 6/30/11 Ba3 1,715,899 1,980 Rainbow Media Holdings LLC, Term Loan 10.000% 3/31/12 Ba3 1,997,820 1,896 Regal Cinemas Corporation, Term Loan 7.238% 11/10/10 BB- 1,896,330 1,000 UPC Broadband Holding BV, Term Loan J2 7.108% 3/29/13 B 999,822 1,000 UPC Broadband Holding BV, Term Loan K2 7.108% 12/31/13 B 999,822 1,951 WMG Acquisition Corp., Term Loan 7.222% 2/28/11 B+ 1,957,991 - ------------------------------------------------------------------------------------------------------------------------------- 17,708 Total Media 17,736,144 - -------------------------------------------------------------------------------------------------------------------------------
16
WEIGHTED PRINCIPAL AVERAGE AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE - ------------------------------------------------------------------------------------------------------------------------------- METALS & MINING - 0.3% $ 683 Amsted Industries Incorporated, Delayed Draw Term 2.000% 4/05/11 B1 $ (5,126) Loan, (6) (7) 951 Amsted Industries Incorporated, Term Loan B 7.069% 4/05/13 B1 957,965 - ------------------------------------------------------------------------------------------------------------------------------- 1,634 Total Metals & Mining 952,839 - ------------------------------------------------------------------------------------------------------------------------------- MULTILINE RETAIL - 0.3% 949 Neiman Marcus Group Inc., Term Loan 7.770% 3/28/13 B+ 956,953 - ------------------------------------------------------------------------------------------------------------------------------- MULTI-UTILITIES - 0.6% 371 NRG Energy Inc., Credit-Linked Deposit 7.499% 2/01/13 BB- 372,081 1,625 NRG Energy Inc., Term Loan 7.231% 2/01/13 BB- 1,628,202 - ------------------------------------------------------------------------------------------------------------------------------- 1,996 Total Multi-Utilities 2,000,283 - ------------------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 0.6% 387 Targa Resources Inc., Synthetic Letter of Credit 7.624% 10/31/12 B+ 388,185 1,601 Targa Resources Inc., Term Loan B 7.330% 10/31/12 B+ 1,605,309 - ------------------------------------------------------------------------------------------------------------------------------- 1,988 Total Oil, Gas & Consumable Fuels 1,993,494 - ------------------------------------------------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS - 0.6% 1,990 Georgia-Pacific Corporation, Term Loan B 7.340% 12/20/12 BB- 1,988,446 - ------------------------------------------------------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.8% 1,500 LNR Property Corporation, Term Loan B, WI/DD TBD TBD B2 1,506,563 1,438 LNR Property Corporation, Term Loan 8.132% 2/03/08 B2 1,440,208 - ------------------------------------------------------------------------------------------------------------------------------- 2,938 Total Real Estate Management & Development 2,946,771 - ------------------------------------------------------------------------------------------------------------------------------- ROAD & RAIL - 0.3% 111 Hertz Corporation, Synthetic Term Loan 5.424% 12/21/12 BB+ 111,554 92 Hertz Corporation, Delayed Draw Term Loan (6) 2.250% 12/21/12 BB+ 347 793 Hertz Corporation, Term Loan 7.338% 12/21/12 BB+ 795,788 - ------------------------------------------------------------------------------------------------------------------------------- 996 Total Road & Rail 907,689 - ------------------------------------------------------------------------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS - 0.3% 196 Brenntag Holdings, Acquisition Facility Term Loan 7.440% 1/20/14 B2 198,327 804 Brenntag Holdings, Term Loan 7.440% 1/20/14 B- 810,467 - ------------------------------------------------------------------------------------------------------------------------------- 1,000 Total Trading Companies & Distributors 1,008,794 - ------------------------------------------------------------------------------------------------------------------------------- $ 89,512 TOTAL VARIABLE RATE SENIOR LOAN INTERESTS (COST 88,732,730 $88,569,034) - ------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ------------------------------------------------------------------------------------------------------------------------------- EMERGING MARKETS SOVEREIGN DEBT AND FOREIGN CORPORATE BONDS - 27.7% (20.8% OF TOTAL INVESTMENTS) ARGENTINA - 2.2% $ 885 Argentine Beverages Financial Trust, 144A 7.375% 3/22/12 N/R $ 854,025 71 Banco de Galicia y Buenos Aires SA, Reg S 8.190% 1/01/10 N/R 70,181 4,305 Republic of Argentina 4.889% 8/03/12 B 3,581,760 7,350 Republic of Argentina 1.330% 12/31/38 B 2,682,750 545 Transportadora de Gas del Sur SA, Series B-A, Reg 7.500% 12/15/13 CCC+ 520,475 S - ------------------------------------------------------------------------------------------------------------------------------- 13,156 Total Argentina 7,709,191 - ------------------------------------------------------------------------------------------------------------------------------- BRAZIL - 1.3% 550 Banco Votorantim SA, 144A 6.875% 10/14/15 BB 543,125 405 Centrais Eletricas Brasileiras S.A., 144A 7.750% 11/30/15 BB 397,913 400 Cia Brasileira de Bebidas 10.500% 12/15/11 BBB 467,000 1,075 Federative Republic of Brazil 8.000% 1/15/18 BB 1,136,813 1,110 Federative Republic of Brazil 8.250% 1/20/34 BB 1,168,275 425 Vale Overseas Limited 6.250% 1/11/16 BBB+ 406,938 390 Vale Overseas Limited 8.250% 1/17/34 BBB+ 422,663 - ------------------------------------------------------------------------------------------------------------------------------- 4,355 Total Brazil 4,542,727 - ------------------------------------------------------------------------------------------------------------------------------- BULGARIA - 0.4% 1,100 Republic of Bulgaria, Reg S 8.250% 1/15/15 BBB 1,247,290 - ------------------------------------------------------------------------------------------------------------------------------- CHILE - 1.3% 600 Coldelco Inc., Reg S 6.375% 11/30/12 A2 612,300 450 Corporacion Nacional del Cobre de Chile, Reg S 5.625% 9/21/35 Aa3 404,225 1,100 Corporacion Nacional del Cobre 4.750% 10/15/14 Aa3 1,007,273 430 Corporacion Nacional del Cobre, 144A 5.500% 10/15/13 Aa3 416,228 1,100 Empresa Nacional del Petroleo, 144A 4.875% 3/15/14 A 1,007,447
17 Nuveen Diversified Dividend and Income Fund (JDD) (continued) Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------------- CHILE (continued) $ 550 Enersis SA 7.375% 1/15/14 BBB- $ 557,759 550 Republic of Chile 6.875% 4/28/09 A 565,895 - -------------------------------------------------------------------------------------------------------------------------- 4,780 Total Chile 4,571,127 - -------------------------------------------------------------------------------------------------------------------------- CHINA - 0.2% 610 China Development Bank 5.000% 10/15/15 A2 570,371 - -------------------------------------------------------------------------------------------------------------------------- COLOMBIA - 0.8% 950 Republic of Colombia 10.500% 7/09/10 BB 1,073,500 1,255 Republic of Colombia 10.000% 1/23/12 BB 1,424,425 350 Republic of Colombia 11.750% 2/25/20 BB 462,000 - -------------------------------------------------------------------------------------------------------------------------- 2,555 Total Colombia 2,959,925 - -------------------------------------------------------------------------------------------------------------------------- DOMINICAN REPUBLIC - 0.7% 2,485 Dominican Republic, Reg S 4.520% 1/23/18 B 2,609,259 - -------------------------------------------------------------------------------------------------------------------------- ECUADOR - 1.0% 1,125 Republic of Ecuador, 144A 9.375% 12/15/15 CCC+ 1,119,375 2,375 Republic of Ecuador, Reg S 9.000% 8/15/30 CCC+ 2,291,875 - -------------------------------------------------------------------------------------------------------------------------- 3,500 Total Ecuador 3,411,250 - -------------------------------------------------------------------------------------------------------------------------- EL SALVADOR - 1.0% 1,275 Republic of El Salvador, 144A 7.650% 6/15/35 Baa3 1,230,375 285 Republic of El Salvador, Reg S 7.650% 6/15/35 Baa3 276,450 750 Republic of El Salvador, Reg S 8.500% 7/25/11 Baa3 810,000 1,080 Republic of El Salvador, Reg S 7.750% 1/24/23 Baa3 1,139,400 - -------------------------------------------------------------------------------------------------------------------------- 3,390 Total El Salvador 3,456,225 - -------------------------------------------------------------------------------------------------------------------------- HONG KONG - 0.2% 890 HKSAR Government, 144A 5.125% 8/01/14 AA- 852,289 - -------------------------------------------------------------------------------------------------------------------------- INDONESIA - 0.4% 390 Adaro Finance B.V., 144A 8.500% 12/08/10 Ba3 388,050 315 Excelcomindo Finance Company B.V., 144A 7.125% 1/18/13 BB- 301,219 705 Republic of Indonesia, 144A 7.250% 4/20/15 B+ 710,288 - -------------------------------------------------------------------------------------------------------------------------- 1,410 Total Indonesia 1,399,557 - -------------------------------------------------------------------------------------------------------------------------- KAZAKHSTAN - 0.4% 1,040 Intergas Finance B.V. 6.875% 11/04/11 Baa2 1,021,477 212 Kazkommerts International BV, 144A 8.000% 11/03/15 Baa2 206,700 300 Tengizchevroil Finance Company, 144A 6.124% 11/15/14 BBB- 291,375 - -------------------------------------------------------------------------------------------------------------------------- 1,552 Total Kazakhstan 1,519,552 - -------------------------------------------------------------------------------------------------------------------------- MALAYSIA - 1.5% 1,100 Malaysia 8.750% 6/01/09 A- 1,183,538 1,000 Malaysia 7.500% 7/15/11 A- 1,066,898 1,025 Penerbangan Malaysia Berhad 5.625% 3/15/16 A- 979,718 1,125 Petronas Capital Limited, Reg S 7.000% 5/22/12 A1 1,179,791 200 Petronas Capital Limited, Reg S 7.875% 5/22/22 A- 229,641 550 Sarawak International Inc. 5.500% 8/03/15 A- 509,162 - -------------------------------------------------------------------------------------------------------------------------- 5,000 Total Malaysia 5,148,748 - -------------------------------------------------------------------------------------------------------------------------- MEXICO - 1.5% 895 Conproca SA, Reg S 12.000% 12/16/10 BBB- 1,035,963 1,200 Pemex Project Funding Master Trust 8.500% 2/15/08 Baa1 1,249,500 590 Pemex Project Funding Master Trust 9.375% 12/02/08 Baa1 634,250 1,395 Pemex Project Funding Master Trust, 5.750% 12/15/15 Baa1 1,286,539 405 Pemex Project Funding Master Trust, 144A 5.750% 12/15/15 Baa1 373,511 275 Petroleos Mexicanos 8.850% 9/15/07 Baa1 284,350 446 United Mexican States 7.500% 1/14/12 Baa1 473,875 - -------------------------------------------------------------------------------------------------------------------------- 5,206 Total Mexico 5,337,988 - -------------------------------------------------------------------------------------------------------------------------- PANAMA - 1.2% 990 Republic of Panama 9.625% 2/08/11 Ba1 1,103,850 585 Republic of Panama 9.375% 4/01/29 Ba1 693,225 2,114 Republic of Panama 6.700% 1/26/36 Ba1 1,944,880 575 Republic of Panama 7.125% 1/29/26 Ba1 557,750 - -------------------------------------------------------------------------------------------------------------------------- 4,264 Total Panama 4,299,705 - --------------------------------------------------------------------------------------------------------------------------
18
PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ------------------------------------------------------------------------------------------------------------------------------- PERU - 1.7% $ 1,825 Republic of Peru 9.125% 2/21/12 BB $ 2,025,750 600 Republic of Peru 9.875% 2/06/15 BB 705,000 582 Republic of Peru 5.000% 3/07/17 BB 557,265 1,126 Republic of Peru 5.000% 3/07/17 BB 1,083,534 575 Republic of Peru 7.350% 7/21/25 BB 554,875 1,100 Republic of Peru 8.750% 11/21/33 BB 1,229,250 - ------------------------------------------------------------------------------------------------------------------------------- 5,808 Total Peru 6,155,674 - ------------------------------------------------------------------------------------------------------------------------------- PHILIPPINES - 0.7% 255 Bangko Sentral Pilipinas, Series A 8.600% 6/15/27 BB- 269,981 750 National Power Corporation, 144A 9.444% 8/23/11 BB- 812,903 1,275 Republic of the Philippines 9.375% 1/18/17 BB- 1,421,625 - ------------------------------------------------------------------------------------------------------------------------------- 2,280 Total Philippines 2,504,509 - ------------------------------------------------------------------------------------------------------------------------------- QATAR - 0.6% 329 Ras Laffan Liquefied Natural Gas Company, 144A 3.437% 9/15/09 A- 316,065 689 Ras Laffan Liquified Natural Gas Company, Reg S 3.437% 9/15/09 A- 662,375 575 Ras Laffan Liquified Natural Gas Company II, Reg S 5.298% 9/30/20 A1 535,605 550 State of Qatar, Reg S 9.750% 6/15/30 A+ 770,550 - ------------------------------------------------------------------------------------------------------------------------------- 2,143 Total Qatar 2,284,595 - ------------------------------------------------------------------------------------------------------------------------------- RUSSIAN FEDERATION - 2.9% 500 Aries Vermogensverwaltung GmbH, Russian Federation 9.600% 10/25/14 BBB- 622,020 Sovereign Collateralized Debt Obligation, Reg S 805 GazStream SA, 144A 5.625% 7/22/13 Baa1 786,824 2,675 Russia Federation, Reg S 5.000% 3/31/30 BBB 2,853,051 2,050 Russia Ministry of Finance 3.000% 5/14/08 BBB 1,939,505 505 Russian Agricultural Bank 7.175% 5/16/13 A3 501,844 750 Russian Federation, Reg S 11.000% 7/24/18 BBB 1,037,756 400 Russian Ministry of Finance 12.750% 6/24/28 BB+ 676,512 550 Saving Bank of the Russian Federation, 6.230% 2/11/15 Baa2 539,990 Participations 1,000 VTB Capital SA, Series 144A 7.500% 10/12/11 A2 1,028,750 - ------------------------------------------------------------------------------------------------------------------------------- 9,235 Total Russian Federation 9,986,252 - ------------------------------------------------------------------------------------------------------------------------------- SERBIA - 0.6% 2,500 Republic of Serbia, 144A 3.750% 11/01/24 BB- 2,087,500 - ------------------------------------------------------------------------------------------------------------------------------- SOUTH AFRICA - 1.0% 3,255 Republic of South Africa 9.125% 5/19/09 BBB+ 3,499,125 - ------------------------------------------------------------------------------------------------------------------------------- SOUTH KOREA - 0.5% 2,020 Korea Development Bank 4.625% 9/16/10 A 1,928,969 - ------------------------------------------------------------------------------------------------------------------------------- THAILAND - 0.1% 250 Bangkok Bank Public Company Limited, Reg S 9.025% 3/15/29 Baa2 287,583 - ------------------------------------------------------------------------------------------------------------------------------- TRINIDAD AND TOBAGO - 0.6% 300 First Citizens Saint Lucia, Reg S 5.125% 2/14/11 A2 288,651 180 National Gas Company of Trinidad and Tobago 6.050% 1/15/36 A3 166,239 480 Republic of Trinidad and Tobago, Reg S 9.750% 7/01/20 A- 1,589,843 - ------------------------------------------------------------------------------------------------------------------------------- 960 Total Trinidad and Tobago 2,044,733 - ------------------------------------------------------------------------------------------------------------------------------- TUNISIA - 0.6% 2,065 Banque Cent de Tunisie 7.375% 4/25/12 BBB 2,157,925 - ------------------------------------------------------------------------------------------------------------------------------- TURKEY - 0.1% 350 Republic of Turkey 11.750% 6/15/10 BB- 395,500 - ------------------------------------------------------------------------------------------------------------------------------- UKRAINE - 0.8% 775 Republic of Ukraine, Reg S 6.875% 3/04/11 BB- 759,500 1,775 Republic of Ukraine 7.650% 6/11/13 BB- 1,788,313 429 Ukraine Government, Reg S 7.650% 3/15/07 B1 438,404 - ------------------------------------------------------------------------------------------------------------------------------- 2,979 Total Ukraine 2,986,217 - ------------------------------------------------------------------------------------------------------------------------------- URUGUAY - 1.2% 2,150 Republic of Uruguay 7.250% 2/15/11 B 2,155,375 790 Republic of Uruguay 7.500% 3/15/15 B 764,325 1,300 Republic of Uruguay 8.000% 11/18/22 B 1,251,250 - ------------------------------------------------------------------------------------------------------------------------------- 4,240 Total Uruguay 4,170,950 - -------------------------------------------------------------------------------------------------------------------------------
19 Nuveen Diversified Dividend and Income Fund (JDD) (continued) Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ------------------------------------------------------------------------------------------------------------------------------- VENEZUELA - 1.5% $ 505 Petrozuata Finance Inc., Reg S 8.220% 4/01/17 Ba3 $ 475,963 1,935 Republic of Venezuela 5.375% 8/07/10 B+ 1,833,413 500 Republic of Venezuela 6.090% 4/20/11 BB- 495,875 125 Republic of Venezuela 8.500% 10/08/14 BB- 132,500 2,415 Republic of Venezuela 5.750% 2/26/16 BB- 2,143,313 - ------------------------------------------------------------------------------------------------------------------------------- 5,480 Total Venezuela 5,081,064 - ------------------------------------------------------------------------------------------------------------------------------- VIETNAM - 0.7% 2,470 Socialist Republic of Vietnam 5.875% 3/14/16 BB- 2,411,704 - ------------------------------------------------------------------------------------------------------------------------------- $ 100,288 TOTAL EMERGING MARKETS SOVEREIGN DEBT AND FOREIGN CORPORATE 97,617,504 BONDS (COST $97,917,478) - ------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ------------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 2.5% (1.8% OF TOTAL INVESTMENTS) HOTELS, RESTAURANTS & LEISURE - 1.2% $ 2,000 Aztar Corporation 9.000% 8/15/11 Ba3 $ 2,105,000 2,000 MGM Mirage, Inc. 6.750% 8/01/07 BB 2,017,500 - ------------------------------------------------------------------------------------------------------------------------------- 4,000 Total Hotels, Restaurants & Leisure 4,122,500 - ------------------------------------------------------------------------------------------------------------------------------- HOUSEHOLD DURABLES - 1.2% 2,000 D.R. Horton, Inc. 7.500% 12/01/07 BBB- 2,034,036 2,000 KB Home 8.625% 12/15/08 Ba2 2,082,504 - ------------------------------------------------------------------------------------------------------------------------------- 4,000 Total Household Durables 4,116,540 - ------------------------------------------------------------------------------------------------------------------------------- METALS & MINING - 0.1% 395 Cospipa Commercial Limited, 144A 8.250% 6/14/16 Baa2 397,963 - ------------------------------------------------------------------------------------------------------------------------------- $ 8,395 TOTAL CORPORATE BONDS (COST $8,763,553) 8,637,003 - ------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 3.0% (2.3% OF TOTAL INVESTMENTS) $ 10,603 Repurchase Agreement with State Street Bank, dated 6/30/06, repurchase price $10,606,321, collateralized by $10,870,000 U.S. Treasury Notes, 4.125%, due 8/15/08, value $10,815,650 4.130% 7/03/06 $ 10,602,672 - ----------- - ------------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $10,602,672) 10,602,672 ---------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (COST $410,548,401) - 133.6% 470,102,078 ---------------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS LIABILITIES - 0.5% 1,706,226 ---------------------------------------------------------------------------------------------------------------- FUNDPREFERRED SHARES, AT LIQUIDATION (120,000,000) VALUE - (34.1)% ---------------------------------------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 351,808,304 ----------------------------------------------------------------------------------------------------------------
20 (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be below investment grade. (3) Senior Loans 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 may occur. As a result, the actual remaining maturity of Senior Loans held may be substantially less than the stated maturities shown. (4) 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 an assigned fixed rate. These floating 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. (5) At or subsequent to June 30, 2006, this issue was under the protection of the Federal Bankruptcy Court. (6) Position represents an unfunded Senior Loan commitment outstanding at June 30, 2006. (7) Negative value represents unrealized depreciation on Senior Loan commitment at June 30, 2006. N/R Not rated. WI/DD Purchased on a when-issued or delayed delivery basis. 144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. ADR American Depositary Receipt. Reg S Regulation S allows United States companies to sell securities to persons or entities located outside of the United States without registering those securities with the Securities and Exchange Commission. Specifically, Regulation 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. TBD Senior Loan purchased on a when-issued or delayed-delivery basis. Certain details associated with this purchase are not known prior to the settlement date of the transaction. In addition, Senior Loans typically trade without accrued interest and therefore a weighted average coupon rate is not available prior to settlement. At settlement, if still unknown, the borrower or counterparty will provide the Fund with the final weighted average coupon rate and maturity date.
See accompanying notes to financial statements. 21 Statement of ASSETS AND LIABILITIES June 30, 2006 (Unaudited)
- --------------------------------------------------------------------------- ASSETS Investments, at value (cost $410,548,401) $470,102,078 Receivables: Dividends 1,186,350 Interest 2,720,500 Investments sold 818,005 Reclaims 39,346 Other assets 22,650 - --------------------------------------------------------------------------- Total assets 474,888,929 - --------------------------------------------------------------------------- LIABILITIES Payable for investments purchased 2,718,482 Accrued expenses: Management fees 217,695 Other 102,037 FundPreferred share dividends payable 42,411 - --------------------------------------------------------------------------- Total liabilities 3,080,625 - --------------------------------------------------------------------------- FundPreferred shares, at liquidation value 120,000,000 - --------------------------------------------------------------------------- Net assets applicable to Common shares $351,808,304 - --------------------------------------------------------------------------- Common shares outstanding 20,145,123 - --------------------------------------------------------------------------- Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 17.46 - --------------------------------------------------------------------------- NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: - --------------------------------------------------------------------------- Common shares, $.01 par value per share $ 201,451 Paid-in surplus 284,729,686 Undistributed (Over-distribution of) net investment income (6,399,108) Accumulated net realized gain (loss) from investments 13,722,598 Net unrealized appreciation (depreciation) of investments 59,553,677 - --------------------------------------------------------------------------- Net assets applicable to Common shares $351,808,304 - --------------------------------------------------------------------------- Authorized shares: Common Unlimited FundPreferred Unlimited - ---------------------------------------------------------------------------
See accompanying notes to financial statements. 22 Statement of OPERATIONS Six Months Ended June 30, 2006 (Unaudited)
- ----------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign tax withheld of $58,637) $ 3,742,734 Interest (net of foreign tax withheld of $17,678) 6,974,708 - ----------------------------------------------------------------------------- Total investment income $10,717,442 - ----------------------------------------------------------------------------- EXPENSES Management fees 2,078,727 FundPreferred shares - auction fees 148,768 FundPreferred shares - dividend disbursing agent fees 7,397 Shareholders' servicing agent fees and expenses 1,240 Custodian's fees and expenses 85,486 Trustees' fees and expenses 7,311 Professional fees 13,962 Shareholders' reports - printing and mailing expenses 46,679 Stock exchange listing fees 4,871 Investor relations expense 33,093 Other expenses 13,157 - ----------------------------------------------------------------------------- Total expenses before custodian fee credit and expense reimbursement 2,440,691 Custodian fee credit (1,240) Expense reimbursement (748,396) - ----------------------------------------------------------------------------- Net expenses 1,691,055 - ----------------------------------------------------------------------------- Net investment income 9,026,387 - ----------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from investments 13,774,786 Change in net unrealized appreciation (depreciation) of investments 4,797,831 - ----------------------------------------------------------------------------- Net realized and unrealized gain (loss) 18,572,617 - ----------------------------------------------------------------------------- DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS From and in excess of net investment income (2,608,389) From accumulated net realized gains -- - ----------------------------------------------------------------------------- Decrease in net assets applicable to Common shares from distributions to FundPreferred shareholders (2,608,389) - ----------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from operations $24,990,615 - -----------------------------------------------------------------------------
See accompanying notes to financial statements. 23 Statement of CHANGES IN NET ASSETS (Unaudited)
SIX MONTHS ENDED YEAR ENDED 6/30/06 12/31/05 - ----------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 9,026,387 $ 16,705,911 Net realized gain (loss) from investments 13,774,786 21,214,600 Change in net unrealized appreciation (depreciation) of investments 4,797,831 (928,498) Distributions to Fundpreferred shareholders: From and in excess of net investment income (2,608,389) -- From net investment income -- (1,861,555) From accumulated net realized gains -- (1,922,933) - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from operations 24,990,615 33,207,525 - ----------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON SHAREHOLDERS From and in excess of net investment income (13,295,781) -- From net investment income -- (14,320,955) From accumulated net realized gains -- (18,211,404) - ----------------------------------------------------------------------------------------------- Decrease in net assets applicable to Common shares from distributions to Common shareholders (13,295,781) (32,532,359) - ----------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Common shares offering cost adjustments -- (4,043) FundPreferred shares offering costs adjustments -- (4,043) - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from capital share transactions -- (8,086) - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares 11,694,834 667,080 Net assets applicable to Common shares at the beginning of period 340,113,470 339,446,390 - ----------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the end of period $351,808,304 $340,113,470 - ----------------------------------------------------------------------------------------------- Undistributed (Over-distribution of) net investment income at the end of period $ (6,399,108) $ 478,675 - -----------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 24 Statement of CASH FLOWS Six Months Ended June 30, 2006 (Unaudited) - ----------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS $ 24,990,615 Adjustments to reconcile the net increase (decrease) in net assets applicable to Common shares from operations to net cash provided by (used in) operating activities: Purchases of investments (93,542,010) Proceeds from the sales of investments 101,954,846 Proceeds from (Purchases of) short-term investments, net (3,174,100) Amortization/(Accretion) of premiums and discounts, net 87,467 (Increase) Decrease in receivable for dividends 96,980 (Increase) Decrease in receivable for interest (14,177) (Increase) Decrease in receivable for investments sold 232,602 (Increase) Decrease in receivable for reclaims (19,706) (Increase) Decrease in other assets (11,043) Increase (Decrease) in payable for investments purchased (211,896) Increase (Decrease) in accrued management fees (7,806) Increase (Decrease) in accrued other liabilities (20,325) Increase (Decrease) in FundPreferred share dividends payable (9,052) Net realized (gain) loss from investments (13,774,786) Net realized (gain) loss from paydowns 72,668 Change in net unrealized (appreciation) depreciation of investments (4,797,831) Capital gain and return of capital distributions from investments 1,895,401 - ----------------------------------------------------------------------------- Net cash provided by (used in) operating activities 13,747,847 - ----------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions paid to Common shareholders (13,295,781) - ----------------------------------------------------------------------------- Net cash provided by (used in) financing activities (13,295,781) - ----------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH 452,066 Cash at the beginning of period (452,066) - ----------------------------------------------------------------------------- CASH AT THE END OF PERIOD $ -- - -----------------------------------------------------------------------------
25 Notes to FINANCIAL STATEMENTS (Unaudited) 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. 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 foreign corporate bonds") 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 independent 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 investment, 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, market quotes or 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 investments 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 investment 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/delayed delivery purchase commitments. At June 30, 2006, the Fund had outstanding when-issued/delayed delivery commitments of $1,500,000. 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, if any, 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. Federal 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. 26 The Fund makes monthly cash distributions to Common shareholders of a stated dollar amount per share. Subject to approval and oversight by the Fund's Board of Trustees, the Fund seeks to maintain a stable distribution level designed to deliver the long-term return potential of the Fund's investment strategy through regular monthly distributions (a "Managed Distribution Policy"). Total distributions during a calendar year generally will be made from the Fund's net investment income, net realized capital gains and net unrealized capital gains in the Fund's portfolio, if any. The portion of distributions paid from net unrealized gains, if any, would be distributed from the Fund's assets and would be treated by shareholders as a non-taxable distribution for tax purposes. If the Fund's total return on net asset value exceeds total distributions during a calendar year, the excess will be reflected as an increase in net asset value per share. In the event that total distributions during a calendar year exceed the Fund's total return on net asset value, the difference will be treated as a return of capital for tax purposes and will reduce net asset value per share. The final determination of the source and character of all distributions for the fiscal year are made after the end of the fiscal year and reflected in the financial statements contained in the annual report as of December 31 each year. Real estate investment trust ("REIT") distributions received by the Fund are generally comprised of ordinary 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 fiscal year ended December 31, 2005, the character of distributions to the Fund from the REITs was 46.22% ordinary income, 37.32% long-term and short-term capital gains, and 16.46% return of REIT capital. For the fiscal year ended December 31, 2005, 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. For the six months ended June 30, 2006, the Fund applied the actual percentages for the twelve months ended December 31, 2005, described above, to its receipts from the REITs and treated as income in the Statement of Operations only the amount of ordinary income so calculated. The Fund adjusts that estimated breakdown of income type (and consequently its net investment income) as necessary early in the following calendar year when the REITs inform their shareholders of the actual breakdown of income type. The actual character of distributions made by the Fund during the fiscal year ended December 31, 2005, are reflected in the accompanying financial statements. The distributions made by the Fund to its shareholders during the six months ended June 30, 2006, are provisionally classified as being "From and in excess of net investment income", and those distributions will be classified as being from net investment income, net realized capital gains and/or a return of capital for tax purposes after the fiscal year end, based upon the income type breakdown information conveyed at the time by the REITs whose securities are held in the Fund's portfolio. For purposes of calculating "Undistributed (Over-distribution of) net investment income as of June 30, 2006, the distribution amounts provisionally classified as "From and in excess of net investment income" were treated as being entirely from net investment income. Consequently, the financial statements at June 30, 2006, reflect an over-distribution of net investment income. FundPreferred Shares The Fund has issued and outstanding 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 paid by the Fund on each Series is determined every seven days, pursuant to a dutch auction process overseen by the auction agent, and is payable at the end of each rate period. Derivative Financial Instruments The Fund is authorized to invest in 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 invest in any such instruments during the six months ended June 30, 2006. 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. 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. 27 Notes to FINANCIAL STATEMENTS (Unaudited) (continued) 2. FUND SHARES The Fund did not engage in transactions in its own shares during the six months ended June 30, 2006, nor during the fiscal year ended December 31, 2005. 3. INVESTMENT TRANSACTIONS Purchases and sales (including maturities but excluding short-term investments) during the six months ended June 30, 2006, aggregated $93,542,010 and $101,954,846, 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, recognition of income on REIT investments, and timing differences in recognizing certain gains and losses on investment transactions. At June 30, 2006, the cost of investments was $411,945,288. Gross unrealized appreciation and gross unrealized depreciation of investments at June 30, 2006, were as follows: - ---------------------------------------------------------------------------- Gross unrealized: Appreciation $66,275,578 Depreciation (8,118,788) - ---------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments $58,156,790 - ----------------------------------------------------------------------------
The tax components of undistributed net ordinary income and net long-term capital gains at December 31, 2005, the Fund's last tax year end, were as follows: - ---------------------------------------------------------------------------- Undistributed net ordinary income * $1,742,465 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 Fund's last tax year ended, December 31, 2005, was designated for purposes of the dividends paid deduction as follows: - ---------------------------------------------------------------------------- Distributions from net ordinary income * $20,166,376 Distributions from net long-term capital gains * 16,120,736 - ----------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends, interest, and net short-term capital gains, if any. 5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES The Fund's management fee is separated into two components - a complex-level component, based on the aggregate amount of all funds assets managed by Nuveen Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc. ("Nuveen"), and a specific fund-level component, based only on the amount of assets within the 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. The annual fund-level fee, payable monthly, 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 - ------------------------------------------------------------------------
28 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 stated in the table below. As of June 30, 2006, the complex-level fee rate was .1887%.
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. 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 Fund's 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 and foreign corporate bonds. 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. 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. 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 June 30, 2006, the Fund had unfunded senior loan commitments of $898,075. 29 Notes to FINANCIAL STATEMENTS (Unaudited) (continued) 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 June 30, 2006, there were no such outstanding participation commitments. 8. NEW ACCOUNTING PRONOUNCEMENT Financial Accounting Standards Board Interpretation No. 48 On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. At this time, management is evaluating the implications of FIN 48 and its impact in the financial statements has not yet been determined. At this time, management is evaluating the implications of FIN 48 and does not expect the adoption of FIN 48 will have a significant impact on the net assets or results of operations of the Funds. 9. SUBSEQUENT EVENTS Distributions to Common Shareholders. The Fund declared a distribution of $.1100 per Common share which was paid on August 1, 2006, to shareholders of record on July 15, 2006. Borrowings On August 15, 2006, the Fund entered into a commercial paper program ($45 million maximum) with Citibank's N.A.'s conduit financing agency, CHARTA, LLC ("CHARTA"), whose sole purpose is the issuance of high grade commercial paper. CHARTA uses the proceeds to make advances to the Fund and to many other borrowers who comprise CHARTA's total borrowing base. As of August 15, 2006, the Fund had borrowed the full $45 million maximum allowed under the commercial paper program. 30 Financial HIGHLIGHTS 31 Financial HIGHLIGHTS (Unaudited) Selected data for a Common share outstanding throughout each period:
Investment Operations ---------------------------------------------------------------- Distributions from Net Distributions Beginning Investment from Capital Common Net Income to Gains to Share Net Realized/ FundPreferred FundPreferred Net Asset Investment Unrealized Share- Share- Value Income(a) Gain (Loss) holders+ holders+ Total - ---------------------------------------------------------------------------------------------------- Period Ended 12/31: 2006(c) $ 16.88 $ .45 $ .92 $ (.13)* $ -- $1.24 2005 16.85 .83 1.00 (.09) (.10) 1.64 2004 15.13 .81 2.23 (.06) (.03) 2.95 2003(b) 14.33 .18 1.01 (.01) -- 1.18 - ---------------------------------------------------------------------------------------------------- Less Distributions ---------------------------------------- Net Offering Investment Capital Costs and Ending Income to Gains to Tax FundPreferred Common Common Common Return Share Share Share- Share- of Underwriting Net Asset holders holders Capital Total Discounts Value - --------------------- -------------------------------------------------------------------- Period Ended 12/31: 2006(c) $ (.66)* $ -- $ -- $ (.66) $ -- $ 17.46 2005 (.71) (.90) -- (1.61) -- 16.88 2004 (.81) (.41) (.01) (1.23) -- 16.85 2003(b) (.18) (.02) (.01) (.21) (.17) 15.13 - ---------------------
* Represents distributions paid "From and in excess of net investment income" for the six months ended June 30, 2006. ** Annualized. *** Total 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. (c) For the six months ended June 30, 2006. 32
Ratios/Supplemental Data ---------------------------------------------------------------------------------------- Total Returns Before Credit/Reimbursement After Credit/Reimbursement**** ------------------- ---------------------------- ------------------------------ Ratio of Net Ratio of Net Based Ratio of Investment Ratio of Investment on Expenses Income to Expenses Income to Common Ending Net to Average Average to Average Average Based Share Assets Net Assets Net Assets Net Assets Net Assets Ending on Net Applicable Applicable Applicable Applicable Applicable Portfolio Market Market Asset to Common to Common to Common to Common to Common Turnover Value Value*** Value*** Shares (000) Shares++ Shares++ Shares++ Shares++ Rate - ---------------------------------------------------------------------------------------------------------------------------- $16.89 7.40% 7.38% $ 351,808 1.40%** 4.74%** .97%** 5.17%** 20% 16.35 16.36 10.21 340,113 1.42 4.53 .99 4.96 49 15.57 8.04 20.44 339,446 1.50 4.74 1.06 5.19 46 15.65 5.76 7.04 304,387 1.26** 4.51** .87** 4.89** 28 - ---------------------------------------------------------------------------------------------------------------------------- FundPreferred Shares at End of Period --------------------------------------- Aggregate Liquidation Amount and Market Asset Outstanding Value Per Coverage (000) Share Per Share - --- --------------------------------------- $ 120,000 $ 25,000 $ 98,293 120,000 25,000 95,857 120,000 25,000 95,718 120,000 25,000 88,414 - ---
See accompanying notes to financial statements. 33 ANNUAL INVESTMENT MANAGEMENT AGREEMENT APPROVAL PROCESS The Board of Trustees is responsible for overseeing the performance of the investment adviser to the Fund and determining whether to continue the advisory arrangements. At a meeting held on May 23-25, 2006 (the "May Meeting"), the Board of Trustees of the Fund, including the independent Trustees, unanimously approved the continuance of the Investment Management Agreement between the Fund and NAM and the Sub-Advisory Agreements between NAM and NWQ, Security Capital, Symphony and Wellington, respectively (each, a "Sub-Adviser"). NAM and the Sub-Advisers are each a "Fund Adviser." THE APPROVAL PROCESS During the course of the year, the Board received a wide variety of materials relating to the services provided by the Fund Advisers and the performance of the Fund. To assist the Board in its evaluation of the advisory contract with a Fund Adviser at the May Meeting, the independent Trustees received extensive materials in advance of their meeting which outlined, among other things: - the nature, extent and quality of services provided by the Fund Adviser; - the organization and business operations of the Fund Adviser, including the responsibilities of various departments and key personnel; - the Fund's past performance, the Fund's performance compared to funds of similar investment objectives compiled by an independent third party and with recognized and/or customized benchmarks (as appropriate); - the profitability of the Fund Adviser and certain industry profitability analyses for unaffiliated advisers; - the expenses of the Fund Adviser in providing the various services; - the advisory fees (gross and net management fees) and total expense ratios of the Fund, including comparisons of such fees and expenses with those of comparable, unaffiliated funds based on information and data provided by Lipper (the "Peer Universe") as well as compared to a subset of funds within the Peer Universe (the "Peer Group") to the Fund (as applicable); - the advisory fees the Fund Adviser assesses to other types of investment products or clients; - the soft dollar practices of the Fund Adviser, if any; and - from independent legal counsel, a legal memorandum describing, among other things, the duties of the Trustees under the Investment Company Act of 1940 (the "1940 Act") as well as the general principles of relevant state law in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; an adviser's fiduciary duty with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards of directors have fulfilled their duties and factors to be considered by the board in voting on advisory agreements. At the May Meeting, NAM made a presentation to and responded to questions from the Board. After the presentations and after reviewing the written materials, the independent Trustees met privately with their legal counsel to review the Board's duties in reviewing advisory contracts and consider the renewal of the advisory contracts. It is with this background that the Trustees considered each advisory contract (which includes the Sub-Advisory Agreements) with the respective Fund Adviser. The independent Trustees, in consultation with independent counsel, reviewed the factors set out in judicial decisions and SEC directives relating to the renewal of advisory contracts. As outlined in more detail below, the Trustees considered all factors they believed relevant with respect to the Fund, including the following: (a) the nature, extent and quality of the services to be provided by the Fund Adviser; (b) the investment performance of the Fund and the Fund Adviser; (c) the costs of the services to be provided and profitability of the Fund Adviser and its affiliates; (d) the extent to which economies of scale would be realized as the Fund grows; and (e) whether fee levels reflect these economies of scale for the benefit of Fund investors. A. NATURE, EXTENT AND QUALITY OF SERVICES In reviewing the Fund Advisers, the Trustees considered the nature, extent and quality of the respective Fund Adviser's services. The Trustees reviewed materials outlining, among other things, the Fund Adviser's organization and business; the types of services that the Fund Adviser or its affiliates provide and are expected to provide to the Fund; the performance record of the Fund (as described in further detail below); and any initiatives Nuveen has taken for its fund product line. In connection with their continued service as Trustees, the Trustees also have a good understanding of each Fund Adviser's organization, operations and personnel. In this regard, the Trustees are familiar with and have evaluated the professional experience, qualifications and credentials of the Fund Adviser's personnel. With respect to each Sub-Adviser, the Trustees also received and reviewed an evaluation of the Sub-Adviser from NAM. Such evaluation outlined, among other things, the Sub-Adviser's organizational history, client base, product mix, investment team and any changes thereto, investment process and any changes to its investment strategy, the Fund's investment objectives and performance (as applicable). The Trustees noted that NAM recommended the renewal of the Sub-Advisory Agreements and considered the 34 basis for such recommendation and any qualifications in connection therewith. Given the Trustees' experience with the Fund (including any other Nuveen funds advised by a Fund Adviser) and each Fund Adviser, the Trustees recognized and considered the quality of their investment processes in making portfolio management decisions as well as any refinements or improvements thereto. In this regard, the Trustees considered the continued quality of the Fund Adviser's investment process in making portfolio management decisions as well as any additional refinements and improvements adopted to the portfolio management processes. In addition to advisory services, the independent Trustees considered the quality of any administrative or non-advisory services provided. With respect to each Sub-Adviser, the independent Trustees noted that the respective Sub-Advisory Agreement was essentially an agreement for portfolio management services only and the Sub-Adviser was not expected to supply other significant administrative services to the Fund. With respect to NAM, NAM provides the Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by others for the Fund) and officers and other personnel as are necessary for the operations of the Fund. In connection with the review of the Investment Management Agreement, the Trustees considered the extent and quality of these other services which include, among other things, providing: product management (e.g., product positioning, performance benchmarking, risk management); fund administration (e.g., daily net asset value pricing and reconciliation, tax reporting, fulfilling regulatory filing requirements); oversight of third party service providers; administration of board relations (e.g., organizing board meetings and preparing related materials); compliance (e.g., monitoring compliance with investment policies and guidelines and regulatory requirements); and legal support (e.g., helping prepare and file registration statements, amendments thereto, proxy statements and responding to regulatory requests and/or inquiries). As the Fund operates in a highly regulated industry and given the importance of compliance, the Trustees considered, in particular, the additions of experienced personnel to the compliance teams and the enhancements to technology and related systems to support the compliance activities for the Fund (including a new reporting system for quarterly portfolio holdings). In addition to the above, because the Fund utilizes Sub-Advisers, the Trustees also considered NAM's ability and procedures to monitor each Sub-Adviser's performance, business practices and compliance policies and procedures. In this regard, the Trustees noted the enhancements in the investment oversight process, including increased site visits and departments participating in investment oversight. In addition to the foregoing, the Trustees also noted the additional services that the Fund Adviser or its affiliates provide to closed-end funds, including, in particular, secondary market support activities. The Trustees recognized Nuveen's continued commitment to supporting the secondary market for the common shares of its closed-end funds through a variety of initiatives designed to raise investor and analyst awareness and understanding of closed-end funds. These efforts include providing advertising and other media relations programs, continued contact with analysts, maintaining and enhancing its website for closed-end funds, and targeted advisor communication programs. With respect to Funds that utilize leverage through the issuance of preferred shares, the Trustees noted Nuveen's continued support for the preferred shares by maintaining, among other things, an in-house preferred trading desk; designating a product manager whose responsibilities include creating and disseminating product information and managing relations in connection with the preferred share auction; and maintaining systems necessary to test compliance with rating agency requirements. Based on their review, the Trustees found that, overall, the nature, extent and quality of services provided (and expected to be provided) to the Fund under the Investment Management Agreement or Sub-Advisory Agreement, as applicable, were of a high level and were satisfactory. B. THE INVESTMENT PERFORMANCE OF THE FUND AND FUND ADVISERS The Board considered the investment performance for the Fund, including the Fund's historic performance as well as its performance compared to funds with similar investment objectives identified by an independent third party (the "Performance Peer Group") and recognized and/or customized benchmarks (as applicable). In evaluating the performance information, in certain instances, the Trustees noted that the closest Performance Peer Group for the Fund still may not adequately reflect the Fund's investment objectives, strategies and portfolio duration, thereby limiting the usefulness of the comparisons of the Fund's performance with that of the Performance Peer Group (such as, the Nuveen Diversified Dividend and Income Fund, Nuveen Preferred and Convertible Income Fund, Nuveen Preferred and Convertible Income Fund 2, Nuveen Tax-Advantaged Floating Rate Fund, and the Nuveen Real Estate Income Fund). In reviewing performance, the Trustees reviewed performance information including, among other things, total return information compared with the Fund's Performance Peer Group as well as recognized and/or customized benchmarks (as appropriate) for the one-, three- and five-year periods (as applicable) ending December 31, 2005. This information supplements the Fund performance information provided to the Board at each of their quarterly meetings. Based on their review, the Trustees determined that the Fund's absolute and relative investment performance over time had been satisfactory. C. FEES, EXPENSES AND PROFITABILITY 1. FEES AND EXPENSES In evaluating the management fees and expenses of the Fund, the Board reviewed, among other things, the Fund's advisory fees (net and gross management fees) and total expense ratios (before and after expense reimbursements and/or waivers) in absolute terms as well as comparisons to the gross management fees (before waivers), net management fees (after waivers) and total expense ratios (before and after waivers) of comparable funds in the Peer Universe and the Peer Group. The Trustees reviewed data regarding the construction of Peer Groups as well as the methods of measurement for the fee and expense analysis and the performance analysis. In certain cases, due to the small number of peers in the Peer Universe, the Peer Universe and the Peer Group may be the same. Further, the Trustees recognized that in certain cases the closest Peer Universe and/or Peer Group may not adequately reflect the Fund's investment objectives and strategies limiting the usefulness of 35 ANNUAL INVESTMENT MANAGEMENT AGREEMENT APPROVAL PROCESS (continued) comparisons. In reviewing comparisons, the Trustees also considered the size of the Peer Universe and/or Peer Group, the composition of the Peer Group (including differences in the use of leverage) as well as differing levels of fee waivers and/or expense reimbursements. In this regard, the Trustees considered the fund-level and complex-wide breakpoint schedules (described in further detail below) and any fee waivers and reimbursements provided by Nuveen (applicable, in particular, for certain funds launched since 1999). Based on their review of the fee and expense information provided, the Trustees determined that the Fund's net total expense ratio was within an acceptable range compared to peers. 2. COMPARISONS WITH THE FEES OF OTHER CLIENTS The Trustees further reviewed data comparing the advisory fees of NAM with fees NAM charges to other clients (such as separate managed accounts and funds that are not offered by Nuveen Investments but are sub-advised by one of Nuveen's investment management teams). In general, the advisory fees charged for separate accounts are somewhat lower than the advisory fees assessed to the Fund. The Trustees recognized that the differences in fees are attributable to a variety of factors, including the differences in services provided, product distribution, portfolio investment policies, investor profiles, account sizes and regulatory requirements. The Trustees noted, in particular, that the range of services provided to the Fund is more extensive than that provided to managed separate accounts. As described in further detail above, such additional services include, but are not limited to, providing: product management, fund administration, oversight of third party service providers, administration of board relations, and legal support. Funds further operate in a highly regulated industry requiring extensive compliance functions compared to the other investment products. In addition to the costs of the additional services, administrative costs may also be greater for funds as the average account size for separate accounts is notably larger than the retail accounts of funds. Given the differences in the product structures, particularly the extensive services provided to closed-end funds, the Trustees believe such facts justify the different levels of fees. In considering the advisory fees of a Sub-Adviser, the Trustees also considered the pricing schedule that the Sub-Adviser charges for similar investment management services for other sponsors or clients. With respect to Symphony, the Trustees reviewed the generally higher fees for hedge funds and accounts it manages, which include performance fees. 3. PROFITABILITY OF FUND ADVISERS In conjunction with its review of fees, the Trustees also considered the profitability of Nuveen Investments for advisory activities (which incorporated Nuveen's wholly-owned affiliated sub-advisers). The Trustees reviewed data comparing Nuveen's profitability with other fund sponsors prepared by three independent third party service providers as well as comparisons of the revenues, expenses and profits margins of various unaffiliated management firms with similar amounts of assets under management prepared by Nuveen. The Trustees further reviewed the 2005 Annual Report for Nuveen Investments. In considering profitability, the Trustees recognized the inherent limitations in determining profitability as well as the difficulties in comparing the profitability of other unaffiliated advisers. Profitability may be affected by numerous factors, including the methodology for allocating expenses, the adviser's business mix, the types of funds managed, the adviser's capital structure and cost of capital. Further, individual fund or product line profitability of other sponsors is generally not publicly available. Accordingly, the profitability information that is publicly available from various investment advisory or management firms may not be representative of the industry. Notwithstanding the foregoing, in reviewing profitability, the Trustees reviewed Nuveen's methodology and assumptions for allocating expenses across product lines to determine profitability. In this regard, the methods of allocation used appeared reasonable. The Trustees also, to the extent available, compared Nuveen's profitability margins (including pre- and post-marketing profit margins) with the profitability of various unaffiliated management firms. The Trustees noted that Nuveen's profitability is enhanced due to its efficient internal business model. The Trustees also recognized that while a number of factors affect profitability, Nuveen's profitability may change as fee waivers and/or expense reimbursement commitments of Nuveen to various funds in the Nuveen complex expire. To keep apprised of profitability and developments that may affect profitability, the Trustees have requested profitability analysis be provided periodically during the year. With respect to unaffiliated Sub-Advisers (i.e., Security Capital and Wellington), the Trustees also considered the Sub-Adviser's revenues from serving as a Sub-Adviser to the Fund, expenses (including the basis for allocating expenses) and profitability margins (pre- and post-tax). Based on their review, the Trustees were satisfied that the respective Fund Adviser's level of profitability was reasonable in light of the services provided. In evaluating the reasonableness of the compensation, the Trustees also considered any other revenues paid to a Fund Adviser as well as any indirect benefits (such as soft dollar arrangements, if any) the Fund Adviser and its affiliates are expected to receive that are directly attributable to their management of the Fund, if any. See Section E below for additional information. Based on their review of the overall fee arrangements of the Fund, the Trustees determined that the advisory fees and expenses of the Fund were reasonable. D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE With respect to economies of scale, the Trustees recognized the potential benefits resulting from the costs of a fund being spread over a larger asset base as a fund grows. To help ensure the shareholders share in these benefits, the Trustees have reviewed and 36 considered the breakpoints in the advisory fee schedules that reduce advisory fees as the Fund's assets grow. In addition to advisory fee breakpoints as assets in the Fund rise, after lengthy discussions with management, the Board also approved a complex-wide fee arrangement that was introduced on August 1, 2004. Pursuant to the complex-wide fee arrangement, the fees of the funds in the Nuveen complex, including the Fund, are reduced as the assets in the fund complex reach certain levels. In evaluating the complex-wide fee arrangement, the Trustees considered, among other things, the historic and expected fee savings to shareholders as assets grow, the amount of fee reductions at various asset levels, and that the arrangement would extend to all funds in the Nuveen complex. The Trustees noted that 2005 was the first full year to reflect the fee reductions from the complex wide fee arrangement. The Trustees also considered the impact, if any, the complex-wide fee arrangement may have on the level of services provided. Based on their review, the Trustees concluded that the breakpoint schedule and complex-wide fee arrangement currently was acceptable and desirable in providing benefits from economies of scale to shareholders. E. INDIRECT BENEFITS In evaluating fees, the Trustees also considered any indirect benefits or profits the Fund Adviser or its affiliates may receive as a result of its relationship with the Fund. In this regard, the Trustees considered revenues received by affiliates of the Fund Adviser for serving as agent at Nuveen's preferred trading desk and for serving as a co-manager in the initial public offering of new closed-end exchange traded funds. In addition to the above, the Trustees considered whether the Fund Adviser received any benefits from soft dollar arrangements. With respect to NAM, the Trustees noted that NAM does not currently have any soft dollar arrangements and does not pay excess brokerage commissions (or spreads on principal transactions) in order to receive research services; however, NAM may from time to time receive and have access to research generally provided to institutional clients. The Trustees also considered the soft dollar arrangements, if any, of the Sub-Advisers. With respect to NWQ, the Trustees noted that such Sub-Adviser has engaged in soft dollar arrangements. The Trustees recognize NWQ benefits from its soft dollar arrangements pursuant to which it receives research from brokers that execute the Fund's portfolio transactions. At the May Meeting and in prior meetings, the Trustees have received and reviewed materials concerning NWQ's soft dollar arrangements, including the type of research received. NWQ has agreed to limit the type of research received with the use of soft dollars to that with intellectual content. The Trustees note that this Sub-Adviser's profitability may be lower if it was required to pay for this research with hard dollars. With respect to Security Capital, such Sub-Adviser does not enter into soft dollar arrangements; however, such Sub-Advisor may receive or have access to research generally provided to institutional clients. With respect to Symphony, such Sub-Adviser currently does not enter into soft dollar arrangements; however, it has adopted a soft dollar policy in the event it does so in the future. Finally, with respect to Wellington, the Trustees noted that while such Sub-Adviser does have some soft dollar arrangements with respect to some of its agency trades, the trades in fixed income securities held by the Nuveen Diversified Dividend and Income Fund are done on a principal basis and, therefore, do not generate soft dollar credits. The Trustees did not identify any single factor discussed previously as all-important or controlling. The Trustees, including a majority of independent Trustees, concluded that the terms of the Investment Management Agreement and Sub-Advisory Agreements were fair and reasonable, that the respective Fund Adviser's fees are reasonable in light of the services provided to the Fund, and that the renewal of the respective Investment Management Agreement and Sub-Advisory Agreements should be approved. 37 Reinvest Automatically EASILY AND CONVENIENTLY NUVEEN EXCHANGE-TRADED CLOSED-END FUNDS DIVIDEND REINVESTMENT PLAN Your Nuveen Exchange-Traded Closed-End 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 NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR REINVESTMENT ACCOUNT. 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 AUTOMATIC DIVIDEND REINVESTMENT PLAN NOTICE OF AMENDMENT TO THE TERMS AND CONDITIONS The Fund is amending the terms and conditions of its Automatic Dividend Reinvestment Plan (the "Plan") as further described below effective with the close of business on December 1, 2006. THESE CHANGES ARE INTENDED TO ENABLE PLAN PARTICIPANTS UNDER CERTAIN CIRCUMSTANCES TO REINVEST FUND DISTRIBUTIONS AT A LOWER AGGREGATE COST THAN IS POSSIBLE UNDER THE EXISTING PLAN. Shareholders who do not wish to continue as participants under the amended Plan may withdraw from the Plan by notifying the Plan Agent prior to the effective date of the amendments. Participants should refer to their Plan document for notification instructions, or may simply call Nuveen at (800) 257-8787. Fund shareholders who elect to participate in the Plan are able to have Fund distributions consisting of income dividends, realized capital gains and returns of capital automatically reinvested in additional Fund shares. Under the Plan's existing terms, the Plan Agent purchases Fund shares in the open market if the Fund's shares are trading at a discount to their net asset value on the payable date for the distribution. If the Fund's shares are trading at or above their net asset value on the payable date for the distribution, the Plan Agent purchases newly-issued Fund shares directly from the Fund at a price equal to the greater of the shares' net asset value or 95% of the shares' market value. Under the Plan's amended terms, if the Plan Agent begins purchasing Fund shares on the open market while shares are trading below net asset value, but the Fund's shares subsequently trade at or above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Fund shares at a price equal to the greater of the shares' net asset value or 95% of the shares' market value. This change will permit Plan participants under these circumstances to reinvest Fund distributions at a lower aggregate cost than is possible under the existing Plan. 39 Notes 40 Notes 41 Notes 42 OTHER USEFUL INFORMATION 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, 2006, 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. 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 Company Boston, MA TRANSFER AGENT AND SHAREHOLDER SERVICES State Street Bank & Trust Company 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. 43 (back cover photo) NUVEEN INVESTMENTS: SERVING INVESTORS FOR GENERATIONS 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 $149 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 six distinct brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in value-style equities; Rittenhouse, a leader in growth-style equities; Symphony, a leading institutional manager of market-neutral alternative investment portfolios; Santa Barbara, a leader in growth equities; and Tradewinds NWQ, a leader in global equities. 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. - Share prices - Fund details - Daily financial news - Investor education - Interactive planning tools LEARN MORE ABOUT NUVEEN FUNDS AT WWW.NUVEEN.COM/CEF ESA-B-0606D NUVEEN LOGO ITEM 2. CODE OF ETHICS. Not applicable to this filing. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable to this filing. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable to this filing. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to this filing. ITEM 6. SCHEDULE OF INVESTMENTS. See Portfolio of Investments in Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to this filing. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to this filing. 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. During this reporting period, the registrant's Board of Trustees implemented a change to the procedures by which shareholders may recommend nominees to the registrant's board of trustees by amending the registrant's by-laws to include a provision specifying the date by which shareholder nominations for election as trustee at a subsequent meeting must be submitted to the registrant. Shareholders must deliver or mail notice to the registrant not less than forty-five days nor more than sixty days prior to the first anniversary date of the date on which the registrant first mailed its proxy materials for the prior year's annual meeting; provided, however, if and only if the annual meeting is not scheduled to be held within a period that commences thirty days before the first anniversary date of the annual meeting for the preceding year and ends thirty days after such anniversary date (an annual meeting date outside such period being referred to as an "Other Annual Meeting Date" hereafter), the shareholder notice must be given no later than the close of business on the date forty-five days prior to such Other Annual Meeting Date or the tenth business day following the date such Other Annual Meeting Date is first publicly announced or disclosed. The shareholder's notice must be in writing and set forth the name, age, date of birth, business address, residence address and nationality of the person(s) being nominated and the class or series, number of all shares of the registrant owned of record or beneficially be each such person(s), any other information regarding such person required by Item 401 of Regulation S-K or Item 22 of Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as amended, any other information regarding the person(s) to be nominated that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitation of proxies for election of trustees, and whether such shareholder believes any nominee is or will be an "interested person" (as that term is defined in the Investment Company Act of 1940, as amended) of the registrant or sufficient information to enable the registrant to make that determination and the written and signed consent of the person(s) to be nominated. 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. (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 to this filing. (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: September 8, 2006 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: September 8, 2006 By (Signature and Title)* /s/ Stephen D. Foy --------------------------------------- Stephen D. Foy Vice President and Controller (principal financial officer) Date: September 8, 2006 * Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 c07139exv99wcert.txt SECTION 302 CERTIFICATIONS CERTIFICATION I, Gifford R. Zimmerman, certify that: 1. I have reviewed this report on Form N-CSR of Nuveen Diversified Dividend and Income Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting 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; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 8, 2006 /s/ Gifford R. Zimmerman ---------------------------------- Gifford R. Zimmerman Chief Administrative Officer (principal executive officer) CERTIFICATION I, Stephen D. Foy, certify that: 1. I have reviewed this report on Form N-CSR of Nuveen Diversified Dividend and Income Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting 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; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 8, 2006 /s/ Stephen D. Foy ----------------------------------- Stephen D. Foy Vice President and Controller (principal financial officer) EX-99.906CERT 3 c07139exv99w906cert.txt SECTION 906 CERTIFICATIONS Certification Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002; provided by the Chief Executive Officer and Chief Financial Officer, based on each such officer's knowledge and belief. The undersigned officers of Nuveen Diversified Dividend and Income Fund (the "Fund"), certify that, to the best of each such officer's knowledge and belief: 1. The Form N-CSR of the Fund for the period ended June 30, 2006 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Date: September 8, 2006 /s/ Gifford R. Zimmerman --------------------------------- Gifford R. Zimmerman Chief Administrative Officer (principal executive officer) /s/ Stephen D. Foy --------------------------------- Stephen D. Foy Vice President, Controller (principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----