UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21407
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Nuveen Diversified Dividend and Income Fund
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
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Date of fiscal year end: December 31
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Date of reporting period: June 30, 2004
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMIANNUAL REPORT June 30, 2004
Nuveen Investments
Closed-End
Exchange-Traded
Funds
NUVEEN
DIVERSIFIED
DIVIDEND AND
INCOME FUND
JDD
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HIGH CURRENT INCOME AND TOTAL RETURN FROM A PORTFOLIO OF DIVIDEND-PAYING COMMON
STOCKS, REIT STOCKS, EMERGING MARKETS SOVEREIGN DEBT, AND SENIOR LOANS
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Timothy R. Schwertfeger
Chairman of the Board
Chairman's
LETTER TO SHAREHOLDERS
I am very pleased to report that over the first six months of 2004 your Fund
continued to provide you with an attractive monthly distribution and diversified
exposure to a variety of important markets and asset classes.
In addition to providing regular monthly cash flow, we believe that your Fund
also may offer opportunities to reduce the risk of your overall investment
portfolio. This is because the value of the Fund's holdings in dividend-paying
stocks, REIT stocks, emerging markets sovereign debt and senior corporate loans
may move differently than the prices of other common stocks, bonds or mutual
funds you may own. Since one part of your portfolio may be going up when another
is going down, portfolio
WE BELIEVE THAT YOUR FUND ALSO MAY OFFER OPPORTUNITIES TO REDUCE THE RISK OF
YOUR OVERALL INVESTMENT PORTFOLIO.
diversification may reduce your overall risk. Your financial advisor can explain
the advantages of portfolio diversification in more detail. I urge you to
contact him or her soon for more information on this important investment
strategy.
I also urge you to consider receiving future Fund reports and other Fund
information by e-mail and the Internet. Not only will you be able to receive the
information faster, but this also may help lower your Fund's expenses. Sign up
is quick and easy - see the inside front cover of this report for step-by-step
instructions.
For more than 100 years, Nuveen has specialized in offering quality investments
such as your Fund to those seeking to accumulate and preserve wealth. Our
commitment to careful research, constant surveillance and judicious trading by
our seasoned portfolio management team has never been stronger. Our mission
continues to be to assist you and your financial advisor by offering the
investment solutions and services that can help you secure your long-term
financial objectives. We thank you for choosing us as a partner as you work
toward that goal.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
August 16, 2004
Nuveen Diversified Dividend and Income Fund
(JDD)
Portfolio Managers'
PERSPECTIVE
The Nuveen Diversified Dividend and Income Fund features portfolio management by
teams at four subadvisors: 1) NWQ Investment Management Company, LLC,
investing in dividend-paying common stocks, 2) Security Capital Research &
Management Incorporated, investing in REIT stocks, 3) Wellington Management
Company, LLP, investing in emerging markets sovereign debt, and 4) Symphony
Asset Management, LLC, investing in senior loans. NWQ and Symphony are
affiliated with Nuveen Investments.
During the six-month period ended June 30, 2004, the Fund produced a cumulative
total return on net asset value of 3.88%, compared with a benchmark return of
3.65%.1 The Fund maintained a stable monthly dividend during this period, and
was trading at an -11.92% discount to its net asset value as of June 30, 2004.
For the entire six-month period, the Fund traded at an average premium of more
than 4%.
Over the six-month reporting period, the Fund provided a stable monthly
distribution of $0.1025 per share. The Fund seeks to maintain a stable monthly
distribution level. If, for any monthly distribution, the Fund's net investment
income and net realized capital gains applicable to common shares are less than
the amount of the distribution, the difference may be drawn from the Fund's
assets. The final determination of the source of all distributions for the year
will be made after the end of the year. In the following sections, each
subadvisor team presents an overview of the general market environment for their
asset class over the reporting period, as well as a synopsis of the management
strategy and tactics they used for the portion of the Fund's assets they manage.
NWQ INVESTMENT MANAGEMENT COMPANY, LLC (DIVIDEND-PAYING COMMON STOCKS)
The U.S. stock market started 2004 as strongly as it had finished in 2003.
However, the strength seen in January and February soon faded as increased
global tensions and mounting economic concerns caused a general weakness in
stock prices that lasted until mid-May. Of particular concern to investors was
evidence of rising inflation pressures brought on by a surge in raw material
prices. For the six-month period, the S&P 500 produced a total return of 3.44%,
while some of the indexes comprised of small-to-mid capitalization stocks
performed better.
We employed an opportunistic approach to investing during the period, utilizing
a bottom-up strategy that focused on identifying companies that we thought were
attractively
1 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 to not include the effects of any sales charges or
management fees. It is not possible to invest directly in an index.
4
valued, possessed favorable risk/reward characteristics and had emerging
catalysts that we believed could unlock value or improve profitability. These
catalysts included management changes, restructuring efforts, recognition of
undervalued assets, or a turn in the underlying fundamentals. We also focused on
downside protection, looking at a company's balance sheet and cash flow
statements, not just its income statement. We believed cash flow analysis
offered a more objective and truer picture of a companyfinancial position than
an evaluation based on earnings alone.
Using this approach, we made investments during the period in several companies
that had suffered recent price weakness. Some of these investments were new
positions, and others were additions to our existing holdings. Our analysis
indicated these companies had solid fundamentals, compelling valuations, and an
attractive risk/reward relationship. Some examples included new investments in
Lockheed Martin Corporation, Newell Rubbermaid Inc. and Weyerhaeuser Company,
and increased stakes in Fannie Mae, Korean Electric Power Corp. and Tate & Lyle
PLC.
Although numerous holdings made positive contributions to the Fund's performance
during the six-month period, the greatest gains tended to come from our defense,
energy, and insurance holdings. Defense stocks outperformed due to compelling
valuations and strong fundamentals. The Department of Defense is expected to
spend over $1 trillion over the next decade on domestic security programs and
the next generation of ships, submarines, and fighter aircraft. Strong cash flow
growth could also lead to higher share repurchase activity as the prospect for
large acquisitions is limited due to an already consolidated industry. One
holding, Raytheon Company, gained 19%, while Lockheed Martin Corporation
increased 11% between its purchase in April and June 30. Our energy stocks also
appreciated as high oil and gas prices are contributing to an increase in
drilling activity, higher refining margins, and improved cash flows for energy
companies. Favorable supply/demand conditions remained intact due to strong
global economic growth, particularly in China. Terrorism fears, a weak dollar,
and recent oil worker strikes in Norway and Venezuela have also contributed to
higher energy prices. Each of our six energy holdings returned between 3% and
16% during the period. Meanwhile, improving fundamentals and a favorable pricing
outlook for property casualty insurance contributed to the strong rise in
insurance stocks. Two holdings, AON Corporation and The Hartford Financial
Services Group, Inc. rose 19% and 16%, respectively.
5
In addition, grocery chain Albertson's, Inc. gained 17% during this reporting
period on the prospect of improved industry fundamentals and continued steps to
divest itself of less profitable stores. Kimberly-Clark Corporation appreciated
11% due to a compelling valuation and signs of a turn in its diaper business.
Our other paper stocks, International Paper Company and Packaging Corp. of
America, posted gains of 4% and 9%, respectively.
Not all of our holdings appreciated during the period. Our position in The May
Department Stores Company declined 5% as a slowdown in consumer spending
negatively affected the performance of many retail stocks. Altria Group, Inc.
the parent of Phillip Morris, fell 8% over the six-month period due to some
recent adverse litigation rulings, and Rio Tinto plc dropped 12% due to a
correction in the price of metal amid signs of a slowdown in Chinese industrial
production. In addition, our position in Korea Electric Power Corp. declined 12%
on market volatility and news the company will not divest its power distribution
unit as expected due to government concerns.
SECURITY CAPITAL RESEARCH & MANAGEMENT INCORPORATED (REIT STOCKS)
Entering 2004, a prolonged period of economic weakness had left many commercial
real estate operating markets and property sectors around the United States
under significant stress. Especially affected were those sectors for which
business investment and job creation play a key role in creating and sustaining
marginal demand--apartment buildings, office buildings and hotels. In contrast,
malls and smaller shopping centers, which tend to be more influenced by consumer
behavior, continued to experience healthy operating fundamentals.
During the first half of 2004, U.S. economic activity, especially as it related
to job creation, improved markedly. New jobs began to emerge with consistency,
and even accelerated through the period, raising the possibility that from an
operating perspective, a new cycle might be beginning for the hardest hit real
estate property types. With new supply additions having remained largely in
balance during the downturn, increases in demand might ultimately lead to higher
occupancy levels and potentially increased cash flow and dividend coverage for
many real estate operating companies. For the six months ended June 30, 2004,
the Dow Jones Wilshire Real Estate Securities Index produced a total return of
6.92%. The NAREIT (National Association of Real Estate Investment Trusts) Equity
Index, an unmanaged index that includes only publicly traded U.S. tax-qualified
REITs, recorded a 5.52% total return for the period.
6
Accompanying the operating inflection point reached this period was a shift in
interest rate expectations--one that we believe had a dramatic effect on
shorter-term-focused real estate securities investors. Unusually high volatility
and trading volumes for real estate securities prevailed in the period, with
significant dispersion of performance among property and security types.
During the reporting period, we continued to focus on those securities that we
believed were best positioned to generate both income and potential price
appreciation. In managing the portfolio, we sought to maintain significant
diversification while taking into account each company's real estate portfolio,
management team, capitalization, and prospects within this operating
environment.
As the potential for increasing interest rates developed over the period, our
research indicated that many attractive income and total return opportunities
existed among preferred equity securities market, as compared to common stocks
having a similar yield. As a result, we selectively increased portfolio's
allocation to preferred securities from approximately 4% to 10% during the
period while also taking advantage of substantial short-term price declines in
certain cyclically sensitive common stocks in an attempt to bolster the
portfolio's income and total return position.
Our efforts to maintain a balance between current income and long-term
appreciation potential in the real estate portion of the portfolio led to mixed
results. On the positive side, the increased representation of more cyclically
sensitive real estate common stocks such as those of apartment companies worked
well, especially as pricing for these companies began to rebound sharply in the
second quarter. Also well timed were selective introductions of preferred
stocks, accomplished in recognition of the relatively attractive valuations of
these higher yielding securities as compared to common stocks of similar yields.
On the other side, having current income as a partial objective led us to
maintain a substantial allocation to healthcare real estate companies. On a
total return basis, these companies were among the poorest performers within the
real estate sleeve over this reporting period.
WELLINGTON MANAGEMENT COMPANY, LLP (EMERGING MARKETS SOVEREIGN DEBT)
Strong global growth in the first quarter supported the economic performance of
most emerging markets countries, and abundant global liquidity created an
opportunity for
7
the governments of these countries to obtain financing on relatively favorable
terms. In fact, we estimate that the countries in the market raised almost 50%
of their external financing requirements for 2004 in the first quarter. As a
result of this benign environment, the JPMorgan EMBI Global Diversified Index,
which tracks total returns for U.S.-dollar-denominated debt instruments issued
by emerging markets sovereign and quasi-sovereign entities, rose 3.8% in the
first quarter.
However, after a strong start to the year, emerging markets debt came under
pressure during the second quarter, and the JPMorgan EMBI Global Diversified
Index declined by 5.3%. The second quarter began with the release of a very
strong Employment Report in the U.S. The unexpectedly rapid pace of employment
growth brought an end to earlier concerns about a "jobless recovery." At the
same time, there were growing concerns that inflationary pressures resulting
from stubbornly high oil prices might cause erosion in the consumer confidence
on which the global economic recovery had largely been based. Consequently, this
economic data triggered a significant shift in investor expectations toward a
more aggressive tightening cycle than had previously been expected.
For the six-month period, the JPMorgan EMBI Global Diversified Index was down
1.7%. As investors focused on the implications of tightening global liquidity,
countries with relatively high financing needs came under the most pressure.
Fundamental developments remained positive in most countries, but lower rated
countries still tended to underperform the market as risk aversion rose. We
sought to add value by emphasizing positions in countries and securities that we
deemed to have favorable risk-return profiles.
Despite a difficult period for the debt of many emerging markets issuers,
several countries delivered positive returns during the period, including
Lebanon (+4.6%), Bulgaria (+2.4%) and Egypt (+1.5%). Poorly performing countries
included Brazil (-6.7%), Turkey (-6.3%) and Ecuador (-5.7%). Ecuador was a top
performer during the first quarter, but fell by over 16% in the second quarter
as legislative problems jeopardized the government's relationship with the
International Monetary Fund, thereby increasing the government's financing
needs.
Astute security selection in Venezuela, Turkey and Mexico contributed positively
to Fund performance. Detracting from results were our sizable positions in poor
performers Brazil
8
and Peru, as well as our lack of exposure to Lebanon, where we missed out on the
country's strong performance during the period.
An unsettled global environment will likely cause continued turbulence in
emerging markets. Risks will be skewed to the downside during an environment of
tightening global liquidity. As a result, we plan to maintain our moderately
defensive position and to wait patiently for opportunities. However, from a
longer-term perspective, we have a more constructive outlook on the market given
our expectations for stable to improving credit trends in most countries.
Valuation measures are mixed for the market, but on balance they look expensive
given prospects for tightening global liquidity. On the positive side,
valuations have become more attractive following generally strong performance
during the second quarter, and sovereign credits tend to have a yield advantage
over comparably rated corporate credits. However, many emerging market issues
remain on the expensive end of their historic range. Recent new issuance
activity has also adversely affected the supply-demand balance in the market
from a short-term perspective.
We believe that it is prudent to express caution. We are doing this by holding a
relatively high cash position. In addition, we have limited exposure to
countries that are particularly vulnerable to diminishing global liquidity.
Security selection is also biased defensively, as it includes securities with
intrinsic downside protection such as putable bonds in Colombia, Mexico, Panama,
and the Philippines. Despite our cautious tone, we are still taking advantage of
opportunities in countries with sound fundamental outlooks and attractive
valuations. This has led us to overweight positions in Peru and Russia. Our
overall strategy requires patience, but we believe that it will be rewarded as
opportunities arise in the second half of this year.
SYMPHONY ASSET MANAGEMENT, LLC (SENIOR LOANS)
During the first six months of the year, the leveraged loan market continued to
demonstrate the same characteristics that made 2003 one of the strongest loan
markets in the past ten years. Record inflows into the leveraged loan asset
class, driven by the belief that the economy is entering a period of rising
interest rates, a decreasing default rate as the economy continued to improve
and a strong high yield market all contributed to the generally positive
performance of the leveraged loan asset class. The CSFB
9
Leveraged Loan Index returned 3.12% in 1st half of 2004, with all industries in
the index except telecommunications showing positive results. Strong investor
appetite drove $124 billion of leveraged loans to come to market during the
first half of 2004, including $38.5 billion to fund M&A activity.
We focused our strategy on successfully completing the initial invest-up by
purchasing loans and high yield bonds that we thought had strong asset
protection and attractive coupons. Our holdings in the industrial and automotive
sectors generally performed well, while rising rates during the second quarter
hurt the performance of our high yield securities.
10
Nuveen Diversified Dividend and Income Fund
JDD
Performance
OVERVIEW As of June 30, 2004
FUND SNAPSHOT
- ------------------------------------
Share Price $13.30
- ------------------------------------
Common Share
Net Asset Value $15.10
- ------------------------------------
Premium/(Discount) to NAV -11.92%
- ------------------------------------
Net Assets Applicable to
Common Shares ($000) $304,096
- ------------------------------------
CUMULATIVE TOTAL RETURN
(Inception 9/25/03)
- ------------------------------------
ON SHARE PRICE ON NAV
- ------------------------------------
6-Month -11.43% 3.88%
- ------------------------------------
Since
Inception -6.31% 11.19%
- ------------------------------------
COMMON STOCKS TOP FIVE ISSUERS
(as a % of total investments)
- ------------------------------------
Fannie Mae 1.2%
- ------------------------------------
Kerr-McGee Corporation 1.0%
- ------------------------------------
Aon Corporation 1.0%
- ------------------------------------
Verizon Communications Inc. 0.9%
- ------------------------------------
Altria Group, Inc. 0.9%
- ------------------------------------
REAL ESTATE INVESTMENT TRUST
COMMON STOCKS TOP FIVE ISSUERS
(as a % of total investments)
- ------------------------------------
AMLI Residential
Properties Trust 1.7%
- ------------------------------------
Mack-Cali Realty Corporation 1.6%
- ------------------------------------
HRPT Properties Trust 1.4%
- ------------------------------------
Nationwide Health
Properties, Inc. 1.4%
- ------------------------------------
Arden Realty, Inc. 1.3%
- ------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS
TOP FIVE ISSUERS
(as a % of total investments)
- ------------------------------------
24 Hour Fitness Worldwide, Inc. 0.9%
- ------------------------------------
Vought Aircraft Industries,
Inc. 0.9%
- ------------------------------------
Michael Foods, Inc. 0.7%
- ------------------------------------
Allied Waste North America,
Inc. 0.7%
- ------------------------------------
Triad Hospitals, Inc. 0.7%
- ------------------------------------
EMERGING MARKETS SOVEREIGN DEBT
TOP FIVE COUNTRIES
(as a % of total investments)
- ------------------------------------
Russia 2.1%
- ------------------------------------
Mexico 1.8%
- ------------------------------------
Panama 1.5%
- ------------------------------------
Peru 1.4%
- ------------------------------------
Bulgaria 1.4%
- ------------------------------------
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
Real Estate Investment Trust Common
Stocks and Preferred Securities 25.7%
Emerging Markets Sovereign Debt 21.3%
Common Stocks 24.4%
Variable Rate Senior
Loan Interests 19.7%
U.S. Corporate Bonds 3.8%
Short-Term Investments 3.6%
Other 1.5%
Bar Chart:
2003-2004 MONTHLY DIVIDENDS PER SHARE
Nov 0.1025
Dec 0.1025
Jan 0.1025
Feb 0.1025
Mar 0.1025
Apr 0.1025
May 0.1025
Jun 0.1025
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
9/26/03 $15.01
15.09
15
15.01
14.96
15.06
15.05
15.2
15.25
15.33
15.42
15.85
15.7
15.43
15.8
16
15.96
15.75
15.9
16.09
15.75
15.86
15.74
15.9
15.63
14.9
14.59
14.5
13.8
13.27
13.46
13.88
14.25
14.15
13.46
6/25/04 13.34
11
Shareholder
MEETING REPORT
The annual shareholder meeting was held on March 24, 2004, in Chicago at
Nuveen's headquarters.
JDD
- ------------------------------------------------------------------------------------------------------------------------------------
Common and
Preferred shares Preferred shares
voting together voting together
as a class as a class
====================================================================================================================================
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
William E. Bennett
For 19,827,966 --
Withhold 82,032 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
Robert P. Bremner
For 19,832,364 --
Withhold 77,634 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
Lawrence H. Brown
For 19,823,885 --
Withhold 86,113 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
Jack B. Evans
For 19,835,134 --
Withhold 74,864 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
Anne E. Impellizzeri*
For 19,815,979 --
Withhold 94,019 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
William L. Kissick*
For 19,818,169 --
Withhold 91,829 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
Thomas E. Leafstrand*
For 19,820,469 --
Withhold 89,529 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
Peter R. Sawers*
For 19,826,035 --
Withhold 83,963 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
*Board Member retired effective June 30, 2004.
12
JDD
- ------------------------------------------------------------------------------------------------------------------------------------
Common and
Preferred shares Preferred shares
voting together voting together
as a class as a class
====================================================================================================================================
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
William J. Schneider
For -- 3,966
Withhold -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total -- 3,966
====================================================================================================================================
Timothy R. Schwertfeger
For -- 3,966
Withhold -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total -- 3,966
====================================================================================================================================
Judith M. Stockdale
For 19,829,367 --
Withhold 80,631 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
Sheila W. Wellington*
For 19,821,935 --
Withhold 88,063 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
APPROVAL OF A NEW SUB-ADVISORY AGREEMENT WAS REACHED AS FOLLOWS:
For 19,726,373 --
Against 84,146 --
Abstain 99,479 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 19,909,998 --
====================================================================================================================================
*Board Member retired effective June 30, 2004.
13
Nuveen Diversified Dividend and Income Fund (JDD)
Portfolio of
INVESTMENTS June 30, 2004 (Unaudited)
SHARES DESCRIPTION(1) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 33.8% (24.4% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 1.9%
50,000 Lockheed Martin Corporation $ 2,604,000
85,000 Raytheon Company 3,040,450
- ------------------------------------------------------------------------------------------------------------------------------------
5,644,450
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.9%
245,600 Delphi Corporation 2,623,008
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.6%
143,000 DSM NV 1,773,200
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 1.0%
34,600 Bank of America Corporation 2,927,852
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.9%
65,000 Pitney Bowes Inc. 2,876,250
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.5%
90,000 KT Corporation 1,623,600
- ------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.8%
106,300 Packaging Corp. of America 2,540,570
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.5%
25,000 Citigroup Inc. 1,162,500
85,000 JPMorgan Chase & Co. 3,295,450
- ------------------------------------------------------------------------------------------------------------------------------------
4,457,950
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.8%
155,500 SBC Communications Inc. 3,770,875
135,000 Sprint Corporation 2,376,000
52,500 Telecom Italia S.p.A., Sponsored ADR 1,642,725
110,600 Verizon Communications Inc. 4,002,614
- ------------------------------------------------------------------------------------------------------------------------------------
11,792,214
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.5%
65,000 FirstEnergy Corp. 2,431,650
220,000 Korea Electric Power Corporation (KEPCO) 2,015,200
- ------------------------------------------------------------------------------------------------------------------------------------
4,446,850
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 1.7%
135,000 Albertson's, Inc. 3,582,900
69,500 J. Sainsbury plc, Sponsored ADR 1,442,125
- ------------------------------------------------------------------------------------------------------------------------------------
5,025,025
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.7%
82,000 Tate and Lyle PLC 2,009,000
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.6%
77,000 Newell Rubbermaid Inc. 1,809,500
- ------------------------------------------------------------------------------------------------------------------------------------
14
SHARES DESCRIPTION(1) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 1.0%
48,000 Kimberly-Clark Corporation $ 3,162,240
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 1.8%
145,000 Aon Corporation 4,128,150
20,000 The Hartford Financial Services Group, Inc. 1,374,800
- ------------------------------------------------------------------------------------------------------------------------------------
5,502,950
- ------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 1.6%
146,000 Alumina Limited 2,182,700
26,500 Rio Tinto plc, Sponsored ADR 2,598,325
- ------------------------------------------------------------------------------------------------------------------------------------
4,781,025
- ------------------------------------------------------------------------------------------------------------------------------------
MULTILINES RETAIL - 0.5%
53,400 The May Department Stores Company 1,467,966
- ------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 5.6%
32,300 ChevronTexaco Corporation 3,039,753
37,800 ConocoPhillips 2,883,762
23,000 Eni S.p.A. Sponsored ADR 2,307,820
80,000 Kerr-McGee Corporation 4,301,600
30,000 Total SA, Sponsored ADR 2,882,400
49,500 Unocal Corporation 1,881,000
- ------------------------------------------------------------------------------------------------------------------------------------
17,296,335
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.6%
55,500 International Paper Company 2,480,850
40,000 Weyerhaeuser Company 2,524,800
- ------------------------------------------------------------------------------------------------------------------------------------
5,005,650
- ------------------------------------------------------------------------------------------------------------------------------------
TRIFTS & MORTGAGE FINANCE - 2.6%
71,600 Fannie Mae 5,109,376
94,100 IndyMae Bancorp, Inc. 2,973,560
- ------------------------------------------------------------------------------------------------------------------------------------
8,082,936
- ------------------------------------------------------------------------------------------------------------------------------------
TOBACCO - 2.2%
76,200 Altria Group, Inc. 3,813,810
113,000 Loews Corporation - Carolina Group 2,774,150
- ------------------------------------------------------------------------------------------------------------------------------------
6,587,960
- ------------------------------------------------------------------------------------------------------------------------------------
WATER UTILITIES - 0.5%
82,800 United Utilities plc, Sponsored ADR 1,583,136
- ------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost $90,132,054) 103,019,667
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK - 0.9% (0.6% OF TOTAL INVESTMENTS)
SPECIALTY RETAIL - 0.9%
57,000 Toys "R" Us, Inc., 6.250% 2,596,920
- ------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stock (cost $2,002,026) 2,596,920
--------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST COMMON STOCKS - 31.5% (22.7% OF TOTAL INVESTMENTS)
APARTMENTS - 8.7%
242,800 AMLI Residential Properties Trust 7,123,752
114,900 Archstone-Smith Trust 3,370,017
57,500 Avalonbay Communities, Inc. 3,249,900
74,500 Camden Property Trust 3,412,100
129,600 Gables Residential Trust 4,403,808
164,400 Post Properties, Inc. 4,792,260
- ------------------------------------------------------------------------------------------------------------------------------------
26,351,837
- ------------------------------------------------------------------------------------------------------------------------------------
15
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS June 30, 2004 (Unaudited)
SHARES DESCRIPTION(1) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 3.6%
310,900 Nationwide Health Properties, Inc. $ 5,876,010
293,800 Senior Housing Properties Trust 4,932,902
- ------------------------------------------------------------------------------------------------------------------------------------
10,808,912
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS - 1.1%
338,736 Hersha Hospitality Trust 3,346,712
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 0.6%
50,000 First Industrial Realty Trust, Inc. 1,844,000
- ------------------------------------------------------------------------------------------------------------------------------------
REGIONAL MALLS - 1.3%
49,900 The Macerich Company 2,388,713
32,400 Simon Property Group, Inc. 1,666,008
- ------------------------------------------------------------------------------------------------------------------------------------
4,054,721
- ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE - 0.6%
200,000 MFA Mortgage Investments, Inc. 1,780,000
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICE - 12.1%
180,300 Arden Realty, Inc. 5,302,623
159,000 Brandywine Realty Trust 4,323,210
81,400 Highwoods Properties, Inc. 1,912,900
594,600 HRPT Properties Trust 5,951,946
140,700 Koger Equity, Inc. 3,252,984
158,900 Mack-Cali Realty Corporation 6,575,282
104,500 Maguire Properties, Inc. 2,588,465
95,900 Reckson Associates Realty Corporation 2,633,414
149,200 Trizec Properties, Inc. 2,425,992
36,300 Vornado Realty Trust 2,073,093
- ------------------------------------------------------------------------------------------------------------------------------------
37,039,909
- ------------------------------------------------------------------------------------------------------------------------------------
SHOPPING CENTERS - 2.5%
183,900 Cedar Shopping Centers Inc. 2,113,011
73,500 Federal Realty Investment Trust 3,056,865
107,100 New Plan Excel Realty Trust 2,501,856
- ------------------------------------------------------------------------------------------------------------------------------------
7,671,732
- ------------------------------------------------------------------------------------------------------------------------------------
STORAGE - 1.0%
77,700 Shurgard Storage Centers, Inc., Class A 2,905,980
- ------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Investment Trust Common Stocks (cost $87,511,041) 95,803,803
--------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST PREFERRED SECURITIES - 4.1% (3.0% OF TOTAL INVESTMENTS)
OFFICE - 1.5%
35,000 Brandywine Realty Trust, Series D, 6.750% 864,500
103,800 Crescent Real Estate Equities Company, Series A, 7.375% 2,073,924
64,000 Maguire Properties, Inc., Series A, 7.625% 1,545,600
- ------------------------------------------------------------------------------------------------------------------------------------
4,484,024
- ------------------------------------------------------------------------------------------------------------------------------------
MULTIFAMILY - 2.4%
48,000 Apartment Investment & Management Company, Series Q, 10.100% 1,257,600
103,000 Apartment Investment & Management Company, Series R, 10.000% 2,715,080
150,000 Apartment Investment & Management Company, Series U, 7.750% 3,510,000
- ------------------------------------------------------------------------------------------------------------------------------------
7,482,680
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 0.2%
24,900 Keystone Property Trust, Series E, 7.375% 627,480
- ------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Investment Trust Preferred Securities (cost $13,063,327) 12,594,184
--------------------------------------------------------------------------------------------------------------------
16
RATINGS*
-------------------
PRINCIPAL STATED
AMOUNT (000) DESCRIPTION(1) MOODY'S S&P MATURITY** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS(2) - 27.4% (19.7% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 1.3%
$ 351 Vought Aircraft Industries, Inc., Term Loan B Ba3 B+ 6/30/07 $ 354,522
1,113 Vought Aircraft Industries, Inc., Term Loan C Ba3 B+ 6/30/08 1,122,760
2,373 Vought Aircraft Industries, Inc., Term Loan X Ba3 B+ 12/31/06 2,394,151
- ------------------------------------------------------------------------------------------------------------------------------------
3,871,433
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 4.1%
2,500 Federal Mogul Corporation, Term Loan A (a) NR NR 2/24/04 2,312,500
2,871 HLIOperating Company, Inc., Term Loan B NR NR 6/03/09 2,930,044
2,000 Mark IV Industries, Inc., Term Loan B B1 BB- 6/23/11 2,031,250
1,500 Meridian Automotive Systems First Lien, Term Loan B2 B- 8/28/10 1,505,000
1,762 Metaldyne Company, LLC, Term Loan D B2 BB- 12/31/09 1,764,015
1,372 Tenneco Automotive Inc., Term Loan B B1 B+ 12/12/10 1,402,435
621 Tenneco Automotive Inc., Term Loan B-1 B1 B+ 12/12/10 634,266
- ------------------------------------------------------------------------------------------------------------------------------------
12,579,510
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 1.0%
2,963 Allied Waste North America, Inc., Term Loan B Ba2 BB 1/15/10 3,021,181
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.8%
2,488 Nextel Finance Company, Term Loan E Ba2 BBB 12/15/10 2,508,822
- ------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING & GLASS - 3.3%
1,900 Crown Cork & Seal Americas, Inc., Term Loan B-1 Ba3 NR 2/26/08 1,931,766
1,989 Graham Packaging Company L.P., Term Loan B (Tranche 1) B2 B 2/14/10 2,020,540
220 Stone Container Corporation, Term Loan C B2 NR 6/30/09 221,774
1,685 Stone Container Corporation, Term Loan B B2 NR 6/30/09 1,702,675
1,995 United States Can Company, Term Loan B2 B 1/15/10 2,018,691
2,000 Owens-Illinois Group, Inc, Term Loan C NR NR 4/01/08 2,010,417
- ------------------------------------------------------------------------------------------------------------------------------------
9,905,863
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.7%
260 Sensus Metering Systems Inc., Term Loan B-2 B2 B+ 12/17/10 262,323
1,730 Sensus Metering Systems Inc., Term Loan B-1 B2 B+ 12/17/10 1,748,821
- ------------------------------------------------------------------------------------------------------------------------------------
2,011,144
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.4%
1,221 Alimentation Couche-Tard Inc., Term Loan Ba2 BB 12/17/10 1,234,661
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 1.0%
2,985 Michael Foods, Inc., Term Loan B B1 B+ 11/20/10 3,034,439
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 1.1%
1,517 Alaris Medical Systems, Inc., Term Loan Ba1 BB 6/30/09 1,537,066
1,661 Kinetic Concepts, Inc., Term Loan B-1 B1 BB- 8/11/10 1,686,424
- ------------------------------------------------------------------------------------------------------------------------------------
3,223,490
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 1.6%
1,985 Beverly Enterprises, Inc., Term Loan B Ba3 BB 10/22/08 2,018,497
2,947 Triad Hospitals, Inc., Term Loan B Ba2 BB 9/30/08 2,994,024
- ------------------------------------------------------------------------------------------------------------------------------------
5,012,521
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 4.5%
2,900 Alliance Gaming Corporation, Term Loan B B1 BB- 9/05/09 2,931,417
3,980 24 Hour Fitness Worldwide, Inc., Term Loan B B1 B 7/01/09 4,004,875
2,940 Las Vegas Sands, Inc., Term Loan B NR B+ 6/04/08 2,981,651
2,000 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B NR NR 4/26/11 2,010,000
17
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS June 30, 2004 (Unaudited)
RATINGS*
-------------------
PRINCIPAL STATED
AMOUNT (000) DESCRIPTION(1) MOODY'S S&P MATURITY** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE (continued)
$ 1,825 Wyndham International, Inc., Term Loan II NR NR 4/01/06 $ 1,820,531
- ------------------------------------------------------------------------------------------------------------------------------------
13,748,474
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.7%
2,000 Conseco, Inc., Term Loan B3 BB- 6/22/10 2,038,750
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.6%
1,914 EaglePicher Incorporated, Term Loan B B2 B+ 8/07/09 1,930,019
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.6%
2,000 Charter Communications Operating, LLC, Term Loan B B2 B 4/07/11 1,994,091
1,781 Dex Media West, LLC, Term Loan B B1 BB- 3/09/10 1,817,752
2,000 Emmis Operating Company, Term Loan B Ba2 B+ 11/10/11 2,018,611
1,990 R.H. Donnelley Inc., Term Loan B-2 Ba3 NR 6/30/10 2,020,817
2,488 Rainbow Media Holdings LLC, Term Loan C Ba2 BB+ 3/31/09 2,503,557
1,934 Regal Cinemas Corporation, Term Loan B Ba3 BB- 11/10/10 1,959,783
1,995 WMG Acquisition Corp., Term Loan (DD, settling 7/08/04) B1 NR 2/27/11 2,027,419
- ------------------------------------------------------------------------------------------------------------------------------------
14,342,030
- ------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.7%
1,983 Amsted Industries Incorporated, Term Loan B B1 BB- 10/15/10 2,020,892
- ------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 1.0%
2,908 Laidlaw Inc., Term Loan B-1 Ba3 BB+ 6/19/09 2,962,691
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Rate Senior Loan Interests (cost $82,962,165) 83,445,920
--------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS SOVEREIGN DEBT - 29.7% (21.3% OF TOTAL INVESTMENTS)
ARGENTINA - 0.7%
3,355 Argentina Republic, 1.165% Caa1 CCC 8/03/12 2,239,107
- ------------------------------------------------------------------------------------------------------------------------------------
BRAZIL - 1.3%
824 Brazil Republic, 2.125% B2 B+ 4/15/09 748,655
600 Brazil Republic, 12.000% B2 B+ 4/15/10 642,000
2,052 Brazil Republic, 8.000% B2 B+ 4/15/14 1,885,018
790 Brazil Republic, 11.000% (DD1, settling 7/08/04) B2 B+ 8/17/40 745,562
- ------------------------------------------------------------------------------------------------------------------------------------
4,021,235
- ------------------------------------------------------------------------------------------------------------------------------------
BULGARIA - 1.9%
648 Bulgaria Republic, 2.750% Ba2 BBB- 7/28/12 648,023
1,100 Bulgaria Republic, 8.250% Ba2 BBB- 1/15/15 1,287,281
3,800 Bulgaria Republic, 2.000% Ba2 BBB- 7/28/24 3,835,252
- ------------------------------------------------------------------------------------------------------------------------------------
5,770,556
- ------------------------------------------------------------------------------------------------------------------------------------
CHILE - 1.1%
550 Chile Republic, 6.875% Baa1 A 4/28/09 605,495
1,030 Codelco Inc., 144A, 5.500% A2 A 10/15/13 1,024,953
600 Coldelco Inc., Reg S, 6.375% A2 A 11/30/12 635,987
1,100 Empresa Nacional del Petroleo, 144A, 4.875% Baa1 A 3/15/14 1,026,281
- ------------------------------------------------------------------------------------------------------------------------------------
3,292,716
- ------------------------------------------------------------------------------------------------------------------------------------
COLOMBIA - 1.2%
1,450 Columbia Republic, 9.750% Ba2 BB 4/23/09 1,547,875
396 Columbia Republic, 9.750% Ba2 BB+ 4/09/11 439,679
450 Columbia Republic, 10.750% Ba2 BB 1/15/13 481,500
600 Columbia Republic, 11.750% Ba2 BB 2/25/20 658,500
400 Columbia Republic, 10.375% Ba2 BB 1/28/33 390,000
- ------------------------------------------------------------------------------------------------------------------------------------
3,517,554
- ------------------------------------------------------------------------------------------------------------------------------------
18
RATINGS*
-------------------
PRINCIPAL STATED
AMOUNT (000) DESCRIPTION(1) MOODY'S S&P MATURITY** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
ECUADOR - 1.0%
$ 900 Ecuador Republic, Reg S, 12.000% NR CCC+ 11/15/12 $ 814,962
3,100 Ecuador Republic, Reg S, 8.000% NR CCC+ 8/15/30 2,197,125
- ------------------------------------------------------------------------------------------------------------------------------------
3,012,087
- ------------------------------------------------------------------------------------------------------------------------------------
EL SALVADOR - 0.8%
2,270 El Salvador Republic, Reg S, 8.500% Baa3 BB+ 7/25/11 2,456,145
- ------------------------------------------------------------------------------------------------------------------------------------
INDONESIA - 0.9%
3,000 Republic of Indonesia, 144A, 6.750% B2 B 3/10/14 2,685,000
- ------------------------------------------------------------------------------------------------------------------------------------
MALAYSIA - 0.6%
600 Malaysia Republic, 8.750% Baa1 A- 6/01/09 706,740
500 Malaysia Republic, 7.500% Baa1 A- 7/15/11 566,250
600 Petronas Capital Ltd., Reg S, 7.000% Baa1 A- 5/22/12 655,679
- ------------------------------------------------------------------------------------------------------------------------------------
1,928,669
- ------------------------------------------------------------------------------------------------------------------------------------
MEXICO - 2.5%
2,420 United Mexican States, 6.625% Baa2 BBB- 3/03/15 2,407,900
520 United Mexican States, 8.125% Baa2 BBB- 12/30/19 557,700
500 Conproca SA, Reg S, 12.000% Baa3 BBB- 12/16/10 622,758
1,000 Pemex Project F, Reg S, 7.375% Baa1 BBB- 12/15/14 1,025,000
1,200 Pemex Project, Funding Master Trust, 8.500% Baa1 BBB- 2/15/08 1,326,000
1,400 Petroleos Mexicanos, 9.500% Baa1 BBB- 9/15/27 1,610,000
- ------------------------------------------------------------------------------------------------------------------------------------
7,549,358
- ------------------------------------------------------------------------------------------------------------------------------------
PANAMA - 2.1%
650 Panama Republic, 9.625% Ba1 BB 2/08/11 723,125
1,260 Panama Republic, 9.375% Ba1 BB 1/16/23 1,291,500
3,400 Panama Republic, 9.375% Ba1 BB 4/01/29 3,782,500
800 Panama Republic, 8.125% Ba1 BB 4/28/34 724,000
- ------------------------------------------------------------------------------------------------------------------------------------
6,521,125
- ------------------------------------------------------------------------------------------------------------------------------------
PERU - 2.0%
1,300 Peru Republic, 9.125% Ba3 BB 2/21/12 1,339,000
900 Peru Republic, 9.875% Ba3 BB 2/06/15 945,000
800 Peru Republic, 8.375% Ba3 BB 5/03/16 748,000
546 Peru Republic, 5.000% Ba3 BB 3/07/17 476,487
1,950 Peru Republic, 4.500% Ba3 BB 3/07/17 1,583,696
1,150 Peru Republic, 8.750% Ba3 BB 11/21/33 1,015,450
- ------------------------------------------------------------------------------------------------------------------------------------
6,107,633
- ------------------------------------------------------------------------------------------------------------------------------------
PHILIPPINES - 1.4%
1,143 Philippines Republic, 8.375% Ba2 BB 2/15/11 1,134,428
2,600 Philippines Republic, 9.500% Ba2 BB 10/21/24 2,847,000
300 Philippines Republic, 10.625% Ba2 BB 3/16/25 312,000
- ------------------------------------------------------------------------------------------------------------------------------------
4,293,428
- ------------------------------------------------------------------------------------------------------------------------------------
POLAND - 0.2%
500 Poland Republic, 5.250% A2 BBB+ 1/15/14 488,750
- ------------------------------------------------------------------------------------------------------------------------------------
QATAR - 0.2%
500 Ras Laffan Liquefied Natural Gas Company Limited, 144A, 3.437% Baa1 A- 9/15/09 489,075
- ------------------------------------------------------------------------------------------------------------------------------------
RUSSIA - 2.9%
500 Russia Federation, Reg S, 8.750% Baa3 BB+ 7/24/05 528,268
1,800 Russia Federation, Reg S, 8.250% Baa3 BB+ 3/31/10 1,959,653
750 Russia Federation, Reg S, 11.000% Baa3 BB+ 7/24/18 949,479
2,330 Russia Federation, Reg S, 5.000% Baa3 BB+ 3/31/30 2,133,115
19
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS June 30, 2004 (Unaudited)
RATINGS*
-------------------
PRINCIPAL STATED
AMOUNT (000) DESCRIPTION(1) MOODY'S S&P MATURITY** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
RUSSIA (continued)
$ 3,200 Russia Ministry of Finance, 3.000% Ba2 BB+ 5/14/08 $ 2,808,854
800 Russia Ministry of Finance, 3.000% Ba1 BB+ 5/14/11 606,745
- ------------------------------------------------------------------------------------------------------------------------------------
8,986,114
- ------------------------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA - 1.8%
3,950 South Africa Republic, 9.125% Baa2 BBB 5/19/09 4,606,688
730 South Africa Republic, 6.500% Baa2 BBB 6/02/14 739,125
- ------------------------------------------------------------------------------------------------------------------------------------
5,345,813
- ------------------------------------------------------------------------------------------------------------------------------------
SOUTH KOREA - 0.4%
1,000 Export-Import Bank of Korea, 4.250% A3 A- 11/27/07 993,795
165 Export-Import Bank of Korea, 144A, 4.125% A3 A- 2/10/09 160,258
- ------------------------------------------------------------------------------------------------------------------------------------
1,154,053
- ------------------------------------------------------------------------------------------------------------------------------------
TUNISIA - 0.6%
1,700 Banque de Tunisie, 7.375% Baa2 BBB 4/25/12 1,861,500
- ------------------------------------------------------------------------------------------------------------------------------------
TURKEY - 1.5%
2,520 Turkey Republic, 12.375% B1 B+ 6/15/09 2,894,850
800 Turkey Republic, 11.750% B1 B+ 6/15/10 900,000
450 Turkey Republic, 9.000% B1 B+ 6/30/11 453,938
400 Turkey Republic, 11.000% B1 B+ 1/14/13 438,000
- ------------------------------------------------------------------------------------------------------------------------------------
4,686,788
- ------------------------------------------------------------------------------------------------------------------------------------
UKRAINE - 1.8%
1,288 Ukraine Government, Reg S, 11.000% B1 B 3/15/07 1,392,734
1,250 Ukraine Government, Reg S, 6.875% B1 B 3/04/11 1,188,095
1,600 Ukraine Government, 144A, 7.650% B1 B 6/11/13 1,532,000
1,300 Ukraine Government, 144A, 6.875% B1 B 3/04/11 1,228,500
- ------------------------------------------------------------------------------------------------------------------------------------
5,341,329
- ------------------------------------------------------------------------------------------------------------------------------------
URUGUAY - 1.2%
1,800 Uruguay Republic, 7.250% B3 B- 2/15/11 1,476,000
600 Uruguay Republic, 7.500% B3 B- 3/15/15 444,000
2,863 Uruguay Republic, 7.875% B3 B- 1/15/33 1,832,177
- ------------------------------------------------------------------------------------------------------------------------------------
3,752,177
- ------------------------------------------------------------------------------------------------------------------------------------
VENEZUELA - 1.6%
500 Venezuela Republic, 2.750% Caa1 B- 12/18/07 479,034
2,600 Venezuela Republic, 5.375% Caa1 B- 8/07/10 2,077,176
890 Venezuela Republic, 9.250% Caa1 B- 9/15/27 756,500
1,300 PDVSA Finance, 9.375% Caa1 B+ 11/15/07 1,426,750
- ------------------------------------------------------------------------------------------------------------------------------------
4,739,460
- ------------------------------------------------------------------------------------------------------------------------------------
Total Emerging Markets Sovereign Debt (cost $92,105,012) 90,239,672
--------------------------------------------------------------------------------------------------------------------
U.S. CONVERTIBLE BONDS - 1.2% (0.9% OF TOTAL INVESTMENTS)
FINANCIALS - 1.2%
5,000 Trizec Hahn Corporation, 3.000% Ba1 NR 1/29/21 3,643,750
- ------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Convertible Bonds (cost $3,572,008) 3,643,750
--------------------------------------------------------------------------------------------------------------------
U.S. CORPORATE BONDS - 5.3% (3.8% OF TOTAL INVESTMENTS)
HOTELS, RESTAURANTS & LEISURE - 2.9%
2,000 Aztar Corporation, 9.000% Ba3 B+ 8/15/11 2,225,000
2,150 Harrahs Entertainment, 7.875% Ba1 BB+ 12/15/05 2,276,313
2,000 MGM Mirage, Inc., 6.750% Ba1 BB+ 8/01/07 2,075,000
20
RATINGS*
-------------------
PRINCIPAL STATED
AMOUNT (000) DESCRIPTION(1) MOODY'S S&P MATURITY** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE (continued)
$ 2,000 Park Place Entertainment, 7.875% Ba2 BB- 12/15/05 $ 2,107,500
- ------------------------------------------------------------------------------------------------------------------------------------
8,683,813
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES- 2.4%
2,000 D.R. Horton, Inc., 7.500% Ba1 BB+ 12/01/07 2,170,000
2,000 KB Home, 8.625% Ba2 BB- 12/15/08 2,160,000
3,000 Standard Pacific Corporation, 6.500% Ba2 BB 10/01/08 3,015,000
- ------------------------------------------------------------------------------------------------------------------------------------
7,345,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Corporate Bonds (cost $16,114,415) 16,028,813
--------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 5.1% (3.6% OF TOTAL INVESTMENTS)
$ 15,418 State Street Bank Repurchase Agreement, 1.170%, dated 6/30/04, due 7/01/04, 15,418,067
============= repurchase price $15,418,569 collateralized by U.S. Treasury Bonds
--------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $15,418,067) 15,418,067
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $402,880,115) - 139.0% 422,790,796
--------------------------------------------------------------------------------------------------------------------
Other Assets less Liabilities - 0.5% 1,305,144
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (39.5)% (120,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 304,095,940
====================================================================================================================
(1) All percentages shown in the Portfolio of
Investments are based on net assets applicable to
Common shares unless otherwise noted.
(2) Senior Loans in which the Fund invests generally pay
interest at rates which are periodically adjusted by
reference to a base short-term, floating lending
rate plus a premium. These base lending rates are
generally (i) the lending rate offered by one or
more major European banks, such as the London
Inter-Bank Offered Rate ("LIBOR"), (ii) the prime
rate offered by one or more major United States
banks, or (iii) the certificate of deposit rate.
Senior Loans are generally considered to be
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.
* Ratings below Baa by Moody's Investor Service,Inc.
or BBB by Standard & Poor's Group are considered to
be below investment grade.
** Senior Loans in the Fund's portfolio generally are
subject to mandatory and/or optional prepayment.
Because of these mandatory prepayment conditions and
because there may be significant economic incentives
for a Borrower to prepay, prepayments of Senior
Loans in the Fund's portfolio may occur. As a
result, the actual remaining maturity of Senior
Loans held in the Fund's portfolio may be
substantially less than the stated maturities shown.
The Fund estimates that the actual average maturity
of the Senior Loans held in its portfolio will be
approximately 18-24 months.
(a) At or subsequent to June 30, 2004, this issue was
under the protection of the federal bankruptcy
court.
144A 144A securities are those which are exempt from
registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may only be
resold in transactions exempt from registration
which are normally those transactions with qualified
institutional buyers.
Reg S Regulation S allows U.S. companies to sell
securities to persons or entities located outside of
the U.S. without registering those securities with
the SEC. Specifically, Reg S provides a safe harbor
from the registration requirements of the Securities
Act for offers and sales of securities by both
foreign and domestic issuers that are made outside
the United States.
(DD) Security purchased on a delayed delivery basis.
(DD1) Portion of security purchased on a delayed delivery
basis.
NR Not rated.
See accompanying notes to financial statements.
21
Statement of
ASSETS AND LIABILITIES June 30, 2004 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $402,880,115) $ 422,790,796
Cash 244,335
Receivables:
Dividends 1,106,180
Interest 2,341,732
Investments sold 2,034,370
Reclaims 28,819
Other assets 16,052
- --------------------------------------------------------------------------------
Total assets 428,562,284
- --------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 4,113,389
Accrued expenses:
Management fees 199,911
Organization and offering costs 2,000
Other 132,317
FundPreferred share dividends payable 18,727
- --------------------------------------------------------------------------------
Total liabilities 4,466,344
- --------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 120,000,000
- --------------------------------------------------------------------------------
Net assets applicable to Common shares $ 304,095,940
================================================================================
Common shares outstanding 20,145,123
================================================================================
Net asset value per Common share outstanding
(net assets applicable to
Common shares, divided by Common
shares outstanding) $ 15.10
================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
- --------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 201,451
Paid-in surplus 284,925,664
Undistributed (Over-distribution of) net investment income (4,733,384)
Accumulated net realized gain from investments 3,791,528
Net unrealized appreciation of investments 19,910,681
- --------------------------------------------------------------------------------
Net assets applicable to Common shares $ 304,095,940
================================================================================
Authorized shares:
Common Unlimited
FundPreferred shares Unlimited
================================================================================
See accompanying notes to financial statements.
22
Statement of
OPERATIONS Six Months Ended June 30, 2004 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $86,717) $ 4,262,704
Interest 5,949,261
Fees 30,985
- --------------------------------------------------------------------------------
Total investment income 10,242,950
- --------------------------------------------------------------------------------
EXPENSES
Management fees 1,909,848
FundPreferred shares - auction fees 149,180
FundPreferred shares - dividend disbursing agent fees 6,885
Shareholders' servicing agent fees and expenses 230
Custodian's fees and expenses 75,125
Trustees' fees and expenses 5,847
Professional fees 53,397
Shareholders' reports - printing and mailing expenses 68,113
Stock exchange listing fees 6,080
Investor relations expense 28,489
Other expenses 72,961
- --------------------------------------------------------------------------------
Total expenses before custodian fee credit and
expense reimbursement 2,376,155
Custodian fee credit (8,621)
Expense reimbursement (679,057)
- --------------------------------------------------------------------------------
Net expenses 1,688,477
- --------------------------------------------------------------------------------
Net investment income 8,554,473
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investments 3,805,548
Change in net unrealized appreciation of investments 32,666
- --------------------------------------------------------------------------------
Net gain from investments 3,838,214
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (705,951)
From accumulated net realized gains from investments --
- --------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to FundPreferred shareholders (705,951)
- --------------------------------------------------------------------------------
Net increase in net assets applicable to
Common shares from operations $ 11,686,736
================================================================================
See accompanying notes to financial statements.
23
Statement of
CHANGES IN NET ASSETS (Unaudited)
FOR THE
PERIOD 9/25/03
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS)
6/30/04 THROUGH 12/31/03
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 8,554,473 $ 3,570,123
Net realized gain from investments 3,805,548 253,308
Change in net unrealized appreciation of investments 32,666 19,878,015
Distributions to FundPreferred shareholders:
From net investment income (705,951) (148,176)
From accumulated net realized gains from investments -- (14,008)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares
from operations 11,686,736 23,539,262
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (12,384,511) (3,529,495)
From accumulated net realized gains from investments -- (345,168)
Tax return of capital -- (249,105)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (12,384,511) (4,123,768)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares -- 287,415,270
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 411,807 85,737
FundPreferred shares offering costs (4,868) (2,630,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from
capital share transactions 406,939 284,871,007
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares (290,836) 304,286,501
Net assets applicable to Common shares at the beginning of period 304,386,776 100,275
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $304,095,940 $304,386,776
====================================================================================================================================
Undistributed (Over-distribution of) net investment income
at the end of period $ (4,733,384) $ (197,395)
====================================================================================================================================
See accompanying notes to financial statements.
24
Statement of
CASH FLOWS Six Months Ended June 30, 2004 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS $ 11,686,736
Adjustments to Reconcile the Net Increase in
Net Assets Applicable to Common Shares from Operations
to Net Cash Used in Operating Activities:
Purchase of investment securities (109,086,345)
Short-term investment securities, net (1,567,068)
Proceeds from disposition of investment securities 113,448,956
Accretion/Amortization of discounts and premiums, net 178,106
Decrease in dividends receivable 19,346
Decrease in interest receivable 277,379
Decrease in receivable from investments sold 536,821
Increase in reclaims receivable (28,819)
Increase in other assets (16,052)
Decrease in payable for investments purchased (2,444,022)
Decrease in management fees payable (6,453)
Increase in FundPreferred share dividends payable 13,959
Increase in other liabilities 34,641
Change in net unrealized appreciation of investments (32,666)
Net realized gain from investments (3,805,548)
Net realized gain from paydowns (45,531)
Capital gain and return of capital distributions from investments 1,074,344
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,237,784
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares:
Net proceeds from shares issued to shareholders due to reinvestment of distributions 411,807
Cash distributions paid to shareholders (12,384,511)
Organization and offering costs payable (160,875)
Net proceeds from sale of FundPreferred shares (4,868)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (12,138,447)
- ------------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (1,900,663)
Cash at the beginning of period 2,144,998
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AT THE END OF PERIOD $ 244,335
====================================================================================================================================
See accompanying notes to financial statements.
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.
Prior to the commencement of operations, the Fund had no operations other than
those related to organizational matters, the initial capital contribution of
$100,275 by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Nuveen Investments, Inc. ("Nuveen"), and the recording of the
organization expenses ($11,500) and their reimbursement by Nuveen Investments,
LLC, also a wholly owned subsidiary of Nuveen.
The Fund seeks to provide high current income and total return by investing
primarily in a portfolio of dividend-paying common stocks, securities issued by
Real Estate Investment Trusts ("REITs"), debt securities and other non-equity
instruments that are issued by, or that are related to, government,
government-related and supernational issuers located, or conducting their
business, in emerging market countries ("emerging markets sovereign debt") and
senior loans.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. The prices of fixed-income securities and senior
loans are generally provided by an 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 for fixed-income securities and
senior loans, the pricing service establishes fair market value using a wide
range of market data including yields or prices of securities and senior loans
of comparable quality, type of issue, coupon, maturity and rating, indications
of value from security dealers, evaluations of anticipated cash flows or
collateral, general market conditions and other information and analysis,
including the obligor's credit characteristics considered relevant by the
pricing service. If it is determined that market prices for an investment are
unavailable or inappropriate, the Board of Trustees of the Fund, or its
designee, may establish a fair value for the investment. Short-term securities
are valued at amortized cost, which approximates market value.
The senior loans in which the Fund invests are not listed on an organized
exchange and the secondary market for such investments may be less liquid
relative to markets for other fixed income securities. Consequently, the value
of a senior loan, 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. Realized gains and losses from securities
transactions are determined on the specific identification method. Investments
purchased on a when-issued or delayed delivery basis may have extended
settlement periods. Any investments so purchased are subject to market
fluctuation during this period. The Fund maintains liquid assets with a current
value at least equal to the amount of the when-issued and delayed delivery
purchase commitments. At June 30, 2004, the Fund had outstanding delayed
delivery purchase commitments of $2,266,765.
26
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities,
when information is available. Interest income, which includes the amortization
of premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis. Interest income also includes paydown gains and
losses on senior loans. Fees consist primarily of senior loan amendment fees.
Amendment fees are earned as compensation for evaluating and accepting changes
to the original senior loan agreement.
Income Taxes
The Fund intends to distribute all income and capital gains to shareholders and
to otherwise comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies. Therefore, no federal income tax
provision is required. Net realized capital gains and ordinary income
distributions made by the Fund are subject to federal taxation.
Dividends and Distributions to Common Shareholders
The Fund intends to make monthly cash distributions to Common Shareholders of a
stated dollar amount (stated in terms of a fixed cents per Common Share dividend
rate) ("Managed Distribution Policy"). The Fund seeks to maintain a stable
dividend level, subject to approval and oversight by the Fund's Board of
Trustees. Distributions will be made only after paying any accrued dividends or
making any redemption or liquidation payments to FundPreferred shares, if any,
and interest and required principal payments on Borrowings, if any. Under a
Managed Distribution Policy, if, for any monthly distribution, net investment
income and net realized capital gain were less than the amount of the
distribution, the difference would be distributed from the Fund's assets. The
final determination of the source of all distributions for the year will be made
after the end of the year.
With respect to the REIT securities held in the Fund's portfolio of investments,
it is the Fund's policy is to pass through to its shareholders, each month,
substantially all REIT distributions it receives. REIT distributions received by
the Fund are generally comprised of investment income, long-term and short-term
capital gains, and a return of REIT capital. The actual character of amounts
received during the period is not known until after the fiscal year-end. For the
twelve months ended December 31, 2003, the character of distributions to the
Fund from the REITs was 68.53% ordinary income, 9.62% long-term and short-term
capital gains, and 21.85% return of REIT capital.
For the six months ended June 30, 2004, the Fund applied a percentage estimate
for the breakdown of income type, 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 will adjust 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. For the fiscal period ended December 31, 2003, the Fund applied
the actual character of distributions reported by the REITs in which the Fund
invests to its receipts from the REITS. If a REIT held in the portfolio of
investments did not report the actual character of its distributions during the
period, the Fund treated the distributions as ordinary income.
During the six months ended June 30, 2004, the Fund treated each distribution to
its shareholders as being entirely from net investment income. The Fund will
recharacterize those distributions as being from ordinary income, long-term and
short-term capital gains, and return of capital, if necessary, at the beginning
of the subsequent calendar year. Consequently, the financial statements reflect
an over-distribution of net investment income as of June 30, 2004.
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.
FundPreferred Shares
Effective November 21, 2003, the Fund issued 2,400 Series T and 2,400 Series W,
$25,000 stated value FundPreferred shares. The dividend rate on each Series may
change every seven days, as set pursuant to a dutch auction process by the
auction agent, and is payable at or near the end of each rate period.
Derivative Financial Instruments
The Fund may use derivatives or other transactions for the purpose of hedging
the portfolio's exposure to common stock risk, high yield credit risk, foreign
currency exchange risk and the risk of increases in interest rates. Although the
Fund is authorized to invest in such financial instruments, and may do so in the
future, it did not make any such investment during the six months ended June 30,
2004.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
27
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Organization and Offering Costs
Nuveen Investments, LLC has agreed to reimburse all organization expenses
(approximately $11,500) and pay all Common share offering costs (other than the
sales load) that exceed $.03 per Common share. The Fund's share of Common share
offering costs of $603,180 was recorded as a reduction of the proceeds from the
sale of Common shares.
Costs incurred by the Fund in connection with its offering of FundPreferred
shares ($2,634,868) were recorded as a reduction to paid-in surplus.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
During the six months ended June 30, 2004, 26,242 Common shares were issued to
shareholders due to reinvestment of distributions.
During the period September 25, 2003 (commencement of operations) through
December 31, 2003, 20,106,000 Common shares and 4,800 FundPreferred shares were
sold. In addition, 5,881 Common shares were issued to shareholders due to
reinvestment of distributions during the period September 25, 2003 (commencement
of operations) through December 31, 2003.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) during the
six months ended June 30, 2004, aggregated $109,086,345 and $113,448,956,
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 treatment of paydown gains and losses on senior loans,
recognition of premium amortization on debt securities, recognition of income on
REIT securities, and timing differences in recognizing certain gains and losses
on security transactions.
At June 30, 2004, the cost of investments were as follows:
- --------------------------------------------------------------------------------
Cost of investments $403,503,058
================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments
at June 30, 2004, were as follows:
- --------------------------------------------------------------------------------
Gross unrealized:
Appreciation $23,989,382
Depreciation (4,701,644)
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments $19,287,738
================================================================================
28
The tax components of undistributed net ordinary income and net realized gains
at December 31, 2003, the Fund's last fiscal year end, were as follows:
- --------------------------------------------------------------------------------
Undistributed net ordinary income * $--
Undistributed net long-term capital gains --
================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
The tax character of distributions paid during the period September 25, 2003
(commencement of operations) through December 31, 2003, the Funds last fiscal
period, was designated for purposes of the dividends paid deduction as follows:
- --------------------------------------------------------------------------------
Distributions from net ordinary income * $3,899,231
Distributions from net long-term capital gains 132,847
Tax return of capital 249,105
================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
The Fund designated as a long-term capital gain dividend, pursuant to Internal
Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and
profits of the Fund related to net capital gain to zero for the tax period ended
December 31, 2003.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Fund's investment management agreement with the Adviser, the Fund pays
an annual management fee, payable monthly, at the rates set forth below, which
are based upon the average daily managed assets of the Fund. "Managed Assets"
means the average daily net assets of the Fund including assets attributable to
FundPreferred shares and the principal amount of borrowings, if any.
AVERAGE DAILY MANAGED ASSETS MANAGEMENT FEE
- --------------------------------------------------------------------------------
For the first $500 million .9000%
For the next $500 million .8750
For the next $500 million .8500
For the next $500 million .8250
For Managed Assets over $2 billion .8000
================================================================================
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with NWQ Investment Management Company, LLC
("NWQ"), Security Capital Research & Management Incorporated ("Security
Capital"), Symphony Asset Management, LLC ("Symphony") and Wellington Management
Company, LLP ("Wellington"). Nuveen owns a controlling interest in NWQ while key
management of NWQ owns a non-controlling minority interest. Symphony is an
indirect wholly owned subsidiary of Nuveen. NWQ manages the portion of the
Fund's investment portfolio allocated to dividend-paying common stocks including
American Depository Receipts ("ADRs"). Security Capital manages the portion of
the investment portfolio allocated to securities issued by real estate companies
including REITs. Symphony manages the portion of the Fund's investment portfolio
allocated to senior loans. Wellington manages the portion of the Fund's
investment portfolio allocated to emerging markets sovereign debt. NWQ, Security
Capital, Symphony and Wellington are compensated for their services to the Fund
from the management fee paid to the Adviser.
The Fund pays no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its officers, all of whom receive remuneration
for their services to the Fund from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
As approved by the Board of Trustees, a complex-wide fee schedule for all Funds
managed by the Adviser and its affiliates went into effect on August 1, 2004.
The implementation of this complex-wide fee schedule is expected to result in a
marginal immediate decrease in the rates (approximately .004%) at which
management fees are to be paid by the Funds. As assets in the Nuveen Fund
complex grow, the management fee rates to be paid by the Funds will decrease
further. Under no circumstances will the complex-wide fee schedule result in an
increase in the rates at which management fees would be paid by the Funds if the
complex-wide fee schedule were not implemented.
29
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
For the first eight years of the Fund's operations, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily Managed Assets, for fees
and expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING
SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------------------------------------------------
2003* .32% 2008 .32%
2004 .32 2009 .24
2005 .32 2010 .16
2006 .32 2011 .08
2007 .32
================================================================================
*From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond September 30, 2011.
Sub-Adviser Acquisition
On November 24, 2003, Banc One Investment Advisors Corporation, an indirect,
wholly-owned subsidiary of Bank One Corporation acquired Security Capital.
Pursuant to the Investment Company Act of 1940, the change in ownership of
Security Capital caused the existing sub-advisory agreement to terminate, and
shareholders of the Fund were required to approve a new sub-advisory agreement
with Security Capital. At the Fund's annual shareholder meeting on January 20,
2004, shareholders approved the new sub-advisory agreement.
On July 1, 2004, Bank One Corporation was merged with JPMorgan Chase & Co. As a
result of the merger, Security Capital became part of JPMorgan Fleming Asset
Management. JPMorgan Fleming Asset Management is the marketing name for the
asset management business of JPMorgan Chase & Co. Those businesses include
JPMorgan Investment Management Inc. and its affiliates, including, without
limitation, Banc One Investment Advisors Corporation, Banc One High Yield
Partners, LLC, Security Capital Research & Management Incorporated, and JPMorgan
Alternative Asset Management, Inc. As the merger was not deemed to cause a
change in control of the Fund's Sub-Adviser, shareholder approval of a new
sub-advisory agreement was not necessary.
6. COMMITMENTS
Pursuant to the terms of certain of the variable rate senior loan agreements,
the Fund may have unfunded senior loan commitments. The Fund will maintain with
its custodian, cash, liquid securities and/or liquid senior loans having an
aggregate value at least equal to the amount of unfunded senior loan
commitments. At June 30, 2004, there were no such unfunded senior loan
commitments.
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, 2004, there were
no such outstanding participation commitments.
8. SUBSEQUENT EVENT - DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Fund declared a dividend distribution of $.1025 per Common share which was
paid on August 2, 2004, to shareholders of record on July 15, 2004.
30
Financial
HIGHLIGHTS (Unaudited)
31
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations
-------------------------------------------------------------------
Distributions Distributions
from Net from
Beginning Net Investment Capital
Common Realized/ Income to Gains to
Share Net Unrealized FundPreferred FundPreferred
Net Asset Investment Investment Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total
========================================================================================================
Period Ended 12/31:
2004(c) $15.13 $.42 $ .21 $(.04) $ -- $ .59
2003(b) 14.33 .18 1.01 (.01) -- 1.18
========================================================================================================
Less Distributions Total Returns
--------------------------------------------- --------------------
Based
Net Offering on
Investment Capital Costs and Ending Common
Income to Gains to Tax FundPreferred Common Based Share
Common Common Return Share Share Ending on Net
Share- Share- of Underwriting Net Asset Market Market Asset
holders holders Capital Total Discounts Value Value Value** Value**
====================================================================================================================================
Period Ended 12/31:
2004(c) $(.62) $ -- $ -- $(.62) $ -- $15.10 $13.30 (11.43)% 3.88%
2003(b) (.18) (.02) (.01) (.21) (.17) 15.13 15.65 5.76 7.04
====================================================================================================================================
Ratios/Supplemental Data
-----------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
----------------------------- --------------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
==========================================================================================================================
Period Ended 12/31:
2004(c) $304,096 1.55%* 5.14%* 1.10%* 5.59%* 27%
2003(b) 304,387 1.26* 4.51* .87* 4.89* 28
==========================================================================================================================
FundPreferred Shares at End of Period
------------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
=======================================================================
Period Ended 12/31:
2004(c) $120,000 $25,000 $88,353
2003(b) 120,000 25,000 88,414
=======================================================================
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in stock price per share. Total Return on Common Share Net Asset
Value is the combination of reinvested dividend income at net asset value,
reinvested capital gains distributions at net asset value, if any, and
changes in Common share net asset value per share. 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, 2004.
See accompanying notes to financial statements.
32-33 SPREAD
Reinvest Automatically
EASILY AND CONVENIENTLY
SIDEBAR TEXT: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET
UP YOUR REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
34
Other Useful
INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling Nuveen Investments at (800) 257-8787; and (ii)
on the Commission's website at http://www.sec.gov.
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 (including change in NAV and reinvested dividends) that
would have been necessary on an annual basis to equal the investment's actual
performance over the time period being considered.
NET ASSET VALUE (NAV): A Fund's NAV is calculated by subtracting the liabilities
of 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 DIRECTORS/
TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
FUND MANAGER
Nuveen Institutional
Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
The Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the six months ended June 30, 2004. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
35
Nuveen Investments:
SERVING Investors
For GENERATIONS
Photo of: 2 women looking at a photo album.
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS.
Managing $100 billion in assets, Nuveen Investments offers access to a number of
different asset classes and investing solutions through a variety of products.
Nuveen Investments markets its capabilities under four distinct brands: Nuveen,
a leader in tax-free investments; NWQ, a leader in value-style equities;
Rittenhouse, a leader in growth-style equities; and Symphony, a leading
institutional manager of market-neutral alternative investment portfolios.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers and for
a prospectus, where applicable, talk to your financial advisor, or call us at
(800) 257-8787. Please read the information carefully before you invest.
Learn more
about Nuveen Funds at
WWW.NUVEEN.COM/ETF
o Share prices
o Fund details
o Daily financial news
o Investor education
o Interactive planning tools
Logo: Nuveen Investments
ESA-B-0604D
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.
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The registrant's audit committee, as of the end of the reporting period, June
30, 2004, was comprised of the following individuals: Robert P. Bremner; Jack B.
Evans; and William J. Schneider.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable at this time.
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 at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable at this time.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In the event of a vacancy on the Board, the nominating and governance committee
receives suggestions from various sources, including shareholders, as to
suitable candidates. Suggestions should be sent in writing to Lorna Ferguson,
Vice President for Board Relations, Nuveen Investments, 333 West Wacker Drive,
Chicago, IL 60606. The nominating and governance committee sets appropriate
standards and requirements for nominations for new directors and reserves the
right to interview all candidates and to make the final selection of any new
directors.
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 registrant's last
fiscal half-year (the registrant's second fiscal half-year in the case
of an annual 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 9, 2004
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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 9, 2004
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By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(Principal Financial Officer)
Date: September 9, 2004
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* Print the name and title of each signing officer under his or her signature.